TIDMMAB1
RNS Number : 5714K
Mortgage Advice Bureau(Holdings)PLC
23 April 2020
23 April 2020
MORTGAGE ADVICE BUREAU (HOLDINGS) PLC.
("MAB", or "the Company", or "the Group")
Final Results for the year ended 31 December 2019
Further to the trading update announced on 24 March 2020,
Mortgage Advice Bureau (Holdings) PLC (AIM: MAB1.L) is pleased to
announce its final results for the year ended 31 December 2019.
Financial highlights
-- Revenue up 17% to GBP143.7m (2018: GBP123.3m)
-- Gross profit up 28% to GBP36.4m (2018: GBP28.4m)
-- Gross profit margin up 10% to 25.3% (2018: 23.1%)
-- Overheads ratio (before acquisition-related costs(1)
) of 12.4% (2018: 10.7%)
-- Profit before tax and acquisition-related costs(1) up
19% to GBP18.7m (2018: GBP15.7m)
-- Statutory profit before tax up 13% to GBP17.7m (2018:
GBP15.7m)
-- Profit before tax margin pre acquisition-related costs(1)
of 13.0% (2018: 12.7%)
-- Reported profit before tax margin of 12.3% (2018: 12.7%)
-- Adjusted(1) EPS up 17% to 30.1p (2018: 25.9p)
-- Basic EPS up 9% to 28.2p (2018: 25.9p)
-- Continued high operating profit to adjusted cash conversion(2)
of 119% (2018: 113%)
-- Proposed final dividend of 6.4p making proposed total
ordinary dividends for the year of 17.5p (2018: 23.3p),
(payout ratio of 38% on adjusted profit after tax(3)
); intention to pay out a further 6.4p when prudent to
do so
Operational highlights
-- Adviser numbers up 20% to 1,457 at 31 December 2019 (31
December 2018: 1,213), which includes 82 Advisers from
the acquisition of First Mortgage Direct Limited
-- Average number of Advisers during the period up 19% to
1,341 (2018: 1,130), and up 14% to 1,293 excluding First
Mortgage Direct
-- Underlying revenue per Adviser broadly flat for 2019(4)
, with improved banked productivity in H2 2019
-- Gross mortgage completions (including product transfers)
up 20% to GBP16.7bn (2018: GBP14.0bn)
-- Gross mortgage completions with new lenders up 20% to
GBP15.2bn (2018: GBP12.7bn)
-- Market share of new mortgage lending up 20% to 5.7% (2018:
4.7%)
Post period end
-- Strong start to 2020, with increased activity in the
market until the end of March
-- 1,473 Advisers as at 17 April 2020, including 196 currently
furloughed
-- Group in a strong position to deal with operational and
financial impacts of the Coronavirus pandemic
-- GBP12m drawn down on the Group's Revolving Credit Facility,
giving flexibility to react quickly to changing market
and capitalise on potential opportunities
Peter Brodnicki, Chief Executive, commented on the 2019
results:
"I am pleased to report this strong set of results. Although the
political uncertainty persisted throughout 2019, we achieved strong
revenue growth of 17% to GBP143.7m and strong earnings growth, with
adjusted EPS up 17% to 30.1 pence per share. The Board had intended
to propose an increased final dividend of 12.8 pence per share,
making total dividends for the year of 23.9 pence per share, up
2.6% on the previous year, in line with our policy of paying out a
minimum of 75% of adjusted earnings as announced on the acquisition
of First Mortgage Direct ("First Mortgage"). However, in view of
the severity of the Coronavirus pandemic, we now propose a final
dividend of 6.4 pence per share, with the intention to pay a
further 6.4 pence when the Board considers it prudent to do so.
MAB has always had a clear strategy of pursuing and delivering
long-term sustainable growth in market share, regardless of
mortgage and housing market conditions. In 2019 we increased our
market share of new mortgage lending to 5.7%, a strong increase of
20% versus the prior year. Mortgage completions from MAB advisers
grew by 20% to GBP16.7bn.
I am particularly pleased with our growth in new advisers over
the last year, especially since as predicted, the subdued housing
market led to very limited growth from the circa 40% of our AR
firms that are linked to estate agents. Adviser numbers grew 20% to
1,457 (2018: 1,213) at the year end, and 13% excluding the 82
Advisers at First Mortgage.
Technology continues to be an important growth enabler for MAB.
We started piloting the first part of our new platform at the end
of 2019 and we have now commenced a programme of implementation of
new technology-led processes.
I am also very pleased with the acquisition of First Mortgage,
which is now fully integrated into the Group. First Mortgage is a
business of exceptional quality which is highly complementary to
MAB, and we look forward to enhancing its strong growth track
record through the deployment and rollout of our technology
platform and our support structure."
Current trading and outlook
A clear change in customer sentiment following the General
Election in early December 2019 led to much improved activity in
the housing market from the start of 2020, giving our AR firms and
their advisers a strong start to the year in terms of new business
levels and productivity. This marked increase in activity remained
strong up to the end of March 2020, despite increasing concerns
about the Coronavirus pandemic.
The Government imposed lockdown has had the effect of calling a
halt on most house purchase transactions, with key elements such as
physical viewings and valuations ruled out for the period of the
lockdown. Consequently, after the strong start to the year, we have
seen a significant reduction in purchase related activity. This has
already impacted both Adviser numbers and productivity.
MAB's growth in Adviser numbers started to slow down from early
March 2020, as Appointed Representative ("AR") firms temporarily
put their recruitment plans on hold. As at 17 April 2020, Adviser
numbers were 1,473, including 196 Advisers currently furloughed.
The furloughed Advisers relate mostly to ARs that have strong links
to estate agencies or the new build sector. Some adviser attrition
has also occurred among the lower performing Advisers and it is
unlikely any of those advisers will be replaced until the purchase
market fully recovers.
As expected, focus and demand has increased in the re-mortgage
and product transfer markets, which together represented around 65%
of the value of all UK mortgage transactions last year. The MAB
team and our ARs have prioritised resources to optimising
opportunities in this sector and early results are very
encouraging. Re-mortgage opportunities cannot be fully optimised at
present due to loan to value restrictions that are currently in
place as a result of many lenders experiencing processing capacity
issues and the limitations of automated valuations in higher loan
to value mortgages, but product transfers have significantly
increased in recent weeks. By the time Government restrictions are
lifted, our typically purchase focused AR firms will have improved
their procedures for servicing existing clients in this sector, and
we expect that increased efficiency to be maintained once purchase
activity starts to return.
Although we expect protection sales to reduce in line with
purchase activity, the escalation of the Coronavirus pandemic has
resulted in a heightened awareness of the importance of such
products amongst customers. Alongside our realignment of resources
to re-mortgage and product transfer transactions, is our immediate
opportunity to have a meaningful impact on the lower protection
attachment rates seen on non-purchase mortgages. Plans are already
in place to ensure the improvements we are seeing are maintained
and built upon when advisers become busier again.
All elements of the mortgage and protection advice process can
be transacted by telephone. Over the last month or so this has
become the only option for our customers. Telephone advice was
already a fast-growing area of our business, both through strong
growth in specialist telephone advisers, as well as an increasing
number of telephone appointments being conducted by traditionally
face-to-face advisers. MAB has been providing new guidance and
tools to support a seamless transition to telephone advice across
our distribution network, ensuring business continuity for advisers
and customers across all purchase, product transfer and re-mortgage
transactions.
All our systems and processes were robustly tested pre lockdown
to allow MAB's head office and field-based teams to work
effectively from home, ensuring continued and tailored support for
our distribution channels. We have also reviewed our cost base to a
level where it is now appropriate for the current circumstances,
and importantly we have ensured that our ARs and Advisers are fully
supported through this very difficult time in their new ways of
working, including redirecting certain allocated budgets to other
areas of spend where it is optimal to do so.
In response to the challenging environment, MAB, our AR firms
and their advisers have a heightened focus on business efficiency
and ensuring no opportunities are missed. We have commenced the
implementation of new technology-led processes and efficiencies to
optimise working practices, customer engagement and income
generation, which we expect to deliver long lasting benefits.
The changes in the circumstances and priorities for consumers
has led us to design new campaigns and initiatives as part of our
communication strategy. These include a free mortgage support
helpline dedicated to the financial wellbeing of homeowners worried
about paying their mortgage. In addition, all our online, social
media, and existing client communications, which now feature in
this free service, have also been tailored to reflect a heightened
awareness of protection and refinancing.
The Government has announced a strong package of measures to
ensure lenders can continue to lend to mortgage borrowers as usual,
including access to new, significant and cost-effective funding and
reduced regulatory capital buffer requirements in this period of
exceptional challenge. As referenced above, there are however some
loan to value restrictions currently in place.
In addition, the Bank of England recently reduced its base rate
to a record low of 0.1%, allowing the cost of mortgages to be
reduced even further. This has triggered a higher level of interest
in re-mortgages and product transfers as well as benefited all
those buying a new house or moving home when restrictions are
lifted and they are able to proceed with their transactions. Wider
measures, including increased investment in all types of housing,
should ensure the medium to long term outlook for our market
remains very positive.
MAB is also actively engaged in lobbying key stakeholders in the
Government for specific actions to be taken to ensure a speedier
recovery in the UK housing market when restrictions are lifted.
Over 20 years we have built a high-quality distribution network,
a leading consumer brand, and an exceptional management team that
continues to adapt quickly and efficiently to our new ways of
working. The Group has a strong balance sheet, is cash generative
and enjoys a healthy surplus over its regulatory capital
requirement. To give ourselves additional flexibility to capitalise
on potential opportunities quickly, we drew down our full GBP12m
Revolving Credit Facility on 20 March 2020. We are in a stronger
position than many to deal with the challenges that we face over
the coming months and are confident in our ability to continue
growing our market share, with a specific additional focus on
re-mortgages and product transfers.
MAB has a clear strategy and we continue to strengthen our
proposition. During this pandemic our priority is to redeploy our
resources where possible to focus on lead generation, telephone
advice and remote working. It is too early to predict the extent of
the disruption to trading in the coming months and the associated
impact on our results for the full year , though we do expect to
see a reduction in revenue and profit . However, we remain very
optimistic about MAB's growth prospects. The quality and level of
support that MAB provides is really standing out at a time when our
AR firms and advisers need that support more than ever. In the
months ahead, AR firms will look back at how their network
supported them during these times and this will be a great
opportunity for MAB to capitalise upon as we look to resume our
growth plans and build on the positives that have come from these
challenging times.
2019 2018 Change
Revenue GBP143.7m GBP123.3m +17%
Gross profit GBP36.4m GBP28.4m +28%
Gross profit margin 25.3% 23.1%
Profit before tax and acquisition
r elated costs(1) GBP1 8.7m GBP15.7m +1 9%
Profit before tax GBP1 7.7m GBP15.7m +1 3%
PBT margin before acquisition related
costs(1) 1 3.0% 12.7%
PBT margin 1 2.3% 12.7%
Adjusted EPS(1) 30.1p 25.9p +17%
Basic EPS 2 8.2p 25.9p +9%
Proposed final dividend per share 6.4p 12.7p -50%
Proposed total ordinary dividends
per share 17.5p 23.3p -25%
Operating profit to headline cash
conversion(5) 1 31% 1 28%
Operating profit to adjusted cash
conversion(2) 1 19% 1 13%
(1) Costs associated with the acquisition of First Mortgage,
including GBP0.4m of one-off acquisition costs, GBP0.2m
amortisation of acquired intangibles and GBP0.4m of additional
non-cash operating expenses relating to the put and call option
agreement to acquire the remaining 20% of First Mortgage.
(2) Adjusted cash conversion is headline cash conversion
adjusted for increases in restricted cash balances of GBP2.2m in
2019 (2018: GBP1.0m) as a percentage of adjusted operating
profit.
(3) Profit after tax adjusted for non-cash exceptional items of
GBP0.6m
(4) Based on Average number of Advisers. Underlying basis
excludes a one-off adjustment in H1 2018 of GBP1.7m for procuration
fees awaiting processing.
(5) 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 GBP0.9m in 2019 (2018: GBP2.2m) as a
percentage of adjusted operating profit.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014 ("MAR").
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 / Laura White (Corporate
Finance)
Media Enquiries: investorrelations@mab.org.uk
Analyst presentation
There will be an analyst presentation via conference call to
discuss the results at 9:30am today.
Those analysts wishing to attend are asked to contact
investorrelations@mab.org.uk
Copies of this announcement are available at
www.mortgageadvicebureau.com/investor-relations.
Chief Executive's Review
Overview of 2019
This has been a particularly strong performance from MAB given
the reduced level of consumer confidence that we have seen, caused
by the protracted political uncertainty with regard to Brexit and
the General Election at the end of 2019.
Our revenue and profits have continued to increase, building on
our consistent track record of delivering growth.
Our growth in mortgage completions is set out below:
2019 2018 Increase
GBPbn GBPbn
------- ------- ----------
New mortgage lending 15.2 12.7 +20%
------- ------- ----------
Product Transfers 1.5 1.3 +18%
------- ------- ----------
Gross mortgage lending 16.7 14.0 +20%
======= ======= ----------
MAB's total gross mortgage completions (including Product
Transfers) increased by 20% to GBP16.7bn (2018: GBP14.0bn). Gross
mortgage completions through new lenders(1) increased by 20% to
GBP15.2bn (2018: GBP12.7bn). This growth in purchase and
re-mortgage lending takes our overall share of UK new mortgage
lending up 20% to 5.7%, from 4.7%.
This growth was achieved in a slightly softer housing
transaction and mortgage lending market. Hence, our full year 2019
results, as with previous years, represent a clear outperformance
against both the overall UK housing and the new mortgage lending
markets.
(1) "Gross mortgage completions through 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 by volume overall for 2019 were 1% below
2018, which had also been a relatively subdued year. Overall house
moves in 2019 continued to be muted compared to longer-term average
levels. In all likelihood this was because many consumers were not
sufficiently confident to commit to larger transactions such as
moving home given the wider political uncertainty. In addition
there continued to be multiple factors that contributed to a
quieter market, including affordability, the increases in stamp
duty and lower levels of housing stock available for sale.
Overall, the new mortgage market was generally flat. The number
of First Time Buyers (FTBs) showed a modest increase as they
benefitted from record low mortgage rates, and purchase finance
assistance from the Help-to-Buy Equity Loan scheme and Shared
Ownership scheme, and as low property price inflation offset
affordability and moderate wage inflation. The number of
home-movers continued to be broadly flat.
New mortgages for buy to let purchases continued to fall,
carrying on a downward trend seen over recent years as taxation
changes impacted the activity in the market.
The re-mortgaging market remained steady, although owner
occupier re-mortgaging activity showed a slight decline
year-on-year, with buy to let re-mortgages partly countering
this.
Mortgage rates again remained at or near record lows, as the
Base Rate remained at 0.75% though 2019. The low cost of borrowing,
the Help to Buy Equity Loan and Shared Ownership schemes, and a
highly competitive lending market supported activity in the
mortgage market.
The GBP267.6bn UK Finance gross new mortgage lending figure for
2019 excludes product transfers. In 2019, product transfers
represented GBP167bn of mortgage lending, a 5% increase compared to
2018. The latest UK Finance statistics indicated that the product
transfer market is likely to increase slightly from current levels,
but flatten off in the medium term. These have not as yet been
updated since the start of the Coronavirus pandemic.
The first quarter of 2020 saw a strong pick-up in activity in
the housing market. The February 2020 RICS Residential Market
Survey pointed to a lift in new buyer enquiries, agreed sales and
new listings across all regions. However, the Coronavirus pandemic
and the Government imposed lockdown has changed this significantly
in the short term. The period for which these restrictions will
remain in place and the impact on consumer confidence and market
activity are currently uncertain.
Delivering our strategy
Growth in Advisers
2019 was again a strong year for our adviser growth, with our
adviser base growing by 20% to 1,457 (13% to 1,375 excluding First
Mortgage). This is especially pleasing given how uncertain the
economic and political climate was throughout the year and reflects
our success at attracting new Advisers and AR firms into MAB. This
was achieved in a year where approximately 40% of our total AR
firms (mostly those with direct links to estate agents) did not
recruit new advisers due to the subdued housing market.
Despite the impact of the Coronavirus pandemic on current
Adviser numbers, w e expect our market share to continue to grow,
and this will be assisted by continued momentum in the rollout of
our technology developments through 2020 and beyond. Technology
developments are important both in optimising customer experience
and enhancing our Adviser proposition. We are committed to ensuring
that technology becomes a differentiating factor for MAB and
contributes to attracting and retaining ARs, Advisers and
customers.
Acquisition of First Mortgage Direct Limited ("First
Mortgage")
On 2 July 2019, MAB acquired an 80% stake in First Mortgage for
a consideration of GBP16.5m. First Mortgage is one of the UK's
leading mortgage brokers, employing 82 highly productive mortgage
and protection advisers as at 31 December 2019.
First Mortgage's strong presence in Scotland, as well as its
omni--channel growth strategy, particularly in telephony, are
highly complementary to MAB's offering. As a result of the
acquisition, MAB is now strongly represented through the two
leading mortgage intermediary brands in Scotland.
Like MAB, First Mortgage focuses on ensuring that it meets
customers' protection needs and approximately half of its revenues
are derived from protection products, hence driving strong
margins.
Under the direction of its highly regarded management team,
First Mortgage has developed strong direct to consumer lead
generation expertise. The business also acquires over half of its
new customers via referrals from its existing customer base and
enjoys outstanding repeat business levels. Both factors have driven
its highly reputable brand presence which is substantiated by very
impressive customer reviews.
