LSL Property Services plc
is a leading provider of residential
property services in three key markets:
estate agency, financial services,
and surveying and valuation services.
L
S
L
P
r
o
p
e
r
t
y
S
e
r
v
c
e
s
p
c
A
n
n
u
a
l
i
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
9
Annual Report
and Accounts 2019
Annual Report and Accounts 2019
Contents
Overview, Strategic Report and Directors’ Report
Overview
1
Highlights 2019
2
LSL Today
4 Milestones
5
8
Chairman’s Statement
Group Chief Executive’s Review
Strategic Report
16 Strategy
17 Business Model
18 Markets
21 Business Review - Estate Agency Division
24 Business Review - Financial Services Division
26 Business Review - Surveying Division
27 Financial Review
30 Stakeholder Engagement Arrangements
32 Principal Risks and Uncertainties
42 Corporate Social Responsibility
52 The Board
Directors’ Report (including Corporate Governance
Reports)
55
Statement of Directors’ Responsibilities in Relation to the
Group Financial Statements
56 Report of the Directors
61 Corporate Governance Report
75 Audit & Risk Committee Report
87 Directors’ Remuneration Report
Financial Statements
116 Independent Auditor’s Report to the Members of LSL
Property Services plc
126 Group Income Statement
127 Group Statement of Comprehensive Income
128 Group Balance Sheet
129 Group Statement of Cash-Flows
130 Group Statement of Changes in Equity
131 Notes to the Group Financial Statements
183 Statement of Directors’ Responsibilities in Relation to the
Parent Company Financial Statements
184 Parent Company Balance Sheet
185 Parent Company Statement of Cash-Flows
186 Parent Company Statement of Changes in Equity
187 Notes to the Parent Company Financial Statements
Other Information
201 Definitions
206 Shareholder Information (including forward looking
statements information)
i
i
w
e
v
e
R
s
s
e
n
s
u
B
d
n
a
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
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. Further information about
forward looking statements can be found in the Shareholder
Information section on page 206.
Segmental Reporting
To reflect the increased importance of LSL’s Financial
Services businesses, the LSL Board updated the Group’s
segmental reporting effective from 1st January 2019. From
1st January 2019 LSL reports three segments: Estate
Agency; Financial Services; and Surveying and Valuation
Services. The Financial Services segment incorporates all
LSL’s Financial Services businesses. The Estate Agency
segment primarily incorporates the results from the Estate
Agency networks (Your Move, Reeds Rains, LSLi and
Marsh & Parsons) and Asset Management. The Surveying
and Valuation Services segment did not change.
Highlights 2019
Positive Group financial performance
Group
£311.1m
Group Revenue
(2018: £324.6m)
£51.9m
Group Adjusted EBITDA
(2018: £41.6m)
£13.2m
Net exceptional cost
(2018: cost of £3.0m)
£37.0m
Group Underlying Operating Profit
(2018: £35.9m)
11.9%
Group Underlying Operating Margin
(2018: 11.1%)
£19.7m
Group Operating Profit
(2018: £25.4m)
£16.0m
Profit before tax
(2018: £23.1m)
28.0p
Adjusted Basic Earnings Per Share
(2018: 27.2p)
11.2p
Full year dividend per Share5
(2018: 10.9p)
Estate Agency
Financial Services
Surveying and Valuation Services
£14.5m
Underlying Operating Profit
(2018: £11.1m)
£11.6m
Underlying Operating Profit
(2018: £9.5m)
£16.3m
Underlying Operating Profit
(2018: £20.4m)
Group Revenue – £m
Group Underlying Operating Profit¹ – £m
Group Underlying Operating Margin – %
Group Adjusted EBITDA2 – £m
Group operating profit – £m
Profit before tax – £m
Net exceptional cost – £m
Basic Earnings Per Share (EPS) – pence
Adjusted Basic Earnings Per Share (EPS)3 – pence
Net Bank Debt4 at 31st December – £m
Final proposed dividend per Share5 – pence
Full year dividend per Share5 – pence
2019
311.1
37.0
11.9
51.9
19.7
16.0
(13.2)
12.6
28.0
41.9
7.2
11.2
2018 % change
324.6
35.9
11.1
41.6
25.4
23.1
(3.0)
17.4
27.2
32.1
6.9
10.9
-4
+3
+25
-22
-31
-28
+3
+30
+4
+3
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). Excluding the impact of IFRS 16 Group Underlying Operating Profit in 2019 was £36.2m
2 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation of right of use assets, plant, property and equipment (as defined in Note 5 to the Financial
Statements). Excluding the impact of IFRS 16, Group Adjusted EBITDA in 2019 was £40.9m
3 Refer to Note 10 to the Financial Statements for the calculation
4 Refer to Note 32 to the Financial Statements for the calculation
5 Assuming final intended 2019 proposed dividend is approved
c116224_BOOK.indb 1
c116224_BOOK.indb 1
01
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview LSL Today
LSL has established leading positions in its market segments
Estate Agency Division
Residential Sales and Lettings
LSL is one of the largest estate agency networks in the UK¹. It has strong
established high street estate agency brands. These include:
Your Move, with 89 owned branches and 80
independently owned franchised branches has
national coverage;
Reeds Rains, is a predominantly northern
based network of 55 owned branches and 50
independently owned franchised branches;
Marsh & Parsons, operating out of 30
branches, a leading London premium brand
estate agency which brings coverage to prime
and outer Central London;
LSLi, nine estate agency companies with a
combined network of 57 owned branches and
two independently owned franchises based in
the South East of England; and owned by the
holding company LSLi;
LSL Land & New Homes, a land and new
homes business that provides a complete
range of specialist services for housebuilders,
developers and investors of all sizes; and
Homefast, provides conveyancing panel
management and support services to LSL’s
Residential Sales and Lettings branches and
customers.
All LSL’s Residential Sales and Lettings businesses are members of The
Property Ombudsman Scheme (TPOS), which operates a residential sales
and lettings code of practice approved by the Trading Standards Institute (TSI)
under its Consumer Codes Approval Scheme (CCAS).
Asset Management
LSL’s asset management companies are market leaders in the management
of the sale of residential properties on behalf of corporate clients and
property investors. LSL’s three asset management companies are:
LSL Corporate Client Department operates
a repossessions asset management business
and a property management business for multi-
property landlords;
St Trinity Asset Management specialises in
repossession property sales; and
Templeton LPA a Law of Property Act fixed
charge receiver.
LSL is a leading provider of residential property
services to its key customer groups. Services
include: residential sales, lettings, land and
new homes, surveying, conveyancing support,
and mortgage and non-investment insurance
brokerage and intermediary network services.
Services to mortgage lenders include:
valuations and panel management services,
asset management and property management
services.
To reflect the increased importance of LSL’s
Financial Services businesses over the last five
years, LSL updated the Group’s segmental
reporting effective from 1st January 2019. Since
2019, LSL has been reporting three segments:
Estate Agency, Financial Services, and Surveying
and Valuation Services.
Information included in this section of this Report
is as at 31st December 2019.
For further information on all LSL brands
please visit lslps.co.uk
See also Note 35 to the Financial Statements for information
relating to LSL’s subsidiaries and joint ventures.
02
c116224_BOOK.indb 2
c116224_BOOK.indb 2
25/03/2020 13:50
25/03/2020 13:50
03
Financial Services Division
Surveying and Valuation Services Division
e.surv Chartered Surveyors is one of the
country’s largest providers of property risk and
residential valuation services4. With a network
of over 600 surveyors, e.surv is the UK’s largest
employer of RICS registered surveyors5. They
use industry-leading technology to provide a
range of products and services to a customer
base that includes lenders, intermediaries,
social housing entities, estate agents, and
consumers.
Walker Fraser Steele is 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.
LSL’s Financial Services businesses provide services relating to the
arrangement of mortgages and non-investment insurance products
across three main sectors.
Intermediary Networks
PRIMIS is the trading style of LSL’s mortgage and
non-investment intermediary networks that are all
authorised and regulated by the FCA. PRIMIS is a
trading style of First Complete, Advance Mortgage
Funding (formerly trading as Pink Home Loans)
and Personal Touch Financial Services.
With 8782 affiliated authorised firms, PRIMIS’
combined appointed representative network is the
second largest in the UK3.
The Mortgage Alliance is a trading style
of First Complete and Advance Mortgage
Funding and distributes mortgages and financial
services products to mortgage intermediaries
who are directly authorised and regulated by
the FCA.
New-build Home Channel
Mortgages First and RSC New Homes
are both appointed representatives of PRIMIS
(First Complete) and specialise in arranging
mortgages and non-investment insurance
products to customers financing the purchase
of new-build properties.
Insurance First is an appointed representative
of PRIMIS (First Complete) and specialises in
arranging non-investment insurance products
for customers purchasing new-build property.
Direct to Consumer Channel
Embrace Financial Services is an appointed
representative of PRIMIS (First Complete) and
employs financial consultants who deliver
services to customers of the Group’s Estate
Agencies and third party introducers.
Linear Financial Solutions is an appointed
representative of PRIMIS (Advanced Mortgage
Funding) and provides financial consultants
who are based in the branches of independent
estate agents.
First2Protect is a specialist business
arranging household insurance for customers
of LSL’s Estate Agency Division and third party
introducers.
Mortgage Gym – included within the Financial
Services segment is LSL’s investment in Mortgage
Gym, which is a digital marketplace that matches
mortgage borrowers with mortgage lenders.
02
4 The market position is based on LSL’s own calculations and assessment using publicly available data
5 LSL sources/data analysis
c116224_BOOK.indb 3
c116224_BOOK.indb 3
03
25/03/2020 13:50
25/03/2020 13:50
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 FCA Register
3
Which Network – network performance figures for January 2020 showing the combined numbers for PRIMIS (First Complete, Advance Mortgage Funding and Personal
Touch Financial Services)
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Milestones
2015
Acquisition of Thomas Morris
in Estate Agency.
Completed 30 lettings book
acquisitions in Estate Agency.
2017
Extension of contract to supply UK
residential surveying and valuation
services to Barclays Bank PLC.
Extension of contract to supply UK
residential surveying and valuation
services to Santander UK plc.
Surveying
and Valuation
Services
Division
Estate
Agency
Division
Financial
Services
Division
Commencement of
reporting three segments:
Estate Agency, Financial
Services, and Surveying
and Valuation Services.
Extension of contract
to supply UK residential
surveying and valuation
services to a major high
street bank.
2016
Extension of banking facility
to May 2020.
Acquisition of Group First
in Financial Services.
2018
Extension of banking facility
to May 2022.
Acquisition of Personal Touch
Financial Services and RSC
New Homes in Financial Services.
Launch of PRIMIS brand
in Financial Services.
Commencement of new
Lloyds Bank plc surveying
and valuation services contract.
‘Toolbox’ software platform
(acquired with PTFS in 2018)
rolled out to all LSL’s Financial
Services companies.
Completion of the ‘ways of
working programme’ across
Your Move and Reeds Rains,
with the creation of 144
keystone branches and
the franchising of 39 branches
in Estate Agency.
2019
04
04
c116224_BOOK.indb 4
c116224_BOOK.indb 4
25/03/2020 13:50
25/03/2020 13:50
0505
Chairman's Statement
Introduction
The Group delivered a highly resilient
Group Revenue and Underlying Operating
Profit performance in 2019 in the
context of challenging residential market
conditions and the introduction of the
tenant fee ban on 1st June 2019. This is a
strong operational performance, as the
successful execution of the stated Group
strategy delivered tangible benefits to
the Group’s financial performance. We
continue to deliver a range of proactive
strategic and operational initiatives across
our business lines, demonstrating the
breadth of opportunity across the Group.
We are pleased with the market share
performance of the Your Move and Reeds
Rains keystone branch networks in 2019.
Estate Agency Division franchise income
increased materially in 2019, following the
successful franchising of 39 Your Move and
Reeds Rains branches from the previous
owned networks.
Group Underlying Operating Profit1 was up
3% to £37.0m (2018: £35.9m), and Group
Adjusted EBITDA2 was up 25% to £51.9m
(2018: £41.6m). Excluding the impact of
IFRS 16, Group Underlying Operating Profit
was 1% ahead of prior year at £36.2m
(2018: £35.9m) and Group Adjusted
EBITDA was down 2% to £40.9m (2018:
£41.6m). Following decisive and early action
to restructure the Your Move and Reeds
Rains branch networks, Group Revenue
increased by 4% on a like-for-like basis,
which was a highly resilient performance
in the context of challenging residential
market conditions during 2019.
Estate Agency Division
In the Estate Agency Division, the changes
to the structure of the Your Move and
Reeds Rains estate agency branch
networks and operations announced
on 5th February 2019, has delivered
a material improvement in financial
performance of the Estate Agency Division,
ahead of expectations. The successful
implementation of this large and complex
project demonstrates LSL’s commitment
and ability to evolve our business model
to adapt to changes in the landscape and
customer demands in order to drive value
for our Shareholders.
We have transformed the Your Move
and Reeds Rains businesses into a
combined branch network of 144 keystone
branches. All central support functions
have been simplified and streamlined to
provide more cost effective support to the
smaller network of much larger keystone
branches with both brands benefiting from
new investment in people, systems, and
marketing.
We are pleased to have created a branch
network platform that is already benefiting
from its larger scale, enabling us to invest
in people and technology with the aim of
providing enhanced levels of service to
our customers whilst ensuring operational
performance is optimised by competing
more effectively in local markets.
Financial Services Division
In the Financial Services Division, we
delivered further strong growth. The Group
identified Financial Services as a major
opportunity some time ago, since which
time LSL’s position has strengthened
consistently, and we are now an
established leading distributor of mortgage
and non-investment insurance products.
The Financial Services Division generated
£11.6m of Underlying Operating Profit
in the 2019 financial year, compared to
£2.7m in 2015. I anticipate further positive
opportunities for our Financial Services
businesses going forwards. We have
reported Financial Services as a separate
Division from 1st January 2019 onwards,
to reflect the increasing importance and
development of LSL’s Financial Services
businesses over the last five years.
During 2019 we have delivered organic
growth and executed in line with
expectations on the delivery of cost
synergies following the acquisition of
PTFS and successfully re-branded
the Group’s Financial Service
network activities as PRIMIS
and reorganised our Estate
Agency financial services
structure under the Embrace
Financial Services brand. We
continue to hold a strategic
investment in Mortgage
Gym, which is a digital
mortgage marketplace for
consumers.
04
04
c116224_BOOK.indb 5
c116224_BOOK.indb 5
Surveying Division
In the Surveying Division, the surveying
and valuation services contract awarded
to e.surv by Lloyds Bank plc in May 2018
has strengthened our position as a leading
player in the market, and we are now
taking the steps to drive improved financial
performance by leveraging the scale
benefits of the Surveying Division with the
aim of improving cost efficiency.
Surveying Division’s Underlying Operating
Profit performance was disappointing
at £16.3m (2018: £20.4m), impacted
by market conditions, and increased
headcount from the transfer of Lloyds Bank
plc personnel to e.surv following the award
of the new contract. Whilst operating profit
margin was 14.8% in the first half of 2019,
this improved to 22.9% in the second half of
2019 as our operational changes started to
deliver financial improvements.
In 2019, the Group continued to make
positive progress in addressing historical
Surveying PI claims and there has been a
net £2.5m exceptional gain for the year. At
31st December 2019 the total provision for
PI Costs reduced materially to £8.2m (2018:
£12.4m).
Simon Embley
Chairman
05
05
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Chairman's Statement
£311.1m
Group Revenue
Down 4% (2018: £324.6m)
£16.0m
Profit before tax
Down 31% (2018: £23.1m)
28.0p
Adjusted Basic Earnings Per Share
Up 3% (2018: 27.2p)
11.2p
Full year dividend per Share3
Up 3% (2018: 10.9p)
Full year 2019
Underlying Operating Profit
£37.0m
34%
38%
27%
n Estate Agency
n Financial Services
n Surveying
06
c116224_BOOK.indb 6
c116224_BOOK.indb 6
Discussions with Countrywide plc
(“Countrywide”)
On 24th February 2020, the Board of LSL
confirmed that it is in discussions with
Countrywide regarding a possible all-
share combination. Discussions between
Countrywide and LSL are ongoing. At
this stage, there can be no certainty
that any offer will ultimately be made for
Countrywide. LSL reserves the right to
introduce other forms of consideration
and/or vary the mix or composition
of consideration of any offer. Further
announcements will be made in due course
as appropriate.
Dividend
The Board continues to support the
previously communicated dividend
policy to apply a dividend pay-out ratio of
between 30% to 40% of Group Underlying
Operating Profit1 after interest and tax. The
Board has reviewed the dividend policy
while considering the risks and capital
management decisions facing the Group.
Adjusted Basic Earnings Per Share for 2019
was 28.0 pence, an increase of 3% on the
prior year (2018: 27.2 pence per Share). The
Board intends to propose a final dividend of
7.2 pence per Share (2018: 6.9 pence per
Share), resulting in a full year dividend of
11.2 pence per Share (2018: 10.9 pence per
Share). This is a pay-out at the upper end
of the range of LSL’s stated dividend policy,
reflecting our confidence in the current level
of performance of the business and of our
balance sheet strength. Taking into account
the unknown potential impact of the
COVID-19 virus on the UK housing market,
the LSL Board will keep the proposed final
dividend under review ahead of presenting
its proposal to Shareholders at the 2020
AGM.
Corporate Governance and Board
During 2019, the Board remained
committed to high levels of corporate
governance as we further strengthened
the Board with the appointment of two
new independent Non Executive Directors.
Darrell Evans joined the Board and its
Committees in February 2019 and Gaby
Appleton joined in September 2019.
Darrell’s and Gaby’s skills enhanced the
existing Board composition and further
details on all of the Directors can be found
within The Board section of this Report and
within the AGM Notice.
Further, in compliance with the UK
Corporate Governance Code (2018) LSL
developed and published its Purpose
Statement, supported by a series of
values and culture statements that reflect
the diverse group of businesses across
LSL. Darrell Evans was also appointed as
LSL’s designated workforce engagement
director. Since this appointment, Darrell has
been working closely with the Group HR
Director and participating in LSL’s employee
engagement arrangements. Further
details are included within the Stakeholder
Engagement Arrangements and Corporate
Governance Report sections of this Report.
In relation to 2019, as Chair, I have been
responsible for leadership of the Board, and
I have together with my fellow Directors,
reviewed the effectiveness of the Board and
its Committees. The 2019 annual evaluation
exercise had regard to the requirements
of the Code and its associated guidance.
In particular, we reviewed the composition
of the Board and its Committees and our
succession arrangements. Following this
review, we concluded that together we
have the appropriate balance of skills,
independence and knowledge of the
Group to enable the Board to discharge
its duties and responsibilities effectively.
The evaluation also considered other
matters such as leadership, division of
responsibilities, meeting arrangements, and
included a review of the annual evaluation
process itself.
Details of our corporate governance
arrangements and the recommendations
arising from the 2019 evaluation exercise
are contained within the Corporate
Governance Report section of this Report
together with details of how we have
implemented recommendations, which
arose from the 2018 evaluation exercise.
Outlook
The Group delivered a highly resilient Group
Revenue and Underlying Operating Profit
performance in 2019 in the context of
challenging residential market conditions
and the introduction of the tenant fee
ban on 1st June 2019. This is a strong
operational performance, as the successful
execution of the stated Group strategy
25/03/2020 13:50
25/03/2020 13:50
07
The Board intends to propose a final
dividend of 7.2 pence per share, resulting
in a full year dividend of 11.2 pence per
share. This is a pay-out at the upper end of
the range of LSL’s stated dividend policy,
reflecting our confidence in the current level
of performance of the business and of our
balance sheet strength. Taking into account
the unknown potential impact of COVID-19
virus on the UK housing market, the LSL
Board will keep the proposed final dividend
under review ahead of presenting its
proposal to Shareholders at the 2020 AGM.
The business is expected to continue to
benefit from the range of LSL’s ongoing
strategic and operational measures. The
Group has a robust balance sheet with
relatively low levels of gearing and is
highly cash generative at an operational
level. The Board remains confident of the
opportunities for further positive progress
for the Group.
Simon Embley
Chairman
10th March 2020
delivered tangible benefits to the Group’s
financial performance. We continue to
deliver a range of proactive strategic and
operational initiatives across our business
lines, demonstrating the breadth of
opportunity across the Group.
Market conditions to date in 2020 have
been encouraging, reflected by our Estate
Agency sales pipeline at 29th February 2020
being £3.6m ahead of the Board’s prior
expectations, benefiting from a favourable
Estate Agency net sales performance
during January and February. The
operating profit performance of the Group
in the two month period to 29th February
2020 has been, as expected, circa £2m
ahead of the same period in the prior year,
benefiting materially from the successful
execution of the reshaping of the Your
Move and Reeds Rains branch networks,
which was announced on 5th February
2019. These benefits have now normalised
year-on-year.
Whilst we have been encouraged by the
residential property market conditions to
date in 2020, the situation regarding the
COVID-19 virus is rapidly evolving and
we have in recent days, seen some slight
softening of our lead sales indicators in
Estate Agency. We are monitoring the
situation very closely as it may create
headwinds for our business in 2020 if
changes in consumer behaviour impact
residential property market conditions.
As and when any potential impact on the
Group becomes clearer, we will provide
updates as necessary.
06
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). Excluding the impact of IFRS 16 Group Underlying Operating Profit in 2019 was £36.2m
2 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation of right of use assets, plant, property and equipment (as defined in Note 5 to the Financial
Statements). Excluding the impact of IFRS 16, Group Adjusted EBITDA in 2019 was £40.9m
3 Assuming final intended 2019 proposed dividend is approved
c116224_BOOK.indb 7
c116224_BOOK.indb 7
07
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Group Chief Executive’s Review
2019 Overview
In the context of challenging market
conditions, the Group delivered a
highly resilient performance in 2019,
underpinned by a continuing range of
proactive strategic and operational
measures delivered across the
Group. LSL successfully executed
its stated strategy during 2019,
underpinned by consistent and effective
implementation.
Group Revenues for the year ended
31st December 2019 decreased by 4%
to £311.1m (2018: £324.6m) including
the impact of the reshaping of the Your
Move and Reeds Rains branch networks
announced on 5th February 2019, with
Estate Agency revenue1 down 16%,
Financial Services revenue1 down 2%
and Surveying Division revenue up 24%.
Excluding the impact of the planned
branch closures during the first quarter
of 2019, Group like-for-like revenues
increased by 4%.
Group Underlying Operating Profit2 was
up 3% to £37.0m (2018: £35.9m), and
Group Adjusted EBITDA3 was up 25%
to £51.9m (2018: £41.6m). Excluding the
impact of IFRS 16, Group Underlying
Operating Profit was 1% ahead of prior
year at £36.2m (2018: £35.9m) and Group
Adjusted EBITDA was down 2% to £40.9m
(2018: £41.6m). Profit before tax of £16.0m
was down 31% compared to the prior year
(2018: £23.1m).
The Group has maintained a strong
balance sheet with closing Net Bank
Debt at 31st December 2019 of £41.9m
(2018: £32.1m) and a low level of reported
gearing4 at 0.8 times Group Adjusted
EBITDA (2018: 0.8 times). The increase in
Net Bank Debt in 2019 is after incurring
total exceptional cash expenditure of
£8.8m including the Estate Agency
restructuring costs, £9.9m in respect of
deferred and contingent consideration
for the funding of two prior year Financial
Services acquisitions (PTFS and Group
First) and seven lettings book acquisitions
during the year. LSL also maintained the
payment of dividends to Shareholders
during the year.
The Group generated strong cash from
operations of £38.8m (2018: £36.9m)
converting 105% of Group Underlying
Operating Profit to cash-flow from
operations (pre PI and exceptionals, after
lease payments) (2018: 103%).
In the Estate Agency Division1, LSL
executed the reshaping of the Your
Move and Reeds Rains branch networks
delivering an increase in Underlying
Operating Profit (up 30%). In the Financial
Services Division1 we delivered 23%
growth in Underlying Operating Profit.
In the Surveying Division, Underlying
Operating Profit was £16.3m (2018:
£20.4m) impacted by market conditions
and increased headcount from the transfer
of Lloyds Bank plc personnel to e.surv
following the award of the new surveying
and valuation services contract in May
2018.
During 2019, we continued to execute
on our stated strategy and made positive
progress across the Group:
• In Estate Agency, the effective execution
of the major reshaping of the Your Move
and Reeds Rains branch networks,
announced on 5th February 2019
delivering material financial benefits.
• Successful implementation of Lloyds
Bank plc surveying and valuation
services contract strengthening LSL’s
position as the leading provider of
surveying and valuation services in the
UK.
• In June 2019, the Surveying Division
was awarded an extension to its
contract to supply UK residential
surveying and valuation services to a
major high street bank.
• Successful integration of PTFS (acquired
in 2018) into the PRIMIS branded
network and cost synergies delivered,
as well as the successful roll-out out of
the Toolbox operating system (part of
rationale for acquiring PTFS).
• During 2019, LSL continued its lettings
book acquisition programme with seven
lettings books acquired during the
period.
The Market in 2019
The UK residential property market
remained challenging in 2019. HM
Land Registry Property Transactions
in 2019 decreased by 7%. Full year
Rightmove Total Market Residential
New Instructions decreased by 7% in
2019. Market transactions continued to
decline in London and the South East6
and Approvals for House Purchases5 in
2019 were up by 0.9%. Total Mortgage
Approvals5 increased by 0.9% in 2019,
with Remortgage Approvals up by 0.7%.
Average House Prices7 in England and
Wales grew by 0.8% (2018: 0.5%) to
£304k. Excluding London and the South
East, the rest of England and Wales
showed house price growth of 1.6%.
The proportion of residential housing stock
available for sale with online and hybrid
estate agents sector has declined on a
year-on-year basis, decreasing from 7.6%
in 2018 to 7.3% in 20198.
Total gross mortgage lending in 2019 was
in line with the prior year at £268bn9 (2018:
£269bn). The proportion of mortgage
lending in the market placed through
intermediaries increased to 74% in 2019
(2018: 71%)10.
Following market declines in the
repossession market in the past few years,
market repossession volumes grew in
2019, increasing by 16% to 8,00011 the
highest since 2016, although still low in a
historical context.
LSL’s market position
LSL continues to hold market leading
positions in its core Estate Agency
businesses comprising 12 Estate Agency
brands: Your Move, Reeds Rains, LSLi
group (nine brands) and Marsh & Parsons.
We continue to believe that traditional
estate agents will represent the substantial
majority of the Residential Sales and
Lettings markets for the foreseeable future
and that our Estate Agency branches will
continue to remain core to providing the
service our customers expect.
In Your Move and Reeds Rains, the newly
established keystone network of 144
branches are situated in core locations
across the UK and generally have larger
teams of dedicated experts in Residential
Sales, Lettings and Financial Services roles
than the average Your Move and Reeds
Rains branches previously had in place.
The continuing ambition for these keystone
branches is to re-enforce a platform that
will benefit from their larger scale, enabling
08
c116224_BOOK.indb 8
c116224_BOOK.indb 8
25/03/2020 13:50
25/03/2020 13:50
09
• Evaluate further selective Financial
Services acquisitions.
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 recruitment
programme.
LSL performance in 2019
Estate Agency Division1
LSL announced the reshaping of its
Your Move and Reeds Rains branch
networks on 5th February 2019. We are
pleased that the implementation of this
programme has progressed slightly ahead
of our expectations despite the scale and
complexity of the project. During the first
quarter of 2019, the Your Move and Reeds
Rains estate agency branch network was
reshaped from 308 owned branches
to 144 keystone branches following the
closure and merging of 81 neighbouring
branches into the keystone branch
network, the franchising of 39 branches
and the closure of 44 branches. This
reshaping was executed in line with the
Ian Crabb
Group Chief
Executive Officer
us to invest in people and technology with
the aim of providing enhanced levels of
service to our customers whilst ensuring
operational performance is optimised
by competing more effectively in local
markets. Our commitment to continued
IT investment is intended to give these
Your Move and Reeds Rains branches the
opportunity to cover a wider geography
and benefit from further scale.
Marsh & Parsons continues to implement
its well established strategy of expanding
its branch network with a focus on
locations outside prime Central London.
During 2019 we opened two new Marsh
& Parsons branches in Willesden Green
and Streatham Hill, in outer prime Central
London, which are performing in line with
expectations.
The LSLi group of companies today
operate 57 owned branches and they
will continue with their existing strategy
to develop the nine well established local
brands in their existing markets in the
South East of England. In addition, in 2020
the LSLi group of companies will continue
to actively evaluate opportunities for
lettings book acquisitions.
In 2019, LSL further strengthened
its position as a leading distributor
of mortgage and non-investment
insurance products and delivered strong
overall growth in the value of mortgage
completions which were up 9% to £31.7bn
in 2019 (2018: £29.0bn). LSL’s market
share is estimated to be 8.5% (2018: 8.0%)
of the total market value of mortgage
completions. LSL is the second largest
combined network nationwide, measured
by the combined number of appointed
representative firms. The number of
financial advisers as at 31st December
2019 was 2,392 (2018: 2,321).
Our Surveying Division continued as
a leading player in the market in 2019,
maintaining strong relationships with
many of the UK’s largest lenders. During
2019 LSL was pleased to be awarded
an extension to its contract to supply
UK residential surveying and valuation
services to a major high street bank. LSL’s
Surveying Division is the UK’s largest
provider of residential valuation services
nationwide and is the largest employer of
residential surveyors in the UK6 with 514
operational surveyors as at 31st December
2019.
Segment reporting
To reflect the increased importance of
LSL’s Financial Services businesses over
the last five years, from 1st January 2019,
LSL’s Financial Services businesses
are reported as a separate segment.
The Estate Agency Division receives
and reports a commercially agreed
commission payment from the Financial
Services segment, which reflects Financial
Services income generated from the
Estate Agency segment. Financial
Services revenue reported in our full year
financial results for 2018 has therefore
been restated on this basis to assist
comparison. The Surveying Division
reporting is unchanged.
Strategy
LSL remains committed to delivering on its
stated strategy:
Estate Agency
• Ambition to achieve £80k-£100k profit
per branch13 in the medium term based
on the expectation of a normalised level
of market transactions.
• 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.
• Evaluate selective acquisitions of lettings
books.
Financial Services
• Enhance LSL’s position as a leading
distributor of mortgage and non-
investment insurance products.
• Consistent delivery of
appropriate outcomes for
consumers with a focus on
“best practice” standards of
regulatory compliance.
• Enhancement of
technology solutions to
improve the customer
experience and
operational efficiency.
08
c116224_BOOK.indb 9
c116224_BOOK.indb 9
09
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Group Chief Executive's Review
LSL announcement of 5th February 2019.
Including the impact of this reshaping,
total Estate Agency income of £154.9m
(2018: £183.8m) decreased by 16%.
Adjusting for the closure of the Your
Move and Reeds Rains branches during
the first quarter of 2019, like-for-like total
revenue decreased by 5% compared to
2018. Estate Agency Division operating
expenditure decreased by 19%, and
operating profit increased by 30%,
reflecting the material improvement to
Underlying Operating Profit in Your Move
and Reeds Rains as a result of reshaping
their branch networks.
Residential net sales for the Your Move
and Reeds Rains keystone branches
increased slightly in 2019, despite the
challenging market conditions during
the year, and showed modest growth
in market share as measured by new
instructions during 2019.
Residential Sales exchange income
Residential Sales exchange income
decreased by 17% to £57.7m (2018:
£69.9m) impacted by the reshaping of
the Your Move and Reeds Rains branch
networks and the market conditions.
Adjusting for the closure of the Your Move
and Reeds Rains branches during the first
quarter of 2019, Residential Sales income
decreased by 3%.
LSL has remained extremely disciplined
in its Residential Sales exchange fee
strategy throughout 2019. Reported
average LSL Estate Agency Residential
Sales exchange fee (£) per unit increased
by 12% to £3,452 (2018: £3,071). The
average Residential Sales exchange fee
in 2019 benefitted from the closure of
Your Move and Reeds Rains branches,
which generated lower average fees.
Like-for-like Residential Sales exchange
fee (£) per unit in 2019 was maintained
at the same level compared to the same
period last year.
Lettings income
Total Lettings income decreased by 12%
to £67.3m (2018: £76.6m). On a like-for-
like basis, adjusting for the reshaping of
the Your Move and Reeds Rains branch
networks, Lettings income was down
4% on the prior year. Lettings income
Emile Heskey launched Your Move’s partnership with the EFL
represented 43% of total Estate Agency
Division income in 2019 (2018: 42%).
£1.7m (2018: £2.3m) and Adjusted EBITDA
was £2.8m (2018: £3.4m).
Legislation banning tenant fees came
into effect on 1st June 2019 and LSL
implemented the required changes across
its Estate Agency brands. LSL continues
to implement operational measures
in Lettings with the aim of optimising
Lettings income, and, in line with our
stated strategy, we continued our lettings
book acquisition programme during 2019
acquiring seven lettings books in 2019
for a total consideration of £3.0m. The
lettings books are performing in line with
expectations and have been successfully
integrated into the Estate Agency
networks.
Marsh & Parsons
Given the overall challenging prime
Central London market, Marsh & Parsons
delivered a resilient top line performance
with revenue down by 3% in 2019 to
£32.4m (2018: £33.5m). Marsh & Parsons
Residential Sales income fell by 5% in
2019, which is a creditable performance
in light of the overall prime Central London
market conditions. Lettings declined by
2%. Lettings revenue represents 64% of
Marsh & Parson’s total revenue (2018:
63%). Full year Underlying Operating Profit
remained flat at £2.3m (2018: £2.3m).
Adjusted EBITDA as reported was £6.2m
(2018: £3.4m). Excluding the impact of
IFRS 16, Underlying Operating Profit was
In line with LSL’s stated strategy, we
continued with our Marsh & Parsons
branch expansion strategy in 2019,
opening two new branches in April
2019 in outer prime Central London, in
Willesden Green and Streatham Hill. These
new branches are trading in line with
expectations. This takes our total number
of Marsh & Parsons branches to 30 as at
31st December 2019.
Our ambition remains to expand the
number of Marsh & Parsons branches to a
total of 36 in the medium term, particularly
outside prime Central London. Outer
prime Central London has not been as
negatively impacted by subdued market
conditions as prime Central London and
Marsh & Parsons continues to look to
expand its branch footprint in outer prime
Central London locations.
Estate Agency profit per branch (Your
Move, Reeds Rains and LSLi)
In 2019, profit per branch (Your Move,
Reeds Rains and LSLi) increased to £47.0k
(2018: £18.3k), benefiting materially from
the reshaping of the Your Move and Reeds
Rains networks during 2019.
Yopa
Traditional estate agents continue to
represent the substantial majority of the
Residential Sales and Lettings markets.
LSL believes this will continue for the
10
c116224_BOOK.indb 10
c116224_BOOK.indb 10
25/03/2020 13:50
25/03/2020 13:50
11
foreseeable future and that Estate Agency
branches will continue to remain core
to providing the service our customers
expect.
LSL has an 8.8% minority shareholding
in Yopa. LSL’s previous carrying value
of £7.8m (as at 31st December 2018) for
Yopa was written down through reserves
by £1.3m to £6.5m at the 2019 half year
to reflect the Board’s assessment of fair
value, as reported in the Interim Results
statement released by LSL on 30th July
2019.
Financial Services Division1
Total Financial Services Division revenue
including Estate Agency for the year was
down by 2% to £69.8m (2018: £71.0m),
reflecting the impact of the planned
closure of the Your Move and Reeds Rains
branches. Financial Services organic
revenue growth was 1% year-on-year,
excluding Estate Agency.
10
In 2019, LSL further strengthened its
position as a leading distributor of
mortgage and non-investment insurance
c116224_BOOK.indb 11
c116224_BOOK.indb 11
products and LSL delivered strong
overall growth in the value of mortgage
completions which were up 9% to £31.7bn
in 2019 (2018: £29.0bn). LSL’s market
share is estimated to be 8.5% (2018: 8.0%)
of the total market value of mortgage
completions. LSL is the second largest
combined network nationwide, measured
by combined number of appointed
representative firms. The number of
financial advisers as at 31st December
2019 was 2,392 (2018: 2,321).
The Financial Services Division delivered
a strong performance with Underlying
Operating Profit1 up 23% to £11.6m
(2018: £9.5m) reflecting growth in
core businesses and the benefit of
the acquisitions of PTFS and RSC in
the first quarter of 2018. The Financial
Services Division continues to display
positive progress across its breadth of
products including mortgage products,
pure protection products and general
insurance products. The integration of
PTFS, which was acquired in January
2018, into the Financial Services Division is
delivering cost synergy benefits in line with
expectations.
In 2019, the roll out of the Toolbox
operating system to network firms
including Group businesses was
completed in line with expectations, to the
full network of over 2,300 brokers and 500
administrators. The technology was part of
rationale for acquiring PTFS.
Surveying Division
Surveying Division revenue increased by
24% to £86.4m (2018: £69.8m), which
included a material contribution from the
successful commencement of the Lloyds
Bank plc surveying and valuation services
relationship, awarded in May 2018. Total
number of jobs performed during the year
were 508,061 (2018: 365,504).
Revenue in the first half of 2019 was up
by 37% year-on-year, which included a
material contribution from the successful
commencement of the Lloyds Bank
plc surveying and valuation services
contract awarded in May 2018 and
which commenced in the second half
of September 2018. Revenue in the
second half of 2019 was up 13% on
An e.surv graduate now MRICS qualified
the same period in 2018, reflecting the
commencement of the Lloyds Bank plc
revenue from September 2018.
Income per job in 2019 reduced to £170
(2018: £191) due to a change in the
business mix. Total Surveying Division
expenditure increased due to the additional
headcount from the transfer of Lloyds
Bank plc personnel to e.surv following
the award of the new contract in May
2018. As a result, LSL reported a reduced
Underlying Operating Profit in 2019 of
£16.3m (2018: £20.4m) with a profit margin
of 18.9% (2018: 29.3%). Profit margin was
14.8% in the first half of 2019, improving to
22.9% in the second half of 2019.
The total number of operational surveyors
at 31st December 2019 was 514 (2018:
503). In 2020, the Surveying Division
will continue to focus on its successful
graduate programme, which assists
in alleviating the impact of capacity
constraints in the market.
During the first half of 2019, the Surveying
Division was pleased to be awarded an
extension to its contract to supply UK
residential survey and valuation services to
a major high street bank.
Work is on-going to leverage the scale
benefits of the Surveying Division with the
aim of improving cost efficiency.
The technology roll out continued during
2019 with further functionality releases
11
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Group Chief Executive's Review
designed to enhance quality and drive
efficiencies such as an updated surveyor
software application to improve the user
experience and surveyor efficiency.
At 31st December 2019 the total provision
for PI Costs was £8.2m (2018: £12.4m).
In 2019, the Group continued to make
positive progress in addressing historical
claims and there has been a net £2.5m
exceptional gain in the year.
Our customers
Our continued focus on providing the
best service to our customers has been
recognised in 2019 with numerous
industry awards including:
Estate Agency
• Davis Tate: Best Estate Agent
Guide 2020 (*): Best Estate Agency
Guide Award (Berks/Hamps/Isle
of Wight (Sales & Lettings)). Henley
and Abingdon – Rated Exceptional
(Lettings), Reading – Rated Excellent
(Lettings). The AllAgents Awards:
Best Estate Agency Award, Abingdon,
Burghfield, Goring, Henley, Pangbourne,
Reading, Sonning, Twyford, Wallingford
– Gold Award, Best Letting Agency
Award, Abbingdon, Burghfield, Goring,
Henley, Reading, Wallingford and
Wantage – Gold Award, Best Overall
Agent, Abingdon, Burghfield, Goring,
Henley, Pangbourne, Reading, Sonning,
Twyford, Wallingford.
• Frosts: The ESTAS: Estate Agency of
the Year Awards: Best in County Letting
Agent (Hertfordshire) – Winner.
• Goodfellows: Best Estate Agent
Guide 2020 (*): Best Estate Agency
Guide Award (South West London
(Sales)). The AllAgents Awards:
Best Overall Agent Award, Carshalton,
Cheam Village, Mitcham and Morden –
Gold Award, Best Estate Agency Award,
Cheam Village and Mitcham – Gold
Award, Best Lettings Agency Award,
Carshalton, Cheam Village, Mitcham
and Morden – Gold Award.
• Intercounty: The Negotiator of the
Year Awards: Large Lettings Agency of
the Year – Gold Award, Regional: East
of England Agency of the Year – Gold
Award. Best Estate Agent Guide
2020 (*): East of England (Lettings) –
Winner.
• JNP: The AllAgents Awards: Best
Estate Agency Award, Hazlemere,
Princes Risborough and High Wycombe
– Gold Award, Best Letting Agency
Award, Princes Risborough – Gold
Award.
• Marsh & Parsons: UK Property
Awards 2019: Best Estate Agency
Marketing, London – Gold Award, Best
Real Estate Agency, Single Office,
London – Award Winner. The Drum
Out of Home Advertising Awards
2019: Best Local Campaign. The
Data and Marketing Association
(DMA) Awards 2019: Best Integrated
Campaign and Best Customer
Acquisition Campaign.
• Reeds Rains: Best Estate Agent
Guide 2020: Reeds Rains Lettings
– Best Estate Agency Guide
Award. Bamber Bridge, Blackpool,
Chorley, Didsbury, Garstang,
Hanley, Huddersfield, Hull, Leyland,
Manchester, Prescot, Rhyl, Sale,
Salford, Stanley, Woodseats and
York – Rated Exceptional (Lettings).
Plaistow – Rated Exceptional (Sales).
Bridlington, Castleford, Chester,
Congleton, Durham City, Halifax, Hazel
Grove, Hyde, Liverpool City Living,
Macclesfield and Newcastle Under
Lyme – Rated Excellent (Lettings).
Chorley, Hillsborough, Salford Quays
City Living, Wakefield and Wilmslow –
Rated Excellent (Sales). The AllAgents
Awards: Best Estate Agency Award,
Kennington and Dartford – Gold Award.
• Thomas Morris: Guild of Property
Professionals 2019: Lettings (East
Anglia) – Gold Award, Sales (East
Anglia) – Gold Award. Fine & Country
Awards 2019: Branch of the Year,
East of England. The ESTAS: Estate
Agency of the Year Awards: Best Local
Estate Agency Group – East of England.
The AllAgents Awards: Best Estate
Agency Award, St.Ives – Gold Award.
The Negotiator Awards 2019: Estate
Agency of the Year (6-9 branches)
– Gold Award. Relocation Agent
Network Awards 2019: Best Agent
– Eastern Region. Best Estate Agent
Guide 2020 (*): Best Estate Agency
Guide Award (East of England (Sales &
Lettings)).
Financial Services
• TMA: Money Age Mortgage Awards
2019 – Best Mortgage Club of the
Year. Precise Mortgage Awards –
Residential Mortgage Club of the Year,
Mortgage Strategist 2019, Lisa Martin.
• PRIMIS: Financial Reporter Awards
2019 – Best Network. Mortgage
Introducer Awards 2019 – Mortgage
Network of the Year. The Financial
Innovation Awards 2019 – Best
Technology Initiative, United Kingdom.
• LSL Financial Services: Precise
Mortgage Awards: Best Distribution
Group 2019.
Surveying
• e.surv Chartered Surveyors: Mortgage
Finance Gazette Awards 2020:
Best Surveying Firm – Winner Equity
Release Awards 2019: Best Surveyor
– Winner. Employee Benefits Awards
2019: Best Alignment of Benefits to
Business Strategy – Winner.
(*) As judged and announced in 2019.
Our people
The continued 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 in our Estate
Agency, Financial Services and Surveying
businesses. I would like to take this
opportunity to thank all my colleagues
across all our businesses for their
professionalism and dedication during
2019. I look forward to working with my
colleagues to deliver a successful year in
2020.
Outlook
The Group delivered a highly resilient
Revenue and Underlying Operating
Profit performance in 2019 in the
context of challenging residential market
conditions and the introduction of the
tenant fee ban on 1st June 2019. This is a
strong operational performance, as the
successful execution of the stated Group
strategy delivered tangible benefits to
12
c116224_BOOK.indb 12
c116224_BOOK.indb 12
25/03/2020 13:50
25/03/2020 13:50
13
the Group’s financial performance. We
continue to deliver a range of proactive
strategic and operational initiatives across
our business lines, demonstrating the
breadth of opportunity across the Group.
Market conditions to date in 2020 have
been encouraging, reflected by our
Estate Agency sales pipeline at 29th
February 2020 being £3.6m ahead of the
Board’s prior expectations, benefiting
from a favourable Estate Agency net
sales performance during January
and February. The operating profit
performance of the Group in the two
month period to 29th February 2020 has
been, as expected, circa £2m ahead
of the same period in the prior year,
benefiting materially from the successful
execution of the reshaping of the Your
Move and Reeds Rains branch networks,
which was announced on 5th February
2019. These benefits have now normalised
year-on-year.
Whilst we have been encouraged by the
residential property market conditions to
date in 2020, the situation regarding the
COVID-19 virus is rapidly evolving and
we have in recent days, seen some slight
softening of our lead sales indicators in
Estate Agency. We are monitoring the
situation very closely as it may create
headwinds for our business in 2020 if
changes in consumer behaviour impact
residential property market conditions.
As and when any potential impact on the
Group becomes clearer, we will provide
updates as necessary.
The Board intends to propose a final
dividend of 7.2 pence per Share,
resulting in a full year dividend of 11.2
pence per Share. This is a pay-out at the
upper end of the range of LSL’s stated
dividend policy, reflecting our confidence
in the current level of performance of
the business and of our balance sheet
strength. Taking into account the unknown
potential impact of COVID-19 virus on the
UK housing market, the LSL Board will
keep the proposed final dividend under
review ahead of presenting its proposal to
Shareholders at the 2020 AGM.
The business is expected to continue to
benefit from the range of LSL’s on-going
strategic and operational measures. The
Group has a robust balance sheet with
relatively low levels of gearing and is
highly cash generative at an operational
level. The Board remains confident of the
opportunities for further positive progress
for the Group.
Ian Crabb
Group Chief Executive Officer
10th March 2020
12
Notes:
1 Following the change to LSL’s segment reporting effective from 1st January 2019, the 2018 revenue and Underlying Operating Profit of the Estate Agency and Financial
Services Divisions have been restated. The Estate Agency Division also receives a commercially agreed commission payment from the Financial Services segment. This
arrangement reflects Financial Services income generated from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison
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 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation on property, plant and equipment (as defined in Note 5 to the Financial Statements)
4 Operational gearing is defined as Net Bank Debt divided by Group Adjusted EBITDA3. Excluding the impact of IFRS 16, gearing at 1.0x EBITDA
5 Bank of England - House Purchase Approvals and Total Mortgage Approvals
6 LSL estimates and including Land Registry regional data
7 LSL Property Services/ACADATA HPI
8 LSL sources/data analysis
9 UK Finance ‘New mortgages by purpose of loan (excluding product transfers)’
10 UK Finance ‘New mortgages sold by intermediaries’
11 UK Finance ‘Possessions on mortgaged properties’
12 Which-Network – network performance figures
13 The profit per branch methodology has been consistently applied since the profit per branch ambition of £80k-£100k was first announced by LSL in March 2014. Profit per
branch is calculated for Your Move, Reeds Rains and the LSLi owned branches and excludes Marsh & Parsons
14 LSL’s market share is calculated using gross mortgage completions excluding product transfers
c116224_BOOK.indb 13
c116224_BOOK.indb 13
13
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview c116224_BOOK.indb 14
c116224_BOOK.indb 14
25/03/2020 13:50
25/03/2020 13:50
Advertisements from Marsh & Parsons’ advertising campaign
Strategic Report
In this section
16 Strategy
17 Business Model
18 Markets
21 Business Review - Estate Agency Division
24 Business Review - Financial Services Division
26 Business Review - Surveying Division
27 Financial Review
30 Stakeholder Engagement Arrangements
32 Principal Risks and Uncertainties
42 Corporate Social Responsibility
52 The Board
c116224_BOOK.indb 15
c116224_BOOK.indb 15
15
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Strategic ReportOverview Strategy
During 2019 LSL remained
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
Group Revenue 2019
£311.1m
13%
28%
50%
22%
87%
n Estate Agency
n Financial Services
n Surveying
Full year 2019 average FTE
4,268
13%
22%
56%
22%
87%
n Estate Agency
n Financial Services
n Surveying
16
During 2019 LSL remained committed to delivering on its
stated strategy which with effect from 1st January 2019 has
been reported in three segments: Estate Agency, Financial
Services, and Surveying and Valuation Services.
Estate Agency
• Ambition to achieve £80,000 to £100,000 profit per
branch1 in the medium term based on the expectation of a
normalised level of market transactions.
• Ambition to expand the number of Marsh & Parsons
branches to a total of 36 in the medium term, in particular
outside prime Central London.
• Grow recurring and where market conditions permit,
counter-cyclical income streams.
• Evaluate selective acquisitions of lettings books.
Financial Services
• Enhance LSL’s position as a leading distributor of
mortgage and non-investment insurance products.
• Consistent delivery of appropriate outcomes for
consumers with a focus on “best practice” standards of
regulatory compliance.
• Enhancement of technology solutions to improve the
customer experience and operational efficiency.
• Evaluate further selective Financial Services acquisitions.
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 recruitment programme.
c116224_BOOK.indb 16
c116224_BOOK.indb 16
25/03/2020 13:50
25/03/2020 13:50
17
Business Model
Business Model
Customers
LSL’s
Assets
B2C
– Home owners
– House sellers
– House purchasers
– Landlords
– Tenants
B2B
– Lenders - banks/building societies
– Housebuilders
– Financial Services
intermediaries and introducers
– Franchisees
Market
Leading
Positions
– 13 Estate Agency Companies
(including Franchise Businesses)
– 3 Asset Management Companies
(including Law of Property Act Receiver)
– 3 Financial Services Networks
(including a Mortgage Club)
– 5 Financial Services
Intermediary Companies
– Land & New Homes Business
– Conveyancing Support Business
– Joint Ventures, Investments
and Associates
Building a market
leading position in the
residential property
services market.
Estate Agency:
– Residential Sales
– Lettings
Financial Services:
– Networks
– Brokerage
Surveying and Valuation Services:
– Surveys
– Valuations
– Panel Management
– Lender Relationships
– e.surv including Walker Fraser Steele brand
– Acquisitions and Investments
– Expertise
– Technology and Infrastructure
– Brand Investment
– New Graduates
– Capital Expenditure
Investment
Strong
Revenue
and Profit
Margins
Cash-flow
Dividends
Note: Business Model describes the Group’s operations as at 31st December 2019
LSL’s business model is how LSL puts its strategy into action. The execution of the strategy results in market
leading positions in the Group’s business segments which produces a virtuous circle of strong revenues,
profitability and cash-flow which allows significant reinvestment in the business in order to further enhance LSL’s
market positions, while also paying out a meaningful proportion of earnings as a dividend to Shareholders.
• LSL is a leading player in Surveying and Valuation Services, second
largest combined network operating under the brand of PRIMIS in
Financial Services, and has market leading positions in Estate Agency.
• 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 and non-investment
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.
• LSL services business customers in its Financial Services businesses
such as financial services intermediaries and introducers; and retail
customers through the provision of mortgage and non-investment
brokerage services and other related services.
• 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 in the
residential property market in the past due to its market positions
in Lettings (recurring income) and Asset Management (counter-
cyclical income).
• The re-structured keystone branches in Your Move and Reeds Rains
provide a platform which benefits from their larger scale, enabling
LSL to invest in people, technology and marketing with the aim of
providing enhanced levels of service to their customers whilst ensuring
operational performance is optimised by competing more effectively in
local markets and utilising central hubs to handle certain administrative
tasks centrally.
• The Financial Services business is a leading financial services
distributor and benefits from highly regarded back-office and
administration technology (Toolbox) which has been designed to build
scale and opportunity for its financial services intermediaries.
• The model benefits from scale and investment to ensure the Surveying
and Valuation Services 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 business has low capital requirements and is highly cash
generative.
• 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.
16
c116224_BOOK.indb 17
c116224_BOOK.indb 17
17
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Strategic ReportOverview Markets
LSL operates across the residential property services value chain
Information in this section of the Report is as at 31st December 2019
In 2019 total mortgage approvals increased by 0.9% to 1,549,000 (2018: 1,535,000)¹
Overall house purchase approvals increased by 1.0% to 789,000 (2018: 781,000)¹
Remortgage (and other) volumes of 761,000 were up by 0.9% compared to 2018 (2018: 754,000)¹.
Market transaction data
Total mortgage
approvals for house
purchase1
‘000s
Total mortgage
approvals1
‘000s
4
1
8
8
0
8
7
9
7
1
8
7
9
8
7
2015
2016
2017
2018
2019
5
0
4
,
1
1
9
4
,
1
6
2
5
,
1
5
3
5
,
1
9
4
5
,
1
2015
2016
2017
2018
2019
Remortgage (and other)
volumes1
‘000s
Total gross
mortgage lending3
£bn
1
9
5
3
8
6
9
2
7
4
5
7
1
6
7
2
2
2
7
4
2
1
6
2
9
6
2
8
6
2
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
18
c116224_BOOK.indb 18
c116224_BOOK.indb 18
25/03/2020 13:50
25/03/2020 13:50
19
LSL’s markets:
During 2019 LSL’s markets were categorised into three principal segments:
by the combined number of appointed
representative firms. The number of financial
advisers as at 31st December 2019 was
2,392 (2018: 2,321).
Our Surveying Division continued as
a leading player in the market in 2019,
maintaining strong relationships with many
of the UK’s largest lenders. During 2019 LSL
was pleased to be awarded an extension
to its contract to supply UK residential
survey and valuation services to a major
high street bank. LSL’s Surveying Division
is the UK’s largest provider of residential
valuation services nationwide and is the
largest employer of residential surveyors in
the UK7 with 514 operational surveyors as at
31st December 2019.
Estate Agency;
Financial Services; and
Surveying and Valuation Services.
