LSL Property Services : PRELIMINARY ANNOUNCEMENT

LSL Property Services plc ('LSL' or 'The Group')

PRELIMINARY ANNOUNCEMENT

LSL Property Services plc, a leading provider of residential property services incorporating both estate agency and surveying businesses, announces preliminary results for the year ended 31 December 2016.

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined inNote 4)

2 Refer to Note 6 for the calculation

3 Refer to Note 9 for the calculation

· Group operating profit growth of 58% at £65.4m (2015: £41.4m)

· Solid performance in a changing market with full year Group Underlying Operating Profit of £34.6m (2015: £42.9m)

· Continued momentum in the Estate Agency Division with 3% overall revenue growth

· Lettings income growth of 9%, delivered through organic growth and selective acquisitions

· Growth in Financial Services income of 27% delivered through strong organic growth (13%) and the acquisition of Group First

· Marsh & Parsons delivered a resilient performance despite a challenging London market with total revenue down 5% whilst Lettings revenue performed strongly with growth of 6%

· The Surveying Division delivered overall revenue growth of 1%, as the mix of volume and income per job was optimised, with an EBIT margin of 27.1% (2015: 28.3%)

· Improving PI Costs outlook with £1.6m exceptional provision release

· Exceptional gain of £32.9m on sale of Zoopla shares

· Exceptional restructuring costs of £2.3m

· Strong operational cash flow and low level of gearing

Commenting on today's announcement, Simon Embley, Chairman, said:

'Following a strong first half performance, the Group delivered a resilient second half performance given the changing market conditions. I am pleased that we maintained revenue growth in both the Estate Agency and Surveying Divisions.

The Group reacted decisively to the changing market conditions in the second half by taking selective cost measures and strengthening the balance sheet. The Group has relatively low levels of gearing and is very cash generative at an operational level. The business is well positioned to capitalise on market conditions to increase shareholder value.'

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Notes on LSL:

LSL is a leading provider of residential property services to its key customer groups. Services to consumers include: residential sales, lettings, surveying, conveyancing and mortgage, pure protection and general insurance brokerage services. Services to mortgage lenders include: valuations and panel management services, asset management and property management services. For further information, please visit LSL's website:www.lslps.co.uk

Chairman's Statement

Introduction

Following a strong first half performance, the Group delivered a resilient second half performance given the changing market conditions, with 2016 Group Underlying Operating Profit of £34.6m (2015: £42.9m). Group Operating Profit was £65.4m (2015: £41.4m). Group revenue grew by 2.4% to £307.8m (2015: £300.6m) with growth in both the Estate Agency and Surveying Divisions. Profit before tax grew by 64.6% to £63.5m (2015: £38.6m).

Performance

After a strong overall first half performance in the Estate Agency Division, with a notable first quarter acceleration of transactions in the run up to the change in stamp duty regulations on 1 April 2016, we reacted decisively to the changing market conditions in the second half of the year with selective cost reduction measures and branch closures and protected the balance sheet by disposing of the Group's shareholding in Zoopla and pausing acquisition activity. We continued to invest in Lettings and Financial Services headcount during the second half of 2016. As a result, in 2016 we delivered full year growth of 9% in the Lettings business and delivered Financial Services revenue growth of 27%.

The Surveying Division delivered a robust performance with 1% revenue growth and a strong operating profit margin of 27.1%.

Dividend

Due to the Board's positive view of the future prospects for the business, the proposed dividend payment is at the upper end of our previously stated policy of applying a dividend pay-out ratio of between 30% to 40% of Group Underlying Operating Profit after interest and tax. The Board has reviewed the policy while considering the risks and capital management decisions facing the Group.

A final dividend of 6.3 pence per share (2015: 8.6 pence per share) will be proposed to Shareholders at the forthcoming AGM, giving a total dividend for 2016 of 10.3 pence per share (2015: 12.6 pence per share).

The ex-dividend date for the final dividend is 30 March 2017, with a record date of 31 March 2017 and a payment date of 2 May 2017. Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan.

Our market position

LSL holds a market leading position in its core Estate Agency business comprising 12 Estate Agency brands, including Your Move, which is the largest UK single brand estate agent measured by the number of branches with 267 branches nationwide. The businesses are organised to deliver integrated Residential Sales, Lettings and Financial Services, as well as a range of additional property related services.

We continued to invest in our brands in 2016 to drive future growth, with a national media campaign to support the Your Move brand during the first half of 2016 and by increasing dedicated headcount to support our successful Lettings and Financial Services businesses and growing our Land and New Homes businesses. During 2016 we opened two new Marsh & Parsons branches.

We continue to hold a leading market position in Surveying, maintaining strong relationships with many of the major lenders. LSL's Surveying Division is one of the country's largest providers of residential valuation services nationwide and is one of the largest employers of surveyors in the UK.

We operate in a highly competitive residential property market, which is characterised by on-going new entrants and evolving business models. We continue to proactively develop and evolve our offering to ensure our competitiveness in this changing marketplace. We will also take selective cost action as required to underpin our competitiveness, as we did in the second half of 2016.

During the second half of 2016 we completed extensive consumer and market research. In 2017 we will progress the next phase of our strategy by exploring and evaluating LSL's digital opportunities and a further update will be provided to Shareholders during 2017.

We continue to selectively acquire businesses. To drive recurring income growth, we acquired nine lettings books in 2016 for £4.1m (2015: 30 lettings books for £9.6m), with internal disciplines in place to ensure successful integration into the Group.

