TIDMMAB1
RNS Number : 3713N
Mortgage Advice Bureau(Holdings)PLC
24 September 2019
MORTGAGE ADVICE BUREAU (HOLDINGS) PLC
("MAB" or "the Group")
24 September 2019
Interim Results for the six months ended 30 June 2019
Mortgage Advice Bureau (Holdings) PLC (AIM: MAB1.L) is pleased
to announce its interim results for the six months ended 30 June
2019.
Financial highlights
-- Revenue up 5% to GBP60.9m (H1 2018: GBP57.9m); 9% on
an underlying basis(1)
-- Gross profit up 9% to GBP14.2m (H1 2018: GBP13.0m)
-- Gross margin of 23.3% (H1 2018: 22.5%)
-- Overheads ratio (before acquisition costs(2) ) of 11.2%
(H1 2018: 10.9%)
-- Profit before tax and acquisition costs up(2) 6% to GBP7.4m
(H1 2018: GBP7.0m)
-- Statutory profit before tax up 3% to GBP7.2m (H1 2018:
GBP7.0m)
-- Profit before tax margin pre acquisition costs of 12.2%
(H1 2018: 12.0%)
-- Profit before tax margin of 11.8% (H1 2018: 12.0%)
-- Adjusted(2) EPS up 5% to 12.3p (H1 2018: 11.7p)
-- Basic EPS up 1% to 11.9p (H1 2018: 11.7p)
-- Continued high operating profit to adjusted cash conversion(3)
of 99% (H1 2018: 108%)
-- Interim dividend up 5% to 11.1p (H1 2018: 10.6p), (payout
ratio of 91%)
Operational highlights
-- Average number of Advisers during the period up 13% to
1,242 (H1 2018: 1,103)
-- Adviser numbers up 7% to 1,293(4) at 30 June 2019 (31
December 2018: 1,213), which excludes c. 90 Advisers
from the acquisition of First Mortgage Direct Limited
which completed post period end
-- Underlying revenue per Adviser down 4%(5) , due to lower
banked productivity in Q1 2019 (in line with expectations
for Q2 2019)
-- Gross mortgage lending arranged (including product transfers)
up 6% to GBP6.9bn (H1 2018: GBP6.5bn)
-- Gross mortgage lending arranged with new lenders up 7%
to GBP6.3bn (H1 2018: GBP5.9bn)
Post period end
-- Completion of acquisition of 80% of First Mortgage Direct
Limited ("First Mortgage") on 2 July 2019 adding c. 90
Advisers (not included in H1 2019 adviser growth)
-- Initial cash consideration paid for First Mortgage of
GBP16.5m, valuing First Mortgage at GBP20.6m
-- The acquisition of First Mortgage is expected to be significantly
earnings accretive in the first full year following completion
and thereafter
-- Adviser numbers have increased to 1,433 at 20 September
2019
Peter Brodnicki, Chief Executive commented:
"I am delighted to report another set of strong results. Despite
continued uncertainty, we have achieved strong revenue growth of 9%
on an underlying basis to GBP61m, which has translated into
adjusted EPS being up 5% to 12.3p. Our mortgage completions
increased by 6% and our market share by 7%. Accordingly, the Board
is pleased to declare an increased interim dividend of 11.1p per
share, up 5% on the prior year. MAB continues to deliver on its
strategy to grow market share in all market conditions whilst
maintaining a strong financial position.
"In addition to our strong growth achieved in H1 and into H2,
through both advisers joining existing ARs and the addition of new
ARs, adviser numbers have further increased since the period end
through the acquisition of one of the very best performing and
highly respected UK brokers, First Mortgage, in July. This has been
a tremendous addition to the MAB Group, adding to the growing
number of exceptional firms choosing to partner with MAB, that will
play a major role in our plans to grow our market share through
increasing both adviser numbers and productivity. Against this
backdrop, I remain confident of delivering further growth in line
with our strategic plans.
"We are pleased to have completed the first development phase of
our new platform, which we are continuing testing with a number of
our business partners, before rolling out to the remainder of our
firms over the course of this year and into 2020.
"We are focused on delivering sustainable long-term growth by
providing the best solutions and outcomes for our customers largely
driven by our significant focus on technology developments. We plan
to continue growing our market share and mortgage completions,
whilst leading the evolution of intermediary distribution."
H1 2019 H1 2018 Change
Revenue GBP60.9m GBP57.9m +5%
Gross profit GBP14.2m GBP13.0m +9%
Gross profit margin 23.3% 22.5%
Profit before tax and acquisition
costs(2) GBP7.4m GBP7.0m +6%
Profit before tax GBP7.2 GBP7.0m +3%
PBT margin before acquisition costs(2) 12.2% 12.0%
PBT margin 11.8% 12.0%
Adjusted EPS(2) 12.3p 11.7p +5%
Basic EPS 11.9p 11.7p +1%
Interim dividend per share 11.1p 10.6p +5%
Operating profit to headline cash
conversion(6) 113% 123%
Operating profit to adjusted cash
conversion(3) 99% 108%
(1) Underlying basis excludes a one-off adjustment in H1 2018 of
GBP1.7m for procuration fees awaiting processing
(2) Costs associated with the acquisition of First Mortgage of
GBP0.2m
(3) Adjusted cash conversion is headline cash conversion
adjusted for increases in restricted cash balances of GBP1.0m in H1
2019 (H1 2018: GBP1.0m) as a percentage of adjusted operating
profit.
(4) This figure excludes the c. 90 advisers within First
Mortgage that joined the Group on 2nd July 2019 when the
acquisition completed
(5) Based on Average number of Advisers
(6) Headline cash conversion is cash generated from operating
activities adjusted for movements in non-trading items, including
loans to Appointed Representative firms ("ARs") and loans to
associates, totalling GBP1.6m in H1 2019 (H1 2018: GBP0.8m) as a
percentage of adjusted operating profit.
Current Trading and Outlook
In the absence of any updates to estimates from UK Finance, and
with gross new mortgage lending for H1 2019 of GBP125bn, MAB
anticipates that total gross new mortgage lending for 2019 could be
below the figure of GBP268bn for 2018. This figure excludes Product
Transfers. The latest UK Finance statistics indicate that the
product transfer market is likely to continue to increase from the
c. GBP160bn for 2018; with product transfers increasing by 8% in H1
2019 versus the comparative period.
Due to the uncertainty resulting from the extended Brexit
negotiations current trading for our estate agency based ARs
continues to be muted and similar to our experience towards the end
of 2018 and H1 2019. Following a slower than expected start to the
year in Q1 2019 in written and banked business, and despite
productivity being in line with expectations for Q2 2019, we expect
overall revenue per adviser for the year to be slightly below that
of 2018.
Current trading is in line with the Board's expectations.
Adviser numbers have continued to grow since the period end with
the Group having 1,433 Advisers at 20 September 2019, including the
Advisers at First Mortgage. We have good visibility that supports
our anticipated growth in Adviser numbers from new ARs. The
majority of our existing ARs continue to have strong growth plans
for 2019 and 2020, however those that operate primarily in the
estate agency sector continue to pause their expansion plans and
delay filling vacancies. Despite this, growth in Adviser numbers,
both from existing and new ARs, remains strong. Due to the many
focused initiatives that MAB has in place, we expect the growth in
revenue per adviser to return to normal levels in 2020. This
assumption is based on no noticeable improvement in the housing
market in 2019 and 2020. We then expect to see further productivity
growth starting to come through in 2021 and beyond due to our
technology and lead generation initiatives.
When overall consumer confidence returns we expect some pent-up
demand in the housing market to be released and our estate agency
focused ARs to respond in terms of delivering adviser growth. We
are confident that our strategy, driven by our advisers, their
customers and their changing expectations, will continue to drive
growth in MAB's market share year on year and deliver attractive
returns to investors.
For further information please contact:
Mortgage Advice Bureau (Holdings) Plc Tel: +44 (0) 1332 525007
Peter Brodnicki - Chief Executive Officer
Ben Thompson - Deputy Chief Executive Officer
Lucy Tilley - Chief Financial Officer
Numis Securities Limited Tel: +44 (0)20 7260 1000
Stephen Westgate / Hugo Rubinstein (Corporate Finance)
Michael Burke (Corporate Broking)
Media Enquiries:
investorrelations@mab.org.uk
Analyst presentation
There will be an analyst presentation to discuss the results at
9:00am today at Numis Securities Limited, 10 Paternoster Square,
London, EC4M 7LT.
Those analysts wishing to attend are asked to contact
investorrelations@mab.org.uk
Copies of this interim results announcement are available at
www.mortgageadvicebureau.com/investor-relations
Chief Executive's Review
We are pleased with MAB's performance overall in this half year,
particularly given the slower than expected start to the year in Q1
2019. Both revenue and profits have continued to grow and
outperform the wider market, meaning that once again, MAB has
increased its market share.
