For Immediate Release

6 August 2008

   

 

  

INTERIM RESULTS

 

LSL Property Services plc (LSL), a leading provider of residential property services, announces interim results for the six months ended 30 June 2008.

 

Highlights

·         Satisfactory half year results, despite 54% fall in mortgage approvals for house purchase

o        Group revenue down 10% to £93.1m (2007: £102.9m)

o        Underlying Group Operating Profit[1] down 41% to £9.3m (2007: £15.6m)

o        Group profit before tax, amortisation and exceptionals of £7.8m (2007: £14.7m).  Loss before tax was £0.8m (2007: Profit before tax of £12.1m)

o        Exceptional restructuring costs of £3.4m (2007: nil)

o        Underlying Adjusted Earnings per Share[2] of 5.4p (2007: 10.1p) (Basic loss per share was 0.6p (2007: earnings per share of 8.1p)

 

·         Strong underlying operating results from surveying division

o        Surveying profits up 32% to £15.4m (2007: £11.7m)

o        Barnwoods (C&G contract secured during 2007) contributed £6.1m profit in the first half of 2008 (2007: nil)

o        Surveying margin increased to 34.3% (2007: 29.1%)

 

·         Estate agency and financial services impacted by unprecedented market conditions

o        Your Move and Reeds Rains exchange income down by 48% and turnover down 27%

o        Non exchange income in Your Move and Reeds Rains up 11% (from £20.4m in 2007 to £22.7m in 2008) despite market conditions

o        Significant cost efficiencies achieved

 

·         Cashflow generation impacted by seasonality and one offs – outflow from operations of £8.4m (2007: inflow £10.0m).

 

·         No interim dividend payable in 2008 (2007: 3p per share) – prudent to conserve cash until market conditions improve.

 

·         Net debt of £61.7m at 30 June 2008 (2007: £56.3m)

 

·         Well positioned for future growth both organically and from acquisitions when market recovers

 

 

 

 

Roger Matthews, Chairman commented:

 

“The Group has reported a satisfactory first half result in a very difficult market.  Although house purchase activity levels have stabilised in recent weeks (albeit at a very low level) after nine months of declines, we expect market conditions to remain challenging for some time.

  

Our surveying division is proving to be resilient and we expect to make further progress over the year as a whole.

  

This resilience, together with the continued investment in other counter cyclical growth opportunities, such as lettings and repossessions, leaves the Group well placed to trade satisfactorily through the remainder of 2008 and deliver significant growth when the market improves.”

 

  

  

  

  

  

For further information, please contact:

Simon Embley, Group Chief Executive Officer

Dean Fielding, Group Finance Director

LSL Property Services plc                                               01904 715 324

 

Registered in England (Company Number: 5114014)

Registered Office: Newcastle House, Albany Court, Newcastle upon Tyne, NE4 7YB

 

Nicola Cronk, Mark Edwards, Catherine Breen

Buchanan Communications                                            0207 466 5000

 

  

  

  

  

  

Notes to editors:

LSL is one of the leading residential property services companies in the UK and provides a broad range of services to its customer who are principally mortgage lenders, as well as buyers and sellers of residential properties. LSL’s main operations are its surveying business, which operates under the e.surv, Barnwoods and Chancellors Associates brands, its estate agency business, which includes the Your Move and Reeds Rains brands, and its financial services business.

 

For further information, please visit LSL’s website: www.lslps.co.uk

Chairman’s Statement

 

I am pleased to report a Underlying Group Operating Profit^[1] of £9.3m for the six months ended 30 June 2008 (2007: £15.6m), despite extremely difficult market conditions, which have particularly affected our estate agency division.  As has been widely reported, conditions in the housing market have deteriorated significantly, particularly in the second quarter, and the current level of housing transaction volumes is at an unprecedented low level.

 

Our surveying division has proven to be resilient and performed strongly in the first half of 2008, with underlying operating profit increasing by 32% to £15.4m (2007: £11.7m). This result has been supported by a robust re-mortgage market, last year’s major contract wins and strong relationships with lenders.

 

Our estate agency and financial services business has been impacted in line with the market with house sale exchanges down by 47% against last year, resulting in a combined underlying operating loss of £5.2m (2007: underlying operating profit £5.3m).