First Mortgage contributed revenues of GBP8.1m and profit before
tax of GBP1.9m (including GBP0.5m of revenue synergies) to the
Group for the period from 2 July 2019 to 31 December 2019. We are
very pleased with this acquisition, and the business is now fully
integrated into MAB. We look forward to leveraging the strengths of
the business and further enhancing its strong growth track record
through the planned deployment and rollout of our technology
platform and our support structure.
Technology developments: the transformation programme has
commenced
Technology is integral to our business, and we believe it plays
a key role in helping customers to move home and re-mortgage more
expediently. Importantly, we are building our technology platform
specifically to help with the following:
- Customers - deliver more choice and convenience for our
customers in terms of how they research, receive advice and
transact.
- Lead Generation - capture and nurture customers at an earlier
point in their home-moving process, and optimise the ingestion,
management and distribution of lead sources .
- Advisers - enhance Adviser experience, efficiency and
performance through simplifying and shortening the advice and
mortgage application process.
- MAB / our AR Firms - optimise business efficiency and
profitability for our AR firms and the Group.
- Lenders - deliver seamless two-way integration to ensure
simplified application and faster mortgage approvals.
We believe that advice should and will remain of paramount
importance to customers who are looking to make significant life
decisions such as buying a home or protecting their home and
family.
Looking at the future and new models that may emerge in the
mortgage market, we have deliberately built our technology platform
to be agile, enabling us to continually evolve its overall shape,
design and performance driven by customer behaviour and
expectations. Our objective is to ensure we have a future-proof
business model that stays relevant to all customers regardless of
how they want to research, receive advice and transact.
We will further develop all parts of the new platform through
2020 and continue our planned rollout, paying special attention to
customer interaction and process efficiencies.
Customer interaction
In February 2020 MAB's principal regulator, The Financial
Conduct Authority (FCA), issued its final rules relating to the
Mortgages Market Study and its revision of Mortgage Advice and
Selling Standards. One change implemented by the FCA aims to make
it easier for lenders to offer "execution only" sales channels.
We already provide our customers with a tailored and value-added
advice service, by giving them autonomy and the ability to choose
how and when to interact with our Advisers depending on their
confidence and circumstances. We have been deliberately building
our technology platform to enhance customer engagement in the
expectation that regulation would make execution only faster and
easier for customers.
Lenders value the advice given to customers as this assists them
in their underwriting process. Moreover, not all lenders will want
to take part in execution only developments which will likely
result in more limited choices for consumers. As a result, we can
deliver both convenience and speed of execution without sacrificing
choice and invaluable advice.
Process efficiencies
We have been focusing on this area most recently (with our
mortgage technology partner Twenty7Tec) through opening up
connectivity directly to our lending partners. This will remove
elements of keying and duplication, thereby improving Adviser
productivity and ensuring a faster and more seamless application
process.
We have now established seven direct to lender submission routes
for mortgage applications and are delighted to report that we have
been piloting this with one of the UK's largest lenders. This first
group of lenders have set the agenda for others to follow. Whilst
these developments have taken longer to put in place than lenders
originally anticipated due to the magnitude of technology
development required within lenders, there is now a firm commitment
across the lending industry to deliver this.
Driving income opportunities
Broadening our addressable market
Older and younger customers
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. The proportion of first time buyers living in
privately rented accommodation continues to increase (from 39% in
1995-96 to 66% in 2015-16(1) ). Through our extensive estate agency
and lettings relationships we intend to nurture these future home
buyers from a younger age. We also offer protection solutions to
tenants who rent pre home ownership, as well as to those renting on
a permanent basis.
We have also been looking at ways to better serve our customers
who are aged 60 or over, or the so-called "Later Life Lending"
market. Typically these customers want to use mortgages to release
equity to boost their retirement income or pay for a better
lifestyle, to help their children through university, buy a home or
pay for weddings, or to roll over an interest only mortgage for a
longer term. Other reasons also include avoiding downsizing,
carrying out home improvements and discharging any remaining
unsecured or other secured debt.
The most specialist part of this market is Lifetime Mortgages
where no repayments of capital or interest are made. Both lenders
and the regulator are responding to the innovation required in this
market and some lenders have already expanded their mortgage
portfolios to also include interest only products that help
customers to borrow money at older ages, and, also to borrow that
money until they are much older. This innovation is in response to
demand from an ageing population.
It is estimated that the Later Life Lending market will almost
double over the next decade, from about GBP295bn in 2019 to
GBP548bn in 2029(2) . It is also estimated that the housing wealth
of the 'over-55s' is worth GBP2.5 trillion(3) . Again, the
anticipated growth in this market presents MAB with incremental
opportunities, as a direct result of a new and growing market
segment which will be highly intermediated, with customers very
much relying on advice.
This is a highly intermediated and growing sector and over the
last year we have been developing a leading proposition to enter
this market. We look forward to announcing our launch into this
market as soon as it is appropriate to do so.
(1) English Housing Survey 2015 to 2016: first time buyers
(2) Centre for Economics and Business Research and more 2 life,
2019
(3) Swiss Re Term and Health Watch 2017
Expanding into the broader home-moving process
We have continued to explore and introduce solutions that
provide more assistance and value to our customers in the home
moving process. We have now successfully piloted with a number of
our AR firms a process for helping mortgage customers with a wider
range of services including energy and other utilities. We have
proven the concept and demonstrated that MAB is well positioned to
help busy mortgage customers in organising their wider home-moving
products and services. We intend to extend this pilot once the
current Government restrictions are lifted and the conditions have
started to normalise, and enhance this new development via
technology in 2021.
Protection
We take pride not just in helping customers with securing their
new mortgage borrowing, but importantly we seek to provide
customers with appropriate and adequate protection and insurance
against both unforeseen and tragic circumstances. Protection is
becoming increasingly a more specialist area thereby delivering
consistency of offerings and optimal customer outcomes.
Over the course of the last year we have successfully embedded
protection more deeply into our technology driven processes and
have built such processes to help ensure that protection
opportunities are not missed. These initiatives are in addition to
our centralised internal outsourcing solutions for our customers
where their needs are best served by a specialist protection
adviser. Many of our protection initiatives have helped to increase
protection attachment rates despite our lending mix being less in
favour of purchase business over the last three years.
Lead generation
A key part of our current focus is continuing to leverage our
unique business model and digital expertise to secure new lead
sources so that we can capture and nurture customers earlier in the
home moving process.
We have over the last year successfully built the technology
that enables us to receive, ingest, distribute, fulfil and report
on new customer-led introductions from a wide variety and scale of
business and affinity partners.
This new capability, along with our omni-channel choice for
customers and fully national scale, means we are very well placed
to win new customer leads into MAB.
This has been a deliberate part of our technology and
proposition design, and represents a real value add in terms of our
proposition in what we can offer our existing and prospective AR
firms, thus further enhancing our offering to both consumers and
our AR partners.
The partnership announced with Charles Cameron in 2019 is
expected to gain good momentum this year, and other lead generation
activity is progressing well.
Summary
Our 2019 performance was very strong despite our continued
investment in our team and technology. Our Adviser base and market
share grew steadily despite a subdued housing market. Growing our
market share in all market conditions remains an integral part of
the strategy that we have continued to successfully deliver.
The acquisition of First Mortgage, our first substantial
transaction since listing in 2014, brings many exciting
opportunities to MAB as a Group. We are really pleased with how
well their entire team has worked with MAB to become successfully
integrated into our Group as an AR firm. We look forward to
leveraging the strengths of the business and further enhancing its
strong growth track record through MAB's technology platform and
support structure.
Broadening our addressable market and becoming more involved in
the home-moving process means we will reach new customers and help
them in more ways than we have previously, thereby ensuring we
continue to grow and diversify as a Group, and become more
prominent and relevant in home-moving generally.
In terms of employees and culture, we successfully completed our
initial pre-deadline work under the new Senior Managers &
Certification Regime (SM&CR). This new FCA regulatory
requirement changes the way that financial services firms are
regulated. MAB has always operated with the highest integrity. We
embrace this new regulation and are pleased that improved quality
control will be enforced across the whole mortgage intermediary
sector. Ultimately, this new way of working has been embedded into
MAB to further strengthen our culture and integrity, and to ensure
that we always strive to do the right thing, thereby minimising or
ideally eliminating any potential customer harm or detriment.
We will roll out the various changes through 2020 and also
continue to work on our company values and culture, well beyond the
minimum standards that regulation enforces.
We will strive to continue to develop the best technology in our
sector, thereby driving efficiencies and growth across the business
and ensuring that we can achieve all of our objectives, including
adviser productivity gains, lead generation, and customer
retention.
Whilst, with the exception of First Mortgage, our investments to
date have been relatively modest in size, we will continue to
consider investments into larger and more profitable companies to
help accelerate our growth plans or bring additional skills into
the Group, and ensure we remain highly competitive and at the
forefront of the changing intermediary landscape.
Following clear evidence of market improvement in the first
quarter of 2020, the Coronavirus pandemic has created significant
disruption, particularly in the purchase market with key elements
such as physical viewings and valuations ruled out for the period
of the Government imposed lockdown. It is too early to predict the
extent of the disruption to trading in the coming months and the
associated impact on our results for the full year , though we do
expect to see a reduction in revenue and profit.
We have reacted quickly and efficiently to the pandemic, by
redeploying the Group's resources to focus on telephone advice and
remote working, as well as driving lead generation opportunities
available in the current market.
We do note positively the package of measures announced in the
March budget. These measures, along with the reduction in base
rate, have reduced the cost of mortgage borrowing most likely to
record lows and boosted the availability of funding for all
mortgage lenders. This, combined with the additional funding
dedicated to long term increases in the construction of new houses,
should ensure the medium to long term outlook for our market
remains very positive.
MAB has a very clear strategy, and we continue to invest
significantly in our proposition and team. We are in a stronger
position than many to deal with the current environment and are
confident in our ability to continue growing our market share with
a specific focus on re-mortgages and product transfers. We remain
very optimistic about our growth prospects.
Business Review of the year
I am pleased to report further strong growth in revenue of 17%
to GBP143.7m with profit before tax and exceptional costs relating
to the acquisition of First Mortgage rising by 19% to GBP18.7m.
MAB's gross mortgage lending (including product transfers)
increased by 20% to GBP16.7bn in 2019 (2018: GBP14.0bn). MAB's
overall share of UK gross new mortgage lending increased by 20% to
5.7% (2018: 4.7%).
Industry data and trends
Gross new mortgage lending activity in 2019 was broadly flat
year-on-year at GBP267.6bn (2018: GBP268.7bn(1) ). The Intermediary
Mortgage Lenders Association's (IMLA) current estimates (published
post the General Election and pre Coronavirus pandemic) are
GBP268bn for gross new mortgage lending in 2020, indicating the
market was anticipated to be broadly similar in the near term. The
UK Finance industry data on gross new mortgage lending excludes
Product Transfers. The latest UK Finance statistics indicate that
the product transfer market is likely to continue to slightly
increase from current levels, but flatten off in the medium term,
much as anticipated. These have not as yet been updated since the
start of the Coronavirus pandemic.
UK property transactions by volume for 2019 were 1% lower than
in 2018, with monthly transactions shown in the graph below.
http://www.rns-pdf.londonstockexchange.com/rns/5714K_3-2020-4-22.pdf
Source: HM Revenue and Customs
Low property inflation(2) of c.1% during 2019 did not quite
offset the slight reduction in volumes across all new mortgage
lending in the year, leading to a reduction in UK gross new
mortgage lending for the year of 1%, as set out in the graph
below.
http://www.rns-pdf.londonstockexchange.com/rns/5714K_2-2020-4-22.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)
(1) UK Finance regularly updates its estimates. MAB previously
reported GBP268bn for 2018 but this figure has slightly increased
since.
(2) Land Registry House Price IndexUK gross mortgage lending in
2019 for first time buyers and home-owner movers grew by 2% and 1%
respectively, whereas home-owner re-mortgages reduced by 2%. UK
gross mortgage lending in 2019 for BTL re-mortgages increased by
1%, with BTL purchases reducing by 5%.
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
an intermediary in 2019 which is slightly higher than in 2018.
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/5714K_1-2020-4-22.pdf
Revenue
Revenue increased by 17% to GBP143.7m (2018: GBP123.3m). A key
driver of revenue is the average number of Advisers during the
period. MAB delivered strong organic revenue growth of 10% (12% on
an underlying basis(1) ) to GBP135.6m, driven by a 14% increase
(excluding First Mortgage) in the average number of Advisers for
the year to 1,293 (2018: 1,130) due to a combination of expansion
by existing ARs and the recruitment of new ARs. First Mortgage,
which was acquired on 2 July 2019, added another 82 advisers to the
Group as at 31 December 2019, and contributed an additional GBP8.1m
of revenue. Our business model continues to attract forward
thinking ARs who are seeking to expand and grow their own market
share.
The Group generates revenue from three core areas, summarised as
follows:
Income source 2019 2018 Increase
GBPm GBPm
------- ------- ----------
Mortgage procuration fees 64.3 56.2 15%
------- ------- ----------
Protection and General Insurance
Commission 56.2 47.0 20%
------- ------- ----------
Client Fees 20.2 18.3 10%
------- ------- ----------
Other Income 3.0 1.8 66%
------- ------- ----------
Total 143.7 123.3 17%
------- ------- ----------
Excluding First Mortgage, MAB generated revenue from three core
areas, summarised as follows:
Income source 2019 2018 Increase
GBPm GBPm
------- ------- ----------
Mortgage procuration fees 60.6 56.2 8%
------- ------- ----------
Protection and General Insurance
Commission 52.3 47.0 11%
------- ------- ----------
Client Fees 20.2 18.3 10%
------- ------- ----------
Other Income 2.5 1.8 41%
------- ------- ----------
Total 135.6 123.3 10%
------- ------- ----------
All income sources continued to grow with the average number of
Advisers in the period increasing by 14% on last year. Activity in
the housing market in 2019 was impacted by the continuing political
and economic uncertainties associated with Brexit, particularly in
the earlier part of the year. The Group's underlying average
revenue per adviser (1) was flat for the year (2% down excluding
FMD), and we saw improving productivity through H2 2019 relative to
H1 2019.
First Mortgage contributed revenue generated from two core areas
summarised as follows:
Income source 2 July
2019 -
31 Dec
2019
GBPm
----------
Mortgage procuration fees 3.8
----------
Protection and General Insurance
Commission 3.9
----------
Other Income 0.4
----------
Total 8.1
----------
MAB's revenue, in terms of proportion, is split as follows:
Income source 2019 2018
Mortgage procuration fees 45% 46%
------ ------
Protection and General Insurance
Commission 39% 38%
------ ------
Client Fees 14% 15%
------ ------
Other Income 2% 1%
------ ------
Total 100% 100%
------ ------
With gross mortgage completions (including Product Transfers)
increasing by 20% for the year, mortgage procuration fees increased
by 15% (18% on an underlying basis (1) ). Excluding FMD, gross
mortgage completions (including Product Transfers) increased by 11%
for the year, with mortgage procuration fees increasing by 8% (11%
on an underlying basis(1) ). Protection and general insurance
commission increased by 20% (11% excluding FMD), and client fees
rose by 10%, in line with expectations. First Mortgage does not
charge client fees.
Looking ahead, we continue to 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.
(1) Underlying basis excludes a one-off adjustment in H1 2018 of
GBP1.7m for procuration fees awaiting processing.
Gross profit margin
Gross profit margin for the year was 25.3% (2018: 23.1%)
reflecting the anticipated increase due to the acquisition of First
Mortgage. First Mortgage naturally has a higher gross margin than
MAB of c. 65% as its advisers are directly employed. Excluding FMD,
gross profit margin was 23.1% (2018: 23.1%). 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.
Overheads
Overheads as a percentage of revenue were 13.1% (2018: 10.7%).
Excluding one-off acquisition costs, additional costs relating to
MAB's option to acquire the remaining 20% of First Mortgage and
amortisation of acquired intangibles, totalling GBP1.0m, overheads
as a percentage of revenue were 12.4% (2018: 10.7%). This increase
in overheads as a percentage of revenue results from First Mortgage
having a higher overheads ratio than that of MAB due to its
operating model. Excluding FMD, overheads as a percentage of
underlying revenue were 10.8% (2018: 10.7%). MAB continues to
benefit from the scalable nature of the majority of its 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, though this has been mostly
offset by increased IT costs.
Certain costs, primarily those relating to compliance personnel,
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 balance of our compliance costs
mainly relate to FCA and FSCS regulatory fees and charges. 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 capital expenditure, as
previously indicated, we expect our IT costs and our amortisation
on IT capital expenditure to increase by a modest amount. All
development work on MIDAS Pro and our new platform technology are
treated as revenue expenditure.
Profit before tax and margin thereon
Statutory profit before tax rose by 13% to GBP17.7m (2018:
GBP15.7m) with the margin thereon being 12.3% (2018: 12.7%).
Excluding one-off acquisition costs, additional non-cash costs
relating to MAB's option to acquire the remaining 20% of First
Mortgage and amortisation of acquired intangibles, totalling
GBP1.0m, adjusted profit before tax was GBP18.7m with the margin
thereon being 13.0% (2018: 12.7%).
Finance income and finance expenses
Finance income of GBP0.1m (2018: GBP0.1m) reflects continued low
interest rates and interest income accrued on loans to associates.
Finance expenses of GBP0.1m (2018: nil) relate to interest paid on
drawdowns and non-utilisation charges on MAB's revolving credit
facility with National Westminster Bank Plc that was put in place
at the time of the acquisition of First Mortgage to part finance
the acquisition (and had been repaid by 31 December 2019) and allow
MAB to capitalise on potential opportunities.