Our growth in mortgage lending arranged is set out below:
H1 2019 H1 2018 Increase
GBPbn GBPbn
-------- -------- ---------
New mortgage lending 6.3 5.9 +7%
-------- -------- ---------
Product Transfers 0.6 0.6 +5% (1)
-------- -------- ---------
Gross mortgage lending 6.9 6.5 +6%
======== ======== ---------
(1) Roundings
Our total gross mortgage lending arranged (including Product
Transfers) increased by 6% to GBP6.9 billion (H1 2018: GBP6.5
billion). Gross mortgage lending arranged through new lenders(1)
(specifically excluding Product Transfers) increased by 7% to
GBP6.3 billion (H1 2018: GBP5.9 billion). This growth in new
mortgage lending during the period means our overall share of UK
new mortgage lending has risen from 4.7% to 5.1%.
Our success to date with Product Transfers lags the market
average for intermediaries due to MAB historically operating
primarily a purchase focused model. Our technology developments
this year will start to impact positively on our penetration rate
of these opportunities, and we expect to steadily increase our
share of this market segment.
The political uncertainty continues to hit consumer confidence
and dampen demand. Housing transactions for the period were a
further 2% down versus the same period in 2018, with new mortgage
lending broadly flat. The latest UK Finance statistics indicate
that the product transfer market is likely to continue to increase
from the c. GBP160bn for 2018; with product transfers in H1 2019
increasing by 8% versus the comparative period last year.
Recruitment of new advisers into MAB has been strong, especially
given that there has been no noticeable growth in estate agency
distribution. We are very pleased to report net growth of 80 new
advisers (which excludes the First Mortgage advisers), a better
performance than the same period in 2018, of 60 new advisers. It is
also very positive to note that our pipeline of potential new AR
firms and advisers also looks very strong as we progress through
the second half of 2019.
In addition to strong recruitment performance in H1, we acquired
a majority stake in First Mortgage after the period end, which
brings a further c. 90 high performing advisers into our numbers
for H2 on top of our budgeted growth. This is a highly
complementary, strategic acquisition, that will result in First
Mortgage becoming an AR of MAB. The business strengthens MAB's
omni-channel capability, along with having real scale potential and
a broad mix of business, as well as specialism in the new homes
market. We are excited about the growth and new opportunities that
this acquisition brings to MAB.
We have also continued to progress our technology developments
and associated testing. We will enter the pilot stage in the second
half of the year, with rollout to all AR Firms due at the end of
the year and into 2020, in line with our original delivery
timetable.
(1) 'Gross mortgage lending arranged with new lenders' means
either a new mortgage in connection with a house purchase or a
re-mortgage with a different lender to the customer's existing
lender
Market Environment
Housing transactions fell by a further 2% over the reporting
period versus the comparative period in 2018. Gross new mortgage
lending was broadly flat, but within that residential purchase
mortgages and residential remortgages increased by 3% and 4%
respectively. Consumer confidence continues to be subdued in the
light of political uncertainty. Whilst it is likely that any
potential reductions in the levels of stamp duty, combined with
mortgage rates remaining highly competitive and at all-time lows,
will drive activity in the housing market, it is the return of
consumer confidence that would in all likelihood trigger a more
positive picture, leading to an increase in housing transactions.
Political and economic certainty will normalise at some stage, but
until then, the housing market feels like it is operating at a
lower, albeit fairly predictable, level in terms of
transactions.
In terms of outlook, UK Finance originally forecast a slight
upturn in new lending. In the absence of updated forecasts from UK
Finance, MAB now anticipates that total gross new mortgage lending
for 2019 will be below the figure of GBP268bn for 2018. This figure
excludes product transfers. The latest UK Finance statistics
indicate that the product transfer market is likely to continue to
increase from the c. GBP160bn for 2018; with product transfers
increasing by 8% in H1 2019 versus the comparative period last
year.
Delivering on our strategy
Recruitment of advisers
The recruitment of new advisers into MAB has been pleasingly
strong over the period, with numbers rising from 1,213 to 1,293
over the period.
Previously we had noted that Estate Agents in particular had not
been recruiting new advisers at the levels they had in recent years
and in some instances, they had not been replacing leavers. Over
the last year or so this has slowed growth in new adviser numbers
and productivity, meaning we have had to generate stronger activity
in other market segments to ensure continued growth, which is what
we have achieved.
We are very pleased with the rate of organic growth overall,
especially within our business partners that have telephone hubs or
are running our Regional Networks, with strong growth in these
areas of distribution set to continue for the remainder of 2019 and
into 2020 and beyond.
We set up a dedicated AR recruitment team a year ago and the
associated strategy and heightened activity has clearly had a
positive impact with its targeted approach. Importantly, not only
have we enjoyed strong growth in high quality and sustainable
distribution in the first half of 2019, despite a slower than
expected start in Q1, we also have a very healthy pipeline of new
prospective AR firms and advisers for the second half of the year
and into 2020.
Our academy for new advisers has also been highly successful in
growing our telephone advice hubs. In some parts of the country,
the recruitment of experienced advisers can be difficult and hence
recruiting new advisers via our academy has proven to be the best
approach. Within MAB we currently have c. 270 advisers who joined
MAB through this academy.
We continue to make investments in new and existing distribution
partners that are key to our strategy. With the addition of First
Mortgage we have investments in firms with 231 Advisers,
representing 16% of our adviser numbers at 20 September 2019.
Although the housing market is subdued, our targeted approach to
market share growth and the strength of our proposition (and in
particular the growth potential we can help our partner firms to
realise), means we continue to attract high quality firms and
advisers to join MAB.
Technology
Our technology developments have come a long way as we continue
to build and test, moving into a fuller pilot and rollout to our
distribution as planned by the end of the year and into 2020.
Our technology developments will deliver clear benefits for the
business. Our new platform will deliver far more to customers
whilst asking less of them. It will increase business efficiency
and over time adviser productivity, and will be a major driver of
lead generation and optimisation. Our plans for the platform will
also help increase income opportunities from a wider range of
products and services.
Delivering technology that meets our AR partners' specific needs
for their target markets will also be a key driver in continuing to
attract high quality firms and advisers to the Group.
MAB is very strongly placed to ensure that customers continue to
receive full advice as, when and how they need it. We are ensuring
that MAB is fully equipped with technology that helps customers and
advisers alike, to transact more expediently and meet the changing
way in which some customers might want to engage and interact in
the future.
Part of our technology developments has involved laying the
foundations to enable MAB advisers to have direct end-to-end
connectivity with major lenders. We are already live with a limited
number of small lenders and look forward to a wider rollout with a
number of the larger lenders from the end of this year and into
2020. This level of connectivity once rolled out in full will
enable greater adviser efficiencies and productivity, and of course
a better customer experience too.
We will use technology to simplify the mortgage process with
customers and advisers, and we intend to make meaningful reductions
to time spent transacting, for both parties.
Lead Generation
Customer lead generation is a key area of focus for MAB which
alongside technology developments will drive adviser growth and
productivity. Consequently, we are increasing our focus on new ways
of acquiring customers cost effectively and at scale. Additionally,
we will continue to self-generate leads centrally within MAB, to
pass on to our partner firms and advisers.
We recently announced a significant strategic partnership with
Charles Cameron & Associates, who are the market leaders for
workplace mortgage advice in London and the South East. This
partnership enables Charles Cameron & Associates to offer a
truly national service, with MAB benefitting from immediate access
to a large number of blue-chip employees across the UK.
This is a very exciting opportunity and an example of the types
of partnerships MAB intends to form using our unique business model
to widen our reach and continue to extend our market share.
Broadening our addressable market
Currently MAB typically interacts with customers aged between 35
and 65 whilst they are buying their first homes and then moving
and/or re-mortgaging, with many first-time buyers having previously
been renting properties between the ages of 20 and 35. Through our
strong estate agency relationships we intend to nurture these
younger customers, many of whom will become homeowners.
During the period, we successfully piloted a new initiative
where we are now providing protection solutions to tenants who rent
prior to home ownership, as well as to those renting on a permanent
basis. This means that our AR firms and advisers will now be able
to engage a market segment we haven't previously been active with
and ultimately positions MAB well to help tenants become
home-buyers. This initiative, through the help of our partner AR
firms, will help us to generate new protection business for MAB,
and enable us to engage with potential first time buyers far
earlier.
Additionally, we are looking to better serve our customers who
are aged 60 and over. A new market segment is emerging related to
lending into retirement, or, so-called 'Later Life Lending'. The
most specialist part of this market is "Equity Release" where no
repayments of capital or interest are made. Some lenders have
already expanded their mortgage portfolios to include interest only
products that help customers to borrow money at older ages, and, to
borrow that money until they are much older. This relaxation or
innovation is in response to demand from an ageing population, and
those that want to provide intergenerational assistance to help
family members to fund university or a first home for example.
It is estimated that Later Life Lending will represent c.
GBP80bn of additional outstanding mortgage lending by 2027(1) . It
is also estimated that the housing wealth of the 'over-55s' is
worth GBP2.5 trillion(2) . Again, the anticipated growth in this
market presents MAB with incremental opportunities, as a direct
result of a new and growing market segment which we expect will be
highly intermediated, with customers requiring the full advice that
we traditionally see as our core market opportunity.
We continue to explore the opportunities that exist within this
market segment as new opportunities emerge, but similar to the
tenant segment, this is an area of the market that we haven't been
previously involved in, and yet complements what we have
traditionally seen as our core market opportunity.