The Market in 2019
The UK residential property market remained
challenging in 2019. HM Land Registry
Property Transactions3 in 2019 decreased
by 7%. Full year Rightmove Total Market
Residential New Instructions4 decreased by
7% in 2019. Market transactions continued
to decline in London and the South East5
and Approvals for House Purchases1 in 2019
were up by 0.9%. Total Mortgage Approvals1
increased by 0.9% in 2019, with Remortgage
Approvals up by 0.7%.
Average house prices6 in England and
Wales grew by 0.8% (2018: 0.5%) to £304k.
Excluding London and the South East, the
rest of England and Wales showed house
price growth of 1.6%.
The proportion of residential housing stock
available for sale with online and hybrid
estate agents sector has declined on a year-
on-year basis, decreasing from 7.6% in 2018
to 7.3% in 20197.
Total gross mortgage lending in 2019 was
in line with the prior year at £268bn2 (2018:
£269bn). The proportion of mortgage
lending in the market placed through
intermediaries increased to 74% in 2019
(2018: 71%)8.
Following market declines in the
repossession market in the past few years,
market repossessions volumes grew in
2019, increasing by 16% to 8,0009 the
highest since 2016, although still low in a
historical context.
LSL’s market position
LSL continues to hold market leading
positions in its core Estate Agency business
comprising 12 Estate Agency brands:
Your Move, Reeds Rains, LSLi group (nine
brands) and Marsh & Parsons. We continue
to believe that traditional estate agents will
represent the substantial majority of the
Residential Sales and Lettings markets for
the foreseeable future and that our Estate
Agency branches will continue to remain
core to providing the service our customers
expect.
In Your Move and Reeds Rains, the newly
established keystone network of 144
branches are situated in core locations
across the UK and generally have larger
teams of dedicated experts in Residential
Sales, Lettings and Financial Services roles
than the average Your Move and Reeds
Rains branches previously had in place.
The continuing ambition for these keystone
branches is to re-enforce a platform that
will benefit from their larger scale, enabling
us to invest in people and technology with
the aim of providing enhanced levels of
service to our customers whilst ensuring
operational performance is optimised by
competing more effectively in local markets.
Our commitment to continued IT investment
is intended to give these Your Move and
Reeds Rains branches the opportunity to
cover a wider geography and benefit from
further scale.
Marsh & Parsons continues to implement
its well-established strategy of expanding
its branch network with a focus on locations
outside prime Central London. During 2019
we opened two new Marsh & Parsons
branches in Willesden Green and Streatham
Hill, in outer prime Central London, which
are performing in line with expectations.
The LSLi group of companies today operate
57 owned branches and they will continue
with their existing strategy to develop
the nine well-established local brands in
their existing markets in the South East
of England. In addition, in 2020 the LSLi
group of companies will continue to actively
evaluate opportunities for lettings book
acquisitions.
In 2019, LSL further strengthened its
position as a leading distributor of mortgage
and non-investment insurance products and
delivered strong overall growth in the value
of mortgage completions which were up 9%
to £31.7bn in 2019 (2018: £29.0bn). LSL’s
market share is estimated to be 8.5% (2018:
8.0%) of the total market value of mortgage
completions. LSL is the second largest
combined network nationwide, measured
18
c116224_BOOK.indb 19
c116224_BOOK.indb 19
19
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Strategic ReportOverview Markets
Estate Agency
Estate Agency
Division10
49.8%
of Group Revenue in 2019 (2018: 56.6%)
The Estate Agency segment (the Estate
Agency Division) includes Residential Sales
and Lettings, Asset Management (including
repossessions asset management services
for lenders and property management for
multi-property landlords), and Financial
Services, a commercially agreed
commission payment from the Financial
Services segment which reflects Financial
Services income generated from the Estate
Agency segment.
Residential Sales
and Lettings
40.2%
of Group Revenue in 2019 (2018: 45.1%)
• Residential Sales services for residential
property sales.
• Comprehensive Lettings service for
residential landlords and tenants.
Financial
Services
4.4%
of Group Revenue in 2019 (2018: 5.1%)
• Commercially agreed commission
payment from the Financial Services
segment.
Surveying and Valuation Services
Surveying and
Valuation Services
27.8%
of Group Revenue in 2019 (2018: 21.5%)
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.
Asset
Management
1.7%
of Group Revenue in 2019 (2018: 1.7%)
• Repossessions asset management
services for lenders.
• Property management services for multi-
property landlords.
• Repossession volumes increased by
16% to 8,000 (2018: 6,900) in 20199 in a
historically low market.
Other
income
3.5%
of Group Revenue in 2019 (2018: 4.8%)
Includes franchising income, conveyancing
support services, EPCs, Home Reports,
utilities and other products and services
to clients of the Estate Agency branch
networks.
Financial Services
Financial Services
Division10
22.4%
of Group Revenue in 2019 (2018: 21.9%)
• Three Financial Services intermediary
networks all trading as PRIMIS which
are authorised and regulated by the FCA
and provide support and supervision to
financial services intermediaries.
• Brokerage services for mortgages and
non-investment insurance products.
• Arranged £31.7bn mortgage completions
in 2019 (2018: £29.0bn).
• Combined appointed representative
networks is the second largest in the
UK11 measured by number of appointed
representative firms. The number of
financial advisers as at 31st December
2019 was 2,392 (2018: 2,321).
Notes:
1 Bank of England for House Purchase Approvals and Total mortgage approvals
2 UK Finance ‘New mortgages by purpose of loan’
3 HM Land Registry Property Transactions data for 2019 released January 2020
4 Rightmove Total Market Residential New Instructions data for 2019 released January 2020
5 LSL estimates and including Land Registry regional data
6 LSL Property Services/ACADATA HPI
7 LSL sources/data analysis
8 UK Finance ‘New mortgages sold by intermediaries’
9 UK Finance ‘Possessions on mortgaged properties’
10 Following the change to LSL’s segment reporting effective from 1st January 2019, the 2018 revenue of the Estate Agency and Financial Services Divisions have been
restated. The Estate Agency Division also receives a commercially agreed commission payment from the Financial Services segment. This arrangement reflects Financial
Services income generated from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison
11 Which-Network – network performance figures
20
c116224_BOOK.indb 20
c116224_BOOK.indb 20
25/03/2020 13:50
25/03/2020 13:50
21
Business Review
Estate Agency Division
-16%Total income
2018: +3%
-17%Exchange income
2018: -9%
-12%Lettings income
2018: +4%
-17%Financial Services income
2018: +17%
+12%Fee per exchange unit
2018: +1%
9.3%Operating margin
2018: 6.0%
Financial
Residential Sales exchange income
Lettings income
Financial Services income
Asset Management income
Other income2
Total income
Operating expenditure
Underlying Operating Profit3
KPIs
Exchange units
Underlying Operating Margin (%)
Fees per unit (£)
Market data
House purchase approvals (000s)4
Total mortgage approvals (000s)4
UK housing transactions (000s)5
Repossessions6
2019
£m
57.7
67.3
13.6
5.3
11.1
2018
Restated1
£m
69.9
76.6
16.4
5.5
15.4
154.9
(140.5)
14.5
183.8
(172.7)
11.1
2019
16,707
9.3
3,452
2018
22,747
6.0
3,071
789
1,549
1,181
8,000
781
1,535
1,191
6,900
%
change
-17
-12
-17
-4
-29
-16
+19
+30
%
change
-27
+12
+1
+1
-1
+16
Notes:
1 Following the change to LSL’s segment reporting effective from 1st January 2019, the 2018 revenue and Underlying Operating Profit
of the Estate Agency and Financial Services Divisions have been restated. The Estate Agency Division also receives a commercially
agreed commission payment from the Financial Services segment. This arrangement reflects Financial Services income generated
from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison
2 ‘Other income’ includes franchising income, conveyancing services, EPCs, Home Reports, utilities and other products and services to
clients of the branch network
3 Refer to Note 5 to the Financial Statements for the calculation
4 Bank of England for ‘House Purchase Approvals’ and ‘Total Mortgage Approvals’
5 HMRC ‘Monthly property transactions completed in the UK with value of £40,000 or above’
6 UK Finance ‘Possessions on mortgaged properties’
Estate Agency Division performance
LSL announced the reshaping of its Your
Move and Reeds Rains branch networks
on 5th February 2019. LSL is pleased that
the implementation of this programme has
progressed in line with our expectations
despite the scale and complexity of the
project. During the first quarter of 2019, the
Your Move and Reeds Rains estate agency
branch network was reshaped from 308
owned branches to 144 keystone branches
following the closure and merging of 81
neighbouring branches into the keystone
branch network, the franchising of 39
branches and the closure of 44 branches.
Including the impact of this reshaping, total
Estate Agency revenue of £154.9m (2018:
£183.8m) decreased by 16%. Adjusting for
the closure of the Your Move and Reeds
Rains branches during the first quarter of
2019, like-for-like total revenue decreased
by 5% compared to 2018.
The Underlying Operating Profit
performance was strong with 30% growth
in 2019 to £14.5m (2018: £11.1m), benefiting
materially from the reshaping of the Your
Move and Reeds Rains branch networks,
with Estate Agency Division operating
expenditure decreasing by 19%. Underlying
Operating Margin improved to 9.3% (2018:
6.0%).
Residential net sales for the Your Move and
Reeds Rains keystone branches increased
slightly in 2019, despite the challenging
market conditions during the year, and
showed modest growth in market share as
measured by new instructions during 2019.
Residential Sales exchange income
Residential Sales exchange income
decreased by 17% to £57.7m (2018:
£69.9m), average fees per unit increased
by 12% to £3,452 (2018: £3,071) and
20
c116224_BOOK.indb 21
c116224_BOOK.indb 21
21
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Strategic ReportOverview
Business Review
Residential Sales exchange volumes fell
by 27%. On a like-for-like basis, adjusting
for the Your Move and Reeds Rains
branch network reshaping, Residential
Sales exchange income decreased by
3%, average fee per unit was in line with
prior year, and Residential Sales exchange
volumes fell by 3%.
Lettings income
Total Lettings income decreased by 12%
to £67.3m (2018: £76.6m). On a like-for-
like basis, adjusting for the reshaping of
the Your Move and Reeds Rains branch
networks, Lettings income was down
4% on the prior year. Lettings income
represented 43% of total Estate Agency
Division income in 2019 (2018: 42%).
Legislation banning tenant fees came
into effect on 1st June 2019 and LSL
implemented the required changes across
its Estate Agency brands.
Financial Services income
Following the change to LSL’s segment
reporting effective from 1st January 2019,
the Estate Agency Division receives a
commercially agreed commission payment
from the Financial Services segment. This
arrangement reflects Financial Services
income generated from the Estate Agency
segment. The 2018 revenue has been
restated on this basis to assist comparison.
Financial Services income was down 17%
to £13.6m (2018: £16.4m) reflecting the
planned reshaping of the Your Move and
Reeds Rains branch network.
Other income
Other income fell by 29% year-on-year in
large part due to a fall in conveyancing
income due to lower Residential Sales
transaction volumes following the branch
network reshaping.
Asset Management
Asset Management maintained its
market position in the historically low
repossessions market. Other income
included in this category was down during
the period.
Branch numbers
Breakdown of LSL’s Estate Agency
branches as at 31st December 2019 and
31st December 2018:
Your Move
Reeds Rains
Sub total
LSLi
Marsh & Parsons
Total
Owned
Franchise
Total 2019
Total 2018
89
55
144
57
30
231
80
50
130
2
0
132
169
105
274
59
30
363
252
152
404
59
28
491
The total number of Estate Agency
branches reduced by 128 in 2019,
following the changes to the structure of
the Your Move and Reeds Rains estate
agency branch networks announced
on 5th February 2019 which reduced the
total number of Your Move and Reeds
Rains branches from 404 to 279 of which
144 are owned keystone branches and
135 are franchised. Subsequent to these
announced changes, there have been
closures of five pre-existing franchise
branches and the opening of two new
branches in Marsh & Parsons.
Residential sales and lettings
regulation
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 ARLA
Propertymark and NAEA Propertymark.
Membership of these bodies 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.
During the year LSL implemented the
Tenant Fee Act 2019 ahead of the
June 2019 commencement date which
included a review of and updates to
pricing policy and transparency of fees
and charges to tenants and landlords
to ensure compliance across all LSL’s
Lettings businesses. All Lettings
businesses also ensured compliance
with new rules introduced in relation to
mandatory Client Money Protection, prior
to the commencement deadline in April
2019.
Across LSL’s Residential Sales and
Lettings businesses, all businesses have
been working towards compliance with
guidance issued by the National Trading
Standards Agency in April 2019 requiring
disclosure to clients of referral fees earned
from introductions to third parties. LSL’s
Residential Sales and Lettings businesses
have also been impacted by the
introduction into UK law of the Money
Laundering Regulations 2019 (MLR
2019) in December 2019, which applies
the full compliance regime set out in the
MLR 2019 to certain high value Lettings
activities for the first time. The MLR 2019
also requires Residential Sales businesses
to undertake more detailed checks in
relation to the beneficial ownership of
corporate entities looking to sell or buy
property through LSL’s businesses.
LSL from time to time also enters into
direct dialogue with the regulators
and consumer groups. During 2019
there continued to be significant focus
on housing issues and 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 is expected to continue
during 2020. This includes legislation
and consultations impacting and relating
22
c116224_BOOK.indb 22
c116224_BOOK.indb 22
25/03/2020 13:50
25/03/2020 13:50
23
Please also refer to the Principal Risks
and Uncertainties section of this Report
for details of how the Estate Agency Risk
and Compliance Team forms part of the
Group’s risk management and internal
control arrangements, together with
details of how the Group describes and
mitigates risks and uncertainties relating
to regulation and compliance.
to both Residential Sales and Lettings
activities. The Group also considered the
varying outcomes of the general election
result which took place in December 2019
as part of its business planning, and this
included consideration of the impact that a
change in UK Government could have on
the housing sector as a result of changes
to housing policy and regulation.
LSL continues to monitor Government
led policy changes in areas such as
the proposed regulation of lettings
agents, the implementation of selective
licensing by local authorities, the review
of measures which seek to improve
rental arrangements in the private rental
sector and the proposal to create a
specialist housing court. In relation
to Residential Sales this has included
monitoring the work being undertaken by
the Government’s Regulatory Property
Agents: Working Group, the Review of the
Home Buying and Selling Process (which
included a review of referral fees) and
the proposal to create a single property
ombudsman.
The Estate Agency Division has a
dedicated Risk and Compliance Team
which together with the Group’s Legal
Services Team provides support to the
Estate Agency businesses. The Estate
Agency Risk and Compliance Team
is subject to an annual review by the
LSL Audit and Risk Committee with
the Director of Risk and Compliance
being invited to present to the Audit and
Risk Committee each year. The Estate
Agency’s Financial Services activities
are subject to the oversight of First
Complete (see the Regulation element of
the Business Review – Financial Services
Division section of this Report for further
details) as the businesses are appointed
representatives of First Complete.
22
c116224_BOOK.indb 23
c116224_BOOK.indb 23
23
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Strategic ReportOverview Business Review
Financial Services Division
-2%Revenue
2018: +23%
16.7%
Operating profit margin
2018: 13.3%
878Number of appointed
representatives
2018: 841
2,392
Total advisers
2018: 2,321
Financial
Revenue
Operating expenditure
Underlying Operating Profit2
KPIs
Underlying Operating Margin (%)
LSL mortgage completion units (000s)
LSL mortgage completion lending3 (£bn)
Total advisers at 31st December
Number of AR firms at 31st December
2019
£m
69.8
(58.2)
11.6
2018
Restated1
£m
71.0
(61.5)
9.5
2019
16.7
179.4
31.7
2,392
878
2018
13.3
166.0
29.0
2,321
841
Gross new mortgage lending4 (£bn)
267.6
268.7
%
change
-2
+5
+23
%
change
+8
+9
+3
+4
–
Notes:
1 Following the change to LSL’s segment reporting effective from 1st January 2019, the 2018 revenue and Underlying Operating Profit
of the Estate Agency and Financial Services Divisions have been restated. The Estate Agency Division also receives a commercially
agreed commission payment from the Financial Services segment. This arrangement reflects Financial Services income generated
from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison
2 Refer to Note 5 to the Financial Statements for the calculation
3 LSL mortgage completions lending quoted include product transfers
4 UK Finance ‘New mortgage lending by type of lender (excludes product transfers)’
Financial Services Division
performance
Total Financial Services Division revenue
including Estate Agency for the year was
down by 2% to £69.8m (2018: £71.0m),
reflecting the impact of the planned
closure of the Your Move and Reeds Rains
branches. Financial Services organic
revenue growth was 1% year-on-year,
excluding Estate Agency.
In 2019, LSL further strengthened its
position as a leading distributor of
mortgage and non-investment insurance
products and LSL delivered strong
overall growth in the value of mortgage
completions which were up 9% to £31.7bn
in 2019 (2018: £29.0bn). LSL’s market
share is estimated to be 8.5% (2018: 8.0%)
of the total market value of mortgage
completions. LSL is the second largest
combined network nationwide, measured
by combined number of appointed
representative firms. The number of
financial advisers as at 31st December
2019 was 2,392 (2018: 2,321).
The Financial Services Division delivered
a strong performance with Underlying
Operating Profit1 up 23% to £11.6m
(2018: £9.5m) reflecting growth in
core businesses and the benefit of the
acquisitions of PTFS and RSC in Q1 2018.
The Financial Services Division continues
to display positive progress across its
breadth of products including mortgage
products, pure protection products
and general insurance products. The
integration of PTFS, which was acquired
in January 2018, is delivering cost synergy
benefits in line with expectations.
In 2019, the roll-out of the Toolbox
operating system was completed in line
with expectations, to the full network of
over 2,300 brokers and 500 administrators
(part of rationale for acquiring PTFS).
Financial Services regulation
LSL’s Financial Services business includes
three FCA regulated firms, First Complete
Limited, Advance Mortgage Funding
Limited, and Personal Touch Financial
Services Limited, which all trade as
PRIMIS Mortgage Network.
First Complete Limited, Advance Mortgage
Funding Limited, and Personal Touch
Financial Services Limited have regulatory
permission to advise on and arrange
mortgages and insurance products for
their customers. Personal Touch Financial
Services Limited also has regulatory
permission in relation to pension and
investment advice, but is intending
to relinquish these permissions. First
Complete Limited, Advance Mortgage
Funding Limited, and Personal Touch
24
c116224_BOOK.indb 24
c116224_BOOK.indb 24
25/03/2020 13:50
25/03/2020 13:50
25
LSL is an active member of the
Association of Mortgage Intermediaries
(AMI) which is an industry representative
and trade body for mortgage and
insurance financial services businesses.
Through membership of AMI, LSL
engaged in FCA market studies and
regulatory consultations during 2019. LSL
will continue to engage with the FCA and
other relevant regulatory bodies during
2020.
Please also refer to the Principal Risks
and Uncertainties section of this Report
for details of how the Financial Services
Compliance Team forms part of the
Group’s risk management and internal
control arrangements, together with
details of how the Group describes and
mitigates risks and uncertainties relating to
regulation and compliance.
Financial Services Limited each act as
a principal to a network of appointed
representatives.
The following LSL Group companies
are appointed representatives of First
Complete for mortgage and insurance
business; your-move.co.uk Limited, Reeds
Rains Limited, First2Protect Limited,
Mortgages First Ltd, Insurance First
Brokers Ltd, RSC New Homes Limited
and Embrace Financial Services Ltd.
Linear Mortgage Network Limited is an
appointed representative of Advance
Mortgage Funding Limited for mortgage
and insurance business, and is also an
appointed representative of Openwork
Limited for pensions and investment
advice.
LSL’s authorised and regulated Financial
Services businesses are subject to
Financial Ombudsman Service (FOS)
jurisdiction and contribute to the funding
of the Financial Services Compensation
Scheme through regulatory fees and
charges.
24
c116224_BOOK.indb 25
c116224_BOOK.indb 25
25
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Strategic ReportOverview Business Review
Surveying Division
+24%Revenue
2018: +9%
-11%Income per job
2018: -8%
18.9%
Profit margin
2018: 29.3%
514Number of qualified surveyors
2018: 503
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 operational surveyors at 31st December
(FTE)2
Total mortgage approvals (000s)3
Notes:
1 Refer to Note 5 to the Financial Statements for the calculation
2 Full Time Equivalent (FTE)
3 Bank of England for House Purchase Approvals and Total Mortgage Approvals
2019
£m
86.4
(70.0)
16.3
2019
18.9
508
1.8
170
2018
£m
69.8
(49.4)
20.4
2018
29.3
366
2.1
191
8.2
12.4
514
503
1,549
1,535
%
change
+24
-42
-20
%
change
+39
-16
-11
-34
+2
+1
Surveying Division performance
Surveying Division revenue increased by
24% to £86.4m (2018: £69.8m), which
included a material contribution from the
successful commencement of the Lloyds
Bank plc surveying and valuation services
contract, awarded in May 2018. Total
number of jobs performed during the year
were 508,061 (2018: 365,504).
Revenue in the first half of 2019 was up
by 37% year-on-year, which included a
material contribution from the successful
commencement of the Lloyds Bank
plc surveying and valuation services
relationship awarded in May 2018 and
which commenced in the second half
of September 2018. Revenue in the
second half of 2019 was up 13% on
the same period in 2018, reflecting the
commencement of the Lloyds Bank plc
contract from September 2018.
Income per job in 2019 reduced to £170
(2018: £191) due to a change in the
business mix. Total Surveying Division
expenditure increased due to the
additional headcount from the transfer
of Lloyds Bank plc personnel to e.surv
following the award of the new contract
in May 2018. As a result, LSL reported
a reduced Underlying Operating Profit
in 2019 of £16.3m (2018: £20.4m) with a
profit margin of 18.9% (2018: 29.3%). Profit
margin was 14.8% in the first half of 2019,
improving to 22.9% in the second half of
2019.
The total number of operational surveyors
at 31st December 2019 was 514 (2018:
503). In 2020 the Surveying Division
will continue to focus on its successful
graduate programme, which assists
in alleviating the impact of capacity
constraints in the market.
During the first half of 2019, the Surveying
Division was pleased to be awarded an
extension to its contract to supply UK
residential survey and valuation services to
a major high street bank.
Work is on-going to leverage the scale
benefits of the Surveying Division with the
aim of improving cost efficiency.
The technology roll-out continued during
2019 with further functionality releases
designed to enhance quality and drive
efficiencies, for example updated surveyor
software application to improve the user
experience and surveyor efficiency.
At 31st December 2019 the total provision
for PI Costs was £8.2m (2018: £12.4m).
In 2019, the Group continued to make
positive progress in addressing historic
claims and there has been a net £2.5m
exceptional gain in the year.
26
c116224_BOOK.indb 26
c116224_BOOK.indb 26
25/03/2020 13:50
25/03/2020 13:50
Financial Review
£311.1m
Group Revenue
Down 4% (2018: £324.6m)
£37.0m
Group Underlying Operating Profit
Up 3% (2018: £35.9m)
£38.8m
Cash generated from operations
Up 5% (2018: £36.9m)
£19.7m
Group operating profit
Down 22% (2018: £25.4m)
Income Statement
Group Revenue
Revenue decreased by 4.2% to £311.1m in
the year ended 31st December 2019 (2018:
£324.6m).
Other operating income
Other income of £887,000 (2018: £557,000)
for the year ended 31st December 2019
increased 59.2% and comprised of rental
income. The increase is a result of new
leases on properties no longer occupied by
the Group.
Gain on sale of property, plant and
equipment
There was a gain of £148,000 (2018:
£34,000) in the year ended 31st December
2019 resulting from the disposal of
commercial property.
Income from joint ventures and
associates
Income from joint ventures and associates
was £441,000 (2018: £259,000).
Total operating expenses
Total operating expenses decreased by
4.9% to £275.5m (2018: £289.6m). The
decrease is largely driven by the reshaping
of the Your Move and Reeds Rains branch
networks, announced on 5th February 2019,
which was partly offset by an increase in
Surveying operating expenses with the
full year impact of the transfer to e.surv
of the existing Lloyds Bank plc surveyors
and back-office employees as part of the
contract awarded to e.surv during May
2018, which commenced in September
2018.
Group Underlying Operating Profit
Group Underlying Operating Profit1
increased by 3.2% to £37.0m (2018:
£35.9m) with an Underlying Operating
Margin of 11.9% (2018: 11.1%). Excluding
the impact of IFRS 16, Group Underlying
Operating Profit of £36.2m was 1% ahead of
prior year (2018: £35.9m).
On a statutory basis, Group operating profit
decreased to £19.7m (2018: £25.4m). This
decrease is largely driven by exceptional
costs resulting from the reshaping of
the Your Move and Reeds Rains branch
networks. In 2019 there was a net
exceptional cost of £13.2m compared to the
2018 financial results which included a net
exceptional cost of £3.0m. Group operating
profit was positively impacted in the year
by a £2m credit relating to contingent
consideration, compared to a £1.8m cost
in 2018.
Group Adjusted EBITDA
Group Adjusted EBITDA2 increased by
24.8% to £51.9m (2018: £41.6m), following
the adoption by LSL from 1st January 2019
of IFRS 16 Leases. Depreciation of £10.0m
has been recognised in the 2019 financial
year against the right of use assets created
by leasing contracts. Excluding the impact
of IFRS 16 Group Adjusted EBITDA was
down 2% to £40.9m (2018: £41.6m).
Share-based payments
The share-based payment charge of
£312,000 (2018: £349,000) consists of a
charge in the period of £1.6m offset by the
lapse of the 2017 LTIP scheme as well as
adjustments for leavers in the period.
Amortisation of intangible assets
The amortisation charge for 2019 was
£5.8m (2018: £5.3m). The increase in 2019
is the result of amortisation on lettings
books purchased in the year and software
amortised across the Group.
Exceptional items
Total 2019 net exceptional cost of £13.2m
included a £2.5m PI Costs exceptional
provision release (H119: £0.6m, H219
£1.9m) as claims were settled below
previous expectations, and £15.7m of
exceptional costs. The majority of which
were in relation to the restructuring of the
Estate Agency Division, announced on
5th February 2019.
Net financial costs
Net financial costs amounted to £3.7m
(2018: £2.3m). The finance costs related
principally to interest and fees on the
RCF and the unwinding of discounts on
provisions and contingent consideration.
Additional finance costs of £1.6m in the
current year relate to the unwinding of the
IFRS 16 lease liability.
Taxation
The UK corporation tax rate reduced
to 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 (2018: 17%). Corporation
tax is recognised at the headline UK
corporation tax rate of 19% (2018: 19%).
c116224_BOOK.indb 27
c116224_BOOK.indb 27
27
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Financial Review
The effective rate of tax for the year was
19.0% (2018: 22.5%). The effective tax rate
for 2019 is equal to the headline UK tax
rate for a number of reasons, but the most
significant is the depreciation of assets
which do not qualify for capital allowances,
which are offset by non-taxable income in
relation to contingent consideration.
Deferred tax credited directly to other
comprehensive income is £0.1m (2018:
£0.0m). Income tax credited directly to the
share-based payment reserve is £0.0m
(2018: £0.0m).
In 2019 corporation tax payments of
£5.5m (2018: £6.9m) were made which is
greater than the current year corporation
tax charge of £4.0m (2018: £5.9m). This is
a result of two quarterly payments being
made in the year in respect of the year
ended 31st December 2018 liability, which is
higher than the corporation tax charge for
the year ended 31st December 2019.
Basic Earnings Per Share
The Basic Earnings Per Share was
12.6 pence (2018: 17.4 pence). The
Adjusted Basic Earnings Per Share3 is
28.0 pence (2018: 27.2 pence), an increase
of 2.9% which is 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
and amortisation provides a better and
more consistent indicator of the Group’s
underlying performance.
Balance Sheet
Goodwill
There has been no impairment in 2019 in
respect of the carrying amount of goodwill
or brand (an indefinite useful life asset) held
on the balance sheet. In 2019 goodwill
has increased by £140k to £159.9m (2018:
£159.7m). The increase is due to lettings
book acquisitions in the year.
Other intangible assets and property,
plant and equipment
Total capital expenditure in the year
Ian Crabb, Group Chief Executive Officer and Simon Embley, Chairman
amounted to £4.9m (2018: £6.0m) which
includes expenditure of £1.3m (2018: £1.1m)
for new software which has been treated as
an intangible asset. The Group recognised
£43.2m of lease liabilities on the balance
sheet at transition to IFRS 16 on 1st January
2019, with corresponding right of use
assets of £43.8m. At the year end the
Group had £37.2m lease liabilities on the
balance sheet and £36.2m corresponding
right of use assets. IFRS 16 lease liabilities
are excluded from the Group’s Net Bank
Debt calculation.
Financial assets
LSL holds financial assets of £9.3m (2018:
£11.6m). The decrease in the year is in
part, as a result of the revaluation of LSL’s
shareholding in Yopa at the half year, as
already reported in the Interim Results for
the six months ended 30th June 2019. There
has been additional downward revaluation
at the year end in Vibrant Energy Matters
and as a result of the disposal of LSL’s
shareholdings in eProp Services plc, which
were offset in part by the issuance of loan
notes to an associate company and the
addition of sub-lease assets on transition to
IFRS 16.
LSL has a 8.8% minority shareholding
in Yopa. LSL recognised a fair value
impairment of £1.3m at the half year
2019 through the Statement of Other
Comprehensive Income. The carrying value
of the Group’s investment in Yopa remains
unchanged from the half year and has been
assessed as £6.5m (June 2019: £6.5m and
December 2018: £7.8m).
Joint ventures, investments and
associates
The Group has two joint ventures and one
associate: a 33.3% (2018: 33.3%) interest
in TM Group, whose principal activity is to
provide property searches, a 50% (2018:
50%) interest in LMS whose principal
activity is to provide conveyancing panel
management services. LMS and TM Group
are held in the balance sheet at £8.8m
and £1.5m respectively (2018: £8.2m and
£1.5m).
During 2018, LSL acquired a 34.69%
interest in Mortgage Gym, a digital
mortgage marketplace, for cash
consideration of £4.1m. Mortgage Gym
is held in the balance sheet at a value of
£2.7m as at 31st December 2019 (2018:
£3.6m) reflecting the opening carrying
amount less losses of £0.9m in the period.
Financial Liabilities
Net Bank Debt
As at 31st December 2019 Net Bank
Debt4 was £41.9m (2018: £32.1m) and
Shareholders’ funds amounted to £141.2m
(2018: £142.6m) with a balance sheet
gearing of 29.7% (2018: 22.5%). The
increase in Net Bank Debt incorporated
total exceptional cash expenditure of
£8.8m (the majority of which related to the
reshaping of the Your Move and Reeds
Rains branch networks), £9.9m in respect
of deferred and contingent consideration
for Group First and PTFS, and seven
lettings book acquisitions during the year.
The 2019 gearing level was 0.8 times5
Group Adjusted EBITDA (2018: 0.8 times).
Adjusting for the impact of IFRS 16 Leases,
2019 gearing was 1.0 times.
28
c116224_BOOK.indb 28
c116224_BOOK.indb 28
25/03/2020 13:50
25/03/2020 13:50
29
Bank facilities
In January 2018, LSL extended its bank
facility until May 2022. The facility includes
a £100m RCF (2018: £100m). During the
period under review, the Group complied
with all of the financial covenants contained
within the facility.
Deferred and contingent
consideration
Within financial liabilities, LSL has £0.1m
(2018: £2.1m) of deferred consideration
and £5.8m (2018: £15.0m) of contingent
consideration. The contingent consideration
relates primarily to Group First (£1.5m) and
RSC (£3.6m).
Provisions for liabilities:
Professional indemnity (PI) claim
provision
At 31st December 2019, the total provision
for historic PI Costs was £8.2m (2018:
£12.4m). In 2019, the Group continued
to make positive progress in addressing
historic claims and there has been a net
£2.5m exceptional gain.
Onerous lease
As at 31st December 2019 LSL held onerous
lease provisions of £440,000 (2018:
£130,000).
Net assets
The Group’s net assets as at 31st December
2019 were £141.2m (2018: £142.6m).
Statement of Cash-flows
The Group generated strong cash from
operations of £38.8m (2018: £36.9m)
converting 105% of Group Underlying
Operating Profit to cash-flow from
operations (pre PI and exceptionals) (2018:
103%). The small increase in conversion
from 2018 is primarily related to the
decrease in trade and other receivables
of £5.4m (2018: increase of £3.8m) offset
in part by the decrease in trade and other
payables of £6.2m (2018: decrease of
£0.1m), resulting in part from normalised
Surveying revenue levels in the last quarter
of 2019 in comparison to the last quarter
of 2018. Provisions also decreased by
£3.9m (2018: decrease of £3.6m) due to the
positive progress in addressing historic PI
claims.
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.
International Financial Reporting
Standards (IFRS)
The Financial Statements have been
prepared under IFRS as adopted by the
European Union.
28
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
4 Refer to Note 32 to the Financial Statements for the calculation
5 Operational gearing is defined as Net Bank Debt divided by Group Adjusted EBITDA2
c116224_BOOK.indb 29
c116224_BOOK.indb 29
29
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Stakeholder Engagement Arrangements
This section of the Report details how LSL engages with its stakeholders and has regard to its stakeholders in its
decision-making arrangements.
The Group’s key stakeholders are identified
as:
and was also reported to the Executive
Committee.
• employees (workforce);
• customers;
• suppliers; and
• Shareholders.
While other stakeholder groups exist and are
regularly considered, the reporting below
focuses on the above key groups.
Additional information relating to
stakeholder engagement arrangements
and activities are also included in the
Report of the Directors’, Corporate Social
Responsibility and Corporate Governance
sections of this Report. Information
included in this section and elsewhere in
the Report is provided in accordance with
relevant legislation and the Code.
Stakeholder Engagement – in
accordance with relevant legislation
and the Code:
Set out below is a description of how the
Directors have engaged with the Group’s
workforce in 2019 and how the Directors
have had regard to the need to foster LSL’s
relationships with all key stakeholders
including suppliers and customers during
the year.
During 2019 the Board continued to
embed improvements to its governance
arrangements which were implemented
in 2018 including in particular reporting
arrangements to ensure that items
presented to the Board for approval clearly
identify stakeholders that are relevant to
that particular decision and the potential
impact that the decision may have on those
stakeholder groups.
During 2019 in response to an action arising
from the 2018 Board evaluation exercise,
the Board received the findings of a review
of the Group’s governance arrangements
in relation to stakeholder engagement. This
followed on from activities in 2017 and 2018,
where the Group identified its stakeholders.
Taking this identification into account, the
2019 governance review of stakeholder
engagement sought to identify the ways in
which the Group engages with its diverse
range of stakeholders. The completion of
this exercise was monitored by the Board
Employee Engagement:
In relation to principle D and provision
5 of the Code, in 2019 the Board has
implemented arrangements in relation to
workforce engagement by approval of
the designation of Darrell Evans as the
independent Non Executive Director for
workforce engagement.
In his new role, Darrell has engaged with
LSL’s existing Group Employee Forum.
Darrell is fulfilling his role with support from
the Group HR Director and the Company
Secretary. A role profile has also been
prepared for this role which takes into
account the requirements of the Code.
The Group Employee Forum will operate as
the vehicle for Darrell to establish regular
dialogue with the Group’s workforce. This
dialogue includes Darrell’s attendance at an
annual meeting with the Group Employee
Forum which, in order to maximise the
effectiveness of the meeting, takes place
after the annual employee survey results
have been published to enable the Group
to analyse current data relating to employee
views. Darrell attended his first meeting of
the forum in 2019. See also the Corporate
Governance Report for further information.
The 2019 Employee Forum discussed LSL’s
Employee Mental Health/Well-being Project
(Project) that was due to be launched at the
beginning of 2020 and the Employee Forum
requested that the Board be asked to
confirm its support for this Project. Darrell,
with support from the Group HR Director,
provided this feedback to the Board and
in response, the Directors each confirmed
their support for the Project and the mental
health pledge which was included.
The Board also 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. Details of further
communication with the workforce
(including information relating to the
employee survey) can be found in the
Corporate Social Responsibility and Report
of the Directors sections of this Report.
Employee considerations are also taken
into account by the Board in its decision
making process. See also the s172
Statement included below for examples
of how employee considerations were
taken into account in relation to the
Board’s decision making during 2019. The
Corporate Social Responsibility Statement
describes how the Board communicates
with the Group’s employees.
Shareholders:
LSL consults and meets with Shareholders
to take into account their views and
during 2019 LSL consulted with significant
Shareholders with regards to proxy voting;
and in relation to Remuneration Policy
changes which are being presented to the
2020 AGM, the Remuneration Committee
Chair supported by the Group HR Director
consulted with significant Shareholders.
Further details of these consultations can
be found in the Corporate Governance
Report and Directors’ Remuneration
Report.
Customers:
The Executive Committee during the year
monitors KPIs relating to customer service
which is presented to the Board annually
as part of a Customer Outcomes review.
By monitoring customer outcomes data
the Board and Management Teams are
able to take into account customer views
regarding its products and services. The
Board will also as part of Special Business
presentations during the year receive
reports on customer feedback, which
includes consumer surveys and feedback
from key lender clients.
Suppliers:
During the year, the Group manages its key
suppliers through supplier management
protocols which include reviews of
contractual performance. The Board will
also as part of Management’s reporting,
including Special Business presentations,
receive information relating to key supplier
engagements.
30
c116224_BOOK.indb 30
c116224_BOOK.indb 30
25/03/2020 13:50
25/03/2020 13:50
31
s172 Companies Act 2006 Statement:
Set out below is LSL’s statement on how
stakeholder considerations were taken
into account in relation to two Board
decisions during 2019. Section 414CZA
of the Companies Act 2006 requires a
statement describing how the directors
have had regard to the stakeholder matters
set out in section 172 (a) to (f) of the Act
when performing their duty to promote the
success of the company under that section.
Members of the Board receive regular
updates on their duties and responsibilities
as directors of the company which help
inform their decision making. In addition,
the board papers and presentations
considered by directors before they arrive
at decisions take into account the interests
of all relevant stakeholders.
The two examples demonstrate how
the Board had regard to stakeholder
considerations in relation to principal
decisions made during the year. Because
stakeholder considerations are relevant to
both ‘business as usual’ and to ‘strategic’
decision making, the disclosures below
include examples of both.
1. Strategic decision:
Reshaping of the Your Move and Reeds
Rains branch network (‘new ways of
working programme’):
In approving the reshaping of the Your
Move and Reeds Rains branch networks,
which was announced on the 5th February
2019, the Board had regard to a number of
key stakeholder related factors in reaching
its decision:
Employees:
The simplification and streamlining of the
Your Move and Reeds Rains operations
was expected to result in a headcount
reduction. In approving the proposed
reshaping, the Board sought to minimise
job losses wherever possible by the
franchising of branches, the merging of
branches with keystone branches and
offering alternative employment where
available within the Group.
Customers:
The Directors considered the impact that
the simplification and streamlining of the
Your Move and Reeds Rains operations
would have on customers and concluded
that the formation of the keystone
branches would create a platform, that
would benefit from their larger scale, and
that would enable targeted investment
with the aim of providing enhanced levels
of service to Your Move and Reeds Rains
customers.
Suppliers:
Supplier considerations were not regarded
as a major element of this decision as there
were none whom the Board considered to
be key stakeholders.
The long-term:
The Board considered the changes to
the Your Move and Reeds Rains branch
networks would better position Your Move
and Reeds Rains in the longer term by
improving their operational performance
and market competitiveness.
Shareholders:
The Board also took account of the
financial returns of the project, and
considered that delivering the new ways
of working programme into Your Move
and Reeds Rains was expected to deliver
material improvement in their operating
profit, assuming no material change in
market conditions; and as such would be of
benefit to Shareholders.
Taking into account all of the considerations
above, the Board concluded it was in
the best interests of LSL to approve the
reshaping of the Your Move and Reeds
Rains branch networks.
2. ‘Business as usual’:
Annual Renewal of the Group’s Insurance
Policies:
During 2019, the LSL Board approved the
renewal of the Group’s various insurance
policies ahead of renewal dates. The
policies, which include: professional
indemnity; employer liability; occupiers’
liability; cyber; fleet; crime; and business
disruption, form part of the Group’s risk
management arrangements.
In approving the renewal arrangements,
the Board had regard to the following key
stakeholder considerations in its decision
making:
Shareholders:
The Board considered that the terms of
the renewals would give protections to the
Group for an appropriate cost, and thus
support the protection of Shareholder
interests.
Customers, suppliers, employees and the
community:
The Directors considered that the
renewal arrangements would provide
relevant reassurances and protections to
customers, suppliers, employees and the
wider communities the Group businesses
operate within.
30
c116224_BOOK.indb 31
c116224_BOOK.indb 31
31
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Principal Risks and Uncertainties
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 in discharging this role) on a regular basis identifies, evaluates and manages the principal
risks and uncertainties faced by the Group; as well as factors which could adversely affect its business, operating results
and financial condition.
This part of the Report describes LSL’s
risk management and internal controls
arrangements during 2019 and includes
a summary of the principal risks and
uncertainties faced by the Group during
2019.
Management of risk appetite
During 2019, in line with the FRC’s
Guidance on Risk Management, Internal
Control and Related Financial and
Business Reporting, the Board continued
to manage the Group’s risk appetite
through the risk appetite framework to
ensure continued compliance with the
Code and related FRC guidance. The
Board through its established culture and
underlying processes, expresses and
reviews 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.
LSL’s risk appetite framework has
developed in accordance with the Board’s
risk framework policy. This policy defines
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 expects
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 the identification of actions needed
to bring any specific outlying areas of risk
within target levels.
During 2019, the Group has continued to
promote and support the enhancement
of risk frameworks within each of the
Group’s subsidiary businesses, including
the maintenance of risk appetite measures
by each subsidiary. Each year, each
subsidiary business quantifies their highest
ranked risk areas and routinely provide
the Audit & Risk Committee with graphical
management information to facilitate the
tracking of risk status versus tolerance by
the subsidiary boards and governance
committees which operate within each
of the three Divisions. The framework
continues to improve the visibility of action
plans to address any core risk areas
considered outside tolerance.
Risk management activities in 2019
included the development of more
formalised linkages between subsidiary
risk metrics and Group level risk appetite
statements, furthermore the Group Risk
and Internal Audit team conducted a
comprehensive mapping exercise to
assess the ownership and effectiveness
of second-line oversight across risk-
related activities, spread across the three
operating Divisions and Group Finance,
with actions agreed to strengthen
oversight routines where required.
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 2020,
LSL will continue to review the framework
to ensure it remains in line with emerging
best practice and continues to foster
the maturity of risk appetite routines at
both LSL and its subsidiary businesses.
Enhancements will be made where
improvements which will improve the
Group’s risk management arrangements
are identified.
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,
it is discussed and is subject to Board
approval before the commencement of
any activities, to ensure that appropriate
mitigation control measures 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 2020. Further, the Audit & Risk
Committee and the Board will periodically
conduct reviews of the Group’s risk
management framework to ensure it
reflects the requirements of the Code and
any related guidance (as amended or
replaced from time to time).
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 are included in the
Strategy and Business Model sections of
this Report.
Through organic growth, selective
acquisitions and 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 2019. This
considered the Group’s current position
and its prospect of operating over the
32
c116224_BOOK.indb 32
c116224_BOOK.indb 32
25/03/2020 13:50
25/03/2020 13:50
33
three year period ending 31st December
2022, and reaffirmed the Group’s stated
strategy. The Group’s future prospects
have been further strengthened with the
extension of the RCF which was renewed
in January 2018 for a period up to May
2022.
Group’s prospects, and noted that none
of these individual risks would, in isolation,
compromise the Group’s prospects. See
the Report of the Directors in this Report
for details of how Brexit was taken into
account in completing the going concern
assessment.
and/or political, economic, or other
uncertainties; and
• combination stress test including a
loss of a major contract, a downturn
in housing market, a Surveying PI risk
event and a one-off regulatory fine
following a data breach.
Brexit
Since the 2016 EU referendum result, LSL
has been monitoring Brexit developments
to assess the impact on LSL. ‘Brexit’
is a subset entry within the Group’s
risk appetite framework and in addition
LSL has conducted a specific impact
assessment in relation to Brexit which was
completed in line with FRC guidance.
The impact assessment considered
whether LSL will be impacted directly by
the eventual outcome of the negotiations
between the UK and the EU, for example
due to regulatory changes or due to
changes that may impact our Group
employees or whether the impact would
be indirect, i.e. resulting from the broader
economic uncertainties. The Group
concluded that whilst LSL is not directly
impacted by the Brexit trade negotiations,
due mainly to its UK based business
model, it is indirectly impacted by the
impact that the continued economic
uncertainty has on the housing market.
This approach has ensured that Brexit
developments are being formally
monitored, and the risk status regularly
reassessed with reactive action plans
identified to respond to any market effects
of uncertainty that may be caused by the
outcome of the negotiations between the
UK Government and the EU.
These practices will continue throughout
2020 as the UK’s Brexit transition
continues and enters the transitional
arrangement period involving negotiation
of trade terms, along with wider
consideration of the likely impacts of other
major economic and political events, and
their influence on viability assessment
modelling.
The Group’s principal risks and
uncertainties are set out below. The
Board reviewed LSL’s principal risks
and uncertainties when assessing the
COVID-19
Risks relating to COVID-19 and the impact
are being assessed and the Group will
take into account any guidance issued by
the FRC in relation to its assessment and
its reporting on the impact of the virus.
The Group’s approach will ensure that
as COVID-19 develops it will be closely
monitored, and the risk status regularly
reassessed with action plans identified in
response.
Further, the description of the Group’s
principal risks and uncertainties have been
reviewed and updated to take into account
COVID-19.
Assessment of viability
Although the strategic plan reflects the
Directors’ best estimate of the prospects
of the Group in accordance with provision
31 of the Code, the Directors have
assessed the viability of LSL 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
2022 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 two of
these were 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 close to the level seen in 2008
during the last recession caused by
either, or a combination of, Brexit
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 2022.
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 contained within the
Financial Statements of this Report.
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 Financial viability statement is
contained in the Report of the Directors
section of this Report.
32
c116224_BOOK.indb 33
c116224_BOOK.indb 33
33
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Principal Risks and Uncertainties
Risk management and internal
controls framework
LSL’s risk management and internal
controls framework for 2019 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 routinely 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
in addition to carrying out specific risk
assessments as part of its decision-
making processes;
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 included
in this Report); and
f. reporting by the Chair 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.
c. determination of risk appetite, with
management and mitigation of risks in
line with risk appetite tolerances;
d. assessment of prospects and viability;
e. review of the effectiveness of the risk
management and internal control
systems; and
f. going concern confirmation (for LSL’s
going concern disclosure see the
Report of the Directors included in this
Report).
During 2020 areas of focus will include:
a. further maturing of subsidiary risk
measures, with continued ranking of
risks and evidential tracking of action
plans (for areas outside tolerance) at
relevant management and governance
committees;
b. on-going development of subsidiary
data protection and information security
related risks as part of established
routines at relevant governance
committees; and
c. a revisit by the Group Risk and
Internal Audit team of second-line risk
management routines.
During 2019, 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 judgement 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 2019, this assessment included the
consideration of the following:
a. the implementation of new IT systems
The risk framework includes the following:
across the Group’s Divisions;
a. a risk framework policy;
b. a boardroom culture which promotes
risk assessment and management in
decision making;
b. the rationalisation of the Estate Agency
branch networks and associated cost
base;
c. the re-branding of the Group’s Financial
Services network activities as PRIMIS
in addition to commencing a process
of consolidating and harmonising the
networks management and business
support operations in addition to
planning and implementing the new FCA
Senior Managers Certification Regime;
d. responding to an evolving regulatory
environment which reflects the priority of
the housing sector on the Government’s
agenda and consideration of major
scenarios of further external political and
economic change on the UK housing
market including the impact of Brexit;
and
e. consideration of acquisitions to ensure
that they remain in line with the Group’s
strategies and risk appetite.
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 Financial
viability statement which is included
within the Report of the Directors section
of this Report. 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
34
c116224_BOOK.indb 34
c116224_BOOK.indb 34
25/03/2020 13:50
25/03/2020 13:50
35
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 2019 is set out in the Audit & Risk
Committee Report (Internal Controls) of
this Report.
34
c116224_BOOK.indb 35
c116224_BOOK.indb 35
35
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Principal Risks and Uncertainties
Risk
Strategic:
1
COVID-19 virus
Description
Monitoring and Mitigation
Consumer behaviour and confidence
may be materially impacted by the
COVID-19 virus, which may as a
result have a material impact on the
residential housing market.
There is a risk of infection to LSL
employees.
There is a risk that LSL offices /
branches may be shut in the case of
local COVID-19 infection and customer-
facing activities would need to switch
to less efficient remote working
arrangements.
If IT staff were not able to maintain and
access key systems, due to an inability
to access key locations, business
critical infrastructure and IT systems
may be disrupted.
• Daily management calls to monitor business arrangements and
implement regulatory advice, respond to any immediate business
concerns or emerging situation, assess readiness of plans and any
new responses required, with coordination of the distribution of clear
communications to employees.
• Daily monitoring of key trading data.
• Implementation of responsive measures to reduce costs and conserve
cash.
• Business continuity plans updated for COVID-19 including escalation
procedures and communications. Specific BCP pandemic training
arranged for Senior Management Team. Contingency plans put in
place with defined levels of escalation leading ultimately to deep-
cleaning at affected sites and extensive remote working.
• Local representatives appointed, for example in Estate Agency
branches, to act both as key contacts for communications, and
also to support employees on the ground in observing and applying
required processes and routines.
• Daily monitoring of any COVID-19 incidents with Group employees
and/or customers. Reviewing all site specific business continuity
plans, with a particular focus on curtailing non-essential events such
as conferences and strengthening home working arrangements
across the business, with testing of home working arrangements to
build resilience.
• Implementing business continuity and disaster recovery solutions
(encompassing IT, premises, transportation and employees), for
example, plans to split key teams across sites including home working
to reduce risk of intra-staff transmission and consequential impact on
customer service.
• Inclusion of significant market changes in stress testing.
2
UK housing market
Group performance is intrinsically
linked to the overall performance of the
UK housing market (including subsets –
e.g. prime Central London).
• Daily, weekly and monthly monitoring of trading and market
performance data, as appropriate.
• Initiatives to profitably maintain or increase market share, enhance
product mix and optimise segmentation.
The housing market is also impacted
by changes in national and global
political and economic environments
(e.g. Brexit).
The housing market is also impacted
by domestic or international incidents
(including force majeure events)
which may impact LSL’s stakeholders
(including employees, customers and
suppliers) such as COVID-19, which
may have a significant impact on the
housing market.
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 or
sentiment arising from changes in
Government policy or legislation).
• Development of counter-cyclical and recurring revenue income
streams, including ones less correlated with the number of housing
transactions.
• Responsive investment and cost control measures during the housing
market cycle.
• Budgetary planning and stress test modelling carried out on a
number of market activity scenarios, together with the development of
mitigation plans.
• Investment to deliver strategic projects.
• Balanced UK-wide geographical spread to avoid over-exposure to
local market factors.
• Monitoring of wider macroeconomic and political developments
(including domestic and international developments).
• Multi base-case scenarios and ‘break-it’ modelling for budget setting.
• Monitoring of wider macroeconomic events and political
developments (including both domestic and international), with
responsive business plans and business continuity arrangements.
36
c116224_BOOK.indb 36
c116224_BOOK.indb 36
25/03/2020 13:50
25/03/2020 13:50
37
Risk
Description
Monitoring and Mitigation
3
New UK housing market
entrants
Traditional business models and pricing
structures for residential property
services may be exposed to new
business models and technological
advancements (e.g. online/hybrid
estate agents, automated valuation
models and automated financial
services operating models).
4
Investment, acquisitions
and growth initiatives
Realisation of business case in
relation to investment, acquisition
and major project initiatives, including
development of business cases,
due diligence and integration/
implementation requirements, in
line with LSL’s strategy to complete
selective acquisitions.
• Competitor and industry benchmarking, including regular view of
market developments.
• Development of strategies in response to market disruptors, including
options to capitalise on digital opportunities.
• Continued infrastructure investment, including investment in
innovation and technology, with upgrading, consolidating and
replacing core or legacy operating systems to increase functionality,
improve customer experience, reduce costs and deliver efficiencies.
• Service delivery enhancements, product/services differentiation and
test and learn initiatives.
• Engagement of specialist external consultative support as necessary.
• Monitoring of acquisition, investment, associate and joint venture
opportunities.
• Marketing initiatives.
• Operation of staff incentive schemes to mitigate staff attrition.
• Inclusion of significant market changes in stress testing scenarios.
• Monitoring of opportunities which support delivery of Group strategy.
• Engagement of professional advisers to support identification and
evaluation of strategic investment and acquisition opportunities.
• Defined pre and post-acquisition reporting to the Board and Audit &
Risk Committee.
• Establishment of authority levels for expenditure.
• Use of risk appetite to reflect approach during different stages of the
housing market cycle.
• Defined due diligence processes completed ahead of all investments
and acquisitions.
• Due diligence is undertaken by in-house teams with support from
subject specialists as required.
• Completion of risk assessments including RCF leverage stress testing
ahead of all significant investments and acquisitions.
• Maintenance of resource pool to deliver integration/implementation
activities following completion of acquisitions.
• Established integration/implementation planning methodology in
place.
• Promotion of Group-wide relationships in business arrangements.
• Post-acquisition and post-integration/implementation review
programmes, including detailed presentations to the Board.
• Incorporation in Risk and Internal Audit plans, including additional
engagements where required.
• Documentation of clear business strategy and risk appetite by the
Board, to ensure alignment of new initiatives.
36
c116224_BOOK.indb 37
c116224_BOOK.indb 37
37
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Principal Risks and Uncertainties
Risk
Description
Monitoring and Mitigation
5
Professional services
Exposure to PI claims arising from
lapses in professional services,
including surveying and valuation
practices, financial services advice,
and estate agency services.
6
Client contracts
The performance of the Estate Agency,
Financial Services and Surveying
businesses are dependent on entering
into appropriate agreements and
retaining contracts with key clients/
customers (e.g. lenders, portfolio
landlords and housebuilders).
Surveying and Valuation Services Division
• Robust framework and monitoring routines to maintain valuation
accuracy.
• Dedicated surveying risk team, providing second-line assurance on
the operation of the framework.