In February 2016 we acquired a 65% interest in Group First which provides mortgage and protection brokerage services to the purchasers of new homes. This acquisition supports LSL's strategy to grow long term profitability in the UK residential property services sector.

In Financial Services, the Group arranged total mortgage lending of £17.4bn (2015: £14.5bn), representing 7.1% of the overall market. Measured by the number of appointed representatives, LSL's overall combined network is the second largest in the UK.

LSL notes the publication of the Housing White Paper in January 2017 which confirmed the Government's intent (as announced in the Autumn Statement in November 2016) to bring forward legislation (as soon as Parliamentary time allows) to ban letting agent fees to tenants. LSL will continue to monitor the review and contribute to the consultation as appropriate during the year.

Corporate Governance and Board

The Board remains committed to high levels of corporate governance and during 2016, LSL has complied in all respects with the UK Corporate Governance Code (September 2014 edition). We have also considered the amendments included in the April 2016 edition of the Code to ensure we continue to comply during 2017 and are monitoring the Government's review of corporate governance, which is set out in the Green Paper published in November 2016.

There were a number of changes to the Board during the year. At the 2016 AGM, Mark Morris, who had been a Non Executive Director and Chairman of the Audit Committee since LSL's IPO in 2006, retired from the Board and its Committees. David Stewart, who joined the Board as a Non Executive Director in May 2015, was appointed Chairman of the Audit Committee. David is also a member of LSL's Remuneration and Nominations Committees. In January 2017, Adrian Gill stepped down from the Board and on 2 February 2017 we announced the appointment of Helen Buck as Executive Director - Estate Agency. Helen had been a Non Executive Director of LSL since December 2011 and has excellent knowledge of the business. Her appointment followed a comprehensive selection process.

The Nominations Committee has during the year reviewed the Board's composition, which at the date of this Report includes three independent Non Executive Directors and three Executive Directors and myself as Chairman. The Board has expertise in strategy, technology, estate agency, surveying, financial services, the residential housing sector, commercial property, retail and marketing, operations, business services, entrepreneurial private and public companies, finance, consumer and employee matters and corporate governance.

The Board continues to recognise the benefits of diversity in the boardroom, including gender and racial diversity and the current Board composition includes two female Directors, Helen Buck (Executive Director - Estate Agency) and Kumsal Bayazit Besson (Independent Non Executive Director). Whilst we continue to remain of the view that the setting of targets for the number of female directors on the Board is not necessary and that we will continue to appoint on merit, I will continue to ensure that our searches for any new directors take into account diversity, including gender and race.

In respect of 2016, the Board has conducted an annual review of its effectiveness and that of its Committees, taking into account the balance of skills, experience, independence and knowledge of our businesses. Following this exercise, we concluded that the Board and its Committees are effective and are able to discharge their respective duties and responsibilities appropriately. The appraisal produced a number of recommendations to further improve the effectiveness of the Board, which will be implemented during 2017. These include reviewing Board meeting planning and reporting arrangements, the development of Executive Director and senior management succession plans, the provision of Director training and an evaluation of the Group's cultures, values and ethics.

In addition, and taking into consideration the revised Code published in April 2016, the Board reviewed the composition of the Audit Committee and confirmed that the Audit Committee as a whole has the competence relevant to the sectors in which LSL operates. Further details relating to the Audit Committee are contained in the Audit Committee Report or the Annual Report and Accounts 2016.

As Chairman, with the responsibility for leadership of the Board, I review its effectiveness on all aspects of its role and encourage feedback.

Our people

Ultimately the success of our business model has always been underpinned by our strong brands and excellence in delivery by our knowledgeable local colleagues. The number of Group employees as at 31 December 2016 was 4,990 (2015: 5,181). Our success is attributable to the high levels of customer service provided by our staff in all parts of our business across the entire UK and I would like to thank all of our staff for the continued hard work and commitment which they have demonstrated throughout 2016.

Current trading and outlook

We have started the year positively in both the Estate Agency and Surveying Divisions.

In the Estate Agency Division, trading is encouraging and in-line with expectations, with quality buyers and good availability of mortgages. Whilst there remains a shortage of stock, our sales conversion remains strong.

In our Surveying Division, trading is in line with expectations and the second phase of the technology refresh is progressing well.

Whilst it is difficult to accurately predict housing market transaction volumes and consumer confidence for the remainder of the year, 2017 is expected to see a reduced volume of house purchase transactions compared to the prior year, with modest house price inflation outside prime Central London. However, mortgage costs and availability remain positive and the medium to longer term fundamentals of the UK housing market remain robust.

Underpinned by a series of strategic initiatives, the business is well placed to deliver a solid performance in 2017. We are positive regarding the outlook for the business, committed to driving profitable organic growth across the business, and will continue to evaluate selective acquisitions.

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

Simon Embley

Chairman

7 March 2017

Note 1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined inNote 4)

Note 2 Source: LSL estimates

Note 3 Source: Council of Mortgage Lenders - January 2017

Note 4 Source: Which Network? January 2017

Group Chief Executive's Review

2016 Overview

As reported in the Interims Results announcement in August 2016, the Group delivered a strong first half performance, with the notable acceleration of transactions in the first quarter in the lead up to the change in stamp duty on 1 April 2016. The Group reacted decisively to the changed market conditions in the second half of the year following the EU referendum result.