(1) Centre for Economics and Business Research and more 2
life
(2) Swiss Re Term and Health Watch 2017
Home-moving process
We have been piloting a new way to help customers more broadly
in their home-moving process. Our current model usually means that
advisers help customers with mortgages, protection and general
insurance. We are now testing a new platform as part of our
technology build, that enables us to offer mortgage customers
assistance with organising other parts of their home-moving
process, such as their utilities and telecoms.
The initial response from customers and from our firms and
advisers is very encouraging and potentially enables us to help
make the home-moving process more straightforward.
This is a deliberate strategic move that positions our advisers
as being able to offer differentiation versus the wider
competition, and provide a fuller and more rounded service and
assistance throughout the home-moving process to customers.
The acquisition of First Mortgage Direct Limited ("First
Mortgage")
MAB has acquired an 80% stake in First Mortgage, the largest
independent mortgage broker in Scotland. The business comprises c.
90 advisers who are all employed by First Mortgage. The business
arranged c. GBP2 billion of new mortgages through its advisers in
2018. Over half of First Mortgage new business comes through repeat
business and customer referrals with much of the remainder coming
from housebuilders, mortgage shops and the strong brand awareness
it has built, thereby increasing MAB scale and expertise in these
areas of specialisation.
First Mortgage continues to grow strongly in Scotland and is
also attracting increasingly more customers UK wide. It has started
to form its own omni-channel strategy, through building a new
telephone hub in Scotland. This hub can be scaled, along with
traditional face to face distribution, as First Mortgage continues
to expand beyond Scotland with MAB.
Integration of First Mortgage is proceeding well and as planned
and under this new relationship, First Mortgage will become an AR
of MAB. We expect First Mortgage to grow substantially from its
already-strong position, as part of MAB, over the coming years.
The acquisition is expected to be significantly earnings
accretive in the first full year of ownership and thereafter, and
fits very well within the MAB model, adding to our robust
organic/recruitment success.
Australia
We are in the final stages of research and testing aspects of
the MAB UK model in Australia, with new strategic partnerships
being formed. We remain excited by the potential in this country
for MAB, with our technology developments also being key to scaling
our operation in Australia in 2020 and beyond.
Summary
This period has seen a strong performance from MAB, given the
uncertain political and economic environment, and the associated
fall in consumer confidence. Our targeted recruitment approach
augments the quality of our market share growth.
Our principal focus is to ensure we grow our adviser base,
through having a compelling and differentiated strategy and
proposition, both for AR firms as well as the end consumer.
Significant developments in technology, broadening our
addressable market, becoming more involved with customers in the
home-moving process, and of course accessing more customers by
leveraging our unique business model are all central to our clear
and deliberate growth strategy.
Consolidation is highly likely in the intermediary sector and we
expect this to be beneficial for MAB. Whatever customers choose in
terms of how they wish to research, receive advice, and transact,
MAB intends to deliver the best in class solution, whilst using
specialisation to ensure we remain at the forefront of new
opportunities.
Due to continued investment and innovation in our strategic
initiatives, MAB's market reach and customer proposition continues
to strengthen to deliver year on year sustainable market share and
profit growth regardless of market conditions.
Housing transactions remain lower than longer term averages and
at some point, most likely when consumer confidence returns, it
would be reasonable to expect activity levels to increase, along
with new business.
Notwithstanding this, we plan for a flat market and have a
strategy that enables MAB to continue growing in a subdued
environment.
Business Review of the year
I am pleased to report further strong growth in underlying
revenue of 9% to GBP60.9m with profit before tax and acquisition
costs rising by 6% to GBP7.4m. MAB's gross mortgage lending
(including product transfers) increased by 6% to GBP6.9bn in H1
2019 (H1 2018: GBP6.5bn) with the average number of Advisers
increasing by 13%. MAB's overall share of UK new mortgage lending
increased by 7% to 5.1% (H1 2018: 4.7%).
Industry data and trends
Gross new mortgage lending activity in H1 2019 was broadly flat
at GBP125bn (H1 2018: GBP126bn). In the absence of updated
forecasts from UK Finance, MAB now anticipates that total gross new
mortgage lending for 2019 will be below the figure of GBP268bn for
2018. This figure excludes Product Transfers. The latest UK Finance
statistics indicate that the product transfer market is likely to
continue to increase from the c. GBP160bn for 2018; with product
transfers increasing by 8% in H1 2019 versus the comparative
period.
UK housing transactions fell by a further 2% over the reporting
period versus the comparative period in 2018 as illustrated in the
graph below.
http://www.rns-pdf.londonstockexchange.com/rns/3713N_3-2019-9-23.pdf
Source: HM Revenue and Customs
Increases in residential purchase and residential re-mortgage
volumes of 3% and 4% respectively offset the fall in other advances
and buy-to-let purchase transactions of 9% and led to UK gross new
mortgage lending for the period to be broadly flat, as illustrated
in the graph below.
http://www.rns-pdf.londonstockexchange.com/rns/3713N_2-2019-9-23.pdf
Source: UK Finance Regulated Mortgage Survey (excludes product
transfers with the same lender), Bank of England, UK Finance BTL
data (used for further analysis)
UK gross mortgage lending in H1 2019 for home-owner purchases
(including first time buyers) and remortgages grew by 3% and 4%
respectively. UK gross mortgage lending in H1 2019 for BTL
remortgages increased by 2%, with BTL purchases reducing by 9% and
other advances also reducing considerably.
Approximately 77% of UK mortgage transactions (excluding buy to
let, where intermediaries have a higher market share, and Product
Transfers where intermediaries have a lower market share) were via
intermediaries in H1 2019 which is slightly above that of H1 2018.
MAB expects this position to remain broadly stable in the near
term.
Financial review
We measure the development, performance and position of our
business against a number of key indicators.
http://www.rns-pdf.londonstockexchange.com/rns/3713N_1-2019-9-23.pdf
Revenue
Revenue increased by 5% to GBP60.9m (H1 2018: GBP57.9m), 9% on
an underlying basis. A key driver of revenue is the average number
of Advisers during the period. Our business model continues to
attract forward thinking ARs who are seeking to expand and grow
their own market share. Average adviser numbers increased by 13% to
1,242 (H1 2018: 1,103) due to a combination of expansion by
existing ARs and the recruitment of new ARs.
The Group generates revenue from three core areas, summarised as
follows:
Income source H1 2019 H1 2018 Change
GBPm GBPm
-------- -------- -------------
Mortgage procuration fees 26.7 26.8 See note (1)
-------- -------- -------------
Protection and General Insurance
Commission 23.6 21.3 11%
-------- -------- -------------
Client Fees 9.7 8.9 9%
-------- -------- -------------
Other Income 0.9 0.9 -
-------- -------- -------------
Total 60.9 57.9 5%
-------- -------- -------------
(1) Increase in mortgage procuration fees was 6% on an
underlying basis
All key income sources continued to grow strongly with the
average number of Advisers in the period increasing by 13% on last
year, with a 4% decrease in average revenue per adviser on an
underlying basis, reflecting a slower Q1 both in banked and written
productivity, followed by a flatter Q2.
With gross mortgage lending arranged (including Product
Transfers) increasing by 6% in the period, mortgage procuration
fees increased by 6% on an underlying basis. The increase of 11% in
protection and general insurance commission reflects a slight
increase in both protection and general insurance attachment rates
with MAB's mortgage mix remaining relatively stable. Client fees
rose by 9% in the period, reflecting an increase in attachment
rates.
MAB's revenue, in terms of proportion, is split as follows:
Income source H1 2019 H1 2018
Mortgage procuration fees 44% 46%
-------- --------
Protection and General Insurance
Commission 39% 37%
-------- --------
Client Fees 16% 15%
-------- --------
Other Income 1% 2%
-------- --------
Total 100% 100%
-------- --------
We expect client fees to become increasingly dependent upon the
type and complexity of the mortgage transaction, as well as the
delivery channel. This will lead to a broader spread of client fees
on mortgage transactions, which, by their nature, are our lowest
margin revenue stream.
Gross profit margin
Gross profit margin increased to 23.3% (H1 2018: 22.5%), mostly
due to the revenue mix being more in favour of protection and
general insurance commission resulting from a slight increase in
attachment rates due to the initiatives we have been undertaking.
The Group typically receives a slightly reduced margin as its
existing ARs grow their revenue organically through increasing
their Adviser numbers. In addition, larger new ARs typically join
the Group on lower than average margins due to their existing
scale, which therefore impacts upon the Group's gross margin.
Going forward, we expect to see some further erosion of our
underlying gross profit margin due to the continued growth of our
existing ARs and the addition of new larger ARs.
Overheads
Overheads pre one-off acquisition costs as a percentage of
revenue were 11.2% (H1 2018: 10.9%). This increase in underlying
overheads as a percentage of revenue results from increased IT
costs in H1 2019, in part offset by the scalable nature of the
majority of the cost base as well as our regulatory costs being
below that of the prior year due to Pure Protection Intermediation
moving from the Life and Pensions Intermediation funding class of
FSCS to the General Insurance Distribution funding class.