 

The Board expects the difficult market conditions to remain for some time. As a result the management team continue to be focussed on delivering significant cost efficiencies, maximising non exchange income, and growing counter cyclical businesses such as lettings and repossessions.

 

Financial Results

 

·         Group revenues declined by 10% to £93.1m (2007: £102.9m)

 

·         Underlying Group Operating Profit^[1] decreased by 41% to £9.3m (2007: £15.6m) and the operating margin decreased to 10% (2007: 15.2%)

 

·         The surveying division turnover rose by 12% to £44.9m (2007:  £40.0m) and the underlying operating profit increased by 32% to £15.4m (2007: £11.7m). The overall surveying margin, which increased from 29.1% to 34.3%, was underpinned by a robust re-mortgage market, last year’s major contract wins and strong relationships with lenders.

 

·         The estate agency turnover decreased by 25% to £39.4m (2007: £52.8m) and the underlying operating loss was £4.1m (2007: profit £6.5m).

 

·         The financial services division turnover fell by 13% to £8.8m (2007: £10.1m) and the underlying operating loss was flat at £1.1m (2007: loss £1.1m).

 

·         Net interest payable was £1.8m (2007: £1.2m), reflecting the average borrowing of £60m during the first half of 2008.

 

·         Group profit before tax, amortisation and exceptional costs was £7.8m (2007: £14.7m). Loss before tax was £0.8m (2007: Profit before tax of £12.1m).

 

·         Exceptional costs for the half year were £3.4m (2007: £ nil) and related principally to previously reported restructuring costs (£1.4m), and lease provisions and accelerated depreciation of £1.7m. The business will continue to review its cost base in light of market activity levels and further one off costs are therefore possible in the second half of 2008.

 

·         The effective tax rate was 24.8% (2007: 29.0%).

 

·         The Underlying Adjusted Basic Earnings per Share^[2] was 5.4p (2007: 10.1p) (Basic loss per share was 0.6p (2007: Earnings per share of 8.1p).

 

Balance Sheet

 

Net assets as at 30 June 2008 were £38.0m, a reduction of £4.9m from the previous year end. Net debt as at 30 June 2008 was £61.7m, an increase of £13m from the previous year end. The Group has a borrowing facility of £95m in place until July 2010, of which £36.9m was undrawn at 30 June 2008.

  

  

Cash flow and Capital Expenditure

 

The cash outflow from operations was £8.4m for the first half year (2007: cash inflow of £10m). This has resulted from a reduction in operating profit of £6.3m, the exceptional costs of £3.4m and a working capital outflow of £9.3m (2007: £1.4m). The outflow is due to the normal seasonality in the business and as a result of a number of one off factors linked to lower activity levels (such as lower bonus accruals), a reduction in outsourced surveys and the introduction of Home Information Packs for which the Group initially provided short term credit.  Cash generation is traditionally much stronger in the second half of the year and the introduction of a third party finance arrangement for the payment of Home Information Packs will have a positive impact on cash flow.

 

Interim Dividend

 

We have decided not to pay an interim dividend. The significant deterioration in the housing market makes it prudent to conserve cash until there is greater visibility over when market conditions are likely to improve. The Board will consider the payment of the full year dividend when the preliminary results are announced in February 2009 and this decision will be made in light of the financial results for the year, the trading outlook at that time and the potential for value creating acquisitions that are likely to arise as a result of the current market conditions. In the longer term the Board remains committed to our stated dividend policy.

 

Development

 

Our surveying business continues to make strong progress, underpinned by the two major contract gains, announced last year, with Barclays and C&G.  Barnwoods, which was appointed as the exclusive panel manager of C&G, reported turnover in the first half of the year of £12.0m (2007: nil) and operating profit of £6.1m (2007: nil), in line with our expectations. Although house purchase activity is dramatically down, the volume of valuations has been supported by an active re-mortgage market. The division has continued to deliver a high quality of service, a key factor in maintaining its excellent relationship with the lender community.