Selective cost measures were taken across the Group and the balance sheet has been strengthened with our operational gearing ratio reduced to 0.51 at the end of 2016 (2015: 0.83). We continued to invest in the growing parts of our businesses and delivered strong year-on-year revenue growth in Lettings (up 9%) and Financial Services (up 27%).

Group revenue increased by 2.4% to £307.8m (2015: £300.6m). Group Underlying Operating Profit was £34.6m (2015: £42.9m) and Group Operating Profit was £65.4m (2015: £41.4m). After strong first half revenue growth of 8% and profit growth of 10%, second half revenue fell by 2.5%, impacted by residential property market trends following the EU referendum, with a subsequent fall in second half profits.

I would like to take this opportunity to thank all my colleagues across our business for their professionalism and dedication. The efforts of my colleagues delivered revenue growth in both Estate Agency and Surveying, which was especially pleasing given the degree of change during the year.

The Market in 2016

The UK residential property services market in 2016 was impacted by two main events; the lead up to the stamp duty changes on 1 April 2016 and the EU referendum outcome on 23 June 2016; and the subsequent impact on consumer confidence and residential property transactions during the second half of the year.

Approvals for house purchases were ahead 16.5% in the first quarter of the year compared to the same period in 2015 as increases in stamp duty effective from 1 April 2016 led to an acceleration in market activity in the period up to this change. Volumes slowed in the second quarter being 1.5% ahead of the comparative period in 2015 as completions slowed following the stamp duty change and ahead of the EU referendum on 23 June 2016.

Following the EU referendum on 23 June 2016 consumer confidence was impacted and volumes fell by 12.4% in the third quarter compared to the same period in 2015. Volumes fell again by 4.8% in the fourth quarter of 2016 compared to the same period in 2015.

The second half impact on market transactions was more pronounced in London and the South East. Market transactions are estimated to have fallen in prime Central London areas by between 20% to 40% in the third quarter 2016, dependent on the postcode.

Total Mortgage Approvals increased by 5.7% in 2016. This reflected an increase in remortgage approvals in the first and second half of 2016 compared to the same periods in 2015 reflecting low interest rates and the availability of remortgage products.

Average house prices in England and Wales grew 3.1% (2015: 6.6%) to £298,000 annually as stock shortages continued to have an impact. Excluding London and the South East, the average increase was 4.4%.

Residential property values in Greater London increased by 0.2%. Prime Central London (5 prime boroughs) prices fell while outer prime Central London experienced an increase in year-on-year house prices.

The proportion of new sales instructions given to online/hybrid estate agents continued to grow, increasing from 3% of the market in the second half of 2015 to 6% in the second half of 2016. While traditional estate agents continue to represent the vast majority of the market (95% of residential sales instructions in 2016), we continue to closely monitor market developments.

The proportion of mortgage lending in the market placed through intermediaries continued to increase during the year.

Following market declines in the repossessions market in the past few years, market repossession volumes again declined in 2016, reducing by 25% to 7,700 total repossessions as interest rates remained low and was the lowest number since 1982.

Strategy

We remain committed to delivering on our stated strategy:

Estate Agency

· Ambition to drive operating profit per branch to between £80,000 and £100,000 in the medium term

· Ambition to expand the number of Marsh & Parsons branches to a total of 36 by 2019, particularly outside prime Central London

· Grow recurring and where market conditions permit counter-cyclical income streams

· Complete selective acquisitions of both residential sales businesses and lettings books

In addition to delivering on our stated strategy, we are also exploring options to capitalise on digital opportunities created by the growth in consumer acceptance of online/hybrid agency business models. During the second half of 2016 we completed extensive consumer and market research and in 2017 we are progressing to the next phase by exploring and evaluating LSL's digital opportunities. We will provide a further update to Shareholders during 2017.

Surveying

· Optimise contract performance and revenue generation from business to business customers

· Achieve further improvement in efficiency and capacity utilisation

· Use technology to target further improvements in customer satisfaction and performance

· Continue the graduate training programme

LSL performance in 2016

Estate Agency Division

Total Estate Agency income of £243.1m (2015: £236.5m) increased by 3%. This increase resulted from the consistent execution of our strategy with strong growth in both Lettings and in Financial Services income, where we continued to invest in additional people to support growth.

During the second half of the year following the EU referendum we implemented selective cost reduction measures to adapt the Group's costs base and ensure we remain competitive. We closed 21 branches in the second half with little disruption to our business, which is testament to the professionalism and experience of our staff.

Residential Sales exchange income

Residential Sales exchange income decreased by 10% to £83.8m (2015: £92.9m) with average fees per unit down 2%. Exchange volumes fell by 8%, with a strong first quarter followed by a slowdown in subsequent quarters following the stamp duty changes and the EU referendum. The fall in fees reflected increased competitive pressure in the second half as volumes reduced.

Lettings income

We remain committed to our strategy of increasing recurring Lettings income. In 2016 we delivered growth in Lettings income of 9%. Lettings Income increased as a proportion of the Estate Agency business and represented 29% of total Estate Agency Division income in 2016 (2015: 28%).

We delivered organic Lettings growth of 4% with growth across all our brands. In line with our strategy, we continued to invest in lettings book acquisitions, acquiring nine lettings books in 2016 for a total consideration of £4.1m. The lettings books have been successfully integrated into our networks. Lettings book acquisitions were paused during the second half of the year following the EU referendum.