Certain costs, primarily those relating to compliance personnel,
which represent approximately 20% of our cost base, are closely
correlated to the growth in the number of Advisers, due to the high
standards we demand and the requirement to maintain regulatory
spans of control. The majority of the remainder of MAB's costs
typically rise at a slower rate than revenue which will, in part,
counter the expected erosion of MAB's underlying gross margin as
the business continues to grow.
As a result of MAB's IT plans, and as previously indicated, we
expect our IT costs and amortisation on IT capital expenditure to
increase in 2019 and then grow at a slower rate in 2020. All
development work on MIDAS Pro is treated as revenue
expenditure.
Share of profit from associates, net of tax
MAB's underlying share of profits from associates net of tax was
GBP0.11m. In accordance with IFRS 9 the Group increased the value
of investments by GBP0.15m to reflect the increased present value
adjustment to an interest free loan, and this amount was
immediately written off since the relevant entity is currently loss
making, causing the overall share of profits from associates, net
of tax, to be GBP(0.04)m.
Profit before tax and margin thereon
Statutory profit before tax rose by 3% to GBP7.2m (H1 2018:
GBP7.0m) with the margin thereon being 11.8% (H1 2018: 12.0%).
Profit before tax and acquisition costs rose by 6% to GBP7.4m (H1
2018: GBP7.0m) with the margin thereon being 12.2% (H1 2018:
12.0%).
Finance revenue
Net finance revenues of GBP0.08m (H1 2018: GBP0.03m) reflect
continued low interest rates and interest income accrued on loans
to associates.
Taxation
The effective rate of tax rose to 15.3% (H1 2018: 14.1%),
principally due to the tax deduction arising from the exercise of
share options being slightly lower than the prior year. Going
forward we expect our effective tax rate to be marginally below the
prevailing UK corporation tax rate subject to tax credits for MAB's
research and development expenditure on the continued development
of MIDAS Pro, MAB's proprietary software, still being available and
further tax deductions arising from the exercise of share
options.
Earnings per share and dividend
Basic earnings per share rose by 1% to 11.9 pence (H1 2018: 11.7
pence). Adjusted earnings per share (adjusted for one-off
acquisition costs) rose by 5% to 12.3 pence (H1 2018: 11.7
pence).
The Board is pleased to confirm an interim dividend for the year
ending 31 December 2019 of 11.1 pence per share (H1 2018: 10.6
pence per share), amounting to a cash outlay of GBP5.7m. Following
payment of the dividend, the Group will continue to maintain
significant surplus regulatory reserves. This interim dividend
represents circa 90% of the Group's post-tax profits for H1 2019.
MAB requires circa 10% of its profit after tax to fund increased
regulatory capital and other regular capital expenditure.
The record date for the interim dividend is 4 October 2019 and
the payment date is 25 October 2019. The ex-dividend date will be 3
October 2019.
Cash flow and cash conversion
The Group's operations produce positive cash flow. This is
reflected in the net cash generated from operating activities of
GBP5.4m (H1 2018: GBP6.4m). The reduction on prior period is mainly
due to an increase in prepayments resulting from FCA invoices being
raised and paid that were partially credited after the period end
once the adjustments had been made for pure protection
intermediation moving from the Life and Pensions Intermediation
funding class of FSCS to the General Insurance Distribution funding
class.
Headline cash conversion (1) was:
H1 2019 113%
H1 2018 123%
-------------
Adjusted cash conversion (2) was:
H1 2019 99%
-------------
H1 2018 108%
-------------
The Group's operations are capital light with our most
significant ongoing capital investment being in computer equipment.
Only GBP0.1m of capital expenditure on office and computer
equipment was required during the period (H1 2018: GBP0.6m,
included software licences of GBP0.5m). Group policy is not to
provide company cars, and no other significant capital expenditure
is foreseen in the coming year. All development work on MIDAS Pro
is treated as revenue expenditure.
The Group had no bank borrowings at 30 June 2019 (30 June 2018:
GBPnil) with unrestricted bank balances of GBP5.8m (31 December
2018: GBP13.9m). At 30 June 2019, GBP5.5m of cash was held in
escrow with MAB's solicitors, in advance of the acquisition of
First Mortgage which completed on 2 July 2019.
The Group has a regulatory capital requirement amounting to 2.5%
of regulated revenue. At 30 June 2019 this regulatory capital
requirement was GBP2.8m (31 December 2018: GBP2.8m), with the Group
having a surplus of GBP11.6m.
The following table demonstrates how cash generated from
operations was applied:
GBPm
Unrestricted bank balances at the beginning of the year 13.9
Cash generated from operating activities excluding movements in restricted balances and dividends
received from associates 5.3
Issue of shares 1.0
Dividends received from associates 0.2
Dividends paid (6.5)
Tax paid (1.2)
Capital expenditure (including software) (0.1)
Investments in associates (1.3)
Unrestricted bank balances and cash held in escrow at the end of the period 11.3
-------------------------------------------------------------------------------------------------- -----
The Group's treasury strategy is to reduce risk by spreading
deposits over a number of institutions rather than to seek marginal
improvements in returns.
(1) Headline cash conversion is cash generated from operating
activities adjusted for movements in non-trading items, including
loans to Appointed Representative firms ("ARs") and loans to
associates, totalling GBP1.6m in H1 2019 (H1 2018: GBP0.8m) as a
percentage of adjusted operating profit.
(2) Adjusted cash conversion is headline cash conversion
adjusted for increases in restricted cash balances of GBP1.0m in H1
2019 (H1 2018: GBP1.0m) as a percentage of adjusted operating
profit.
Financial effects of the acquisition of First Mortgage
First Mortgage has a higher gross margin than MAB of c. 65%
because it employs its advisers. However, overheads as a proportion
of revenue are also higher than MAB's, resulting in First
Mortgage's profit before tax margin being slightly above that of
MAB's. The effect of First Mortgage's operating model on the
enlarged Group will be to slightly increase gross profit margin,
which will be partially offset by an increase in overheads as a
proportion of revenue.
MAB has entered into an agreement with NatWest in respect of a
new revolving credit facility for GBP12m. It is MAB's intention to
repay the drawn down proportion of this debt facility as quickly as
practicable. MAB's practice over recent years has been to pay out
approximately 90 per cent. of its profit after tax as dividends. In
order to repay the drawn down facility, MAB will reduce its
dividend payout on the enlarged Group from 90% to a minimum of 75%.
This will be effective from MAB's final dividend payable in respect
of the year ending 31 December 2019. However, MAB's intention is to
materially maintain growth in its dividend per share as it would
have done without completion of this acquisition.
Current Trading and Outlook
In the absence of any updates to estimates from UK Finance, and
with gross new mortgage lending for H1 2019 of GBP125bn, MAB
anticipates that total gross new mortgage lending for 2019 could be
below the figure of GBP268bn for 2018. This figure excludes Product
Transfers. The latest UK Finance statistics indicate that the
product transfer market is likely to continue to increase from the
c. GBP160bn for 2018; with product transfers increasing by 8% in H1
2019 versus the comparative period.
Due to the uncertainty resulting from the extended Brexit
negotiations current trading for our estate agency based ARs
continues to be muted and similar to our experience towards the end
of 2018 and H1 2019. Following a slower than expected start to the
year in Q1 2019 in written and banked business, and despite
productivity being in line with expectations for Q2 2019, we expect
overall revenue per adviser for the year to be slightly below that
of 2018.
Current trading is in line with the Board's expectations.
Adviser numbers have continued to grow since the period end with
the Group having 1,433 Advisers at 20 September 2019, including the
Advisers at First Mortgage. We have good visibility that supports
our anticipated growth in Adviser numbers from new ARs. The
majority of our existing ARs continue to have strong growth plans
for 2019 and 2020, however those that operate primarily in the
estate agency sector continue to pause their expansion plans and
delay filling vacancies. Despite this, growth in Adviser numbers,
both from existing and new ARs, remains strong. Due to the many
focused initiatives that MAB has in place, we expect the growth in
revenue per adviser to return to normal levels in 2020. This
assumption is based on no noticeable improvement in the housing
market in 2019 and 2020. We then expect to see further productivity
growth starting to come through in 2021 and beyond due to our
technology and lead generation initiatives.
When overall consumer confidence returns we expect some pent-up
demand in the housing market to be released and our estate agency
focused ARs to respond in terms of delivering adviser growth. We
are confident that our strategy, driven by our advisers, their
customers and their changing expectations, will continue to drive
growth in MAB's market share year on year and deliver attractive
returns to investors.
INDEPENT REVIEW REPORT TO MORTGAGE ADVICE BUREAU (HOLDINGS)
PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2019 which comprises the interim condensed
consolidated statement of comprehensive income, interim condensed
consolidated statement of financial position, interim condensed
consolidated statement of changes in equity, interim condensed
consolidated statement of cash flows and notes to the interim
condensed consolidated financial statements.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The interim report, including the financial information
contained therein, is the responsibility of and has been approved
by the directors. The directors are responsible for preparing the
interim report in accordance with the rules of the London Stock
Exchange for companies trading securities on AIM which require that
the half-yearly report be presented and prepared in a form
consistent with that which will be adopted in the Company's annual
accounts having regard to the accounting standards applicable to
such annual accounts.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Financial Reporting Council for use
in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2019 is not prepared, in all material respects, in accordance
with the rules of the London Stock Exchange for companies trading
securities on AIM.