• Additional controls in place for potentially higher risk valuations.
• Timely data capture of all potential 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.
• Integration of new business products into existing valuation controls
framework.
• Lender on-boarding policy with Board oversight to ensure instructions
are within risk appetite.
Financial Services Division
• Defined responsibilities for claims management and operation of PI
insurance together with management of underlying risk areas.
• Risk and Internal Audit engagements.
• Governance arrangements relating to the inclusion of products
included within the Financial Services Division panel distribution
arrangements made available for network/club members and their
customers.
• Experienced claims handling personnel supported by legal and
compliance experts.
• Development of dedicated conduct risk MI to ensure fair treatment of
consumers.
• Culture promoting effective sales conduct and open lines of
communication with clients with a focus on customer outcomes.
Group-wide
• Robust reporting processes to centralised risk team to ensure timely
and compliant notifications are made to insurers.
• PLC Board review of PI insurance arrangements.
• Customer outcomes focused forums and initiatives.
• Designated senior members of staff with responsibility for relationship
management at subsidiary and Group levels.
• On-going investment in resources, innovation, technology and service
standards to ensure LSL has the capacity to meet service level
demands.
• Development of new products to meet market needs.
• Proactive management of third party suppliers to ensure continued
compliance with client contract commitments/requirements.
• Oversight of third party providers to maintain overall service quality.
• Targeted marketing and training events for corporate clients.
• Monitoring of client dependency, service delivery, risk 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.
• Process to ensure learnings from bids/instructions are identified and
actioned.
• In-house legal services and compliance teams, with specialist external
legal and compliance support engagement when necessary, together
with dedicated claims/customer complaints management teams
within business areas.
• Risk and Internal Audit reviews.
38
c116224_BOOK.indb 38
c116224_BOOK.indb 38
25/03/2020 13:50
25/03/2020 13:50
39
Risk
Description
Monitoring and Mitigation
7
Business infrastructure
(including IT)
8
Information security
(including data
protection)
The failure of business critical business
infrastructure and business critical IT
systems could result in breakdown in
operational processes, loss of data,
and IT outages, impacting customers
and business performance.
Group operations require
robust internal controls, resilient
infrastructures and business continuity
arrangements (including in relation to
IT).
The controls environment needs to
remain adaptable to support growth
initiatives, harness technological
advancements and counter business
continuity/resilience threats, including
in relation to IT systems, malicious and
cyber-related attacks.
LSL’s strategy recognises the
importance of investing in the Group’s
infrastructure (including IT) to maintain
both competitive advantages and
deliver controls and system security
– all within the context of changing
business models within the residential
property services markets.
Group operations involve the
processing and retention of high
volumes of personal data, with
potential for unintended data loss
and exposure to increasing levels of
external cybercrime, including phishing
attacks and identity theft.
• Group-wide internal controls processes and policies which are subject
to regular review to ensure they are in line with best practice.
• Group IT governance, policies, base standards and initiatives
supported by the Group IT Director and with oversight from the Data
and Information Security Committee.
• Focus on investment and development of innovation and systems
within the Group’s strategies.
• Combination of dedicated in-house IT teams and engagement with
external IT specialist suppliers to deliver efficiencies and market
leading service.
• Maintenance of business infrastructure to ensure effective service
delivery with appropriate controls.
• On-going infrastructure investment and phased development
programmes.
• Identifying, securing and supporting innovation and technology
opportunities through the Group’s investment and acquisition
strategies.
• Implementing business continuity and disaster recovery solutions
(encompassing IT premises, transportation and employees).
• Monitoring of compliance with relevant contractual and regulatory
requirements.
• External consultative support as necessary.
• Risk and Internal Audit engagements.
• Oversight by the Data and Information Security Committee, the Audit
& Risk Committee and the LSL Board.
• LSL Data and Information Security Committee established with policy
implementation and oversight responsibilities.
• Defined Group-wide base policy standards.
• Dedicated information security and data protection personnel
(including DPOs).
• Regular staff training programmes and awareness assessments
undertaken.
• Group cyber insurance cover in place.
Data protection
• Group data protection policies and training in place supported by
in-house legal and compliance teams.
• Tracking of data assets/data sharing and any breach incidents, in line
with authority levels, including monitoring of the storage of sensitive
data.
• Remedial steps taken to address any identified control weaknesses
and ensure reporting in line with regulatory requirements.
• Implementation of regulatory changes, with post-launch oversight
routines embedded as ‘business as usual’ (e.g. General Data
Protection Regulation).
Systems security
• Penetration testing, intrusion scanning programme, and secure back-
ups and encryption of key data.
• Other controls such as password protected computers, clean desk
policy, alerts on external emails and automatic password locking of
computers left idle.
• Benchmarking against and accreditation by best practice standards –
e.g. ISO27001 accreditation for e.surv.
• Second and third-line risk-based thematic reviews.
38
c116224_BOOK.indb 39
c116224_BOOK.indb 39
39
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Principal Risks and Uncertainties
Risk
Description
Monitoring and Mitigation
9
Regulatory and
compliance
The Group is required to comply
with various legal and regulatory
requirements, whether as an employer
or 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 such as the Senior
Managers Certification Regime.
Regulatory and compliance risk
extends to the Group requiring through
its contracts regulatory compliance by
its business partners (e.g. franchises,
appointed representatives, joint
ventures, minority investments,
associates and suppliers).
The market and business operations
are also impacted by a number of
proposed regulatory reforms (e.g.
Government reviews relating to the
housing market, including reforms of
lettings fees and conveyancing referral
fees) which impact on Group Revenue
and expenditure.
Regulatory costs, fees and charges
continue to grow due to the growth of
LSL’s Financial Services businesses
and the funding requirements of the
Financial Services Compensation
Scheme (FSCS).
• Top-down management culture focused on fairness, transparency
and delivery of good customer outcomes.
• Open dialogue with regulators and monitoring of emerging
developments and regulatory reforms.
• Group risk framework policy incorporating where appropriate ‘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
with an associated Group reporting framework which covers the
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, Estate Agency regulatory risk steering group and Data
and Information Security Committee).
• Dedicated second-line compliance teams in higher risk/regulated
functions.
• Investment in recruitment of expertise within the divisional compliance
teams to ensure the Group is able to maintain appropriate procedures
and risk measures for regulatory compliance.
• Harmonisation of best practice compliance standards following
acquisitions.
• Dedicated Group Tax Manager monitors compliance with new tax
legislation, e.g. IR35 and Making Tax Digital.
• Evolution and development of IT systems to strengthen oversight
routines.
• Monitoring of franchise oversight obligations continuing.
• Responsive complaints tracking of any emerging themes.
• In-house legal, with access to specialist external legal when
necessary.
• Group Risk and Internal Audit engagements including assessments of
the effectiveness of second-line oversight routines.
• Membership of industry trade bodies and participation in Government
and regulatory consultations.
• Responsive business model changes to mitigate and address the
impact of any regulatory changes.
40
c116224_BOOK.indb 40
c116224_BOOK.indb 40
25/03/2020 13:50
25/03/2020 13:50
41
Risk
Description
Monitoring and Mitigation
10
Employees
There is a risk that LSL may not be
able to recruit or retain sufficient staff to
achieve its operational objectives. This
may result for example, in an inability to
service customers adequately, develop
new products or execute the LSL
Strategic Plan. If staff are recruited into
roles without the requisite experience
or training, the risk of operational errors
increases, which may impact business
performance.
To address this risk, it is important for
LSL to secure and retain key strategic
staff and control attrition in key
business critical areas, for example,
through e.surv’s graduate recruitment
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 Company Secretary and Group HR Director as
well as a nominated LSL independent Non Executive Director for
workforce engagement.
• Establishment of employee forum with regular engagement with
the workforce engagement designated independent Non Executive
Director.
• Group remuneration policies and incentive schemes to retain key
strategic populations.
• Regular benchmarking and appraisals of Executive Directors and
Senior Management.
• Succession planning reviews and targeted development programmes
for high achievers.
• Dedicated in-house talent acquisition teams within Group HR.
• Targeted retention and recruitment initiatives.
• Employee surveys and Group HR initiatives to monitor culture,
attrition, morale, and any areas of pressure.
• Group-wide HR IT systems.
• Monitoring of statutory reporting requirements and developments (e.g.
gender and ethnic pay reporting) and impact of new tax regulations,
e.g. IR35.
• Employee policies and monitoring frameworks in place (e.g. health and
safety and lone working arrangements to ensure employee welfare).
• Monitoring subsidiary culture, values and ethics and the development
of LSL’s culture, values and ethics.
• Implementation of workforce engagement measures to ensure
employee considerations are included in decision making.
• Adoption of reporting arrangements to demonstrate consideration of
key stakeholders, including employees in decision making.
• Clear Group policies and whistleblowing procedures to enable
employees to confidentially raise or report concerns.
40
c116224_BOOK.indb 41
c116224_BOOK.indb 41
41
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Corporate Social Responsibility
Thomas Morris branch staff raising money for the Agents Giving charity
Information included in this section of the Report is (unless specified otherwise) as at 31st December 2019.
The Board recognises that it is important that Group companies operate in a responsible way. LSL’s stakeholders expect LSL to take
their 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 residential property services group. This section
of this Report details how LSL seeks to manage these interests and deliver on corporate social responsibility. For further information
relating to stakeholder engagement, see the Stakeholder Engagement Arrangements section of this Report.
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 continued focus on 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).
The ways in which LSL communicates with its employees were evaluated and assessed in 2019 as part of the work that LSL undertook in
relation to the new workforce engagement requirements of the Code. Following this review, Darrell Evans was appointed LSL’s designated
Non Executive Director in relation to workforce engagement. Further details of the Board’s employee engagement activities (including the
Group’s Employee Engagement Forum) can be found in the Stakeholder Engagement Arrangements and Corporate Governance Report
sections of this Report.
LSL’s focus is on actions that the Group can take, over and above legal or Code requirements, to address its competitive interests as
well as those of the wider society. This approach underpins all internal policies that the Group adheres to. LSL actively ensures that
its businesses are compliant and proactive in respect of legislation and take into consideration, where appropriate, key stakeholders,
including employees, customers, suppliers, local communities and other relevant stakeholders’ interests. Please also see the Stakeholder
Engagement Arrangements section of this Report.
42
c116224_BOOK.indb 42
c116224_BOOK.indb 42
25/03/2020 13:50
25/03/2020 13:50
43
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 demonstrates the Group’s commitment to the reduction of energy consumption and the positive impact that this will have both on
the environment and on reducing costs to the Group’s businesses.
LSL’s social responsibility scope extends to its relationships with customers and suppliers, and all Group companies conduct business in
a manner which seeks to be honest and fair in these relationships. Further, ethics, hospitality and conflicts policies are in place to support
the businesses and to govern these relationships.
Environmental, Social and Governance (ESG) matters
As part of its regular risk assessment procedures and in its decision making, LSL takes into account the significance of ESG matters
relevant to the Group. LSL will identify and assess the significant ESG risks to LSL’s short and long-term value, as well as the opportunities
to enhance value that may arise from activities. The Board will also receive information and training on relevant ESG matters.
The Board ensures that LSL has in place effective systems for managing and mitigating significant risks, which, where relevant,
incorporate performance management systems and appropriate remuneration incentives. For further details on LSL’s internal controls and
risk management arrangements, see the Principal Risks and Uncertainties section of this Report.
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 seeks to
recruit and retain the right individuals to work at every level throughout the Group. An essential part of LSL’s strategy is to encourage and
promote effective communication with all employees which includes the use of an annual employee opinion survey to obtain employee
views and the establishment of a Group-wide employee engagement forum, which discusses the outcome of the employee survey each
year. These engagements support the Group in its decision making, ensuring it takes into account employees’ views.
As outlined above, the ways in which LSL communicates with its employees was evaluated and assessed in 2019 as part of the work that
LSL undertook in relation to the new workforce engagement elements of the Code; further details of the Board’s employee engagement
activities (including the Group’s Employee Engagement Forum) can be found in the Employee Engagement Arrangements and Corporate
Governance Report sections of this Report.
For further details of the employee survey arrangements and the Group Employee Engagement Forum, see also the Employees element of
the Communication section below.
Employees are also eligible to participate in LSL’s employee share schemes, including the SAYE and the SIP/BAYE schemes. Participation
in the Group’s share schemes encourages and involves the Group’s employees in the Group’s performance.
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, Financial Services, and Surveying and Valuation Services 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 decision making on how the Group approaches the
management of its workforce.
Communication
During 2019 LSL continued to implement improvements to its governance arrangements to reflect best practice introduced by the joint
guidance issued by the Investment Association and ICSA in relation to stakeholder engagement in addition to the guidance issued by the
GC100 on directors’ duties under section 172 of the Companies Act 2006.
The Group’s businesses evaluate and monitor how they each communicate with LSL’s stakeholder groups, including employees; and,
as outlined the Corporate Governance Report of this Report, in 2019 a review of the Group’s governance arrangements in relation to
stakeholder engagement was undertaken.
Examples of the communication methods are set out below:
Employees
LSL ensures that employees are kept informed of Group affairs via information distributed by post, email, handbooks, various intranet sites
and employee forums (including roadshows/management presentations and colleague briefings). Communications encourage employee
awareness of the financial and economic factors affecting the Group. Further employees are invited to participate in Group’s share
schemes which encourages their involvement in the Group’s performance.
LSL’s businesses all value employee feedback and all Group employees are encouraged to discuss strategic, operational and other
business issues (including financial and economic factors affecting the Group’s performance) within their teams and with their
management teams.
42
c116224_BOOK.indb 43
c116224_BOOK.indb 43
43
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Corporate Social Responsibility
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 and review culture.
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 consultant.
As in previous years, the 2019 survey which related to 2018, covered all aspects of the working environment including culture, 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 survey undertaken in 2019 was positive with 3,173 (71%) (2018: 3,302
(65%)) returns received. The survey relating to 2019 is being conducted in 2020 and the findings will be reported in the Annual Report and
Accounts 2020.
The Group has also established a Group employee engagement forum and cross business team, which has been established in the last
three years with individuals from across the Group, including members of the senior management teams. The forum meets regularly
via webinars, and at least annually in person. It has proved positive with initiatives being shared across the Group to improve employee
engagement.
As outlined in the Stakeholder Engagement Arrangements and Corporate Governance Report sections of this Report, the Group’s
employee engagement forum also provides the vehicle for Darrell Evans (LSL’s designated Non Executive Director in relation to workforce
engagement) to establish regular dialogue with the Group’s workforce. This dialogue includes Darrell’s attendance at an annual meeting
with the Group employee engagement forum which, in order to maximise the effectiveness of the meeting, takes place after the annual
employee survey results have been published to enable the Group to analyse current and up to date data relating to employee views.
Darrell met with the forum in 2019.
The employee opinion survey results also 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.
The process is planned to be repeated again in 2020 as LSL remains committed to the continual development and improvement of
employee engagement across the Group.
Customers
In relation to its customers, all Group 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.
LSL’s Executive Committee carries out regular customer outcomes reviews which include, for example, a review of customer complaints
and a review of the Group’s service level performance for key customer contracts.
Suppliers
LSL has in place supplier relationship management arrangements across all its businesses and has a Supplier Code of Conduct to
capture and communicate LSL’s policies and procedures to its suppliers which includes provisions relating to modern slavery and anti-
bribery.
Reeds Rains and Lauristons support local football teams
44
c116224_BOOK.indb 44
c116224_BOOK.indb 44
25/03/2020 13:50
25/03/2020 13:50
45
Equal opportunities
LSL promotes equal opportunities in employment, recognising that equality and diversity are a vital part of the Group’s success and
growth. The Group’s 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 certain 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. In 2020 it is intended that processes will be developed by which the Board will be able to assess and monitor
culture and seek corrective action where behaviour is not aligned.
Gender diversity
During 2019, LSL has remained committed to diversity and equal pay and commenced reporting on gender pay for all LSL Group
companies with more than 250 employees, in accordance with the new reporting requirements, to the Government’s website for report
submissions (gender-pay-gap.service.gov.uk).
The Group is also monitoring the Government’s review of reporting in relation to ethnic pay and is also reviewing the Parker Report into the
Ethnic Diversity of UK Boards.
Disability
LSL has in place policies and procedures to achieve its objective that where appropriate, upon employment reasonable adjustments will
be made to accommodate disabled persons wherever the requirements of the organisation will allow, and if applications for employment
are received from suitable individuals. If existing employees become disabled every reasonable effort is also made to ensure that their
employment with LSL can continue on a worthwhile basis with career opportunities available to them.
Employee key performance indicators
The Group uses a number of key performance indicators to measure its progress during the year, including employee turnover and the
makeup of its workforce by gender.
Total employees at 31st December
Total employee turnover percentage (%)¹
Breakdown by gender
Male
Female
Note: ¹ Data excludes forced leavers
2019
4,772
26.7
2019
2,255
2,517
2018
2017
2016
2015
5,463
27.0
5,084
28.7
4,990
30.8
5,181
28.5
2018
2017
2016
2015
2,562
2,901
2,273
2,811
2,206
2,784
2,285
2,896
The gender split for the Board, the senior management team and the Group employees as at 31st December 2019 and 2018 is as follows:
Directors
Senior Managers
Female
2018
2
17
2019
2
15
2019
6
56
Male
2018
5
59
Group employees (exc Directors and senior managers)
2,500
2,882
2,193
2,498
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 2019, LSL continued its commitment to recruit, develop and invest in colleagues. LSL’s approach is to prioritise colleague learning
and development to strengthen the Group’s businesses and to ensure the Group’s continued success.
The Group continued in 2019 to review its processes and put into place arrangements to ensure compliance with new legislation
including, in the Estate Agency Division, the Tenant Fees Act 2019, Minimum Energy Efficiency Standard Regulations and Homes (Fitness
for Habitation) Act 2018. Within the Financial Services Division, the Group implemented new arrangements to ensure compliance with the
FCA’s Senior Managers and Certification Regime.
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.
44
c116224_BOOK.indb 45
c116224_BOOK.indb 45
45
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview
Corporate Social Responsibility
LSL also regularly monitors and contributes to consultations relating to legislative and regulatory reviews and reforms. For further details
relating to laws and regulations which impact LSL’s business, see the Divisional Business Review sections of this Report.
Details of LSL’s approaches to training are summarised below.
Group HR – Learning and Development Team
LSL’s Group HR function includes a ‘Learning and Development Team’ which delivered classroom and webinar based training to a total of
3,054 Group employees during 2019, equating to the delivery of 5,452 training days.
During 2019 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 and to reduce intrusiveness on day to day business. In addition to this, Group employees completed 77,457
eLearning modules. However classroom based learning continues to be the preferred option for focussed training on initiatives.
By fostering an inclusive culture, LSL is committed to diversity and equal pay, and recognises 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 training programmes which include both unconscious bias and assertiveness training.
The LSL Group recognises the need to support the development of existing staff and have a number of specific routes to progression
through newly developed apprenticeship programmes. These programmes prepare individuals for the next step in their careers, whether that
be a supervisory, management or leadership position within the Group. In total 393 employees had been enrolled onto an apprenticeship at
the end of 2019, with employees undertaking courses ranging from Level 2 qualifications (for individuals new to the business) up to Level 7
qualifications (for those studying a masters or equivalent qualifications). As a national employer LSL works with a number of training providers
in order to fulfil our apprenticeship needs these range from national providers to more local providers offering specialised training.
Estate Agency Division
The Estate Agency Division’s branches adhere to the Codes of Practice issued by industry professional and regulatory bodies, including
the TPO and/or ARLA Propertymark and NAEA Propertymark. 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 2015, 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 from time to time also enters into direct dialogue with the regulators and consumer groups. During 2019 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 continued during 2018 and 2019.
The Estate Agency Division has a dedicated Risk and Compliance Team and is subject to oversight by the Estate Agency Management
Committee.
Financial Services Division
Your Move, Reeds Rains, First2Protect, Mortgages First, Insurance First, Embrace Financial Services, and RSC New Homes are all
appointed representatives of First Complete. Linear Financial Solutions is an appointed representative of Advance Mortgage Funding for
mortgage and non-investment insurance brokerage and also an appointed representative of Openwork for investment business. RSC
New Homes is an appointed representative of First Complete and Personal Touch Financial Services.
The First Complete, Advance Mortgage Funding and Personal Touch Financial Services intermediary networks all trade as PRIMIS. The
new trading style was launched in January 2019. All three companies are directly authorised by the FCA in relation to the arrangement of
mortgage and non-investment insurance products. During the year, the Financial Services Division put in place arrangements to comply
with the Senior Managers and Certification Regime.
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 and Embrace Financial
Services, 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 also 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. 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 and outcomes. The Group also has a Financial Services Management
Committee which receives reports from the Financial Services Management Team and provides assurance to the LSL Board.
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.
46
c116224_BOOK.indb 46
c116224_BOOK.indb 46
25/03/2020 13:50
25/03/2020 13:50
47
Surveying and Valuation Services Division
There are a total of 47 graduate trainees in the Surveying and Valuation Services Division, with a further 61 from previous graduate cohorts
who have achieved AssocRICS qualifications and are productive. There are 55 still working towards the competency levels (including
ten apprentices) who are on schedule to qualify to AssocRICS status during 2019/2020. In addition there are seven AssocRICS qualified
surveyors being sponsored through the Assessment of Professional Competency (APC) programme, and an additional seven who have
successfully completed, resulting in the MRICS status.
e.surv has a well-established mentoring programme for new surveyors entering the industry.
All surveyors are regulated by RICS and Continuing Professional Development (CPD) is a commitment by members 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, classroom based training and regional
conferences.
Training
During 2019, the Group’s training expenditure was:
Division
Estate Agency
Financial Services
Surveying and Valuation Services
Total expenditure2
Expenditure 2019
£
Expenditure 2018
£
1,048,252
367,370
932,083
2,347,705
1,207,6001
365,8911
763,182
2,336,673
Notes:
1 Prior to the introduction of three segment reporting which is effective from the 2019 financial year, the Financial Services businesses’ expenditure was reported as part of the Estate Agency
and Related Services Division figure
2 This includes in-house training costs of £1,555,952 (2018: £1,582,119)
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.
During 2019, a project team was established and a set of initiatives created ready to launch in 2020 with the objective of increasing Mental
Health awareness within the workplace. The aim of the initiative is to begin to raise the understanding of our own mental well-being and
those around us, by encouraging employees to have open conversations around mental well-being and by providing employees with the
skills to support each other in the workplace. The initiative is fully supported by the LSL Board and Senior Management Team, with senior
leaders demonstrating their commitment by signing an employer pledge, Employees will have access to a range of e-learning modules
(including manager specific training), as well as an employee assistance programme and a stress and well-being specific HR policy.
Environmental issues
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)
In complying with ESOS Regulations 2014 and Article 8 of the EU Energy Efficiency Directive, LSL appointed a Lead Assessor to
undertake a number of energy audits, the results of which were submitted to the Environment Agency in December 2015 and again for
ESOS Phase 2 and submission to the Environment Agency in December 2019.
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.
LSL continued to meet the ESOS qualifying criteria and is required to complete the qualifying number of energy audits and notify the
Environment Agency of ESOS compliance by 5th December 2019 (the previous audit being completed in 2015). These audits were
46
c116224_BOOK.indb 47
c116224_BOOK.indb 47
47
25/03/2020 13:50
25/03/2020 13:50
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Corporate Social Responsibility
completed in 2019 and LSL notified the Environment Agency of ESOS compliance ahead of the 5th December 2019 deadline (please see
the 2019 ESOS Phase 2 Audit section below for further information).
During 2019 the Group continued to proactively review and manage recommendations from the 2015 ESOS audit across branch premises
and head office locations, implementing changes to key areas as listed below, on acquisition of new premises and via the branch refresh
programmes. During 2019, LSL’s energy initiatives will take into account the implementation of the Estate Agency: ways of working
programme.
• Energy Monitoring – The programme of smart meter installation is on-going (and included as a standard requirement where supply is
tendered) providing greater accuracy for billing data and usage. Electricity to the Marsh & Parsons premises estate will all be supplied
via smart meter by the end of 2020.
• Lighting – The upgrade to low consumption fittings and LED lighting continues across the Group’s branch premises and head office
sites, with LED lighting installed throughout branches included in the Reeds Rains and Your Move 2019 refresh programmes, including
both customer facing and back office areas. Elsewhere in the Group there were several key location premises acquired in Halifax,
Kettering and Solihull where LED lighting was installed. On acquisition it remains a key requirement that environmental effectiveness of
the building is considered and included as part of negotiation and, where applicable, forms part of any fit out work.
• Heating, Ventilation and Air Conditioning – The practice of maintaining systems in accordance with manufacturer recommendations
continues in order to ensure efficiency of the system, and where new premises are acquired the effectiveness of any existing installation
is verified to ensure compliance with ESOS recommendations and standards.
• Transport – The Group strategy on emissions levels (including zero emission vehicles) is a key consideration in options on vehicle
availability for employees to consider when opting for a fleet vehicle. The trial of telematics devices is also on-going as manufacturers
extend the range and scope of technical and driver data available to asses driving practices and fuel consumption.
2019 ESOS Phase 2 Audit:
During 2019, LSL undertook ESOS Phase 2 audits to identify further opportunities for energy and emissions reductions and to ensure
continued compliance to the ESOS Regulations 2014 and Article 8 of the EU Energy Efficiency Directive. The aim of ESOS is to aid
organisations in its 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 2019 and LSL’s
next audit is scheduled to take place in four years in accordance with the Environment Agency timetable. The 2019 audit, which was
completed by a Lead ESOS Assessor, involved a review of energy consumption data and visits to selected branches and offices.
The 2019 audits showed that:
• Lighting shows a significant consumption drop from 19% (2015) to 11%. This directly reflects the on-going branch refresh programmes
and installation of LED lighting.
• Heating, ventilation and air conditioning is maintained so as to ensure efficiency of the system, and where new premises are acquired
the effectiveness of any existing install is verified to ensure compliance with ESOS strategies.
• Fuel consumption decreased by 6% despite an increase in vehicle numbers. This reduction is attributed to a combination of better fuel
consumption, vehicle management and driver performance. The Group strategy on emissions levels (including zero emission vehicles)
is a key consideration in options on vehicle availability for employees to consider when opting for a fleet vehicle. The trial of telematics
devices is also on-going as manufacturers extend the range and scope of technical and driver data available to asses driving practices
and fuel consumption.
The recommendations arising from the audit, which were reported to the Board during 2019, are being reviewed and a plan formulated to
ensure the achievement of energy efficient savings and good energy management across the LSL Group.
Greenhouse gas emissions
This section of this 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 2018/19 reporting period, the Group emitted a total of 4,955 tCO2e from fuel combustion and operation of facilities (Scope 1
direct), and electricity purchased for the Group’s own use (Scope 2 indirect). This is equal to 16 tCO2e per £m of revenue or 1.17 tCO2e per
full time equivalent employee.
The table below shows LSL’s tCO2e emissions for the period 1st October – 30th September for the years 2015 to 2019.
(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
2018/19
3,420
1,535
4,955
1.17
16
2017/18
2016/17
2015/16
3,705
2,625
6,330
1.27
20
3,959
2,721
6,680
1.47
22
4,046
3,553
7,599
1.69
24
48
c116224_BOOK.indb 48
c116224_BOOK.indb 48
25/03/2020 13:50
25/03/2020 13:50
49
As the table demonstrates, since 2015 LSL’s absolute emissions have decreased by 35%. This reduction has principally been 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 including the
reshaping of the Your Move and Reeds Rains branch network; 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 2018 GHG 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 Statements. LSL does not have responsibility for
any emission sources that are not included within the consolidated Financial Statements. 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 2018/2019 reporting period are:
• Scope 1: Natural gas combustion within boilers and road fuel combustion within vehicles; and
• 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
2017/2018 as a proxy.
Social and community interests (including human rights, ethical issues and prevention of modern slavery)
LSL’s social and community interests (which includes the promotion of human rights, ethical issues and prevention of 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:
• make donations both to local and national charities;
• support and organise fundraising events including supporting charities and local community initiatives selected by Group companies;
and
• support employees in their personal fundraising ambitions.
Further details of some specific charitable initiatives are set out below in this section of this Report.
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 one of the policies that 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. tax evasion; and
f. whistleblowing.
All Group employees are made aware of the CEP, 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
c116224_BOOK.indb 49
c116224_BOOK.indb 49
49
25/03/2020 13:50
25/03/2020 13:50
48
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Corporate Social Responsibility
and suppliers. As part of this, LSL and its subsidiary companies have in place arrangements which seek to safeguard against modern
slavery and human trafficking occurring within their businesses or any of their supply chains.
During 2019, LSL continued to implement arrangements to ensure compliance with the Modern Slavery Act 2015 including publishing
its Modern Slavery Statement (Statement) for the financial year ending 2018 which was published in June 2019 (see lslps.co.uk/modern-
slavery). LSL also has a dedicated LSL anti-slavery and human trafficking policy which works in combination with LSL’s established
whistleblowing policy.
The published Statement sets out the steps taken by LSL, 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 a director of each of these companies).
Anti-corruption and bribery
The Group has in place arrangements to ensure compliance with the Bribery Act 2010 and its arrangements are risk-based. The Group
reviewed anti-corruption and bribery risks in the development of its policies and procedures which are reviewed periodically.
Payment practices reform
Your Move, Reeds Rains and e.surv continued to submit their payment practices reports in 2019 which are available on the Government’s
website for report submissions (check-payment-practices.service.gov.uk/).
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.
In 2019 the Board undertook an annual review of the tax evasion policy for the Group as part of the CEP. Also, the Group reviewed its tax
strategy in 2019 and this is available on the LSL website (lslps.co.uk/investor-relations/corporate-governance/tax-strategy).
Your Move supports a local children’s charity in Walthamstow
Marsh & Parsons supported the Anthony Nolan Trust
50
c116224_BOOK.indb 50
c116224_BOOK.indb 50
25/03/2020 13:51
25/03/2020 13:51
51
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 2019 LSL employees donated over £11,863. The scheme donates to a range of charities and 55
employees participated in the scheme.
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
LSL’s Estate Agency Division encourages and promotes team as well as employees’ individual fundraising activities in the local
communities of all brands. Employees have raised money for a wide range of causes in 2019 including Marsh & Parsons who raised
£25,000 in aid of Anthony Nolan (a blood cancer research charity) and, across the division there has also been support for charities
including Centrepoint, the Waterside Community Trust and Cash for Kids. In addition there has been funding and widespread support
for local community initiatives including: St Peter’s Primary School in Portishead; Curzon Cinema (one of the oldest operating cinemas
in Britain); Biddulph Rovers Youth Football Club in Congleton; Askew Road Community Christmas Lights Switch On; Northcote Road
Christmas Market; Richmond Summer Fair; the South West in Bloom Competition; the Portishead Youth and Community Centre;
Tunbridge Wells Puppet Festival; Bamber Bridge United Junior Football Club; and Morden Family Fun Day.
Financial Services
PRIMIS employees participated in a range of local activities, including a team completing a hike on Scafell Pike to raise money for MND
Association.
The PRIMIS companies also made donations to Children’s Diabetes Research and Crohns and Colitis UK.
Surveying and Valuation Services
For the fourth year running, the Surveying and Valuation Services 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: Circus Starr; Burton Latimer Cricket Club; Kingsley Special Academy; Zoe’s Place, Alzheimer’s Society; Different Strokes;
Severn Hospice; Macmillan; The Boathouse Youth Charity; and Save the Children.
50
c116224_BOOK.indb 51
c116224_BOOK.indb 51
51
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview The Board
This section of the Report includes information relating to individuals who were officers of the Company as at 31st December 2019.
Gaby Appleton — Non Executive Director
Gaby was appointed as an independent Non Executive Director on 1st September 2019 and is also
a member of LSL’s Nominations, Remuneration and Audit & Risk Committees. Gaby joined LSL with
significant experience in strategy, technology, operations, and sales and marketing, particularly in
the professional information solutions sector. This includes her current appointment as Managing
Director of Mendeley & Researcher Products at Elsevier (a RELX Group plc company). Gaby is also
currently a board member of the International Association of STM Publishers, a global industry trade
body. Gaby has previously held a number of executive strategic digital and marketing roles including
Global Director of Strategy and Director of Research Strategy at Elsevier in Amsterdam. Before joining
Elsevier, Gaby held a number of operating positions at Sainsbury’s Supermarkets Ltd, within the
Procter & Gamble group of companies, and was a senior manager at McKinsey & Co. Gaby holds a BA
from the University of Cambridge.
Helen Buck — Executive Director – Estate Agency
Helen was appointed as Executive Director – Estate Agency on 2nd February 2017 and 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.
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 30 years’ experience in finance, having started his career with Price Waterhouse where
he qualified as a Chartered Accountant in 1989.
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
for six years of IKON Office Solutions UK/Europe, the document management and office products
provider; delivering significant growth both organically and through several acquisitions. Ian holds a
BA from the University of Oxford, qualified as a Chartered Accountant with Arthur Andersen, and holds
an MBA from Harvard Business School.
Simon Embley — Non Executive Chair
Simon was appointed Non Executive Chair on 1st January 2015, having previously held the positions of
Deputy Chair 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, Eveclo Holdings (an IT business), Road to Health (a healthcare provider) and he is also non
executive chair at Global Property Ventures (which distributes a tenant deposit replacement product).
52
c116224_BOOK.indb 52
c116224_BOOK.indb 52
25/03/2020 13:51
25/03/2020 13:51
53
Darrell Evans – Non Executive Director
Darrell was appointed as an independent Non Executive Director on 28th February 2019 and is also
a member of LSL’s Nominations, Remuneration and Audit & Risk Committees. Darrell is also LSL’s
designated Non Executive Director in relation to workforce engagement. Darrell joined LSL with
significant experience in financial services and he is currently the Chief Commercial Officer at the
Co-Operative Bank plc. Darrell spent the first part of his career at Royal Bank of Scotland plc, where
he was Managing Director, Mortgages, Loans and Retail Telephony in the retail banking division
responsible for all aspects of the Group’s mortgage proposition. Prior to that he was Product Director
for the RBS retail bank. Darrell has also held senior executive roles at Direct Line Insurance Group plc,
Virgin Money plc and The Consulting Consortium where he was CEO.
Bill Shannon — Non Executive Director, Deputy Chair, Senior Independent Director, and Chair
of the Remuneration Committee and Nominations Committee
Bill was appointed as an independent Non Executive Director and the Chair of the Remuneration
Committee on 7th January 2014 and on 1st January 2015, he took on the roles of Deputy Chair, Senior
Independent Director and Chair 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 chair 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 chair of Aegon UK plc and
St Modwen Property PLC, and non executive director of Rank Group plc, Barratt Developments plc,
and Matalan plc.
David Stewart — Non Executive Director and Chair of the Audit & Risk Committee
David joined the Board on 1st May 2015, and is Chair of the Audit & Risk Committee and a member of
the Remuneration and Nominations Committees. David has significant experience in finance, strategy,
operations, risk and compliance with a particular expertise in financial services. He is currently
non executive chair of the Enra Group and also sits as a non executive director on the boards of
M&S Bank and Brooks Macdonald Group plc. 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 ten years at DBS Management plc, holding a number of board
positions including Group Chief Executive and Group Finance Director. David qualified as a Chartered
Accountant with Peat Marwick (KPMG) and is a graduate of Warwick University.
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.
52
The Strategic Report (including the Strategy, the Business Model, the Business Reviews, the Financial Review, the Principal Risks and
Uncertainties, the Stakeholder Engagement Arrangements, the Corporate Social Responsibility Report and the Board) is approved by and
signed on behalf of the Board of Directors
Ian Crabb
Group Chief Executive Officer
10th March 2020
Adam Castleton
Group Chief Financial Officer
10th March 2020
c116224_BOOK.indb 53
c116224_BOOK.indb 53
53
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial StatementsDirectors’ Report and Corporate Governance Reports Strategic ReportOverview Strategic ReportOverview Report of the Directors and
Corporate Governance Reports
In this section
55
Statement of Directors’ Responsibilities in
Relation to the Group Financial Statements
Report of the Directors
Corporate Governance Report
Audit & Risk Committee Report
Directors’ Remuneration Report
56
61
75
87
54
c116224_BOOK.indb 54
c116224_BOOK.indb 54
25/03/2020 13:51
25/03/2020 13:51
55
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 Group Financial
Statements.
• Make judgements and accounting estimates that are reasonable and prudent.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that
the Group 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.
54
c116224_BOOK.indb 55
c116224_BOOK.indb 55
55
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Report of the Directors
Business review and development
The Strategic Report (including the Chairman’s Statement, the Group Chief Executive’s Report and the Business Reviews) sets out a review
of the Group’s business including details of LSL’s performance, developments and strategy during 2019.
Annual general meeting
The Notice of Meeting convening the AGM is in a separate circular to be sent to Shareholders. The Notice of Meeting also includes a
commentary on the business of the AGM and notes to help Shareholders to attend, speak and/or vote at the AGM.
Financial results
The Strategic Report and Financial Statements set out the financial results of LSL in relation to 2019.
Dividend
The Board continues to support the 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 dividend policy while considering the risks and capital
management decisions facing the Group.
Adjusted Basic Earnings per Share for 2019 was 28.0 pence, an increase of 3% on the prior year (2018: 27.2 pence per Share). The Board
intends to propose a final dividend of 7.2 pence per Share (2018: 6.9 pence per Share), resulting in a full year dividend of 11.2 pence per
Share (2018: 10.9 pence per Share). This is a pay-out at the upper end of the range of LSL’s stated dividend policy, reflecting our confidence
in the current level of performance of the business and of our balance sheet strength. Taking into account the unknown potential impact
of COVID-19 virus on the UK housing market, the LSL Board will keep the proposed final dividend under review ahead of presenting its
proposal to Shareholders at the 2020 AGM.
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 Corporate
Social Responsibility statement, the Corporate Governance Report and the Stakeholder Engagement Arrangements sections of this Report.
The Corporate Social Responsibility statement also summarises the Group’s policy in relation to disabled employees.
In relation to employee engagement, the Corporate Governance Report details the steps that the Group has undertaken to implement
workforce engagement arrangements in compliance with the Code and the associated FRC Guidance on Board Effectiveness. See also the
Stakeholder Engagement Arrangements section of this Report which together with the Corporate Social Responsibility statement includes
LSL’s disclosures pursuant to The Companies (Miscellaneous Reporting) Regulations 2018 and the Code.
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 31 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 2019 results are included within the Corporate Social Responsibility section of this Report.
Directors
Details of the Directors (who served and were appointed during 2019) are in the Corporate Governance Report.
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 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 2019 AGM) will stand for re-election at the 2020 AGM. Gaby Appleton
who has been appointed after the 2019 AGM will stand for election. Shareholders may by ordinary resolution elect or re-elect any individual
as a Director.
56
c116224_BOOK.indb 56
c116224_BOOK.indb 56
25/03/2020 13:51
25/03/2020 13:51
57
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 in The Board section of this Report.
During the 2019 Board and Committees annual evaluation and 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 2019 and the date of this Report, there were no changes in the Directors’ interests other than the purchases
of Shares by Ian Crabb (183 Shares), Adam Castleton (182 Shares) and Helen Buck (182 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.
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 2020 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 26 to the Financial Statements. There have been no changes to the Share capital during 2019.
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 2020 AGM. LSL obtained Shareholder approval to disapply pre-emption rights at the 2019
AGM.
Full details of the deadline for exercising voting rights in respect of the resolutions to be considered at the 2020 AGM are set out in the
Notice of Meeting.
Employee Share schemes
LSL has three employee benefit trusts. The first was established in 2006 prior to LSL’s flotation on the London Stock Exchange and LSL
appointed Apex Financial Services (Trust Company) Limited (formerly Capita Trustees Limited) (ESOT Trustees) to operate the LSL Property
Services plc Employee Share Scheme (ESOT). The Trust is able to acquire and to hold Shares to satisfy options or awards granted under
any discretionary share option scheme, long-term incentive arrangement or Save As Your Earn (SAYE) plan 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 2019 and to all future payments.
LSL also operates The LSL Property Services plc Employee Share Incentive Plan (BAYE) for its employees, first established in 2007, which
is administered by Link Market Services (Trustees) Limited (formerly Capita IRG Trustees Limited) (Link). Link are the trustees of The LSL
Property Services Employee SIP Trust (Trust) in which shares are held on behalf of participants in the BAYE. The Shares held in the Trust
have dividend and voting rights in line with the rules of the BAYE.
The third employee benefit trust was established in November 2011 (the 2011 EBT), as part of the acquisition of Marsh & Parsons. The 2011
EBT does not currently hold any LSL Shares and is in the process of being closed.
56
c116224_BOOK.indb 57
c116224_BOOK.indb 57
57
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Report of the Directors
Viability statement
In accordance with provision 31 of the Code, 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.
As with previous years, a three year viability period, ending 31st December 2022, has been selected which corresponds to the Board’s
three year planning horizon. In accordance with FRC guidance, the appropriateness of this period was reassessed and is still considered
appropriate given this aligns with the Group’s planning and budget cycle.
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 (which are included in the Strategic Report). This section also describes the viability
assessment process.
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 in the Principal Risks and Uncertainties section of this Report.
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, whether or not the possible all-share combination of LSL and Countrywide progresses.
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 23 to the Financial Statements. Note 31 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 32 to 41.
As explained in Note 31 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 31 to the Financial Statements as at 31st December 2019 the Group had available
£51.3m of undrawn borrowing out of an available £100m 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 judgements, 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. The Directors consider that the
Group has adequate resources to continue in operational existence for the foreseeable future.
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.
58
c116224_BOOK.indb 58
c116224_BOOK.indb 58
25/03/2020 13:51
25/03/2020 13:51
59
Share capital
At 31st December 2019, 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 Chair 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).
• 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 2019, the Trust held 1.43% (2018: 1.44%) 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.
Directors’ responsibility statement
Each of the 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 Stakeholder Engagement Arrangements statement, the
Principal Risks and Uncertainties, the Corporate Social Responsibility statement and The Board) and the Directors’ Report (including the
Corporate Governance Report) 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.
58
c116224_BOOK.indb 59
c116224_BOOK.indb 59
59
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Report of the Directors
Substantial shareholdings
As at 31st December 2019 and as at 9th March 2020, the Shareholders set out below have notified LSL of their interest under DTR 5:
Institutional Shareholders:
Institution
Kinney Asset Management, LLC
Harris L.P
Nature of
shareholding
Beneficial
Beneficial
Brandes Investment Partners L.P
Beneficial
Setanta Asset Management Limited Beneficial
FMR, LLC
Russell Investments Group, Ltd
Beneficial
Beneficial
Franklin Templeton Institutional, LLC Beneficial
Number of
Ordinary Shares
11,172,046
10,316,680
10,263,763
9,296,137
6,969,606
6,625,024
5,224,560
31st December 2019
9th March 2020
% of
Ordinary
Shares
Number of
Ordinary
Shares
% of
Ordinary
Shares
10.73
10,322,046
9.90
9.85
8.93
6.69
6.36
5.02
10,316,680
10,263,763
7,477,798
6,725,601
6,625,024
5,224,560
9.91
9.90
9.85
7.18
6.45
6.36
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
10th March 2020
60
c116224_BOOK.indb 60
c116224_BOOK.indb 60
25/03/2020 13:51
25/03/2020 13:51
61
Corporate Governance Report
UK Corporate Governance Code (July 2018) (Code)
This section of the Report provides details of LSL’s corporate governance arrangements in 2019 and describes how the Board and
Committees have complied with the Code during 2019. The Code is available on the FRC’s website (frc.org.uk).
During 2019 the Board continued to be committed to the highest standards of corporate governance and the Directors recognised the
value and importance of meeting the principles of good corporate governance as set out in the Code together with the associated FRC
Guidance on Board Effectiveness.
Compliance with the Code
During 2019, LSL complied with the principles and relevant provisions of the Code in all respects with the exception of provisions 9 and 19.
The Chair does not meet the Code’s independence on appointment criteria (provision 9) nor does he satisfy the duration of appointment
provision (provision 19), as he has been a Director of LSL for more than nine years and was previously the Group CEO. LSL’s explanation in
relation to these matters is set out in the Board Composition section of this Corporate Governance Report.
LSL’s purpose
During 2019, with support from the Executive Committee, the Board defined LSL’s purpose and identified associated performance
characteristics. LSL’s purpose statement and performance characteristics have also been published on the LSL website (lslps.co.uk) and
further details relating to this work is set out in the Purpose, culture and values section of this Corporate Governance Report.
Workforce engagement
In relation to principle D and provision 5 of the Code, during 2019 the Board implemented arrangements in relation to workforce
engagement and appointed Darrell Evans as the designated independent Non Executive Director. Details of the workforce engagement
arrangements are included in the Stakeholder engagement section of this Corporate Governance Report. Also see the Stakeholder
Engagement Arrangements section of this Report for further information relating to stakeholder and workforce engagement matters.
Corporate governance reviews
During 2019 the Board continued to implement and embed improvements to its governance arrangements to implement the 2018 version
of the Code, to respond to other governance reporting changes including The Companies (Miscellaneous Reporting) Regulations 2018
and to reflect best practice. In particular, the Board requested as part of the 2018 Board evaluation exercise that a review of governance
arrangements in relation to stakeholder engagement be undertaken in 2019, and completion of this exercise was monitored by the Board
with report on the output also reviewed by the Executive Committee.
LSL also reviewed the guidance contained in The Wates Corporate Governance Principles for Large Private Companies (Wates Principles)
which was published in December 2018 following a period of consultation and which applies to the 2019 financial year. This review
concluded that none of the Group’s subsidiaries fall within the criteria of the Wates Principles. Accordingly, no changes to the corporate
governance arrangements for subsidiaries was made during the year.
The Board, the Audit & Risk Committee and the Executive Committee have monitored reports on corporate governance failings and
the resulting reviews of audit firms and their regulator to ensure that the Group’s governance, internal controls and risk management
arrangements remain in line with best practice and are appropriate.
Following the Government announcement that the FRC will be replaced with a new regulator, LSL has continued to monitor the FRC
announcements and will monitor announcements from any new regulator appointed in the future.
60
c116224_BOOK.indb 61
c116224_BOOK.indb 61
61
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Corporate Governance Report
The Board
As at 31st December 2019, the Board consisted of eight members: four independent Non Executive Directors, three Executive Directors
plus the Chair, whose details are all set out in the table below.
During the year there were a number of Board changes:
• the appointment of Darrell Evans (independent Non Executive Director) in February 2019;
• the departure of Kumsal Bayazit Besson (independent Non Executive Director) at the 2019 AGM; and
• the appointment of Gaby Appleton (independent Non Executive Director) in September 2019.
Following Kumsal’s departure and prior to Gaby’s appointment, the Board consisted of seven members: three independent Non Executive
Directors, three Executive Directors plus the Chair.
Director Name
Position(s)
Chair
Simon Embley
Executive
Ian Crabb
Adam Castleton
Helen Buck
Independent Non Executive
Directors
Bill Shannon
David Stewart
Darrell Evans
Gaby Appleton
Non Executive Director – Chair
Executive Director – Group Chief Executive Officer
Executive Director – Group Chief Financial Officer
Executive Director – Estate Agency
Independent Non Executive Director – Deputy Chair, Senior Independent Director, Chair of the
Remuneration Committee, Chair of the Nominations Committee and a member of the Audit & Risk
Committee
Independent Non Executive Director – member of the Nominations Committee, Remuneration
Committee, and Chair of the Audit & Risk Committee
Independent Non Executive Director – member of the Nominations Committee, Remuneration
Committee and Audit & Risk Committee, and designated Non Executive Director for Workforce
Engagement
Independent Non Executive Director – member of the Nominations Committee, Remuneration
Committee and Audit & Risk Committee
Kumsal Bayazit Besson
(retired at the 2019 AGM)
Independent Non Executive Director – member of the Nominations Committee, Remuneration
Committee and Audit & Risk Committee
In line with the provisions of the Code, all the Directors will retire from the Board at the AGM and stand for re-election. Accordingly, subject
to Shareholder approval at the AGM, following the AGM (in compliance with the Code), the Board will consist of four independent Non
Executive Directors, three Executive Directors and the Chair.
All the Directors are listed with their biographies in The Board section of this Report.
Board changes and director search
During 2019 the Nominations Committee conducted a search for a new independent non executive director to join the Board and its
Committees. The search focused on individuals with skills and expertise in technology and innovation resulted in the appointment of Gaby
Appleton to the Board and its Committees with effect from 1st September 2019. No search agencies were engaged in the search and
candidates for the appointment were selected from referrals by other Directors. The Nominations Committee chose not to undertake a
search because a pool of appropriate candidates was referred for consideration.
As reported in the Annual Report and Accounts 2018, Kumsal Bayazit Besson retired from the Board at the 2019 AGM and Darrel Evans
(independent Non Executive Director) joined the Board and its Committees on 28th February 2019.
Details of all of the Directors are included in The Board section of this Report.
62
c116224_BOOK.indb 62
c116224_BOOK.indb 62
25/03/2020 13:51
25/03/2020 13:51
63
Board composition
Non Executive Directors
During 2019 the Non Executive Directors (excluding the Chair) were determined to be independent in accordance with Provision 10 of the
Code and the Board composition continued to comply with Provision 11 of the Code, namely that half of the Board (excluding the Chair)
comprised independent Non Executive Directors.
The current Non Executive Directors together have a range of experiences which are described in more detail in the Nominations
Committee section of this Corporate Governance Report.
All the Non Executive Directors (excluding the Chair) 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 judgement.
Chair
The Chair does not meet the Code’s independence on appointment criteria (provision 9) or the duration of appointment criteria (provision
19) because he was previously the Group Chief Executive Officer of LSL and has been appointed to the Board for more than nine years.
Simon Embley was first appointed to the Board in 2004 when the management buy-out of Your Move and e.surv was completed. LSL
listed on the London Stock Exchange in 2006. Simon was Group Chief Executive Officer from 2004 to 2014 when he moved into the role of
Deputy Chair before taking on the role of Chair in 2015.
The changes in Simon Embley’s role during his term and his position on the Board reflects the Board’s desire to retain his knowledge and
experience of the residential property market and benefit from his track record in delivering Shareholder value. Prior to his appointment
as Chair, LSL consulted with significant Shareholders and their feedback was taken into account. Shareholder feedback is also taken
into account at each AGM where Simon, along with the rest of the Board has stood for re-election each year. The proxy results each year
relating to Simon’s re-election have confirmed Shareholder support each year for his continued appointment to the Board.
The Board has ensured that it continues to have in place effective governance and leadership arrangements in accordance with the Code’s
principles relating to the division of responsibilities by establishing roles and responsibilities (which are described below) and encouraging a
culture of openness and debate which is further considered in the annual evaluation exercise.
The Board has through its annual evaluation and the operation of the Nominations Committee ensured on-going adherence to the Code’s
principles relating to its composition, succession planning and evaluation arrangements. Further, during 2020, consideration is being given
to the engagement of an external facilitator in the Board and Committee evaluation process.
Roles of the Chair, Deputy Chair and Senior Independent Director, and Group Chief Executive Officer
There is a clear division of responsibilities between LSL’s Chair, Deputy Chair and Senior Independent Director and Group Chief Executive
Officer and these are documented, approved by the Board and available on the LSL website (lslps.co.uk).
Chair:
The role of Chair is pivotal in creating the conditions for overall Board and individual Director effectiveness, setting clear expectations
concerning the style and tone of Board discussions, ensuring the Board has effective decision making processes and that it applies
sufficient challenge to major proposals. It is up to the Chair to make certain that all Directors are aware of their responsibilities and to hold
meetings with the Non Executive Directors without the Executive Directors present in order to facilitate a full and frank airing of views.
LSL’s Chair is responsible for leadership of the Board and ensuring its effectiveness in all aspects of its role. The Chair sets the Board’s
agenda, ensuring that the Board’s discussions are focused on key issues including: strategy, performance, value creation, culture, key
stakeholders and accountability, and ensuring that issues relevant to these areas are reserved for Board decision.
The Chair shapes the culture of the boardroom by promoting a culture of openness and debate by encouraging all Directors to engage in
Board and Committee meetings by drawing on their skills, experience and knowledge. He also fosters relationships based on trust, mutual
respect and open communication between the Non Executive and Executive Directors.
The Chair also ensures that the Directors receive accurate, timely and clear information and he ensures that the Board has effective
communications with all of LSL’s key stakeholders: including its Shareholders, employees, suppliers, customers and regulators. For further
information see also the Stakeholder Engagement Arrangements section of this Report.
The Chair will also ensure that the Directors continually update their skills, the knowledge and familiarity with LSL required to fulfil their role
(both as a member of the Board and its Committees).
The Chair provides support and advice to the Group Chief Executive Officer (while respecting Executive responsibility) and also provides
guidance and mentoring to new Directors (as appropriate).
62
c116224_BOOK.indb 63
c116224_BOOK.indb 63
63
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Corporate Governance Report
The Chair leads the annual Board and Committee evaluation exercise, with support from the Deputy Chair and Senior Independent Director,
and the Company Secretary ensures that the Board and its Committees acts on its results. The Chair will also periodically consider
the undertaking of an externally facilitated exercise. For further details regarding the annual evaluation arrangements, see the Board,
Committees and Directors’ evaluation section below.
Group Chief Executive Officer:
The Group Chief Executive Officer’s key responsibility is the running of the business and his delegated powers are set by the Board. As
the most senior Executive Director, the Group Chief Executive Officer is responsible for proposing Company strategy and for delivering the
strategy as agreed by the Board. He also has primary responsibility for setting an example to the Group’s workforce, for communicating
to them the expectations in respect of the Company’s culture, and for ensuring that the operation of policies and practices drive
appropriate behaviour.
The Group Chief Executive Officer supports the Chair in ensuring that the appropriate standards of governance permeate through all parts
of the organisation and he ensures that the Board is aware of views gathered from meetings between management and the workforce.
The Group Chief Executive Officer ensures the Board is aware of the views of management on business issues in order to improve the
standard of discussion in the boardroom and, prior to a final decision on an issue, explain in a balanced way any divergence of view.