Financial Services

Total Financial Services income grew strongly again with 27% year-on-year growth in 2016. Adjusting for the acquisition of Group First, we delivered organic growth of 13% as we continued to roll out our model across the Estate Agency business and delivered growth from our intermediary networks.

In February 2016 we acquired a 65% interest in Group First which provides mortgage and protection brokerage services to the purchasers of new homes. This acquisition supports LSL's strategy to grow long term profitability in the UK residential property services sector.

Marsh & Parsons

Given the overall challenging prime Central London market, compounded by the result of the EU referendum which caused transaction levels to drop significantly, Marsh & Parsons revenue fell by 5% in 2016 to £33.5m (2015: £35.3m) and profit fell by 36% to £4.4m (2015: £6.9m).

Whilst Residential Sales fell by 12% we believe this to be a solid performance in light of the overall London market conditions. We were pleased with the Lettings performance with Lettings income up 6% against 2015, accounting for more than half of Marsh & Parson's total revenue.

We continued with our branch expansion strategy in 2016, opening two new branches during the year in the outer prime Central London locations of Tooting and Tufnell Park. We have continued with our strategy in 2017 and since the year-end have opened a branch in Brixton. We are pleased with the performance of these new branches. This takes our total number of Marsh & Parsons branches to 26.

Our ambition remains to expand to 36 branches by 2019. Outer prime Central London has not been as negatively impacted as prime Central London and Marsh & Parsons is looking to expand its new office footprint in outer prime Central London locations.

Estate Agency profit per branch (Your Move, Reeds Rains and LSLi)

The reduction in operating profit per owned branch in 2016 to £30,500 (2015: £42,500) reflects the challenging residential sales market conditions following the EU referendum.

LSL has increased operating profit per owned branch from £20,100 in 2012 to £30,500 in 2016. Our medium term ambition is to drive operating profit per owned branch to between £80,000 and £100,000 on the expectation of longer term stability in the UK residential property sector. Our Lettings growth and Financial Services growth across the network continues to underpin this ambition and we will also focus on Land and New Homes. We will also consider further opportunities to re-engineer the cost base.

Surveying Division

During 2016 we continued to focus on optimising the profitability of our Surveying business with particular emphasis on delivering a market leading IT system. Total Surveying Division income in 2016 of £64.7m (2015: £64.1m) was 1% higher than 2015, reflecting a good performance in a changing market.

During the first half of 2016, implementation started of a new market leading IT system to delivermodern and scalable technology for LSL that provides an improved platform to deliver services to our clients. Phase one is complete and a roadmap of further developments will be rolled out in 2017. This system will enable our Surveying Division to continue to improve efficiency, operational performance and hence the quality of service to our end customers.

Following on from the significant improvements in 2014 and 2015, capacity optimisation has been maintained helping to underpin profit margins of 27.1% (2015: 28.3%). Income per job increased by 4% to £203 (2015: £196) and we performed in total 318,077 jobs in 2016 (2015: 327,267) as we optimised the mix of our business. We have continued with our graduate training programme which continues to be successful.

Our customers

Our continued focus on providing the best service to our customers has been recognised in 2016 with numerous industry awards including:

· Marsh & Parsons: Estate Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Overall Winner of the Estate Agency of the Year Award and Best Large UK Estate Agency - Gold Award.

· Your Move: Lettings Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Best Property Management (1001+ properties) Lettings Agency - Gold Award.

· Davis Tate: Estate Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Best Medium Estate Agency, South East - Gold Award. The 2016 all Agents Awards: Best Estate Agent - Overall Winner in Reading, Best Estate Agent - Gold Awards in 10 UK postcode regions: Best Letting Agent - Gold Award in 8 UK postcode regions.

· Frost's Estate Agent: Estate Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Best Small Estate Agency, East of England - Gold Award.

· Intercounty:Estate Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Best Medium Estate Agency, East of England - Gold Award. Lettings Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Best Medium Lettings Agency, East of England - Gold Award.

· Thomas Morris: The Negotiator Awards 2016: East of England Agency of the Year - Gold Award. Relocation Agent Network Awards 2016: Best Agent, East Anglia and Essex - Winner, Customer Relocation Award - Winner. The 2016 all Agents Awards: Best Estate Agent, East of England - Gold Award. Agents Giving: Best Innovative and Creative Fundraising Award - Winner. Agency Mentors: Inspirational Agent 2016 - Winner (Sue Gipson St.Neots).

· Pink Home Loans: Financial Adviser Service Awards 2016 : 5 star award.

· Pink Home Loans and First Complete Financial Services: Precise Mortgages Awards 2016: Best Distributor Group.

· e.surv Chartered Surveyors: Equity Release Awards 2016: Best Surveyor Award - Winner. Mortgage Strategy Awards 2016: Best Surveyor Award, Individual Firms - Winner. Your Mortgage Awards 2016: Best Surveyor Award - Winner.

Balance Sheet and Exceptionals

The Group has a strong balance sheet with closing Net Bank Debt at 31 December 2016 of £20.3m (2015: £39.9m) and a gearing level at 0.51 times 2016 adjusted EBITDA (2015: 0.83 times).

Between 20 July 2016 and 31 October 2016, we sold our entire holding of 11.3m ordinary shares in Zoopla for total proceeds of £36.1m at an average price per share of £3.19. The proceeds of the disposal were used to reduce corporate indebtedness.