 

In a more challenging market, the estate agency business is focussed on delivering cost efficiencies and maximising all non exchange income opportunities (such as financial services, lettings and the sale of Home Information Packs).  Home Information Packs have been successfully introduced, insurance and mortgage penetration rates are up and lettings income is up 13% in Your Move and Reeds Rains. As a result, despite a 48% fall in exchange income in Your Move and Reeds Rains, our estate agency revenue is down by only 27%. As previously announced, we closed our loss making in-house conveyancing operation, incurring losses/closure costs of £0.3m in the first half of 2008.

 

In line with our strategy of developing non cyclical income streams, we have invested £0.6m in a repossession asset management business, under our First Complete brand. This has involved the implementation of new systems and investment in additional resources and expertise in this area. This business has already secured a number of new contracts and we expect it to contribute significantly to profits in the longer term.

 

Board

 

Peter Hales, a non executive director, resigned from the Board as at the end of June 2008 to concentrate on other business interests. We wish Peter well for the future.

I am pleased to welcome Robert Sharpe as a non executive director as from the 1 September 2008. Robert has over 30 years of experience in the financial services sector, and I am confident will make a valuable contribution to the growth of the business over the coming years.

 

Outlook

 

The Group has reported a satisfactory first half result in a very difficult market.  Although house purchase activity levels have stabilised in recent weeks (albeit at a very low level) after nine months of declines, we expect market conditions to remain challenging for some time.

 

Our surveying division is proving to be resilient and we expect to make further progress over the year as a whole.

 

This resilience, together with the continued investment in other counter cyclical growth opportunities, such as lettings and repossessions, leaves the Group well placed to trade satisfactorily through the remainder of 2008 and deliver significant growth when the market improves.

 

Roger Matthews

6 August 2008

Interim Group Income Statement

 

			Unaudited		Audited
			Six Months Ended		Year Ended
			30 June	30 June	31 Dec
			2008	2007	2007
				(reclassified)*
		Note	£'000	£'000	£'000
Revenue		3	93,086	102,894	219,518
Operating expenses:
Employee and subcontractor costs			54,243	54,783	120,054
Share-based payment		8	(17)	265	650
Total employee and        subcontractor costs			54,226	55,048	120,704
Establishment costs			6,673	6,003	12,364
Depreciation on property, plant  and equipment			1,122	1,074	2,227
Other			22,249	25,863	48,804
			(84,270)	(87,988)	(184,099)
Rental income			466	706	1,125
Group operating profit before  exceptional costs and amortisation			9,282	15,612	36,544
Amortisation of intangible assets			(5,159)	(2,664)	(9,145)
Exceptional costs		5	(3,416)	-	(1,413)
Group operating profit			707	12,948	25,986
Dividend income			296	298	373
Finance income			161	134	357
Finance costs			(1,962)	(1,322)	(3,429)
Net financial costs			(1,505)	(890)	(2,699)
(Loss)/profit before tax before adjustment to goodwill		3	(798)	12,058	23,287
Adjustment to goodwill in respect of subsequent recognition of deferred tax asset			-	-	(1,000)
(Loss)/profit before tax			(798)	12,058	22,287
Taxation		7	198	(3,505)	(5,867)
(Loss)/profit for the period			(600)	8,553	16,420
Attributable to: Equity holders of the parent			(600)	8,458	16,420
Minority interests			-	95	-
			(600)	8,553	16,420

 

(Loss)/earnings per share expressed in pence per share:
Basic		4	(0.6)	8.1		15.8
Diluted		4	(0.6)	8.1		15.7

* The subcontractor costs of £3.5m were classified as part of other operating expenses during the previous year.  This has been reclassified and included under employee and subcontractor costs as these relate to outsourced surveying.

 

Total recognised income and expense for the period:

 