The Group Chief Executive Officer is also responsible for ensuring that management fulfils its obligation to provide Directors with:
• accurate, timely and clear information in a form and of a quality and comprehensiveness that will enable it to discharge its duties;
• the necessary resources for developing and updating their knowledge and capabilities; and
• appropriate knowledge of the Group, including access to Group’s operations and members of the workforce.
Deputy Chair and Senior Independent Director:
LSL’s Deputy Chair and Senior Independent Director acts as a sounding board for the Chair, providing support for the Chair in the delivery
of his objectives, and leads the annual evaluation of the Chair on behalf of the other Directors.
The Deputy Chair and Senior Independent Director is also available to meet with Shareholders if they should wish.
The Deputy Chair and Senior Independent Director works closely with the Chair, the Group Chief Executive Officer and the other Directors
to resolve significant issues; and the Board has a clear understanding of his role and responsibilities.
The Deputy Chair and Senior Independent Director will also take responsibility for ensuring an orderly succession process and the
evaluation of the Chair each year (see below for details of the annual evaluation exercise).
All role profiles are available on the LSL website (lslps.co.uk).
Chair’s other appointments
In addition to his role as Chair, Simon Embley’s other board appointments comprise a small estate management company, Eveclo Holdings
(an IT business), Road to Health (a healthcare provider), and he is also non executive chair of Global Property Ventures (trading as Zero
Deposit, which distributes a tenant deposit replacement product).
Board, Committees and Directors’ evaluation
During the year the Directors continuously monitor and review their performance, and are encouraged to provide feedback on the
effectiveness of the Board and its Committees. Further, in accordance with the requirements of the Code, the Directors undertake a formal
and rigorous annual evaluation of the performance of the Board with the assistance of the Company Secretary. The process includes an
evaluation of the Board, its Committees and of individual Directors. The Chair leads the annual evaluation exercise, with support from the
Deputy Chair and Senior Independent Director (as appropriate). The Deputy Chair and Senior Independent Director leads the evaluation of
the Chair.
LSL’s evaluation exercise is bespoke in its formulation and delivery; and whilst the 2019 exercise did not involve an externally facilitated
evaluation, the Chair monitors the need for an externally facilitated evaluation on an on-going basis.
The exercise considers: the balance of skills, experience, independence and knowledge of the Group on the Board; its diversity (including
gender); how the Board works together as a unit; and other factors relevant to its effectiveness. In addition this year, the evaluation
considered ways in which the Directors can formally include feedback from key stakeholders and whether the exercise should be externally
facilitated.
The exercise seeks to ensure that the Directors remain individually and collectively effective and the Chair, with the support of the Company
Secretary, ensures that the Board acts on the results of the evaluation by recognising its strengths, addressing its weaknesses and, where
appropriate, reviewing its composition.
Individual Director evaluations consider each person’s contribution to demonstrate that each Director continues to contribute effectively and
to demonstrate their commitment to the role (including commitment of time for Board and Committee meetings and any other duties). The
evaluation exercise forms a useful part of the Board’s succession planning as it provides an opportunity to review skills, assess composition
and agree plans for filling any gaps in skills and diversity.
64
c116224_BOOK.indb 64
c116224_BOOK.indb 64
25/03/2020 13:51
25/03/2020 13:51
65
As part of the 2019 annual evaluation exercise, the Directors considered and determined that they are satisfied that the balance of Executive
and Non Executive Directors on the Board is appropriate and that no individual or group dominates the Board’s decisions.
Implementation of 2018 evaluation recommendations:
The actions agreed during the 2018 evaluation process were completed in 2019 and the findings arising from the exercise contributed to
succession planning in 2019, including the recruitment of a new independent Non Executive Director (Gaby Appleton) and the conducting of
a review of the Group’s governance arrangements in relation to stakeholder engagement which was conducted by the Group Finance team.
2019 evaluation exercise:
LSL’s evaluation practice includes completion of a questionnaire and is supported by discussions between each Director and the Chair,
meetings of the Board and discussions between the Non Executive Directors. In addition, the independent Non Executive Directors
evaluate the Chair’s performance, after taking into account the views of the Executive Directors.
No significant issues requiring action arose from the 2019 evaluations and the outcomes of the exercise were reported to, and discussed
by, the Board. The outcomes will be fed back into the Board’s work on composition, the design of induction and development programmes,
and other relevant areas. 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 of the 2019 exercise, during 2020 the Board will undertake the following:
• Continue to review Board succession planning arrangements with a focus on Non Executive Directors’ succession, Executive Director
succession (short-term/emergency arrangements) and diversity (including gender, skills and experience).
• Continue to ensure that the Board’s meeting arrangements encourage active participation from all Directors.
• Continue to review and develop Board and Committee reporting to ensure that the delivery of information supports the Directors to
continue their focus on strategic matters.
• Consider the evaluation process, including incorporating views and the method of evaluation (specifically external evaluation options).
• Consider additional support and engagement of Directors outside of scheduled Board meetings and reporting.
Diversity (including gender)
LSL continues to recognise the benefits of diversity on the Board (including relevant professional skills, experience, gender and race). The
Code provides that diversity in the boardroom can have a positive effect on decision making and recommends that the Board decide on
which aspects of diversity are important to the Group in the context of its business and needs.
In terms of gender diversity, as at 31st December 2019 the Board included two female Directors, Helen Buck (Executive Director – Estate
Agency) and Gaby Appleton (independent Non Executive Director).
The Board also considers other aspects of diversity in addition to gender and considers that its composition includes a wide range of skills
and expertise that are relevant to the Group’s businesses and needs. Diversity of personal attributes is also important and is taken into
account in the search and recruitment of new directors. See also the Corporate Social Responsibility section of this Report for details of the
gender split within the Group’s Management Team.
During 2019 the LSL Board composition included expertise, skills and experience in strategy, technology, estate agency, surveying and
valuation services, financial services, the residential housing sector, commercial property, sales and marketing, operations, entrepreneurial
private and public companies, finance, consumer and employee matters, corporate governance, professional information solutions and risk
and compliance.
LSL has not adopted a formal diversity policy in relation to the Board’s composition and whilst the Directors remain of the view that the
setting of diversity related targets (for example, the number of female directors) in relation to Director appointments is not necessary, the
Board continues with the support of the Nominations Committee to appoint on merit. Both the Chair of the Board and the Chair of the
Nominations Committee ensure that all searches for directors and senior managers (including those undertaken in 2019) continue to take
into account the benefits of diversity, including professional skills, experience, gender, social and ethnic backgrounds.
LSL believes that diversity on the Board, within the Management Team and the general Group workforce has a positive impact on the
Group’s performance, and the Board will during 2020 continue to review its position with regard to the adoption of a formal diversity policy
in relation to the Board’s composition.
For further information on how the Nominations Committee ensures the promotion of diversity within the Group, see below (Nominations
Committee section).
64
c116224_BOOK.indb 65
c116224_BOOK.indb 65
65
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Corporate Governance Report
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 the Executive Directors’ service
agreements and Non Executive Directors’ letters of appointment are contained in the Directors’ Remuneration Report.
Director support (including the role of the Company Secretary)
All Directors have access to independent professional advice at LSL’s expense, where they judge it necessary to discharge their
responsibilities and for the performance of their duties. This is in addition to the access every Director has to the Company Secretary and to
the Group HR Director and their teams.
The Company Secretary is responsible for ensuring that Board procedures are complied with, advising the Board on all governance
matters, supporting the Chair of the Board and each of the Committees, and helping the Board and its Committees to function efficiently.
She reports to the Chair and the Deputy Chair and Senior Independent Director on all governance matters and to Executive Directors in
relation to other executive management responsibilities.
LSL’s Company Secretary’s responsibilities include ensuring information flows efficiently within the Board and its Committees and between
senior management and the Non Executive Directors. The Company Secretary also works alongside the Group HR Director, facilitating
Board inductions, arranging Board training and assisting with professional development as required.
The Company Secretary and Group HR Director organise and arrange for the provision of resources to develop and update the Directors’
knowledge and capabilities. Training is delivered in a manner that is appropriate to the particular Director, and that aims to enhance that
Director’s effectiveness as a part of the Board or its Committees in line with the results of the Board evaluation process.
Assisting the Chair in establishing the policies and processes the Board needs in order to function properly is a core part of the Company
Secretary’s role.
The Company Secretary’s effectiveness is enhanced by building relationships of mutual trust with the Chair, the Deputy Chair and Senior
Independent Director, and each of the Non Executive Directors, while maintaining the confidence of Executive Director colleagues. As the
Code identifies, the role of Company Secretary is in a unique position between the Executive and the Board, and is well placed to take
responsibility for concerns raised by the workforce about conduct, financial improprieties or other matters.
Director induction and training
Each newly appointed Director receives a comprehensive, tailored induction on a range of topics, including, as appropriate, the
responsibilities of a director of a public listed company and the LSL businesses. Thereafter, LSL with the support of the Company Secretary
and the Group HR Director, provides the necessary resources for developing this understanding and knowledge. Further, the Chair reviews
and agrees any training and development needs with each of the Directors and any training needs are also discussed as part of the annual
evaluation exercise. During 2019, LSL completed an annual review of its induction and training arrangements to ensure it continued to
into account the requirements of the Code, and specifically to ensure that LSL’s approach to stakeholder engagement was included in
the induction programme for new Directors. The updated induction arrangements were used in the inductions of Darrell Evans and Gaby
Appleton as new independent Non Executive Directors. The Company Secretary and Group HR Director ensure that the Director induction
and training arrangements are reviewed regularly with updates provided to the Board.
During 2019, the Board also received a training session on governance matters including culture and recent corporate failures which was
delivered by Pinsent Masons LLP.
66
c116224_BOOK.indb 66
c116224_BOOK.indb 66
25/03/2020 13:51
25/03/2020 13:51
67
Board and committee meetings
During 2019 the Board held nine scheduled meetings (including a strategy meeting). Each of the Directors was able to allocate sufficient
time to LSL to discharge their responsibilities effectively, as shown by the attendance of each of the Directors at all Board and Committee
meetings. The attendance of each Director at Board and Committee meetings is set out below.
During 2020 the Board is scheduled to meet nine times (including a strategy meeting). Additional meetings may be held as required.
During 2019 the Non Executive Directors collectively met four times without the Executive Directors being present and it is the intention
that the Non Executive Directors will meet six times during 2020. These meetings are scheduled to take place 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 Chair being present.
2019 Board and Committee attendance:
Board Member
Position
Board
Meetings
(including
a strategy
meeting)
Audit & Risk
Committee
Remuneration
Committee
Nominations
Committee
Simon Embley
Bill Shannon
Ian Crabb
Adam Castleton
Helen Buck
Darrell Evans1
David Stewart
Gaby Appleton2
Kumsal Bayazit
Besson3
Non Executive Chair
Deputy Chair
and Senior Independent
Director
Group Chief
Executive Officer
Group Chief
Financial Officer
Executive Director – Estate Agency
Independent Non Executive Director
Independent
Non Executive
Director
Independent Non Executive Director
Independent Non Executive Director
9
9
9
9
9
9
9
4
2
-
3
-
-
-
2
3
1
1
Notes:
1 Darrell Evans was appointed to the Board on 28th February 2019
2 Gaby Appleton was appointed to the Board on 1st September 2019
3 Kumsal Bayazit Besson retired from the Board at the 2019 AGM
-
3
-
-
-
2
3
2
1
-
3
-
-
-
3
3
1
1
66
c116224_BOOK.indb 67
c116224_BOOK.indb 67
67
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Corporate Governance Report
Director elections
LSL’s Articles of Association stipulate that all 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 chosen to adopt annual elections for all Directors, in accordance with
best practice (under the Code) and by an amendment to the Nominations Committee terms of reference. Accordingly, all the Directors will
stand for re-election/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 at least 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 the information or advice necessary for them to discharge their duties. These
arrangements are monitored by the Chair and the Company Secretary and reviewed annually by the Directors as part of the Board’s
evaluation process (which is explained above).
Governance
There is also a programme of regular reviews by the Board of LSL’s 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).
Stakeholder engagement - workforce engagement (Code)
In accordance with the Companies (Miscellaneous Reporting) Regulations 2018, see the Stakeholder Engagement section of this Report for
further details of how, during 2019, the Directors have engaged with the Group’s workforce and how the Directors have had regard to the
need to foster LSL’s relationships with all key stakeholders including Shareholders, employees, suppliers and customers.
In relation to principle D and provision 5 of the Code, in 2019 the Board has implemented arrangements in relation to workforce
engagement by designating Darrell Evans as the independent Non Executive Director for workforce engagement.
In his new role, Darrell has engaged with LSL’s existing Group Employee Engagement Forum and cross business team. Darrell is fulfilling
his role with support from the Group HR Director and the Company Secretary. A role profile has been prepared for this role which takes into
account the requirements of the Code.
The Group Employee Engagement Forum will operate as the vehicle for Darrell to establish regular dialogue with the Group’s employees.
This dialogue includes Darrell’s attendance at an annual meeting with the Group Employee Engagement Forum which, in order to maximise
the effectiveness of the meeting, takes place after the annual employee survey results have been published to enable the Group to analyse
current and up to date relating to employee views. Darrell attended his first meeting of the forum in 2019.
Purpose, culture and values
LSL’s purpose
Through the talents and expertise of our people we seek to deliver excellent residential property services to our customers
whilst creating a long-term value for all our stakeholders.
During 2019, with support from the Executive Committee, the Board defined LSL’s purpose and a set of associated aspirational
performance characteristics. The purpose and the associated aspirational performance characteristics are all available on the LSL website
(lslps.co.uk).
The process, which started in 2018 and continued during 2019, involved the identification and articulation of cultural behaviours for use
across the Group’s businesses. The aim of the exercise was to establish a set of aspirational performance characteristics that fully describe
the behaviours that the Board wants its leaders and employees to demonstrate to support the strategic direction of the Group and to
support LSL’s purpose.
The final draft of the Purpose Statement was then approved and adopted by the Board at its annual Strategy Meeting. In considering the
performance characteristics the Board also considered the adoption and existence of purpose, culture and value statements which have
been adopted by the Group companies and it was agreed that LSL’s Purpose Statement and aspirational performance characteristics may
be adapted and modified where necessary to take account of specific businesses.
In arriving at its decision, the Board recognised the Group’s structure and business model and its diversity of businesses. Whilst the Board
did not wish to affect locally agreed arrangements, it has requested that the Executive Committee review divisional approaches to culture
and values and in the event that any conflicts are identified, confirm that these are addressed to ensure the alignment of the Group’s
cultures and values. This work will continue during 2020.
68
c116224_BOOK.indb 68
c116224_BOOK.indb 68
25/03/2020 13:51
25/03/2020 13:51
69
Defining LSL’s Purpose Statement and the associated aspirational performance characteristics assists the Board and the Executive
Committee in monitoring the alignment of strategy and culture to LSL’s purpose.
Corporate Social Responsibility (CSR)
LSL believes that 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 and has during 2019 been monitoring and considering what lessons can be learnt from
corporate failures of other companies. Including, as outlined in the Director induction and training section of this Corporate Governance
Report, receiving a training session from Pinsent Masons LLP which included briefing on recent corporate failures.
Further details of LSL’s CSR objectives can be found in the Corporate Social Responsibility statement included in this Report.
New regulations and consultation
During 2019, the Board closely monitored the Government’s review of the FRC and LSL’s implementation of the Directors’ remuneration
elements of the Shareholders’ Right Directive II and also received regular updates on arrangements relating to Reporting on Payment
Practices Regulations 2017, the Modern Slavery Act 2015, the Bribery Act 2010, the Equality Act 2010 (Gender Pay Gap Information)
Regulations 2017 and the Criminal Finances Act 2017.
The Board has also been monitoring developments in relation to laws and regulations which impact LSL’s Estate Agency and Financial
Services businesses and further details relating to these are included in the Business Review sections of this Report.
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 the 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.
In addition the Board has established a Disclosure Committee to ensure compliance with the Market Abuse Regulation.
The membership of the above three 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 2018, the Board reviewed the terms of reference for each of the Committees and updated each to ensure compliance with the new
Code and the FRC Guidance on Board Effectiveness and an annual review of the Committees’ terms of reference was undertaken in 2019.
It is also the intention that Bill Shannon, as Chair of the Nominations Committee and Remuneration Committee and David Stewart, as Chair
of the Audit & Risk Committee, will both attend the 2020 AGM to answer any questions.
Nominations Committee
During 2019, Bill Shannon was the Chair of the Nominations Committee and its other members were David Stewart, Kumsal Bayazit
Besson up until her retirement from the LSL Board at the 2019 AGM, as well as Darrell Evans and Gaby Appleton who were appointed to
the LSL Board on 28th February 2019 and 1st September 2019 respectively.
Director searches
During 2019 in relation to the recruitment of a new independent non executive director, the Nominations Committee has not been assisted
in its search by any agencies.
During 2019, the Nominations Committee considered at length a number of aspects regarding the Board’s composition and commenced a
search for the recruitment of an additional independent non executive director with strategy, technology and innovation expertise.
Darrell Evans was appointed as a new independent Non Executive Director with effect from 28th February 2019 following a search which
commenced in the second half of 2017.
68
c116224_BOOK.indb 69
c116224_BOOK.indb 69
69
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Corporate Governance Report
Following this search the Board also appointed Gaby Appleton as a new independent Non Executive Director with effect from 1st September
2019. In relation to the appointment of Gaby Appleton in 2019, the Nominations Committee chose not to undertake a search because a
pool of appropriate candidates was referred to it for consideration.
Roles and responsibilities of the Nominations Committee
The Nominations Committee has been established by the Board to lead the process for appointments to the Board and to ensure plans are
in place for orderly succession to both the Board and senior management positions. The Nominations Committee has oversight of LSL’s
succession arrangements and in discharging its roles and responsibilities it considers and has regard to the requirements of the Listing
Rules and Disclosure and Transparency Rules together with guidance issued by the FRC (including the Code).
The duties of the Nominations Committee are governed by its terms of reference, which were reviewed in 2018 to ensure compliance with
the Code and updated with effect from 1st January 2019. An annual review of the terms of reference was also undertaken in 2019 to ensure
continued compliance with the Code.
The Nominations Committee’s roles and responsibilities include 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 ethnicity). 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 and its Committees 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 and its Committees;
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 (i)
the benefits of diversity, including gender and ethnicity; and (ii) 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 Chair, 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 makes recommendations to the Board as set out in its terms of reference.
In 2019 recommendations to the Board included the following matters:
• succession plans for both Executive Directors and Non Executive Directors (in particular, for key roles of the Chair and the Group Chief
Executive Officer);
• recommended the extension of appointment terms for Bill Shannon;
• recommended the appointment of Gaby Appleton as an independent Non Executive Director;
• corporate governance updates, including reviewing LSL’s purpose, values and culture activities; and
• reporting on its activities each year within LSL’s Annual Report and Accounts.
The Nominations Committee will also monitor the terms of each Director and ensure that each year the Board, along with the Chair,
completes a formal and rigorous evaluation of the Board, its Committees and its Directors. For details of the 2019 evaluation exercise, see
above Board, Committees and Directors’ evaluation.
70
c116224_BOOK.indb 70
c116224_BOOK.indb 70
25/03/2020 13:51
25/03/2020 13:51
71
What the Nominations Committee did in 2019
The Nominations Committee met three times in 2019 and the Group Chief Executive Officer, the Chair, the Group HR Director and the
Company Secretary were all invited to attend all or parts of these meetings and to assist the Nominations Committee in its deliberations
during this period.
During the year, as part of its discussions, the Nominations Committee considered the following matters:
a. Board composition, including gender, race and professional skills diversity of the Board and its Committees as a whole;
b. Non Executive Director skills, expertise and experience together with recruitment and succession planning arrangements taking into
consideration the term of each Non Executive Director;
c. Executive Committee performance together with Executive Committee and senior management succession planning arrangements;
d. a follow up to the 2018 review of the governance arrangements within the Financial Services management teams;
e. a review of the Code and the associated FRC Guidance on Board Effectiveness including discussing LSL’s purpose, values and culture
and reviewing LSL’s adoption in compliance with the Code;
f. a review of the Nominations Committee’s performance and its terms of reference to ensure compliance with the Code and related FRC
guidance; and
g. the Nominations Committee commenced a search for the recruitment of an additional independent Non Executive Director which
resulted in the appointment of Gaby Appleton with effect from 1st September 2019.
As part of its discussions in 2018 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 takes into account both the requirements of the Listing Rules (together with
requirements issued by the FCA), the Code and related guidance issued by the FRC and other relevant bodies (for example ICSA), together
with the requirements of the Board.
During 2019, the Nominations Committee continued to monitor reviews and reforms of corporate governance and during its discussions
it considered the Code and the FRC Guidance on Board Effectiveness, including considering LSL’s purpose, culture and values and how
the Group would implement the new workforce engagement requirements. Details relating to employee engagement are included in the
Stakeholder Engagement Arrangements section of this Report.
Board composition and diversity
Whilst LSL does not have in place a formal policy on diversity, it has during 2019 and will continue during 2020 to ensure that LSL’s
recruitment and succession planning practices continue to identify and consider a diverse pool of candidates to improve diversity over time.
For further details regarding LSL’s approach to diversity, see above Diversity (including gender).
Gender pay reporting
LSL published its gender pay reports for all LSL Group companies with more than 250 employees in April 2019 and further reporting will be
published in April 2020. The reports are available to view at gender-pay-gap.service.gov.uk.
For details of gender reporting in relation to the Board, the Management Team and Group employees, see the Corporate Social
Responsibility statement included in this Report.
Remuneration Committee
During 2019, Bill Shannon was the Chair of the Remuneration Committee and its other members were David Stewart, Kumsal Bayazit
Besson up until her retirement from the LSL Board at the 2019 AGM, as well as Darrell Evans and Gaby Appleton who were appointed to
the LSL Board on 28th February 2019 and 1st September 2019 respectively.
The Remuneration Committee met three times during the year and the Group Chief Executive Officer, the Chair, the Group HR Director and
the Company Secretary were each invited to attend all or part of these meetings and assist the Remuneration Committee in its deliberations
during this period.
Roles and responsibilities of the Remuneration Committee
The Remuneration Committee has delegated responsibility for determining the policy for Executive Director remuneration and setting
remuneration for the Chair, the Executive Directors and senior management (the definition of senior management for this purpose is
determined by the Board). With effect from 1st January 2019, the Remuneration Committee also reviews workforce remuneration and
the alignment of incentives and rewards with LSL’s culture, taking these into account when setting the policy for Executive Director
remuneration.
70
c116224_BOOK.indb 71
c116224_BOOK.indb 71
71
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Corporate Governance Report
The Remuneration Committee does not consider remuneration of the Non Executive Directors as this is a matter for the Board.
The duties of the Remuneration Committee are governed by its terms of reference, which were reviewed in 2018 to ensure compliance with
the Code and updated with effect from 1st January 2019. An annual review of the terms of reference was also undertaken in 2019 to ensure
continued compliance with the Code.
The Remuneration Committee’s roles and responsibilities include the following:
• review the design of schemes of performance related remuneration which include discretion to override formulaic outcomes and
provisions to enable recovery or the withholding of payments where it is appropriate to do so;
• ensure that only basic pay is pensionable and to review pension contribution arrangements (or payments in lieu) for the Executive
Directors to monitor alignment with those available to the employees;
• review of share incentive plan arrangements for approval by the Board and Shareholders;
• promote long-term shareholdings by the Executive Directors to support alignment with Shareholder interests; and
• review workforce remuneration and related policies and the alignment of these incentives and rewards with culture.
The Directors’ Remuneration Report provides details of how the Remuneration Committee discharged its duties during 2019.
The terms of reference of the Remuneration Committee are available from the Company Secretary or LSL’s website (lslps.co.uk).
What the Remuneration Committee did in 2019
During 2019, the Remuneration Committee met three times and considered the following matters:
a. reviewed the levels of remuneration of the Executive Directors and the Non Executive Chair;
b. continued to implement and apply LSL’s Remuneration Policy;
c. reviewed the Group’s Executive Directors’ and senior management bonus arrangements for 2019 and 2020 (including reviewing and
setting Executive Director non-financial measures);
d. reviewed and approved LTIP awards for the Executive Directors and senior management;
e. reviewed the Executive Director shareholding guidelines and Executive Director shareholdings;
f. reviewed the Executive Director pension scheme in the context of the Code;
g. reviewed the Remuneration Committee’s performance and its terms of reference to ensure compliance with the Code and related FRC
guidance;
h. as part of the annual Board and Committee evaluation exercise, the Remuneration Committee evaluated its composition and
performance;
i. reviewed employee remuneration matters including employee engagement arrangements;
j. discussed the remuneration elements of the Shareholders Rights Directive II;
k. reviewed the Directors’ Remuneration Policy, which included significant Shareholder consultation, amendments of which will be
presented to the 2020 AGM for Shareholder approval; and
l. reporting on its activities each year within LSL’s Annual Report and Accounts.
As part of its discussions in 2019 the Remuneration Committee considered FRC guidance and other publications relevant to the roles and
responsibilities of the Remuneration Committee, including feedback from shareholder groups.
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 or 2019 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 senior managers,
take into account LSL’s performance on governance (including regulatory compliance) and CSR related issues. Further, it ensures that the
incentive schemes put in place do not raise any ESG issues by inadvertently motivating irresponsible behaviour.
2020 remuneration
In relation to Executive Director remuneration for 2020, see the Directors’ Remuneration Report included in this Report.
72
c116224_BOOK.indb 72
c116224_BOOK.indb 72
25/03/2020 13:51
25/03/2020 13:51
73
Audit & Risk Committee
During 2019, the Audit & Risk Committee was chaired by David Stewart and its other members were Bill Shannon and Kumsal Bayazit
Besson, up until her retirement from the LSL Board at the 2019 AGM, as well as Darrell Evans and Gaby Appleton who were appointed to
the LSL Board on 28th February 2019 and 1st September 2019 respectively.
During the 2019 Board and Committee evaluation process, the Board also confirmed that the Audit & Risk Committee as a whole has
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 2019. LSL’s Head of Risk and Internal Audit, the external auditor, the Non Executive
Chair, 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. The Audit & Risk Committee met with the Head of Risk and Internal Audit
and the external auditor, without the Executive Directors being present, twice during 2019.
Further details of the duties and responsibilities of the Audit & Risk Committee are included in the Audit & Risk Committee Report together
with details of how it discharged its duties during 2019.
Whistleblowing, fraud and anti-bribery arrangements
With effect from 1st January 2019 by way of an amendment to the Audit & Risk Committee’s terms of reference and an update to LSL’s
Matters Reserved for the Board Policy, the Board will provide direct oversight of LSL’s whistleblowing arrangements alongside fraud
and anti-bribery controls. This change was introduced to reflect the requirements of the Code (Principle E). The Audit & Risk Committee
continues to receive reports on any matters which relate to LSL’s internal controls and risk management arrangements including those
relating to any incidents of fraud or bribery.
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.
During 2019 LSL consulted with significant Shareholders with regards to the proxy voting AGM results; and in relation to Remuneration
Policy changes which are being presented to the 2020 AGM, the Remuneration Committee Chair supported by the Group HR Director
consulted with significant Shareholders. For further details of this consultation, see the Directors’ Remuneration Report included in
this Report.
The Group Chief Executive Officer and Group Chief Financial Officer also engaged proactively with Shareholders following results and
other material announcements, and met with Shareholders upon request at other times in 2019. Throughout the year, a number of steps
were taken to ensure that all Directors understand the views of significant Shareholders, including providing feedback received from the
corporate advisers and Executive Directors and the distribution of analysts’ reports to the Board.
The Code requires chairs of company boards to seek regular engagement with major Shareholders in order to understand their views on
governance and performance against strategy. Each year all of the Non Executive Directors, including Simon Embley (Non Executive Chair)
and Bill Shannon (Deputy Chair 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 the Shareholder Information section 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 Directors
will be available at the 2020 AGM to meet with Shareholders.
LSL is also monitoring the FRC and the FCA review of shareholder engagement including revisions to the UK Stewardship Code which was
launched in January 2019.
Details of specific Shareholder consultation exercises undertaken in 2019 are set out below. For further information on Shareholder
engagement, see also the Stakeholder Engagement Arrangements section of this Report.
Shareholder consultation exercises in 2019
• Investment Association Register: 2019 AGM Vote (Resolution 18 – General Meeting Notice Period)
At the 2019 AGM, whilst Shareholders approved all of the resolutions presented to the meeting, the results of the voting for resolution 15
(to disapply pre-emption rights for acquisitions) and resolution 18 (to authorise the holding of a general meeting on not less than 14 days’
notice) is included in the Investment Association’s Public Register (theia.org/public-register). A copy of LSL’s response can be found on the
LSL website (lslps.co.uk).
72
c116224_BOOK.indb 73
c116224_BOOK.indb 73
73
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Corporate Governance Report
A total of 90,867,906 proxy votes were received at the 2019 AGM to all of the resolutions presented for Shareholder approval, which
represents 87.24% of LSL’s issued share capital. For resolution 15 (to disapply pre-emption rights for acquisitions), 20.75% of the votes
received were against the resolution; and for resolution 18 (to authorise the holding of a general meeting on not less than 14 days’ notice),
22.29% of the votes received were against the resolution. In response to the votes LSL conducted a Shareholder consultation in order
to understand Shareholder concerns on this matter. Following this consultation, LSL notes that, notwithstanding that this resolution is
customarily proposed (and passed) at the AGMs of most listed companies, certain Shareholders typically vote against shortening a general
meeting notice period or the dis-application of pre-emption rights over a certain threshold as a general principle.
The Board has considered this feedback but remains of the view that the flexibility afforded by the ability to disapply pre-emption rights
for acquisitions and reduce the general meeting notice period are important, and therefore intends to seek approval for the resolutions at
the 2020 AGM. As in previous years, the resolution put forward to the 2020 AGM in relation to the dis-application of pre-emption rights is
compliant with the guidelines set out in the Statement of Principles of the Pre-emption Group of the FRC.
• Remuneration Policy Consultation
During 2019, LSL engaged with significant Shareholders and their representative bodies, as appropriate, in respect of proposed changes
to the Directors’ Remuneration Policy which is being presented to the 2020 AGM. Further details of this consultation are contained in the
Directors’ Remuneration Report.
• Strategic Announcement
Following the announcement of changes to the structure of the Your Move and Reeds Rains estate agency branch networks and
operations announced on 5th February 2019, the Group Chief Executive Officer and Group Chief Financial Officer engaged with significant
Shareholders in relation to the announcement.
Shareholder information
All of LSL’s announcements are published on the LSL website (lslps.co.uk), together with copies of presentations and financial reports.
Share Dealing Code and Disclosure Committee
LSL has in place a Share Dealing Policy and Share Dealing Code to ensure LSL’s compliance with the EU’s Market Abuse
Regulation (MAR). This Share Dealing Policy and Share Dealing Code applies to the Directors, other persons discharging managerial
responsibilities and relevant employees of LSL.
The Board has also established and delegated responsibilities to a Disclosure Committee which supports LSL’s compliance with the
disclosure and control of inside information obligations as set out in the UKLA’s Listing Rules, Disclosure Guidance and Transparency
Rules and MAR. Notwithstanding the delegation to the Disclosure Committee, the Board remains responsible for LSL’s compliance
with all regulatory disclosure obligations and the Disclosure Committee refers matters to the Board as it sees fit, and the Board will
consider any matter referred to it.
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.
The Corporate Governance Report is approved by and signed on behalf of the Board of Directors
Sapna B FitzGerald
Company Secretary
10th March 2020
74
c116224_BOOK.indb 74
c116224_BOOK.indb 74
25/03/2020 13:51
25/03/2020 13:51
75
Audit & Risk Committee Report
Dear Shareholder
I am pleased to report on the activities of the Audit & Risk Committee during 2019.
The Audit & Risk Committee, on behalf of the Board, has taken steps to ensure that the Annual Report and Accounts 2019, when
taken as a whole, is fair, balanced and understandable.
I wish to welcome Darrell Evans and Gaby Appleton who both joined the Audit & Risk Committee during the year; and I would like to
thank all of the Committee members for their support and the active role each member played in understanding the Group and the
risks and challenges it faces.
Shareholders will note the announcement on 24th February 2020 stating that LSL and Countrywide plc were in discussions regarding
a possible all-share combination. There can be no certainty that any transaction will result from those discussions, and accordingly,
this Audit & Risk Committee Report does not address any matters relating to the possible combination.
In this Audit & Risk Committee Report, we have detailed how the Audit & Risk Committee has discharged its responsibilities during
2019, including details of its monitoring of the Group’s control environment including financial and regulatory compliance which
contained a detailed review of the effectiveness of the Group’s oversight arrangements and led to the implementation of additional
controls. Further details of the Audit & Risk Committee’s activities in 2019 are contained in this Report at page 79.
I will be available at the 2020 AGM along with my fellow Directors to answer Shareholder questions relating to the Audit & Risk
Committee and how this Committee discharged its roles and responsibilities during 2019.
David Stewart
Chair of the Audit & Risk Committee
10th March 2020
LSL’s Audit & Risk Committee
During 2019 David Stewart was the Chair of the Audit & Risk Committee. David Stewart was appointed Chair of the Audit & Risk Committee
in April 2016, the Board and Nominations Committee have determined that he has the requisite recent and relevant financial experience as
is required by the Code. Its other members were Bill Shannon, Kumsal Bayazit Besson (up until her retirement from the LSL Board at the
2019 AGM), Darrell Evans (from 28th February 2019) and Gaby Appleton (from 1st September 2019).
All members of the Audit & Risk Committee during 2019 were independent Non Executive Directors (as defined by the Code).
During the 2019 annual Board and Committees evaluation exercise, the Board confirmed that the Audit & Risk Committee as a whole has
the competence relevant to the sectors in which LSL operates. 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
Board and its Committees, including the Audit & Risk Committee to ensure LSL’s continued compliance with the Code.
Further details relating to the members of the Audit & Risk Committee are also contained in the Corporate Governance Report and in the
Director profiles included in The Board section of this Report.
The Audit & Risk Committee met three times during the year and the Chair of the Board, the Group Chief Executive Officer, the Group Chief
Financial Officer, the Group Financial Controller, the Head of Risk and Internal Audit and the Company Secretary were each invited to attend
all or parts of these meetings to assist the Audit & Risk Committee in its deliberations during this period.
The Roles and Responsibilities of the Audit & Risk Committee
The Audit & Risk Committee has been established by the Board and is responsible for discharging governance responsibilities in respect
of audit, risk and internal controls. The main roles and responsibilities of the Audit & Risk Committee (which are set out in its terms of
reference) are detailed below.
During 2019, the Audit & Risk Committee continued its programme of work to ensure that each of its roles and responsibilities were covered
adequately during the year. In discharging its roles and responsibilities, the Audit & Risk Committee considered the requirements of the
Listing Rules and Disclosure and Transparency Rules (together with any other requirements issued by the FCA), the Code together with
guidance issued by the FRC (including the Guidance on Audit Committees and the Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting), and any requirements of the Board.
74
c116224_BOOK.indb 75
c116224_BOOK.indb 75
75
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Audit & Risk Committee Report
The duties of the Audit & Risk Committee are detailed in its terms of reference, which were reviewed and updated with effect from 1st
January 2019 to reflect the requirements of the Code. Its principal roles and responsibilities include:
a. monitoring the integrity of LSL’s financial statements and any formal announcements relating to LSL’s financial performance, and
reviewing significant financial reporting issues and judgements contained in them;
b. providing advice (where requested by the Board) on whether the Annual Report and Accounts, taken as a whole, is fair, balanced and
understandable, and provides the information necessary for Shareholders to assess LSL’s position and performance, business model
and strategy. In addition, the Audit & Risk Committee assists the Directors to support their statements to be included in the Annual
Report and Accounts. In particular, the Audit & Risk Committee considers whether other information presented in the Annual Report
and Accounts is consistent with the financial statements and reports its findings to the Board;
c. reviewing LSL’s internal financial controls and internal control and risk management systems, unless expressly addressed by a separate
Board risk committee composed of independent Non Executive Directors, or by a review undertaken by the Board itself;
d. monitoring and reviewing the effectiveness of LSL’s Risk and Internal Audit Team;
e. conducting the external auditor tender process and making recommendations to the Board, about the appointment, re-appointment
and removal of the external auditor, and reviewing (including benchmarking) and approving the remuneration and terms of engagement
of the external auditor;
f. reviewing and monitoring the external auditor’s independence and objectivity;
g. reviewing the effectiveness of the external audit process, taking into consideration relevant UK professional and regulatory
requirements;
h. developing and implementing LSL’s policy on the engagement of the external auditor to supply non-audit services (which is contained
within the Auditor Independence Policy);
i. ensuring that there is prior approval of any non-audit services, considering the impact the provision of such services may have on
auditor independence, taking into account the relevant regulations and ethical guidance in this regard, and reporting to the Board on
any improvements or action required; and
j. reporting to the Board on how it has discharged its responsibilities.
The Audit & Risk Committee terms of reference are available from the Company Secretary and on LSL’s website (lslps.co.uk).
Detailed below is further information on how the Audit & Risk Committee discharges its roles and responsibilities.
How the Audit & Risk Committee discharges its roles and responsibilities:
1. Internal controls and risk management
In relation to LSL’s internal controls and risk management arrangements, the Audit & Risk Committee:
a. ensures that the Group’s accounting and financial policies and controls, are proper, effective and adequate;
b. ensures that internal and external auditing processes are properly coordinated and work effectively;
c. monitors the integrity of LSL’s financial statements and any formal announcements relating to its financial performance, reviewing
significant financial reporting issues and judgements contained in them;
d. considers the level of assurance the Audit & Risk Committee provided in relation to the risk management and internal control systems,
including financial controls, and whether there is sufficient evidence to enable the Board to satisfy itself that they are operating
effectively;
e. advises the Board in its setting of LSL’s overall risk appetite, tolerance and strategy, taking account of the current and prospective
macroeconomic, political and financial environment and drawing on external sources 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;
f. oversees and advises the Board on the current risk exposures of LSL and its future risk strategy;
g. monitors LSL’s risk management and internal control systems and, at least annually, carries out a review to enable LSL to report on that
review in the Annual Report and Accounts. The monitoring and review covers all material controls, including financial, operational and
compliance controls; and
h. reviews and approves 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 risks. The framework ensures
that focus is placed on threats to Group objectives, with action plans put in place for any areas considered outside risk 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 the results by the Risk and Internal Audit function, prior to the
reporting of overall conclusions for discussion at the Audit & Risk Committee meetings.
76
c116224_BOOK.indb 76
c116224_BOOK.indb 76
25/03/2020 13:51
25/03/2020 13:51
77
2. Reporting to the Board
The Audit & Risk Committee reports to the Board on how it has discharged its responsibilities, including:
a. details of the significant issues that it considered in relation to the financial statements and how these issues were addressed;
b. its assessment of the effectiveness of the external audit process and its recommendation on the appointment/re-appointment 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 seeks to identify significant matters in respect of which action or improvement is needed, whether the subject of a specific
request by the Board or not, and makes recommendations as to the steps to be taken.
3. External auditor
The Audit & Risk Committee is responsible for overseeing LSL’s relationship with the external auditor, in relation to which its roles and
responsibilities include:
a. making annual recommendations to the Board for it to put to Shareholders for their approval in a general meeting in relation to the
appointment, re-appointment 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. satisfying itself that the audit fee is appropriate and that an effective, high quality audit can be conducted for such a fee;
c. the selection procedure for the appointment of the external auditor (including ensuring that all tendering firms have access to necessary
information and individuals during the tendering process);
d. meeting with the external auditor before the start of each annual audit to consider the nature and scope of the audit and post-audit
at the reporting stage. The Audit & Risk Committee ensures that appropriate plans are in place for the audit and considers whether
the overall audit plan (including planned levels of materiality and proposed resources) appears consistent with the scope of the audit
engagement (having regard to the seniority, expertise and experience of the audit team);
e. reviewing with the external auditor the findings of their work and their report, including:
• any major issues that arose during the audit (including a review of resolved and unresolved items);
• an explanation on how the auditor addressed any risks to audit quality;
• weighing the evidence received in relation to areas of significant judgement and reviewing key accounting and audit judgements;
• seeking the auditor’s view on the quality of their interaction with senior management and members of the Group’s finance teams; and
• reviewing levels of errors identified during the audit and obtaining explanations from management and the auditor in relation to
the same;
f. annually assessing, and reporting to the Board on, the effectiveness of the audit process, taking into account qualification, expertise,
ethical standards (including compliance with the same), resources, and independence of the external auditor. The assessment will
also consider mind-set, culture, skills, character and knowledge, quality control and judgements, including the robustness and
perceptiveness of the external auditor in handling key judgements, responding to questions from the Audit & Risk Committee, and in
any commentary on LSL’s systems of internal control. The Audit & Risk Committee will also consider all aspects of the audit service
provided by the firm including its internal quality control procedures and consideration of the firm’s annual transparency reports;
g. in the event of a resignation by the external auditor, investigating the issues giving rise to such resignation and considering whether any
action is required;
h. evaluating 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. developing and implementing LSL’s policy on the engagement of the external auditor to supply non-audit services, taking into account
relevant ethical guidance, reporting to the Board in relation to the same (including identifying any matters in respect of which it
considers that action or improvement is required and making recommendations on the steps to be taken);
j. reviewing and monitoring the Management Team’s responsiveness to the external auditor’s findings and recommendations and
reviewing the audit representation letters (giving particular consideration to matters where any representation is requested that relate to
non-standard issues). The Audit & Risk Committee considers whether the information provided is complete and appropriate based on
its own knowledge;
k. meeting with the Board formally, at least twice a year, to discuss the Annual Report and Accounts, the relationship with the external
auditors and any other matters included within its duties and responsibilities;
l. keeping under review the nature and extent of non-audit services provided by the external auditor, taking into account LSL’s Auditor
Independence Policy; and reviewing at least annually for recommendation to the Board, LSL’s Auditor Independence Policy; and
m. meeting with the external auditors without the presence of the Executive Directors at least once a year.
76
c116224_BOOK.indb 77
c116224_BOOK.indb 77
77
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Audit & Risk Committee Report
4. Annual Report and Accounts
Each year, the Audit & Risk Committee prepares a report to Shareholders for inclusion in LSL’s Annual Report and Accounts. For details of
how the Audit & Risk Committee discharged its obligations in relation to this Report, please see the Corporate Governance Report and this
Audit & Risk Committee Report.
5. Financial reporting
The Audit & Risk Committee reviews and reports to the Board on significant financial reporting issues and judgements 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 interim statements, and summary financial statements 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 and any changes to them;
b. the appropriateness of LSL’s accounting policies, estimates and judgements (taking into account the external auditor’s view on the
financial statements);
c. the clarity and completeness of disclosures and consideration as to whether the disclosures are set properly in context;
d. major judgemental areas;
e. any significant adjustments arising from the audit;
f. the appropriateness of the adoption of the going concern basis of accounting and identification of any material uncertainties to the
Group’s ability to continue to do so for a period of at least 12 months from the date of approval of the financial statements;
g. compliance with accounting standards;
h. the extent to which the financial statements are affected by any unusual transactions; and
i. compliance with legal and regulatory requirements (including FCA and LSE requirements).
6. Risk and Internal Audit
The Risk and Internal Audit Team provides objective assurance and advice on risk and control. In relation to LSL’s Risk and Internal Audit
Team, the Audit & Risk Committee:
a. reviews and approves the role and mandate of the Risk and Internal Audit Team (ensuring that the function has unrestricted scope,
sufficient resources and access to information to enable it to fulfil its mandate, and to perform in accordance with relevant professional
standards);
b. approves the internal audit plan and reviews and approves annually the Risk and Internal Audit Team’s terms of reference to ensure that
it is appropriate to the needs of the Group. The Audit & Risk Committee pays particular attention to the areas in which risk, compliance,
finance, internal audit and external audit functions may be aligned or overlapping and oversee these relationships to ensure they are
coordinated and operating effectively to avoid unnecessary duplication whilst maintaining the independence of the Risk and Internal
Audit function;
c. ensures that there is open communication between the Group’s different functions and that Risk and Internal Audit evaluates the
effectiveness of LSL’s risk, compliance and finance functions as part of the internal audit plan;
d. monitors and reviews the effectiveness of LSL’s Risk and Internal Audit Team and its activities;
e. approves the appointment and termination of the Group’s Head of Risk and Internal Audit. The Head of Risk and Internal Audit has
unrestricted access to both the Audit & Risk Committee Chair and LSL’s Non Executive Chair, and meets privately with the Audit & Risk
Committee Chair on a regular basis;
f. undertakes a review of the effectiveness of the Risk and Internal Audit Team and confirms to the Board that it is satisfied that the
quality, experience and expertise of the function is appropriate for the Group. The matters which will be taken into account in the review
are detailed in the Audit & Risk Committee’s terms of reference. The Audit & Risk Committee will, if it deems it appropriate, instruct an
independent, third party review of the effectiveness of the internal audit function; and
g. receives and considers the findings of the Risk and Internal Audit Team together with reports on the actions senior management has
taken to implement the recommendations of the Risk and Internal Audit Team.
7. Whistleblowing, fraud and anti-bribery arrangements
Whistleblowing and fraud arrangements
With effect from the 1st January 2019, and in line with the Code and FRC’s Guidance on Board Effectiveness, the Board assumed
responsibility for the oversight and monitoring of whistleblowing, fraud and anti-bribery arrangements from the Audit & Risk Committee.
However, the Audit & Risk Committee continues to receive reports relating to these matters as appropriate in connection with its oversight
of the Group’s internal controls.
78
c116224_BOOK.indb 78
c116224_BOOK.indb 78
25/03/2020 13:51
25/03/2020 13:51
79
Anti-corruption and bribery arrangements
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.
For further details in relation to LSL’s whistleblowing, fraud and anti-bribery arrangements see the Corporate Governance Report of this
Report.
What the Audit & Risk Committee did in 2019
The Audit & Risk Committee met three times in 2019. 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, for review and
challenge. 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
further development of subsidiary risk appetite measures.
b. Evaluated areas for the continued development of the Group’s financial control structures, including reviewing the Group’s financial
reporting systems and internal control environment, receiving reports on compliance with Group Finance procedural requirements
and consideration of the effectiveness of related controls; considered new regulatory requirements for payment practices and VAT
submissions; and undertook additional oversight of new expenses and client accounting IT developments.
c. Reviewed arrangements to develop further the Group’s oversight routines in relation to data protection and IT security requirements,
and cybersecurity related threats, including consideration of second-line risk assessments and third-line audit findings across relevant
areas of business IT infrastructure.
d. Undertook a detailed Group-wide review of the effectiveness of second-line oversight routines. Group principal risk and uncertainties
areas were disaggregated to a more granular level of detail, to highlight any areas for additional focus as part of future oversight
routines by relevant compliance and risk-related teams operating within the business Divisions.
e. Reviewed the risk management framework in operation at subsidiary level, relevant second-line oversight and the development
of proportionate subsidiary risk reporting to the Audit & Risk Committee. This has included supporting the further development of
functional risk reporting, such as information security and project management metrics.
Surveying and Valuations Services risk and compliance
f. Received reports from the Surveying Division Risk and Governance Director in relation to the principal and emerging risks pertaining
to surveying and valuation services, including consideration of valuation controls in relation to higher loan to value mortgages and
oversight of third party supply chain management.
Estate Agency risk and compliance
g. Received reports from the Estate Agency Risk and Governance Director in relation to the second-line risk based assurance cycle
priorities in 2019, including a presentation of the most significant common risk areas and how they are being managed.
Financial Services risk and compliance
h. Received reports from the Financial Services Chief Risk Officer in relation to the second-line risk based assurance cycle priorities in
2019, the alignment of compliance and risk across the PRIMIS networks, improvements to fraud detection capability and the risk-related
benefits from the rollout of a new core IT system.
i. Reviewed the effectiveness of the Financial Services Risk Committee (FSRC), and received the minutes of the FSRC for information. Also
during the year, the Audit & Risk Committee completed an annual review of key Group committees which included the FSRC.
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 2020 AGM.
b. Reviewed the external 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.
c. Reviewed, discussed and approved the external auditor’s 2019 full year audit scope, plan and fee. For further information regarding the
auditor’s fee, including details relating to a fee increase in relation to the 2019 audit, see below Auditor fees.
78
c116224_BOOK.indb 79
c116224_BOOK.indb 79
79
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Audit & Risk Committee Report
3. Financial reporting (including Annual Report and Accounts 2018)
a. Reviewed the annual financial results and the preliminary results announcement for 2018 which were released in March 2019, and the
interim results for 2019 which were released in July 2019, 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 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. 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.
c. 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.
d. Undertook a review of the classification of exceptional items.
4. Risk and Internal Audit
a. Considered the effectiveness and independence of the internal audit arrangements and agreed the annual Risk and Internal Audit
Team’s 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 against best practice professional guidelines.
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 tax strategy)
a. 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.
b. Reviewed the Audit & Risk Committee’s terms of reference and the Group’s Auditor Independence Policy to ensure compliance with
the Code, and the FRC’s Guidance on Board Effectiveness and Guidance for Audit Committees, in addition to carrying out an annual
review of the Audit & Risk Committee’s performance.
c. Reviewed and approved the Group’s tax strategy for recommendation to the Board for adoption.
d. Undertook an annual review of the Group’s committee structure (including its Executive Committees).
e. Received corporate governance reports, including a particular focus on developments in relation to corporate reporting and corporate
failures.
Annual Report and Accounts 2019
The Audit & Risk Committee has considered this Report, including the Financial Statements in the context of fairness, balance and
understandability. This included a review of LSL’s fair value assessment of its equity assets which is detailed in the significant issues in
financial reporting 2019 summary below.
Following its evaluation, the Audit & Risk Committee has reported to the Board that the Annual Report and Accounts 2019 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 both ‘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 included the Group’s Corporate Social Responsibility Statement (including the environmental disclosures).
80
c116224_BOOK.indb 80
c116224_BOOK.indb 80
25/03/2020 13:51
25/03/2020 13:51
81
Significant matters 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 were the significant risks and issues in relation to the Financial Statements, and how these
should be addressed. Areas of particular focus during the year are outlined in the table below:
Significant issues in
financial reporting for 2019
Provision for PI Costs
relating to valuation services
How the Audit & Risk Committee addressed these issues
The PI provision necessarily contains significant management judgement and estimation uncertainty in relation to the
incidence of claims, the propensity for each claim to result in financial loss and the ultimate loss per claim. In addition,
management judgement is applied in the categorisation of exceptional versus non-exceptional costs.
During 2019, 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 also received reports from the Risk and Internal Audit Team following the completion of its
reviews of PI Costs provisioning.
Inappropriate recognition
of revenue (including lapse
provisions)
There is a risk that revenue is recognised in the wrong period, either due to error or as a result of management bias. Further
to this, there is estimation uncertainty in the measurement of lapse provisions, which are recognised as a reduction in
revenue.
In general, revenue recognition in the Group is not considered complex. Revenue is recognised when control of a good
or service transfers to the customer. This may occur at a discrete point in time (e.g. Financial Services, Residential Sales
exchange, Surveying and Valuation services) or over time (e.g. management services).
Certain Financial Services businesses distribute pure protection products, which are cancellable without a notice period,
and if cancelled within a set period will result in a portion of the commission initially received being repaid.
The proportion of such repayments is estimated in a lapse provision, which is recognised as a reduction in revenue and
includes estimation uncertainty. Management estimates of the lapse provision is reviewed by the Audit & Risk Committee.
LSL’s Risk and Internal Audit Team undertakes a number of financial control audits as part of its assurance plan. These
audits included a review of 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.
Acquisition accounting
(including identification of
intangible assets acquired in
business combinations and
recognition of deferred and
contingent consideration)
The Audit & Risk Committee has reviewed the treatment of earn-out and other contingent consideration, to ensure that
management’s estimates are reasonable and based on the best available information.
The Group has made a number of acquisitions, the consideration for which sometimes includes earn-out arrangements,
in which some of the consideration is dependent on performance subsequent to the acquisition. The estimate of the likely
payments that will become due is reflected in deferred and contingent consideration provisions.
These balances are calculated with reference to specific management judgements. These include expected exit date and
future cash-flows which have a degree of estimation uncertainty.
Impairment/inappropriate
valuation of goodwill and
intangible assets and
financial assets
On an annual basis, the Management Team undertake reviews of goodwill to determine whether impairment is required.
These reviews will include a review of the net assets, and current and future profitability of the assets giving rise to the
goodwill. The test will involve the application of a discount factor to projected future cash-flows.
There is a level of uncertainty inherent in the impairment review, including the cash-flow and profit forecasts used and the
discount rate applied.
The Audit & Risk Committee reviewed management’s calculations and assumptions in detail, taking into account advice
provided by the external auditor. Following this review, it was able to conclude that no impairment was necessary to the
goodwill or intangible assets as at 31st December 2019.
Further information is provided in the Notes to the Financial Statements.
80
c116224_BOOK.indb 81
c116224_BOOK.indb 81
81
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Audit & Risk Committee Report
Other Financial
Statements matters
considered by the Audit &
Risk Committee
Client monies with regards
to the Lettings businesses
Financial assets
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, 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 has a responsibility to ensure that the money held in the client accounts is segregated and would be liable
for any shortfall. Group Finance teams provide oversight of the integrity of client account operations, undertaking regular
reconciliation. The Risk and Internal Audit Team also perform regular client account audits, the findings of which are
reported to the Audit & Risk Committee.
The Group holds minority shareholdings in VEM, NBC Property Master, Global Property Ventures and Yopa. The Group
disposed of warrants for shares in ZPG plc in 2018. The Audit & Risk Committee has considered the fair value of each of
these holdings for inclusion in the Group’s balance sheet. Particular attention was devoted to the valuation of Yopa. As
with any relatively new and untraded company which, in line with its business plan, is currently loss making, this is a highly
judgemental area.
In determining the fair value of the Yopa equity asset and the need for any impairment, the Audit & Risk Committee
considered a number of factors, including estimates of valuation prepared by the Management Team, as well as indications
of an intention to invest from a number of third parties. The assessment (as detailed in Notes 2 and 17 to the Group
Financial Statements) was undertaken using level three techniques in accordance with IFRS 13. Following which, the Audit
& Risk Committee accepted management’s recommendation that the asset be reduced in value from £7.8m to £6.5m
(as disclosed in Note 17 to the Group Financial Statements), a reduction of 17%. The fair value impairment of £1.3m has
been recognised through the Statement of Other Comprehensive Income. It should be noted that the valuation remains
highly judgemental and subjective in nature, and that a further impairment is possible, should Yopa fail to meet its revised
business plan, or if current fundraising plans do not proceed as expected. Accordingly, the value of the asset will be kept
under close review.