Use of our report
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the
rules of the London Stock Exchange for companies trading securities
on AIM and for no other purpose. No person is entitled to rely on
this report unless such a person is a person entitled to rely upon
this report by virtue of and for the purpose of our terms of
engagement or has been expressly authorised to do so by our prior
written consent. Save as above, we do not accept responsibility for
this report to any other person or for any other purpose and we
hereby expressly disclaim any and all such liability
BDO LLP
Chartered Accountants
London
United Kingdom
23 September 2019
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Interim condensed consolidated statement of comprehensive income
for the six months ended 30 June 2019
Six months ended
30 June
Note 2019 2018
Unaudited Unaudited
GBP'000 GBP'000
-------------------------------------- ------- ------------ ------------
Revenue 2 60,893 57,854
Cost of sales 2 (46,730) (44,822)
-------------------------------------- ------- ------------ ------------
Gross profit 14,163 13,032
Administrative expenses (6,993) (6,307)
Share of profit from associates,
net of tax 112 263
Amount written off associates (155) (57)
-------------------------------------- ------- ------------ ------------
Operating profit 7,127 6,931
-------------------------------------- ------- ------------ ------------
Analysed as:
Operating profit before charging 7,330 6,931
Acquisition costs 3 (203) -
Operating profit 7,127 6,931
-------------------------------------- ------- ------------ ------------
Finance income 4 77 31
Profit before tax 7,204 6,962
-------------------------------------- ------- ------------ ------------
Tax expense 5 (1,100) (980)
-------------------------------------- ------- ------------ ------------
Profit for the period attributable
to equity holders of parent company 6,104 5,982
-------------------------------------- ------- ------------ ------------
Earnings per share attributable
to the owners of the parent 6
Basic 11.9p 11.7p
Diluted 11.7p 11.3p
Interim condensed consolidated statement of financial
position
as at 30 June 2019 and 31 December 2019
30 June 2019 31 Dec
Note Unaudited 2018
GBP'000 Audited
GBP'000
--------------------------------- ------ ------------- ---------
Assets
Non-current assets
Property, plant and equipment 2,592 2,616
Goodwill 8 4,114 4,114
Other intangible assets 621 645
Investments in associates and
joint venture 9 2,698 1,573
Investment in non-listed equity
shares 10 75 -
Other receivables 11 2,987 2,296
Deferred tax asset 971 878
--------------------------------- ------ ------------- ---------
Total non-current assets 14,058 12,122
--------------------------------- ------ ------------- ---------
Current assets
Trade and other receivables 11 4,937 4,603
Cash and cash equivalents 14 24,068 25,589
--------------------------------- ------ ------------- ---------
Total current assets 29,005 30,192
--------------------------------- ------ ------------- ---------
Total assets 43,063 42,314
Equity and liabilities
Equity attributable to owners
of the parent
Share capital 15 51 51
Share premium 15 5,088 4,094
Capital redemption reserve 20 20
Share option reserve 1,872 1,675
Retained earnings 14,559 14,829
Total equity 21,590 20,699
--------------------------------- ------ ------------- ---------
Liabilities
Non-current liabilities
Provisions 1,810 1,704
Deferred tax liability 52 54
--------------------------------- ------ ------------- ---------
Total non-current liabilities 1,862 1,758
--------------------------------- ------ ------------- ---------
Current liabilities
Trade and other payables 12 18,543 18,690
Corporation tax liability 1,068 1,197
--------------------------------- ------ ------------- ---------
Total current liabilities 19,611 19,887
--------------------------------- ------ ------------- ---------
Total liabilities 21,473 21,645
--------------------------------- ------ ------------- ---------
Total equity and liabilities 43,063 42,314
--------------------------------- ------ ------------- ---------
Interim condensed consolidated statement of changes in equity
for the six months ended 30 June 2019
Capital Share
Share Share redemption option Retained Total
Capital Premium reserve reserve earnings Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------- ---------- ------------ --------- ----------- ----------
As at 1 January
2018 51 3,574 20 1,450 13,071 18,166
Profit for the
period - - - - 5,982 5,982
Total comprehensive
income - - - - 5,982 5,982
----------------------- --------- ---------- ------------ --------- ----------- ----------
Transactions with
owners
Issue of shares - 520 - - - 520
Share based payment
transactions - - - 225 - 225
Deferred tax assets
recognised in equity - - - 291 - 291
Reserve transfer - - - (67) 67 -
Dividends paid - - - - (6,082) (6,082)
----------------------- --------- ---------- ------------ --------- ----------- ----------
Total transactions
with owners - 520 - 449 (6,015) (5,046)
----------------------- --------- ---------- ------------ --------- ----------- ----------
As at 30 June 2018
(unaudited) 51 4,094 20 1,899 13,038 19,102
----------------------- --------- ---------- ------------ --------- ----------- ----------
As at 1 January
2019 51 4,094 20 1,675 14,829 20,669
Profit for the
period - - - - 6,104 6,104
----------------------- --------- ---------- ------------ --------- ----------- ----------
Total comprehensive
income - - - - 6,104 6,104
----------------------- --------- ---------- ------------ --------- ----------- ----------
Transactions with
owners
Issue of shares - 994 - - - 994
Share based payment
transactions - - - 253 - 253
Deferred tax asset
recognised in equity - - - 76 - 76
Reserve transfer - - - (132) 132 -
Dividends paid - - - - (6,506) (6,506)
----------------------- --------- ---------- ------------ --------- ----------- ----------
Total transactions
with owners - 994 - 197 (6,374) (5,183)
As at 30 June 2019
(unaudited) 51 5,088 20 1,872 14,559 21,590
----------------------- --------- ---------- ------------ --------- ----------- ----------
Interim condensed consolidated statement of cash flows for the
six months ended 30 June 2019
Six months ended
30 June
2019 2018
Unaudited Unaudited
GBP'000 GBP'000
------------------------------------------- ------------ -----------
Cash flows from operating activities
Profit for the period before tax 7,204 6,962
Adjustments for
Depreciation of property, plant
and equipment 104 97
Amortisation of intangibles 24 20
Share based payments 253 225
Share of profit from associates (112) (263)
Dividends received from associates 243 176
Finance income (77) (31)
7,639 7,186
Changes in working capital
Increase in trade and other receivables
(other than accrued interest income) (979) (884)
(Decrease)/Increase in trade and
other payables (147) 1,426
Increase in provisions 106 84
Cash generated from operating activities 6,619 7,812
Income taxes paid (1,248) (1,398)
-------------------------------------------- ------------ -----------
Net cash generated from operating
activities 5,371 6,414
-------------------------------------------- ------------ -----------
Cash flows from investing activities
Purchase of property, plant and
equipment (80) (51)
Purchase of intangibles - (537)
Acquisitions of associates (1,256) -
Acquisition of unlisted investment (75) -
------------------------------------------- ------------ -----------
Net cash used in investing activities (1,411) (588)
-------------------------------------------- ------------ -----------
Cash flows from financing activities
Interest received 31 26
Issue of shares 994 520
Dividends paid (6,506) (6,082)
-------------------------------------------- ------------ -----------
Net cash used in financing activities (5,481) (5,536)
-------------------------------------------- ------------ -----------
Net increase in cash and cash equivalents (1,521) 290
Cash and cash equivalents at the
beginning of the period 25,589 22,551
-------------------------------------------- ------------ -----------
Cash and cash equivalents at the
end of the period 24,068 22,841
-------------------------------------------- ------------ -----------
Notes to the interim condensed consolidated financial statements
for the six months ended 30 June 2019
1 Accounting policies
Corporate information
The interim condensed consolidated financial statements of
Mortgage Advice Bureau (Holdings) Plc and its subsidiaries
(collectively, "the Group") for the six months ended 30 June 2019
were authorised for issue in accordance with a resolution of the
directors on 23 September 2019.
Mortgage Advice Bureau (Holdings) Plc (the Company) is a limited
company incorporated and domiciled in England whose shares are
publicly traded on the Alternative Investment Market ("AIM"). The
registered office is located at Capital House, Pride Place, Pride
Park, Derby, DE24 8QR. The Group's principal activity is the
provision of financial services.
Basis of preparation
The interim condensed consolidated financial statements for the
six months ended 30 June 2019 have been prepared in accordance with
IAS 34 Interim Financial Reporting. The Group has applied the same
accounting policies and methods of computation in its interim
consolidated financial statements as in its 2018 annual financial
statements, other than as noted below.
The interim condensed consolidated 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 IFRS financial information as at 31 December 2018.
The information relating to the six months ended 30 June 2019
and the six months ended 30 June 2018 is unaudited and does not
constitute statutory financial statements within the meaning of
section 434 of the Companies Act 2006. The Group's statutory
financial statements for the year ended 31 December 2018 have been
reported on by its auditor and delivered to the Registrar of
Companies. The report of the auditor was unqualified and did not
draw attention to any matters by way of emphasis, or contain a
statement under section 498(2) or (3) of the Companies Act
2006.