As set out in our 2016 Interim Results announcement, during the second half of 2016, a cost saving programme across the Group and the technological refresh in the Surveying Division resulted in exceptional costs of £2.3m.

In relation to the PI Costs provision, the Group continued to make positive progress in addressing historic claims and there has been a net £1.6m exceptional release.

Outlook

We have started 2017 in line with our expectations across the Group and are well placed to deliver a solid performance during the year. We continue to consistently execute on our strategy and are well placed to deliver increased Shareholder value.

I look forward to working with my colleagues to deliver a successful year in 2017.

Ian Crabb

Group Chief Executive Officer

7 March 2017

Note 1- Operational gearing is defined as net debt divided by adjusted EBITDA (Adjusted EBITDA is Group Underlying Profit (note 4) plus depreciation on property plant and equipment)

Note 2- Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined inNote 4)

Note 3- Source: Bank of England for 'House Purchase Approvals' and 'Total Mortgage Approvals' - December 2016 released January 2017

Note 4- Source LSL estimates

Note 5-Source December 2016 LSL Property Services/ACADATA HPI

Note 6- LSL sources/data analysis

Note 7-CML, new mortgages sold by intermediaries - February 2017

Note 8-Source Council of Mortgage Lenders - January 2017, released February 2017

Note 9- Total consideration of up to £4.1m includes contingent consideration

Business Review - Estate Agency Division

1 'Other income' includes franchising income, conveyancing services, EPCs, Home Reports, utilities and other products and services to clients of the branch network.

2 Refer to Note 3 for the calculation

3 Source: Bank of England, 'Mortgage approvals for house purchases' and 'Total mortgage approvals' - December 2016, released January 2017.

4 Source: HMRC Stats, 'Monthly property transactions completed in the UK with value of £40,000 or above' - December 2016, released January 2017

5 Source: Council of Mortgage Lenders - January 2017, released February 2017

Estate Agency Division Performance

Year-on-year income growth in the Estate Agency Division was 3%. Lettings income and Financial Services income showed positive growth with Residential Sales impacted by lower transaction volumes in the second half. First half total income increased by 9% compared to the comparative period in 2015 whilst second half income fell by 3%.

Residential Sales exchange income

Residential Sales exchange income decreased by 10% to £83.8m (2015: £92.9m) with average fees per unit decreased by 2%. Residential Sales exchange volumes fell by 8%. The trend mirrored the general market with a strong first quarter followed by a slowdown in subsequent quarters following the stamp duty changes and the EU referendum. The fall in fee reflected increased competitive pressure in the second half as volumes reduced.

The second half reduction in transactions was more pronounced in LSL's London and the South East brands, reflecting the same trends as the general market.

Lettings income

Lettings income grew in each quarter of the year and across all brands as LSL continued to focus on this growing revenue stream. Organic Lettings growth for the year was 4%. Combined with the Lettings acquisitions, overall growth was strong, at 9% for the full year. LSL continues to focus on this recurring revenue stream which represented 29% of total Estate Agency Division income in 2016 (2015: 28%).

Financial Servicesincome

Total Financial Services Income delivered through the Estate Agency Division's branches, Group First (acquired during the year) and the intermediary networks of First Complete and Pink Home Loans grew strongly again with 27% year-on-year growth in 2016.

Adjusting for the acquisition of Group First, organic Financial Services income growth for 2016 was 13% and growth was achieved across all Estate Agency brands and also the intermediary network businesses.

In total the Group arranged mortgage lending completions of £17.4bn during 2016 (2015: £14.5bn), with an estimated market share of 7.1%.

Other income

Other income fell by 14% year-on-year as conveyancing income fell in line with lower residential transaction volumes.

Marsh & Parsons

Marsh & Parsons delivered a resilient performance in a challenging prime Central London market which was impacted by a number of factors including the 2016 stamp duty changes and the result of the EU referendum. Total revenue fell by 5% in 2016 to £33.5m (2015: £35.3m) and Underlying Operating Profit was £4.4m (2015: £6.9m).

Whilst Residential Sales income fell by 12% the Board believe this to be a highly robust performance in the light of the overall London market conditions. The Board is very pleased with Lettings performance with Lettings income up 6% against 2015, accounting for more than half of Marsh & Parson's total revenue.

Asset Management

Asset Management delivered a robust performance in a shrinking market with revenues lower by 15% compared to the 25% market fall in repossessions to 7,700 in 2016. With a strong market share, the Asset Management business as a counter-cyclical business is well positioned to capitalise on any future increase in repossession volumes. Asset Management is developing its corporate property management service offering to further enhance recurring revenues in the Group.

Estate Agency Division operating margin

The Estate Agency Division Underlying Operating Margin was 10.1% in 2016 (2015: 13.2%) which resulted from the reduction in Residential Sales volumes, a full year overhead charge for Thomas Morris (acquired during 2015), new Marsh & Parsons branches opened during the year and the national media campaign investment in the Your Move brand which was launched during the first half of 2016. Profits were slightly lower in Asset Management as cost measures taken did not fully offset the fall in repossession volumes.

Regulation - Financial Services

First Complete and Pink Home Loans (the trading name of Advance Mortgage Funding) are both directly authorised by the FCA in relation to the sale of mortgage, pure protection and general insurance products. Your Move, Reeds Rains, First2Protect, Mortgages First and Embrace Mortgage Services along with the LSLi subsidiaries are all appointed representatives of First Complete. Linear Financial Solutions is an appointed representative of Advance Mortgage Funding for mortgage and insurance business and also an appointed representative of Openwork for investment business and Insurance First Insurance Brokers is an appointed representative of Sesame Limited. LSL's Financial Services business 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. LSL is participating in and monitoring the FCA's market study on competition in the mortgage sector which was launched in December 2016.