	Unaudited		Audited
	Six Months Ended		Year Ended
	30 June	30 June	31 Dec
	2008	2007	2007
	£'000	£'000	£'000
(Loss)/profit for the period	(600)	8,553	16,420
Available-for-sale investments:
Valuation gains taken to equity	-	-	5,500
Total recognised income and expense	(600)	8,553	21,920
- Attributable to equity holders of the parent	(600)	8,458	21,920
- Attributable to minority interest	-	95	-
	(600)	8,553	21,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Unaudited		Audited
		At 30 June		At 31 Dec
		2008	2007	2007
		£’000	£’000	£’000
Non-current assets
Goodwill Other intangible assets Property, plant and equipment Financial assets Other receivables		69,851 36,403 3,725 5,650 118	66,850 46,321 4,256 148 134	69,572 41,562 4,600 5,650 129
Total non-current assets		115,747	117,709	121,513
Current assets
Trade and other receivables		26,544	26,883	21,458
Cash and cash equivalents		1,164	486	2,326
Total current assets		27,708	27,369	23,784
Total assets		143,455	145,078	145,297
Current liabilities Financial liabilities Trade and other payables		618 33,900	4,988 40,502	17,350 39,909
Current tax liabilities		1,480	6,170	4,957
Provisions for liabilities and charges		997	95	339
Total current liabilities		36,995	51,755	62,555
Non-current liabilities
Financial liabilities		62,222	51,845	33,640
Trade and other payables		-	-	97
Deferred tax liability		872	2,639	1,892
Provisions for liabilities and charges		5,362	3,727	4,175
Total non-current liabilities		68,456	58,211	39,804
Net assets		38,004	35,112	42,938
Equity
Share capital		208	208	208
Share premium account		5,629	5,629	5,629
Share-based payment reserve		468	278	560
Investment in treasury shares		(2,935)	(298)	(2,669)
Unrealised gain reserve		5,500	-	5,500
Retained earnings		29,134	28,872	33,710
Minority interests		38,004 -	34,689 423	42,938 -
Total equity		38,004	35,112	42,938

 

 

		Unaudited Six Months Ended				Audited Year Ended
		30 June 2008		30 June 2007		31 December 2007
Note		£’000	£’000	£’000	£’000	£’000	£’000
Cash generated from operating activities
Profit before tax			(798)		12,058		22,287
Adjustments to reconcile profit before tax to net cash inflows from operating activities
Amortisation		5,159		2,664		9,145
Dividend income		(296)		(298)		(373)
Finance income		(161)		(134)		(357)
Finance costs		1,962		1,322		3,429
Adjustment in relation to deferred tax		-		-		1,000
			6,664		3,554		12,844
Group operating profit before amortisation			5,866		15,612		35,131
Depreciation		1,122		1,074		2,227
Impairment of goodwill		-		-		130
Impairment of property, plant & equipment		-		-		207
Loss/(profit) on sale of property, plant and equipment		200		-		(30)
Share-based payments		(17)		265		650
		1,305		1,339		3,184
(Increase)/decrease in trade and other receivables		(5,075)		(4,978)		2,050
(Decrease)/increase in trade and other payables		(4,261)	(8,031)	3,609	(30)	2,139	7,373
Cash (expended on)/generated from operations			(2,165)		15,582		42,504
Interest paid		(1,962)		(1,322)		(3,429)
Tax paid		(4,299)		(4,303)		(9,662)
			(6,261)		(5,625)		(13,091)
Net cash (expended on)/generated from operating activities			(8,426)		9,957		29,413
Cash flows from investing activities
Purchase of subsidiary undertakings, minority interest and commercial business		(279)		(1,077)		(3,806)
Purchase of intangible assets		-		(30,217)		(30,192)
Dividend received		296		298		373
Interest received		161		134		357
Purchase of property, plant and equipment		(684)		(927)		(2,422)
Proceeds from sale of property, plant and equipment		237		3		139
Purchase of available for sale financial assets		-		-		(2)
Net cash expended on investing activities			(269)		(31,786)		(35,553)
			(8,695)		(21,829)		(6,140)
		Unaudited Six Months Ended				Audited Year Ended
		30 June 2008		30 June 2007		31 December 2007
Note		£’000	£’000	£’000	£’000	£’000	£’000
Net cash from operating activities less cash expended on investing activities			(8,695)		(21,829)		(6,140)
Cash flows from financing activities
Repayment of loans		(116)		(582)		(5,402)
Proceeds from loans		11,891		22,319		18,785
Purchase of treasury shares		(266)		-		(2,371)
Dividends paid		(3,976)		27.               -	27.	(3,124)
Net cash generated in financing activities			7,533		21,737		7,888
Net (decrease)/increase in cash and cash equivalents			(1,162)		(92)		1,748
Cash and cash equivalents at the beginning of the period			2,326		578		578
Cash and cash equivalents at the end of the period	9		1,164		486		2,326