The judgements, estimates and assumptions applied in the interim
financial statements, including the key sources of estimation
uncertainty, were the same as those applied in the Group's last
annual financial statements for the year ended 31 December
2018.
Significant accounting policies
The accounting policies applied are consistent with those
described in the Annual Report and Group financial statements for
the year ended 31 December 2018, except for the adoption of new
standards effective as of 1 January 2019 and the policy for
Investments in non-listed equity shares which were acquired in the
period.
IFRIC Interpretation 23 - Uncertainty over income tax
treatments. The interpretation provides guidance on the accounting
for current and deferred tax liabilities and assets in
circumstances in which there is uncertainty over income tax
treatments. The interpretation requires:
-- the Group to contemplate whether uncertain tax treatment
should be considered separately, or together as a group, based on
which approach provides better prediction of the resolution
-- the Group to determine if it is probable that the tax
authorities will accept the uncertain tax treatment
-- if it is not probable that the uncertain tax treatment will
be accepted, measure the tax uncertainty based on the most likely
amount or expected value, depending on whichever method better
predicts the resolution of the uncertainty
There was no impact on the Group as a result of the application
of this standard.
Other new or amended standards effective in the period have not
had a material impact on the condensed consolidated interim
financial statements.
The Group has not early adopted any standards, interpretations
or amendments that have been issued but are not yet effective.
Investment in non-listed equity shares
The Group measures financial instruments such as investment in
non-listed equity shares at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset in
an orderly transaction between market participants at the
measurement date. Movements in fair value are recognised in the
statement of comprehensive income.
Future new standards and interpretations
A number of new standards and amendments to standards and
interpretations will be effective for future annual and interim
periods and, therefore, have not been applied in preparing these
condensed consolidated interim financial statements. At the date of
authorisation of these financial statements, the following
standards and interpretations which have not been applied in these
financial statements were in issue but not yet effective:
Standard or interpretation Periods commencing
on or after
Amendments to Definition of a business 1 January 2020
IFRS 3
----------------------------- -----------------------
IFRS 17 Insurance contracts 1 January 2021
----------------------------- -----------------------
Amendments to Sale or contribution of This has been deferred
IFRS 10 and IAS assets between an Investor indefinitely
28 and its Associates or Joint
Ventures
----------------------------- -----------------------
Amendments to IFRS 3 - Definition of a business. The amendments
to the definition of a business are to help entities determine
whether an acquired set of activities and assets is a business or
not. They clarify the minimum requirements for a business, remove
the assessment of whether market participants are capable of
replacing any missing elements, add guidance to help entities
assess whether an acquired process is substantive, narrow the
definitions of a business and of outputs, and introduce an optional
fair value concentration test.
The amendments clarify that to be considered a business, an
integrated set of activities and assets must include, at a minimum,
an input and a substantive process that together significantly
contribute to the ability to create output. They also clarify that
a business can exist without including all of the inputs and
processes needed to create outputs. That is, the inputs and
processes applied to those inputs must have 'the ability to
contribute to the creation of outputs' rather than 'the ability to
create outputs'. This amendment is not expected to have any impact
on the Group.
IFRS 17 - Insurance contracts. IFRS 17, a comprehensive new
accounting standard for insurance contracts covering recognition
and measurement, presentation and disclosure was issued in May
2017. Once effective, IFRS 17 will replace IFRS 4. IFRS 17 applies
to all types of insurance contracts, regardless of the type of
entities that issue them, as well as to certain guarantees and
financial instruments with discretionary participation features.
The objective of IFRS 17 is to provide an accounting model for
insurance contracts that is more useful and consistent for
insurers.
IFRS 17 is effective for reporting periods beginning on or after
1 January 2021, with comparative figures required. Early
application is permitted, provided the entity also applies IFRS 9
and IFRS 15 on or before the date it first applies IFRS 17. This
standard is not applicable to the Group.
Amendments to IFRS 10 and IAS 28: Sale or contribution of Assets
between an Investor and its Associate or Joint Venture. The
amendments address the conflict between IFRS 10, Consolidated
Financial Statements and IAS 28 in dealing with the loss of control
of a subsidiary that is sold or contributed to an associate or
joint venture. The amendments clarify that the gain or loss
resulting from the sale or contribution of assets that constitute a
business, as defined in IFRS 3, between an investor and its
associate or joint venture, is recognised in full. Any gain or loss
resulting from the sale or contribution of assets that do not
constitute a business, however, is recognised only to the extent of
unrelated investors' interests in the associate or joint venture.
The IASB has deferred the effective date of these amendments
indefinitely, but an entity that early adopts the amendments must
apply them prospectively. The Group will apply these amendments
when they become effective.
Current versus non-current classification
The Group presents assets and liabilities in the statement of
financial position based on current/non-current classification. An
asset is current when it is:
-- expected to be realised or intended to be sold or consumed in the normal operating cycle
-- held primarily for the purpose of trading
-- expected to be realised within twelve months after the reporting date
All other assets are classified as non-current.
Assets included in current assets which are expected to be
realised within twelve months after the reporting date are measured
at fair value which is their book value. Fair value for investments
in unquoted equity shares is the net proceeds that would be
received for the sale of the asset where this can be reasonably
determined.
Basis of consolidation
Where the company has control over an investee, it is classified
as a subsidiary. The company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the
Company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between group
companies are therefore eliminated in full.
The consolidated financial statements incorporate the results of
business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases.
Entities that are not subsidiaries but where the Group has
significant influence (i.e. the power to participate in the
financial and operating policy decisions) are accounted for as
associates. The results and assets and liabilities of the
associates are included in the consolidated accounts using the
equity method of accounting.
Segment Reporting
An operating segment is a distinguishable segment of an entity
that engages in business activities from which it may earn revenues
and incur expenses and whose operating results are reviewed
regularly by the entity's chief operating decision maker ("CODM").
The Board reviews the Group's operations and financial position as
a whole and therefore considers that it has only one operating
segment, being the provision of financial services operating solely
within the UK. The information presented to the CODM directly
reflects that presented in the financial statements and they review
the performance of the Group by reference to the results of the
operating segment against budget.
Operating profit is the profit measure, as disclosed on the face
of the consolidated statement of comprehensive income that is
reviewed by the CODM.
During the six month period to 30 June 2019, there have been no
changes from the prior periods in the measurement methods used to
determine operating segments and reported segment profit or
loss.
2 Revenue
The Group operates in one segment being that of the provision of
financial services in the UK.
Revenue is derived as follows:
Six months ended 30
June
2019 2018
Unaudited Unaudited
GBP'000 GBP'000
Mortgage related products 36,385 35,671
Insurance and other protection products 23,612 21,308
Other income 896 875
------------------------------------------ ------------ ------------
60,893 57,854
------------------------------------------ ------------ ------------
Costs of sales are as follows:
2019 2018
Unaudited Unaudited
GBP'000 GBP'000
Commissions paid 45,747 43,945
Wages and salary costs 983 877
----------------------------------------- ------------ ------------
46,730 44,822
----------------------------------------- ------------ ------------
There is no significant seasonality to income which arises
fairly evenly throughout the year and therefore profits also arise
fairly evenly throughout the financial year.
3 Acquisition costs
As set out in note 17, "Events after the reporting date", on 18
June 2019 Mortgage Advice Bureau (Holdings) Plc announced that it
had agreed to acquire 80 per cent of the entire issued share
capital of First Mortgage Direct Limited ("First Mortgage" or the
"Business") and the acquisition completed on 2 July 2019. Costs
incurred in the period in relation to the acquisition amounted to
GBP0.2m.
4 Finance income
Six months ended 30
June
2019 2018
Unaudited Unaudited
GBP'000 GBP'000
------------------------------------------------ ------------ -----------
Interest income 31 26
Interest income accrued on loans to associates 46 5
------------------------------------------------ ------------ -----------
77 31
------------------------------------------------ ------------ -----------
5 Income Tax
The Group calculates the period income tax expense using the tax
rate that would be applicable to the expected total annual
earnings. The major components of income tax expense in the interim
condensed statements of comprehensive income are:
Six months ended 30
June
2019 2018
Unaudited Unaudited
GBP'000 GBP'000
------------------------------------------------ ------------ -----------
Current tax expense
UK corporation tax charge on profit for
the period 1,119 1,021
Total current tax 1,119 1,021
------------------------------------------------ ------------ -----------
Deferred tax expense
Origination and reversal of timing differences (7) -
Temporary difference on share based payments (12) (41)
Total deferred tax (19) (41)
------------------------------------------------ ------------ -----------
Total tax expenses 1,100 980
------------------------------------------------ ------------ -----------
For the period ended 30 June 2019, the deferred tax recognised
in equity was GBP75,516.
6 Earnings per share
Both the basic and diluted earnings per share have been
calculated using the profit attributable to shareholders of the
parent company, Mortgage Advice Bureau (Holdings) plc, as the
numerator. No adjustments to profits were necessary during the six
month period to 30 June 2019 and 30 June 2018.