Regulation - Residential Sales and Lettings

The Estate Agency Division's branches adhere to the Codes of Practice issued by industry professional and regulatory bodies, The Property Ombudsman (TPO) and/or the Association of Residential Lettings Agents (ARLA). Membership of these bodies is in addition to observing compliance with relevant legislation, such as Data Protection, the Consumer Protection Regulations, the Consumer Rights Act, guidance material published by relevant regulators, including the Competition and Markets Authority (CMA) (and its predecessor the Office of Fair Trading (OFT)), the National Trading Standards Agency/Trading Standards Institute (TSI), HMRC and codes published by other relevant bodies, including the Advertising Standards Authority (ASA). LSL from time to time also enters into direct dialogue with the regulators and consumer groups. LSL has also on behalf of all its Estate Agency businesses entered into a primary authority agreement with York Trading Standards Office. LSL is monitoring the Government's review of the housing market, which is set out in the Housing White Paper published in January 2016 and is considering the impact of the reforms on LSL's businesses.

Branch numbers

Breakdown of LSL's Estate Agency branches as at 31 December 2016.

Business Review-Surveying Division

1 Refer to Note 3 for the calculation

2 Full Time Equivalent (FTE)

3 Source: Bank of England, 'Mortgage approvals for house purchases' and 'Total mortgage approvals' 2016.

Surveying Division Performance

Total mortgage approvals increased in the year by 5.7% to 1.467m (2015: 1.388m) with a strong first half followed by a decrease in the second half. This reflects a strong market for buy to let and second properties in the first quarter, prior to stamp duty changes, and a reduction in consumer confidence post the EU referendum in the second half.

Surveying turnover was £64.7m (2015: £64.1m), an increase of 1% on the previous year with the total number of jobs performed during the year of 318,077 (2015: 327,267) reflecting the overall management of the mix of jobs.

LSL continued to focus on optimising capacity management in 2016, driving an increase in income per job to £203, an improvement of 4% year-on-year.As a result LSL delivered another strong Underlying Operating Profit result at £17.5m (2015: £18.1m) with an Underlying Operating Margin of 27.1% (2015: 28.3%).

The total number of qualified surveyors (FTE) at 31 December 2016 was 323, a reduction of 7% year-on-year. LSL's on-going graduate training programme continues to be successful and assists in alleviating the impact of skill constraints in the market. In 2017 LSL will continue to focus on improving efficiency through optimising capacity management supported by use of the new technology.

At 31 December 2016 the total provision for PI Costs was £20.7m. In 2016 the Group continued to make positive progress in addressing historic claims and there has been a net £1.6m exceptional release.

Financial Review

The key drivers of the financial performance of LSL in 2016 are summarised below:

Income statement

Revenue

Revenue increased by 2.4% to £307.8m in the year ended 31 December 2016 (2015: £300.6m).

Operating Expenses

Operating expenses increased by 5.6% to £275.3m (2015: £260.7m). Increases were primarily in the Estate Agency Division as a result of the acquisition of Group First, a full year charge for Thomas Morris (acquired during 2015), Marsh & Parsons branch openings and the national media campaign investment in the Your Move estate agency brand during the first half of 2016.

The average number of full time equivalent employees during the year was 4,630 (2015: 4,677).

Group Underlying Operating Profit

Group Underlying Operating Profit (as defined in Note 4 to the Financial Statements) decreased by 19.2% to £34.6m (2015: £42.9m) with the Underlying Operating Margin of 11.3% (2015: 14.3%). On a statutory basis, the Group operating profit increased by 58% to £65.4m (2015: £41.4m).

Exceptional Items

Total exceptional costs in 2016 were £2.3m (2015: £0.3m). The exceptional costs related to the closure and restructure of 21 branches and the costs relating to the technological refresh in the Surveying Division.In 2015, exceptional costs comprised the closure of an administration centre and the subsequent restructuring costs incurred which included redundancy costs.

Total exceptional gains in 2016 were £34.5m (2015: nil) comprising of £32.9m of gains relating to the sale of the Zoopla shares and a £1.6m exceptional release relating to the PI Costs provision.

PI Cost provision for PI claims and notifications

At 31 December 2016, the total provision for PI Costs was £20.7m. In 2016 the Group continued to make positive progress in addressing historic claims and there has been a net £1.6m exceptional release.

Contingent consideration

The contingent consideration relates primarily to the growth shares (C shares) acquired by the management of Marsh & Parsons subsequent to acquisition, and payments due to third parties in relation to the acquisition of LSLi and certain of its subsidiaries between 2007 and 2016. Payments are due between three and five years after the acquisition completion and depending on the profitability of those subsidiaries in the relevant calculation years. In 2016 contingent consideration in the Income Statement amounted to a credit of £3.8m (2015: £1.5m credit). This included a credit for consideration on the acquisition (in 2011) of Marsh & Parsons of £1,964,000 (2015: credit £3,002,000), a credit relating to LMS of £268,000 (2015: charge of £2,136,000) and a credit of £1,142,000 in LSLi (2015: credit of £611,000).