Taxation
The effective rate of tax on statutory profit before tax
increased slightly to 16.8% (2018: 15.9%) mainly as a result of
disallowable expenses incurred in connection with the acquisition
of First Mortgage. 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 our 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 9% to 28.2 pence (2018: 25.9
pence). Adjusted earnings per share rose by 17% to 30.1 pence
(2018: 25.9 pence).
In line with our dividend policy following the First Mortgage
acquisition of paying out a minimum of 75% of our adjusted
earnings, the Board intended to propose the payment of an increased
final dividend of 12.8 pence per share, up 1% from the previous
year, making total ordinary dividends for the year of 23.9 pence
per share, which would have been up 2.6% from the previous year.
However, in view of the severity of the Coronavirus pandemic and
the impact of the Government imposed lockdown , we now propose a
final dividend of 6.4 pence per share, with the intention to pay a
further 6.4 pence per share when the Board considers it prudent to
do so.
The proposed final dividend of 6.4 pence per share represents a
cash outlay of GBP3.3m. Following payment of the dividend, the
Group will continue to maintain significant surplus regulatory
reserves. This proposed final dividend represents circa 38% of the
Group's adjusted(1) post-tax and minority interest profits for H2
2019 and reflects our ongoing intention to distribute excess
capital.
The record date for the final dividend will be 1 May 2020 and
the payment date 29 May 2020. The ex-dividend date will be 30 April
2020.
(1) Adjusted for non-cash exceptional items of GBP0.6m.
Cash flow and cash conversion
The Group's net cash generated from operating activities
increased 38% to GBP20.4m (2018: GBP14.9m).
Headline cash conversion(1) was:
2019 131%
2018 128%
-----------------
Adjusted cash conversion(2) was:
2019 119%
-----------------
2018 113%
-----------------
The Group's operations are capital light with our most
significant ongoing capital investment being in computer equipment.
Only GBP0.2m of capital expenditure on office and computer
equipment and software licences was required during the period
(2018: GBP0.8m). 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.
In connection with the acquisition of First Mortgage, MAB
entered into an agreement with NatWest in respect of a new
revolving credit facility for GBP12m. The Group had no bank
borrowings at 31 December 2019 (2018: GBPnil) with unrestricted
bank balances of GBP7.0m (31 December 2018: GBP13.9m).
The Group has a regulatory capital requirement amounting to 2.5%
of regulated revenue. At 31 December 2019 this regulatory capital
requirement was GBP3.1m (31 December 2018: GBP2.8m), with the Group
having a surplus of GBP11.7m (31 December 2018: GBP12.0m).
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 20.1
Issue of shares 1.4
Dividends received from associates 0.3
Dividends paid (12.2)
Tax paid (2.4)
Capital expenditure (0.2)
Interest received 0.1
Interest paid (0.1)
Investments in associates (1.7)
Acquisition of subsidiary, net of cash acquired (12.2)
Unrestricted bank balances at the end of the period 7.0
---------------------------------------------------------------------------------------------------- --------
(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 GBP0.9m in 2019 (2018: GBP2.2m) as a
percentage of operating profit.
(2) Adjusted cash conversion is headline cash conversion
adjusted for increases in restricted cash balances of GBP2.2m in
2019 (2018: GBP2.3m) as a percentage of operating profit.
Post period end
The Group is financially very resilient, with a strong balance
sheet, a healthy surplus capital over its regulatory capital
requirement and a robust model generating strong cash flows,
enabling us to deal with the impact of the current Government
lockdown on property and lending markets during the Coronavirus
pandemic. The Group has implemented cost cutting measures,
including the furloughing of some staff, and all remaining staff
are currently working remotely on a reduced salary. In order to
give ourselves additional flexibility to react quickly in this
environment and capitalise on potential opportunities, we have
drawn down the full amount on our Revolving Credit Facility with
National Westminster Bank Plc on 20 March 2020, amounting to
GBP12m.
Dividends paid in prior years
Whilst the individual entity of Mortgage Advice Bureau
(Holdings) plc has always had sufficient reserves to pay its
dividends, the Company has not filed interim balance sheets as
required under s838 of the Companies Act 2006. A resolution will be
put to shareholders at the AGM to release current and past
directors and shareholders from any liabilities potentially
resultant from this inadvertent and technical infringement in
relation to prior dividends. More details will be set out in the
notice of AGM.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF MORTGAGE ADVICE
BUREAU (HOLDINGS) PLC
Opinion
We have audited the financial statements of Mortgage Advice
Bureau (Holdings) plc (the "parent company") and its subsidiaries
(the 'group') for the year ended 31 December 2019 which comprise
the consolidated statement of comprehensive income, consolidated
and parent company statement of financial position, consolidated
and company statement of changes in equity, consolidated statement
of cash flows , notes to the financial statements and notes to the
company statement of financial position , including a summary of
significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. The financial reporting framework that has been
applied in the preparation of the parent company financial
statements is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard 102 The Financial
Reporting Standard in the United Kingdom and Republic of Ireland
(United Kingdom Generally Accepted Accounting Practice).
In our opinion:
-- the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs as at 31
December 2019 and of the group's profit for the year then
ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the group
and the parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you
where:
-- the directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the group's or the parent company's ability to continue
to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are
authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Key audit matter description How we addressed the key audit matter
in the audit
Revenue recognition
The Group's revenue We responded to this risk by performing
comprises of commissions the following procedures:
(including procuration * We tested that revenue is recognised in line with
fees), client fees approved policies that are in accordance with IFRS
and other income. 15.
Revenue recognition
is considered to be
a significant audit * We tested the operating effectiveness of the
risk as it is a key reconciliation controls in place between revenue and
driver of return to cash banked.
investors and there
is a risk that there
could be manipulation * For commission income we obtained the third reports
or omission of amounts and tested a sample back to cash receipts.
recorded in the system.
Management's associated
accounting policies * Using third party reports, we recalculated all the
are detailed on page procuration fees independently.
27.
* For other income we agreed a sample to third party
statements and cash receipts .
* We agreed a sample of other income to third party
support.
Key observations: There were no matters
arising from performing these procedures.
---------------------------------------------------------------
Clawback provision
The clawback provision We responded to this risk by performing
relates to the estimated the following procedures:
value of repaying * We compared the relevant assumptions e.g. unearned
commission received commission, likely future lapse rate, lapse rate
up front on life assurance history, used in the model with third party reports.
policies that may
lapse in a period
of up to four years * For other assumptions e.g. age profile of the
following inception commission received, the Group's share of any
of the policies. clawback, and the success of the in-house team that
The clawback provision focuses on preventing lapses and/or generating new
is considered a significant income at the point of a lapse we validated these to
audit risk due to management's supporting analysis which is based on
the management judgement the Group's actual experience.
and estimation applied
in calculating the
provision and we therefore * We tested the arithmetical accuracy of the
considered this to spreadsheet model.
a key audit matter.
Management's associated
accounting policies
are detailed on page Key observations: There were no matters
27 with detail about arising from performing these procedures.
judgements in applying
accounting policies
and critical accounting
estimates on page
30 and Note 21
-----------------------------------------------------------------
Carrying value of
loans to associates
We responded to this risk by performing
The group has granted the following procedures :
loans to its associates. * We assessed the design and implementation of key
These loans are held controls by undertaking a walk-through.
at amortised cost.
The carrying value
of loans to associates * We ensured that the classification of the loans to
is considered a significant associates was in line with the requirements of IFRS
risk due to the judgements 9 by checking that they meet the requirements to be
and estimates used held at amortised cost.
by management in the
preparation of the
expected credit loss * We reviewed agreements to test for any movement in
model as required loan balances in the year.
by IFRS 9.
Management's associated
accounting policies * We reviewed the Expected Credit Loss model in respect
are detailed on page of the loans to associates and checked if this is in
23 with detail about compliance with IFRS 9, which involved:
judgements in applying
accounting policies
and critical accounting
estimates on page * Agreeing to managements analysis and where relevant
30. external specific loan documentation, the key inputs
including the level of credit risk, stage allocation,
exposure at default, probability of default and loss
given default; and
* Performing sensitivity analysis on the probability of
defaults and the credit risk staging.
Key observations: There were no matters
arising from performing these procedures.
-------------------------------------------------------------------
Acquisition of First
Mortgage Direct Limited
(FMD) We responded to this risk by performing
the following procedures:
During 2019 Mortgage * We tested that the accounting treatment of the
Advice Bureau Limited intangible assets is in accordance with IFRS.
acquired an 80% shareholding
in First Mortgage Direct
Limited for a consideration * We engaged our internal valuation expert to review
of GBP16.5m. the purchase price allocation that was performed for
The Group has entered management by an accounting firm. This included
into an option agreement considering the key estimates within the intangible
to acquire the remaining asset valuation methodology including the weighted
20% shareholding. average cost of capital and the useful economic life
As per IFRS 3, the judgements
group has measured
the identifiable assets
acquired and the liabilities * We performed substantive procedures on FMD's net
assumed at the acquisition assets as at 2 July 2019 by agreeing the balances to
date at fair value. supporting documentation to obtain assurance on the
The valuation of the net assets brought in at date of acquisition.
acquired assets and
liabilities as well
as accounting and valuation * Management used an accounting firm to consider the
of the option was a accounting treatment of the option (comprising the
complex exercise which put and the call option) over the remaining 20% of
involved a significant the issued share capital of FMD.
level of management
judgement. We also
identified this as We engaged our internal technical specialist
an area for potential to consider this accounting treatment.
management bias in This considered the terms included in the
the assumptions. purchase agreements and the requirements
Management's associated of IAS 19 and IFRS 2.
accounting policies * We agreed the term of the option to signed agreements
are detailed on page and the discount rate to third party support.
25 and in Note 29.
Key observations: As a result of our procedures
we considered that management's identification
of separate intangible assets was appropriate
and that the acquisition and option had
been appropriately accounted for.
Going concern
Covid-19 and post balance
sheet event
When preparing financial In responding to this risk, our audit procedures
statements, management included assessing the reasonableness of
are required to make the assumptions within management's forecasts
an assessment to support for liquidity and profitability for a period
the going concern basis of 12 months from the signing of these
of preparation. An accounts.
entity is a going concern In particular:
unless management either * We considered the base and stress scenarios testing
intends to cease trading, undertaken by management to support the Going concern
or has no realistic assessment which included assumptions about the
alternative but to potential impact this could have on revenue (mainly
do so. from purchase mortgages) and possible cost saving
Following the year measures and consider these assumptions plausible. We
end, the COVID-19 virus focused on the cash and capital position during this
is having a significant period;
impact on businesses
and the economy in
the UK and Globally. * The Group has an undrawn revolving credit facility in
In assessing whether place of GBP12m at year end, which was then drawn
the entity is a going post year end. We validated that the Group has at the
concern management date of signing the accounts fully drawn the credit
is required to take facility and have validated to bank statements the
into account all available Group's cash position at 20 April 2020; and
information about the
future including the
implications of COVID-19 * We have also considered the Group's ability to comply
effects on their operations, with the covenants attached to the banking facility
for a period of at during this period.
least 12 months from
the date when the financial
statements are authorised
for issue.
Management has concluded
that there is no material
uncertainty in relation
to the entity's ability
to continue as a going
concern.
Management's associated
consideration is in
the Directors report.
-----------------------------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements.
Materiality Purpose Key considerations Quantum
measure and benchmarks (GBP)
Financial Assessing GBP885,000
statement whether * A principal consideration for members of the company (31 December
materiality. the financial in assessing the financial performance of the group 2018: GBP787,000)
statements
(5% of profit as a whole
before tax) present
a true and fair
view.
------------------ ----------------------------------------------------------- -------------------
Performance Lower level of GBP620,000
materiality. materiality * Financial statement materiality (31 December
applied in 2018: GBP590,000)
(7 0 % of performance
materiality) of the audit * Risk and control environment
when
determining the
nature and * No history of misstatements
extent
of testing
applied
to individual
balances
and classes of
transactions.
------------------ ----------------------------------------------------------- -------------------
We determined materiality for the parent company to be GBP28 5
,000 ( 2018: GBP218 ,000) which represents 5% of net assets. We
have used net assets as the parent company acts as a holding
company only. We have then set the performance materiality at 75%
(201 8 :75%) due no identified misstatements in the past.
We agreed with the audit committee that we would report to the
committee all individual audit differences identified during the
course of our audit in excess of GBP 17,000 (2018: GBP 15,000) for
the group and GBP 5 , 000 (201 8 : GBP4,000) for the parent
company. We also agreed to report differences below these
thresholds that, in our view , warranted reporting on qualitative
grounds
An overview of the scope of our audit
Our audit approach was scoped by obtaining an understanding of
the Group's activities, the key functions undertaken by the Board
and the overall control environment. Based on this understanding we
assessed those aspects of the Group's transactions and balances
which were most likely to give rise to a material misstatement at a
Group level.
The audit of the group was conducted by BDO LLP directly at
Group level as all transactions are recorded in a common accounting
system, except for those of First Mortgage Direct Limited, which
has been consolidated within the Group and was identified as a
significant component. The materiality used for the audit of First
Mortgage Direct Limited as a component of the Group has been set at
GBP140,000.The audit of the Group and all entities were conducted
by BDO LLP.
The audit of the Group, including First Mortgage Direct Limited,
accounted for 100% of the Group's net assets, 100% of the Group's
revenue and 100% of the Group's profit before tax.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the report
and financial statements , other than the financial statements and
our auditor's report thereon. Our opinion on the financial
statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and
the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the parent
company , or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the parent company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities .
This description forms part of our auditor's report.
Other matters which we are required to address
Following the recommendation of the Audit Committee, we were
appointed by the Board of directors during 2014 to audit the
financial statements for the year ending 31 December 2014 and
subsequent financial periods. The period of total uninterrupted
engagement is 6 years, covering the year ended 31 December
2019.
The non-audit services prohibited by the FRC's Ethical Standard
were not provided to the Group and we remain independent of the
Group in conducting our audit.
Our audit opinion is consistent with the additional report to
the Audit Committee.
Use of our report
This report is made solely to the parent company's members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to
the parent company's members those matters we are required to state
to them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the parent company and the
parent company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Ariel Grosberg (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
22 April 2020
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Consolidated statement of comprehensive income
for the year ended 31 December 2019
Note
2019 2018
GBP'000 GBP'000
----------------------------------------------- ------ ----------- ----------
Revenue 3 143,741 123,291
Cost of sales 4 (107,316) (94,851)
----------------------------------------------- ------ ----------- ----------
Gross profit 36,425 28,440
Administrative expenses (18,877) (13,201)
Share of profit of associates, net of
tax 14 88 361
----------------------------------------------- ------ ----------- ----------
Operating profit 17,636 15,600
----------------------------------------------- ----------
Analysed as:
Operating profit before charging 18,623 15,600
Acquisition costs 29 (987) -
Operating profit 17,636 15,600
----------------------------------------------- ------ ----------- ----------
Finance income 7 147 82
Finance expense 7 (86) -
----------------------------------------------- ------ ----------- ----------
Profit before tax 17,697 15,682
Tax expense 8 (2,968) (2,492)
----------------------------------------------- ------ ----------- ----------
Profit for the year 14,729 13,190
----------------------------------------------- ------ ----------- ----------
Total comprehensive income 14,729 13,190
----------------------------------------------- ------ ----------- ----------
Profit is attributable to:
Equity owners of parent company
Non 14,499 13,190
Non-controlling interests 230 -
----------------------------------------------- ------ ----------- ----------
14,729 13,190
----------------------------------------------- ------ ----------- ----------
Earnings per share attributable to the owners of
the parent company
Basic 9 28.2p 25.9p
----------------------------------------------- ------ ----------- ----------
Diluted 9 27.7p 25.3p
----------------------------------------------- ------ ----------- ----------
All amounts shown relate to continuing activities
The notes that follow form part of these financial
statements
Consolidated statement of financial position
as at 31 December 2019
2019 2018
Note GBP'000 GBP'000
----------------------------------- ------- ---------- ----------
Assets
Non-current assets
Property, plant and equipment 11 2,924 2,616
Right of use assets 12 2,907 -
Goodwill 13 15,155 4,114
Other intangible assets 13 3,862 645
Investments in associates and
joint venture 14 3,133 1,573
Investments in non-listed equity
shares 15 75 -
Other receivables 17 3,330 2,296
Deferred tax asset 22 1,517 878
Total non-current assets 32,903 12,122
----------------------------------- ------- ---------- ----------
Current assets
Trade and other receivables 17 4,959 4,603
Cash and cash equivalents 18 20,867 25,589
----------------------------------- ------- ---------- ----------
Total current assets 25,826 30,192
----------------------------------- ------- ---------- ----------
Total assets 58,729 42,314
----------------------------------- ------- ---------- ----------
Equity and liabilities
Share capital 23 52 51
Share premium 5,451 4,094
Capital redemption reserve 20 20
Share option reserve 2,799 1,675
Retained earnings 17,272 14,829
----------------------------------- ------- ---------- ----------
Equity attributable to owners
of the parent company 25,594 20,669
Non-controlling interests 1,595 -
Total equity 27,189 20,669
----------------------------------- ------- ---------- ----------
Liabilities
Non-current liabilities
Provisions 21 3,735 1,704
Lease liabilities 12 2,645 -
Deferred tax liability 22 651 54
----------------------------------- ------- ---------- ----------
Total non-current liabilities 7,031 1,758
----------------------------------- ------- ---------- ----------
Current liabilities
Trade and other payables 19 22,371 18,690
Lease liabilities 12 334 -
Corporation tax liability 1,804 1,197
----------------------------------- ------- ---------- ----------
Total current liabilities 24,509 19,887
----------------------------------- ------- ---------- ----------
Total liabilities 31,540 21,645
----------------------------------- ------- ---------- ----------
Total equity and liabilities 58,729 42,314
----------------------------------- ------- ---------- ----------
The notes that follow form part of these financial
statements.
