TIDMMAB1
RNS Number : 1039T
Mortgage Advice Bureau(Holdings)PLC
23 March 2021
MORTGAGE ADVICE BUREAU (HOLDINGS) PLC
("MAB", or "the Company", or "the Group")
23 March 2021
Final Results for the year ended 31 December 2020
Mortgage Advice Bureau (Holdings) PLC (AIM: MAB1.L) is pleased
to announce its final results for the year ended 31 December
2020.
Financial highlights
-- Revenue up 3% to GBP148.3m (2019: GBP143.7m), including
GBP14.7m of revenue generated by First Mortgage Direct
Limited ("First Mortgage")
-- Gross profit up 9% to GBP39.8m (2019: GBP36.4m)
-- Gross profit margin up 6% to 26.9% (2019: 25.3%)
-- Adjusted overheads ratio(1) of 14.5% (2019: 12.4%)
-- Adjusted profit before tax(2) down 5% to GBP17.8m (2019:
GBP18.7m)
-- Statutory profit before tax down 16% to GBP14.9m (2019:
GBP17.7m)
-- Adjusted profit before tax margin(2) of 12.0% (2019:
13.0%)
-- Reported profit before tax margin of 10.0% (2019: 12.3%)
-- Adjusted(2) EPS down 5% to 28.6p (2019: 30.1p)
-- Basic EPS down 16% to 23.7p (2019: 28.2p)
-- Continued high operating profit to adjusted cash conversion(3)
of 112% (2019: 119%)
-- Proposed final dividend of 19.2p (payout ratio of 75%
on adjusted profit after tax(2) ), making proposed total
dividends for the year of 25.6p (2019: 17.5p)
Operational highlights
-- Adviser numbers up 8% to 1,580(4) at 31 December 2020
(2019: 1,457), including 97 Advisers at First Mortgage
(2019: 82)
-- Average number of active Advisers(5) during the period
up 9% to 1,455 (2019: 1,341), and up 6% to 1,374 excluding
First Mortgage
-- Market share of new mortgage lending up 11% to 6.3% (2019:
5.7%)
-- Gross mortgage completions (including product transfers)
up 5% to GBP17.6bn (2019: GBP16.7bn)
-- Product transfer completions up 50% to GBP2.3bn (2019:
GBP1.5bn)
-- Revenue per active Adviser down 5%(6) , following housing
market shutdown in Q2 2020
-- GBP12m Revolving Credit Facility repaid in full
-- Government grant income of GBP0.5m from CJRS repaid in
full in December 2020
-- Australian Finance Group Ltd (ASX: AFG) becomes our new
joint venture partner in Australia
-- Acquisition of a 40% stake in our leading new build Appointed
Representative, Meridian Holdings Group Ltd ("Meridian")
-- Launch of "MAB Later Life", a leading new proposition
in the specialist later life lending market
Post year end
-- Very strong pipeline of written business and Adviser
recruitment
-- 1,637 Advisers as at 19 March 2021(4) , u p 4% since
year end
-- Acquisition of a 25% stake in M & R FM Ltd ("FM North
East") by First Mortgage
Peter Brodnicki, Chief Executive, commented on the 2020
results:
"These results once again demonstrate the resilience of our
operating model and the quality and dedication of our management
team and staff during a year of exceptional challenges. We took
quick and decisive action in response to the pandemic that resulted
in us not only coming through an incredibly difficult period in
great shape and ensuring that our 2020 strategic objectives were
met, but also putting ourselves in a strong position to start
accelerating growth over the next few years.
"In a market where gross new mortgage lending was down 9% on
prior year, our revenue grew by 3% to GBP148.3m and our mortgage
completions grew by 5% to GBP17.6bn. Our market share of new
mortgage lending increased 11% to 6.3%, thereby delivering our
strategy to achieve year-on-year growth, irrespective of prevailing
market conditions. Adviser numbers were up 8% to 1,580(4) by 31
December 2020.
"Despite the impact of the pandemic, our profitability and cash
generation profile remained strong, which enabled us to reimburse
all the Government furlough grant income received. Accordingly, we
are pleased to propose a final dividend of 19.2 pence per share, in
line with our policy of paying out a minimum of 75% of adjusted
earnings, making total proposed dividends for the year of 25.6
pence per share. This includes the 6.4 pence per share 'catch up'
interim dividend paid in December 2020."
Current trading and outlook
Despite the UK being in lockdown since the start of the current
year, activity levels have remained strong in terms of both written
business and Adviser recruitment. The Intermediary Mortgage Lenders
Association's ("IMLA") current estimate of gross new mortgage
lending for 2021, published in January 2021, is GBP283bn,
representing a 16% increase on 2020 (GBP243bn) and a 6% increase
compared to 2019 (GBP268bn).