Amortisation

The amortisation charge was £3,900,000 (2015: £1,800,000). The increase was the result of the full year impact of the acquisition activity in 2015 and the first half 2016.

Net Financial Costs

Net financial costs amounted to £1.9m (2015: £2.8m). The finance costs related principally to interest and fees on the revolving credit facility. Additional costs relate to the unwinding of discounts on provisions and contingent consideration and interest on loan notes.The reduction in the net financial cost results from reduced interest charges in part due to the variation of the 2011 loan notes.

Taxation

Following the 2015 Summer Budget the headline rate of corporation tax in the UK was further reduced from the current rate of 20% to 19% effective from 1 April 2017 and further reduced to 18%, effective from 1 April 2020. The Budget announcement in March 2016 included a further reduction effective from 1 April 2020, when the proposed corporation tax rate will be lowered further still to 17%.

Following the enactment of Finance Bill 2016 in September 2016, the applicable corporation tax rate is 17% and this is the rate at which deferred tax has been provided (2015: 18%). Corporation tax is recognised at the headline UK effective rate of 20% (2015: 20.25%).

The effective rate of tax for the year was 20.5% (2015: 21.1%). The effective tax rate for 2016 has decreased as a result of a number of factors, including reducing the rate at which deferred tax is provided resulting from the reduction in the headline rate of corporation tax.

Deferred tax credited directly to other comprehensive income is £3.8m (2015: charge of £0.5m). This is comprised of a credit of £5.9m and a charge of £2.1m and relates to the disposal and revaluation of financial assets. Income tax credited directly to the share based payment reserve is £0.1m (2015: £nil).

In 2016 corporation tax payments of £8,900,000 (2015: £5,600,000) were made which is lower than the current year corporation tax charge of £12,700,000 (2015: £7,800,000). This is a result of the timing of the settlement of the corporation tax liability on the disposal of Zoopla share-holding in the second half of 2016.

Basic Earnings per Share

The Basic Earnings per Share was 49.2 pence (2015: 29.7 pence). The Adjusted Basic Earnings per Share (as calculated in Note 6 to the Financial Statements) is 25.9 pence (2015: 31.5 pence) a drop of 17.8% which is broadly in line with the decrease in Underlying Group Operating Profit. 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 of intangible assets and share-based payments. The Directors consider that the adjustments made to exclude the after tax effect of exceptional items, contingent acquisition consideration treated as remuneration, and amortisation of acquisition intangibles provides a better and more consistent indicator of the Group's underlying performance.

Balance Sheet

Joint ventures and other investments

The Group has two joint ventures; a 33.3% (2015: 33.33%) interest in TM Group, whose principal activity is to provide property searches, and a 50% (2015: 49.99%) interest in LMS whose principal activity is to provide conveyancing panel management services.

In addition LSL owns an 18.1% (2015: 18.1%) share in the Guild of Professional Estate Agents (GPEA), which is a membership organisation with a national network of independently owned estate agents. The carrying value of GPEA was assessed as at 31 December 2016 and was revalued to £3.7m (2015: £0.9m).

Capital Expenditure

Total capital expenditure in the year amounted to £4.6m (2015: £4.8m) and an additional £1.4m (2015: £3.2m) has been spent internally on developing new software which has been treated as an intangible asset.

Bank Facilities

In May 2016, LSL extended its bank facility until May 2020. The facility includes a £100m revolving credit facility (2015: £100m) and incorporated more favourable terms for LSL. During the period under review, the Group complied with all of the financial covenants contained within the facility.

Net Bank Debt and Cashflow

As at 31 December 2016 Net Bank Debt was £20.3m (2015: £39.9m) and Shareholders' funds amounted to £128.8m (2015: £107.4m) providing a balance sheet gearing of 15.8% (2015: 37.1%). The decrease in Net Bank Debt was primarily the result of the sale of the Group's entire holding of Zoopla shares and the pause in acquisition activity in the second half of the year.The 2016 gearing level was 0.51 times adjusted EBITDA (2015: 0.83 times). The Group has a committed revolving credit facility until May 2020 and in2016 the Group generated cash from operations of £32.7m (2015: £36.5m).

Zoopla

Between 20 July 2016 and 31 October 2016, LSL sold its entire holding of 11.3m ordinary shares in Zoopla for total proceeds of £36.1m at an average price per share of £3.19. The proceeds of the disposal were used to reduce corporate indebtedness.

In January 2017 Zoopla (now known as ZPG) issued the Group with 226,711 warrants in accordance with the 2016 service agreement.

Net Assets

The Group's net assets as at 31 December 2016 were £128.8m (2015: £107.4m).

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 the Annual Report and Accounts 2016.

Post Balance Sheet Events

There have been no post balance sheet events to report.

International Financial Reporting Standards (IFRS)

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

Note 1- Adjusted EBITDA is Group Underlying Operating Profit as previously defined plus depreciation on property plant and equipment

LSL has an overall framework for management of risks andinternal controls to mitigate the risks. Through this framework, the Board, which has overall accountability and responsibility for the management of risk, on a regular basis identifies, evaluates and manages the principal risks and uncertainties faced by LSL, areas which could adversely affect its business, operatingresults and financial condition.

Development of risk appetite

During 2016, in line with the FRC's Guidance on 'Risk Management, Internal Control and Related Financial and Business Report' which was published in 2014 and which integrated and replaced the FRCs previous guidance on risk management and internal controls, the Board has continued to develop LSL's approach to risk appetite to ensure continued compliance with the Code and FRC guidance. The Board has through this process expressed the types and level of risk which it is willing to take or accept to achieve LSL's plans and to support consistent, risk-informed decision making across the Group.