Further impairments were also recognised through the Statement of Other Comprehensive Income of £0.4m on VEM, to a
fair value of £0.3m, and £0.2m on Global Property Ventures, to a fair value of £0.1m.
Treatment of exceptional
items
It is sometimes appropriate to disclose certain items of income and expenditure as exceptional in order to enable users of
the accounts to understand the underlying performance of the Group.
The classification of items presented as exceptional has an impact on KPIs within the Financial Statements, such as
Underlying Operating Profit.
Exceptional items is an area of focus for the FRC, which considered these in its thematic reviews of alternative performance
measures published in November 2017.
The Audit & Risk Committee has, in line with FRC guidance, continued to review the Group’s policy with regard to the
classification of items as exceptional. In 2019 it ensured that the Management Team’s assessment of the exceptional costs
and gains reported in the Financial Statements is in line with Group policy, which requires that they are material in both size
and nature, and are non-recurring.
In 2019, costs in relation to branch closures and restructuring costs including redundancy costs have been disclosed as
exceptional. These substantially are costs relating to the planned reshaping of the Your Move and Reeds Rains branch
networks, and Surveying and Valuation Services contract transition and integration costs. After careful consideration the
Audit & Risk Committee agreed that these items were material and non-recurring in nature and that it was appropriate to
categorise them as exceptional within the 2019 Financial Statements.
The Management Team has primary responsibility to prevent and detect fraud and has endeavoured to put in place a
culture that requires ethical behaviour of staff, together with a control environment to both deter and prevent fraud. There
are established whistleblowing arrangements in place to enable staff to confidentially raise concerns. The Audit & Risk
Committee received reports on the Group’s fraud prevention and whistleblowing arrangements, including details of any
instances of any actual or suspected fraud related circumstances.
The Audit & Risk Committee oversaw the introduction of the new IFRS standard, specifically IFRS 16 Leases, which
was adopted at 1st January 2019. Group Finance undertook a comprehensive process to ensure LSL was prepared to
implement IFRS 16 from 1st January 2019. This included substantial data collation and verification exercises as well as
consultation with Ernst & Young technical and audit team. LSL Internal Audit also carried out a readiness review in advance
of the adoption on 1st January 2019, the findings of which were considered by the Audit & Risk Committee.
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 a review of the likely future profitability of the Group, a forecast of
future cash-flows, the impact of banking covenants, the liquidity of investments, the performance of joint ventures and the
ability of the Group to re-finance debt (the Group’s facility is due to mature in May 2022) when necessary.
The key judgements, assumptions and estimates underpinning this review were 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.
Misstatement due to fraud
and error
New accounting policies
Going concern
82
c116224_BOOK.indb 82
c116224_BOOK.indb 82
25/03/2020 13:51
25/03/2020 13:51
83
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. Based on this conclusion, the
Board has resolved to recommend to Shareholders the re-appointment of Ernst & Young as external auditor at the 2020 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 auditor being compromised, the Audit & Risk Committee has adopted a
policy under which any non-audit related services provided by the external auditor 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 2019 to ensure compliance with the 2018 Code.
The Auditor Independence Policy, which was in place during 2019 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 on LSL’s website (lslps.co.uk).
Auditor fees
The split between audit and non-audit fees for 2019 appears at Note 9 to the Financial Statements. Non-audit fees of £9,000 (2018: £9,000)
were incurred in the year. Audit fees of £453,000 (2018: £352,000) were incurred in the year. This is in line with the provisions of the Auditor
Independence Policy. The non-audit fees related to other assurance services.
The 2019 audit fee was reviewed and increased during the period. The fee increase is consistent with fee increases which have been seen
across the audit market which are the result of audit firms reviewing their fee arrangements as a consequence of, and in response to, the
FRC’s review of audit firms in relation to the level of work needed and focus on quality.
Internal controls
The Board has overall responsibility for LSL’s system of internal controls and for its effectiveness. The system of internal controls is subject
to on-going evaluation and is regularly reviewed. It was developed in 2016 and 2017 to ensure compliance with the guidance set out in
the September 2014 FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting and has been
reviewed more recently to ensure compliance with the Code and FRC Guidance on Board Effectiveness.
The arrangements in place for 2019 aimed to identify, evaluate and manage significant risks faced by LSL. It included assessments by the
Board and the Executive Committee of risk appetite levels and measures to define levels of risk being carried in relation to this appetite.
Additional work was undertaken to identify and refine appetite tolerance levels, and this has proven to be a valuable tool to support key
business decisions throughout the course of the financial year. For any areas considered outside tolerance, remedial steps are identified to
reduce the risk being carried.
In common with any risk management framework, 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
was extended to the main subsidiary businesses, each of which now maintains its own appetite measures. The development of this
continues to be a focus for the Group, as its systems increase in maturity.
The control framework facilitates the effectiveness and efficiency of LSL’s operations, helps to ensure the reliability of internal and external
reporting and assists in ensuring compliance with laws and regulations. The internal control system is designed to safeguard both
Shareholder investment and LSL’s assets.
In order to ensure the adequacy of its system of internal controls, the Board has established procedures to apply both the Code
and relevant FRC guidance, including establishing a Group Risk Framework Policy, backed with clear operating procedures, distinct
lines of responsibility and delegated authority levels. LSL’s risk management and internal control procedures and framework has
evolved significantly since LSL was first listed on the London Stock Exchange and is regularly reviewed by the Board and the Audit &
Risk Committee.
82
c116224_BOOK.indb 83
c116224_BOOK.indb 83
83
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Audit & Risk Committee Report
Further details of LSL’s risk management arrangements are contained in the Principal Risk and Uncertainties section of this Report.
LSL’s risk management and internal control framework provides for:
a. ownership of the risk management and internal controls framework by the Board, 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. documentation and monitoring of risks are recorded through risk appetite measures prepared in accordance with defined Group criteria.
This is subject to regular review by subsidiary boards, divisional governance committees and the Head of Risk and Internal Audit;
d. regular consideration by the Executive Committee, Board and Audit & Risk Committee of the principal risks and uncertainties which
may impact the Group. This is embedded in both decision making and as part of the routine planning and reporting cycle to ensure
that such risks are identified, monitored and mitigated in a timely and effective manner and reinforced by the carrying out of specific risk
assessments;
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 of this Report); and
f. reporting by the Chair 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 identified failings in,
or exceptions to, these procedures.
LSL has in place a well-established Group-wide risk appetite statement and risk framework which will evolve further in 2020 in line with best
practice and with a particular focus on the further development of the framework for key functional areas which are subsets of overarching
subsidiary risk metrics, for example, data protection and information security.
The risk management framework includes the following:
a. risk management framework policy;
b. determination of risk appetite and the 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 in this Report).
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 Principal Risks and Uncertainties section of this Report.
The Group has in place internal control and risk management systems in relation to LSL’s financial reporting procedures and the process
for preparation of consolidated accounts. These systems include policies and procedures to facilitate the maintenance of records that
accurately and fairly reflect transactions, provide reasonable assurance that transactions are recorded as necessary to permit the
preparation of financial statements in accordance with IFRS or UK Generally Accepted Accounting Principles, as appropriate, and that
assurance processes are in place to ensure that reported data is subject to review and reconciliation to underlying records.
LSL operates a ‘three lines of defence’ structure (see diagram below) to facilitate effective oversight of Group operations. Further features
of the risk management framework include delegated authority levels and functional reporting lines and accountability. LSL operates a
budgeting and financial reporting system that on a monthly basis compares actual performance to forecasts, budget and the previous year.
In addition, the Executive Directors receive information on a more regular basis that reviews key areas of performance, for example daily
sales activity. All capital expenditure and other purchases are subject to appropriate authorisation procedures, with centralisation of several
payment functions.
84
c116224_BOOK.indb 84
c116224_BOOK.indb 84
25/03/2020 13:51
25/03/2020 13:51
85
FIRST-LINE OF DEFENCE
SECOND-LINE OF DEFENCE
THIRD-LINE OF DEFENCE
Three lines of defence diagram
In addition, LSL has established a number of executive committees charged with the management of performance and risk. These
include the Financial Services Management Committee (FSMC) and the Financial Services Risk Committee (FSRC), which have roles and
responsibilities relating to the management of LSL’s FCA regulated Financial Services businesses. In this work, they are supported by the
Financial Services Compliance and Risk Committee, which is established at business-level.
Other governance bodies are in place for the Group’s information security arrangements (Data and Information Security Committee (DISC))
and other business operations, for example, the Estate Agency Management Committee, the Estate Agency Risk Committee and the
Surveying Valuation Controls Board.
The Audit & Risk Committee and/or the Board receives regular reports from the DISC, FSRC and FSMC along with updates from the
Group’s Executive Committee, whose focus also includes the monitoring of key performance indicators in relation to LSL’s customers.
Further, the Audit & Risk Committee reviews the risk and compliance arrangements within each of the three Divisions at each of its
meetings. The Estate Agency Risk and Governance Director; the Financial Services Chief Risk Officer and the Surveying Risk and
Governance Director are invited to attend and present at these sessions as appropriate.
During 2019 the Executive Directors 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 also kept under review by the Audit & Risk Committee and has been reviewed by the Board during 2019 as part of an
annual review.
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 ensure attendance and reporting of key second-line personnel (including the Chief Risk Officers/Directors of all core Divisions);
• mapping by the Risk and Internal Audit team of the effectiveness and reach of second-line oversight routines across the Group;
• presentation by the Group IT Director of a review of Group data protection and information security arrangements;
• linkage of key subsidiary risk metrics to the over-arching Group risk appetite framework;
84
c116224_BOOK.indb 85
c116224_BOOK.indb 85
85
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewLSL Board/Audit & Risk Committee/Nominations Committee/Remuneration CommitteeExecutive Committee and other governance committees e.g. Estate Agency Management/Risk Committees,Financial Services Management/Risk Committees,Surveying board (e.surv) and sub-committees, Data and Information Security Committee Functions 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 ConsultantsFunctions that provide independent assuranceLSL Risk and Internal Audit External AuditCompany Secretariat/LSL Legal Audit & Risk Committee Report
• assessments of learnings from external corporate failures; and
• assessed resourcing and skills of the Risk and Internal Audit Team.
The principal risks and uncertainties facing LSL together with details of key mitigation initiatives are set out in the Principal Risks and
Uncertainties section of this Report.
The Audit & Risk Committee Report is approved by and signed on behalf of the Board of Directors
David Stewart
Chair of the Audit & Risk Committee
10th March 2020
86
c116224_BOOK.indb 86
c116224_BOOK.indb 86
25/03/2020 13:51
25/03/2020 13:51
87
Directors’ Remuneration Report
Annual Statement
Dear Shareholder
This Directors’ Remuneration Report is divided into the following three sections:
• Annual Statement: summarising remuneration for and explaining major decisions made during 2019 as well as explaining the
operation of the Policy for 2020;
• Directors’ Remuneration Policy (the Policy): setting out the proposed policy being presented for Shareholder approval at the
2020 AGM; and
• Annual Report on Remuneration: setting out details of the remuneration earned by the Directors in the year ended 31st December
2019 and how the Policy will be implemented during 2020.
The Policy is subject to a binding vote every three years or sooner if any changes are made to the Policy prior to the expiry of the three
years. The Policy was last submitted and approved by Shareholders at the 2017 AGM and, accordingly, it is being submitted for its
triennial binding Shareholder vote at the forthcoming 2020 AGM.
The Annual Statement and Annual Report on Remuneration are subject to an annual Shareholder advisory vote and will also be
presented to Shareholders at the forthcoming 2020 AGM.
Summary of LSL’s performance in the year and incentive payments to Executive Directors
The Group’s financial performance during 2019 has been robust, especially taking into account the difficult market conditions and
continued national and global political uncertainty as well as the issues surrounding Brexit.
The bonus scheme in 2019 was based 80% on LSL’s financial performance and 20% on individually agreed non-financial measures.
The Executive Directors’ maximum bonus opportunity is 100% of basic salary. The 2019 annual bonus awards for the Executive
Directors reflect good performance against the financial performance targets as well as the successful delivery of strategic initiatives.
Based on LSL’s financial and operational performance in 2019, the Executive Directors earned an annual bonus award of between
47.2% and 47.8% of basic salary in respect of the financial performance element of the bonus scheme reflecting performance against
Group and divisional Estate Agency measures and 13.7% and 15.9% of basic salary for performance against their individual non-
financial measures. These non-financial measures have been important in driving forward and delivering strategic initiatives during the
year.
The performance period for the 2017 LTIP ended on 31st December 2019. As a result of performance over the three year period, the
LTIP awards will lapse in full due to the challenging EPS performance targets and TSR targets not being achieved.
The Remuneration Committee reviewed and concluded that the incentive outturn reflected underlying performance and that it did
not need to exercise any discretion to adjust the formulaic outcome. The Remuneration Committee also considered whether there
were any relevant environmental, social, and governance matters that it needed to take account of when reviewing the remuneration
outcomes and concluded that there were no such factors that needed to be taken into account. The Remuneration Committee is also
comfortable that the Policy has operated as intended and that no changes are needed as a result of the review of operation in 2019.
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
The Remuneration Committee carries out an annual review of the Executive Director and senior management remuneration including
the Policy, to ensure it promotes the attraction, motivation and retention of high quality executives who are key to delivering LSL’s
strategy, sustainable growth and Shareholder return. The Remuneration Committee’s review of the Policy in 2019 and the decision
making process included an extensive and informative Shareholder consultation process. This review concluded that whilst the current
Policy remains broadly appropriate, a limited number of changes should be made to take account of developments in best practice
and the recent changes to the Corporate Governance Code.
Summary of proposed Policy changes
In summary, the proposed key changes to the Policy are as follows:
• New appointments will have a pension contribution in line with the contribution available to the majority of the workforce at the time
of the appointment, this is currently 3%. Ian Crabb, Group Chief Executive Officer, will retain the 5% of basic salary contribution he
currently receives, Adam Castleton, Group Chief Financial Officer, participates in the LSL auto enrolment pension scheme with a
pension contribution of 3% and Helen Buck, Executive Director – Estate Agency, has elected not to join the pension scheme.
86
c116224_BOOK.indb 87
c116224_BOOK.indb 87
87
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Directors’ Remuneration Report
• Annual bonus maximum opportunity under the Policy will now be set at 125% of salary for all Executive Directors. Previously the
125% applied only to our Group Chief Executive Officer. However, the applied maximum will not be increased above the current
100% of salary without prior consultation with our largest Shareholders and there is no current intention to increase it at this time.
• The Remuneration Committee is keen to increase Share ownership amongst LSL’s Executive Directors, as such Ian Crabb, Group
Chief Executive Officer will be required to purchase Shares equivalent to 33% of any bonus earned, net of tax, and the other
Executive Directors, Shares equivalent to 25% of any bonus earned, net of tax, and retain them for a minimum period of two years,
or until the Executive shareholding requirement is met. These Shares will not be forfeited on cessation of employment as they have
been acquired with bonus already earned. However, the holding period and clawback will continue to apply post-employment.
• The Executive Director Share ownership guidelines have been increased to 200% of salary for the Group Chief Executive Officer. The
Share ownership guideline for the other Executive Directors remains at 150% of salary. The Executive Directors have five years from
approval of the new Policy to meet the requirement.
• LSL’s new post cessation of employment shareholding policy ensures that the holding periods for annual bonus Shares and Shares
acquired from LTIP awards, continue to apply post-employment. For good leavers pro-rated unvested LTIP awards will also provide
further post-employment alignment with investors and longer term Company performance.
• The Remuneration Committee will have the discretion to adjust formulaic variable pay and vesting level outcomes in line with the
Code where they do not reflect, for example, underlying corporate performance, the investor experience or employee reward
outcome. As part of its discretion the Remuneration Committee will also consider the “quality of earnings” that underlies the pay and
vesting outcomes and consider whether they support sustainable long-term growth and do not put at risk future cash-flows.
• The clawback and malus provisions have been broadened to additionally cover reputational damage, corporate failure and failure of
risk management.
• The new Policy also clarifies that on a change of control, LTIP awards will vest with performance being determined at the time of the
relevant event and awards pro-rated to the date of the relevant event, with the Remuneration Committee having discretion to reduce
the time pro-rating if deemed appropriate.
The new Policy is detailed in full on page 90.
Implementation of the Policy for 2020
On 24th February 2020, LSL announced a possible all-share combination with Countrywide plc. There is no certainty that this will
result in any offer being made for Countrywide plc, or in the all-share combination becoming effective. As a result, both the Directors’
Remuneration Report and proposed new Directors’ Remuneration Policy have been formulated based on the LSL Group as it is
currently comprised as at the date of this Report.
The Remuneration Committee believes that the Policy may also be suitable for the enlarged group which would result from any
combination of LSL and Countrywide becoming effective, but it is possible that changes may be required to reflect that transaction, if it
is concluded. In the event that any changes are proposed to the Policy then significant Shareholders will (to the extent practicable) be
consulted and Shareholder approval for the revised Policy will be sought prior to any changes to the Policy being made.
The 2020 Annual Report and Accounts will report on how the Policy has been applied in 2020.
Corporate Governance and Reporting Regulations
As detailed in last year’s Annual Report, the Remuneration Committee adopted many of the new elements of the Code earlier than it
was required to do. Of the outstanding elements of the Code LSL implemented the following changes in 2019:
• During 2019 Darrell Evans was appointed to the Board and its Committees and is the designated Non Executive Director in
relation to workforce engagement, further detail on this role and work undertaken during the year can be found in the Stakeholder
Engagement Arrangements and Corporate Governance sections of this Report.
• The Remuneration Committee’s remit was formally broadened during 2019 and during the year the Remuneration Committee
reviewed the wider LSL workforce remuneration and related policies to ensure the alignment of incentives and rewards with culture.
This review was taken into account when designing the new Policy for executive director remuneration.
• The new Policy incorporates a formal policy for post-employment shareholdings.
The Remuneration Committee has also reviewed and noted the changes in remuneration reporting and policy requirements as a
result of new regulations implementing Articles 9a and 9b of the European Directive 2017/828/EC, commonly known as the Revised
Shareholder Rights Directive (2018 Regulations). The Remuneration Committee has ensured compliance with the 2018 Regulations in
determining the new Policy and whilst the 2018 Regulations with respect to remuneration reporting only formally come into effect for
88
c116224_BOOK.indb 88
c116224_BOOK.indb 88
25/03/2020 13:51
25/03/2020 13:51
89
the accounting period commencing on 1st January 2020, the Remuneration Committee has elected to comply earlier than required and
the changes have been adopted into this year’s Report.
Conclusion
The Remuneration Committee believes that LSL’s remuneration arrangements for the Executive Directors and senior management are
aligned to LSL’s strategic goals and incorporate the Group’s key performance indicators. Further, the Committee is comfortable that
the remuneration outcomes for 2019 are aligned to performance and the Remuneration Committee believes that the 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.
Accordingly the Remuneration Committee seeks the support of Shareholders for the resolutions to approve LSL’s new Policy and
remuneration arrangements at the 2020 AGM. In the event that Shareholders have any questions or observations then I will be pleased
to hear from you directly and will be available at the 2020 AGM, or I can be contacted via the Company Secretary’s office (please see
details on page 206).
Bill Shannon
Chair of the Remuneration Committee
10th March 2020
88
c116224_BOOK.indb 89
c116224_BOOK.indb 89
89
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Directors’ Remuneration Report
Directors’ Remuneration Policy (the Policy)
Remuneration Policy approved by Shareholders at the 2017 AGM
The current Policy, which is effective until the new Policy is approved by Shareholders at the 2020 AGM, is set out in the 2016, 2017 and 2018
Annual Report and Accounts, which are available on LSL’s website (lslps.co.uk).
New Directors’ Remuneration Policy (the Policy)
Detailed below is the new Policy which will be submitted for Shareholder approval at the forthcoming 2020 AGM.
Introduction and overview
When setting the Executive Directors’ and senior managers’ remuneration, the Remuneration Committee seeks to ensure that all individuals
are provided with appropriate profit based incentives and an element of pay relating to non-financial performance measures, in order to
encourage enhanced performance, and to ensure that individuals are, in a fair and responsible manner, rewarded for their contributions to the
success of the Group.
LSL’s policy is to provide remuneration packages which are designed to attract, motivate and retain Executive Directors of the calibre
necessary to maintain and improve the Group’s profitability, to reward them for long-term sustainable performance and growth, as well as
enhancing Shareholder value and return. In doing this, LSL aims to provide a market competitive (but not excessive) package of pay and
benefits. LSL’s general remuneration policy is to set basic salaries around mid-market levels and set performance pay levels by applying
stretching goals that accord with LSL’s general policy of seeking to make bonuses self-financing wherever possible. Remuneration packages
will also reflect individual responsibilities and contain incentives to deliver LSL’s strategic objectives.
Decision making process for determination, review and implementation of Directors’ Remuneration Policy
The Remuneration Committee reviews the Policy and operation of the Policy to ensure it continues to support and reward the Executive
Directors to achieve the business strategy both operationally and over the longer term. It reviews the structure and quantum and takes into
account the Code, market practice, institutional investor and investor representative body views generally and those of its own Shareholders.
The Remuneration Committee also has regard to the remuneration arrangements, policies and practices of the workforce as a whole which it
reviews as part of its annual agenda.
The Policy is reviewed annually by the Remuneration Committee to ensure that changes are not required prior to the triennial Shareholder
vote. When the Committee determines that changes are required it will formulate proposals and consult with its Shareholders. Shareholder
feedback is then taken into consideration in finalising the Policy changes.
Operation of the Policy is considered annually for the year ahead, including metrics for incentives, weightings and targets. The Remuneration
Committee reviews operation for the prior year and considers whether, in light of the strategy, changes are required for the year ahead.
Targets for the annual bonus and LTIP awards are also reviewed and consideration is given to whether these remain appropriate or need to be
recalibrated. Shareholders’ views will be sought depending on the changes proposed.
Consideration of Shareholder views
Each year the Remuneration Committee considers Shareholder feedback received in relation to LSL’s Annual Report and Accounts, including
the Directors’ Remuneration Report, at a meeting following the Company’s AGM. This feedback, plus any additional feedback received
during any meetings or consultations with Shareholders during the year, is then considered as part of LSL’s review of the Policy and its annual
implementation review. 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, changes to the 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.
Wider workforce considerations
The Remuneration Committee considers the remuneration arrangements for the wider LSL workforce remuneration and related policies to
ensure the alignment of incentives and rewards with culture and has taken these into account when setting the Directors’ Remuneration
Policy and in determining the remuneration for the Executive Directors and senior managers.
As part of its wider remit under the Code the Remuneration Committee reviews wider workforce remuneration and related policies and
the alignment of rewards and incentives to culture, and has taken these into consideration when setting the Policy to ensure consistency
of approach throughout the Group. Annual bonus and annual bonus Share investment and long-term incentive awards provide alignment
between the senior management and Shareholders. The Remuneration Committee also considers average base salary increases awarded
to the overall employee population and the cascade of pay structures throughout the business. The remuneration policy for all employees is
determined in line with best practice and aims to ensure that LSL is able to attract and retain the best people. This principle is followed in the
development of LSL’s Policy.
90
c116224_BOOK.indb 90
c116224_BOOK.indb 90
25/03/2020 13:51
25/03/2020 13:51
91
Although employees were not directly consulted on the new Policy, the Group HR Director attends Remuneration Committee meetings
by invitation to provide additional perspective on Group HR policies and practices, including from an employee perspective. Further,
the Annual Report on Remuneration details the engagement undertaken to explain the alignment of the new Policy to the wider Group
remuneration policy.
Policy detail by remuneration element
Element of
remuneration
arrangements
Basic salary
How this component supports
LSL strategies
Operation
Maximum
Performance metrics
and period
• Reviewed annually, normally effective
1st January.
• Takes periodic comparison against
companies with similar characteristics
and sector comparators.
• Reflects the value of the
individual and their role.
• Reflects skills and
experience over time.
• Provides an appropriate
level of basic fixed income
avoiding excessive risk
arising from over reliance on
variable income.
• Not applicable.
• There is no prescribed
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.
90
c116224_BOOK.indb 91
c116224_BOOK.indb 91
91
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Directors’ Remuneration Report
Element of
remuneration
arrangements
Annual
bonus
How this component supports
LSL strategies
Operation
Maximum
Performance metrics
and period
• Maximum opportunity:
125% of basic salary*.
• Performance
period of one year.
*Maximum opportunity
will not be increased
above 100% of
basic salary without
significant Shareholder
consultation.
• Performance
metrics:
– a maximum of 30%
of the award will be
determined by non-
financial measures
and a minimum of
70% by financial
measures; and
– not more than 20%
of the total bonus
will pay-out at
threshold.
• Incentivises annual delivery
of financial and strategic
goals.
• Maximum bonus only
payable for achieving
demanding targets.
• Targets reviewed annually.
• 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 and to override
formulaic outcomes for annual bonus
payment due if the Remuneration
Committee considers it is not reflective
of the underlying performance of LSL,
taking into account amongst other
things, the “quality of earnings” that
underlies the pay and vesting outcomes
which may put at risk future cash-flows,
as well as investor experience and the
employee reward outcome.
• The Group Chief Executive Officer is
required to purchase and hold Shares
equivalent to 33% of any bonus earned,
net of tax, for a period of two years. The
other Executive Directors are required
to purchase and hold Shares equivalent
to 25% of any bonus earned net of
tax, for a period of two years which
will in normal circumstances continue
post-cessation of employment. For all
Executive Directors on cessation of
employment, these Shares will not be
forfeit for any reason however clawback
and the holding period will continue to
apply.
• Not pensionable.
• Bonus awards are subject to clawback
and malus applicable for six years from
payment of the bonus in circumstances
of: material misstatement of financial
results, corporate failure, failure
of risk management, reputational
damage, 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 cash sum.
92
c116224_BOOK.indb 92
c116224_BOOK.indb 92
25/03/2020 13:51
25/03/2020 13:51
93
Element of
remuneration
arrangements
LTIP awards
(approved by
Shareholders
at the 2017
AGM)
How this component supports
LSL strategies
Operation
Maximum
Performance metrics
and period
• Aligned to key performance
• Awards of nil-cost or conditional
• Normal maximum
• Performance
indicators of the Group
that drive the strategies
and performance of the
businesses.
limit of 125% of basic
salary with grants
of up to 200% of
basic salary being
made in exceptional
circumstances.
period: normally
three years.
• A two year
post-vesting
holding period
applies to awards
granted from 2018
and in normal
circumstances
continues to apply
post-cessation of
employment.
• 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.
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 and to override
formulaic outcomes of LTIP vesting if it
considers that it is not reflective of the
underlying performance of LSL, taking
into account amongst other things the
“quality of earnings” that underlies the
vesting outcomes which may put at
risk future cash-flows, as well as the
investor experience and the employee
reward outcome.
• Discretion for the Remuneration
Committee to provide for dividend
equivalents in Shares 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, corporate failure, failure
of risk management, reputational
damage, 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.
92
c116224_BOOK.indb 93
c116224_BOOK.indb 93
93
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Directors’ Remuneration Report
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 Remuneration
Committee under the approved SAYE,
SIP/BAYE and CSOP.
• As per HMRC limits.
None.
• To provide alignment
between Executive Directors
and Shareholders.
• Minimum of 200% of
None.
basic salary for Group
Chief Executive Officer
and 150% of basic
salary for the other
Executive Directors –
no maximum.
• The Group Chief Executive Officer
is required to build and maintain a
minimum shareholding equivalent to
200% of basic salary over a period
of five years from the approval of the
Policy.
• The other Executive Directors are
required to build and maintain a
minimum shareholding equivalent to
150% of basic salary over a period
of five years from the approval of the
Policy.
• All 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) and Shares purchased from
annual bonus under the new Policy until
the guideline is met.
• A post-employment shareholding policy
applies as follows with the Committee
retaining the discretion to amend the
Policy in exceptional circumstances:
o The two year holding period for
annual bonus Shares continues post-
employment.
o The two year post-vesting holding
period for LTIP awards continues
post-employment.
94
c116224_BOOK.indb 94
c116224_BOOK.indb 94
25/03/2020 13:51
25/03/2020 13:51
95
Element of
remuneration
arrangements
Benefits
How this component supports
LSL strategies
Operation
Maximum
Performance metrics
and period
• Provides insured benefits
to support the Executive
Directors and their families
during periods of ill health,
or in the event of accident
or death.
• Access to car allowance to
facilitate travel.
• Includes car allowance, life assurance
and private medical insurance. Other
benefits may be provided where
appropriate.
• Any reasonable business related
expenses (including tax thereon) can
be reimbursed if determined to be a
taxable benefit.
• At cost.
None.
Pension
• Provides modest retirement
• Defined contribution.
• New appointments
None.
benefits.
• Opportunity for Executive
Directors to contribute to
their own retirement plan.
• HMRC approved arrangement.
Chair
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 basis.
• Fees are normally reviewed annually.
• Any reasonable business related
expenses can be reimbursed (including
tax thereon if determined to be a
taxable benefit).
None.
will receive employer
pension contributions
in line with the
contribution for
the majority of the
workforce at the time
of appointment.
• Existing Directors are
offered a pension in
accordance with auto
enrolment minimums
or a pension
contribution equivalent
to 5% of basic salary.
• There is no prescribed
maximum annual fee
increase, although
there is a total fee cap
of £750,000 which
is contained in LSL’s
Articles of Association.
• Fee levels are
determined and
reviewed taking into
account experience,
time commitment,
responsibility and
scope of role as well
as the general increase
for the broader
employee population
and market data for
similar roles in other
companies of a similar
size and complexity
to LSL. Current fee
levels are set out in
the Annual Report on
Remuneration.
94
c116224_BOOK.indb 95
c116224_BOOK.indb 95
95
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Directors’ Remuneration Report
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. LSL’s Policy for the remuneration of Executive Directors and senior managers as set out in the table above also applies to the wider LSL
workforce with the following differences:
• a lower level of maximum annual bonus (or no bonus) opportunity may apply to employees or commission may be payable for fee
earning roles;
• 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: SAYE, SIP/BAYE; and CSOP upon invitation;
• benefits (including benefits in kind and salary sacrifice arrangements) that are offered to other employees generally comprise of paid
holidays, life insurance cover and a wide variety of flexible benefits such as childcare vouchers, a health cash plan, and, for more
senior employees, private medical insurance; and
• 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 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 adviser whilst LSL’s EPS growth is derived from the audited Financial Statements.
Alternative or additional measures may be selected by the Committee if it considered they are aligned to the Group’s strategy.
5. LSL operates the LTIP scheme in accordance with the plan rules, the Listing Rules of the UKLA, and the Remuneration Committee
terms of reference which are consistent with market practice. This retains Remuneration Committee discretion over a number of areas
relating to the operation and administration of the LTIP scheme. 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.
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 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.
96
c116224_BOOK.indb 96
c116224_BOOK.indb 96
25/03/2020 13:51
25/03/2020 13:51
97
Reward scenarios (illustration of application of the Policy for financial year 2020)
The chart below shows how the composition of each of the remuneration packages, as applicable for each of the Executive Directors
holding office, varies at different levels of performance under the Policy detailed above; both as a percentage of total remuneration
opportunity and as a total value.
In line with the new Reporting Regulations the graph also includes an indication of the maximum remuneration under a scenario of 50%
Share price appreciation over the three year performance period of the LTIP award:
2,000
1,750
1,500
1,250
s
0
0
0
’
£
1,000
750
500
250
0
0
£1,804
47%
£1,519
38%
£1,006
28%
23%
£494
30%
25%
£672
29%
23%
£326
£1,210
48%
£1,017
38%
£1,233
48%
1,036
38%
£683
29%
30%
25%
30%
25%
£331
23%
100%
49%
32%
27%
100%
48%
32%
27%
100%
48%
32%
27%
Below Target
Target
Maximum
Below Target
Target
Maximum
Maximum
with 50%
share price
appreciation
Below Target
Target
Maximum
Maximum
with 50%
share price
appreciation
Maximum
with 50%
share price
appreciation
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 2020;
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 50% 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 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 in the Below Target, Target and Maximum calculations.
5. 50% Share price growth over the three year performance period of the LTIP award has been used for the Maximum with 50% share
price appreciation scenario.
6. 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 skills and experience of the individual, the market rate for a candidate with those
skills and experience and the importance of securing the relevant individual into the role.
96
c116224_BOOK.indb 97
c116224_BOOK.indb 97
97
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Directors’ Remuneration Report
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 skills, expertise and performance has been proven and
sustained. The annual bonus potential will be limited to 125% of basic salary 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 delivery mechanism, vesting periods, expected value and performance conditions.
For an internal candidate being appointed as an Executive Director, any variable pay element awarded in respect of the prior role may
be allowed to pay-out according to its terms. In addition, any other on-going remuneration obligations existing prior to appointment may
continue, provided that they are put to Shareholders for approval at the earliest opportunity.
For external and internal candidate appointments, the Remuneration Committee may agree that the Group 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 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
Nine months
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.
The Remuneration Committee may pay reasonable outplacement and legal fees where appropriate, and may pay any statutory entitlements
or settle or compromise claims or potential 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, based on performance 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 scheme 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.
LTIP awards for “good leavers” will, except in exceptional circumstances:
• Vest at the original specified vesting date.
• Be determined by testing of the performance conditions at the usual time.
98
c116224_BOOK.indb 98
c116224_BOOK.indb 98
25/03/2020 13:51
25/03/2020 13:51
99
• Be pro-rated for the proportion of the vesting period that has elapsed.
• Be subject to the two year post-vesting holding period, where applicable.
Awards to Executive Directors, who are not “good leavers”, lapse immediately on cessation.
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 qualifications, skills and experience relevant to LSL’s businesses and
strategy. Appointments are made by the Board upon the recommendations and advice of the Nominations Committee. For further details on
the roles and responsibilities of the Nominations Committee and how it discharges its duties, see the Corporate Governance Report included
in this Report.
Non Executive Directors, including the Chair, have letters of appointment which set out their duties and responsibilities. The Non Executive
Directors, including the Chair are not eligible to participate in incentive arrangements or receive pension provision. The following table shows
details of the terms of appointment of LSL’s Non Executive Directors. Further details relating to the Non Executive Directors’ appointments can
be found in the Corporate Governance Report included in this Report.
Director
Date original term commenced
Date current term commenced
Expiry date of current term
Gaby Appleton
Independent Non Executive
Director
Simon Embley
Chair
Darrell Evans
Independent Non Executive
Director
Bill Shannon
Deputy Chair and Senior
Independent Director
David Stewart
Independent Non Executive
Director
1st September 2019
-
31st August 2022
1st January 2015
1st January 2018
31st December 2020
28th February 2019
-
27th February 2022
7th January 2014
7th January 2020
6th January 2023
1st May 2015
1st May 2018
30th April 2021
Annual Report on Remuneration
Implementation of the Policy for the year ending 31st December 2020
This section of the Directors’ Remuneration Report sets out how the Policy will be implemented for the financial year ending
31st December 2020.
On 24th February 2020 LSL announced a possible all-share combination with Countrywide plc. The Directors Remuneration Report
contained in this Report does not detail how the Policy will be applied in 2020 in the event of the possible transaction completing. Set
out below are details of how the Policy will be implemented in LSL during 2020 based on LSL’s structure as at the date of this Report.
Shareholders should note that there can be no certainty that any offer will be made to Countrywide plc.
Basic salary
2020 basic salary increases for the Executive Directors are in line with the average increase of non-commission earning Group employees
(1.5%) rounded to the nearest £250. The basic salary levels as at 1st January 2020 for the Executive Directors are set out below:
Director
Role
2020
(£)
% increase from
1st January 2020
2019
(£)
Helen Buck
Executive Director - Estate Agency
313,750
Adam Castleton
Group Chief Financial Officer
Ian Crabb
Group Chief Executive Officer
307,500
455,750
1.5%
1.5%
1.5%
309,000
303,000
449,000
98
c116224_BOOK.indb 99
c116224_BOOK.indb 99
99
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Directors’ Remuneration Report
Annual bonus for 2020
The Remuneration Committee will operate an annual bonus plan for Executive Directors during 2020 that is broadly similar to that operated
in 2019. 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 non-financial measures for 2020 bonus scheme will include objectives based on the Executive Directors’ delivery of key strategic
initiatives in each of LSL’s three business segments; Estate Agency, Financial Services, and Surveying and Valuation Services. Full
disclosure of these targets will be provided in the Annual Report and Accounts 2020.
The Remuneration Committee is satisfied that the objectives set 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.
As detailed under the revised Policy the Group Chief Executive Officer will be required to purchase and hold Shares equivalent to 33% of
any 2020 bonus earned, net of tax, for a period of two years. The other Executive Directors will be required to purchase and hold Shares
equivalent to 25% of any 2020 bonus earned, net of tax, for a period of two years.
Long-Term Incentive Plan (LTIP) 2020 awards
LSL’s annual grant of any LTIP awards typically occurs in late March each year. However, in light of the announcement made on the
24th January 2020 relating to discussions taking place regarding a possible combination with Countrywide, the Remuneration Committee
decided to delay the grant of any new LTIP awards in 2020 until the outcome of those discussions is known.
The Remuneration Committee anticipates that, regardless of the outcome of the discussions, the performance conditions of any awards
granted in 2020 will continue to be based on EPS growth targets for 70% of the award and relative TSR for the remaining 30%.
The TSR peer group will be replaced for any 2020 LTIP awards with the FTSE Small Cap index, excluding investment trusts. In reaching its
decision to change the TSR peer group, the Remuneration Committee considered the small number of direct competitors to LSL who are
currently listed on the stock exchange and the resulting range of sectors and size of firms required to form a peer group of a meaningful
size going forward. The Committee has also concluded that as a constituent of the FTSE Small Cap, LSL’s relative performance against this
index would provide an appropriate measure of performance for future awards and provide alignment with Shareholders.
The Remuneration Committee’s aim is to set an EPS target range that is realistic and achievable for threshold vesting whilst providing
stretching targets for maximum vesting that significantly exceed analysts’ expectations. The Remuneration Committee will review and set
the EPS growth range for 2020 awards in light of the outcome of the possible combination.
All awards to Executive Directors will be subject to a two year post-vesting holding period, following the three year vesting period.
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, Group Chief Executive Officer receives a 5% of salary pension contribution and Adam Castleton, Group Chief Finance Officer a
3% contribution of banded earnings, in line with auto enrolment legal minimums and aligned to the majority of the workforce. Helen Buck,
Executive Director – Estate Agency has elected not to join the pension scheme and receives no additional compensation in lieu of this.
100
c116224_BOOK.indb 100
c116224_BOOK.indb 100
25/03/2020 13:51
25/03/2020 13:51
101
Non Executive Directors
2020 basic salary increases for the Non Executive Directors are in line with the average increase of non-commission earning Group
employees (1.5%) rounded to the nearest £250. A summary of annual fees for the Non Executive Directors is as follows:
Director
Gaby Appleton
Independent Non Executive Director
Simon Embley
Chair
Darrell Evans
Independent Non Executive Director
Bill Shannon
Deputy Chair and Senior Independent Director
David Stewart
Independent Non Executive Director
Note
2020
(£)
% increase
from
1st January
2020
2019
(£)
1
2
3
4
44,750
1.7%
44,000
139,500
1.5%
137,500
46,750
6.25%
44,000
79,250
1.6%
78,000
50,750
1.5%
50,000
Notes to summary of 2020 fees for the Non Executive Directors:
1. Gaby Appleton was appointed to the Board and its Committees on 1st September 2019 and her fee is paid for her role as a Non
Executive Director.
2. Darrell Evans was appointed to the Board and its Committees on 28th February 2019. Darrell Evans’ fee is paid for his role as a Non
Executive Director (£44,750) and his additional responsibility as designated Non Executive Director in relation to workforce engagement
(£2,000, payable from 1st January 2020).
3. Bill Shannon’s fee is paid for his role as a Non Executive Director (£44,750) and his additional responsibilities as Deputy Chair and Senior
Independent Director (£22,500), Chair of the Nominations Committee (£6,000) and Chair of the Remuneration Committee (£6,000).
4. David Stewart’s fee is paid for his role as a Non Executive Director (£44,750) and his additional responsibility as Chair of the Audit & Risk
Committee (£6,000).
100
c116224_BOOK.indb 101
c116224_BOOK.indb 101
101
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Directors’ Remuneration Report
Directors’ remuneration payable in 2019 - audited information
Directors’ remuneration
The remuneration of the Directors for 2019 was as follows:
Notes
Year
Basic salary
or fees
(£)
Benefits5
(£)
Pension
contributions6
(£)
Sub total -
fixed pay7
(£)
Annual
bonus8
(£)
Share
awards9
(£)
Sub total -
variable pay7
(£)
Grand total
(£)
Chair
Simon Embley
1
2019
2018
158,500
132,500
158,500
132,500
Executive Directors
Helen Buck
Adam Castleton
Ian Crabb
Non Executive Directors
Gaby Appleton
Kumsal Bayazit
Besson
Darrell Evans
Bill Shannon
David Stewart
2
3
4
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
309,000
16,324
304,500
303,000
298,500
449,000
16,526
16,703
16,754
15,000
325,324
188,235
321,026
137,550
366
320,069
193,014
315,254
234,905
19,641
483,641
277,038
412,000
15,000
18,667
445,667
328,962
14,667
14,667
41,333
38,500
78,000
72,667
50,000
46,667
14,667
14,667
41,333
38,500
78,000
72,667
50,000
46,667
158,500
132,500
188,235
513,559
137,550
458,576
193,014
513,083
234,905
550,159
277,038
760,679
328,962
774,629
14,667
14,667
41,333
38,500
78,000
72,667
50,000
46,667
Total
2019 1,415,334
48,027
20,007 1,483,368
658,287
2018 1,308,167
48,280
18,667 1,375,114
701,417
658,287 2,141,655
701,417 2,076,531
Notes to Directors’ remuneration table:
1. Simon Embley’s fee includes £21,000 in relation to one off consultancy services provided to the LSL Group in 2019 in addition to his
responsibilities as Board Chair.
2. Gaby Appleton was appointed to the Board on 1st September 2019.
3. Kumsal Bayazit Besson retired from the Board on 30th April 2019.
4. Darrell Evans was appointed to the Board on 28th February 2019.
5. Benefits comprise private medical cover and company car or car allowance.
6. Ian Crabb receives a 5% of basic salary pension contribution paid partly as a cash allowance to the extent he has reached his annual
pension allowance. Adam Castleton elected to join the auto enrolment pension scheme in September 2019 and receives 3% of banded
earnings as an employee contribution from that date.
7.
In compliance with the Shareholders Rights Directive (2018 regulations) which LSL has chosen to incorporate early into the 2019 Annual
Report and Accounts a sub total for both fixed and variable pay have been added into the single figure table detailed above.
8. LSL’s performance in 2019 resulted in the Executive Directors earning an annual bonus of between 60.9% and 63.7% of their basic
salary. LSL’s performance in 2018 resulted in the Executive Directors earning an annual bonus of between 45.2% and 79.8% of their
basic salary. See page 103 for further details.
9. The Adjusted EPS and TSR performance conditions for the 2017 LTIP have not been met and there is therefore no vesting of these
awards.
102
c116224_BOOK.indb 102
c116224_BOOK.indb 102
25/03/2020 13:51
25/03/2020 13:51
103
Annual bonus
Annual bonus payments 2019 – audited information
Set out in the table below is a summary of the Executive Directors’ bonus scheme for 2019:
Group Underlying Operating Profit
Estate Agency Underlying Operating Profit
Financial
performance
measures
Director
Weighting
Threshold
Maximum Achievement Weighting
Threshold Maximum Achievement
20%
£35.144m
£39.728m £37.035m
60%
£14.790m £19.140m
Helen
Buck
Adam
Castleton
80%
£35.144m
£39.728m
Ian Crabb
80%
£35.144m
£39.728m
(Resulting
in 11.95%
of salary for
Helen Buck
and 47.8% of
salary payable
to Ian Crabb
and Adam
Castleton).
Specific to Helen Buck only
£16.271m
(35.27% of
salary)
Total payment
under financial
element % of
basic salary
47.2%
47.8%
47.8%
The bonus ranges (threshold and maximum figures detailed in the table above) were higher in 2019 than in 2018 for both the Group
and Estate Agency segments. The profit achievement for both the Group and Estate Agency segment was also higher in 2019 than in
2018, reflecting the improved financial performance of the Group. However due to the higher ranges put in place in 2019 compared
to 2018 the total bonus payment for the financial element of bonus, as a percentage of basic salary, was lower for the Group Chief
Executive Officer and Group Chief Financial Officer than in 2018 (62.7%), but higher for the Executive Director - Estate Agency (45.6%),
reflecting the relative performance of the different business segments compared to the prior year.
Given the difficult market conditions the Remuneration Committee is comfortable that not only was the 2019 target range challenging
but that the bonuses earned for 2019 are reflective of the overall performance of the Group. On this basis the Remuneration Committee
was comfortable that discretion was not required to adjust the formula-driven outturn.
102
c116224_BOOK.indb 103
c116224_BOOK.indb 103
103
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Directors’ Remuneration Report
Non-financial measures/strategic goals
Detailed below is a summary of the non-financial measures which were in place for Helen Buck (Executive Director – Estate Agency),
Adam Castleton (Group Chief Financial Officer) and Ian Crabb (Group Chief Executive Officer) in respect of their 2019 annual bonus.
The Remuneration Committee applies its judgement to determine the extent of any pay-out where goals are partially achieved during
the year.
Based on the outcomes and the weightings detailed in the table below, Helen Buck has achieved 68.5% of her non-financial measures
(equating to 13.7% of basic salary), Adam Castleton has achieved 79.5% of his non-financial measures (equating to 15.9% of basic
salary) and Ian Crabb has achieved 69.5% of his non-financial measures (equating to 13.9% of basic salary).
Executive Directors’ non-financial measures
Objective and factors used to determine overall outcome
Weighting
Helen Buck,
Executive Director -
Estate Agency
Weighting
Adam Castleton,
Group Chief
Financial Officer
Weighting
Ian Crabb, Group
Chief Executive
Officer
Outcome
A. Group strategy
Measured through development of future strategy, execution of agreed
strategy and Share price performance relative to peers.
B. Customer outcomes
Measured through file reviews of product sales and prevalence of
customer issues.
C. Governance/Compliance and regulatory risk
Measured through output of reviews with various regulatory bodies,
delivery of key compliance projects and prevalence of governance
issues.
D. People and culture
Measured through improvement in staff engagement, reduction in staff
turnover and effective implementation of new code with regards to
workplace engagement.
E. Internal audit
Measured through the successful delivery of the 2019 audit plan and
internal audit findings to be in line with expected performance as
measured by the Audit & Risk Committee.
F. Estate Agency strategic execution
Measured through the successful execution of core Estate Agency
projects.
G. Estate Agency operational execution
Measured through relative market share and fee level.
H. Lettings books acquisition programme
Measured through adherence to investment criteria, level of investment
and resulting operating profit of acquisitions.
I. Surveying strategic and operational execution
Measured through volume of jobs and relative market share.
J. Financial Services strategic and operational execution
Measured through total lending as % of market, market share and
organic growth of business.
20%
20%
20%
10%
10%
10%
10%
10%
10%
15%
10%
10%
Partially
achieved
Partially
achieved
Partially
achieved
Fully
achieved1
–
10%
–
Fully achieved
15%
10%
10%
Fully achieved
15%
15%
–
–
5%
5%
5%
15%
5%
5%
15%
15%
Fully achieved
Not achieved
Not achieved
Fully achieved
Notes to Executive Directors’ non-financial measures table:
1. The ‘People and culture’ measure was fully achieved for Ian Crabb and Adam Castleton who were targeted against LSL Group
performance but partially achieved by Helen Buck who was targeted against Estate Agency specific performance.
2. 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 scheme requires the financial performance element of LSL’s
performance to be significantly better than budget for full pay-out of the non-financial objectives.
104
c116224_BOOK.indb 104
c116224_BOOK.indb 104
25/03/2020 13:51
25/03/2020 13:51
105
Share awards vesting
Details of LTIP awards vesting in relation to the period ending 31st December 2019 are as follows:
2017 LTIP awards (nil cost options)
Date of grant
(three year
vesting)
Number of
Shares under
award
Face value at
grant date1
(100% of salary)
Earnings per Share
(EPS) target
TSR target
Actual adjusted
EPS growth
(70% of the
award)2
Actual relative
TSR (30% of
the award)2
Expected
vesting %
in 2020
Expected total
vesting value
30th March
2017
143,198
£300,000
30th March
2017
140,334
£294,000
0.0%
£0.0
Below
median
38.3% TSR
against a
median of
54.8%
0.0%
£0.0
25% of TSR
part vesting
for median
ranking
increasing
to 100%
vesting for
upper quartile
or above
ranking
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
12.5% p.a.
2.88% p.a.
30th March
2017
193,794
£406,000
0.0%
£0.0
Executive
Director
Helen
Buck
Executive
Director
– Estate
Agency
Adam
Castleton
Group
Chief
Financial
Officer
Ian Crabb
Group
Chief
Executive
Officer
Notes to 2017 LTIP awards:
1. Based on the number of Shares granted multiplied by the three day average Share price (209.5 pence) immediately prior to the grant
date.
2. Three year performance period ending 31st December 2019.
104
c116224_BOOK.indb 105
c116224_BOOK.indb 105
105
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Directors’ Remuneration Report
Share awards granted during 2019
Details of LTIP (nil cost option) awards granted in 2019 are as follows:
Date of grant
(three year
vesting)
Number of
Shares under
award
Face value at grant
date1 (125% of
basic salary)
29th March
2019
151,470
£386,250
Percentage of
award vesting
at threshold
performance
Maximum
percentage of
face value that
could vest
29th March
2019
148,529
£378,750
25%
100%
29th March
2019
220,098
£561,250
Performance period
Three years
to 31st
December
2021.
Adjusted EPS
growth (70% of the
award)
Threshold
vesting: 5.0%
p.a. growth
Maximum
vesting:
12.0% p.a.
growth
Straight line
vesting in
between.
Relative TSR (30%
of the award)
against bespoke
group of 21
companies2
Threshold
vesting:
median TSR
Maximum
vesting:
upper quartile
TSR
Straight line
vesting in
between.
Executive Director
Helen Buck
Executive
Director – Estate
Agency
Adam
Castleton
Group Chief
Financial Officer
Ian Crabb
Group Chief
Executive Officer
Notes to 2019 LTIP awards:
1. Face value is calculated using the three day average Share price (255.0 pence) prior to the grant date.
2. TSR peer group is a group of 21 firms in similar or related sectors, as detailed in full in the 2018 Annual Report and Accounts.
3. The 2019 LTIP awards made to the Executive Directors are subject to a two year post-vesting holding period.
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.
Payments to past directors
No payments have been made to past directors.
Payments for loss of office
No payments have been made to directors for loss of office.
106
c116224_BOOK.indb 106
c116224_BOOK.indb 106
25/03/2020 13:51
25/03/2020 13:51
107
Outstanding Share awards
Options granted to Executive Directors and the Chair (when Group Chief Executive Officer) to acquire Ordinary Shares in LSL are as follows:
Director
Award type
Date of grant
Share price
on grant
Exercise
price
As at
1st January
2019
Awards
granted
during year
Awards
lapsed
during year
Awards
exercised
during year
Awards
vested
during year
As at 31st
December
2019
Helen Buck
Executive
Director
– Estate
Agency
Adam
Castleton
Group
Chief
Financial
Officer
Ian Crabb
Group
Chief
Executive
Officer
Simon
Embley
Chair
LTIP
SAYE
LTIP
SAYE
LTIP
SAYE
LTIP
LTIP
SAYE
LTIP
SAYE
LTIP
LTIP
LTIP
LTIP
SAYE
LTIP
SAYE
LTIP
SAYE
JSOP
CSOP
LTIP
30th March 2017
209.50p
Nil
143,198
1st June 2017
232.75p
215.00p
2,511
29th March 2018
219.50p
Nil
173,405
1st June 2018
249.00p
245.00p
1,469
-
-
-
-
29th March 2019
255.00p
Nil
1st June 2019
227.00p
265.00p
-
-
151,470
2,037
31st March 2016
285.50p
Nil
101,576
30th March 2017
209.50p
Nil
140,334
1st June 2017
232.75p
215.00p
2,511
29th March 2018
219.50p
Nil
169,988
1st June 2018
249.00p
245.00p
1,469
-
-
-
-
-
29th March 2019
255.00p
Nil
-
148,529
23rd September 2013
479.00p
Nil
49,228
31st March 2016
285.50p
Nil
140,105
30th March 2017
209.50p
Nil
193,794
1st June 2017
232.75p
215.00p
2,511
29th March 2018
219.50p
Nil
234,624
1st June 2018
249.00p
245.00p
1,469
-
-
-
-
-
-
29th March 2019
255.00p
Nil
1st June 2019
227.00p
265.00p
-
-
220,098
2,037
1st June 2010
271.00p
280.00p
83,928
11th June 2010
240.00p
240.00p
12,500
2nd April 2012
275.00p
Nil
58,333
-
-
-
-
-
-
-
-
-
101,576
-
-
-
-
-
-
140,105
-
-
-
-
-
-
-
-
-
* These awards have vested and are currently within the exercise period.