The financial statements were approved by the Board of Directors
on
P Brodnicki L Tilley
Director Director
Consolidated statement of changes in equity
for the year ended 31 December 2019
Attributable to the holders
of the parent company
---------- ---------- ------------------------------------------------------------------------- ----------
Capital Share option Non-controlling
Share Share redemption reserve Retained interests
capital premium reserve GBP'000 earnings Total GBP'000 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Equity
GBP'000
------------------ ---------- ---------- ---------------------------- ----------------------------- ------------ ---------- ----------------- ----------
Balance at 1
January
2018 51 3,574 20 1,450 13,071 18,166 - 18,166
Profit for the
year - - - - 13,190 13,190 - 13,190
------------------ ---------- ---------- ---------------------------- ----------------------------- ------------ ---------- ----------------- ----------
Total
comprehensive
income - - - - 13,190 13,190 - 13,190
------------------ ---------- ---------- ---------------------------- ----------------------------- ------------ ---------- ----------------- ----------
Transactions
with owners
Issue of shares - 520 - - - 520 - 520
Share based
payment
transactions - - - 477 - 477 - 477
Deferred tax
asset
recognised in
equity - - - (185) - (185) - (185)
Reserve transfer - - - (67) 67 - - -
Dividends paid - - - - (11,499) (11,499) - (11,499)
------------------ ---------- ---------- ---------------------------- ----------------------------- ------------ ---------- ----------------- ----------
Transactions
with owners - 520 - 225 (11,432) (10,687) - (10,687)
------------------ ---------- ---------- ---------------------------- ----------------------------- ------------ ---------- ----------------- ----------
Balance at 31
December
2018 and 1
January
2019 51 4,094 20 1,675 14,829 20,669 - 20,669
Profit for the
year - - - - 14,499 14,499 230 14,729
Total
comprehensive
income - - - - 14,499 14,499 230 14,729
------------------ ---------- ---------- ---------------------------- ----------------------------- ------------ ---------- ----------------- ----------
Transactions
with owners
Issue of shares 1 1,357 - - - 1,358 - 1,358
Non-controlling
interest
on acquisition
of subsidiary - - - - - - 1,365 1,365
Share based
payment
transactions - - - 760 - 760 - 760
Deferred tax
asset
recognised in
equity - - - 544 - 544 - 544
Reserve transfer - - - (180) 180 - - -
Dividends paid - - - - (12,236) (12,236) - (12,236)
Transactions
with owners 1 1,357 - 1,124 (12,056) (9,574) 1,365 (8,209)
------------------ ---------- ---------- ---------------------------- ----------------------------- ------------ ---------- ----------------- ----------
Balance at 31
December
2019 52 5,451 20 2,799 17,272 25,594 1,595 27,189
------------------ ---------- ---------- ---------------------------- ----------------------------- ------------ ---------- ----------------- ----------
Consolidated statement of cash flows
for the year ended 31 December 2019
Notes 2019 2018
GBP'000 GBP'000
-------------------------------------------- ------- ----------- ----------
Cash flows from operating activities
Profit for the year before tax 17,697 15,682
Adjustments for:
Depreciation of property, plant
and equipment 11 303 207
Depreciation of right of use assets 12 187 -
Amortisation of intangibles 13 249 44
Share based payments 760 477
Share of profit from associates 14 (280) (494)
Dividends received from associates 14 311 392
Finance income 7 (147) (82)
Finance expense 7 86 -
-------------------------------------------- ------- ----------- ----------
19,166 16,226
Changes in working capital
Decrease/(increase) in trade and
other receivables (other than accrued
interest income) 446 (2,437)
Increase in trade and other payables 2,566 3,691
Increase in provisions 586 208
Cash generated from operating activities 22,764 17,688
Income taxes paid (2,360) (2,818)
-------------------------------------------- ------- ----------- ----------
Net cash generated from operating
activities 20,404 14,870
-------------------------------------------- ------- ----------- ----------
Cash flows from investing activities
Payment for acquisition of subsidiary, (12,223) -
net of cash acquired
Purchase of property, plant and
equipment 11 (186) (175)
Purchase of intangibles 13 (1) (591)
Acquisitions of associates and
investments 14 (1,591) (132)
Acquisition of investments in non-listed
equity shares 15 (75) -
Net cash used in investing activities (14,076) (898)
-------------------------------------------- ------- ----------- ----------
Cash flows from financing activities
Interest received 7 77 45
Interest paid 7 (86) -
Principal element of lease payments (163) -
Issue of shares 23 1,358 520
Dividends paid 10 (12,236) (11,499)
-------------------------------------------- ------- ----------- ----------
Net cash used in financing activities (11,050) (10,934)
-------------------------------------------- ------- ----------- ----------
Net increase in cash and cash equivalents (4,722) 3,038
Cash and cash equivalents at the
beginning of year 25,589 22,551
-------------------------------------------- ------- ----------- ----------
Cash and cash equivalents at the
end of the year 20,867 25,589
-------------------------------------------- ------- ----------- ----------
The notes that follow form part of these financial
statements
Notes to the consolidated financial statements
for the year ended 31 December 2019
1 Accounting policies
Basis of preparation
The principal accounting policies adopted in the preparation of
the consolidated financial statements are set out below. The
policies have been consistently applied to all the years
presented.
The consolidated financial statements are presented in Great
British Pounds, which is also the Group's functional currency. All
amounts are rounded to the relevant thousands, unless otherwise
stated.
These financial statements have been prepared under the
historical cost convention and in accordance with International
Financial Reporting Standards, International Accounting Standards
and Interpretations (collectively IFRSs) issued by the
International Accounting Standards Board (IASB) as adopted by the
European Union (EU) (EU "adopted IFRSs") and with those parts of
the Companies Act 2006 that are applicable to companies that
prepare financial statements in accordance with IFRSs.
The preparation of financial statements in compliance with
adopted EU IFRS requires the use of certain critical accounting
estimates. It also requires Group management to exercise judgement
in applying the Group's accounting policies. The areas where
significant judgements and estimates have been made in preparing
the financial statements and their effect are disclosed in note
2.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic Report as set out earlier in these
financial statements. The financial position of the Group, its cash
flows and liquidity position are described in these financial
statements.
The Group made an operating profit of GBP17.6m during 2019
(2018: GBP15.6m) and had net current assets of GBP1.3m at 31
December 2019 (31 December 2018: GBP10.3m) and equity attributable
to owners of the Group of GBP25.6m (31 December 2018:
GBP20.7m).
The Directors have assessed the Group's prospects until the end
of 2021, taking into consideration the current operating
environment, including the impact of the Government imposed
'lockdown' due to the coronavirus pandemic on property and lending
markets. To give the Group additional flexibility to react quickly
in this environment and capitalise on potential opportunities the
Group drew down its Revolving Credit Facility of GBP12m in full in
March 2020. The Group has implemented cost cutting measures,
including the furloughing of some staff, and all remaining staff
are currently working remotely on a reduced salary. The Directors'
financial modelling considers the Group's profit, cash flows,
regulatory capital requirements, borrowing covenants and other key
financial metrics over the period. These metrics are subject to
sensitivity analysis, which involves flexing a number of key
assumptions underlying the projections, including the duration of
the Government imposed lockdown and its impact on the UK property
market and the Group's revenue mix, which the Directors consider to
be severe but plausible stress tests on the Group's cash position,
banking covenants and regulatory capital adequacy. The Group's
financial modelling shows that the Group should continue to be cash
generative, maintain a surplus on its regulatory capital
requirements and be able to operate within its current financing
arrangements. Based on the results of the financial modelling, the
Directors expect that the Group will be able to continue in
operation and meet its liabilities as they fall due over this
period. Accordingly, the Directors continue to adopt the going
concern basis for the preparation of the financial statements.
Changes in accounting policies
New standards, interpretations and amendments effective for the
year ended 31 December 2019
New standards, interpretations and amendments applied for the
first time
The Group applied IFRS 3 (amendment) and IFRS 16 for the first
time. The nature and the effect of the changes as a result of
adoption of these new accounting standards are described below.
Several other standards and interpretations apply for the first
time in 2019 but do not have an impact on the consolidated
financial statements of the Group. The Group has not early adopted
any standards, interpretations or amendments that have been issued
but are not yet effective.
-- IFRS 16 Leases. The scope of IFRS 16 includes leases of all
assets, with certain exceptions. A lease is defined as a contract,
or part of a contract, that conveys the right to use an asset (the
underlying asset) for a period of time in exchange for
consideration. IFRS 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires
lessees to account for all leases under a single on-balance sheet
model similar to the accounting for finance leases under IAS 17.
The standard includes two recognition exemptions for leases -
leases of "low-value" assets (e.g. personal computers) and
short-term leases (i.e., leases with a lease term of 12 months or
less). At the commencement date of a lease, a lessee will recognise
a liability to make lease payments (i.e., the lease liability) and
an asset representing the right to use the underlying asset during
the lease term (i.e., the right of use asset). Lessees will be
required to separately recognise the interest expenses on the lease
liability and the depreciation expense on the right of use
asset.
Lessees will also be required to remeasure the lease liability
upon the occurrence of certain events (e.g. a change in the lease
term, a change in future lease payments resulting from a change in
an index or rate used to determine those payments). The lessee will
generally recognise the amount of the remeasurement of the lease
liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from
today's accounting under IAS 17. Lessors will continue to classify
all leases using the same classification principles as in IAS 17
and distinguish between two types of leases: operating and finance
leases.
This amendment has been applied to new leases in the year. There
were no other leases held recently by the Group.
-- IFRS 3 Business Combinations. The amendments clarify that,
when an entity obtains control of a business that is a joint
operation, it applies the requirements for a business combination
achieved in stages, including remeasuring previously held interests
in the assets and liabilities of the joint operation at fair value.
In doing so, the acquirer remeasures its entire previously held
interest in the joint operation.
An entity applies those amendments to business combinations for
which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after 1 January 2019,
with early application permitted. These amendments will apply on
all business combinations of the Group.
New standards with no impact on the Group
-- IFRIC Interpretation 23. Uncertainty over income tax
treatments. The interpretation addresses the accounting for income
taxes when tax treatments involve uncertainty that affects the
application of IAS 12 (Income taxes) and does not apply to taxes or
levies outside the scope of IAS 12, nor does it specifically
include requirements relating to interest and penalties associated
with uncertain tax treatments. The interpretation specifically
addresses the following:
-- Whether an entity considers uncertain tax treatments
separately
-- The assumptions an entity makes about the examination of tax
treatments by taxation authorities
-- How an entity determines taxable profit (tax loss), tax
bases, unused tax losses, unused tax credits and tax rates
-- How an entity considers changes in facts and
circumstances.
An entity must determine whether to consider each uncertain tax
treatment separately or together with one or more uncertain tax
treatments. The approach that better predicts the resolution of the
uncertainty should be followed.
-- IFRS 11 Joint Arrangements. A party that participates in, but
does not have joint control of, a joint operation might obtain
joint control of the joint operation in which the activity of the
joint operation constitutes a business as defined in IFRS 3. The
amendments clarify that the previously held interests in that joint
operation are not remeasured.
An entity applies those amendments to transactions in which it
obtains joint control on or after the beginning of the first annual
reporting period beginning on or after 1 January 2019, with early
application permitted. These amendments are currently not
applicable to the Group but may apply to future transactions.
-- IAS 12 Income Taxes. The amendments clarify that the income
tax consequences of dividends are linked more directly to past
transactions or events that generated distributable profits than to
distributions to owners. Therefore, an entity recognises the income
tax consequences of dividends in profit or loss, other
comprehensive income or equity according to where the entity
originally recognised those past transactions or events.
An entity applies those amendments for annual reporting periods
beginning on or after 1 January 2019, with early application
permitted. When an entity first applies those amendments, it
applies them to the income tax consequences of dividends recognised
on or after the beginning of the earliest comparative period. Since
the Group's current practice is in line with these amendments,
there has been no effect on its consolidated financial
statements.
New standard, interpretations and amendments not yet
effective
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group's financial
statements are disclosed below. The Group intends to adopt these
standards, if applicable, when they become effective.
-- 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 and 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' interest
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
-- Amendments to IFRS 3: Definition of a business. The IASB
issued amendments to the definition of a business in IFRS 3
Business Combinations 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.
The amendments must be applied to transactions that are either
business combinations or asset acquisitions for which the
acquisition date is on or after the beginning of the first annual
reporting period beginning on or after 1 January 2020.
Consequently, entitles do not have to revisit such transactions
that occurred in prior periods. Earlier application is permitted
and must be disclosed.
-- Amendments to IAS I and IAS 8: Definition of material. In
October 2018, the IASB issued amendments to IAS 1 Presentation of
Financial Statements and IAS 8 to align the definition of
'material' across the standards and to clarify certain aspects of
the definition. The new definition states that, 'Information is
material if omitting, misstating or obscuring it could reasonably
be expected to influence decisions that the primary users of
general purpose financial statements make on the basis of those
financial statements, which provide financial information about a
specific reporting entity.' The amendments clarify that materiality
will depend on the nature or magnitude of information, or both. An
entity will need to assess whether the information, either
individually or in combination with other information, is material
in the context of the financial statements.
An entity must apply these amendments for annual reporting
periods beginning on or after 1 January 2020. The amendments must
be applied prospectively. Early application is permitted and must
be disclosed.
-- The Conceptual Framework of Financial Reporting. The revised
Conceptual Framework for Financial Reporting (the Conceptual
Framework) is not a standard, and none of the concepts override
those in any standard or any requirements in a standard. The
purpose of the Conceptual Framework is to assist the Board in
developing standards, to help preparers develop consistent
accounting policies if there is no applicable standard in place and
to assist all parties to understand and interpret the standards.
Effective immediately for the IASB and the IFRS IC. For preparers
who develop accounting policies based on the Conceptual Framework,
it is effective for annual periods beginning on or after 1 January
2020.
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.
Associates
Where the Group has the power to participate in, but not control
the financial and operating policy decisions of another entity, it
is classified as an associate. Associates are initially recognised
in the consolidated statement of financial position at cost.
Subsequently associates are accounted for using the equity method,
where the Group's share of post-acquisition profits and losses and
other comprehensive income is recognised in the consolidated
statement of profit and loss and other comprehensive income (except
for losses in excess of the Group's investment in the associate
unless there is an obligation to make good those losses).
Profits and losses arising on transactions between the Group and
its associates are recognised only to the extent of unrelated
investors' interests in the associate. The investor's share in the
associate's profits and losses resulting from these transactions is
eliminated against the carrying value of the associate.
Any premium paid for an associate above the fair value of the
Group's share of the identifiable assets, liabilities and
contingent liabilities acquired is capitalised and included in the
carrying amount of the associate. Where there is objective evidence
that the investment in an associate has been impaired the carrying
amount of the investment is tested for impairment in the same way
as other non-financial assets.
Joint ventures
The Group accounts for its interests in joint ventures in the
same manner as investments in Associates (i.e. using the equity
method).
Any premium paid for an investment in a joint venture above the
fair value of the Group's share of the identifiable assets,
liabilities and contingent liabilities acquired is capitalised and
included in the carrying amount of the investment in the joint
venture. Where there is objective evidence that the investment in a
joint venture has been impaired the carrying amount of the
investment is tested for impairment in the same way as other
non-financial assets.
Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. As well as the purchase price, cost includes directly
attributable costs.
Depreciation is provided on all items of property, plant and
equipment at rates calculated to write off the cost of each asset
on a straight line basis over their expected useful lives, as
follows :
Freehold land not depreciated
Freehold buildings 36 years
Fixtures and fittings 5 years
Computer equipment 3 years
Gains and losses on disposal are determined by comparing the
proceeds with the carrying amount and are recognised in the income
statement. The Directors reassess the useful economic life of the
assets annually.
Goodwill
Goodwill represents the excess of a cost of a business
combination over the Group's interest in the fair value of
identifiable assets under IFRS 3 Business Combinations .
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the consolidated
statement of comprehensive income. Where the fair value of
identifiable assets, liabilities and contingent liabilities exceed
the fair value of consideration paid, the excess is credited in
full to the consolidated statement of comprehensive income on the
acquisition date .
Other intangible assets
Intangible assets other than goodwill acquired by the Group
comprise licences, the website and software and are stated at cost
less accumulated amortisation and impairment losses. Amortisation
is charged to the statement of comprehensive income within
administrative expenses on a straight line basis over the period of
the licence agreements or expected useful life of the asset and is
charged once the asset is in use. Assets are tested annually for
impairment or more frequently if events or circumstances indicate
potential impairment.
Amortisation, which is reviewed annually, is provided on
intangible assets to write off the cost of each asset on a
straight- line basis over its expected useful life as follows:
Licences 6 years
Website and Software 3 years
Customer contracts 9 years
Trademarks 10 years
Impairment of non-financial assets
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where
the carrying value of the asset exceeds its recoverable amount
(i.e. the higher of value in use and fair value less costs to
sell), the asset is written down accordingly .
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
smallest group of assets to which it belongs for which there are
separately identifiable cash flows, its cash generating units
('CGUs'). Goodwill is allocated on initial recognition to each of
the group's CGUs that are expected to benefit from the synergies of
the combination giving rise to the goodwill.
Impairment charges are included in profit or loss except to the
extent that they reverse gains previously recognised in other
comprehensive income. An impairment loss for goodwill is not
reversed.
Financial assets
In the consolidated statement of financial position, the Group
classifies its financial assets as loans, trade receivables and
cash and cash equivalents. The classification depends on the
purpose for which the financial assets were acquired. Loans and
trade receivables are non-derivative financial assets with fixed or
determinable payments which arise principally through the Group's
trading activities , and these assets arise principally to collect
contractual cash flows and the contractual cash flows are solely
payments of principal and interest. They are initially recognised
at fair value plus transaction costs that are directly attributable
to their acquisition or issue, and are subsequently carried at
amortised cost using the effective interest rate method, less
provision for impairment.