The weighted average number of shares for the purposes of the
calculation of diluted earnings per share can be reconciled to the
weighted average number of ordinary shares used in the calculation
of basic earnings per share as follows:
Six months ended 30 June
2019 2018
Unaudited Unaudited
---------------------------------------- ------------------------- ------------
Weighted average number of shares used
in basic earnings per share 51,223,905 50,938,611
Potential ordinary shares arising from
options 992,609 1,848,634
---------------------------------------- ------------------------- ------------
Weighted average number of shares used
in diluted earnings per share 52,216,514 52,787,245
---------------------------------------- ------------------------- ------------
Adjusted earnings per ordinary share is also presented to
eliminate the effects of one-off acquisition costs. This
presentation shows the trend in earnings per ordinary share that is
attributable to the underlying trading activities of the Group.
The reconciliation between the basic and adjusted figures is as
follows:
Six months ended Six months ended 30 June
30 June
2019 2018 2019 2018 2019 2018
Unaudited Unaudited Basic Basic Diluted Diluted
GBP'000 GBP'000 earnings earnings earnings earnings
per share per share per share per share
pence pence pence pence
Profit for the period 6,104 5,982 11.9 11.7 11.7 11.3
Adjustments:
Acquisition costs 203 - 0.4 - 0.4 -
Tax effect of adjustments - - - - - -
Adjusted earnings 6,307 5,982 12.3 11.7 12.1 11.3
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
The Group uses adjusted results as key performance indicators,
as the Directors believe that these provide a more consistent
measure of operating performance. Adjusted profit is therefore
stated before one-off acquisition costs.
7 Dividends
Six months Six months Year ended
ended 30 ended 30 31 December
June June 2018
2019 2018 Audited
Unaudited Unaudited
GBP'000 GBP'000 GBP'000
Dividends paid and declared during
the period:
On ordinary shares at 12.7p per share
(2018: 11.9p) 6,506 6,082 6,082
Interim dividend for 2018: 10.6p per
share - - 5,417
6,506 6,082 11,499
--------------------------------------- ----------- ----------- -------------
Equity dividends on ordinary shares:
Declared:
Interim dividend for 2019: 11.1p per
share (2018: 10.6p) 5,711 5,417 -
Proposed for approval:
Final dividend for 2018: 12.7p per
share - - 6,490
--------------------------------------- ------ ------ ------
5,711 5,417 6,490
-------------------------------------- ------ ------ ------
The record date for the interim dividend is 4 October 2019 and
the payment date is 25 October 2019.
8 Goodwill
The goodwill relates to the acquisition of Talk Limited in 2012,
and in particular its main operating subsidiary Mortgage Talk
Limited. The goodwill is deemed to have an indefinite useful life.
It is currently carried at cost and is reviewed annually for
impairment.
Under IAS 36, "Impairment of assets", the Group is required to
review and test its goodwill annually each year or in the event of
a significant change in circumstances. The impairment review
conducted at the end of 2018 concluded that there had been no
impairment of goodwill.
The key basis for determining that there was no impairment to
the carrying value of goodwill was disclosed in the annual
consolidated financial statements for the year ended 31 December
2018. There are no matters which have arisen in the period to 30
June 2019 which indicated that an impairment review was required at
that date.
9 Investments in associates and joint ventures
The investment in associates and joint ventures at the reporting
date is as follows:
30 June 31 December
2019 2018
Unaudited Audited
GBP'000 GBP'000
--------------------------------------------- ----------- ------------
At start of the period 1,573 1,339
Additions 1,411 265
Credit/charge to statement of comprehensive
income
Share of profit 112 494
Amount written off (155) (133)
--------------------------------------------- ----------- ------------
(43) 361
Dividends received (243) (392)
--------------------------------------------- ----------- ------------
At period end 2,698 1,573
--------------------------------------------- ----------- ------------
The Group acquired a 25% interest in The Mortgage Broker Group
Limited on 20 May 2019 at a cost of GBP1,256,250.
In accordance with IFRS 9 the Group increased the value of
investments by GBP155,072 to reflect the present value adjustment
to an interest free loan.
10 Investment in non-listed equity shares
30 June 31 December
2019 2018
Unaudited Audited
GBP'000 GBP'000
----------------------- ----------- ------------
At start of the period - -
Additions 75 -
At period end 75 -
----------------------- ----------- ------------
The Group acquired a 3.33% interest in Yourkeys on 5 February
2019 at a cost of GBP75,000.
11 Trade and Other Receivables
30 June 31 December
2019 2018
Unaudited Audited
GBP'000 GBP'000
----------------------------------------------- ----------- ------------
Trade receivables 1,893 2,047
Less provision for impairment of trade
receivables (298) (284)
----------------------------------------------- ----------- ------------
Trade receivables - net 1,595 1,763
Receivables from related parties 22 29
Loans to related parties 2,797 2,257
Less provision for impairment of loans
to related parties (221) (290)
----------------------------------------------- ----------- ------------
Total financial assets other than cash
and cash equivalents classified as amortised
costs 4,193 3,759
Prepayments and accrued income 3,731 3,140
----------------------------------------------- ----------- ------------
Total trade and other receivables 7,924 6,899
----------------------------------------------- ----------- ------------
Less: non-current portion - Loans to
related parties (2,425) (1,560)
Less: non-current - Other receivables (562) (736)
----------------------------------------------- ----------- ------------
Current portion 4,937 4,603
----------------------------------------------- ----------- ------------
The carrying value of trade and other receivables classified at
amortised cost approximates fair value.
Impairment provisions for trade receivables are recognised based
on the simplified approach within IFRS 9 using the lifetime
expected credit losses. During this process the probability of the
non-payment of the trade receivables is assessed. This probability
is then multiplied by the amount of the expected loss arising from
default to determine the lifetime expected credit loss for the
trade receivables. For trade receivables, which are reported net,
such provisions are recorded in a separate provision account with
the loss being recognised within cost of sales in the consolidated
statement of comprehensive income. On confirmation that the trade
receivable will not be collectable, the gross carrying value of the
asset is written off against the associated provision. At 30 June
2019 the lifetime expected loss provision for trade receivables is
GBP0.3m. The movement in the impairment allowance for trade
receivables has been included in cost of sales in the consolidated
statement of comprehensive income.
Impairment provisions for loans to associates are recognised
based on a forward looking expected credit loss model. The
methodology used to determine the amount of the provision is based
on whether there has been a significant increase in credit risk
since initial recognition of the financial asset. For those where
the credit risk has not increased significantly since initial
recognition of the financial asset, twelve month expected credit
losses along with gross interest income are recognised. For those
for which credit risk has increased significantly, lifetime
expected credit losses along with the gross interest income are
recognised. For those that are determined to be credit impaired,
lifetime expected credit losses along with interest income on a net
basis are recognised. In determining the lifetime expected credit
losses for loans to associates, the Directors have considered
different scenarios for repayments of these loans and have applied
percentage probabilities to each scenario for each associate where
applicable.
At 30 June 2019 the lifetime expected loss provision for loans
to associates is GBP0.2m. One of these receivables has been subject
to a significant increase in credit risk since initial recognition
and, consequently, lifetime expected credit losses have been
recognised. For the remainder, 12 month expected credit losses have
been recognised. (There are no non-current receivable balances
lifetime expected credit losses.)
The movement in the impairment allowance for receivables for
loans to associates has been included in cost of sales in the
consolidated statement of comprehensive income.
Also included in trade receivables are amounts due from
Appointed Representatives relating to commissions that are
refundable to the Group when policy lapses or other reclaims exceed
new business. As these balances have no credit terms, the Board of
Directors consider these to be past due if they are not received
within seven days. In the management of these balances, the
Directors can recover them from subsequent new business entered
into with the Appointed Representative or utilise payables that are
owed to the same counterparties and included within payables as the
Group has the legally enforceable right of set off in such
circumstances. These payables are considered sufficient by the
Directors to recover receivable balances should they default, and,
accordingly, credit risk in this respect is minimal.
In light of the above, the Directors do not consider that
disclosure of an aging analysis of trade and other receivables
would provide useful additional information.
12 Trade and Other Payables - current
30 June 31 December
2019 2018
Unaudited Audited
GBP'000 GBP'000
----------------------------------------------- ----------- ------------
Appointed Representatives retained commission 12,749 11,711
Other trade payables 4,194 4,658
----------------------------------------------- ----------- ------------
Trade payables 16,943 16,369
Social security and other taxes 382 783
Other payables 22 42
Accruals and deferred income 1,196 1,496
----------------------------------------------- ----------- ------------
18,543 18,690
----------------------------------------------- ----------- ------------
As at 30 June 2019 and 31 December 2018, the book value of trade
and other payables approximates their fair value given that they
are short term in nature.
13 Financial Instruments - risk management activities
Credit risk
Credit risk is the risk of financial loss to the Group if a
trading partner or counterparty to a financial instrument fails to
meet its contractual obligations. The Group is mainly exposed to
credit risk from advanced loans to its trading partners which are
classified as trade receivables. It is Group policy to assess the
credit risk of trading partners before advancing loans or other
credit facilities. Assessment of credit risk utilises external
credit rating agencies. Personal guarantees are generally obtained
from the Directors of its trading partners. Further disclosures
regarding trade and other receivables are given in note 11.