Notes to outstanding Share awards:
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
143,198
2,511
173,405
1,469
151,470
2,037
0
140,334
2,511
169,988
1,469
148,529
Exercise period
30th March 2020 to
30th March 2027
1st June 2020 to
30th November 2020
29th March 2021 to
29th March 2028
1st June 2021 to
30th November 2021
29th March 2022 to
29th March 2029
1st June 2022 to
30th November 2022
31st March 2019 to
31st March 2026
30th March 2020 to
30th March 2027
1st June 2020 to
30th November 2020
29th March 2021 to
29th March 2028
1st June 2021 to
30th November 2021
29th March 2022 to
29th March 2029
49,228* 23rd September 2016 to
23rd September 2023
0
193,794
2,511
234,624
1,469
220,098
2,037
83,928*
12,500*
58,333*
31st March 2019 to
31st March 2026
30th March 2020 to
30th March 2027
1st June 2020 to
30th November 2020
29th March 2021 to
29th March 2028
1st June 2021 to
30th November 2021
29th March 2022 to
29th March 2029
1st June 2022 to
30th November 2022
1st June 2013 to
1st June 2020
11th June 2013 to
11th June 2020
2nd April 2015 to
2nd April 2022
106
1. All of the above are scheme interests. Details of long-term incentive awards granted in 2019 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 Group Financial Statements.
2. The Ordinary Share mid-market price ranged from 190.0 pence to 286.5 pence and averaged 234.5 pence during 2019. The Share
price on 31st December 2019 was 274.0 pence compared to 226.0 pence on 2nd January 2019.
3. Simon Embley’s Shares awards have been pro-rated to reflect his change of role to Non Executive Chair on 1st January 2015.
4. The LTIP awards granted to the Executive Directors in 2018 and 2019 are subject to the two year post-vesting holding period.
c116224_BOOK.indb 107
c116224_BOOK.indb 107
107
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Directors’ Remuneration Report
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
Gaby Appleton
Non Executive Director
Kumsal Bayazit Besson
Non Executive Director
Helen Buck3
Executive Director – Estate Agency
Adam Castleton4
Group Chief Financial Officer
Ian Crabb5
Group Chief Executive Officer
Simon Embley
Chair
Darrell Evans
Non Executive Director
Bill Shannon
Deputy Chair and Senior
Independent Director
David Stewart
Non Executive Director
Shareholdings
(Number of Shares)
Share awards
(Number of Shares)
31st December
2019
31st December
2018
Unvested
number of
Shares
Vested but
unexercised
number of
Shares
Total
(Number of
Shares)
Shareholding
guideline1
31st December
2019
(% of basic
salary)
Executive
Director
shareholding2
(% of basic
salary)
-
-
-
-
-
-
2,145
1,156
474,090
3,139
2,107
462,831
-
-
-
-
-
-
-
-
N/A
N/A
2,145
150%
1.9%
3,139
150%
2.8%
81,759
59,659
654,533
49,228
130,987
200%
65.8%
6,777,291
6,777,291
-
-
25,329
24,248
-
-
-
-
-
-
154,761
6,932,052
-
-
-
-
25,329
-
-
-
-
-
N/A
N/A
N/A
N/A
Notes to Directors’ interest in Shares:
1. Under the new Directors’ Remuneration Policy, Executive Directors are required to build and maintain a shareholding equivalent to 200%
of annual basic salary for the Group Chief Executive Officer and 150% of annual basic salary for the other Executive Directors from the
implementation date of the new Policy. The Remuneration Committee recognises that due to the minimal vesting of long-term incentive
awards in recent years there have been limited opportunities for Executive Directors to accumulate LSL Shares and thus achieve the
Executive Director shareholding guideline in place in the previous policy. The Committee is keen to increase Share ownership amongst
our Executive Directors, therefore under the new Policy the Group Chief Executive Officer will be required to purchase LSL Shares
equivalent to 33% of any bonus earned from 2020 onwards, net of tax, and retain them for a minimum period of two years or until the
shareholding requirement is met. The other Executive Directors will be required to purchase LSL Shares equivalent to 25% of any bonus
earned from 2020 onwards, net of tax, and retain them for a minimum period of two years or until the shareholding requirement is met.
2. The shareholding is calculated based on Shares owned and vested, net of tax, unexercised awards as at 31st December 2019. Based
on the Share price at 31st December 2019 of 274.0 pence per Share and the Executive Director’s basic salary at 31st December 2019.
3. 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.
4. 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.
5. 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 has also purchased Shares in the
market on a number of occasions and these are included in the table above. The shareholding calculation includes Ian Crabb’s owned
Shares and the vested but unexercised Share awards, net of tax.
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 1st January 2020 and the date of this Report other than the
purchases of Shares by Ian Crabb (183 Shares), Adam Castleton (182 Shares) and Helen Buck (182 Shares) as participants of LSL’s
SIP/BAYE scheme. These Shares were purchased by the Trust at the prevailing market rate.
108
c116224_BOOK.indb 108
c116224_BOOK.indb 108
25/03/2020 13:51
25/03/2020 13:51
109
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.
Performance graph and table
The following graph shows the value, up to the 31st December 2019, 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
2009. 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.
Total Shareholder return
Source: Thomson Reuters Datastream
£
e
u
a
V
l
350
300
250
200
150
100
50
0
31 Dec 09
31 Dec 10
31 Dec 11
31 Dec 12
31 Dec 13
31 Dec 14
31 Dec 15
31 Dec 16
31 Dec 17
31 Dec 18
31 Dec 19
LSL Property Services
FTSE Small Cap Index (excluding investment trusts)
FTSE 250 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 ten 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
2010
2011
2012
2013
2013
2014
2015
2016
2017
2018
2019
£517,716
£308,747
£525,018
£500,8621 £119,5221 £571,500
£852,869
£499,000 £835,120
£774,629
£760,679
Total
remuneration
Annual bonus
97.5%
9.6%
60.0%
91.7%
LTIP vesting
N/A
N/A
55.0%
0.0%
N/A
N/A
54.0%
93.3%
16.0%
97.0%
79.8%
61.7%
N/A
66.81%
0.0%
0.0%
0.0%
0.0%
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 Group Chief Executive
Officer to 9th September 2013 when he ceased being Group Chief Executive Officer and became Deputy Chair on 9th September
2013. The value stated for Ian Crabb for the year ended 31st December 2013 is for the period from 9th September 2013 when he was
appointed as Group Chief Executive Officer.
108
c116224_BOOK.indb 109
c116224_BOOK.indb 109
109
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Directors’ Remuneration Report
Percentage change in Directors’ remuneration
In line with the requirements of the Revised Shareholders Rights Directive (2018 Regulations) the table below shows the annual change,
between the financial years ending 31st December 2018 and 2019, of each LSL Director’s salary/fees, benefits and annual bonus and
the percentage change in average employee pay of the wider LSL workforce on the same basis.
Director
Chair
Simon Embley1
Executive Directors2
Helen Buck
Adam Castleton
Ian Crabb3
Non Executive Directors
Gaby Appleton4
Kumsal Bayazit Besson5
Darrell Evans4
Bill Shannon1
David Stewart1
All employees
Median of LSL workforce6
2019 vs 2018
% Change in salary/fees % change in taxable
benefits (excluding
pension)
% change in bonus
(includes commission)
19.6
1.5
1.5
9.0
N/A
6.5
N/A
7.3
7.1
4.8
0.0
-1.2
-0.3
0.0
N/A
0.0
N/A
0.0
0.0
N/A
0.0
36.8
-17.8
-15.8
N/A
N/A
N/A
N/A
N/A
30.0
Notes to percentage change in Directors’ remuneration:
1. As detailed in the 2018 Annual Report the fees paid to the LSL Chair and Non Executive Directors were reviewed and increased in late
2018, having not been reviewed for a number of years. The increases took into account the time commitment and responsibilities of
each of the Non Executive Directors (including the Chair). In addition Simon Embley’s fee in 2019 included £21,000 in relation to one off
consultancy services provided to the Group in 2019, in addition to his fee for his services as Non Executive Chair.
2. The bonus payments and resulting percentage change in Executive Directors’ bonus is detailed further in the annual bonus section of
the Report on page 103.
3. As detailed in the 2018 Annual Report the basic salary paid to the Group Chief Executive Officer was increased by 9.0% in 2019,
following extensive consultation with LSL’s major Shareholders. The increase took into account the Group Chief Executive Officer’s
personal performance as well as that of the Group and the increased complexity of the role.
4. Gaby Appleton and Darrell Evans were appointed to the Board in 2019 and therefore percentage change from the prior year figures are
not available.
5. Kumsal Bayazit Besson retired from the Board on 30th April 2019. The percentage change figures quoted reflect the change in fee level
on full year equivalent basis.
6. The median full time equivalent pay of all employees in the LSL Group as at 31st December has been provided as an appropriate
comparator. The total number of employees in this Group as at 31st December 2019 was 4,717; this excludes employees who began
with the business during the month of December but received their first pay in January 2020. The increase in average earnings of the
LSL workforce is largely attributable to changes in the workforce demographics; as a result of changes made to the structure of some
the Estate Agency business at the beginning of the year, and also the improved financial performance of the Estate Agency segment
resulting in a higher average commission being paid to employees in 2019 when compared to 2018. A percentage change figure has not
been provided for taxable benefits as the median figure for employees was £0 in 2018 and was £151 in 2019.
110
c116224_BOOK.indb 110
c116224_BOOK.indb 110
25/03/2020 13:51
25/03/2020 13:51
111
Group Chief Executive Officer to Employee Pay Ratio (The Companies (Miscellaneous Reporting) Regulations 2018)
In line with 2018 Reporting Regulations the table below discloses the ratio between LSL’s Group Chief Executive Officer’s remuneration
and the wider LSL workforce in 2019 and 2018.
Financial year
20181
2019
Method
Option A
Option A
25th percentile
pay ratio
Median pay
ratio2
75th percentile
pay ratio
40.5 : 1
38.1 : 1
27.9 : 1
26.1 : 1
16.2 : 1
14.9 : 1
Disclosure of 2019 employee data used to calculate the ratios:
Total pay and benefits of employees
Basic salary of employees
25th percentile
Median
75th percentile
£19,984
£16,500
£29,166
£21,000
£51,023
£30,524
Notes to percentage change in Group Chief Executive Officer to Employee Pay Ratio:
1. The 2018 ratio figures have been updated from those reported last year, as the methodology for calculating the ratio has been refined
and updated to align with best practice and the 2019 calculations.
2. The Group Chief Executive Officer data used in calculating these ratios is the single figure total of £760,679 as stated on page 109.
LSL has chosen Option A (which provides a comparison of the Company’s full time equivalent total remuneration for all UK
employees against the LSL Group Chief Executive Officer) as the most appropriate methodology to report the ratios, in line with the
recommendation from the UK Government’s Department for Business, Energy and Industrial Strategy and a number of Shareholder
representative and proxy-voting bodies.
The ratio above includes all UK based employees who were employed in any part of the LSL Group as at 31st December 2019. The
employee remuneration data includes the full time equivalent data in respect of; basic pay, bonus, commission, taxable benefits, share-
based remuneration and pension benefits, so as to provide a comparable figure to the LSL Group Chief Executive Officer’s single figure
total remuneration which is reported in the Directors’ Remuneration Table on page 102.
In calculating the bonus and commission elements for employees LSL has used the bonus and commission paid to employees during
2019. In some instances employees receive bonus or commission payments in arrears, however due to a number of these elements
(for example year end annual bonuses) not being finalised at the time of writing, this Report was written with these elements having
not been reapportioned to the relevant financial year. In line with the legislation LSL discloses this variation in methodology; however it
considers that this approach provides a similar outcome as if 2019 year end bonuses had been included.
As at 31st December 2019 LSL employed over 4,500 employees in a wide variety of different roles within its various businesses. The
reward policies and practices for our employees follows those set for the Executive Directors, as detailed on page 90 of this Report.
The Remuneration Committee also has responsibility for setting the remuneration of the senior management teams within the LSL
Group and reviews and monitors the Group’s wider remuneration policies and practices.
The Remuneration Committee notes the reduction in the ratio from 2018 and attribute this to the reduction in the Group Chief Executive
Officer’s earnings, as a result of the lower bonus payment awarded to Ian Crabb this year, and conversely the increase in the average
earnings of the wider workforce. The increase in average earnings of the LSL workforce is largely attributable to changes in the
workforce demographics; as a result of changes made to the structure of some of the Estate Agency businesses at the beginning of
the year, and also the improved financial performance of the Estate Agency segment resulting in a higher average commission being
paid to employees in 2019 when compared to 2018. The Remuneration Committee believes the remuneration and ratio presented
above is representative of the Group Chief Executive Officer’s responsibilities and contribution to the Group.
110
c116224_BOOK.indb 111
c116224_BOOK.indb 111
111
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Directors’ Remuneration Report
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
1. See Note 13 to the Group Financial Statements for calculation of staff costs.
2. See Note 10 to the Group Financial Statements.
2019
(£m)
194.4
11.5
13.0
28.7
2018
(£m)
203.1
11.2
17.9
27.9
Change
(%)
-4.4
2.7
-27.5
2.7
Statement of Shareholder voting
The Directors’ Annual Statement and Report on Remuneration for the financial year ending 31st December 2018 was presented to
Shareholders at the 2019 AGM which was held on 30th April 2019. The voting outcomes were as follows:
Votes cast in favour
Votes cast against
Total votes cast
Total votes withheld
Remuneration Committee
Annual Statement and Annual
Report on Remuneration
Directors’ Remuneration Policy,
effective from 1st January 2017
90,570,041
99.99%
81,542,452
99.78%
11,945
0.01%
181,004
0.22%
90,581,986
100%
81,723,456
100%
285,918
-
8,034
-
Role and membership
Details of the Remuneration Committee’s composition and responsibilities are set out in the Corporate Governance Report at page 71
of this Report. During 2019 the Remuneration Committee was chaired by Bill Shannon and its other members were Gaby Appleton,
Kumsal Bayazit Besson, Darrell Evans and David Stewart. Kumsal Bayazit Besson retired from the Remuneration Committee at the
2019 AGM. Darrell Evans joined the Remuneration Committee on 28th February 2019 and Gaby Appleton joined the Remuneration
Committee on 1st September 2019. The terms of reference of the Committee are available from the Company Secretary or LSL’s
website (lslps.co.uk).
The work of the Remuneration Committee
Set out below are those areas of the Committee’s work that it is required to report under the Code and reporting regulation and which
are not covered elsewhere in this Remuneration Report.
Engagement with stakeholders
During 2019, LSL actively engaged with Shareholders regarding Executive Directors’ remuneration changes at the beginning of the
year, these changes were detailed in full in last year’s annual Directors’ remuneration. This process involved correspondence with
all of LSL’s largest Shareholders and a series of calls were undertaken to detail further the changes that were being proposed. The
Committee considered carefully the feedback given during this process and the previous three years in determining the Policy to be
brought to Shareholders for approval at the 2020 AGM and operation of Policy for the financial year 2020. The Committee has also
actively engaged with all its major Shareholders and consulted with them on this proposed new Policy in advance of this being brought
forward. Shareholder support for the LSL Remuneration Policy brought forward at the 2017 AGM and the subsequent Remuneration
Reports brought for Shareholders’ approval at the 2018 and 2019 AGM has exceeded 99% and there were no material concerns for
the Committee to consider from the AGM voting outcomes.
As set out in the Employee Engagement Arrangements and Corporate Governance sections of this Report, the Company has a
number of different channels for engaging with its workforce. This includes the appointment of Darrell Evans who was appointed to
the Board in 2019 and is the designated Non Executive Director in relation to workforce engagement. Darrell also is a member of the
Remuneration Committee and provides a route for the Remuneration Committee to engage with the wider workforce on remuneration
matters.
112
c116224_BOOK.indb 112
c116224_BOOK.indb 112
25/03/2020 13:51
25/03/2020 13:51
113
Policy and operation of the new Policy
In determining the Policy and its operation the Remuneration Committee has considered the following six factors which are referred to
in the Code:
• Clarity – the Policy is well understood by LSL’s Management Team and has been clearly articulated to Shareholders through
direct engagement and remuneration reporting. A key part of the Group HR Director’s role and responsibilities and the designated
workforce engagement Non Executive Director is to engage with the wider employee base on all our “People Matters” (including
remuneration). This engagement is conducted through a series of employee engagement forums and also via LSL’s staff survey, the
results of which are reviewed annually by the Board.
• Simplicity – the Remuneration Committee is mindful of the need to avoid overly complex remuneration structures. The
Remuneration Committee’s focus is to ensure that the Policy and practices are simple and straightforward and that the objectives
and deliverables are clear. LSL only operates two incentive plans, an annual bonus and long-term incentive. Metrics are set
and based on business KPIs and measure performance against them, tracking and rewarding progress toward achieving LSL’s
strategies and longer term sustainable growth.
• Risk – the Policy is designed to ensure that reputational, behavioural and other risks are managed and will not be rewarded via
(i) a balanced use of fixed and variable pay, of both short and long-term incentive plans which employ a blend of financial, and
non-financial and shareholder return targets, (ii) the significant role played by equity in the incentive plans (together with executive
Shareholding guidelines in service and post-service policy) and (iii) the inclusion of malus/clawback provisions.
• Predictability – LSL’s incentive plans are subject to individual caps, with share plans also subject to market standard dilution
limits. The scenario charts on page 97 illustrate how the rewards potentially receivable by the Executive Directors vary based
on performance delivered and share price growth. The Remuneration Committee also has the discretion to adjust any vesting
outcomes if they are not considered appropriate.
• Proportionality – there is a clear link between individual awards, delivery of strategy and our long-term performance. In addition, the
significant role played by incentive/“at-risk” pay, together with the structure of the Executive Directors’ service contracts, ensures
that poor performance is not rewarded.
• Alignment to culture – the incentive schemes drive behaviours consistent with our purpose, values and strategy by using metrics in
both the annual bonus and LTIP that underpin the delivery of LSL’s strategies. Employee personal success is directly linked to the
success of the Group’s clients and business through the short and long-term incentive plans and targets which are operated.
Determining Executive Director remuneration
The Remuneration Committee considers the appropriateness of the Executive Directors’ remuneration not only in the context of overall
business performance and environmental, governance and social matters but also in the context of wider workforce pay conditions
(taking into account workforce policies and practices as well as the ratio of Group Chief Executive Officer pay to all-employee pay) and
external market data to ensure that it is fair and appropriate for the role, experience of the individual, responsibilities and performance
delivered.
Further the Remuneration Committee has concluded that it is comfortable, in reviewing the remuneration for 2019 against performance
that there has been an appropriate link between reward and performance and that discretion did not need to be used. The
Remuneration Committee also considered whether there were any relevant environmental, social, and governance matters that it
needed to take account of when reviewing the remuneration outcomes and concluded that there were no such factors that needed to
be taken into account.
The Remuneration Committee also concluded that it is comfortable that the Policy has operated as intended, that there was a strong
link between pay and performance and that no changes to the Policy are needed as a result of the review of operation in 2019.
Wider workforce matters
As set out in the policy section of this Directors’ Remuneration Report, the Remuneration Committee under its wider remit considers
workforce remuneration policy and practices.
112
c116224_BOOK.indb 113
c116224_BOOK.indb 113
113
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Directors’ Remuneration Report
Remuneration Committee advisers
The Remuneration Committee took independent advice during the year from Korn Ferry on matters relating to Executive Director and
senior manager’s remuneration. No other services are provided to the Group by Korn Ferry. Korn Ferry were selected and appointed by
the Remuneration Committee and 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 new Directors’ Remuneration Policy, the subsequent Shareholder consultation and the disclosures required in the Annual
Report and Accounts. Their fees (which are based on an hourly rate) charged for 2019 were £36,731 (excluding VAT). 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 this 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
Chair of the Remuneration Committee
10th March 2020
114
c116224_BOOK.indb 114
c116224_BOOK.indb 114
25/03/2020 13:51
25/03/2020 13:51
115
Financial Statements
In this section
116 Independent Auditor’s Report to the Members
of LSL Property Services plc
126 Group Income Statement
127 Group Statement of Comprehensive Income
128 Group Balance Sheet
129 Group Statement of Cash-Flows
130 Group Statement of Changes in Equity
131 Notes to the Group Financial Statements
183 Statement of Directors’ Responsibilities in
Relation to the Parent Company
184 Parent Company Balance Sheet
185 Parent Company Statement of Cash-Flows
186 Parent Company Statement of Changes in
Equity
187 Notes to the Parent Company Financial
Statements
114
c116224_BOOK.indb 115
c116224_BOOK.indb 115
115
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Independent Auditor’s Report
for the year ended 31st December 2019
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 31 December 2019 and of the Group’s profit for the
year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• 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, which comprise:
Group
Parent company
Group Income Statement
Parent company Balance Sheet as at 31 December 2019
Group Statement of Comprehensive Income
Parent company Statement of Cash-Flows
Group Balance Sheet as at 31 December 2019
Parent company Statement of Changes in Equity
Group Statement of Cash-Flows
Related notes 1 to 18 to the parent company financial
statements including a summary of significant accounting
policies
Group Statement of Changes in Equity
Related notes 1 to 35 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.
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 set out on pages 32 to 41 that describe the principal risks and explain how they are being managed
or mitigated;
• the directors’ confirmation set out on page 34 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 set out on page 58 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;
116
116
c116224_BOOK.indb 116
c116224_BOOK.indb 116
25/03/2020 13:51
25/03/2020 13:51
117
117
• 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 set out on page 32 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
• Risk of inappropriate recognition of revenue (including valuation of lapse provision)
• Risk of inappropriate valuation of professional indemnity provision
• Risk of inappropriate valuation of goodwill
• Risk of inappropriate valuation of contingent consideration liabilities
Audit scope
• We performed an audit of the complete financial information of eight components and audit procedures
on specific balances for a further three components.
• The components where we performed full or specific audit procedures accounted for 97% of profit
before tax excluding branch and restructuring costs, 94% of revenue and 98% of total assets.
Materiality
• Overall Group materiality of £1.5m which represents 5% of profit before tax excluding branch closure and
restructuring costs.
Key audit matters
Key audit matters are those matters that, in our professional judgment, 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.
116
116
c116224_BOOK.indb 117
c116224_BOOK.indb 117
117
117
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic Reportdirectors’ report and Corporate Governance reportsoverview Key observations communicated to
the Audit and risk Committee
Based on the work we performed, we
did not identify any evidence of material
misstatement in the revenue recognised in
the year nor in the valuation of the provision
for lapsed policies at 31 December 2019.
Independent Auditor’s Report continued.
for the year ended 31st December 2019
risk
Inappropriate recognition of revenue
(including valuation of lapse provision).
Refer to the Audit and Risk Committee
Report (page 75); Accounting policies
(page 131); and Note 3 of the Group
financial statements.
The Group has reported revenues of
£311.1m (2018: £324.6m).
We focused on revenue recognition
because there could be bias or error in
the timing of transactions. There is also
judgement in the measurement of the value
of commission income that will be clawed
back.
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 scope audit location with
material revenue streams:
• We walk through each significant stream of
revenue and confirm the existence of key
controls around the recognition of revenue
and measurement of the lapse provisions;
• We perform cut off testing for the period
before and after the year end with reference
to underlying contracts and evidence of
Management’s assessment of the point of
revenue recognition;
• We perform additional substantive
procedures around the existence of revenue
in the year including transaction testing or
data analysis procedures. Where items of
revenue are not passing through the normal
control system, we perform additional
transactional tests; and
• For the lapse provision, we examine the
underlying calculations for accuracy, test
the integrity of the data used in calculating
the provision and review the contractual
terms for the revenue streams which can
be clawed back by the financial service
provider.
At each full scope audit location that has a
significant revenue stream (eight full scope
components, seven with revenue streams), we
performed the audit procedures set out above
which covered 84% of the Group’s revenue.
We also performed the walkthrough and
cut off testing procedures above, as
specified procedures at three specific scope
components which covered a further 10% of
the Group’s revenue.
For the lapse provision estimate we performed
the following at each full scope that has a
lapse provision (eight full scope locations, five
with lapse provisions) and at each specific
scope location:
• 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 performed review procedures in ten
locations which covered a further 6% of the
Group’s revenue. This consisted of analytical
procedures over material movements in the
Income Statement and Balance Sheet.
118
118
c116224_BOOK.indb 118
c116224_BOOK.indb 118
25/03/2020 13:51
25/03/2020 13:51
119
119
Key observations communicated to
the Audit and risk Committee
Based on our procedures we believe that
the estimate for Professional Indemnity
liabilities is stated in accordance with IAS
37 and the estimate is at the conservative
end of the acceptable range.
We have concluded that the provision
release of £2.5m recorded as an
exceptional item is appropriate.
risk
Inappropriate valuation of professional
indemnity provision.
Refer to the Audit and Risk Committee
Report (page 75); Accounting policies
(page 131); and Note 24 of the Group
financial statements.
We focused on this area due to the level
of judgement required to assess the
liability, the size of the balance of £8.2m
(2018: £12.4m) 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 £2.5m gain
recognised in the Income Statement as
an exceptional item.
There is no change in risk profile in the
current year.
our response to the risk
We performed the following procedures
providing full coverage of the professional
indemnity provision:
• We performed walkthroughs of each
material element of the provision and
assessed the design effectiveness of key
controls;
• We re-performed management’s
calculations, tracing a sample of claims
to source documentation. This included
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 we built 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 the 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 to
third party evidence;
• 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 provision held is within the
acceptable range of possible outcomes;
• We traced a sample of payments for
settled 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;
• We inquired with legal counsel for a
sample of 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.
118
118
c116224_BOOK.indb 119
c116224_BOOK.indb 119
119
119
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic Reportdirectors’ report and Corporate Governance reportsoverview Key observations communicated to
the Audit and risk Committee
Based on the results of our work, we
agree with management’s conclusion that
no impairment of goodwill is required at
31 December 2019.
Independent Auditor’s Report continued.
for the year ended 31st December 2019
risk
Inappropriate valuation of goodwill
Refer to the Audit and Risk Committee
Report (page 75); Accounting policies
(page 131); and Note 15 of the Group
financial statements.
The carrying value of goodwill on the
Group Balance Sheet is £159.9m (2018:
£159.7m). The valuation of goodwill
is considered to be a significant risk
because of the high level of estimation
uncertainty in assessing the future
performance of the Group and in
assessing the appropriate discount rate
to apply in calculating the ‘value in use’ of
the cash generating units.
Management’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.
There is no change in the overall risk
profile of this matter.
our response to the risk
We challenged management’s
assumptions used in its models for
assessing the recoverability of the carrying
value of goodwill. We did this by focusing
on the appropriateness of the CGU
identification, the methodology applied to
estimate the value in use, discount rates
and forecast cash flows. Specifically:
• We evaluated whether the CGUs
identified are at the lowest level at
which management monitors goodwill
consistent with the requirements of
IAS36;
• We tested the methodology applied in
the value in use calculation as compared
to the requirements of IAS 36 and the
mathematical accuracy of management’s
model;
• We obtained an understanding of, and
assessed the basis for, key underlying
assumptions within the model;
• We confirmed that the cash flow
forecasts used in the valuation are
consistent with information presented
to the Board and evaluated the
appropriateness of the use of these
forecasts in light of the historical
accuracy of management’s forecasts;
• For the CGUs with the largest goodwill
balances or the lowest headroom, we
challenged management on its cash flow
forecasts and the implied growth rates
for 2020 and beyond by considering the
evidence available that either supported
or contradicted these assumptions and
including it in the forecasts to assess any
differences;
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.
120
120
c116224_BOOK.indb 120
c116224_BOOK.indb 120
25/03/2020 13:51
25/03/2020 13:51
121
121
Key observations communicated to
the Audit and risk Committee
Based on the results of our work, we
conclude that the contingent consideration
liabilities are calculated appropriately.
risk
Inappropriate valuation of contingent
consideration liabilities
Refer to the Audit and Risk Committee
Report (page 75); Accounting policies
(page 131); and Note 23 of the Group
financial statements.
The Group Balance Sheet contains a
£5.8m (2018: £15.0m) provision for
contingent consideration that arose from
acquisitions in previous periods.
We have focused on this because it is
subject to estimation uncertainty.
There is no change in the risk profile of
contingent consideration in the current
year.
our response to the risk
We have performed the following
procedures across four full scope locations
that have contingent consideration
balances that are above our testing
threshold:
• We confirmed that the cash flow
forecasts used in the measurement of
the liability are consistent with information
presented to the Board and 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
including tracing a sample of calculations
to contracts;
• 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 confirmed the appropriateness of
the discount rate used in calculating
the liability by considering the risks of
the cash flows and management’s
application of IFRS 13.
These key audit matters are consistent with those identified in the prior year with the exception of the inappropriate valuation of the Group’s
investment in Yopa Property Ltd which has been removed in this report. This is because of the level of judgement required in assessing the
impairment has reduced.
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 consolidated 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 21 reporting components of the Group, we performed audit procedures on
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 8 components (“full scope components”), which were selected based on their size or risk
characteristics.
• For the remaining 3 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.
120
120
c116224_BOOK.indb 121
c116224_BOOK.indb 121
121
121
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic Reportdirectors’ report and Corporate Governance reportsoverview Independent Auditor’s Report continued.
for the year ended 31st December 2019
• Of the remaining 10 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.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
2019
2018
% Group
profit before
tax excluding
branch
closure and
restructuring
costs
85.1
12.4
97.5
2.5
% Group
revenue
83.7
10.4
94.1
5.9
100.0
100.0
number
8
3
11
10
21
See note
Number
before tax % Group revenue
% Group profit
1
2
7
5
12
8
20
69.8
21.6
91.4
8.6
86.7
10.0
96.7
3.3
100.0
100.0
Components
Full scope
Specific scope
Full and specific scope coverage
Remaining components
Total
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 for the Group audit.
2. Of the remaining ten reporting components that together represent 2.5% of the Group’s profit before tax excluding branch closure and restructuring costs, none are individually greater than 2%
of the Group’s profit before tax excluding branch closure and restructuring costs. 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
One component has been designated as full scope in 2019 (2018: specific scope) on the basis that its contribution to Group profit before
tax has now increased above the threshold which would warrant inclusion within the full scope category. Similarly, one further component
has been designated as specific scope as it is a new component in the year. Two entities that were specific scope in the prior year have
been liquidated and have therefore been removed from scope.
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 £1.5 million (2018: £1.2m million), which is 5% (2018: 5%) of profit before tax excluding
branch closure and restructuring costs of £14.6m (2018: profit before tax). Profit before tax, after adding back significant, non-recurring
items, provides the most appropriate measure of profitability to calculate materiality.
We determined materiality for the Parent Company to be £1.0m million (2018: £1.0 million), which is 1% (2018: 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, our judgement was that
performance materiality was 50% (2018: 50%) of our Overall Group materiality, namely £0.8m (2018: £0.6m). 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 £1.5m (2018: £1.2m).
All audit work at component locations is completed by the primary team for the purpose of obtaining audit coverage over significant financial
statement accounts. The audit work 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
122
122
c116224_BOOK.indb 122
c116224_BOOK.indb 122
25/03/2020 13:51
25/03/2020 13:51
123
123
misstatement at that component. In the current year, the range of performance materiality allocated to components was £0.1m to £0.4m
(2018: £0.1m to £0.4m).
reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit and Risk Committee that we would report to them all uncorrected audit differences in excess of £0.1m (2018:
£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 pages and pages 2 to
115, 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.
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 59 – 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 and risk Committee reporting set out on page 75 – the section describing the work of the Audit and Risk Committee does not
appropriately address matters communicated by us to the Audit and Risk Committee; or
• directors’ statement of compliance with the uK Corporate Governance Code set out on page 61 – 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.
122
122
c116224_BOOK.indb 123
c116224_BOOK.indb 123
123
123
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic Reportdirectors’ report and Corporate Governance reportsoverview Independent Auditor’s Report continued.
for the year ended 31st December 2019
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 55, 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.
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 and 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. Our
procedures involved journal entry testing, with a focus on manual consolidation journals, and journals indicating large or unusual
124
124
c116224_BOOK.indb 124
c116224_BOOK.indb 124
25/03/2020 13:51
25/03/2020 13:51
125
125
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 2018.
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 reappointed by the company on 30 April 2019 to audit the financial statements for the year ending 31 December 2019 and
subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is 19 years, covering the years ending
31 December 2001 to 31 December 2019. LSL Property Services plc listed on the London Stock Exchange in 2006.
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 and Risk Committee.
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.
Mark Morritt (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Leeds
10 March 2020
Notes:
1. The maintenance and integrity of the LSL Property Services plc web site 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.
124
124
c116224_BOOK.indb 125
c116224_BOOK.indb 125
125
125
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic Reportdirectors’ report and Corporate Governance reportsoverview Group Income Statement
for the year ended 31st December 2019
Group Revenue
Employee and subcontractor costs
Establishment costs
Depreciation on property, plant and equipment
Other operating costs
Total operating expenses
Other operating income
Gain on sale of property, plant and equipment
Income from joint ventures and associates
Group Underlying Operating Profit
Share-based payments
Amortisation of intangible assets
Exceptional gains
Exceptional costs
Contingent consideration
Group operating profit
Finance costs
Finance income
Net financial costs
Profit before tax
Taxation charge
Profit for the year
Earnings per Share expressed in pence per Share:
Basic
Diluted
Note
3
13
16
3
18
13
15
7
7
23
5
6
14
10
10
2019
£’000
2018
£’000
311,073
324,640
(194,207)
(203,095)
(10,367)
(14,842)
(56,098)
(20,614)
(5,674)
(60,211)
(275,514)
(289,594)
887
148
441
557
34
259
37,035
35,896
(312)
(5,786)
2,487
(15,730)
2,054
19,748
(349)
(5,301)
2,188
(5,234)
(1,783)
25,417
(3,744)
(2,333)
10
–
(3,734)
(2,333)
16,014
(3,045)
23,084
(5,201)
12,969
17,883
12.6
12.6
17.4
17.3
126
126
c116224_BOOK.indb 126
c116224_BOOK.indb 126
25/03/2020 13:51
25/03/2020 13:51
127
127
Group Statement of Comprehensive Income
for the year ended 31st December 2019
Profit for the year
Items not to be reclassified to profit and loss in subsequent periods:
Revaluation of financial assets not recycled through income statement
Total other comprehensive (loss) for the year, net of tax
Total comprehensive income for the year, net of tax
Note
17
2019
£’000
2018
£’000
12,969
17,883
(3,558)
(3,558)
(12,200)
(12,200)
(3,558)
(12,200)
9,411
5,683
126
126
c116224_BOOK.indb 127
c116224_BOOK.indb 127
127
127
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic Reportdirectors’ report and Corporate Governance reportsoverview
Group Balance Sheet
as at 31st December 2019
Company no 05114014
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Financial assets
Investments in joint ventures and associates
Contract assets
Total non-current assets
Current assets
Trade and other receivables
Contract assets
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Financial liabilities
Trade and other payables
Current tax liabilities
Provisions for liabilities
Total current liabilities
Non-current liabilities
Financial liabilities
Deferred tax liability
Provisions for liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Share-based payment reserve
Shares held by EBT
Fair value reserve
Retained earnings
Total equity
Note
2019
£’000
2018
£’000
15
15
16
17
18
19
20
19
21
23
22
24
23
14
24
159,863
159,723
30,906
49,570
9,326
12,958
686
31,960
16,866
11,566
13,230
959
263,309
234,304
34,391
253
–
34,644
297,953
(11,113)
(60,007)
(1,209)
(3,575)
38,650
262
2,405
41,317
275,621
(10,455)
(63,980)
(2,688)
(6,616)
(75,904)
(83,739)
(73,951)
(41,156)
(1,805)
(5,077)
(2,189)
(5,944)
(80,833)
(49,289)
(156,737)
(133,028)
141,216
142,593
26
27
27
2,27
27
208
5,629
4,429
(5,224)
(13,584)
149,758
141,216
208
5,629
4,129
(5,261)
(11,727)
149,615
142,593
the Financial statements were approved by and signed on behalf of the Board by:
Ian Crabb
Group Chief Executive Officer
10th March 2019
128
128
Adam Castleton
Group Chief Financial Officer
10th March 2019
c116224_BOOK.indb 128
c116224_BOOK.indb 128
25/03/2020 13:51
25/03/2020 13:51
129
129
Group Statement of Cash-Flows
for the year ended 31st December 2019
Profit before tax
Adjustments for:
Exceptional operating items and contingent consideration
Depreciation of tangible assets
Amortisation of intangible assets
Share-based payments
(Profit) on disposal of fixed assets
(Profit) from joint ventures
Finance income
Finance costs
Realisation of non-cash consideration received for operating activities
Operating cash-flows before movements in working capital
Movements in working capital
Decrease/(increase) in trade and other receivables
(Decrease) in trade and other payables
(Decrease) in provisions
Cash generated from operations
Interest paid
Income taxes paid
Exceptional costs 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 joint ventures and associates
Investment in financial assets
Cash received on sale of financial assets
Purchase of property, plant and equipment and intangible assets
Proceeds from sale of property, plant and equipment
Net cash expended on investing activities
Cash-flows used in financing activities
Drawdown of loans
Refinance costs
Repayment of loan notes
Payment of deferred consideration
Payment of lease liabilities
Receipt of lease income
Proceeds from exercise of share options
Dividends paid
Net cash expended in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the end of the year
Note
15
13
8
18
6
29
29
18
17
17
15,16
16
12
23
11
2019
£’000
2018
£’000
16,014
23,084
11,189
14,842
5,786
312
(148)
(441)
(10)
3,744
–
51,288
5,462
(6,181)
(3,908)
(4,627)
46,661
(3,289)
(5,355)
(8,799)
29,218
–
(2,711)
(7,890)
–
(2,783)
1,765
(4,892)
367
4,829
5,674
5,301
349
(34)
(259)
–
2,333
1,529
42,806
(3,815)
(111)
(3,608)
(7,534)
35,272
(1,359)
(6,875)
(3,310)
23,728
6,944
(7,732)
(1,392)
(4,100)
(13)
–
(5,877)
156
(16,144)
(12,014)
7,383
–
–
(2,009)
(9,761)
76
26
(11,194)
(15,479)
(2,405)
–
4,521
(250)
(2,000)
–
–
–
20
(11,600)
(9,309)
2,405
2,405
129
129
c116224_BOOK.indb 129
c116224_BOOK.indb 129
25/03/2020 13:51
25/03/2020 13:51
128
128
Other InformationFinancial Statements Strategic Reportdirectors’ report and Corporate Governance reportsoverview
Group Statement of Changes in Equity
for the year ended 31st December 2019
for the year ended 31st december 2019
At 1st January 2019
Adjustment on initial application of IFRS 16
Share
premium
account
£’000
Share-
based
payment
reserve
£’000
Shares held
by EBT
£’000
Fair value
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
5,629
4,129
(5,261)
(11,727) 149,615 142,593
–
–
–
–
68
68
Share
capital
£’000
208
–
Revised opening balance at 1st January 2019
208
5,629
4,129
(5,261)
(11,727) 149,683 142,661
Revaluation of financial assets
Disposal of financial assets
Profit for the year
Total comprehensive (loss)/income for the year
Exercise of options
Share-based payments
Dividend payment
At 31st December 2019
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(12)
312
–
–
–
–
–
37
–
–
(3,558)
–
(3,558)
1,701
(1,701)
–
–
12,969
12,969
(1,857)
11,268
9,411
–
–
–
1
–
26
312
(11,194)
(11,194)
208
5,629
4,429
(5,224)
(13,584) 149,758 141,216
During the year ended 31st December 2019, the Trust acquired nil LSL Shares. During the period, 10,672 share options were exercised relating
to LSL’s various share option schemes resulting in the Shares being sold by the Trust. LSL received £24,000 on exercise of these options.
for the year ended 31st december 2018
Share
premium
account
£’000
Share-
based
payment
reserve
£’000
Share capital
£’000
Shares held
by EBT
£’000
Fair value
reserve
£’000
Retained
earnings
£’000
Total equity
£’000
Non-
controlling
interest
£’000
Total
£’000
At 1st January 2018
208
5,629
3,802
(5,317)
494 143,578 148,394
182 148,576
Adjustment on initial application of
IFRS 15
Adjustment on initial application of
IFRS 9
Revised opening balance at
1st January 2018
Other comprehensive income for
the year
Revaluation of financial assets
Profit for the year
Total comprehensive (loss)/income
for the year
Exercise of options
Share-based payments
Acquisition of minority interest
Dividend payment
At 31st December 2018
–
–
–
–
–
–
–
–
–
(434)
(434)
(21)
21
–
–
–
(434)
–
208
5,629
3,802
(5,317)
473 143,165 147,960
182 148,142
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(22)
349
–
–
–
–
–
56
–
–
–
(12,200)
–
(12,200)
–
17,883
17,883
(12,200)
17,883
5,683
–
–
–
–
(15)
–
182
19
349
182
(11,600)
(11,600)
208
5,629
4,129
(5,261)
(11,727) 149,615 142,593
–
–
–
–
–
(182)
(12,200)
17,883
5,683
19
349
–
–
(11,600)
– 142,593
During the year ended 31st December 2018, the Trust acquired nil LSL Shares. During the period 15,966 share options were exercised
relating to LSL’s various share option schemes resulting in the Shares being sold by the Trust. LSL received £20,000 on exercise of these
options.
130130
c116224_BOOK.indb 130
c116224_BOOK.indb 130
25/03/2020 13:51
25/03/2020 13:51
Notes to the Group Financial Statements
for the year ended 31st December 2019
1. Authorisation of Financial Statements and statement of compliance with IFRS
The Group Financial Statements of LSL and its subsidiaries for the year ended 31st December 2019 were authorised for issue by the Board
of Directors on 10th March 2020 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, listed in London, incorporated and domiciled in England and the
Group operates a network of estate agencies, surveying and valuation, and financial services businesses.
The Group’s Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by
the European Union and as applied in accordance with the provisions of the Companies Act 2006.
2. Accounting policies
Basis of preparation of financial information
The consolidated Financial Statements of the Group have been prepared in accordance with the International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB).
The Group Financial Statements have been prepared on a going concern basis and on a historical cost basis, except for certain debt and
equity 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 2019. 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
IFRS 16 Leases
IFRS 16 Leases supersedes IAS 17 Leases setting out the principles for the recognition, measurement, presentation and disclosure of
leases. It was adopted by the Group with effect from 1st January 2019. Under this standard leases are defined as a contract which gives the
right to use an asset for a period of time in exchange for consideration. The Group recognises three classes of leases on this basis:
• Property leases
• Motor vehicle leases
• Other leases
Property leases and motor vehicle leases have been recognised on the balance sheet, in financial liabilities, by recognising the future
cash-flows of the lease obligation, discounted using the incremental borrowing rate of the Group, adjusted for factors such as swap rates
available and the credit risk of the entity entering into the lease.
Corresponding right of use assets have been recognised in the Group balance sheet under property, plant and equipment and have been
measured as being equal to the discounted lease liability plus any lease payments made at or before the inception of the lease and initial
direct costs, less any lease incentives received. Cash-flows from these leases have been recognised by including the principle portion of the
lease payments in cash-flows from financing activities and the interest portion of the lease payment recognised through operating activities.
Other leases are leases for low value items (less than $5,000) or leases whose contract term is less than 12 months. The practical expedient
not to recognise right of use assets and lease liabilities for these leases has been utilised by the Group. A charge for these leases has been
recognised through the Income Statement as an operating expense. The cash-flows relating to low value and short-term leases have been
recognised in net cash-flows from operating activities.
For sub-leases where the Group is an intermediate lessor, the Group has assessed whether the sub-lease is an operating lease or finance
lease in respect to the right of use asset generated by the head lease. It has performed this assessment on a lease-by-lease basis. The
Group has both finance leases and operating leases based on this assessment, and a sub-lease asset has been recognised in financial
assets at transition for finance leases.
IAS 17 Leases accounting policy
Previously, under IAS 17 Leases, operating leases were defined as a contract where substantially all of the risks and reward of ownership
remain with the owner. Under the old standard, the Group recognised all of its leasing activities as operating leases, recognising no assets,
and recognising lease payments as an expense through the Income Statement as they fell due.
As the Group has chosen to adopt IFRS 16 using the modified retrospective approach, comparatives have not been restated and are
accounted for under the Group’s previous leases accounting policy:
c116224_BOOK.indb 131
c116224_BOOK.indb 131
131
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
2. Accounting policies (continued)
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.
By adopting IFRS 16, the Group has recognised additional non-current assets representing the right of use asset that arises under the
contracts to which the Group is entered, and additional financial liabilities, being the discounted future cash-flows of lease payments due
under the term of the leases.
The Group has opted to adopt IFRS 16 on a modified retrospective approach, by recognising the cumulative effect of applying the standard
and recognising right of use assets and lease liabilities from 1st January 2019, the “transition date”.
Under this approach, prior year figures have not been restated to reflect leases that were in effect at that time. On transition to IFRS 16, the
Group has taken advantage of the following practical expedients available:
• The Group has chosen to transition all leases previously identified under IAS 17 to IFRS 16 and has not reassessed whether these
contracts are leases.
• Leases with less that 12 months remaining at the transition date have been not been transitioned to IFRS 16.
• Reliance on the assessment of onerous leases at the 31st December 2018 instead of performing an impairment review on transition at 1st
January 2019.
• The value of the right of use asset at the transition date has been assessed as equalling the lease liability at that date adjusted for any
prepaid or accrued lease payments that were recognised on balance sheet immediately before the application of IFRS 16.
• Hindsight has been used in assessing the length of the lease, where options to extend or terminate the contract exist at the transition
date.
Key judgements and estimates
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend
the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not
to be exercised.
Where the implicit rate of interest relating to a lease is not readily available, the Group has used an incremental borrowing rate representative
of the incremental borrowing rate of interest that the entity within the LSL Group that entered into the lease would have to pay to borrow
over a similar term, with a similar security. The rate applied to each lease was determined taking into account the risk free rate, adjusted for
factors such as the swap rates available to the Group and the credit risk of the entity entered into the lease.
Undiscounted operating lease obligations at 31st December 2018
Discounting1
Long-term leases expiring within 12 months2
Short-term leases2
Low value leases2
Other
Extension and termination options reasonably expected to be exercised3
Lease liabilities at 1st January 2019
£’000
39,909
(4,650)
(130)
(30)
(245)
354
8,016
43,224
1. Under the modified retrospective transition method, future lease payments at 1st January 2019 were discounted, on a lease-by-lease basis, using an incremental borrowing rate representative of
the incremental borrowing rate of interest that the entity within the LSL Group that entered into the lease would have to pay to borrow over a similar term, with a similar security. The rate applied
to each lease was determined taking into account the risk free rate, adjusted for factors such as the swap rates available to the Group and the credit risk of the entity entered into the lease. The
weighted average discount rate used at initial application was 4.03%. Ranging between 2.82 - 8.82%.
2. As noted above, the Group has taken advantage of the transitional practical expedient to treat long-term leases expiring within 12 months in line with the recognition exemption available for leases
whose full term is less than 12 months, denoted “short-term” leases. The Group has also applied the recognition exemption for leases of low value, being less that £5,000.
3. At the transition date, leases with extension options and early termination options available were reviewed, on a lease-by-lease basis, to assess whether such an option was reasonably likely to be
exercised. The result of this review is an addition to the opening lease liability at 1st January 2019.
132
c116224_BOOK.indb 132
c116224_BOOK.indb 132
25/03/2020 13:51
25/03/2020 13:51
133
2. Accounting policies (continued)
The effect of adoption of IFRS 16 as at 1st January 2019 increase/(decrease) is as follows:
Assets
Right of use asset
Trade and other receivables
Financial assets
Total assets
Liabilities
Interest-bearing loans and borrowings
Deferred tax liabilities
Trade and other payables
Total liabilities
Equity
Reserves
Total equity
£’000
43,750
(1,460)
329
42,619
43,224
14
(687)
42,551
68
68
Judgements and estimates
The preparation of financial information in conformity with IFRS as adopted by European Union, requires the Management Team to make
judgements, estimates and assumptions that affect the application of policies and reporting amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an 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.
Judgements
Areas of judgement that have the most significant effect on the amounts recognised in the consolidated Financial Statements are:
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 judgements 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.
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.
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
Details of the assumptions applied to PI claims areas are disclosed in Notes 7 and 24 to these Financial Statements. A sensitivity calculation
which illustrates the impact of different assumptions on the required PI Costs provision is included in Note 24.
132
c116224_BOOK.indb 133
c116224_BOOK.indb 133
133
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
2. Accounting policies (continued)
Lapse provision
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 which is based on
historic lapses which have occurred.
Valuation of financial assets
The Group owns non-controlling interests in three unlisted entities Yopa, Vibrant Energy Matters and NBC Property Master, in addition to
a convertible loan note, which is held in Mortgage Gym. In accordance with the accounting standards, these investments are held at fair
value and significant judgement is required in assessing this. The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use
of unobservable inputs. The fair value of equity financial assets that are not traded in the open market are valued in accordance with Level
3 of the fair value hierarchy and Management Team use all relevant and up to date information (including cash-flow forecasts and financial
statements) to arrive at their judgement. Where appropriate a range of potential outcomes is considered in reaching a conclusion. 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 31.
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. Brands are valued using the royalty relief method. The internally generated software
from the acquisition of Personal Touch Financial Services was valued using a discounted cash-flow model.
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 recent 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 23 to these Financial Statements. A sensitivity calculation which
shows the impact of changes in assumption is shown in Note 31 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’s estimates of income taxes
are used to determine the tax charges and provisions carried by the Group. The estimated tax charges are calculated having taken
consideration of the tax impact of significant transactions within the Group during the respective accounting period, as well as having an
existing knowledge of the tax profile of the Group’s recurring trading activities.
Basis of consolidation
The consolidated Financial Statements comprise the Financial Statements of the Company and its subsidiaries as at 31st December 2019.
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; and
• the ability to use its power over the entity to affect its returns.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
134
c116224_BOOK.indb 134
c116224_BOOK.indb 134
25/03/2020 13:51
25/03/2020 13:51
135
2. Accounting policies (continued)
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.
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 and associates
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and
operating policy decisions of the investee, but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of
the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the
relevant activities require the unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control are similar to those necessary to determine control over
subsidiaries. The Group’s investment in its associates and joint ventures are accounted for using the equity method.
Under the equity method, the investment in a joint venture or associate 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 or associate since the acquisition date. Goodwill
relating to the joint venture or associate is included in the carrying amount of the investment and is not tested for impairment individually.
The Income Statement reflects the Group’s share of the results of operations of the joint venture or associate. In addition, when there has
been a change recognised directly in the equity of the joint venture or associate, 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 or associate are eliminated to the extent of the interest in the joint venture or associate.
The aggregate of the Group’s share of profit or loss of a joint venture or associate is shown on the face of the Income Statement within
Group operating profit, and represents profit or loss after tax and non-controlling interests in the subsidiaries of the joint venture or
associate.
The Financial Statements of the associate or 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 or associates. At each reporting date, the Group determines whether there is objective evidence that the investment in the
joint venture or associate 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 or associate and its carrying value.
Upon loss of joint control and significant influence over the joint venture or associate, the Group measures and recognises any retained
investment at its fair value. Any difference between the carrying amount of the joint venture or associate 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.
134
c116224_BOOK.indb 135
c116224_BOOK.indb 135
135
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
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 at the acquisition date.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent
consideration classified as equity is not re-measured and its subsequent settlement is accounted for within equity. Contingent consideration
classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value
with the changes in fair value recognised in the Income Statement in accordance with IFRS 9. Other contingent consideration that is not
within the scope of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognised in profit or loss.
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 the Income Statement.
Intangible assets
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for
non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed).
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing,
goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are
expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Intangible assets acquired separately are measured on initial recognition at costs. The cost of intangible assets acquired in a business
combination is their fair value at their date of initial recognition.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses.
Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit
or loss in the period in which the expenditure is incurred.
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.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication
that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial
year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is
accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates.
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.
136
c116224_BOOK.indb 136
c116224_BOOK.indb 136
25/03/2020 13:51
25/03/2020 13:51
137
2. Accounting policies (continued)
A summary of the policies applied to the Group’s intangible assets is, 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
– five years
– three months
– one week
– 12 months
– ten years
– between three and five years
Impairment
Intangible assets with indefinite useful lives are not amortised but tested for impairment annually either individually or at the cash generating
unit level. The useful life of such intangible assets is reviewed annually to determine whether indefinite life assessment continues to be
supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists,
or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s
recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use, and is determined
for an individual asset unless the asset does not generate cash inflows that are largely independent of those from other assets or groups
of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down
to its recoverable amount. In assessing value in use, the estimated future cash-flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses
of continuing operations are recognised in the Income Statement in those expense categories consistent with the function of the impaired
asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously
recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the 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
– over three to four years
Leasehold improvements
– over the shorter of the lease term or ten years
Freehold and long leasehold property
– over 50 years or the lease term whichever is shorter
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use
or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in the Income Statement when the asset is derecognised. These assets’ residual values, useful
lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively, if appropriate.
Dividends
Equity dividends are recognised when they become legally payable. In the case of interim dividends to Shareholders, this is when paid. In
the case of final dividends, this is when approved by Shareholders at each AGM.
136
c116224_BOOK.indb 137
c116224_BOOK.indb 137
137
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
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 OCI or equity, if it relates to items that are charged or credited in the current or prior
periods to OCI 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).
Shares held by EBT
The Group has an employee share scheme (ESOT) for the granting of LSL Shares to Executive Directors and selected senior employees
and an employee share incentive plan (Trust). Shares in LSL held by the ESOT and the Trusts are treated as treasury shares and presented
in the balance sheet as a deduction from equity. No gain or loss is recognised in the Income Statement on the purchase, sale, issue or
cancellation of the Group’s own equity instruments. The finance costs and administration costs relating to the ESOT and the Trusts are
charged to the Income Statement. Dividends earned on Shares held in the ESOT and the Trusts have been waived. The ESOT and Trust
Shares are ignored for the purposes of calculating the Group’s EPS.
138
c116224_BOOK.indb 138
c116224_BOOK.indb 138
25/03/2020 13:51
25/03/2020 13:51
139
2. Accounting policies (continued)
Leases
IFRS 16 Leases supersedes IAS 17 Leases setting out the principles for the recognition, measurement, presentation and disclosure of
leases and was adopted by the Group with effect from 1st January 2019. Under this standard leases are defined as a contract which gives
the right to use an asset for a period of time in exchange for consideration. As a lessee, the Group recognises three classes of leases on
this basis:
• Property leases
• Motor vehicle leases
• Other leases
Property leases and motor vehicle leases have been recognised on the balance sheet, in financial liabilities, by recognising the future
cash-flows of the lease obligation, discounted using the incremental borrowing rate of the Group, adjusted for factors such as swap rates
available and the credit risk of the entity entering into the lease.