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.
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.
Cash and cash equivalents include cash in hand and deposits held
at call with banks with an original maturity of three months or
less.
Financial liabilities
Trade and other payables are recognised initially at fair value
and subsequently carried at amortised cost.
Leases
The Group's leasing activities and how they are accounted
for
The Group leases a number of properties from which it operates.
Rental contracts are typically made for fixed periods of five to
ten years, with break clauses negotiated for some of these.
Contracts may contain both lease and non-lease components. The
Group allocates the consideration in the contract to the lease and
non-lease components based on their relative stand-alone
prices.
Until the end of 2018, leases of property, plant and equipment
were classified as either finance leases or operating leases. Under
the transitional approach the comparatives have not been adjusted.
Therefore, the Group has adopted the modified retrospective
transition approach.
From 1 January 2019, all leases are accounted for by recognising
a right of use asset and a corresponding liability at the date at
which the leased asset is available for use by the Group, except
for:
-- Leases of low value assets; and
-- Leases with a duration of 12 months or less
Under the transitional approach the comparatives have not been
adjusted. Therefore, the Group has adopted the modified
retrospective transition approach.
Payments associated with short-term leases and leases of low
value assets will continue to be recognised on a straight-line
basis as an expense in the statement of comprehensive income.
Low-value assets within the Group comprise of IT equipment.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable
-- variable lease payments that are based on an index or a rate, initially measured using the
index or rate as at the commencement date; and
-- payments of penalties for terminating the lease, if the lease
term reflects the Group exercising
that option.
Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability. The
lease payments are discounted using the interest rate implicit in
the lease. If that rate cannot be readily determined, which is
generally the case for leases in the Group, the Group's incremental
borrowing rate is used, being the rate that the Group would have to
pay to borrow the funds necessary to obtain an asset of similar
value to the right-of-use asset in a similar economic environment
with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
-- where possible, uses recent third-party financing received by the individual lessee as a
starting point, adjusted to reflect changes in financing
conditions since third party financing was received
-- where it does not have recent third party financing, the
Group uses a build-up approach that
starts with a risk-free interest rate adjusted for credit risk
for leases held by the Group, and
-- makes adjustments specific to the lease, e.g. term, country, currency and security.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Right of use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability,
-- any lease payments made at or before the commencement date less any lease incentives
received, and
-- any initial direct costs.
Right of use assets are depreciated over the shorter of the
asset's useful life and the lease term on a straight-line basis.
The Group does not revalue its land and buildings that are
presented within property, plant and equipment, and has chosen not
to do so for the right of use buildings held by the Group.
Variable lease payments
The Group is exposed to potential future increases in variable
lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to
lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the right of use
asset.
Some property leases contain variable lease payments linked to
current market rental from August 2023. A 1% fluctuation in market
rent would impact total annual lease payments by approximately
GBP16,000.
Extension and termination options
Termination options are included in a number of the leases
across the Group. These are used to maximise operational
flexibility in terms of managing the assets used in the Group's
operations. The majority of termination options held are
exercisable only by the Group and not by the respective lessor.
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended
(or not terminated).
For leases of property, the following factors are normally the
most relevant:
-- If there are significant penalties to terminate, the Group is
typically reasonably certain not to
terminate
-- If any leasehold improvements are expected to have a significant remaining value, the Group
is typically reasonably certain to not terminate.
-- Otherwise, the Group considers other factors including
historical lease durations and the costs
and business disruption required to replace the leased asset.
Most extension options in offices have not been included in the
lease liability, because the Group could replace the assets without
significant cost or business disruption.
At 31 December 2019, the carrying amounts of lease liabilities
are not reduced by amount of payments that would be avoided from
exercising a break clause because it was considered reasonably
certain that the Group would not exercise its right to break the
lease. Total lease payments of GBP0.6m are potentially avoidable
were the Group to exercise break clauses at the earliest
opportunity.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, which is measured at acquisition
date fair value, and the amount of any non-controlling interests in
the acquiree. For each business combination, the Group elects
whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree's
identifiable net assets. Acquisition-related costs are expensed as
incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date.
This includes the separation of embedded derivatives in host
contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer
will be recognised at fair value at the acquisition date.
Contingent consideration classified as equity is not remeasured and
its subsequent settlement is accounted for within equity.
Contingent consideration classified as an asset or liability that
is a financial instrument and within the scope of IFRS 9 Financial
Instruments, is measured at fair value with the changes in fair
value recognised in the statement of profit or loss in accordance
with IFRS 9. Other contingent consideration that is not within the
scope of IFRS 9 is measured at fair value at each reporting date
with changes in fair value recognised in profit or loss.
Goodwill is initially measured at cost (being the excess of the
aggregate of the consideration transferred and the amount
recognised for non-controlling interests and any previous interest
held over the net identifiable assets acquired and liabilities
assumed). If the fair value of the net assets acquired is in excess
of the aggregate consideration transferred, the Group re-assesses
whether it has correctly identified all of the assets acquired and
all of the liabilities assumed and reviews the procedures used to
measure the amounts to be recognised at the acquisition date. If
the reassessment still results in an excess of the fair value of
net assets acquired over the aggregate consideration transferred,
then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of assessing
impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or groups of
assets (cash-generating units).
Where goodwill has been allocated to the Group's cash-generating
unit (CGU) and part of the operation within the unit is disposed
of, the goodwill associated with the disposed operation is included
in the carrying amount of the operation when determining the gain
or loss on disposal. Goodwill disposed in these circumstances is
measured based on the relative values of the disposed operation and
the portion of the cash-generating unit retained.
If the business combination is achieved in stages, the
acquisition date carrying value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the
subsequent acquisition date. Any gains or losses arising from such
remeasurement are recognised in profit or loss.
Where a business combination is for less than the entire issued
share capital of the acquiree and there is an option for the
acquirer to purchase the remainder of the issued share capital of
the business and/or for the vendor to sell the rest of the entire
issued share capital of the business to the acquirer, then the
acquirer will assess whether a non-controlling interest exists and
also whether the instrument(s) fall within the scope of IFRS 9
Financial Instruments and is/are measured at fair value with the
changes in fair value recognised in the statement of profit or loss
in accordance with IFRS 9. Options that are not within the scope of
IFRS 9 and are linked to service will be accounted for under IAS 19
Employee Benefits and/or IFRS 2 Share Based Payments as
appropriate.
Retirement benefits: Defined contribution schemes
Contributions to defined contribution pension schemes are
charged to the consolidated statement of comprehensive income in
the year to which they relate .
Provisions
A provision is recognised in the statement of financial position
when the Group has a present legal or constructive obligation as a
result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation.
Share capital
Financial instruments issued by the Group are treated as equity
only to the extent that they do not meet the definition of a
financial liability. The Company's ordinary shares are classified
as equity instruments. Incremental costs directly attributable to
the issue of new shares are shown in share premium as a deduction
from the proceeds.
Revenue
Revenue comprises commissions, client fees and other income.
Commissions and client fees are included at the gross amount's
receivable by the Group in respect of all services provided.
Commissions payable to trading partners in respect of their share
of the commissions earned are included in cost of sales.
Commissions and client fees earned are accounted for when
received or guaranteed to be received, as until received it is not
possible to be certain that the transaction will be completed. When
commissions and client fees are received this confirms that the
performance obligation has been satisfied. In the case of life
commissions there is a possibility for a four year period after the
inception of the policy that part of the commission earned may have
to be repaid if the policy is cancelled during this period. A
clawback provision is made for the expected level of commissions
repayable.
Other income comprises income from ancillary services such as
survey and conveyancing fees and is credited to the statement of
comprehensive income when received or guaranteed to be
received.
Finance income
Finance income comprises interest receivable on cash at bank and
interest recognised on loans to associates. Interest income is
recognised in the statement of comprehensive income as it
accrues.
Foreign exchange
Transactions entered into by Group entities in a currency other
than the currency of the primary economic environment in which they
operate (their "functional currency") are recorded at the rates
ruling when the transactions occur. Foreign currency monetary
assets and liabilities are translated at the rates ruling at the
reporting date. Exchange differences arising on the retranslation
of unsettled monetary assets and liabilities are recognised
immediately in profit or loss.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates at
the dates of the initial transactions. Non-monetary items measured
at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value is determined. The
gain or loss arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of the gain
or loss on the change in fair value of the item (i.e., translation
differences on items whose fair value gain or loss is recognised in
OCI or profit or loss are also recognised in OCI or profit or loss,
respectively).
Taxation
Income tax comprises current and deferred tax. Income tax is
recognised in profit or loss other than if it relates to items
recognised in other comprehensive income in which case it is
recognised in other comprehensive income.
Current tax is the expected tax payable on the taxable income
for the year using tax rates enacted or substantively enacted by
the statement of financial position date and any adjustment to tax
payable in respect of previous years.
Deferred tax is provided using the liability method on temporary
differences between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes at the
reporting date.
Deferred tax assets and liabilities are recognised for all
taxable temporary differences, except for when;
-- The difference arises from the initial recognition of
goodwill or an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss.
-- In respect of deductible temporary differences associated
with investments in subsidiaries, associates and interests in joint
arrangements, deferred tax assets are recognised only to the extent
that it is probable that the temporary differences will reverse in
the foreseeable future and taxable profit will be available against
which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that enough taxable profit will be available to allow all
or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are re-assessed at each reporting date and are
recognised to the extent that it has become probable that future
taxable profits will allow the deferred tax asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date.
Deferred tax relating to items recognised outside profit or loss
is recognised outside profit or loss. Deferred tax items are
recognised in correlation to the underlying transaction either in
OCI or directly in equity.
Tax benefits acquired as part of a business combination, but not
satisfying the criteria for separate recognition at that date, are
recognised subsequently if new information about facts and
circumstances change. The adjustment is either treated as a
reduction in goodwill (as long as it does not exceed goodwill) if
it was incurred during the measurement period or recognised in
profit or loss.
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:
-- the same taxable group company, or
-- different company entities which intend either to settle
current tax assets and liabilities on a net basis, or to realise
the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax assets
and liabilities are expected to be settled or recovered.
Sales taxes
Sales tax expenses and assets are recognised net of the amount
of sales tax, except:
-- When the sales tax incurred on a purchase of assets or
services is not recoverable from the taxation authority, in which
case, the sales tax is recognised as part of the cost of
acquisition of the asset or as part of the expense item, as
applicable.
-- When receivables and payables are stated with the amount of sales tax included
The net amount of sales tax recoverable from, or payable to, the
taxation authority is included as part of receivables or payables
in the statement of financial position.
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 combined income statement that is reviewed by the CODM.
Dividends
Dividends are recognised when they become legally payable. In
the case of interim dividends to equity shareholders, this is when
they are paid. In the case of final dividends, this is when they
are approved by the shareholders.
Share-based payments
Where equity-settled share options are awarded to employees, the
fair value of the options at the date of grant is charged to the
statement of comprehensive income over the vesting period.
Non-market vesting conditions are taken into account by adjusting
the number of equity instruments expected to vest at each reporting
date so that, ultimately, the cumulative amount recognised over the
vesting period is based on the number of options that eventually
vest. Non-vesting conditions and market vesting conditions are
factored into the fair value of the options granted. As long as all
other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are
satisfied. The cumulative expense is not adjusted for failure to
achieve a market vesting condition or where a non-vesting condition
is not satisfied.
Where the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to
the statement of comprehensive income over the remaining vesting
period.
Where options are granted to persons other than employees, the
statement of comprehensive income is charged with the fair value of
the options at the date of the grant over the vesting period.
2 Critical Accounting Estimates and Judgements
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions. The Directors consider that the
estimates and judgements that have the most significant effect on
the carrying amounts of assets and liabilities within the financial
statements are set out below.
(a) Impairment of goodwill
The Group is required to test, on an annual basis, whether
goodwill has suffered any impairment. The recoverable amount is
determined based on value in use calculations. The use of this
method requires the estimation of future cash flows and the choice
of a discount rate in order to calculate the present value of the
cash flows. Actual outcomes may vary. More information including
carrying values is included in note 13.
(b) Impairment of trade and other receivables
Judgement is required when determining if there is any
impairment to the trade and other receivable balances , and the
Group is using the simplified approach for trade receivables within
IFRS 9 using the lifetime expected credit losses. During this
process judgements about the probability of the non-payment of the
trade receivables are made.
In considering impairment provisions for loans to associates the
forward looking expected credit loss model used. In determining the
lifetime expected credit losses for loans to associates, the Group
has had to consider different scenarios for repayments of these
loans and have also estimated percentage probabilities assigned to
each scenario for each associate where applicable. More information
is included in note 17.
(c) Clawback Provision
The provision relates to the estimated value of repaying
commission received up front on life assurance policies that may
lapse in a period of up to four years following inception. The
provision is calculated using a model that has been developed over
several years. The model uses a number of factors including the
total unearned commission at the point of calculation, the age
profile of the commission received, the Group's proportion of any
clawback, likely future lapse rates, and the success of the Group's
team that focuses on preventing lapses and/or generating new income
at the point of a lapse. More information is included in note
21.
(d) Freehold building
The freehold building is depreciated over its useful life. The
useful life is based on management's estimate of the period that
the asset will generate revenue and will be reviewed annually for
continued appropriateness. The carrying value will be tested for
impairment when there is an indication that the value of the asset
might be impaired. When carrying out an impairment test this would
be based on future cash flow forecasts and these forecasts would be
based on management judgement. No such indication of impairment has
been noted.
(e) Deferred tax assets
Deferred tax assets include temporary differences related to the
issue and exercise of share options. Recognition of the deferred
tax assets assigns an estimate of proportion of options likely to
vest, an estimate of share price at vesting and assumes share
options will have a positive value at the date of vesting, which is
greater than the exercise price. The carrying amount of deferred
tax assets relating to share options at 31 December 2019 was
GBP1.5m (2018: GBP0.8m).
3 Revenue
The Group operates in one segment being that of the provision of
financial services in the UK. Revenue is derived as follows:
2019 2018
GBP'000 GBP'000
Mortgage related products 84,542 74,453
Insurance and other protection products 56,220 47,021
Other income 2,979 1,817
------------------------------------------- ---------- ----------
143,741 123,291
------------------------------------------ ---------- ----------
4 Cost of sales
Costs of sales are as follows:
2019 2018
GBP'000 GBP'000
Commissions paid 102,380 93,088
Wages and salary costs 4,936 1,763
-------------------------- --------- ---------
107,316 94,851
------------------------- --------- ---------
2019 2018
Wages and salary costs GBP'000 GBP'000
------------------------------------- ----------- ----------
Gross 4,006 1,344
Employers' National Insurance 470 160
Defined contribution pension costs 214 61
Other direct costs 246 198
4,936 1,763
------------------------------------- ----------- ----------
5 Profit from operations
Profit from operations is stated after charging the
following:
2019 2018
GBP'000 GBP'000
-------------------------------------------------- ----------- -----------
Depreciation of property, plant and equipment 303 207
Depreciation of right of use assets 187 --
Amortisation of intangibles 249 44
Auditor remuneration:
Fees payable to the Group's auditor for
the audit of the Group's financial statements. 10 10
Fees payable to the Group's auditor for
the audit of the Group's subsidiary financial
statements. 90 48
-------------------------------------------------- ----------- -----------
Other administrative expenses are incurred in the ordinary
course of the business and in 2019 include GBP1.0m of costs
relating to the acquisition of First Mortgage Direct Limited, of
which GBP0.4m is non-recurring.
Profits from associates are disclosed as part of the operating
profit as this is the operational nature of the Group.
6 Staff costs
Staff costs, including executive and non-executive directors'
remuneration, were as follows:
2019 2018
GBP'000 GBP'000
---------------------------------------- ----------- ----------
Wages and salaries 13,636 7,692
Share based payments (see note 28) 1,289 801
Social security costs 1,428 765
Defined contribution pension costs 671 260
Other employee benefits (see note 29) 202 -
---------------------------------------- ----------- ----------
17,226 9,518
---------------------------------------- ----------- ----------
Included within share based payments is GBP0.2m relating to the
option to purchase the remaining 20% of First Mortgage Direct Ltd
(see note 29).
The average number of people employed 2019 2018
by the Group during the year was: Number Number
---------------------------------------- --------- ---------
Executive Directors 3 4
Advisers 49 -
Compliance 74 64
Sales and marketing 57 45
Operations 104 53
---------------------------------------- --------- ---------
Total 287 166
---------------------------------------- --------- ---------
Key management compensation
Key management are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Group. These are the directors of Mortgage Advice
Bureau (Holdings) plc.
2019 2018
GBP'000 GBP'000
------------------------------------- ---------- ----------
Wages and salaries 2,083 1,233
Share based payments 285 238
Defined contribution pension costs 17 34
------------------------------------- ---------- ----------
2,385 1,505
------------------------------------- ---------- ----------
During the year retirement benefits were accruing to 2 directors
(2018: 2) in respect of defined contribution pension schemes.
The total amount payable to the highest paid director in respect
of emoluments was GBP666,835 (2018: GBP498,834). The value of the
Group's contributions paid to a defined contribution pension scheme
in respect of the highest paid director amounted to GBPnil (2018:
GBPnil).