 

			Audited
	Unaudited Six months ended		Year ended
	30 June 2008 £’000	30 June 2007 £’000	31 Dec 2007 £’000
Total equity at the start of the period	42,938	25,966	25,966
Purchase of treasury shares	(266)	-	(2,371)
Minority interest on acquisition of subsidiaries	-	328	-
Share-based payments	(92)	265	547
Revaluation of available-for-sale financial assets	-	-	5,500
Dividends paid	(3,976)		(3,124)
(Loss)/profit for the period	(600)	8,553	16,420
Total equity at the end of the period	38,004	35,112	42,938

 

The interim condensed group financial statements for the six months ended 30 June 2008 was approved by the board of directors on 6 August 2008. The Group’s published financial statements for the year ended 31 December 2007 have been reported on by the Group’s auditors and filed with the Registrar of Companies. The auditor’s report on those accounts, which have been filed with the Registrar of Companies, was unqualified and did not contain any statement under section 237 (2) or (3) of the Companies Act 1985.  The financial information for the half year ended 30 June 2008 and the equivalent period in 2007 has not been audited.

 

The figures for the year ended 31 December 2007 do not constitute the Company’s statutory accounts for that period but have been extracted from the statutory accounts.

 

  

1         Basis of preparation

      

The interim results have been prepared using the accounting policies disclosed in the Annual Report and Accounts 2007, which were prepared in accordance with IFRSs as adopted by the European Union.

 

The interim condensed group financial statements for the six months ended 30 June 2008 have been prepared in accordance with IAS 34 Interim Financial Reporting.

 

The interim condensed group financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at 31 December 2007.

 

2         Seasonality of operations

  

Due to the seasonal nature of the property sector, higher revenues and operating profits are usually expected in the second and third quarters of the calendar year. Higher sales during the period April to September are mainly attributed to the desire by customers to sell their homes during the spring and summer months.

  

3         Segment analysis of revenue and operating profit

  

The primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affected predominantly by differences in the products and services provided. Secondary segment information (geographic segment) has not been reported separately as the majority of the revenue and expense arises in the United Kingdom and all assets are situated in the United Kingdom.

 

The estate agency segment provides services related to housing transactions via a network of high street branches.

 

The surveying and valuation segment provides a professional survey service of domestic properties to various lending corporations.

 

The financial services segment sells mortgages for a number of lenders and sells life assurance and critical illness policies, etc for a number of insurance companies via the estate agency branch and Linear network.

 

 

 

 

 

 

 

 

 

 

 

 

  

  

3         Segment analysis of revenue and operating profit (continued)

  

Six months ended 30 June 2008

	Estate agency and related  activities      £’000	Surveying and valuation Services                £’000	Financial services    £’000	Unallocated               £’000	Total              £’000
Income statement  information
Segmental revenue	39,387	44,889	8,810	-	93,086
Segmental result:
- before exceptional costs and
amortisation of intangible assets	(4,064)	15,409	(1,140)	(923)	9,282
- after exceptional costs and
amortisation of intangible assets	(7,220)	10,896	(1,673)	(1,296)	707
Dividend income					296
Finance income					161
Finance costs					(1,962)
Loss before tax					(798)
Taxation					198
Loss for the period					(600)

 

 

  

Six months ended 30 June 2007

	Estate agency and related  activities      £’000	Surveying and valuation Services                £’000	Financial services    £’000	Unallocated               £’000	Total              £’000
Income statement  information
Segmental revenue	52,795	40,016	10,083	-	102,894
Segmental result:
- before exceptional costs and
amortisation of intangible assets	6,472	11,661	(1,147)	(1,374)	15,612
- after exceptional costs and
amortisation of intangible assets	5,671	10,285	(1,634)	(1,374)	12,948
Dividend income					298
Finance income					134
Finance costs					(1,322)
Profit before tax					12,058
Taxation					(3,505)
Profit for the period					8,553

  

  

  

3.       Segment analysis of revenue and operating profit (continued)

  