The development of the risk appetite began with the Directors approving a risk framework policy and defining individual risk appetite statements for LSL's principal risks and 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 of risk measures and identification of actions needed to bring any specific outlying areas of risk within target levels. During 2016, exercises have been initiated for targeted analysis of emerging areas of risk and evaluation of components within individual principal risk areas where management adopt the lowest risk appetite tolerances.

The discussions covered 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 2017, LSL will continue to develop the framework in line with emerging best practice, including broader development of risk key performance indicators within management information and triggers to be applied in specific areas to adjust levels of risk exposure.

The Board will seek to establish clear parameters, whilst at the same time fostering an environment within which innovation and entrepreneurial activities thrive. Where there is any proposal to shift the Group significantly closer to or outside agreed risk parameters, this will be discussed and subject to Board approval before commencing any activities to ensure that appropriate mitigationcontrols areput 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 Board in 2017.

Developing the financial viability statement

In developing the financial viability statement, it was determined that a three year period, ending on 31 December 2019, should be used,as this is consistent with Group'sbudget and strategic planning cycles and is supported by the Group's funding arrangements, which expire in May 2020.

The Executive Committee reviewed LSL's principal risks, and considered which of these risks might threaten the Group's viability. Each risk was assessed and ranked to differentiate between a critical risk that should be modeled and risks that were less critical and may be modeled as a conflating event.

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

The main focus of the scenario modelling related to the impact of a significant downturn in the property market as occurred in the 2008 to 2009 period. A significant downturn assumed Total Mortgage Approvals falling to 500,000; this compares to 799,000 approvals in 2016. Modelling included the plans LSL put in place during that recessionary period such as reducing dividends and costs in branches. The skills and many of the personnel with experience to manage through such a scenario remain within the business which has helped this process and gives a degree of confidence to manage through a similar future scenario.

The impact on consumer confidence following result of the EU referendum has already been factored into the budgets prepared by the Group which is also the first year of this model; any further uncertainty surrounding the Article 50 could impact the housing market but this is already factored into the heavily reduced number of housing approvals included within this model.

The current low interest rate market has been considered, and discussed with senior management as to how this may impact the viability of the company. Given the low gearing of the Group and the absence of financial instruments this is not deemed a material variable.

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 ofthe business as a result of the stress scenarios.

Assumptions were also made for the potential growth of LSL's recurring revenue and counter-cyclical income businesses, notably Asset Management, and the extent to which recurring revenue 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 broad geography which allows some protection from the impact of stress scenarios.

Asdetailed in the Audit Committee's Report,theDirectors reviewed and discussedthe process undertaken by the Management Team in proposing the viability statement and the Audit Committee oversaw the development of the statement. The Directors' financial viability statement is contained in the Directors' Report.

Risk management and internal controls framework

LSL's risk management and internal controls framework for 2016 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, Head of Risk and Internal Audit andthe GroupFinancial Controller;

b. a network of risk owners in eachof LSL's businesses with specific responsibilities relating to risk management and internal controls;

c. the documentation and monitoring of risks are recorded and managed through standardised risk registers whichundergo regular reviews and scrutinyby local boards and the Head of Risk and Internal Audit;

d. the Boardregularly identifies, reviews and evaluates the principal risks which may impact theGroup as part of the planning andreporting cycleto ensure that such risks are identified, monitored and mitigated;e. thedevelopment and application of LSL's risk appetite statement and associated framework (for further details on steps taken during theyear, please see the Audit Committee Report); and

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

As stated above, LSL has in place aGroup-wide risk appetite statement andrisk frameworkpolicy which will continuetobedeveloped in 2017.

Thisrisk framework includesthe following:

a. risk framework policy;

b. determination of risk appetite and management or mitigation of risks in line with risk appetite tolerances;

c. assessment of prospects and viability;

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

e. going concern confirmation (for LSL's going concern disclosure see the Report of the Directors).

During the year, the Directors carried out a robust assessment of the principal risks facing the Group, including those that threaten the 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 theGroup, which is a matter of judgmentof the Board and hasbeen supported by the Management Teams.

The Directors also carried out a risk appetite assessment exercise which involved the evaluation of continually evolving aspects of risk management. During 2016, this included the capturing of anticipated impacts following the EU referendum on the residential housing market and the articulation of established 'conduct risk' routines used to support the delivery of appropriate customer outcomes. These aspects are included in the principal risks and uncertainties summarised in this Report.

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 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 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 has also contributed to the Group's viability statement which is set included the Report of the Directors. TheDirectorshave also consideredtheimpact if risks coincide, namely a combination of non-principal risks couldpotentially represent a single compoundprincipal risk.

The Group also faces other risks which, although important and subject to regular review, have been assessed as less significant and are not listed in this statement. 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 howLSL managed these risks and uncertainties during 2016 is set out in the Audit Committee Report (Internal Controls).

Principal Risk and Uncertainties

Group Income Statement

for the year ended 31 December 2016

Group Statement of Comprehensive Income

for the year ended 31 December 2016

Group Balance Sheet

as at 31 December 2016

Group Statement of Cash Flows

for the year ended 31 December 2016

Group Statement of Changes in Equity

for the year ended 31 December 2016