7 Finance income and expense
Finance income 2019 2018
GBP'000 GBP'000
------------------------------------------------- ----------- ----------
Interest income 77 45
Interest income accrued on loans to associates 70 37
------------------------------------------------- ----------- ----------
147 82
------------------------------------------------- ----------- ----------
Finance expense 2019 2018
GBP'000 GBP'000
--------------------------------------- ----------- ---------------------
Interest expense 51 -
Interest expense on lease liabilities 35 -
--------------------------------------- ----------- ---------------------
86 -
--------------------------------------- ----------- ---------------------
8 Income tax
2019 2018
GBP'000 GBP'000
------------------------------------------------- ----------- ----------
Current tax expense
UK corporation tax charge on profit for
the year 3,170 2,627
Adjustment to charge in respect of prior (62) -
periods
Total current tax 3,108 2,627
------------------------------------------------- ----------- ----------
Deferred tax expense
Origination and reversal of timing differences (69) (64)
Temporary difference on share based payments (127) (71)
Adjustment to deferred tax charge in 56 -
respect of prior periods
Total Deferred Tax (see note 22) (140) (135)
------------------------------------------------- ----------- ----------
Total tax expense 2,968 2,492
------------------------------------------------- ----------- ----------
The reasons for the difference between the actual charge for
the year and the standard rate of corporation tax in the United
Kingdom of 19% (2018: 19%) applied to profit for the year
is as follows:
2019 2018
GBP'000 GBP'000
------------------------------------------------- ----------- ----------
Profit for the year before tax 17,697 15,682
------------------------------------------------- ----------- ----------
Expected tax charge based on corporation
tax rate 3,363 2,980
Expenses not deductible for tax purposes
amortisation and impairment 188 72
Research & Development allowances (285) (212)
Tax on share options exercised (263) (269)
Adjustment to deferred tax charge in 56 -
respect of prior periods
Adjustment to corporation tax charge (62) -
in respect of prior periods
Profits from associates (53) (94)
Effect of lower deferred tax rate 24 15
Total tax expense 2,968 2,492
------------------------------------------------- ----------- ----------
For the year ended 31 December 2019 the deferred tax charge
relating to unexercised share options, recognised in equity was
(GBP544,179) (2018: GBP184,671).
9 Earnings per share
Basic earnings per share are calculated by dividing net profit
for the year attributable to ordinary equity holders of the Company
by the weighted average number of ordinary shares outstanding
during the year.
2019 2018
Basic earnings per share GBP'000 GBP'000
--------------------------------------- ------------ -----------------------------
Profit for the year attributable
to the owners of the parent 14,499 13,190
--------------------------------------- ------------ -----------------------------
Weighted average number of shares
in issue 51,413,922 51,022,846
--------------------------------------- ------------ -----------------------------
Basic earnings per share (in pence
per share) 28.2 p 25.9p
--------------------------------------- ------------ -----------------------------
For diluted earnings per share, the weighted average number
of ordinary shares in existence is adjusted to include potential
ordinary shares arising from share options.
2019 2018
Diluted earnings per share GBP'000 GBP'000
--------------------------------------- ------------ -----------------------------
Profit for the year attributable
to the owners of the parent 14,499 13,190
--------------------------------------- ------------ -----------------------------
Weighted average number of shares
in issue 52,434,259 52,201,486
--------------------------------------- ------------ -----------------------------
Diluted earnings per share (in pence
per share) 27.7 p 25.3p
--------------------------------------- ------------ -----------------------------
The share data used in the basic and diluted earnings per share
computations are as follows:
Weighted average number of ordinary 2019 2018
shares
---------------------------------------- ------------ ------------
Issued ordinary shares at start
of period 51,105,708 50,787,345
Effect of shares issued during period 308,214 235,501
---------------------------------------- ------------ ------------
Basic weighted average number of
shares 51,413,922 51,022,846
Potential ordinary shares arising
from options 1,020,337 1,178,640
---------------------------------------- ------------ ------------
Diluted weighted average number
of shares 52,434,259 52,201,486
---------------------------------------- ------------ ------------
Adjusted earnings per ordinary share is also presented to
eliminate the effects of acquisition costs, GBP374,000 of which are
non-recurring 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:
2019 2018 2019 2018 2019 2018
GBP'000 GBP'000 Basic Basic Diluted Diluted
earnings earnings earnings earnings
per share per share per share per share
pence pence pence pence
Profit for the
period 14,499 13,190 28.2 25.9 27.7 25.3
Adjustments:
Acquisition costs 987 - 1.9 - 1.8 -
Tax effect of adjustments - - - - - -
---------------------------- ---------- ---------- ------------ ------------ ------------ ------------
Adjusted earnings 15,486 13,190 30.1 25.9 29.5 25.3
---------------------------- ---------- ---------- ------------ ------------ ------------ ------------
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.
10 Dividends
2019 2018
GBP'000 GBP'000
---------
Dividends paid and declared during the
year:
Final dividend for 2018: 12.7p per share
(2017: 11.9p) 6,507 6,082
Interim dividend for 2019: 11.1p per
share (2018: 10.6p) 5,729 5,417
-------------------------------------------------- -------- ---------
12,236 11,499
------------------------------------------------- -------- ---------
Equity dividends on ordinary shares:
Proposed for approval:
Final dividend for 2019: 6.4p per share
(2018: 12.7p) 3,305 6,490
------------------------------------------- ------- -------
7,470 6,490
------------------------------------------ ------- -------
The record date for the final dividend is 1 May 2020 and the
payment date is 29 May 2020. The ex-dividend date will be 30 April
2020. The Company statement of changes in equity shows that the
Company has positive reserves of GBP414,000. There are sufficient
distributable reserves in subsidiary companies to pass up to
Mortgage Advice Bureau (Holdings) plc in order to pay the proposed
final dividend.
Prior to the payment of previous dividends since listing,
reserves have been passed up from subsidiary companies which
ensured that the Company had sufficient distributable reserves to
pay these dividends at the relevant time. However, due to an
administrative oversight interim accounts showing that there were
sufficient distributable reserves in the Company were not filed
with the Register of Companies as required by s838(6) Companies Act
2006 and, as a result these dividends could be considered to have
been unlawful distributions.
On becoming aware of this technical failure, the Board has taken
steps to rectify this position and at the forthcoming Annual
General Meeting on 26 May 2020, shareholders will be asked to
consider a special resolution which, if passed, will:
a) Release shareholders from claims by the Company in relation
to the unlawful dividends and direct the Company to enter into a
deed poll in respect of the same;
b) Release past and present Directors from claims in relation to
the unlawful dividends and direct the Company to enter into a deed
of release in respect of the same.
The Directors have no reason to believe that the above
resolution will not be passed at the Annual General Meeting.
11 Property, plant and equipment
Freehold
land and Fixtures Computer
building & fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ----------- -------------- ------------- -----------
Cost
At 1 January 2019 2,461 567 853 3,881
Acquisition of subsidiary 75 308 42 425
Additions - 44 142 186
At 31 December 2019 2,536 919 1,037 4,492
---------------------------- ----------- -------------- ------------- -----------
Depreciation
At 1 January 2019 177 371 717 1,265
Charge for the year 57 132 114 303
At 31 December 2019 234 503 831 1,568
---------------------------- ----------- -------------- ------------- -----------
Net Book Value
At 31 December 2019 2,302 416 206 2,924
---------------------------- ----------- -------------- ------------- -----------
Freehold
land and Fixtures Computer
building & fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ----------- -------------- ------------- -----------
Cost
At 1 January 2018 2,461 494 751 3,706
Additions - 73 102 175
At 31 December 2018 2,461 567 853 3,881
---------------------------- ----------- -------------- ------------- -----------
Depreciation
At 1 January 2018 122 314 622 1,058
Charge for the year 55 57 95 207
At 31 December 2018 177 371 717 1,265
---------------------------- ----------- -------------- ------------- -----------
Net Book Value
At 31 December 2018 2,284 196 136 2,616
12 Right of use assets
Leases
This note provides information for leases where the group is a
lessee.
The balance sheet shows the following amounts to leases:
Right of use assets Land and Buildings Total
GBP'000 GBP'000
------------------------------- -------------------- ----------
At 1 January 2019 - -
On acquisition of subsidiary 3,094 3,094
Depreciation (187) (187)
-------------------------------- -------------------- ----------
At 31 December 2019 2,907 2,907
-------------------------------- -------------------- ----------
Lease liabilities Land and Buildings Total
GBP'000 GBP'000
------------------------------- -------------------- ----------
At 1 January 2019 - -
On acquisition of subsidiary 3,142 3,142
Interest expense 35 35
Lease payments (198) (198)
-------------------------------- -------------------- ----------
At 31 December 2019 2,979 2,979
-------------------------------- -------------------- ----------
All additions during 2019 related to the acquisition of First
Mortgage Direct Ltd
The present value of the lease liabilities is as follows:
31 December 2019 Within 1 - 2 -5 After Total
1 year 2 years years 5 years
-------------------------------- --------- ---------- -------- ---------- -------
Lease payments (undiscounted) 399 389 1,142 1,355 3,285
Finance charges (64) (57) (124) (61) (306)
--------------------------------- --------- ---------- -------- ---------- -------
Net present values 335 332 1,018 1,294 2,979
--------------------------------- --------- ---------- -------- ---------- -------
The statement of comprehensive income shows the following
amounts relating to leases:
2019
GBP'000
--------------------------------------------- ----------
Depreciation charge of right of use assets 187
Interest expense 35
Low value lease expense 3
---------------------------------------------- ----------
13 Intangible assets
Goodwill 2019 2018
GBP'000 GBP'000
-------------------------------- ---------- ----------
Cost
As at 1 January 4,267 4,267
Acquisition of business (note 11,041 -
29)
-------------------------------- ---------- ----------
At 31 December 15,308 4,267
---------------------------------- ---------- ----------
Accumulated impairment
At 1 January and 31 December 153 153
Net book value
At 31 December 15,155 4,114
---------------------------------- ---------- ----------
The goodwill relates to the acquisition of Talk Limited in 2012,
and in particular its main operating subsidiary Mortgage Talk
Limited and the acquisition of First Mortgage Direct Limited
("FMD") in the year (see note 29). 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 Board considers that it has only one operating segment and
following the acquisition of FMD, now has two cash-generating units
(CGUs). Goodwill arose on the acquisition of Mortgage Talk Limited
and has since been allocated to the CGU of the Group excluding FMD.
Impairment testing for this CGU is carried out by determining
recoverable amount on the basis of a value in use, which is then
compared to the carrying value of the assets of the CGU including
goodwill. The value in use that has been determined exceeds the
carrying value of this CGU and therefore no impairment of goodwill
is required. Management has estimated future cash flows over a five
year period and applied a discount rate of 11% and then applied a
terminal value calculation, which assumes a growth rate of 5% in
future cashflows, in order to estimate the present value of those
cash flows in determining the value in use. Management believes
that any possible changes to any of the key assumptions applied in
determining the value in use would not cause the carrying amount of
goodwill to exceed the present value of the estimated future
cashflows.
Other intangible Licences Website Software Customer Trademarks Total
assets contracts
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----------- ---------- ---------- ------------ ------------- ----------
Cost
At 1 January 2019 108 140 554 - - 802
Acquisition of
subsidiary - - 15 1,980 1,470 3,465
Additions - - 1 - - 1
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
At 31 December
2019 108 140 570 1,980 1,470 4,268
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
Accumulated Amortisation
At 1 January 2019 108 49 - - - 157
Charge for the
year - 47 18 110 74 249
At 31 December
2019 108 96 18 110 74 406
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
Net book value
At 31 December
2019 - 44 552 1,870 1,396 3,862
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
Other intangible Licences Website Software Customer Trademarks Total
assets contracts
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----------- ---------- ---------- ------------ ------------- ----------
Cost
At 1 January 2018 108 103 - - - 211
Additions - 37 554 - - 591
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
At 31 December
2018 108 140 554 - - 802
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
Accumulated Amortisation
At 1 January 2018 108 5 - - - 113
Charge for the
year - 44 - - - 44
At 31 December
2018 108 49 - - - 157
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
Net book value
At 31 December
2018 - 91 554 - - 645
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
14 Investments in associates and joint venture
The Group holds investments in associates and a joint venture,
all of which are accounted for under the equity method, as
follows:
Percentage
of ordinary
Company name Registered office shares Description
held
------------------------ --------------------------- -------------- ------------------------
Profile House, Stores
CO2 Commercial Road, Derby DE21 49 Property surveyors
Limited 4BD
Lifetime FS Limited(1) Capital House, Pride 49 Provision of financial
Place, Derby DE24 services
8QR
Freedom 365 Mortgage Gresley House, Ten 35 Provision of financial
Solutions Limited Pound Walk, Doncaster services
DN4 5HX
Sort Group Limited Burdsall House, London 43.25 Conveyancing services
Road, Derby DE24
8UX
Sort Limited Burdsall House, London 10.52 Conveyancing services
Road, Derby, DE24
8UX
Buildstore Limited Nsb & Rc Lydiard 25 Provision of financial
Fields, Great Western services
Way, Swindon SN5
8UB
Clear Mortgage 114 Centrum House, 25 Provision of financial
Solutions Limited Dundas Street, Edinburgh services
EH3 5DQ
Vita Financial 1(st) Floor Tudor 20 Provision of financial
Limited House, 16 Cathedral services
Road, Cardiff CF11
9LJ
MAB Broker Services Level 7, 68 Alfred 45 Provision of financial
PTY Limited Street, Milsons Point, services
NSW 2061
Eagle and Lion 8 Mortimer Road, 49 Provision of financial
Limited Clifton, Bristol, services
BS8 4EX
The Mortgage Broker The Granary Crowhill 25 Provision of financial
Group Limited Farm, Ravensden Road, services
MK44 2QS
(1) MAB Wealth Management Limited changed its name to Lifetime
FS Limited on 31 December 2019
-----------------------------------------------------------------------------------------------
The reporting date for the Group's associates, as listed in the
table above, is 31 December and their country of incorporation is
England and Wales. The reporting date for the Group's joint
venture, MAB Broker Services PTY Limited, is 30 June and its
country of incorporation is Australia.
The investment in associates and the joint venture at the
reporting date is as follows:
2019 2018
GBP'000 GBP'000
---------------------------------------------------- ---------- ----------
At 1 January 1,573 1,339
Additions 1,783 265
Credit/(charge) to the statement of comprehensive
income:
Share of profit 280 494
Amount written off (192) (133)
---------------------------------------------------- ---------- ----------
88 361
Dividends received (311) (392)
---------------------------------------------------- ---------- ----------
At 31 December 3,133 1,573
---------------------------------------------------- ---------- ----------
The Group is entitled to 49% of the results of CO2 Commercial
Limited and Lifetime FS Limited by virtue of its 49% equity stakes.
CO2 Commercial Limited is a dormant holding company, and trades
through its wholly owned subsidiary, Pinnacle Surveyors (England
& Wales) Limited. The Group is entitled to 45% of the results
of MAB Broker Services PTY Limited by virtue of its 45% equity
stake, 35% of the results of Freedom 365 Mortgage Solutions Limited
by virtue of its 35% equity stake, 25% of the results of Buildstore
Limited, Clear Mortgage Solutions Limited and The Mortgage Broker
Group Limited by virtue of its 25% equity stakes, 20% of the
results of Vita Financial Limited by virtue of its 20% equity
stake, and 49% of the results of Eagle and Lion Limited by virtue
of its 49% equity stake.
The Group is entitled to 43.25% of the results of Sort Group
Limited by virtue of its 43.25% equity stake. Additionally, the
Group is entitled to 10.52% of the results of Sort Limited by
virtue of its 10.52% equity stake. Mortgage Advice Bureau Limited's
effective holding in Sort Limited, Sort Legal Limited and Sort
Technology Limited is now 43.25%, 43.25% and 41.09%
respectively.
The carrying value of the Group's joint venture, MAB Broker
Services PTY Limited, at 31 December 2019 is GBPnil (2018: GBPnil).
In the period ended 30 June 2019, MAB Broker Services PTY reported
a loss of AUD0.9m (2018: AUD0.6m).
Acquisitions and disposals
2018: The Group acquired a 33.33% interest in Eagle and Lion
Limited on 15 October 2018 at a cost of GBP131,460. In accordance
with IFRS 9 the Group increased the value of investments by
GBP133,324 to reflect the present value adjustment to an interest
free loan, to an associate.
2019: The Group acquired a 25% interest in The Mortgage Broker
Group Ltd on 20 May 2019 at a cost of GBP1,250,000. The Group
acquired a further 15.67% interest in Eagle and Lion Limited on 29
July 2019 for nil consideration. The Group acquired a 6% interest
in Sort Ltd on 31July 2019 at a cost of GBP161,000. The Group
acquired a further 5% interest in Sort Ltd on 29 November 2019 at a
cost of GBP180,000. In accordance with IFRS 9 the Group increased
the value of investments by GBP192,340 to reflect the present value
adjustment to a group interest free loan to an associate.