Year ended 31 December 2007

	Estate agency and related  activities      £’000	Surveying and valuation Services                £’000	Financial services    £’000	Unallocated               £’000	Total              £’000
Income statement  information
Segmental revenue	107,110	89,866	22,542	-	219,518
Segmental result:
- before exceptional costs and
amortisation of intangible assets	13,708	26,312	(870)	(2,606)	36,544
- after exceptional costs and
amortisation of intangible assets	10,373	20,149	(1,995)	(2,541)	25,986
Dividend income					373
Finance income					357
Finance costs					(3,429)
Profit before tax before adjustment goodwill					23,287
Adjustment to goodwill in respect of       subsequent recognition of deferred asset					(1,000)*
Profit before tax					22,287
Taxation					(5,867)
Profit for the year					16,420
* This relates to estate agency and related activities segment.

  

4.       (Loss)/earnings per share

  

Basic (loss)/earnings per share amounts are calculated by dividing net (loss)/profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted (loss)/earnings per share amounts are calculated by dividing the net (loss)/profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period 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.

Six months ended 30 June

	Loss £’000	Weighted average number of shares		2008 Per share Amount Pence	Earnings £’000	Weighted average     number  of shares	2007     Per share       Amount         Pence
Basic EPS	(600)	102,911,731		(0.6)	8,458	104,158,950	8.1
Effect of dilutive share    options	-		195,615	-	-	716,546	-
Diluted EPS	(600)	103,107,346		(0.6)	8,458   104,875,496		8.1

 

 

 

 

 

 

4.       Earnings per share (continued)

  

Year ended 31 December 2007

  

	Earnings £’000	Weighted average number of shares	2006 Per share Amount Pence
Basic EPS	16,420	103,647,347	15.8
Effect of dilutive share   options	-	609,076	-
Diluted EPS	16,420	104,256,423	15.7

 

 

The Directors consider that the adjusted earnings shown below give a better and more consistent indication of the Group’s underlying performance, and is calculated as follows:

 

	Six months ended		Year ended
	30 June 2008 £’000	30 June 2007 £’000	31 Dec 2007 £’000
(Loss)/profit after tax	(600)	8,458	16,420
Adjusted after tax for:
Exceptional costs	2,460	-	989
Amortisation of intangible assets	3,714	1,865	6,401
Share-based payment	(12)	185	455
Adjusted profit after tax	5,562	10,508	24,265

 

5.       Exceptional costs

  

	Six months Ended		Year Ended
	30 June 2008	30 June 2007	31 Dec 2007
	£’000	£’000	£’000
Onerous lease costs due to branch closures	1,382	-	501
Redundancy costs due to branch closures	1,446	-	575
Accelerated depreciation on property, plant and equipment due to branch closures	270
Impairment of goodwill	-	-	207
Impairment of property, plant and equipment	-	-	130
Others	318	-	-
	3,416	-	1,413

  

  

  

  

  

  

  

  

  

  

  

  

  

6.       Dividends paid and proposed

  

	Six months Ended
	30 June 2008	30 June 2007
	£’000	£’000
Dividends on ordinary shares declared and paid during the six month period:
Final dividend for 2007: 3.86p (2006: nil)	3,976	-
Dividends on ordinary shares proposed (not recognised as a liability as at 30 June):
Interim dividend for 2008: nil (2007: 3.0p)	-	3,170

  

7.       Taxation

 

The major compontents of income tax (credit)/charge in the interim group income statements are:

 

	Six months Ended		Year Ended
	30 June 2008	30 June 2007	31 Dec 2007
	£’000	£’000	£’000
UK corporation tax   - current year	822	4,598	9,494
- tax over provided in prior year	-	-	(285)
- utilisation of tax losses	-	-	(1,000)
	822	4,598	8,209
Deferred tax:
Origination and reversal of temporary differences	(1,020)	(868)	(2,342)
Adjustment due to change in tax rate	-	(225)	-
Total tax in income statement	(198)	3,505	5,867

  

The Group’s current taxation charge comprises corporation tax calculated at estimated effective tax rates for the year.