Corresponding right of use assets have been recognised in the Group balance sheet under property, plant and equipment and have been
measured as being equal to the discounted lease liability plus any lease payments made at or before the inception of the lease and initial
direct costs, less any lease incentives received. Cash-flows from these leases have been recognised by including the principle portion of the
lease payments in cash-flows from financing activities and the interest portion of the lease payment recognised through operating activities.
Other leases are leases for low value items (less than $5,000) or leases whose contract term is less than 12 months. The practical expedient
not to recognise right of use assets and lease liabilities for these leases has been utilised by the Group. A charge for these leases has been
recognised through the Income Statement as an operating expense. The cash-flows relating to low value and short-term leases have been
recognised in net cash-flows from operating activities.
No leases where the Group is a lessee or a lessor contain variable lease payments.
For sub-leases where the Group is an intermediate lessor, the Group has assessed whether the sub-lease is an operating lease or finance
lease in respect to the right of use asset generated by the head lease. It has performed this assessment on a lease-by-lease basis. The
Group has both finance leases and operating leases based on this assessment, and a sub-lease asset has been recognised in financial
assets at transition for finance leases.
IAS 17 Leases accounting policy
Previously, under IAS 17 Leases, operating leases were defined as a contract where substantially all of the risks and reward of ownership
remain with the owner. Under the old standard, the Group recognised all of its leasing activities as operating leases, recognising no assets,
and recognising lease payments as an expense through the Income Statement as they fell due.
As the Group has chosen to adopt IFRS 16 using the modified retrospective approach, comparatives have not been restated and are
accounted for under the Group’s previous leases accounting policy:
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.
138
c116224_BOOK.indb 139
c116224_BOOK.indb 139
139
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
2. Accounting policies (continued)
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.
The subsequent measurement of financial assets depends on their classification.
The Group’s accounting policy for each category of financial instruments is as follows:
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value
through OCI when they meet the definition of equity under IFRS 9 Financial Instruments and are not held for trading. The classification is
determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement
of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part
of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are
not subject to impairment assessment.
Financial assets designated at fair value through profit and loss
Gains and losses arising from the changes in the fair value of equity investments are recognised through the profit and loss.
Cash and short-term deposits
Cash and short-term deposits in the balance sheet and cash-flow statement comprise cash at bank and in hand and short-term deposits
with an original maturity period of three months or less.
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 30 days in the Surveying and
Valuation Services business.
The expected credit loss model under IFRS 9 is applied to trade and other receivables. The chosen method of recognising the expected
credit loss across the Group is the simplified approach allowing a provision matrix to be used, which is based on the expected life of trade
receivables and historic default rates.
The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised 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.
140
c116224_BOOK.indb 140
c116224_BOOK.indb 140
25/03/2020 13:51
25/03/2020 13:51
141
2. Accounting policies (continued)
Revenue recognition
Revenue is recognised under IFRS 15. The standard is based on a single model that distinguishes between promises to a customer that
are satisfied at a point in time and those that are satisfied over time. Revenue is recognised when control of a good or service transfers to a
customer. IFRS 15 focuses on control with risk and rewards as an indicator of control.
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, and therefore at a point in time. Revenue from Lettings, Asset Management and Conveyancing Services is
recognised on completion of the service being provided, and therefore at a point in time. Management Services relating to Lettings and
Asset Management are recognised over time using the time basis approach. The costs incurred from obtaining a contract and payable to
the customer are capitalised and held under contract assets in the Group balance sheet and amortised into revenue over the contract term.
Financial Services income
Revenue from mortgage procuration fees is recognised by reference to the completion date of the mortgage/remortgage on the housing
transaction. Revenue from policy sales is recognised at a point in time by reference to the date that the policy is accepted by the insurer.
The lapse provision is recognised as a reduction in revenue which is based on historic lapses which have occurred. Lapse provisions are
recorded within trade and other payables.
Interest income
Revenue is recognised at a point in time 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 either at a point in time on a straight line basis
over the lease term for operating leases or by recognising in the balance sheet a lease receivable equal to the investment in the lease for
finance leases. Sub-leases are assessed as finance leases or operating leases in reference to the right of use asset the lease generates.
Dividends
Revenue is recognised when the Group’s right to receive the payment is established.
Trade receivables generally have four to seven day payment terms in the Estate Agency businesses and 30 days in the Surveying and
Valuation Services business. Obligations for refunds are recognised within the lapse provision.
Exceptional items
An exceptional item is considered to be non-recurring and unusual in nature. These items are presented within their relevant Income
Statement category, but highlighted separately on the face of the Income Statement. Items that management considers fall into this
category are also disclosed within a Note to the Financial Statements (see Note 7 to the Group Financial Statements).
Due to the nature and expected infrequency of these items, separate presentation helps provide a better indication of the Group’s
underlying business performance. This allows 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.
140
c116224_BOOK.indb 141
c116224_BOOK.indb 141
141
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
3. Disaggregation of revenue
Set out below is the disaggregation of the Group’s revenue from contracts with customers:
Timing of revenue recognition
Services transferred at a point in time
Services transferred over time
Residential
Sales
exchange
£’000
57,676
–
Total revenue from contracts with customers
57,676
Timing of revenue recognition
Services transferred at a point in time
Services transferred over time
Residential
Sales
exchange
£’000
69,854
–
Total revenue from contracts with customers
69,854
Year ended 31st December 2019
Lettings
£’000
Asset
Management
£’000
Financial
Services
£’000
Surveying
and Valuation
Services
£’000
Other
£’000
Total
£’000
37,782
29,535
67,317
4,311
83,353
86,358
11,098
280,578
960
–
–
–
30,495
5,271
83,353
86,358
11,098
311,073
Year ended 31st December 2018
Lettings
£’000
Asset
Management
£’000
Financial
Services
£’000
Surveying
and Valuation
Services
£’000
Other
£’000
Total
£’000
40,696
35,880
76,576
3,906
1,557
5,463
87,427
69,798
15,522
287,203
–
–
–
37,437
87,427
69,798
15,522
324,640
Revenue from services
Operating revenue
Rental income
Other operating income
Total revenue
2019
£’000
311,073
311,073
887
887
2018
£’000
324,640
324,640
557
557
311,960
325,197
4. Segment analysis of revenue and operating profit
To reflect the increased importance of LSL’s Financial Services businesses, the LSL Board has updated the Group segmental reporting
effective from 1st January 2019. For the year ended 31st December 2019 LSL has reported three segments: Estate Agency; Financial
Services; and Surveying and Valuation Services:
• The Estate Agency 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 and asset management services to a range of lenders. Following the change to LSL’s segment reporting, the
Estate Agency Division receives a commercially agreed commission payment from the Financial Services Division (from Embrace Financial
Services and First2Protect). This arrangement reflects Financial Services income generated by the Estate Agency Division.
• The Financial Services segment 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, PRIMIS, Embrace Financial Services, First2Protect, Mortgages
First, Insurance First Brokers, Linear Financial Services, Personal Touch Financial Services and RSC New Homes. Following the change
to LSL’s segment reporting, the Financial Services Division makes a commercially agreed commission payment to the Estate Agency
Division (from Embrace Financial Services and First2Protect). This arrangement reflects Financial Services income generated by the Estate
Agency Division.
• The Surveying and Valuation Services segment provides a valuations and professional surveying service of residential properties to various
lenders and individual customers.
The Estate Agency segment primarily incorporates the results from the Estate Agency branch networks (Your Move, Reeds Rains, LSLi
and Marsh & Parsons) and Asset Management. The Financial Services segment incorporates all LSL’s Financial Services businesses. The
Surveying and Valuation Services segment is unchanged from the previous segment reporting.
142
c116224_BOOK.indb 142
c116224_BOOK.indb 142
25/03/2020 13:51
25/03/2020 13:51
143
4. Segment analysis of revenue and operating profit (continued)
Operating segments
Each reportable segment has various products and services and the revenue from these products and services is disclosed on pages 21 to
26 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 2019 and financial year ended 31st December 2018 respectively.
142
c116224_BOOK.indb 143
c116224_BOOK.indb 143
143
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
4. Segment analysis of revenue and operating profit (continued)
Year ended 31st December 2019
Income Statement information
Revenue from external customers
Intersegment revenue
Total revenue
Segmental result:
Estate Agency
£’000
141,362
13,552
154,914
Financial
Services
£’000
83,353
(13,552)
69,801
Surveying
and Valuation
Services
£’000
86,358
–
86,358
Unallocated
£’000
Total
£’000
–
–
–
311,073
–
311,073
– before exceptional costs, contingent consideration,
amortisation and share-based payments
– after exceptional costs, contingent consideration,
amortisation and share-based payments
14,453
11,642
16,343
(5,403)
37,035
(2,206)
10,022
17,450
(5,518)
19,748
Finance income
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
Exceptional gains
Exceptional costs
Share of results in joint venture
PI Costs provision
Onerous leases provision
Share-based payment
160,942
81,934
242,876
(58,771)
184,105
(3,391)
(14,147)
(3,895)
–
(14,218)
1,361
–
(440)
(91)
10
(3,744)
16,014
(3,045)
12,969
190,769
107,184
297,953
(156,737)
141,216
(4,892)
(14,842)
(5,786)
2,487
18,088
9,078
27,166
11,739
14,822
26,561
(25,895)
(25,020)
1,271
1,541
–
1,350
1,350
(47,051)
(45,701)
(1,303)
(268)
(1,432)
–
(59)
(920)
–
–
(128)
(198)
(427)
(459)
2,487
(943)
–
(8,212)
–
22
–
–
–
–
(510)
(15,730)
–
–
–
(115)
441
(8,212)
(440)
(312)
The joint venture interests of the Group are recorded in the Estate Agency segment, with the associate interest recorded in the Financial
Services segment.
Unallocated net liabilities comprise plant and equipment £50,000, other assets £1,300,000, lease liabilities £(34,000), 12% loan notes
£(66,000), Bank overdraft £(883,000), accruals £(1,914,000), deferred and current tax liabilities £(3,152,000), and revolving credit facility
overdraft £(41,000,000).
144
c116224_BOOK.indb 144
c116224_BOOK.indb 144
25/03/2020 13:51
25/03/2020 13:51
145
4. Segment analysis of revenue and operating profit (continued)
Year ended 31st December 2018
Income Statement information
Revenue from external customers
Intersegment revenue
Total 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
Exceptional gains
Exceptional costs
Share of results in joint venture
PI Costs provision
Onerous leases provision
Share-based payment
Note
Estate Agency
(Restated)1
£’000
Financial Services
(Restated)1
£’000
As previously
reported1
£’000
Surveying
and Valuation
Services
£’000
Unallocated
£’000
Total
£’000
167,415
16,424
183,839
87,427
(16,424)
71,003
254,842
69,798
–
–
254,842
69,798
–
–
–
324,640
–
324,640
11,107
9,461
20,568
20,426
(5,098)
35,896
3,605
7,996
11,601
19,022
(5,206)
160,944
59,014
219,958
(40,100)
179,858
4,678
(5,124)
(3,237)
–
(1,994)
259
–
(130)
(241)
18,568
9,429
27,997
(24,789)
3,208
60
(296)
(1,660)
–
–
–
–
–
(53)
179,512
68,443
247,955
(64,889)
183,066
4,738
(5,420)
(4,897)
–
(1,994)
259
–
(130)
(294)
12,171
11,659
23,830
(27,828)
(3,998)
1,282
(254)
(404)
2,188
(3,240)
–
(12,430)
–
53
–
3,836
3,836
(40,311)
(36,475)
–
–
–
–
–
–
–
–
(108)
25,417
(2,333)
23,084
(5,201)
17,883
191,683
83,938
275,621
(133,028)
142,593
6,020
(5,674)
(5,301)
2,188
(5,234)
259
(12,430)
(130)
(349)
1
The prior period has been restated to reflect the current segmental reporting which adjusts the previous Estate Agency and Related Services segment to remove all of LSL’s Financial Services
businesses to create the current Financial Services segment.
The joint venture interests of the Group are recorded in the Estate Agency segment, with the associate interest recorded in the Financial
Services segment.
Unallocated net liabilities comprise plant and equipment £15,000, other assets £3,821,000, accruals £(921,000), deferred and current tax
liabilities £(4,890,000), and revolving credit facility overdraft £(34,500,000).
144
c116224_BOOK.indb 145
c116224_BOOK.indb 145
145
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
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
• Adjusted Diluted EPS
• Group Adjusted EBITDA
The amortisation of intangible assets is not representative of the underlying costs of the business, and is therefore excluded from adjusted
earnings.
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 the Management Team’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 to the consolidated Group Financial Statements 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
Group Underlying Operating Profit
Depreciation on property, plant and equipment
Group Adjusted EBITDA
6. Finance costs
Interest on RCF
Unwinding of discount on professional indemnity provision
Unwinding of discount on deferred consideration
Unwinding of discount on contingent consideration
Unwinding of discount on lease liabilities
Note
4
7
7
23
16
2019
£’000
19,748
312
5,786
(2,487)
15,730
(2,054)
37,035
14,842
51,877
2019
£’000
1,570
30
15
410
1,719
3,744
2018
£’000
25,417
349
5,301
(2,188)
5,234
1,783
35,896
5,674
41,570
2018
£’000
1,359
42
116
816
–
2,333
146
c116224_BOOK.indb 146
c116224_BOOK.indb 146
25/03/2020 13:51
25/03/2020 13:51
147
7. Exceptional items
Exceptional costs:
Branch/centre closure and restructuring costs including redundancy costs
Transition costs relating to surveying contracts
Other
Exceptional gains:
Exceptional gain in relation to historic PI Costs
2019
£’000
14,645
516
569
15,730
2018
£’000
1,993
3,241
–
5,234
(2,487)
(2,487)
(2,188)
(2,188)
Exceptional costs
There were £15.7m of exceptional costs in the year (2018: £5.2m), of which £0.5m (2018: £3.2m) relate to initial non-recurring transition
and integration costs for the contract to supply surveying and valuation services to Lloyds Bank plc. It is expected that further costs will be
incurred in relation to this integration.
In the Estate Agency Division there were £14.6m (December 2018: £2.0m) of non-recurring and material exceptional costs relating to the
planned Estate Agency branch/centre closures and restructuring costs. The most significant costs incurred are redundancy costs (£4.5m)
and leasehold property costs (£7.3m) with the balance including non-cash fixed asset write-offs (£2.6m). It is expected that further costs will
be incurred for leasehold property costs.
Exceptional gains
The Group continued to make positive progress in settling historic PI claims and there has been a release of £2.5m (2018: £2.2m) for the
provision for professional indemnity (PI) claims.
8. Profit before tax
Profit before tax is stated after charging:
Auditor’s remuneration (see Note 9 to the Group Financial Statements)
Operating lease rentals – land and buildings
Operating lease rentals – plant and machinery
Short-term leases
Low value leases
Depreciation – owned assets
Depreciation – leased assets
(Gain) on sale of owned property, plant and equipment
2019
£’000
480
–
–
3,474
128
4,747
10,095
(148)
2018
£’000
379
11,391
4,404
–
–
5,783
–
(34)
146
c116224_BOOK.indb 147
c116224_BOOK.indb 147
147
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
9. Auditor’s remuneration
The remuneration of the auditors is further analysed as follows:
Audit of the Financial Statements
Audit of subsidiaries
Audit of transition to IFRS 16
Total audit
Audit related assurance services (interim results review fee)
Other assurance services
2019
£’000
85
370
15
470
18
7
495
2018
£’000
55
297
–
352
18
9
379
The 2019 audit fee was reviewed and increased during the period. The fee increase is consistent with fee increases seen across the audit
market which are the result of audit firms reviewing their fee arrangements as a consequence of the level of work needed to focus on
quality.
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.
Basic EPS
Profit after tax
£’000
Weighted
average number
of Shares
12,969 102,669,719
2019
per Share
amount
pence
12.6
Effect of dilutive share options
425,152
Profit after
tax
£’000
Weighted
average number
of Shares
17,883 102,653,447
839,935
2018
per Share
amount
pence
17.4
Diluted EPS
12,969 103,094,871
12.6
17,883 103,493,382
17.3
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 and discounting on lease
liabilities)
Normalised taxation
Adjusted profit after tax1 before exceptional items, share-based payments and amortisation
2019
£’000
2018
£’000
37,035
35,896
(1,600)
(6,733)
28,702
(1,401)
(6,554)
27,941
148
c116224_BOOK.indb 148
c116224_BOOK.indb 148
25/03/2020 13:51
25/03/2020 13:51
149
10. Earnings per Share (EPS) (continued)
Adjusted basic and diluted EPS
Adjusted profit
after tax1
£’000
Weighted
average number
of Shares
2019
per Share
amount
pence
Adjusted profit
after tax1
£’000
Weighted
average number
of Shares
28,702 102,669,719
28.0
27,941 102,653,447
425,152
839,935
28,702 103,094,871
27.8
27,941 103,493,382
Adjusted basic EPS
Effect of dilutive share options
Adjusted diluted EPS
Note:
1 This represents adjusted profit after tax attributable to equity holders of the parent. The normalised tax rate in 2019 is 19% (2018: 19%).
11. Dividends paid and proposed
Declared and paid during the year:
2017 Final: 7.3 pence per Share
2018 Interim: 4.0 pence per Share
2018 Final: 6.9 pence per Share
2019 Interim: 4.0 pence per Share
2019
£’000
–
–
7,086
4,108
11,194
2018
per Share
amount
pence
27.2
27.0
2018
£’000
7,493
4,107
–
–
11,600
Dividends on Ordinary Shares proposed (not recognised as a liability as at 31st December):
Equity dividends on Ordinary Shares:
Dividend: 7.2 pence per Share (2018: 6.9 pence per Share)
7,392
7,086
12. Cash-flow from financing activities
Long-term liabilities
Short-term liabilities
At 1st January
2019
£’000
Initial recognition of
IFRS 16
£’000
34,500
2,073
36,573
22,084
21,140
43,224
Cash-flow
£’000
6,500
(10,885)
(4,385)
Acquisitions
£’000
–
–
–
Lease liability
movements
£’000
5,717
(1,949)
3,768
Unwind
£’000
At 31st December
2019
£’000
–
15
15
68,801
10,394
79,195
Long-term liabilities
The bank loan totalling £41.0m (2018: £34.5m) is secured via cross guarantees issued from all of the Group’s subsidiaries excluding the
following subsidiaries: Lending Solutions Limited, Homefast Property Services, Linear (Linear Mortgage Network and Linear Financial
Services), Templeton LPA, Group First, Personal Touch Financial Services and RSC New Homes (see Note 23 to the Group Financial
Statements).
Short-term liabilities
The overdraft totalling £0.9m (2018: £nil) is secured via cross guarantees issued from all of the Group’s subsidiaries excluding the following
subsidiaries: Homefast Property Services, Linear (Linear Mortgage Network and Linear Financial Services) and Templeton LPA (see Note 23
to the Group Financial Statements).
Short-term liabilities also includes deferred consideration (see Note 23 to the Group Financial Statements).
148
c116224_BOOK.indb 149
c116224_BOOK.indb 149
149
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
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
2019
£’000
2,122
20
374
2,516
2018
£’000
2,057
19
449
2,525
Note:
1
Included within this amount is accrued bonuses of £658,000 (2018: £723,000). The number of Directors who were members of Group money purchase pension schemes during the year totalled
2 (2018: 1). During the year the Directors exercised nil CSOP options (2018: nil), nil JSOP options (2018: nil), and nil SAYE options (2018: 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)
Note:
2019
£’000
2018
£’000
168,072
178,407
17,859
6,961
18,490
4,398
192,892
201,295
1,315
1,800
194,207
203,095
312
349
1
The total employee and subcontractor costs exclude employees redundancy costs of £4.3m (2018: £0.7m), which have been shown under Exceptional costs (see Note 7 to the Group Financial
Statements).
The average monthly FTE staff numbers (including Directors) during the year were:
Estate Agency
Financial Services
Surveying and Valuation Services
2019
2,401
938
929
4,268
2018
4,039
–
724
4,763
Share-based payments
The Remuneration Policy on pages 90 to 96 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.
150
c116224_BOOK.indb 150
c116224_BOOK.indb 150
25/03/2020 13:51
25/03/2020 13:51
151
13. Directors and employees (continued)
LTIP 2019 vesting conditions
30% of the options vest based on the TSR of LSL as compared to a comparator group of 21 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 (≥) 12.0% p.a. – 100% vest;
• if growth is 5.0% p.a. – 25% vest;
• straight line vesting between 5.0% p.a. and 12.0% p.a.;
• and if growth is below 5.0% p.a. – no options vest.
LTIP 2018 vesting conditions
30% of the options vest based on the TSR of LSL as compared to a comparator group of 22 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 (≥) 13.0% p.a. – 100% vest;
• if growth is 7.5% p.a. – 25% vest;
• straight line vesting between 7.5% p.a. and 13.0% p.a.;
• and if growth is below 7.5% p.a. – no options vest.
LTIP 2017 vesting conditions
The LTIP 2017 awards will not vest in 2020 as neither the EPS performance target nor the TSR target (both measured over three years to
31st December 2019) have been met.
Outstanding at 1st January
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at 31st December
2019
Weighted
average exercise
price
£
–
–
–
–
–
2018
Weighted
average exercise
price
£
–
–
–
–
–
Number
1,528,435
995,378
(6,262)
(592,897)
1,924,654
Number
1,924,654
887,980
–
(817,547)
1,995,087
150
There were 119,260 options exercisable at the end of the year (2018: 119,260). The weighted average remaining contractual life is
1.62 years (2018: 1.69 years). The weighted average fair value of options granted during the year was £2.43 (2018: £2.18). The weighted
average share price of options at the date of their exercise was £nil (2018: £2.81).
c116224_BOOK.indb 151
c116224_BOOK.indb 151
151
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
13. Directors and employees (continued)
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 (2018: 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 (2018: nil), participants can exercise their options
up until 2020 and have therefore one year (2018: two years) remaining until their option lapses. No options were exercised or lapsed during
the year (2018: 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
2019
Weighted
average exercise
price
£
2018
Weighted
average exercise
price
£
Number
Number
2.29
1,166,326
3.67
1,268,718
–
–
3.37
2.02
–
–
(149,919)
1,016,407
–
2.07
2.72
2.29
–
(7,751)
(94,641)
1,166,326
There were 1,016,407 options exercisable at the end of the year (2018: 883,357). The average market value at the date of exercise was £nil
(2018: £2.85).
The weighted average fair value of options granted during the year was £nil (2018: £nil). The weighted average remaining contractual life is
0.00 years (2018: 0.06 years).
SAYE (save-as-you-earn) scheme
The Group has offered options under the SAYE scheme in each of 2011 to 2014 and 2016 to 2018 years. All these offers were open to all
qualifying employees and provide for an exercise price equal to the daily average market price on the date of grant. The options will vest if
the employee remains in service for the full duration of the option scheme (three years). There are no cash settlement alternatives.
Outstanding at 1st January
Granted during the year
Exercised
Lapsed during the year due to employees withdrawal
Outstanding at 31st December
2019
Weighted
average exercise
price
£
2.39
2.65
2.28
2.40
2.39
2018
Weighted
average exercise
price
£
2.35
2.45
2.15
2.40
2.39
Number
792,705
466,415
(1,953)
(190,048)
1,067,119
Number
1,067,119
652,797
(10,672)
(334,690)
1,374,554
The weighted average fair value of options granted during the year was £1.46 (2018: £1.28) and the weighted average remaining
contractual life was 1.26 years (2018: 1.40 years). The average market value at the date of exercise was £2.65 (2018: £2.46).
There were nil (2018: nil) options exercisable at the end of the year.
152
c116224_BOOK.indb 152
c116224_BOOK.indb 152
25/03/2020 13:51
25/03/2020 13:51
153
13. Directors and employees (continued)
BAYE (buy-as-you-earn) scheme
The matching shares element of the SIP/BAYE was introduced and provides participants with one matching share for every five partnership
shares purchased. The matching shares are allocated from Ordinary Shares held by the Trust for the benefit of SIP/BAYE participants. The
maximum saving under the scheme would be automatically capped at £150 per month (as per HMRC limits).
Outstanding at 1st January
Granted during the year
Exercised
Lapsed during the year due to employees withdrawal
Outstanding at 31st December
There were nil options exercisable at the end of the year.
2019
Weighted
average exercise
price
£
2.5
–
–
–
Number
78,000
–
–
–
2.5
78,000
2018
Weighted
average exercise
price
£
–
2.5
–
–
2.5
Number
–
78,000
–
–
78,000
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 (%)
The total cost recognised for equity settled transactions is as follows:
Share-based payment expensed during the year
A charge of £115,000 (2018: £107,000) relates to employees of the Company.
LTIP
2019
LTIP
2018
Black Scholes Black Scholes
2.74
2.50
–
3
100
3.97
0.76
2019
£’000
312
–
3
100
4.53
1.11
2018
£’000
349
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.
152
c116224_BOOK.indb 153
c116224_BOOK.indb 153
153
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
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
2019
£’000
3,993
(56)
3,937
(588)
(304)
(892)
2018
£’000
5,931
(205)
5,726
(322)
(203)
(525)
3,045
5,201
The UK corporation tax rate reduced to 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 (2018: 17%). Corporation tax is recognised at the
headline UK corporation tax rate of 19% (2018: 19%).
The effective rate of tax for the year was 19.0% (2018: 22.5%). The effective tax rate for 2019 is equal to the headline UK tax rate for a
number of reasons, but the most significant is the depreciation of assets which do not qualify for capital allowances, which are offset by
non-taxable income in relation to contingent consideration.
Deferred tax credited directly to other comprehensive income is £0.1m (2018: £0.0m). Income tax credited directly to the share-based
payment reserve is £0.0m (2018: £0.0m).
(b) Factors affecting tax charge for the year
The tax assessed in the profit and loss account is equal to (2018: 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% (2018: 19%)
Non-deductible expenditure/(non-taxable income) from joint ventures and associates
Other disallowable expenses
Impact of movement in contingent consideration charged/(credited) to the Income Statement
Share-based payment relief
Brought forward losses not previously recognised
Impact of rate change on deferred tax
Prior period adjustments – current tax
Prior period adjustment – deferred tax
Total taxation charge
2019
£’000
16,014
3,043
52
644
(313)
(37)
(53)
69
(56)
(304)
3,045
2018
£’000
23,084
4,386
56
550
494
73
–
50
(205)
(203)
5,201
A major component of the disallowable expenditure is a permanent disallowance of depreciation on assets that do not qualify for capital
allowances. This is a recurring adjustment and the tax impact in the year is £321,000. Another significant adjustment is the impact of
exceptional expenditure, which is not deductible for tax purposes. The impact of this non-deductible expenditure is £508,000.
154
c116224_BOOK.indb 154
c116224_BOOK.indb 154
25/03/2020 13:51
25/03/2020 13:51
155
14. Taxation (continued)
(c) Factors that may affect future tax charges (unrecognised)
Unrecognised deferred tax asset relating to:
Losses
2019
£’000
2,382
2,382
2018
£’000
2,906
2,906
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
Adjustment on initial recognition of IFRS 15
Deferred tax liability arising on acquisitions and business combinations
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 movement through opening reserves
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
Trading losses recognised
2019
£’000
2,189
–
588
(94)
(892)
14
1,805
2019
£’000
(1,624)
4,174
23
(257)
(255)
(256)
2018
£’000
2,698
(101)
97
20
(525)
–
2,189
2018
£’000
(1,426)
4,364
97
(153)
(175)
(518)
1,805
2,189
2019
£’000
777
198
85
94
(262)
892
2018
£’000
531
205
(10)
(78)
(123)
525
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.
154
c116224_BOOK.indb 155
c116224_BOOK.indb 155
155
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
15. Intangible assets
Goodwill
Cost
At 1st January 2018
Arising on acquisitions
At 31st December 2018
Arising on acquisitions
At 31st December 2019
Net book value
At 31st December 2019
At 31st December 2018
There has been no impairment in respect of the carrying amount of goodwill held on the balance sheet.
The carrying amount of goodwill by cash generating unit is given below:
Estate Agency segment companies
Your Move
Marsh & Parsons
LSLi
Reeds Rains
Templeton LPA
Others
Financial Services segment companies
Group First
RSC New Homes
First Complete
Advance Mortgage Funding
Personal Touch Financial Services
Surveying and Valuation segment company
e.surv
Total
£’000
151,901
7,822
159,723
140
159,863
159,863
159,723
2019
£’000
2018
£’000
41,897
40,307
22,512
16,903
336
348
41,897
40,307
22,512
16,763
336
348
122,303
122,163
13,913
13,913
7,128
3,998
2,604
348
7,128
3,998
2,604
348
27,991
27,991
9,569
9,569
159,863
159,723
156
c116224_BOOK.indb 156
c116224_BOOK.indb 156
25/03/2020 13:51
25/03/2020 13:51
157
15. Intangible assets (continued)
Impairment of goodwill and other intangibles with indefinite useful lives
Goodwill acquired through business combinations and brands has been allocated for impairment testing purposes to statutory companies
or groups of statutory companies which are managed as one cash generating unit as follows:
• Estate Agency companies
• Your Move (including its share of cash-flows from LSL Corporate Client Department).
• Marsh & Parsons.
• LSLi, which includes Intercounty, Frosts, JNP, Goodfellows, Davis Tate, Lauristons, Lawlors, Hawes & Co and Thomas Morris.
• Reeds Rains.
• Templeton LPA.
• St Trinity.
• Financial Services companies
• Group First.
• RSC New Homes.
• First Complete.
• Advance Mortgage Funding which includes BDS.
• Personal Touch Financial Services.
• Surveying and Valuation Services company
• e.surv.
Estate Agency companies
The recoverable amount of the Estate Agency companies has been determined based on a value-in-use calculation using cash-flow
projections based on financial budgets approved by the Board and in the three year plan. The discount rate applied to cash-flow projections
is 9.5% (2018: 9.8%) and cash-flows beyond the three year plan are extrapolated using a 1.8% growth rate (2018: 1.8%).
Financial Services companies
The recoverable amount of the Financial 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 9.5% (2018: 9.8%) and cash-flows beyond the three year plan are extrapolated using a 1.8% growth rate (2018: 1.8%).
Surveying and Valuation Services company
The recoverable amount of the Surveying and Valuation Services company 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 9.5% (2018: 9.8%). The growth rate used to extrapolate the cash-flows of the Surveying and Valuation Services company
beyond the three year plan is 1.8% (2018: 1.8%).
Key assumptions used in value-in-use calculations
The calculation of value-in-use for each of the Estate Agency, Financial Services, and Surveying and Valuation Services companies is most
sensitive to the following assumptions:
• Discount rates.
• Performance in the market.
Discount rates
Discount rates reflect the Management Team’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 9.5% (2018: 9.8%); external advice has been sought for certain
elements of the source data. This is the benchmark used by the Management Team to assess operating performance and to evaluate
future acquisition proposals.
156
c116224_BOOK.indb 157
c116224_BOOK.indb 157
157
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
15. Intangible assets (continued)
Performance in the market
Performance in the market reflects how the Management Team believes 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.
Other intangible assets
Cost
At 1st January 2018
Additions
Arising on acquisition
At 31st December 2018
Additions
Arising on acquisition
At 31st December 2019
Amortisation and impairment
At 1st January 2018
Amortisation
At 31st December 2018
Amortisation
At 31st December 2019
Net book value
At 31st December 2019
At 31st December 2018
Note:
1 Other relates to in-house software and Estate Agency franchise agreements.
Brand
names
£’000
Lettings
contracts
£’000
19,222
15,954
–
43
19,265
–
–
19,265
191
–
191
–
191
19,074
19,074
–
1,817
17,771
–
3,459
21,230
9,090
2,628
11,718
3,166
14,884
6,346
6,053
Other1
£’000
Total
£’000
Order
book
£’000
–
–
228
228
–
–
8,379
1,139
4,305
13,823
1,273
–
228
15,096
–
228
228
–
228
–
–
4,545
2,445
6,990
2,620
9,610
5,486
6,833
43,555
1,139
6,393
51,087
1,273
3,459
55,819
13,826
5,301
19,127
5,786
24,913
30,906
31,960
158
c116224_BOOK.indb 158
c116224_BOOK.indb 158
25/03/2020 13:51
25/03/2020 13:51
159
15. Intangible assets (continued)
The carrying amount of brand by operating unit is as follows:
Estate Agency companies
Marsh & Parsons
Your Move
Reeds Rains
LSLi
Financial Services companies
Group First
Advance Mortgage Funding
RSC New Homes
Surveying and Valuation Services company
e.surv
Total
2019
£’000
2018
£’000
11,724
11,724
2,510
1,241
1,675
2,510
1,241
1,675
17,150
17,150
396
180
43
619
396
180
43
619
1,305
19,074
1,305
19,074
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 July 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;
• Group First, a financial services group which was acquired in February 2016; and
• RSC New Homes, a financial services company which was acquired in March 2018.
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.
158
c116224_BOOK.indb 159
c116224_BOOK.indb 159
159
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
16. Property, plant and equipment
Land and
buildings
£’000
Leasehold
improvements
£’000
Motor
vehicles
£’000
Fixtures, fittings
and computer
equipment
£’000
Cost
At 1st January 2018
Additions
Acquisitions during the year
Disposals
At 31st December 2018
Initial recognition of IFRS 16
Revised opening balance
Additions
Acquisitions during the year
Disposals
At 31st December 2019
Depreciation and impairment
At 1st January 2018
Charge for the year
Accelerated depreciation
Disposals
At 31st December 2018
Charge for the year
Disposals
At 31st December 2019
Net book value
At 31st December 2019
At 31st December 2018
Owned assets
IFRS 16 leased assets
2,497
8,325
–
–
(130)
2,367
37,220
39,587
4,149
–
(4,346)
39,390
311
47
–
–
358
6,730
(303)
6,785
32,605
2,009
1,719
30,886
32,605
714
23
(64)
8,998
–
8,998
715
–
(77)
9,636
3,340
911
–
(64)
4,187
947
(23)
5,111
4,525
4,811
4,525
–
4,525
96
–
–
(81)
15
6,530
6,545
2,394
–
(547)
8,392
70
–
–
(56)
14
3,418
(398)
3,034
5,358
1
18
5,340
5,358
27,441
4,218
138
(151)
31,646
–
31,646
2,880
–
(4,877)
29,649
16,875
4,716
109
(99)
21,601
3,747
(2,781)
22,567
7,082
10,045
7,082
–
7,082
Total
£’000
38,359
4,932
161
(426)
43,026
43,750
86,776
10,138
–
(9,847)
87,067
20,596
5,674
109
(219)
26,160
14,842
(3,505)
37,497
49,570
16,866
13,344
36,226
49,570
In 2019 assets with a book value of £6,342,000 were disposed in the year. This includes a leasehold property with a book value totalling
£41,000 which was sold for net proceeds of £189,000 resulting in a profit on disposal of £148,000.
In 2018 assets with a book value of £207,000 were disposed in the year. This includes a leasehold property with a book value totalling
£130,000 which was sold for net proceeds of £168,000 resulting in a profit on disposal of £38,000.
160
c116224_BOOK.indb 160
c116224_BOOK.indb 160
25/03/2020 13:51
25/03/2020 13:51
161
17. Financial assets
Convertible loan notes carried at fair value
Secured convertible loan notes - 5%
Investment in equity instruments – at fair value
Unquoted shares at fair value
IFRS 16 lessor financial assets
Opening balance
Initial recognition of IFRS 16
Revised opening balance
Additions
Additional sub-leases
Disposals
Fair value adjustment recorded through Income Statement
Fair value adjustment recorded through OCI
Deferred tax on fair value adjustment
Closing balance
2019
£’000
2,000
6,952
374
9,326
11,566
329
11,895
2,783
114
(1,835)
–
(3,558)
(73)
9,326
2018
£’000
–
11,566
–
11,566
25,282
–
25,282
13
–
(2,266)
737
(12,200)
–
11,566
Convertible loan notes at fair value
LSL has subscribed for £2,000,000 of Convertible Secured Preference Loan Notes with Mortgage Gym Limited. Interest on the Convertible
Secured Preference Loan Notes is 5% per annum. The final repayment date of the Convertible Secured Preference Loan Notes is 5th June
2024. Repayment may take place before this date. The Convertible Secured Preference Loan Notes are secured by way of a debenture.
Investment in equity instruments
The financial assets include unlisted equity instruments which are carried at fair value. Fair value is judgemental given the assumptions
required and have been valued using Level 3 valuation techniques (see Note 31 to the Financial Statements).
Vibrant Energy Matters Limited (VEM)
The carrying value of the Group’s investment in VEM at 31st December 2019 has been assessed as £287,000 (December 2018: £722,000).
The fair value of the Group’s investment in VEM has been assessed by using Level 3 techniques. This has led to the recognition of a fair
value impairment of £435,000 in the year (2018: £nil) which has been recognised in the Statement of Other Comprehensive Income.
NBC Property Master Limited
The carrying value of the Group’s investment at 31st December 2019 has been assessed as £78,000 (December 2018: £78,000).
Global Property Ventures Limited
The carrying value of the Group’s investment in Global Property Ventures Limited at 31st December 2019 has been assessed as £93,000
(December 2018: £250,000). During the year, the Group subscribed to additional shares in Global Property Ventures at a value of 10.88p
per share. The fair value of the Group’s existing investment in Global Property Ventures was reassessed giving rise to an impairment of
£190,000 (2018: £nil) which has been recognised in the Statement of Other Comprehensive Income.
eProp Services plc
In June 2019 the Group disposed of 100% of it’s holding in eProp Services plc for a consideration of £1,015,000. At the 31st December
2018 the investment was assessed as £2,716,000. There were no tax effects resulting from the disposal.
Yopa Property Limited
The carrying value of the Group’s investment in Yopa at 31st December 2019 is £6,495,000 (December 2018: £7,800,000). The fair value of
the Group’s investment in Yopa has been assessed by using Level 3 techniques. At 30th June 2019 this led to the recognition of a fair value
impairment of £1,305,000 in the year (2018: £12,200,000) which has been recognised in the Statement of Other Comprehensive Income.
160
c116224_BOOK.indb 161
c116224_BOOK.indb 161
161
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
18. Investments in joint ventures and associates
Investment in joint ventures and associates
Investment in joint ventures
Opening balance
Equity accounted profit
Closing balance
2019
£’000
2018
£’000
12,958
13,230
9,657
648
10,305
9,556
101
9,657
Along with two other entities, the Group holds an equal share of 33.33% (2018: 33.33%) interest in TM Group, a joint venture whose
principal activity is to provide searches. The principal place of business of TM Group is the United Kingdom.
The Group also has a 50% (2018: 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 are as follows:
Share of the joint ventures’ balance sheets:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Share of net assets
Share of the joint ventures’ results:
Revenue
Operating expenses
Operating profit
Finance income
Profit before tax
Taxation
Profit after tax
Shareholder service charge
Income from joint ventures
Non-current assets include £5,008,000 (2018: £5,008,000) in respect of goodwill arising on the acquisition of shares in LMS. The
shareholder service charge received was from TM Group.
Investment in associate
Opening balance
Acquisitions
Equity accounted loss
Closing balance
2019
£’000
2,653
3,573
–
(920)
2,653
The Group has a 34.69% (2018: 34.69%) holding in Mortgage Gym, a digital mortgage business. The principal place of business of
Mortgage Gym is the United Kingdom.
2019
£’000
2018
£’000
10,704
3,674
(4,106)
33
10,305
2019
£’000
9,031
4,584
(3,958)
–
9,657
2018
£’000
35,193
(34,397)
30,194
(30,077)
796
4
800
(152)
648
713
1,361
117
8
125
(24)
101
685
786
2018
£’000
3,573
–
4,100
(527)
3,573
162
c116224_BOOK.indb 162
c116224_BOOK.indb 162
25/03/2020 13:51
25/03/2020 13:51
163
18. Investments in joint ventures and associates (continued)
The share of the assets, liabilities, income and expenses of the associate at 31st December and for the years then ended are as follows:
Share of the associates’ balance sheets:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Share of net assets
Share of the associates’ results:
Revenue
Operating expenses
Operating (loss)
Taxation
(Loss) after tax
19. Contract assets
Non-current contract asset
Current contract asset
2019
£’000
2018
£’000
3,170
3,186
247
(54)
(709)
523
(136)
–
2,654
3,573
2019
£’000
106
(1,241)
(1,135)
215
(920)
2019
£’000
686
253
939
2018
£’000
27
(678)
(651)
124
(527)
2018
£’000
959
262
1,221
In accordance with IFRS 15, costs relating to the reimbursement of costs associated with the award of a material surveying contract with
Lloyds Bank plc has been recognised as a contract asset. This reimbursement will be amortised over the term of the contract. The amount
of amortisation recognised in the Income Statement in 2019 is £251,000 (2018: £90,000).
162
c116224_BOOK.indb 163
c116224_BOOK.indb 163
163
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
20. Trade and other receivables
Current
Trade receivables
Prepayments
Other debtors
2019
£’000
2018
£’000
19,624
14,021
746
34,391
24,123
13,852
675
38,650
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 2019, trade receivables with a nominal value of £3,868,000 (2018: £3,020,000) were impaired and fully provided for.
Set out below is the movement in the allowance for expected credit losses of trade receivables:
At 1st January
Provision for expected credit losses
Amounts written off
At 31st December
2019
£’000
3,020
977
(129)
3,868
2018
£’000
2,166
1,161
(307)
3,020
The chosen method of recognising the expected credit loss across the Group is the simplified approach allowing a provision matrix to be
used, which is based on the expected life of trade receivables, historic default rates and forward looking information.
As at 31st December, an analysis of trade receivables by credit risk rating grades is as follows:
2019
2018
Total
£’000
19,624
24,123
Neither past due
nor impaired
£’000
9,688
14,750
<30 days
£’000
7,374
5,837
30-60 days
£’000
1,010
1,825
60-90
Days
£’000
308
752
90-120
days
£’000
380
481
> 120 days
£’000
864
478
The expected credit loss rate applied by ageing bracket for 2019 has been disclosed below:
2019
Total
Neither past due
nor impaired
1.00%
<30 days
3.60%
30-60 days
7.40%
60-90
Days
90-120
days
12.30%
18.90%
> 120 days
39.40%
In 2018 the expected credit loss rate applied ranged from 1% (Neither past due nor impaired) to 41% (> 120 days).
21. Cash and cash equivalents
Cash and cash equivalents
Cash at bank earns interest at floating rates based on daily bank overnight deposit rates.
2019
£’000
–
2018
£’000
2,405
164
c116224_BOOK.indb 164
c116224_BOOK.indb 164
25/03/2020 13:51
25/03/2020 13:51
165
22. Trade and other payables
Current
Trade payables
Other taxes and social security payable
Other payables
Accruals
Terms and conditions of the above financial liabilities:
• Trade payables are non-interest-bearing and are normally settled on between 30 and 60 day terms.
• Other payables are mainly non-interest-bearing and have an average term of three months.
23. Financial liabilities
Current
Overdraft
2% and 12% unsecured loan notes
IFRS 16 lessee financial liabilities
Deferred consideration
Contingent consideration
Non-current
Bank loans – RCF
IFRS 16 lessee financial liabilities
Deferred consideration
Contingent consideration
2019
£’000
2018
£’000
11,585
10,896
2,019
35,507
60,007
12,819
12,193
1,512
37,456
63,980
2019
£’000
2018
£’000
883
65
9,431
80
654
11,113
41,000
27,801
–
5,150
73,951
–
–
–
1,999
8,456
10,455
34,500
–
75
6,581
41,156
Bank loans – RCF and overdraft
A £100.0m 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 £41.0m (2018: £34.5m) and overdraft totalling £0.9m (2018: £nil) are secured via cross guarantees issued from
all of the Group’s subsidiaries excluding the following subsidiaries: Lending Solutions Limited, Homefast Property Services, Linear (Linear
Mortgage Network and Linear Financial Services), Templeton LPA, Group First, Personal Touch Financial Services, and RSC New Homes.
The utilisation of the RCF may vary each month as long as this does not exceed the maximum £100.0m facility (2018: £100.0m). The
Group’s overdraft is also secured on the same facility, and the combined overdraft and RCF cannot exceed £100.0m (2018: £100.0m). The
banking facility is repayable when funds permit on or by May 2022.
Interest and fees payable on the RCF amounted to £1.6m (2018: £1.4m). 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.
164
c116224_BOOK.indb 165
c116224_BOOK.indb 165
165
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
23. Financial liabilities (continued)
Deferred consideration
RSC New Homes
Personal Touch Financial Services
LSLi
Charge on contingent consideration
(Credit)/Charge on contingent consideration
LSLi contingent consideration
RSC New Homes
Group First
Other
Opening balance
Cash paid
Acquisition
Amounts recorded through Income Statement
Closing balance
2019
£’000
–
–
80
80
2019
£’000
(2,054)
2019
£’000
393
3,632
1,518
261
5,804
15,038
(7,890)
300
(1,644)
5,804
2018
£’000
9
1,990
75
2,074
2018
£’000
1,783
2018
£’000
488
4,751
9,476
323
15,038
9,059
(1,392)
4,773
2,598
15,038
£393,000 (2018: £488,000) of contingent consideration relates to payments to third parties in relation to the acquisition of LSLi and certain
of its subsidiaries between 2012 and 2016. This is typically payable between three and five years after the acquisition dates depending on
the profitability of those subsidiaries in the relevant years.
£1,518,000 (2018: £9,476,000) of contingent consideration relates to Group First. The movement relates to payments to third parties,
and assessment of the fair value of remaining contingent consideration. The remaining consideration has been calculated using earnings
multiples of between five and six times EBITA (plus excess cash in the business) and has been capped at a maximum of £25.0m.
£3,632,000 (2018: £4,751,000) of contingent consideration relates to RSC New Homes. The movement relates to assessment of the fair
value of the contingent consideration which has been calculated using earnings multiples of between five and six times EBITA (plus excess
cash in the business) and has been capped at a maximum of £7,500,000.
During 2019 £7,890,000 (2018: £1,392,000) of contingent consideration was paid to third parties.
166
c116224_BOOK.indb 166
c116224_BOOK.indb 166
25/03/2020 13:51
25/03/2020 13:51
167
23. Financial liabilities (continued)
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 charged to the Income statement is as follows:
Put options over non-controlling interests
Arrangement under IFRS 3
Unwinding of discount on contingent consideration
(Credit)/charge
2019
£’000
–
–
5,804
5,804
–
(2,054)
410
(1,644)
2018
£’000
–
–
15,038
15,038
2
1,781
815
2,598
The contingent consideration charged to the Income Statement in the year, excluding the unwinding of discount relates to both new
and previous acquisitions and relates to the acquisition of: LSLi charge of £14,000 (2018: charge of £64,000); Mortgage First charge of
£641,000 (2018: charge of £1,805,000); LMS charge of £nil (2018: charge of £2,000); RSC New Homes charge of £1,408,000 (2018:
credit of £79,000).
24. Provisions for liabilities
Balance at 1st January
Amount utilised
Amount released
Unwinding of discount
Provided in financial year
Balance at 31st December
Current liabilities
Non-current liabilities
Professional
indemnity claim
provision
£’000
12,430
(2,257)
(2,489)
30
498
8,212
3,380
4,832
8,212
2019
Onerous
leases
£’000
130
(897)
–
–
1,207
440
195
245
440
Professional
indemnity claim
provision
£’000
15,916
(1,985)
(2,187)
43
643
12,430
6,525
5,905
12,430
Total
£’000
12,560
(3,154)
(2,489)
30
1,705
8,652
3,575
5,077
8,652
2018
Onerous
leases
£’000
210
(85)
(55)
–
60
130
91
39
130
Total
£’000
16,126
(2,070)
(2,242)
43
703
12,560
6,616
5,944
12,560
PI Costs (professional indemnity claims) provision
The PI Costs provision is to cover the costs of claims relating to valuation services for clients which are not covered by PI insurance. The PI
Costs 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 Costs
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 2019 the total provision for PI Costs was £8.2m. The Directors have considered the sensitivity analysis on the key risks
and uncertainties discussed above.
Cost per claim
A substantial element of the PI Costs 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 £0.6m would be required.
166
c116224_BOOK.indb 167
c116224_BOOK.indb 167
167
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
24. Provisions for liabilities (continued)
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 extended, 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 £0.2m.
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 £0.2m would be required.
25. Leases
At the year ended 31st December 2019, the Group has the following in regards to leases in the Group balance sheet:
Right of use assets
1st January 2019
Additions
Disposals
Depreciation
31st December 2019
Property
£’000
37,220
4,149
(3,798)
(6,684)
30,887
Vehicles
£’000
6,530
2,370
(150)
(3,411)
5,339
These are included in the carrying amounts of PPE on the face of the Group balance sheet, and have been included in Note 16.
Lease liabilities
1st January 2019
Additions
Interest expense
Disposals
Repayment of lease liabilities
31st December 2019
Total
£’000
43,750
6,519
(3,948)
(10,095)
36,226
Total
£’000
43,224
6,529
1,719
(2,759)
(11,481)
37,232
Disposals in the year relate to the restructure of Your Move and Reeds Rains branch networks in the year and consist of leases exited after
negotiation with lessors.
Maturity of these lease liabilities is analysed as follows:
Current lease liabilities
Non-current lease liabilities
31st December 2019
Property
£’000
6,745
25,096
31,841
Vehicles
£’000
2,686
2,705
5,391
Total
£’000
9,431
27,801
37,232
These are included in non-current and current financial liabilities on the face of the Group balance sheet, and have been included in
Note 23. Maturity analysis of the future cash-flows of lease liabilities has been included in Note 31.
168
c116224_BOOK.indb 168
c116224_BOOK.indb 168
25/03/2020 13:51
25/03/2020 13:51
169
25. Leases (continued)
The following shows how lease expenses have been included in the Income Statement, broken down between amounts charged to
operating profit and amounts charged to finance costs:
Depreciation of right of use assets
Property
Vehicles
Short-term and low value lease expense
Sub-lease income
Charge to operating profit
Interest expense related to lease liabilities
Interest income related to sub-lease
Charge to profit before taxation
Cash outflow relating to operating activities
Cash outflow relating to financing activities
Total cash outflow relating to leases
£’000
(6,684)
(3,411)
(3,602)
68
(13,629)
(1,719)
10
(1,709)
(5,321)
(9,761)
(15,082)
At the 31st December 2019 the Group had not entered into any leases to which it was committed but had not yet commenced.
26. Share capital
Authorised:
Ordinary Shares of 0.2 pence each
Issued and fully paid:
At 1st January and 31st December
27. Reserves
2019
2018
Shares
£’000
Shares
£’000
500,000,000
1,000 500,000,000
1,000
104,158,950
208 104,158,950
208
Share premium
The share premium is 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.
Shares held by EBT
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 2019 the Trust held 1,430,494 (2018: 1,495,189) LSL Shares at an
average cost of £3.51 (2018: £3.51). The market value of the LSL Shares at 31st December 2019 was £3,862,334 (2018: £3,281,940). The
nominal value of each Share is 0.2 pence.
Fair value reserve
The fair value reserve is used to record the changes in fair value of equity financial assets that the Group has elected to recognise through
OCI. Note 17 to these Financial Statements gives further details of the movement in the current year.
28. 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.
The total contributions to the defined contribution schemes in the year were £6,962,000 (2018: £4,398,000). At the 31st December 2019
there were outstanding pension contributions of £881,222 (2018: £784,180).
168
c116224_BOOK.indb 169
c116224_BOOK.indb 169
169
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
29. Acquisitions during the year
Year ended 31st December 2019
The Group acquired the following businesses during the year:
• Lettings books
During the period the Group acquired seven lettings books for a total consideration of £3,011,000. 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
Deferred tax liabilities
Total identifiable net liabilities acquired
Purchase consideration
Goodwill
Purchase consideration discharged by:
Cash
Contingent consideration
Analysis of cash-flow on acquisition
Transaction costs (included in cash-flows from operating activities)
Net cash acquired with the 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
3,459
(588)
2,871
3,011
140
£’000
2,711
300
3,011
£’000
–
–
2,711
2,711
170
c116224_BOOK.indb 170
c116224_BOOK.indb 170
25/03/2020 13:51
25/03/2020 13:51
171
29. Acquisitions during the year (continued)
Year ended 31st December 2018
The Group acquired the following businesses during the year.
• Lettings books
During the prior period the Group acquired six lettings books for a total consideration of £1,853,000. The fair value of the identifiable assets
and liabilities of these businesses as at the date of acquisition have been determined as below:
Intangible assets
Deferred tax liabilities
Total identifiable net liabilities acquired
Purchase consideration
Goodwill
Purchase consideration discharged by:
Cash
Contingent consideration
Analysis of cash-flow on acquisition
Transaction costs (included in cash-flows from operating activities)
Net cash acquired with the subsidiaries and other businesses
Purchase consideration discharged in cash (included in cash-flows from investing activities)
Net cash outflow on acquisition
• Personal Touch Financial Services
Fair value
recognised on
acquisition
£’000
1,817
(309)
1,508
1,853
345
£’000
1,670
183
1,853
£’000
–
–
345
345
In January 2018, the Group acquired the entire issued share capital of Personal Touch Financial Services and its subsidiary company,
Personal Touch Administration Services from Personal Touch Holdings Limited. 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. Personal Touch
Financial Services is authorised by the FCA with 200 appointed representative firms and 474 advisers at 31st December 2018.
170
c116224_BOOK.indb 171
c116224_BOOK.indb 171
171
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
29. Acquisitions during the year (continued)
The consideration for the initial investment was £5.4m with £3.6m paid on completion in the year to 31st December 2018 and a present
value deferred consideration of £1.8m paid in January 2019. The purchase price allocations for the acquisition made was finalised in 2018,
with no changes made to the purchase price allocations as disclosed below:
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Deferred tax asset
Trade and other payables
Deferred tax liability
Total identifiable net assets acquired
Purchase consideration
Goodwill
Purchase consideration discharged by:
Cash
Present value deferred consideration
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
4,305
121
3,617
6,795
921
(10,010)
(657)
5,092
5,440
348
£’000
3,562
1,878
5,440
£’000
518
(6,795)
3,562
(2,715)
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 in-house developed software, Toolbox.