As the associates are private companies published share prices
are not available. The aggregate amounts of certain financial
information of the associates is summarised as follows:
Pinnacle
Surveyors
(England Sort
& Wales) Buildstore Group 2019
Limited Limited Limited Clear Others Total
2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------------ -------------- ----------- ----------- ----------- -----------
Non-current assets 14 226 219 89 333 881
Cash balances 170 455 778 70 296 1,769
Current assets (excluding
cash balances) 917 1,737 1,137 321 572 4,684
Current liabilities (581) (1,881) (1,838) (300) (248) (4,848)
Non-current liabilities
and provisions (3) (32) (41) (22) (1,260) (1,358)
Revenue 3,911 3,894 7,868 4,717 3,949 24,339
Profit before taxation 555 101 454 265 (253) 1,122
Total comprehensive income
(PAT) 450 82 458 52 (411) 631
Profit attributable to
Group 220 18 132 13 (103) 280
----------------------------- ------------ -------------- ----------- ----------- ----------- -----------
Dividends received from
associates 311* - - - 311
----------------------------- ------------ -------------- ----------- ----------- ----------- -----------
Pinnacle
Surveyors
(England Sort
& Wales) Buildstore Group 2018
Limited Limited Limited Clear Others Total
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------------ -------------- ----------- ----------- ----------- -----------
Non-current assets 20 181 771 81 20 1,073
Cash balances 520 356 542 (18) 117 1,517
Current assets (excluding
cash balances) 900 713 406 190 426 2,635
Current liabilities (749) (841) (1,157) (131) (132) (3,010)
Non-current liabilities
and provisions (4) - (84) (3) (163) (254)
Revenue 4,582 3,526 5,744 2,934 1,502 18,288
Profit before taxation 1,295 95 (52) 48 96 1,482
Total comprehensive income 1,046 77 (52) (148) 81 1,004
Profit attributable to
Group 512 19 (23) (28) 14 494
----------------------------- ------------ -------------- ----------- ----------- ----------- -----------
Dividends received from
associates 392* - - - - 392
----------------------------- ------------ -------------- ----------- ----------- ----------- -----------
* These dividends are received from CO2 Commercial Limited, the
parent undertaking of Pinnacle Surveyors (England & Wales)
Limited. All other information disclosed above relates to Pinnacle
Surveyors (England & Wales) Limited.
All associates prepare their financial statements in accordance
with FRS 102 other than MAB Broker Services PTY Limited who prepare
their financial statements in accordance with the Australian
Accounting Standards. There would be no material difference to the
profit attributable to the Group if the accounts of any of the
associates were prepared in accordance with IFRS.
15 Investments in non-listed equity shares
GBP'000
---------------------- ---------
At 1 January 2019 -
Additions 75
---------------------- ---------
At 31 December 2019 75
---------------------- ---------
The Group acquired a 3.33% interest in YourKeys on 5 February
2019 at a cost of GBP75,000.
16 Subsidiaries
The subsidiaries of Mortgage Advice Bureau (Holdings) plc at the
reporting date have been included in the consolidated financial
statements. The subsidiaries are as follows:
Country of Percentage
Company name Incorporation of ordinary Nature of business
shares held
------------------------------- ---------------- -------------- ----------------------
Provision of
Mortgage Advice Bureau England and 100 financial services
Limited Wales
Mortgage Advice Bureau Provision of
(Derby) Limited England and 100 financial services
Wales
Provision of
Capital Protect Limited England and 100 financial services
Wales
Provision of
Mortgage Talk Limited England and 100 financial services
Wales
Provision of
MABWM Limited England and 100 financial services
Wales
First Mortgage Direct Scotland Provision of
Limited 80 financial services
First Mortgage Limited Scotland 80 Provision of
financial services
Property Law Centre Scotland 80 Provision of
Limited financial services
Talk Limited England and 100 Intermediate
Wales holding company
Mortgage Advice Bureau Australia 100 Intermediate
Australia (Holdings) holding company
PTY Limited
Mortgage Advice Bureau Australia 100 Holding of
PTY Limited intellectual
property
Mortgage Advice Bureau England and 100 Dormant
(UK) Limited Wales
Mortgage Advice Bureau England and 100 Dormant
(Bristol) Limited Wales
MAB (Derby) Limited England and 100 Dormant
Wales
L&P 137 Limited England and 100 Dormant
Wales
Mortgage Talk (Partnership) England and 100 Dormant
Limited Wales
Financial Talk Limited England and 100 Dormant
Wales
Survey Talk Limited England and 100 Dormant
Wales
L&P 134 Limited England and 100 Dormant
Wales
Loan Talk Limited England and 100 Dormant
Wales
MAB1 Limited England and 100 Dormant
Wales
First Mortgage Shop Scotland 80 Dormant
Limited
First Mortgages Limited Scotland 80 Dormant
Fresh Start Finance Scotland 80 Dormant
Limited
------------------------------- ---------------- -------------- ----------------------
The registered office for all of the subsidiaries of Mortgage
Advice Bureau (Holdings) plc, as listed in the table above, is
Capital House, Pride Place, Pride Park, Derby, DE24 8QR, United
Kingdom, other than for the two subsidiaries incorporated in
Australia for which the registered office is Norton Rose Fulbright,
Level 18, 225 George Street, Sydney, NSW 2000, Australia and First
Mortgage Direct Limited and its subsidiaries for which the
registered office is 30 Walker Street, Edinburgh, EH3 7HR.
Mortgage Advice Bureau Australia (Holdings) PTY Limited has a
100% equity stake in Mortgage Advice Bureau PTY
Limited and also a 45% equity stake in MAB Broker Services PTY Limited.
Mortgage Advice Bureau (Holdings) plc holds 100% of the ordinary
share capital of Mortgage Advice Bureau Limited and Talk
Limited.
Mortgage Advice Bureau Limited holds 100% of the ordinary share
capital of Mortgage Advice Bureau (Derby) Limited, Capital Protect
Limited, MABWM Limited and Mortgage Advice Bureau Australia
(Holdings) PTY Limited. On 2 July 2019, Mortgage Advice Bureau
Limited acquired 80% of the ordinary share capital of First
Mortgage Direct Limited. Details of the acquisition are given in
note 29. First Mortgage Direct Limited holds 100% of the ordinary
share capital of Property Law Centre Limited.
First Mortgage Direct Limited holds 100% of the ordinary share
capital of First Mortgage Limited, Property Law Centre Limited,
First Mortgages Limited, First Mortgage Shop Limited and Fresh
Start Finance Limited.
Talk Limited holds 100% of the ordinary share capital of
Mortgage Talk Limited, L&P 137 Limited, Mortgage Talk
(Partnership) Limited, Financial Talk Limited and Survey Talk
Limited.
Mortgage Talk Limited holds 100% of the ordinary share capital
of Loan Talk Limited.
L&P 137 Limited holds 100% of the ordinary share capital of
L&P 134 Limited.
There are no restrictions regarding the utilisation of cash or
other resources held by any subsidiary.
17 Trade and other receivables
2019 2018
GBP'000 GBP'000
----------------------------------------- --------- ---------
Trade receivables 1,936 2,047
Less provision for impairment of trade
receivables (363) (284)
----------------------------------------- --------- ---------
Trade receivables - net 1,573 1,763
Receivables from related parties 15 29
Loans to related parties 3,124 2,257
Less provision for impairment of loans
to related parties (171) (290)
----------------------------------------- --------- ---------
Total financial assets other than cash
and cash equivalents classified at
amortised costs 4,541 3,759
Prepayments and accrued income 3,748 3,140
----------------------------------------- --------- ---------
Total trade and other receivables 8,289 6,899
----------------------------------------- --------- ---------
Less: non-current portion - Loans to
related parties (2,832) (1,560)
Less non-current - Trade receivables (498) (736)
----------------------------------------- --------- ---------
Current portion 4,959 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 31
December 2019 the lifetime expected loss provision for trade
receivables is GBP0.4m (2018: 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 31 December 2019 the lifetime expected loss provision for
loans to associates is GBP0.2m (2018: GBP0.3m). One of these
receivables has previously 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.
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. Further information on
the credit quality of financial assets is set out in note 20.
A summary of the movement in the provision for the impairment of
receivables is as follows:
2019 2018
GBP'000 GBP'000
------------------------------------------- --------- ---------
At 1 January 284 273
New provisions for impairment losses 70 11
Increases in existing provisions for
impairment losses 11
Impairment provisions no longer required (2) -
------------------------------------------- --------- ---------
At 31 December 363 284
------------------------------------------- --------- ---------
A summary of the movement in the provision for the impairment of
loans to related parties is as follows:
2019 2018
GBP'000 GBP'000
------------------------------------------- --------- ---------
At 1 January 290 -
New provisions for impairment losses - 290
Increases in existing provisions for 2 -
impairment losses
Impairment provisions no longer required (121) -
------------------------------------------- --------- ---------
At 31 December 171 290
------------------------------------------- --------- ---------
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivables mentioned above less
collateral held as security. Details of security held are given in
note 20.
18 Cash and cash equivalents
2019 2018
GBP'000 GBP'000
---------------------------------------------- ---------- --- ----------
Unrestricted cash and bank balances 6,987 13,878
Bank balances held in relation to retained
commissions 13,880 11,711
---------------------------------------------- ---------- --- ----------
Cash and cash equivalents 20,867 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' commissions.
Operationally the Group does not treat these balances as available
funds. An equal and opposite liability is shown within Trade and
other payables (note 19).
19 Trade and other payables
2019 2018
GBP'000 GBP'000
------------------------------------------------- ---------- --- ----------
Appointed Representatives retained commission 13,880 11,711
Other trade payables 4,542 4,658
------------------------------------------------- ---------- --- ----------
Trade payables 18,422 16,369
Social security and other taxes 642 783
Other payables 203 42
Accruals 3,104 1,496
------------------------------------------------- ---------- --- ----------
22,371 18,690
------------------------------------------------- ---------- --- ----------
Should a life policy be cancelled within four years of
inception, a proportion of the original commission will be clawed
back by the insurance provider. The majority of any such repayment
is payable by the Appointed Representative. It is the Group's
policy to retain a proportion of commission payable to the
Appointed Representative to cover such potential future lapses;
these sums remain a liability of the Group. This commission is held
in a separate ring fenced bank account as described in note 18.
As at 31 December 2019 and 31 December 2018, the carrying value
of trade and other payables classified as financial liabilities
measured at amortised cost approximates fair value.
Appointed Representatives retained commission is expected to be
payable after more than one year. Other trade payables normally
fall due within 30 to 60 days.
20 Financial instruments - risk management
The Group is exposed through its operations to the following
financial risks:
-- Credit risk
-- Liquidity risk
-- Interest rate risk
In common with all other businesses, the Group is exposed to
risks that arise from its use of financial instruments. This note
describes the Group's objectives, policies and processes for
managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented
throughout these financial statements.
Principal financial instruments
* Trade and other receivables
* Cash and cash equivalents
* Trade and other payables
The Group does not issue or use financial instruments of a
speculative nature. A summary of financial instruments held by
category is provided below:
Financial assets 2019 2018
GBP'000 GBP'000
------------------------------ --------- ---------
Cash and cash equivalents 20,867 25,589
Trade and other receivables 4,541 3,759
Total financial assets 25,408 29,348
------------------------------ --------- ---------
Financial liabilities 2019 2018
GBP'000 GBP'000
------------------------------ --------- ---------
Trade and other payables 19,267 17,194
Accruals 3,104 1,496
Lease liabilities 3,235 -
Total financial liabilities 25,606 18,690
------------------------------ --------- ---------
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies and designs and
operates processes that ensure the effective implementation of the
objectives and policies to the Group's finance function. The Board
sets guidelines to the finance team and monitors adherence to its
guidelines on a monthly basis.
The overall objective of the Board is to set policies that seek
to reduce risk as far as possible without unduly affecting the
Group's competitiveness and flexibility. Further details regarding
these policies are set out below.
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 loans to its trading partners. 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.
Quantitative disclosures of the credit risk exposure in relation
to financial assets are set out below. Further disclosures
regarding trade and other receivables are given in note 17.
Financial assets - maximum exposure 2019 2018
GBP'000 GBP'000
------------------------------------- --------- ---------
Cash and cash equivalents 20,867 25,589
Trade and other receivables 4,541 3,759
------------------------------------- --------- ---------
Total financial assets 25,408 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.
Credit risk (continued)
Trade receivables consist of a large number of unrelated trading
partners and therefore credit risk is not concentrated. 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
that are included in trade receivables; this collateral of
GBP795,534 (2018: GBP825,357) reduces the credit risk.
The Group's credit risk on cash and cash equivalents is limited
because the Group places funds on deposit with National Westminster
Bank Plc and Bank of Scotland Plc which are A/A+ and A+ rated
respectively.
Interest rate risks
The Group's interest rate risk arises from cash on deposit. The
Group aims to maximise its return on cash on deposit whilst
ensuring that cash is available to meet liabilities as they fall
due. Current market deposit interest rates are minimal and
therefore any fall in these rates is unlikely to have a significant
impact on the results of the Group.
Foreign exchange risk
As the Group does not operate outside of the United Kingdom and
has only one investment outside the UK, it is not exposed to any
material foreign exchange risk.
Liquidity risk
Liquidity risk arises from the Group's management of working
capital. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due.
The Group's policy is to ensure that it will always have
sufficient cash to allow it to meet its liabilities when they
become due. The Group's trade and other payables are repayable
within one year from the reporting date and the contractual
undiscounted cash flow analysis for the Group's trade and other
payables is the same as their carrying value. The contractual
maturities of financial liabilities are as follows:
31 December 2019 Within 1 - 2 -5 After Total
1 year 2 years years 5 years
--------------------------- --------- ---------- -------- ---------- --------
Trade and other payables 5,387 - - - 5,387
Accruals 2,817 64 21 202 3,104
Lease liabilities 399 389 1,105 1,342 3,235
---------------------------- --------- ---------- -------- ---------- --------
Total 8,603 453 1,126 1,544 11,726
---------------------------- --------- ---------- -------- ---------- --------
The appointed representatives retained commissions balance of
GBP13.9m has been excluded from the maturity analysis due to there
being an equal cash balance held within cash and cash equivalents.
There is therefore no liquidity risk relating to this balance
The Board receives annual 12 month cash flow projections based
on working capital modelling as well as information regarding cash
balances monthly. At the end of the financial year, these
projections indicated that the Group expected to have sufficient
liquid resources to meet its obligations under all reasonably
expected circumstances. Additionally, the Group has financial
resource requirements set by its regulator, the Financial Conduct
Authority. The Board has set a policy to ensure that adequate
capital is maintained to ensure that these externally set financial
resource requirements are exceeded at all times. Quarterly reports
are made to the Financial Conduct Authority and submission is
authorised by the Chief Financial Officer, at which time capital
adequacy is re-assessed.
Capital management
The Group monitors its capital which consists of all components
of equity (i.e. share capital, share premium, capital redemption
reserve, share option reserve and retained earnings).
The Group's objectives when maintaining capital are:
-- To safeguard the entity's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders.
-- To ensure that capital is maintained at all times to ensure
that financial resource requirements set by its regulator, the
Financial Conduct Authority, are exceeded at all times.
-- To ensure the Group has the cash available to develop the
services provided by the Group to provide an adequate return to
shareholders.
21 Provisions
Clawback provision 2019 2018
GBP'000 GBP'000
-------------------------------------------- ---------- ----------
At 1 January 1,704 1,496
Acquisition of subsidiary 1,445 -
Charged to the statement of comprehensive
income 586 208
-------------------------------------------- ---------- ----------
At 31 December 3,735 1,704
-------------------------------------------- ---------- ----------
The provision relates to the estimated cost of repaying
commission income received upfront on life assurance policies that
may lapse in the four years following issue. Provisions are held in
the financial statements of three of the group's subsidiaries:
Mortgage Advice Bureau Limited, Mortgage Advice Bureau (Derby)
Limited and First Mortgage Direct Limited. The exact timing of any
future clawbacks within the four year period is uncertain and the
provision was based on the Directors' best estimate, using industry
data where available, of the probability of clawbacks to be
made.
22 Deferred tax
Deferred tax is calculated in full on temporary differences
using a tax rate of 17% (2018: 17%). The reduction in the main rate
of corporation tax as set out in note 8 has been applied to
deferred tax balances which are expected to reverse in the
future.
The movement in deferred tax is shown below:
2019 2018
GBP'000 GBP'000
------------------------------------------- ---------- ----------
Deferred tax asset - opening balance 824 874
Recognised in the statement of
comprehensive income 140 135
Transfer in on acquisition of subsidiary (642) -
Deferred tax movement recognised
in equity 544 (185)
------------------------------------------- ---------- ----------
Deferred tax asset - closing balance 866 824
------------------------------------------- ---------- ----------
The deferred tax balance is made up as follows:
2019 2018
GBP'000 GBP'000
Accelerated capital allowances (651) (54)
Other timing differences 47 79
Share-based payment 1,470 799
--------------------------------- ---------- ----------
Net deferred tax asset 866 824
--------------------------------- ---------- ----------
Reflected in the statement of financial 2019 2018
position as follows: GBP'000 GBP'000
Deferred tax liability (651) (54)
Deferred tax asset 1,517 878
------------------------------------------ ---------- ----------
Deferred tax asset net 866 824
------------------------------------------ ---------- ----------
Deferred tax liabilities have arisen due to capital allowances
which have been received ahead of the depreciation charged in the
accounts.
A change to the corporation tax rate was substantively enacted
on 17 March 2020 to remain at 19% rather than the previously
enacted reduction to 17%. The impact of this has been estimated to
be GBP60,000
23 Share capital
Issued and fully paid 2019 2018
GBP'000 GBP'000
------------------------------- ---------- ----------
Ordinary shares of 0.1p each 52 51
------------------------------- ---------- ----------
Total share capital 52 51
------------------------------- ---------- ----------
During the year 506,499 ordinary shares of 0.1p each were issued
following partial exercise of the third and fourth 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 GBP1.4m. See also note 28.
24 Reserves
The Group's policy is to maintain an appropriate capital base
and comply with its externally imposed capital requirements whilst
providing maximum shareholder value.
The following describes the nature and purpose of each reserve
within equity:
Reserve Description and purpose
Share premium Amount subscribed for share capital
in excess of nominal value.
Capital redemption The capital redemption reserve represents
reserve the cancellation of part of the original
share capital premium of the company
at par value of any shares repurchased.
Share option reserve The fair value of equity instruments
granted by the Company in respect
of share based payment transactions
and deferred tax recognised in equity.
Retained earnings All other net gains and losses and
transactions with owners (e.g. dividends)
not recognised elsewhere.
There is no restriction on the distribution of retained
earnings.