 

8.       Share-based payment

  

New ‘Save-as-you-earn’ scheme

In March 2008, the Group announced a new ‘Save-as-you-earn’ scheme effective from March 2008.  This scheme is open to all qualifying employees and provide for an exercise price equal to the daily average market price on the date of grant less 15%.  The options will vest if the employee remains in the service for the full duration of the option scheme (three years).  There are no cash settlement alternatives.  The estimated number of share options granted under the scheme was 1,799,000 at an exercise price of £1.15.  The fair value of options granted during the six months ended 30 June 2008 was £0.50 and it was estimated on the date of grant using the Black Scholes model with the following assumptions:

 

Weighted average share price at grant date (£)                                                                     1.34

Exercise price (£)                                                                                                              1.15

Expected volatility (%)                                                                                                          46

Expected dividend growth rate (%)                                                                                      2.15

Risk-free interest rate (%)                                                                                                   5.25

 

Old ‘Save-as-you-earn’ scheme    

In addition, during the six months ended 30 June 2008, certain number of staff have withdrawn from the old ‘Save-as-you-earn’ scheme.  The withdrawal from the scheme has been treated as non-fulfilment of vesting condition and £316,000 of accumulated share-based payment charge has been reversed to the income statement for the six months ended 30 June 2008.

 

 

9.       Cash and cash equivalents

 

	Six months Ended		Year Ended
	30 June 2008	30 June          2007	31 Dec 2007
	£’000	£’000	£’000
Short – term deposits	1,164	486	2,326
	1,164	486	2,326

 

The fair value of cash and cash equivalents is £1.2m (30 June 2007: £0.5m and 31 December 2007: £2.3m). At 30 June 2008, the Group had available £36.9m of undrawn committed borrowing liabilities in respect of which all conditions precedent had been met (30 June 2007: £29.3m and 31 December 2007: £47.8m).

 

10.   Analysis of net debt

  

	Six months Ended		Year Ended
	30 June 2008	30 June          2007	31 Dec 2007
	£’000	£’000	£’000
Interest bearing loans and borrowings	62,840	56,833	50,990
Less: cash and short-term deposits	(1,164)	(486)	(2,326)
Net debt at the end of the period	61,676	56,347	48,664

 

 

During the six months ended 30 June 2008, the Group has drawn down additional £11.8m under the revolving credit facility. The utilisation of this revolving credit facility may vary each month as long as this does not exceed the maximum £95m facility. The banking facility expiry date has been extended from July 2009 to July 2010 and can be further extended until July 2011. The revolving credit facility is repayable when funds permit.

 

The interest rate applicable to the facility is LIBOR plus a margin rate of 0.65%. The margin rate is linked to the leverage ratio of the Group and the margin rate is reviewed at six monthly intervals.

Principal Risks and Uncertainties

 

The risks to the business over the remaining six months of the year include:-

·         The continued volatility and uncertainty of the UK housing market. In particular transaction volumes (both house purchase and re-mortgage) which will adversely affect the profitability and cash flow of all our key brands/businesses.

·         Loss of key surveying clients or significant reduction in volumes either as a result of adverse market conditions, market consolidation, competition or inadequate service delivery.

·         The development of alternative products and services in competition with traditional estate agency and surveying services, such as supermarket property websites and Automated Valuation Models.

·         Liability for negligent provision of services to customers (eg inaccurate surveys).

·         Failure or interruptions of information technology services on which the Group is reliant for operational performance and financial information.

·         Changes in legislation or regulation may impact on business results or the UK housing market in general.

·         The reputation and profitability of LSL could be adversely affected by the actions of one or a limited number of employees or franchisees.

·         Loss of any licences or permission necessary for the performance of the Group businesses.

 

Further information relating to the management of these and other risks and uncertainties can be found in LSL’s Annual Report & Accounts 2007 which is available at www.lslps.co.uk.

 

 

 

Statement of Directors’ Responsibilities

 

The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS34 as adopted by the European Union, and the interim management report herein includes a fair review of the information required by DTR 4.2.7R (an indication of important events during the first six months and a description of the principal risks and uncertainties for the remaining six months of the year) and by DTR 4.2.8R (a disclosure of related party transactions and charges therein) of the Disclosure and Transparency Rules.

 

By order of the Board

 

 

 

Simon Embley                                                 Dean Fielding

Chief Executive Officer                                        Group Finance Director

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