From the date of acquisition to 31st December 2018, Personal Touch Financial Services has contributed £8.7m of revenue and £1.0m to
the profit before tax from the continuing operations of the Group. If the acquisition had taken place at the beginning of 2018, revenue from
continuing operations would have been £9.5m and the profit from continuing operations for 2018 would have been £0.2m.
• RSC New Homes
In March 2018, the Group, through a wholly owned subsidiary, acquired a 60% interest in RSC New Homes, who provide mortgage and
non-investment insurance brokerage services to the purchasers of new homes. The consideration for the initial investment was £5.3m
cash, with £2.5m paid on completion and the remaining subject to put and call options which are exercisable between 2022 and 2023.
The contingent consideration is the Management Team’s best estimation of the probable discounted pay-out (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.
172
c116224_BOOK.indb 172
c116224_BOOK.indb 172
25/03/2020 13:51
25/03/2020 13:51
173
29. Acquisitions during the year (continued)
The purchase price allocations for the acquisition made was finalised in 2018.
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liability
Deferred tax liability
Total identifiable net assets acquired
Purchase consideration
Goodwill
Purchase consideration discharged by:
Cash
Present value deferred consideration
Contingent consideration
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
271
40
403
149
(619)
(200)
(46)
(2)
7,126
7,128
£’000
2,500
9
4,617
7,126
£’000
29
(149)
2,500
2,380
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 RSC New Homes brand and the pipeline of work acquired. As disclosed to the market
on acquisition, there are strong customer relationships between RSC New Homes and key housebuilders, 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 who are confident that given that no economic benefit passes between the two parties in this
relationship (the housebuilder and RSC New Homes) there is no asset that can be “separated or divided” and “sold, transferred, licensed,
rented or exchanged”.
From the date of acquisition to 31st December 2018, RSC New Homes contributed £3.4m of revenue and £0.6m to the net profit before tax
from the continuing operations of the Group. If the acquisition had taken place at the beginning of 2018, revenue from continuing operations
would have been £4.3m and the profit from continuing operations for 2018 would have been £0.5m.
The goodwill represents expected synergies and intangible assets that do not qualify for separate recognition. The maximum undiscounted
contingent consideration sum payable is capped at £7.5m.
30. Client monies
As at 31st December 2019, monies held by subsidiaries in separate bank accounts on behalf of clients amounted to £102.2m (2018:
£108.6m). Neither this amount, nor the matching liabilities to the clients concerned are included in the Group balance sheet.
172
c116224_BOOK.indb 173
c116224_BOOK.indb 173
173
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
31. 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 rate 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.
2019
2018
Increase/
decrease in basis
point
Effect on profit
before tax
£’000
+100
-100
+100
-100
(410)
410
(345)
345
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 £0.0m (2018: £2.4m). At 31st December 2019, the Group
had available £51.3m of undrawn committed borrowing facilities in respect of which all conditions precedent had been met (2018: £65.5m).
174
c116224_BOOK.indb 174
c116224_BOOK.indb 174
25/03/2020 13:51
25/03/2020 13:51
175
31. Financial instruments – risk management (continued)
The table below summarises the maturity profile of the Group’s financial liabilities at 31st December 2019 based on contractual
undiscounted payments:
Year ended 31st December 2019
Interest-bearing loans and borrowings
(including overdraft)
Trade payables
Other payables
Contingent consideration
Deferred consideration
Lease liabilities
Year ended 31st December 2018
Interest-bearing loans and borrowings
(including overdraft)
Trade payables
Other payables
Contingent consideration
Deferred consideration
On demand
£’000
883
–
–
–
–
–
883
On demand
£’000
–
–
–
–
–
–
Less than
3 months
£’000
276
11,584
35,507
219
–
2,602
50,188
Less than
3 months
£’000
252
12,259
36,452
8,195
2,009
59,167
3 to 12 months
£’000
1 to 5 years
£’000
> 5 years
£’000
Total
£’000
843
42,585
–
–
435
80
7,807
9,165
–
–
5,150
–
21,753
69,488
–
–
–
–
–
9,885
9,885
44,587
11,584
35,507
5,804
80
42,047
139,609
3 to 12 months
£’000
1 to 5 years
£’000
> 5 years
£’000
Total
£’000
770
36,968
–
–
388
–
1,158
–
–
8,346
80
45,394
–
–
–
–
–
–
37,990
12,259
36,452
16,929
2,089
105,719
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.
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.
174
c116224_BOOK.indb 175
c116224_BOOK.indb 175
175
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
31. Financial instruments – risk management (continued)
The Group has a current ratio of Net Bank Debt to EBITDA of 0.8 (2018: 0.8), based on Net Bank Debt of £41.9m (2018: £32.1m) and
operating profit before exceptional costs, amortisation and share-based payment charge of £37.0m (2018: £35.9m). The business is cash
generative with a low capital expenditure requirement. The Group remains committed to its stated dividend policy of 30% to 40% of 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, IFRS 16 lease liabilities,
contingent and deferred consideration)
– Current
– Non-current
Less: unsecured loan notes
Less: cash and short-term deposits
Less: IFRS 16 lessee financial liabilities
Less: deferred and contingent consideration
Net Bank Debt (excluding loan notes)
2019
£’000
2018
£’000
11,113
73,951
85,064
(65)
–
(37,232)
(5,884)
41,883
10,456
41,156
51,612
–
(2,405)
–
(17,112)
32,095
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. This minimises 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.
Financial instruments are grouped on a subsidiary basis to apply the expected credit loss model.
The chosen method of recognising the expected credit loss across the Group is the simplified approach allowing a provision matrix to be
used, which is based on the expected credit life of trade receivables, historic default rates and forward looking information. Trade receivable
balances are written off when the probability of recovery is assessed as being remote.
Interest rate risk profile of financial assets and liabilities
LSL’s treasury policy is described 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 2019 are as follows:
Floating rate
Cash and cash equivalents
Loan notes
RCF
Within 1 year
£’000
1-2 years
£’000
2-3 years
£’000
3-4 years
£’000
(883)
(66)
–
–
–
–
–
–
(41,000)
–
–
–
Total
£’000
(883)
(66)
(41,000)
The effective interest rate and the actual interest rate charged on the loans in 2019 are as follows:
RCF
176
Effective rate
Actual rate
3.0%
2.0%
c116224_BOOK.indb 176
c116224_BOOK.indb 176
25/03/2020 13:51
25/03/2020 13:51
177
31. Financial instruments – risk management (continued)
The interest rate profile of the financial assets and liabilities of the Group as at 31st December 2018 are as follows:
Floating rate
RCF
Within 1 year
£’000
1-2 years
£’000
2-3 years
£’000
3-4 years
£’000
Total
£’000
–
–
–
(34,500)
(34,500)
The effective interest rate and the actual interest rate charged on the loans in 2018 are as follows:
RCF
Effective rate
Actual rate
3.1%
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.
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.
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:
2019
Assets measured at fair value
Financial assets
Liabilities measured at fair value
Contingent consideration
2018
Assets measured at fair value
Financial assets
Liabilities measured at fair value
Contingent consideration
Total
£’000
9,326
5,804
£’000
11,566
15,038
Level 1
£’000
Level 2
£’000
–
–
–
–
Level 1
£’000
Level 2
£’000
–
–
–
–
Level 3
£’000
9,326
5,804
Level 3
£’000
11,566
15,038
The fair value of equity financial assets that are not traded in the open market is £0.4m (2018: £3.8m) are valued using Level 3 techniques
in accordance with the fair value hierarchy and the Management Team use all relevant and up to date information (including cash-flow
forecasts and financial statements) to arrive at their judgement. Where appropriate a range of potential outcomes is considered in reaching
a conclusion. If this was to drop by 10%, the implied valuation is likely to also drop by around 10%, £1.2m.
The contingent consideration relates to amounts payable in the future on acquisitions. The amounts payable are based on the amounts
agreed in the contracts and based on the future profitability of each entity acquired. In valuing each provision, estimates have been made
as to when the options are likely to be exercised and the future profitability of the entity at this date. Further details of these provisions are
shown in Note 23.
If the future profitability of the entities was to decline by 10%, the size of the contingent consideration would decrease by approximately
£0.8m.
176
c116224_BOOK.indb 177
c116224_BOOK.indb 177
177
25/03/2020 13:51
25/03/2020 13:51
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
32. Analysis of Net Bank Debt
Net Bank Debt is defined as follows:
Interest-bearing loans and borrowings (including loan notes, overdraft, IFRS 16 Leases, contingent and
deferred consideration)
– Current
– Non-current
Less: unsecured loan notes
Less: cash and short-term deposits
Less: IFRS 16 lessee financial liabilities
Less: deferred and contingent consideration
Net Bank Debt (excluding loan notes)
33. Related party transactions
2019
£’000
2018
£’000
11,113
73,951
85,064
(65)
–
(37,232)
(5,884)
41,883
10,456
41,156
51,612
–
(2,405)
–
(17,112)
32,095
As disclosed in Note 18 to these Financial Statements LSL has two joint ventures, LMS and TM Group and an associate Mortgage Gym.
Transactions with LMS and its subsidiaries
Sales
Transactions with TM Group and its subsidiaries
Sales
Purchases
Creditor at 31st December 2019
Transactions with Mortgage Gym
Purchases
Creditor at 31st December 2019
34. Capital commitments
Capital expenditure contracted for but not provided
2019
£’000
–
2019
£’000
910
(754)
(80)
2019
£’000
(375)
–
2019
£’000
–
2018
£’000
3
2018
£’000
1,000
(204)
–
2018
£’000
(67)
(20)
2018
£’000
67
178
c116224_BOOK.indb 178
c116224_BOOK.indb 178
25/03/2020 13:51
25/03/2020 13:51
179
35. Subsidiary and joint venture companies
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, with the exception of Albany Insurance Company (Guernsey) Limited, which is incorporated in
Guernsey, 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
Limited
Lending Solutions Limited
Registered
office address
LSL holding
LSL shareholder
Proportion of
nominal value of
shares held
Nature of business
1
1
Direct
LSL Property Services plc
100%
Holding Company
Indirect
Lending Solutions Holdings
Limited
100%
Non Trading
Direct
LSL Property Services plc
100%
Asset Management
Estate Agency – Asset Management
LSL Corporate Client Services
Limited
St Trinity Limited
Templeton LPA Limited
1
1
1
Direct
LSL Property Services plc
Indirect
First Complete Limited
Estate Agency – Residential Sales and Lettings
Airport Lettings Stansted Limited^ 2
Indirect
ICIEA Limited
Appleton Estates and Property
Management Limited
2
Indirect
Davis Tate Ltd
Bawtry Lettings and Sales Limited 2
Indirect
your-move.co.uk Limited
Beldhamland Limited
Brown North East Lettings Ltd
Charterhouse Management (UK)
Limited
3
2
2
Indirect
Marsh & Parsons Limited
Indirect
your-move.co.uk Limited
Indirect
your-move.co.uk Limited
David Frost Estate Agents Limited 2
Indirect
Vitalhandy Enterprises Limited 100%
100%
100%
100%
100%
100%
100%
100%
100%
Asset Management
Asset Management
Non Trading
Non Trading
Non Trading
Non Trading
Non Trading
Non Trading
Davis Tate Ltd
EA Student Lettings Ltd
Eastside Property Developments
Ltd
Elliott & Freeth Limited
Fourlet (York) Limited
Front Door Property Management
Ltd
GFEA Limited
2
2
2
2
2
2
2
Guardian Property Lettings Limited 2
Indirect
Reeds Rains Limited
Residential Sales and
Lettings
Residential Sales, Lettings
and Holding Company
Non Trading
Non Trading
Indirect
LSLi Limited
Indirect
your-move.co.uk Limited
Indirect
your-move.co.uk Limited
100%
100%
100%
Indirect
Davis Tate Ltd
100%
Non Trading
Indirect
Reeds Rains Limited
100%
Non Trading
Indirect
ICIEA Limited
100%
Non Trading
Indirect
LSLi Limited
Indirect
LSLi Limited
100%
100%
100%
Residential Sales, Lettings
and Holding Company
Non Trading
Residential Sales, Lettings
and Holding Company
Indirect
Hawes & Co Limited
100%
Non Trading
179
25/03/2020 13:51
25/03/2020 13:51
178
Hawes & Co Limited
Hawes & Co (Thames Ditton)
Limited
2
2
c116224_BOOK.indb 179
c116224_BOOK.indb 179
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
35. Subsidiary and joint venture companies (continued)
Name of subsidiary company
Headway Property Management
Limited
Holloways Residential Ltd
Home and Student Link Limited
Homefast Property Services
Limited
Hydegate Limited^
ICIEA Limited
Inter County Lettings Limited
IQ Property (Hull) Limited
JNP Estate Agents Limited
JNP Estate Agents (Princes
Risborough) Limited
Registered
office address
LSL holding
LSL shareholder
Proportion of
nominal value of
shares held
Nature of business
2
2
2
2
2
2
2
2
2
2
Indirect
Reeds Rains Limited
100%
Non Trading
Indirect
your-move.co.uk Limited
Indirect
your-move.co.uk Limited
Indirect
Lending Solutions Holdings
Limited
Indirect
JNP Estate Agents Limited
Indirect
LSLi Limited
Indirect
ICIEA Limited
Indirect
Reeds Rains Limited
Indirect
LSLi Limited
100%
100%
77.5%
100%
100%
100%
100%
100%
Non Trading
Non Trading
Non Trading
Non Trading
Residential Sales, Lettings
and Holding Company
Non Trading
Non Trading
Residential Sales, Lettings
and Holding Company
Indirect
JNP Estate Agents Limited
100%
Non Trading
JNP (Residential Lettings) Limited 2
Indirect
JNP Estate Agents Limited
JNP (Surveyors) Limited
Kent Property Solutions Limited
LSL Land & New Homes Limited
Lauristons Limited
2
2
2
2
Indirect
LSLi Limited
Indirect
your-move.co.uk Limited
Indirect
your-move.co.uk Limited
Indirect
LSLi Limited
Lawlors Property Services Limited 2
Indirect
LSLi Limited
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Non Trading
Non Trading
Non Trading
Residential Sales
Residential Sales, Lettings
and Holding Company
Residential Sales and
Lettings
Residential Lettings
Residential Lettings
Non Trading
Non Trading
Residential Sales, Lettings,
Financial Services and
Holding Company
Residential Sales, Lettings
and Holding Company
Indirect
Your-move.co.uk Limited
Indirect
LetCo Group Limited
Indirect
your-move.co.uk Limited
Indirect
your-move.co.uk Limited
Direct
LSL Property Services plc
Indirect
Marsh & Parsons (Holdings)
Limited
100%
LetCo Group Limited
LetCo Limited
Lets Move Property Limited
Longshoot Properties Limited^
LSLi Limited
Marsh & Parsons Limited
Marsh & Parsons (Holdings)
Limited
Marshcroft Properties Limited
New Daffodil Limited
New Let Limited
Oakley Lettings Limited^
Paul Graham Lettings &
Management Ltd
Philip Green Lettings Limited
PHP Lettings Scotland Limited
Prestons Lettings Ltd
Pygott & Crone Lincoln Lettings
Limited^
2
2
2
2
1
3
2
3
2
2
2
2
2
4
2
2
180
c116224_BOOK.indb 180
c116224_BOOK.indb 180
Direct
LSL Property Services plc
100%
Holding Company
Indirect
Marsh & Parsons Limited
Direct
LSL Property Services plc
Indirect
your-move.co.uk Limited
Indirect
ICIEA Limited
Indirect
GFEA Limited
Indirect
JNP Estate Agents Limited
Indirect
your-move.co.uk Limited
Indirect
Reeds Rains Limited
Indirect
your-move.co.uk Limited
100%
100%
100%
100%
100%
100%
100%
100%
100%
Non Trading
Non Trading
Non Trading
Non Trading
Non Trading
Non Trading
Non Trading
Non Trading
Non Trading
25/03/2020 13:52
25/03/2020 13:52
181
35. Subsidiary and joint venture companies (continued)
Registered
office address
LSL holding
LSL shareholder
Proportion of
nominal value of
shares held
Name of subsidiary company
Reeds Rains Limited
Reeds Rains Cleckheaton Limited
Thomas Morris Limited
Top Let Limited
Vanstons (Barnes) Limited
Vanstons Commercial Limited
Vanstons Lettings Limited
Vanstons Limited
Vitalhandy Enterprises Limited
Warners Letting Agency Limited
Woollens of Wimbledon Limited
Yates Lettings Limited
your-move.co.uk Limited
Zenith Properties Limited
Financial Services
Embrace Financial Services Ltd
First2Protect Limited
Group First Ltd
Insurance First Brokers Ltd
Mortgages First Ltd
Reeds Rains Financial Services
Limited
RSC New Homes Limited
RSC Protect Limited^^^
Advance Mortgage Funding
Limited
BDS Mortgage Group Limited
First Complete Limited
Linear Financial Services Limited
Linear Financial Services Holdings
Limited
Linear Mortgage Network Holdings
Limited
Linear Mortgage Network Limited
2
2
1
2
3
3
3
3
2
2
2
2
1
2
2
2
2
2
2
2
2
2
1
1
1
2
2
2
2
Direct
LSL Property Services plc
100%
Indirect
Reeds Rains Limited
Indirect
LSLi Limited
100%
93.33%
Indirect
LetCo Group Limited
Indirect
Marsh & Parsons Limited
Indirect
Marsh & Parsons Limited
Indirect
Marsh & Parsons Limited
Indirect
Marsh & Parsons Limited
Indirect
LSLi Limited
Indirect
ICIEA Limited
Indirect
Lauristons Limited
Indirect
Davis Tate Ltd
Indirect
Lending Solutions Holdings
Limited
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Residential Sales, Lettings,
Financial Services and
Holding Company
Non Trading
Residential Sales and
Lettings
Residential Lettings
Non Trading
Non Trading
Non Trading
Non Trading
Holding Company
Non Trading
Non Trading
Non Trading
Residential Sales, Lettings,
Financial Services and
Holding Company
Indirect
ICIEA Limited
100%
Non Trading
Direct
LSL Property Services plc
Indirect
your-move.co.uk Limited
Indirect
your-move.co.uk Limited
Indirect
Group First Ltd
Indirect
Group First Ltd
Indirect
Reeds Rains Limited
Indirect
your-move.co.uk Limited
Direct
Direct
RSC New Homes Limited
LSL Property Services plc
100%
100%
95%
100%
100%
100%
60%
100%
100%
Financial Services
Financial Services
Holding Company
Financial Services
Financial Services
Financial Services
Financial Services
Non Trading
Financial Services
Indirect
Indirect
Indirect
Advance Mortgage Funding
Limited
100%
Financial Services
Lending Solutions Holdings
Limited
100%
Financial Services and
Holding Company
Linear Financial Services
Holdings Limited
100%
Non Trading
Indirect
First Complete Limited
100%
Holding Company
Indirect
First Complete Limited
100%
Holding Company
Indirect
Linear Mortgage Network
Holdings Limited
100%
Financial Services
180
c116224_BOOK.indb 181
c116224_BOOK.indb 181
181
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Notes to the Group Financial Statements continued.
for the year ended 31st December 2019
35. Subsidiary and joint venture companies (continued)
Name of subsidiary company
Personal Touch Administration
Services Limited
Personal Touch Financial Services
Limited
Qualis Wealth Limited^^
Surveying and Valuation Services
Albany Insurance Company
(Guernsey) Limited
Barnwoods Limited^^^^
Chancellors Associates
Limited^^^^
e.surv Limited
Joint Ventures and Associates
2
2
2
9
2
5
5
Registered
office address
LSL holding
LSL shareholder
Indirect
Personal Touch Financial
Services Limited
Proportion of
nominal value of
shares held
Nature of business
100%
Financial Services
Direct
LSL Property Services plc
100%
Financial Services
Direct
LSL Property Services plc
100%
Financial Services
Direct
LSL Property Services plc
100%
Captive Insurer
Direct
LSL Property Services plc
Indirect
e.surv Limited
100%
100%
Non Trading
Non Trading
Direct
LSL Property Services plc
100%
Chartered Surveyors
Cybele Solutions Holdings Limited# 6
Direct
LSL Property Services plc
49.63%
(50% voting)
Joint Venture – Holding
Company
Cybele Solutions Limited#
Mortgage Gym Limited#
TM Group (UK) Limited#
6
8
7
Indirect
Cybele Solutions Holdings
Limited
49.63%
(50% voting)
Direct
LSL Property Services plc
34.69%
Direct
LSL Property Services plc
33.33%
Joint Venture –
Conveyancing Panel
Manager
Associate – Financial
Services
Joint Venture - Property
Searches
Registered office addresses:
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. Bickerton House, Lloyd Drive, Ellesmere Port, Cheshire, CH65 9HQ
7. 1200 Delta Business Park, Swindon, Wiltshire, England, SN5 7XZ
8. Fourth Floor Abbots House, Abbey Street, Reading, Berkshire, RG1 3BD
9. The Albany, South Esplanade, St Peters Port, Guernsey, GY1 4NF
Notes:
^ Lettings book acquired by way of asset purchase in 2019.
^^ Qualis Wealth Limited was incorporated on 23rd January 2019. The company’s name changed from LSL-Two Limited to Qualis Wealth Limited on 28th October 2019.
^^^ energy-assessors.com Limited on 14th January 2019 was re-named RSC Protect Limited and its shares were transferred from being held directly by LSL Property Services plc to indirectly by
RSC New Homes.
^^^^ Barnwoods Limited and Chancellors Associates Limited were struck off the Companies House register on 31st December 2019.
# Joint Ventures/Associates.
182
c116224_BOOK.indb 182
c116224_BOOK.indb 182
25/03/2020 13:52
25/03/2020 13:52
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 IFRS 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 IFRS, subject to any material departures disclosed and explained in the Financial Statements;
and
• make judgements and accounting estimates that are reasonable and prudent.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the 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.
c116224_BOOK.indb 183
c116224_BOOK.indb 183
183
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Parent Company Balance Sheet
as at 31st December 2019
Non-current assets
Other intangible assets
Property, plant and equipment
Investment in subsidiaries
Financial assets
Investment in joint ventures and associates
Deferred tax asset
Current assets
Trade and other receivables
Total assets
Current liabilities
Trade and other payables
Financial liabilities
Non-current liabilities
Financial liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Share-based payment reserve
LSL Shares held by the EBT
Fair value reserve
Retained earnings
Total equity
The profit after tax for the year, attributable to the Company, was £13.0m (2018: £6.5m).
The Financial Statements were approved by and signed on behalf of the Board by:
Ian Crabb
Group Chief Executive Officer
10th March 2020
Adam Castleton
Group Chief Financial Officer
10th March 2020
Note
3
4
5
6
7
11
8
9
10
2019
£’000
7
50
2018
£’000
7
14
187,055
187,807
8,588
11,335
153
10,766
11,335
120
207,188
210,049
41,811
248,999
46,533
256,582
(96,933)
(14,806)
(105,287)
(18,552)
(111,739)
(123,839)
10
(41,000)
(34,500)
(152,739)
(158,339)
96,260
98,243
12
13
13
13
13
14
208
5,629
4,429
(5,224)
(13,695)
104,913
96,260
208
5,629
4,129
(5,261)
(12,200)
105,738
98,243
184
c116224_BOOK.indb 184
c116224_BOOK.indb 184
25/03/2020 13:52
25/03/2020 13:52
185
Parent Company Statement of Cash-Flows
for the year ended 31st December 2019
Parent operating profit before tax and interest
Adjustments for:
Exceptional gain on sale of financial assets
Depreciation of tangible assets
Share-based payments
Finance income
Finance costs
Dividend income/rebates received via non-cash consideration
Realisation of non-cash consideration received for operating activities
Operating cash-flows before movements in working capital
Movements in working capital
Decrease in trade and other receivables
(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
Acquisitions of subsidiaries and other businesses
Payment of deferred consideration
Investment in joint ventures and associates
Investment in financial assets
Cash received on sale of financial asset
Dividends received from subsidiaries
Purchases of property, plant and equipment
Net cash generated/(expended) on investing activities
Cash-flows used in financing activities
Proceeds from borrowings
Repayment of overdraft
Proceeds from exercise of share options
Issue of unsecured loan notes
Payment of lease liabilities
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
4
8
9
7
6
10
2019
£’000
11,777
–
60
141
10
1,691
2018
£’000
5,462
(1)
1
105
–
1,627
(18,171)
(10,000)
–
(4,492)
1,529
(1,277)
12,482
(8,576)
3,906
(586)
(1,690)
(5,159)
(7,435)
20,331
(5,716)
14,615
13,338
(1,494)
(6,985)
4,859
–
(3,562)
(2,000)
–
–
(4,100)
(2,783)
1,765
17,000
(6)
13,976
6,500
(1,856)
–
66
(57)
(11,194)
(6,541)
–
–
–
–
10,000
(7)
2,331
7,500
(3,110)
20
–
–
(11,600)
(7,190)
–
–
184
c116224_BOOK.indb 185
c116224_BOOK.indb 185
185
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Parent Company Statement of Changes in Equity
for the year ended 31st December 2019
For the year ended 31st December 2019
As at 1st January 2019
Other comprehensive income for the year
Disposal of subsidiary
Revaluation of financial assets
Disposal of financial assets
Profit for the year
Total comprehensive income for the year
Exercise of options
Share-based payment transactions
Dividends
As at 31st December 2019
Issued
capital
£’000
208
Share
premium
£’000
Share-based
payment
reserve
£’000
Shares held
by EBT1
£’000
Fair value
reserve
£’000
Retained
earnings
£’000
Total
£’000
5,629
4,129
(5,261)
(12,200) 105,738
98,243
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(12)
312
–
–
–
–
–
–
37
–
–
–
(950)
(950)
(3,196)
–
(3,196)
1,701
(1,701)
–
–
13,019
13,019
(1,495)
10,368
8,873
–
–
–
1
–
26
312
(11,194)
(11,194)
208
5,629
4,429
(5,224)
(13,695) 104,913
96,260
During the year ended 31st December 2019, the Trust acquired nil LSL Shares. During the period 10,672 share options were exercised
relating to LSL’s various share option schemes resulting in the Shares being sold by the Trust. LSL received £24,000 on exercise of these
options.
Note:
1 Treasury shares have been renamed to Shares held by EBT.
For the year ended 31st December 2018
As at 1st January 2018
Adjustment on initial application of IFRS 9
Revised opening balance at 1st January 2018
Other comprehensive income for the year
Revaluation of financial assets
Profit for the year
Total comprehensive income for the year
Exercise of options
Share-based payment transactions
Dividends
As at 31st December 2018
Issued
capital
£’000
208
–
208
–
–
–
–
–
–
Share
premium
£’000
5,629
–
Share- based
payment
reserve
£’000
Shares held
by EBT1
£’000
Fair value
reserve
£’000
Retained
earnings
£’000
Total
£’000
3,802
(5,317)
21
110,816
115,159
–
–
(21)
21
–
5,629
3,802
(5,317)
–
110,837
115,159
–
–
–
–
–
–
–
–
–
(22)
349
–
–
–
–
56
–
–
(12,200)
–
(12,200)
–
(12,200)
–
–
–
6,516
6,516
(15)
–
6,516
(5,684)
19
349
(11,600)
(11,600)
208
5,629
4,129
(5,261)
(12,200) 105,738
98,243
During the year ended 31st December 2018, the Trust acquired nil LSL Shares. During the period 15,966 share options were exercised
relating to LSL’s various share option schemes resulting in the Shares being sold by the Trust. LSL received £20,000 on exercise of these
options.
Note:
1 Treasury shares have been renamed to Shares held by EBT.
186
c116224_BOOK.indb 186
c116224_BOOK.indb 186
25/03/2020 13:52
25/03/2020 13:52
187
Notes to the Parent Company Financial Statements
for the year ended 31st December 2019
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, certain debt
and financial assets and liabilities 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 2019. The Company’s Financial Statements are presented in pounds sterling and all values are rounded to the nearest
thousand pounds (£’000) except when otherwise indicated.
Summary of significant accounting policies
Except as described below, the accounting policies adopted in the preparation of the Parent Company Financial Statements are consistent
with those followed in the preparation of the Parent Company Annual Financial Statements for the year ended 31st December 2018.
The Parent Company has initially adopted IFRS 16 Leases from 1st January 2019, replacing the current lease guidance including IAS 17.
Previously all of the Parent Company’s leases were accounted for as operating leases (see Note 25 to the Group Financial Statements). The
whole of the leasing liability in the Parent Company represents a property lease. The Parent Company does not act as a lessor.
The standard permits either a full retrospective or a modified retrospective approach for the adoption. The Parent Company has adopted
the standard using the modified retrospective approach which means the cumulative impact of the adoption is recognised in retained
earnings as of 1st January 2019 and the comparatives are not restated.
As a lessee
Under IFRS 16 Leases are accounted for using the right of use model. The Income Statement presentation and expense recognition pattern
is similar to that required for finance leases by IAS 17 previously adopted by the Company.
At inception, the Company has assessed whether a contract contains a lease. This assessment involved the exercise of judgement about
whether the Company obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to
direct the use of the asset. The Company has chosen to transition all leases previously identified under IAS 17 to IFRS 16 and has not
reassessed whether these contracts are leases.
The following reconciliation to the opening balance for IFRS 16 lease liabilities as at 1st January 2019 is based upon the operating lease
obligations at 31st December 2018:
Lease liabilities
Operating lease obligations at 31st December 2018
Discounted using the incremental borrowing rate at 1st January 2019
Lease liabilities recognised at 1st January 2019
Leases are shown as follows in the balance sheet and Income Statement for the period ending 31st December 2019:
Balance sheet
Non-current assets
Property, plant and equipment
Current liabilities
Financial liabilities
Non-current liabilities
Financial liabilities
Income Statement
Depreciation
Finance income
Finance costs
£’000
92
(2)
90
£’000
33
34
–
57
–
2
187
c116224_BOOK.indb 187
c116224_BOOK.indb 187
25/03/2020 13:52
25/03/2020 13:52
186
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
1. Accounting policies (continued)
Judgements and estimates
The preparation of financial information in conformity with IFRS as adopted by the European Union requires the Management Team to make
judgements, estimates and assumptions that affect the application of policies and reporting amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an 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.
• Judgements
There are no areas of judgement that have a significant effect on the amounts recognised in the Financial Statements of the Company.
• Estimates
The key assumption affected by future uncertainty that has significant risks of causing material adjustment to the carrying value of
assets and liabilities within the next financial year is:
Valuation of financial assets
The Company owns non–controlling interests in a number of listed and unlisted entities. In accordance with the accounting standards,
these investments are held at fair value and judgement and assumptions are required in assessing this.
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 and associates
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and
operating policy decisions of the investee, but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of
the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the
relevant activities require the unanimous consent of the parties sharing control.
Investments in joint ventures and associates 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.
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;
188
c116224_BOOK.indb 188
c116224_BOOK.indb 188
25/03/2020 13:52
25/03/2020 13:52
189
Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2019 1. Accounting policies (continued)
• 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.
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.
Employee Benefit Trust
The Group has an employee share scheme (ESOT) for the granting of LSL Shares to Executive Directors and selected senior employees
and an employee share incentive plan (trust). Shares in LSL held by the ESOT and the Trusts are treated as treasury shares and presented
in the balance sheet as a deduction from equity. No gain or loss is recognised in the Income Statement on the purchase, sale, issue or
cancellation of the Group’s own equity instruments. The finance costs and administration costs relating to the ESOT and the Trusts are
charged to the Income Statement. Dividends earned on shares held in the ESOT and the Trusts have been waived. The ESOT and Trust
Shares are ignored for the purposes of calculating the Group’s EPS.
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. All regular way purchases and
sales of financial assets are recognised on the trade date, being the date that the Company commits to purchase or sell the asset. Regular
way transactions require delivery of assets within the timeframe generally established by regulation or convention in the market place.
The subsequent measurement of financial assets depends on their classification.
188
c116224_BOOK.indb 189
c116224_BOOK.indb 189
189
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview 1. Accounting policies (continued)
The Company’s accounting policy for each category of financial instruments is as follows:
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at fair value
through OCI when they meet the definition of equity under IFRS 9 Financial Instruments and are not held for trading. The classification is
determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement
of profit or loss when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of
part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through
OCI are not subject to impairment assessment.
Financial assets designated at fair value through profit and loss
Gains and losses arising from the changes in the fair value are recognised through the profit and loss.
The Company’s accounting policy for each category of financial instruments is as follows:
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest-
bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses
arising on repurchase, settlement or otherwise cancellation of liabilities are recognised respectively in investment income and finance
costs.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation is provided to write off
cost less the estimated residual value of property, plant and equipment by equal annual instalments over their estimated useful economic
lives as follows:
Office equipment, fixtures and fittings
Computer equipment
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 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.
Leases
IFRS 16 Leases supersedes IAS 17 Leases setting out the principles for the recognition, measurement, presentation and disclosure of
leases and was adopted by the Company with effect from 1st January 2019. Under this standard leases are defined as a contract which
gives the right to use an asset for a period of time in exchange for consideration. As a lessee, the Company recognises three classes of
leases on this basis:
– Property leases
– Motor vehicle leases
– Other leases
Other leases are leases for low value items (less than £5,000) or leases whose contract term is less than 12 months. The practical expedient
not to recognise right of use assets and lease liabilities for these leases has been utilised by the Company.
Previously, under IAS 17 Leases, operating leases were defined as a contract where substantially all of the risks and reward of ownership
remain with the owner. Under the old standard, the Company recognised all of its leasing activities as operating leases, recognising no
assets, and recognising lease payments as an expense through the Income Statement as they fell due.
190
c116224_BOOK.indb 190
c116224_BOOK.indb 190
25/03/2020 13:52
25/03/2020 13:52
191
Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2019 1. Accounting policies (continued)
IAS 17 Leases accounting policy
As the Company has chosen to adopt IFRS 16 using the modified retrospective approach, comparatives have not been restated and are
accounted for under the Group’s previous leases accounting policy:
Company 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.
Company 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.
2. Cash-flow from financing activities
Short-term liabilities
Long-term liabilities
At 1st January
2019
£’000
18,552
34,500
53,052
Cash–flow
£’000
(3,746)
6,500
2,754
Acquisitions
£’000
Foreign exchange
£’000
–
–
–
–
–
–
Unwind of
discount
£’000
At 31st December
2019
£’000
–
–
–
14,806
41,000
55,806
Short-term liabilities
At the 31st December 2019 short-term liabilities were made up of the bank overdraft of £14.7m (2018: £16.6m), unsecured loan notes
£0.1m (2018: nil) and deferred consideration of nil (2018: £2.0m) (see Note 10 to these Financial Statements).
Long-term liabilities
At the 31st December 2019 the long-term liabilities were made up of the bank loan of £41.0m (2018: £34.5m) (see Note 10 to these
Financial Statements).
3. Intangible assets
Cost
At 1st January 2019
Additions
As at 31st December 2019
Impairment
At 1st January 2019
Amortisation
As at 31st December 2019
Net book value
As at 31st December 2019
As at 31st December 2018
Software
£’000
Total
£’000
7
–
7
–
–
–
7
7
7
–
7
–
–
–
7
7
190
c116224_BOOK.indb 191
c116224_BOOK.indb 191
191
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
4. Property, plant and equipment
Cost
At 1st January 2018
Additions
At 31st December 2018
Initial recognition of IFRS 16
Revised opening balance
Additions
At 31st December 2019
Depreciation
At 1st January 2018
Charge for the year
At 31st December 2018
Charge for the year
At 31st December 2019
Net book value
At 31st December 2019
At 1st January 2019
Owned assets
IFRS 16 leased assets
Land and
buildings
£’000
Leasehold
improvements
£’000
Fixtures, fittings
and computer
equipment
£’000
–
–
–
90
90
–
90
–
–
–
57
57
33
–
–
33
33
74
–
74
–
74
–
74
67
–
67
–
67
7
7
7
–
7
107
7
114
–
114
6
120
106
1
107
3
110
10
7
10
–
10
Total
£’000
181
7
188
90
278
6
284
173
1
174
60
234
50
14
17
33
50
5. Investment in subsidiaries
Details of the subsidiaries held directly and indirectly by the Company are shown in Note 35 to the Group Financial Statements.
At 1st January
Disposals
Additions
Adjustments for share-based payment
At 31st December
2019
£’000
2018
£’000
187,807
182,144
(950)
–
198
–
5,419
244
187,055
187,807
In 2019 there was an increase of £198,000 (2018: increase of £244,000) 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 £7,803,000 (2018: £7,605,000). During 2019 Barnwoods was struck off with a reduction in investment of
£950,000 (2018: £nil) resulting in a dividend of £1,171,000 paid to the Parent Company.
192
c116224_BOOK.indb 192
c116224_BOOK.indb 192
25/03/2020 13:52
25/03/2020 13:52
193
Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2019
6. Financial assets
Convertible loan notes – at fair value
Secured convertible loan notes – 5%
Investment in equity instruments – at fair value
Unquoted shares at fair value
At 1st January
Additions
Disposals
Fair value adjustment recorded through OCI
Revaluation uplift
At 31st December
2019
£’000
2,000
6,588
8,588
10,766
2,783
(1,765)
–
(3,196)
8,588
2018
£’000
–
10,766
10,766
24,495
–
(2,266)
(12,200)
737
10,766
Convertible loan notes at fair value
LSL has subscribed for £2,000,000 of Convertible Secured Preference Loan Notes with Mortgage Gym Limited. Interest on the Convertible
Secured Preference Loan Notes is 5% per annum. The final repayment date of the Convertible Secured Preference Loan Notes is 5th June
2024. Repayment may take place before this date. The Convertible Secured Preference Loan Notes are secured by way of debenture.
LSL has subscribed for £750,000 of Unsecured Convertible Loan Notes with Yopa Property Limited. The Unsecured Convertible Loan
Notes do not receive any interest. The Loan Notes were redeemed during the year.
Investment in equity instruments
The financial assets include unlisted equity instruments which are carried at fair value. Fair value is judgemental given the assumptions
required and have been valued using a Level 3 valuation techniques (see Note 31 to the Group Financial Statements).
eProp Services plc
In June 2019 the Group disposed of 100% of its holding in eProp Services plc for a consideration of £1,015,000. At the 31st December
2018 the investment was assessed as £2,716,000. There were no tax effects resulting from the disposal of eProp Services plc.
Yopa Property Limited
The carrying value of the Group’s investment in Yopa at 31st December 2019 is £6,495,000 (December 2018: £7,800,000). The fair value of
the Group’s investment in Yopa has been assessed by using Level 3 techniques. At 30th June 2019 this led to the recognition of a fair value
impairment of £1,305,000 in the year (2018: £12,200,000) which has been recognised in the Statement of Other Comprehensive Income.
7. Investment in joint ventures and associates
At cost
At 1st January
Additions
At 31st December
2019
£’000
2018
£’000
11,335
–
11,335
7,235
4,100
11,335
Along with two other entities, the Company holds an equal share of 33.33% (2018: 33.33%) interest in TM Group, a joint venture whose
principal activity is to provide searches. The principal place of business of TM Group is the United Kingdom.
The Company also has a 50% interest in LMS, a joint venture whose principal activity is to provide conveyancing panel management
services.
The Company has a 34.69% (2018: 34.69%) holding in Mortgage Gym, a digital mortgage business. The principal place of business of
Mortgage Gym is the United Kingdom.
192
c116224_BOOK.indb 193
c116224_BOOK.indb 193
193
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
8. Trade and other receivables
Group relief receivable
Prepayments
Other taxes and social security
Amounts owed by Group undertakings
9. Trade and other payables
Trade payables
Accruals
Amounts owed to Group undertakings
10. Financial liabilities
Current liabilities
Deferred consideration
IFRS 16 lessee financial liabilities
Unsecured loan notes
Bank overdraft
Non-current liabilities
Bank loans – RCF
2019
£’000
10,974
1,315
47
29,475
41,811
2019
£’000
316
2,392
94,225
96,933
2019
£’000
–
34
66
14,706
14,806
41,000
41,000
2018
£’000
13,067
1,077
83
32,306
46,533
2018
£’000
166
2,126
102,995
105,287
2018
£’000
1,990
–
–
16,562
18,552
34,500
34,500
Deferred consideration
During 2019 £2.0m (2018: £nil) of deferred consideration was paid to third parties.
Contingent consideration
During 2019 £nil (2018: £1,000) of contingent consideration was paid to third parties.
Bank loans – RCF and overdraft
The Company’s bank loan totals £41.0m (2018: £34.5m) and the Company’s overdraft totals £14.7m (2018: £16.6m). The bank loan is
secured via a cross guarantee issued from all of the Group’s subsidiaries excluding the following subsidiaries, Lending Solutions Limited,
Homefast Property Services, Linear (Linear Mortgage Network and Linear Financial Services), Templeton LPA, Group First, Personal Touch
Financial Services, and RSC New Homes.
The utilisation of the RCF may vary each month as long as this does not exceed the maximum £100.0m facility (2018: £100.0m). The
Group’s overdraft is also secured on the same facility, and the combined overdraft and RCF cannot exceed £100.0m (2018: £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.
194
c116224_BOOK.indb 194
c116224_BOOK.indb 194
25/03/2020 13:52
25/03/2020 13:52
195
Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2019
11. Deferred tax
Deferred tax asset
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)/credit to other comprehensive income
Deferred tax on disposals
Deferred tax asset/(liability) at 31st December
2019
£’000
120
22
11
153
2019
£’000
–
–
–
–
2018
£’000
112
11
(3)
120
2018
£’000
4
–
(4)
–
At 2019 a deferred tax asset is recognised in relation to timing differences on fixed assets of £3,000 and share-based payments of
£150,000. No deferred tax liability is recognised in respect of equity financial assets. At 2018 a deferred tax asset is recognised in relation
to timing differences on fixed assets of £4,000 and share-based payments of £116,000. No deferred tax liability is recognised in respect of
equity financial assets.
The 2015 summer budget announced that the headline rate of corporation tax in the UK would be further reduced from the current rate of
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 UK corporation tax will be lowered further still to 17%. For the full year ended 31st December 2019,
current tax is measured at a headline rate of 19.00% (2018: 19.00%).
Following the substantive enactment of the Finance Bill 2016 in September 2016, the corporation tax rate of 17.0% was confirmed.
Accordingly, this is the rate at which deferred tax has been provided (2018: 17.0%).
12. Called up share capital
Authorised:
Ordinary Shares of 0.2 pence each
Issued and fully paid:
At 1st January and 31st December
13. Reserves
2019
Shares
£’000
2018
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 27 to the Group Financial Statements.
Share premium
The share premium is 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 £115,000 (2018: charge of £107,000).
Fair value reserve
The fair value reserve is used to record the changes in fair value of equity financial assets.
194
c116224_BOOK.indb 195
c116224_BOOK.indb 195
195
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
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 £13.0m (2018: £6.5m).
Remuneration paid to Directors of the Company is disclosed in Note 13 to the Group Financial Statements.
The Company paid £236,714 (2018: £131,375) 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 9 to the Group Financial Statements.
15. Pensions costs and commitments
Total contributions to the defined contribution schemes in the year were £40,071 (2018: £40,505). The amount outstanding in respect of
pensions as at 31st December 2019 was £nil (2018: £nil).
The Parent Company headcount at 31st December 2019 was nil (2018: 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 2019 (2018: none).
17. Related party transactions
During the year the transactions entered into by the Company are as follows:
Wholly owned subsidiaries
2019
2018
Non-wholly owned subsidiaries
2019
2018
Sales to related
parties
£’000
Purchases from
related parties
£’000
Amounts owed by
related parties
£’000
Amounts owed to
related parties
£’000
–
–
–
–
29,476
32,129
93,683
102,311
Sales to related
parties
£’000
Purchases from
related parties
£’000
Amounts owed by
related parties
£’000
Amounts owed to
related parties
£’000
–
–
–
–
–
64
542
571
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.
Policy for managing these risks is set up by the Board following recommendations from the Group Chief Financial Officer. The policy for
each of the above risks is described in more detail below.
196
c116224_BOOK.indb 196
c116224_BOOK.indb 196
25/03/2020 13:52
25/03/2020 13:52
197
Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2019
18. Financial instruments – risk management (continued)
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.
2019
2018
Increase/
decrease in
basis point
Effect on profit
before tax
£’000
+100
-100
+100
-100
(410)
410
(345)
345
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 2019 based on contractual
undiscounted payments:
Year ended 31st December 2019
Interest-bearing loans and borrowings
(including overdraft)
Trade payables
Year ended 31st December 2018
Interest-bearing loans and borrowings
(including overdraft)
Trade and other payables
Deferred consideration
On demand
£’000
14,706
–
14,706
On demand
£’000
16,562
–
–
Less than
3 months
£’000
276
94,494
94,770
Less than
3 months
£’000
252
103,078
1,990
3 to 12
months
£’000
843
–
843
3 to 12
months
£’000
1 to 5
years
£’000
42,585
–
42,585
1 to 5
years
£’000
770
36,968
–
–
–
–
16,562
105,320
770
36,968
> 5 years
£’000
Total
£’000
–
–
–
58,410
94,494
152,904
> 5 years
£’000
Total
£’000
–
–
–
–
54,552
103,078
1,990
159,620
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.
196
c116224_BOOK.indb 197
c116224_BOOK.indb 197
197
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
18. Financial instruments – risk management (continued)
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 interest rate profile of the financial assets and liabilities of the Group as at 31st December 2019 are as follows:
Floating rate
Cash and cash equivalents
Loan notes
RCF
Within
1 year
£’000
1–2 years
£’000
(14,706)
(66)
–
–
–
–
2–3
years
£’000
–
–
(41,000)
3–4
years
£’000
–
–
–
Total
£’000
(14,706)
(66)
(41,000)
The effective interest rate and the actual interest rate charged on the loans in 2019 are as follows:
RCF
Effective rate
Actual rate
3.0%
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 2018 are as follows:
Floating rate
RCF
Within
1 year
£’000
–
1-2
years
£’000
–
2-3
years
£’000
3-4
years
£’000
Total
£’000
–
(51,062)
(51,062)
The effective interest rate and the actual interest rate charged on the loans in 2018 are as follows:
RCF
Effective rate
Actual rate
4.1%
2.0%
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.
198
c116224_BOOK.indb 198
c116224_BOOK.indb 198
25/03/2020 13:52
25/03/2020 13:52
199
Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2019
18. Financial instruments – risk management (continued)
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:
2019
Assets measured at fair value
Financial assets
2018
Assets measured at fair value
Financial assets
Liabilities measured at fair value
Deferred consideration
£’000
8,588
£’000
10,766
1,990
Level 1
£’000
Level 2
£’000
Level 3
£’000
–
–
8,588
Level 1
£’000
Level 2
£’000
Level 3
£’000
–
–
–
–
10,766
1,990
The fair value of equity financial assets that are not traded in the open market of £0.093m (2018: £2.966m) are using Level 3 techniques
in accordance with the fair value hierarchy and the Management Team use all relevant and up to date information (including cash-flow
forecasts and financial statements) to arrive at their judgement. Where appropriate a range of potential outcomes is considered in reaching
a conclusion.
198
c116224_BOOK.indb 199
c116224_BOOK.indb 199
199
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
Other Information
In this section
201 Definitions
206 Shareholder Information
200
c116224_BOOK.indb 200
c116224_BOOK.indb 200
25/03/2020 13:52
25/03/2020 13:52
201
Definitions
“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 10 to the Group Financial Statements.
“Adjusted EBITDA” is Group Underlying Operating Profit (Note 5 to the Group Financial Statements) 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” 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 10 to the Group Financial Statements.
“Board” / “Board of Directors” 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” or “Chair” Simon Embley.
“Chair of the Audit & Risk Committee” David Stewart.
“Chair of the Remuneration Committee” Bill Shannon.
“Code” UK Code of Corporate Governance published by the Financial Reporting Council (FRC) (July 2018 edition).
“Company Secretary” Sapna B FitzGerald.
“CCAS” Consumer Codes Approval Scheme.
“CSOP” company share ownership plan.
“CSR” corporate social responsibility.
“Data and Information Security Committee” or “DISC” – LSL’s Data and Information Security Committee (formally the Information
Security and Governance Committee (ISGC)).
“Davis Tate” trading name of Davis Tate Limited.
“Deputy Chair” refers to Bill Shannon.
200
c116224_BOOK.indb 201
c116224_BOOK.indb 201
201
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Definitions continued.
“Director” an Executive Director or Non Executive Director of LSL.
“Divisions” LSL’s Estate Agency, Financial Services, and Surveying and Valuation Services divisions.
“DPO” Data Protection Officer.
“EBITDA” earnings, before interest, taxes, depreciation and amortisation.
“Elsevier” Elsevier Limited.
“Embrace Financial Services” Embrace Financial Services 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 scheme.
“ESOT Trustees” Apex Financial Services (Trust Company) Limited.
“Estate Agency Division” or “Estate Agency” or “EA” in relation to the financial year commencing 1st January 2018, included LSL’s
Residential Sales, Lettings, Financial Services and Asset Management businesses. In relation to the financial year commencing 1st January
2019 it includes LSL’s Residential Sales, Lettings 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.
“Eveclo Holdings” – Eveclo Holdings 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.
“EU” European Union.
“FCA” Financial Conduct Authority.
“Financial Services” or “FS” refers to LSL’s financial services division (including mortgage, non-investment insurance brokerage services
and the operation of LSL’s intermediary networks).
“First2Protect” First2Protect Limited.
“First Complete” First Complete Limited.
“Financial Statements” financial statements contained in this Report.
“FRC” Financial Reporting Council.
“Frosts” trading name of David Frost Estate Agents Limited.
“FSCS” Financial Services Compensation Scheme.
“FSMA” Financial Services and Markets Act 2000.
“General Data Protection” or “GDPR” General Data Protection Regulation.
“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.
202
c116224_BOOK.indb 202
c116224_BOOK.indb 202
25/03/2020 13:52
25/03/2020 13:52
203
“Group Chief Financial Officer” Adam Castleton.
“Group Revenue” total revenue for the LSL Group.
“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.
“IBNR” incurred but not reported.
“ICSA” ICSA: The Governance Institute.
“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” LSL Land & New Homes Ltd.
“Lauristons” trading name of Lauristons Limited.
“Lawlors” trading name of Lawlors Property Services Limited.
“Legal Marketing Services”, “LMS”, “LMS Direct Conveyancing” or “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.
“LexisNexis” 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 subsidiary companies (during 2019 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.
202
c116224_BOOK.indb 203
c116224_BOOK.indb 203
203
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Definitions continued.
“MAR” the Market Abuse Regulation.
“Marsh & Parsons” trading name of Marsh & Parsons Limited.
“Mortgages First” Mortgages First Ltd.
“Mortgage Gym” Mortgage Gym Limited.
“NAEA” or “NAEA Propertymark” National Association of Estate Agents.
“NBC Property Master” NBC Property Master Limited.
“Net Bank Debt” see Note 32 to the Group Financial Statements.
“Non Executive Director” refers to Gaby Appleton, Darrell Evans, Bill Shannon, David Stewart and Simon Embley.
“Notice of Meeting” the circular made available to Shareholders setting out details of the AGM.
“Note” refers to Notes to the Group Financial Statements.
“OCI” refers to other comprehensive income.
“Openwork” trading name of Openwork Limited.
“Ordinary Shares” or “Shares” 0.2 pence 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.
“Personal Touch Financial Services” or “PTFS” Personal Touch Financial Services Limited.
“Personal Touch Administration Services” or “PTAS” Personal Touch Administrations Services Limited.
“PI” professional indemnity.
“PI Costs” costs relating to on-going 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, First Complete Limited and as of 31st
January 2019 Personal Touch Financial Services Limited.
“RCF” revolving credit facility.
“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 2019.
“Residential Sales” refers to LSL’s services for residential property sales.
“RICS” Royal Institution of Chartered Surveyors.
“Road to Health” – RoadtoHealth Group Ltd.
“RSC New Homes” or “RSC” RSC New Homes Limited.
“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.
204
c116224_BOOK.indb 204
c116224_BOOK.indb 204
25/03/2020 13:52
25/03/2020 13:52
205
“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 Advance Mortgage Funding Limited’s mortgage club.
“TM Group” TM Group Limited.
“TPO” The Property Ombudsman.
“TPOS” The Property Ombudsman Scheme.
“Trust” LSL’s SIP trust.
“Trustees” Link Market Services (Trustees) Limited.
“TSI” Trading Standards Institute.
“TSR” total shareholder return.
“UKLA” UK Listing Authority.
“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” or “Vibrant Energy Matters” Vibrant Energy Matters Limited.
“Walker Fraser Steele” a trading name 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.
“Zoopla” or “ZPG” ZPG Limited (previously ZPG plc).
204
c116224_BOOK.indb 205
c116224_BOOK.indb 205
205
25/03/2020 13:52
25/03/2020 13:52
Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview
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 Sun Street, London, EC2A 2EP
Telephone: 0203 215 1015
Facsimile: 0207 920 9443
Email: investorrelations@lslps.co.uk
Website: 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 0.2 pence 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: 0371 664 0300
Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the
applicable international rate. Link Asset Services is open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and
Wales.
Website: linkassetservices.com
Email: 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
10th March 2020
LSL intends to hold the 2020 AGM at its office at 1 Sun Street, London, EC2A 2EP. When a date for the AGM has been set, the Notice of
Meeting will be sent to Shareholders, and it will include details of all 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, 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 (lslps.co.uk).
If a Shareholder wishes to continue to receive hard copy documents they should contact Link Asset Services (details above).
Forward looking statements
By their nature, all forward looking statements involve risk and uncertainty because they relate to future events and circumstances and
are subject to assumptions 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 and 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 is intended to or 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 32 to 41.
Any forward looking statements in this document speak only at the date of this document and LSL undertakes no obligation to update
publicly or review any forward looking statement to reflect new information or events, circumstances or developments after the date of this
document.
206
c116224_BOOK.indb 206
c116224_BOOK.indb 206
25/03/2020 13:52
25/03/2020 13:52
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: investorrelations@lslps.co.uk
L
S
L
P
r
o
p
e
r
t
y
S
e
r
v
c
e
s
p
c
A
n
n
u
a
i
l
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
9