25 Retirement benefits
The Group operates defined contribution pension schemes for the
benefit of its employees and also makes contributions to a
self-invested personal pension ("SIPP"). The assets of the schemes
and the SIPP are held separately from those of the Group in
independently administered funds. The pension cost charge
represents contributions payable by the Group to the SIPP and
amounted to GBP671,404 (2018: GBP260,254). There were no
contributions payable to the funds or the SIPP at the statement of
financial position date (2018: GBPnil).
26 Related party transactions
The following details provide the total amount of transactions
that have been entered into with related parties during the year
ended 31 December 2019 and 2018, as well as balances with related
parties as at 31 December 2019 and 2018.
During the year the Group paid commission of GBP921,508 (2018:
GBP725,301) to Buildstore Limited, an associated company. There was
a balance of GBP47,932 (2018: GBP46,757) of retained commission to
cover future lapses. At 31 December 2019, there was a loan
outstanding from Buildstore Limited GBP36,565 (2018: GBPnil).
During the year the Group received no introducer commission from
Lifetime FS Limited, an associated company (2018: GBP5,462). There
is no balance outstanding with MAB Wealth Management Limited at 31
December 2018 (2017: GBPnil).
During the year the Group received introducer commission from
Sort Limited, an associated company of GBP885,470 (2018:
GBP679,279). At 31 December 2019 there was a loan outstanding of
GBP220,575 (2018: GBP126,562) with Sort Group Limited, an
associated company.
During the year the Group paid commission to Clear Mortgage
Solutions Limited, an associated company, of GBP4,735,028 (2018:
GBP3,062,915). There was a balance of GBP265,992 (2018: GBP161,425)
of retained commission to cover future lapses.
During the year the Group purchased services from Twenty7tec
Group Limited, a company in which the Group holds an investment, of
GBP7,200 (2018: GBP43,200).
During the year the Group paid commission to Freedom 365
Mortgage Solutions Limited, an associated company, of GBP595,017
(2018: GBP778,203). There was a balance of GBP133,090 (2018:
GBP100,934) of retained commission to cover future lapses. At 31
December 2019 there was a loan outstanding from Freedom 365
Mortgage Solutions Limited of GBP1,202,453 (2018: GBP850,568).
During the year the Group paid commission to Vita Financial
Limited, an associated company, of GBP982,091 (2018: GBP850,568).
There was a balance of GBP86,589 (2018: GBP107,489) of retained
commission to cover future lapses. During the year the loan
outstanding from Vita Financial Limited of GBP27,000 was repaid in
full.
At 31 December 2019 there was a loan outstanding from MAB Broker
Services PTY Limited, an associated company, of GBP1,014,535
(AUD1,900,000) (2018: GBP616,328 (AUD1,115,000)).
During the year the Group paid commission to Eagle & Lion
Limited, an associated company, of GBP280,829 (2018: GBP78,265).
There was a balance of GBP10,982 (2018: GBP2,785) of retained
commission to cover future lapses. At 31 December 2019 there was a
loan outstanding from Eagle & Lion Limited of GBP565,000 (2018:
GBP365,000).
During the year the Group paid commission to The Mortgage Broker
Limited, an associated company, of GBP1,354,386 (2018: GBPnil).
There was a balance of GBP72,081 (2018: GBPnil) of retained
commission to cover future lapses. At 31 December 2019, there was a
loan outstanding from The Mortgage Broker Limited of GBP84,705
(2018: GBPnil).
The Group's related party transactions in the year include the
remuneration of the Directors' emoluments, pension entitlements and
share-based payments disclosed in note 6 of the financial
statements.
During the year the Group received dividends from associated
companies as follow:
2019 2018
GBP'000 GBP'000
------------------------- ---------- ----------
CO2 Commercial Limited 311 392
------------------------- ---------- ----------
27 Ultimate controlling party
There is no ultimate controlling party.
28 Share based payments
Mortgage Advice Bureau Executive Share Option Plan
The Group operates two equity-settled share based remuneration
schemes for Executive Directors and certain senior management, one
being an approved scheme, the other unapproved, but with similar
terms. Half of the options are subject to a total shareholder
return (TSR) performance condition and the remaining half are
subject to an earnings per share (EPS) performance condition. The
outstanding options in both schemes vest as follows:
For options granted at IPO and on 20 May 2015 and outstanding at
1 January 2019:
-- 50% based on performance to 31 March 2018, exercisable
between 31 March 2019 and 11 November 2022, vesting of 100% was
achieved.
-- 50% based on performance to 31 March 2018, exercisable
between 31 March 2020 and 11 November 2022, vesting of 100% was
achieved.
For options granted during 2016 and outstanding at 1 January
2019:
-- 100% based on performance to 31 March 2019, exercisable
between 4 May 2019 and 3 May 2024, vesting of 90.6% was
achieved.
For options granted during 2017 and outstanding at 1 January
2019:
-- 100% based on performance to 31 March 2020, exercisable
between 19 April 2020 and 18 April 2025, vesting of 88.7% was
achieved.
For options granted during 2018 and outstanding at 1 January
2019
-- 100% based on performance to 31 March 2021, exercisable
between 11 April 2021 and 9 April 2026.
For options granted during the year:
-- 100% based on performance to 31 March 2022, exercisable between 1 July 2022 and 1 July 2027.
The number and weighted average exercise prices (WAEP) of, and
movements in, share options during the year for the Mortgage Advice
Bureau Executive Share Option Plan:
2019 2019 2018 2018
WAEP Number WAEP Number
GBP GBP
--------------------------- ------- ----------- --------- -----------
Outstanding at 1 January 2.98 2,187,810 3.01 2,371,335
Granted during the
year 0.001 175,547 0.001 162,829
Exercised 2.68 (506,498) (1.63) (318,363)
Lapsed * - (148,991) - (27,991)
----------- -----------
Outstanding at 31
December 2.74 1,707,868 2.98 2,187,810
----------- -----------
*Due to not fully vesting, retirement or leaving the Group.
At 31 December 2019, 550,674 options over ordinary shares of 0.1
pence each in the Company were exercisable with a weighted average
exercise price of GBP3.09.
On 1 July 2019, 175,547 options over ordinary shares of 0.1
pence each in the Company were granted to the Executive Directors
and senior executives of MAB under the equity-settled Mortgage
Advice Bureau Executive Share Option Plan (the "Options"). Exercise
of the Options is subject to the service conditions and achievement
of performance conditions based on total shareholder return and
earnings per share criteria. Subject to achievement of the
performance conditions, the Options will be exercisable three years
from the date of grant. The exercise price for the Options is 0.1
pence, being the nominal cost of the Ordinary Shares.
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
ordinary shares at the time of exercise was GBP5.82.
Options exercised in July 2019 resulted in 157,790 ordinary
shares being issued at exercise prices of GBP1.60, GBP2.19 and
GBP3.58. The price of the ordinary shares at the time of exercise
was GBP5.90.
For the share options outstanding under the Mortgage Advice
Bureau Executive Share Option Plan as at 31 December 2019, the
weighted average remaining contractual life is 0.5 years (2018 0.9
years).
The following information is relevant in the determination of
the fair value of options granted during the year under the
equity-settled share based remuneration scheme operated by the
Group.
2019 2018
----------------------------- --------------- ---------------
Equity-settled
Option pricing model - EPS Black-Scholes Black-Scholes
Option pricing model - TSR Stochastic Stochastic
Exercise price GBP0.001 GBP0.001
Expected volatility 31.22% 38.73%
Expected dividend yield 3.76% 3.42%
Risk free interest rate 0.58% 0.91%
----------------------------- --------------- ---------------
Expected volatility is a measure of an amount by which the share
price is expected to fluctuate during a period. Dividends paid on
shares reduce the fair value of an award as a participant does not
receive the dividend income on these shares. For the share options
granted during the year the historic dividend yield has been used,
calculated as dividends announced in the 12 months prior to grant
(excluding special dividends) calculated as a percentage of the
share price on the date of grant to give a dividend yield of
3.76%.
The Options offer participants the opportunity to benefit from
increasing per share value without risking the current per share
price. The risk-free rate used is the rate of interest obtainable
from UK government securities as at the date of grant over the
expected terms.
The options granted this year have vesting periods of 3.0 years
from the date of grant and the calculation of the share based
payment is based on these vesting periods.
MAB AR Option Plan
The Group operates an equity-settled share plan, the AR Option
Plan, to reward selected ARs of the Group. The AR Option Plan
provides for options which have a nominal exercise price of price
of 0.01 pence per Share (or, for any individual AR, not less than
GBP1 on each occasion of exercise) to acquire Ordinary Shares
subject to performance conditions. Certain criteria must be met in
order for ARs to be eligible, including using the Mortgage Advice
Bureau brand and being party to an AR Agreement which provides for
an initial contract term of at least five years at the date of
grant. The AR Options will normally become exercisable following
the fifth anniversary of grant subject to the satisfaction of
performance conditions based on financial and other targets,
including quality of consumer outcomes, compliance standards and
continued use of the Mortgage Advice Bureau brand.
The number and weighted average exercise prices (WAEP) of, and
movements in, share options during the year for the MAB AR Option
Plan:
2019 2019 2018 2018
WAEP Number WAEP Number
--------------------------- ------- --------- ------- -----------------
Outstanding at 1 January 0.01p 255,000 0.01p 255,000
Granted during the - - - -
year
--------------------------- ------- --------- ------- -----------------
Outstanding at 31
December 0.01p 255,000 0.01p 255,000
--------------------------- ------- --------- ------- -----------------
For the share options outstanding under the MAB AR Option Plan
as at 31 December 2019, the weighted average remaining contractual
life is 0.4 years (2018: 1.4 years).
Expected volatility is a measure of an amount by which the share
price is expected to fluctuate during a period. As the Company only
listed in November 2014 there is insufficient historical data. We
have therefore used a proxy volatility figure based on the medium
volatilities, of dividend paying FTSE AIM 100 companies over each
of the expected terms.
Dividends paid on shares reduce the fair value of an award as a
participant does not receive the dividend income on these shares.
For the share options granted during 2015 the stub dividend in
respect of the period from Admission to 31 December 2014 has been
annualised and divided at the share price at date of grant to give
a dividend yield of 7.1%.
The options offer participants the opportunity to benefit from
increasing per share value without risking the current per share
price. The risk-free rate used is the rate of interest obtainable
from UK government securities as at the date of the grant over the
expected terms.
The options granted in 2015 have a vesting period of 5 years
from the date of grant and calculation of the share-based payment
is based on these vesting periods.
Share-based remuneration expense
The share-based remuneration expense of GBP1,288,860 (2018:
GBP800,676) includes the charge for the equity-settled schemes of
GBP830,340 (2018: GBP631,416), the matching element of the Group's
Share Incentive Plan for all employees of GBP62,565 (2018:
GBP56,885) and GBP227,968 (2018: nil) in respect of the option
relating to First Mortgage Direct Limited (see note 29).
The Group did not enter into any share-based payment
transactions with parties other than employees during the current
or previous period.
29 Business combinations
On 2 July 2019 Mortgage Advice Bureau (Holdings) PLC acquired 80
per cent. of the entire issued share capital of First Mortgage
Direct Limited ("First Mortgage" or the "Business") for cash
consideration of GBP16.5m (the "Acquisition"), valuing the Business
at GBP20.6m. First Mortgage is an omni-channel mortgage broker,
with a particularly strong presence in Scotland.
The Acquisition will provide significant additional growth
opportunities and enable the Group to further grow its adviser
numbers and market share and will also add another highly respected
and leading mortgage broker to the Group.
Details of the purchase consideration, the net assets acquired
and goodwill are as follows:
Purchase consideration:
GBP'000
Cash paid 16,500
---------------------------------- ---------
Total purchase consideration 16,500
---------------------------------- ---------
The assets and liabilities recognised as a result of the
acquisition are as follows:
Fair value
Book value adjustment Fair value
GBP'000 GBP'000 GBP'000
Cash 4,277 - 4,277
Trade and other debtors 1,907 - 1,907
Right of use assets 3,094 - 3,094
Plant, equipment and
intangibles 440 - 440
Intangible assets: customer
contracts - 1,980 1,980
Intangible assets:
trademarks - 1,470 1,470
Trade and other payables (1,115) - (1,115)
Lease liability (3,142) - (3,142)
Deferred tax liability (56) (586) (642)
Provisions (1,445) - (1,445)
Net identifiable assets acquired 3,960
3,960 2,864 6,824
Less: non-controlling interests (1,365)
Add: goodwill 11,041
----------------------------------------------- ------------- --------------
Consideration paid 16,500
----------------------------------------------- ------------- --------------
The goodwill is attributable to the workforce and the high
profitability of the acquired business. It will not be deductible
for tax purposes.
There were no acquisitions in the year ending 31 December
2018.
Revenue and profit contributions
First Mortgage contributed revenues of GBP7.6m and net profit of
GBP1.1m to the Group for the period from 2 July 2019 to 31 December
2019.
If the acquisition had occurred on 1 January 2019, the
consolidated pro-forma revenue and profit for the year ended 31
December 2019 would have been GBP152.4m and GBP15.7m respectively.
These amounts have been calculated using the subsidiary's results
and adjusting them for
-- differences in accounting policies between the Group and the subsidiary, and
-- the additional depreciation and amortisation that would have
been charged assuming the fair value adjustments to property, plant
and equipment and intangible assets had applied from 1 January
2019, together with the consequential tax effects.
Purchase consideration - cash outflow
2019 2018
GBP'000 GBP'000
-------------------------------------------- ---------- ----------
Outflow of cash to acquire subsidiary,
net of cash acquired
Cash consideration 16,500 -
Less: Balances acquired
Cash (4,277) -
Net outflow of cash - investing activities 12,223 -
------------------------------------------------ ---------- ----------
The Group funded the cash consideration from a mix of its own
cash resources and a partial drawdown on its new revolving credit
facility with National Westminster Bank Plc for GBP12m. As at 31
December 2019 the Group had no draw down on this facility.
Acquisition-related costs
Acquisition-related costs of GBP987,000 that were not directly
attributable to the acquired shares are included in administrative
expenses in the statement of profit and loss. GBP374,000 of these
costs are non-recurring and are included in operating cash flows in
the statement of cash flows and GBP613,000 of these costs are
recurring non-cash items.
Option accounting
The option (comprising the put and the call option) over the
remaining 20% of the issued share capital of First Mortgage has
been accounted for under IAS 19 Employee Benefits and IFRS 2 Share
Based Payments due to its link to the service of First Mortgage's
Managing Director. In accordance with IAS 19, GBP0.2m has been
included within administrative costs under staff costs (see note
6), and in accordance with IFRS 2, a further GBP0.2m has been
included within administrative costs under share based payments
(see note 28).
30 Non-controlling interests (NCI)
Accounting policy choice for non-controlling interests
The Group recognises non-controlling interests in an acquired
entity either at fair value or at the non-controlling interest's
proportionate share of the acquired entity's net identifiable
assets. This decision is made on an acquisition-by-acquisition
basis. For the non-controlling interests in First Mortgage, the
Group elected to recognise the non-controlling interests at its
proportionate share of the acquired net identifiable assets. See
note 1 for the Group's accounting policies for business
combinations.
Set out below is summarised financial information for each
subsidiary that has non-controlling interest that are material to
the group. The amounts disclosed for each subsidiary are before
inter-company eliminations.
Summarised balance sheet First Mortgage
GBP000's
-------------------------------------------------------------- ----------------
Current assets 7,953
Current liabilities (1,766)
-------------------------------------------------------------- ----------------
Current net assets 6,187
-------------------------------------------------------------- ----------------
Non-current assets 3,295
Non-current liabilities (4,372)
-------------------------------------------------------------- ----------------
Non-current net liabilities (1,077)
-------------------------------------------------------------- ----------------
Net assets 5,110
-------------------------------------------------------------- ----------------
Accumulated NCI 1,595
-------------------------------------------------------------- ----------------
Summarised statement of comprehensive income GBP000's
-------------------------------------------------------------- ----------------
Revenue 15,638
Profit for the period and total comprehensive
income 2,199
Profit allocated to NCI 230
Dividends paid to NCI -
-------------------------------------------------------------- ----------------
Summarised cash flows GBP000's
-------------------------------------------------------------- ----------------
Cash flows from operating activities (2,257)
Cash flows from investing activities (14)
Cash flows from financing activities -
Net decrease in cash & cash equivalents (2,270)
-------------------------------------------------------------- ----------------
During the period GBP5.6m of cash was transferred into the
Group's accounts to be managed centrally. This is included
in operating activities above.
31 Contingent liabilities
The group had no contingent liabilities at 31 December 2019 or
31 December 2018.
32 Events after the reporting date
Due to the current coronavirus pandemic, the Group drew down the
full amount on its Revolving Credit Facility with National
Westminster Bank Plc on 20 March 2020, amounting to GBP12m in order
to give the Group additional flexibility to react quickly in this
environment and capitalise on potential opportunities. The
Government imposed lockdown has had the effect of calling a halt on
most house purchase transactions and as a result the Group is
experiencing a significant reduction in mortgages relating to house
purchase activity which will lead to a reduction in revenue and
profit. The Group cannot estimate the length of time that this
situation will continue and hence cannot estimate its financial
effect on the Group, however the Group remains in a strong
financial position.
33 Notes supporting statement of cash flows
Cash and cash equivalents for purposes of the statement of cash
flows comprises:
2019 2018
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Cash at bank available on demand 6,987 10,287
Bank balances held in relation to retained
commissions 13,880 11,711
Short term deposits - 3,592
--------------------------------------------- --------- ---------
Total cash and cash equivalents 20,867 25,589
--------------------------------------------- --------- ---------
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
FR PPUQACUPUPUP
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