Financial assets - maximum exposure
30 June 31 December
2019 2018
Unaudited Audited
GBP'000 GBP'000
----------------------------- ----------- ------------
Cash and cash equivalents 24,068 25,589
Trade and other receivables 4,193 3,759
----------------------------- ----------- ------------
Total financial assets 28,261 29,348
----------------------------- ----------- ------------
The carrying amounts stated above represent the Group's maximum
exposure to credit risk for trade and other receivables. An element
of this risk is mitigated by collateral held by the Group for
amounts due to them.
Trade receivables consist of a large number of unrelated trading
partners and therefore credit risk is limited. Due to the large
volume of trading partners the Group does not consider that there
is any significant credit risk as a result of the impact of
external market factors on their trading partners. Additionally,
within trade payables are amounts due to the same trading partners
as those included in trade receivables; this collateral
significantly reduces the credit risk.
The Group's credit risk on cash and cash equivalents is limited
because the Group places funds on deposit with several UK banks all
of whom are A or BBB+ rated where applicable.
14 Cash and cash equivalents
For the purpose of the interim condensed statement of cash
flows, cash and cash equivalents are comprised of:
30 June 2019 31 December
Unaudited 2018
Audited
GBP'000 GBP'000
-------------------------------------------- ------------- ------------
Unrestricted cash and bank balances 5,819 13,878
Bank balances held in relation to retained
commissions 12,749 11,711
Restricted cash 5,500 -
-------------------------------------------- ------------- ------------
Cash and cash equivalents 24,068 25,589
-------------------------------------------- ------------- ------------
Bank balances held in relation to retained commissions earned on
an indemnity basis in relation to life policies are held to cover
potential future lapses in Appointed Representatives commission.
Operationally, the Group does not treat these balances as available
funds. An equal and opposite liability is shown within Trade
Payables (note 12).
The restricted cash balance of GBP5.5m above represents cash
held in escrow by our solicitors at 30 June 2019, in advance of the
acquisition of First Mortgage Direct Limited which completed on 2
July 2019.
15 Share Capital
Issued and fully paid
30 June 31 December
2019 2018
Unaudited Audited
GBP'000 GBP'000
------------------------------- -------- ------------
Ordinary shares of 0.1p each 51 51
Total share capital 51 51
------------------------------- -------- ------------
During the period 348,709 ordinary shares of 0.1p each were
issued following partial exercise of the third tranche of options
issued at the time of the Initial Public Offering of the Company
and partial exercise of options issued in May 2016 at a total
premium of GBP0.9m. See also note 17.
16 Related Party Transactions
The following details provide the total amount of transactions
that have been entered into with related parties during the six
months ended 30 June 2019 and 2018, as well as balances with
related parties as at 30 June 2019 and 31 December 2018.
At 30 June 2019 there was a loan outstanding from Buildstore
Limited, an associated company, of GBP51,205 (2018: GBP15,000)
included in trade and other receivables. During the period the
Group paid commissions of GBP228,013 (2018: GBP397,321) to
Buildstore Limited.
During the period the Group received introducer commission from
MAB Wealth Management Limited, an associated company of GBPnil
(2018: GBP527). There is no balance outstanding with MAB Wealth
Management Limited at 30 June 2019 (2018: GBPnil).
During the period the Group received introducer commission from
Sort Limited, a subsidiary of an associated company of GBP389,157
(2018: GBP329,798). There was an amount of GBP220,575 outstanding
with Sort Group Limited at 30 June 2019 (2018: GBP18,288) included
in trade and other receivables.
During the period the Group paid commission to Clear Mortgage
Solutions Limited, an associated company, of GBP1,968,486 (2018:
GBP1,492,133). There is no balance outstanding with Clear Mortgage
Solutions Limited at 30 June 2019 (2018: GBPnil).
During the period the Group paid commission to Freedom 365
Mortgage Solutions Limited, an associated company, of GBP313,418
(2018: GBP401,954). At 30 June 2019 there was a loan outstanding
from Freedom 365 Mortgage Solutions Limited of GBP1,279,198
included in trade and other receivables (2018: GBP910,000).
During the period the Group paid commission to Vita Financial
Limited, an associated company, of GBP407,059 (2018: GBP412,793).
At 30 June 2019 there was a loan outstanding of GBP12,000 included
in trade and other receivables (2018: GBP27,000).
At 30 June 2019 there was a loan outstanding from MAB Broker
Services PTY Limited, an associated company, of GBP882,223
(AUD1,600,000) included in trade and other receivables (2018:
GBP427,226, AUD945,000).
During the period the Group paid commission to Eagle & Lion
Limited, an associated company, of GBP108,952. At 30 June 2019
there was a loan outstanding of GBP375,000 included in trade and
other receivables (2018: GBP365,000).
During the period the Group paid commission to The Mortgage
Broker Group Limited, an associated company, of GBP148,873. At 30
June 2019 there was a loan outstanding of GBP120,000 included in
trade and other receivables.
During the period the Group received dividends from associated
companies as follow:
Six months ended 30 June
2019 2018
Unaudited Unaudited
GBP'000 GBP'000
------------------------ ----------- -----------
CO2 Commercial Limited 243 176
------------------------ ----------- -----------
17 Share based payments
No options were granted during the period.
Options exercised in April 2019 resulted in 128,315 ordinary
shares being issued at an exercise price of GBP1.60. The price of
the ordinary shares at the time of exercise was GBP5.50 per
share.
Options exercised in May 2019 resulted in 220,394 ordinary
shares being issued at an exercise price of GBP3.58. The price of
the ordinary shares at the time of exercise was GBP5.82 per
share.
For the six months ended 30 June 2019, the Group has recognised
GBP442,490 of share based remuneration expense in the statement of
comprehensive income (2018: GBP429,988) which includes the charge
for equity-settled schemes of GBP371,717 (2018: GBP357,941) and the
matching element of the Group's Share Incentive Plan for all
employees of GBP37,037 (2018: GBP19,485).
18 Events after the reporting date
On 18 June 2019 Mortgage Advice Bureau (Holdings) PLC announced
that it had agreed to acquire 80 per cent. of the entire issued
share capital of First Mortgage Direct Limited ("First Mortgage" or
the "Business") for an initial cash consideration of GBP16.5m (the
"Acquisition"), valuing the Business at GBP20.6m. The Acquisition
completed on 2 July 2019, and the cash consideration was funded
from a mix of MAB's own cash resources and a partial drawdown on
its new debt facilities. First Mortgage is one of the UK's leading
omni-channel, independent mortgage brokers, with a particularly
strong presence in Scotland, where the Business was originally
established over two decades ago. The Scottish based business now
comprises c.90 highly productive employed mortgage and protection
advisers and has already commenced its expansion south of the
border.
The principal reason for the Acquisition is the significant
additional growth opportunities that it presents for MAB. The
Acquisition will enable MAB to further grow its adviser numbers and
market share, in addition to its core growth plans, and will also
add another highly respected and leading mortgage broker to the
Group. First Mortgage's omni-channel growth strategy, and
particularly its telephony strategy, will be leveraged further
through the planned deployment and roll-out of MAB's new
technology, building on the expertise in both businesses and
enabling the acceleration of the respective businesses' ambitious
growth plans.
MAB has also entered into an option agreement (structured as a
put and call option), to acquire the remaining 20% of the entire
issued share capital of First Mortgage between 2024 and 2030, at a
valuation for the Business of eight times the prior year's audited
profit before tax, adjusted for distributable reserves and
regulatory capital requirements, for a minimum of GBP4m and up to a
maximum total consideration of GBP10m. Under the terms of the
option agreement, MAB can, at its discretion, satisfy up to 75% of
the consideration through the issue of new ordinary shares in MAB.
Any new ordinary shares issued to satisfy this consideration will
be subject to orderly market provisions.
MAB also entered into an agreement on 18 June 2019 with NatWest,
conditional upon completion of the Acquisition, in respect of a new
revolving credit facility for GBP12m, in order to part fund the
cash consideration payable in relation to the Acquisition. It is
MAB's intention to repay the drawn down proportion of this debt
facility as quickly as practicable. MAB's practice over recent
years has been to pay out approximately 90% of its profit after tax
as dividends. In order to repay the drawn down facility, MAB will
reduce its dividend pay-out on the enlarged Group from 90% to 75%.
This will be effective from MAB's final dividend payable in respect
of the year ended 31 December 2019.
The book value of the net assets acquired is GBP3.2m.
At the date of authorisation of these interim financial
statements a detailed assessment of the fair value of the
identifiable net assets has not been completed.
Fair value of consideration paid
GBP'000
Cash 16,500
Whilst fair value adjustments will result in recognised goodwill
of less than GBP17.4m, it is expected that some goodwill will be
recognised. This goodwill represents items, such as the assembled
workforce, which do not qualify for recognition as assets.
There were no other material events after the reporting period,
which have a bearing on the understanding of the consolidated
interim financial statements.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR VXLFLKKFFBBV
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