The underlying fundamentals driving levels of consumer demand
for housing are strong. This level of demand, coupled with the
Chancellor's announcement earlier this month of the launch of a
"Mortgage Guarantee Scheme", an extension of the Stamp Duty holiday
until the end of June and the nil rate band being doubled until the
end of September, give us understandable optimism about the year
ahead, and what can be expected when restrictions are lifted.
Our strategy of consistent investment in people, technology and
extension of our business model, has put MAB in a strong position
to start accelerating growth over the next few years . Current
trading is in line with the Board's expectations.
(1) MAB uses adjusted results as key performance indicators as
the Directors believe that these provide a more consistent measure
of operating performance by adjusting for acquisition related
charges and significant one-off or non-cash items. Adjusted
overheads ratio in 2020 is stated before GBP0.4m amortisation of
acquired intangibles (2019: GBP0.2m) and GBP0.9m (2019: GBP0.4m) of
additional non-cash operating expenses relating to the put and call
option agreement to acquire the remaining 20% of First Mortgage. In
2019 GBP0.4m of one-off acquisition costs associated with First
Mortgage were also adjusted.
(2) Adjusted profit before tax is stated before the items in (1)
above and the loan write off and loan provision totalling GBP1.7m.
Adjusted earnings per share is also stated before these items, net
of any associated tax effects.
(3) Adjusted cash conversion is cash generated from operating
activities adjusted for movements in non-trading items, including
loans to AR firms and associates totalling GBP(1.5)m in 2020 (2019:
GBP0.9m) and increases in restricted cash balances of GBP0.5m in
2020 (2019: GBP2.2m), as a percentage of adjusted operating
profit.
(4) Includes the Advisers of a firm previously authorised under
an Appointed Representative agreement with MAB until 7 December
2020. MAB continues to provide services to this firm, now directly
authorised by the FCA.
(5) An active Adviser is an Adviser who had not been furloughed
and was therefore able to write business.
(6) Based on average number of active Advisers.
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
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 2020
I am very pleased with MAB's performance in 2020 given the
challenges presented by the pandemic. We continued to grow revenue,
mortgage completions, and market share, building on our consistent
track record of delivering growth. Once again, we comprehensively
outperformed both the UK housing and the new mortgage lending
markets.
Despite ongoing restrictions on lending and everyday life, new
business levels built up quickly from the start of summer,
resulting in a strong H2 2020 for written business. Although the
start of this new financial year saw the introduction of a very
tough third lockdown, housing and mortgage activity has held up
well. The underlying fundamentals driving levels of consumer demand
for housing are strong. This level of demand, coupled with the
Chancellor's announcements earlier this month of the launch of a
"Mortgage Guarantee Scheme", an extension of the Stamp Duty holiday
until the end of June and the nil rate band being doubled until the
end of September, and the signposted easing and removal of lockdown
restrictions, are likely to improve housing activity further.
Our growth in mortgage completions is set out below:
2020 2019 Increase
GBPbn GBPbn
New mortgage lending 15.3 15.2 +1%
-------- -------- ----------
Product Transfers 2.3 1.5 +50%
-------- -------- ----------
Gross mortgage lending 17.6 16.7 +5%
-------- -------- ----------
MAB's total gross mortgage completions (including Product
Transfers) increased by 5% to GBP17.6bn (2019: GBP16.7bn). Gross
mortgage completions excluding Product Transfers increased by 1% to
GBP15.3bn (2019: GBP15.2bn). This increase, together with the
contraction in overall new mortgage lending volumes in the UK, led
to an 11% increase in our share of UK new mortgage lending to 6.3%
(2019: 5.7%). Product Transfers increased by 50% to GBP2.3bn due to
the lending restrictions on re-mortgages during the year. Group
revenue increased by 3% to GBP148.3m, including GBP14.7m of revenue
generated by First Mortgage, and saw a 1% decrease excluding First
Mortgage. This growth was achieved in a year when the first
national lockdown closed the housing market in England for almost
two months and the markets in Scotland, Wales and Northern Ireland
for three months.
In terms of market environment, we saw a buoyant first quarter
resulting from the lift in consumer confidence post the December
2019 UK General Election, but then transaction volumes reduced
significantly as a result of the housing market shutdown in Q2
2020, with year-on-year drops in gross new mortgage lending and
housing transactions for the quarter of 32% and 47% respectively.
Q3 2020 mortgage completions continued to be impacted despite the
reopening of the housing market due to pipeline conversion
timeframes. However in Q4 2020, the continuing recovery translated
into a 5% increase year-on-year in gross new mortgage completions,
driven by the house purchase segment.
Overall for 2020, UK gross new mortgage lending activity fell by
9% to GBP243.1bn (2019: GBP267.9bn(1) ), excluding product
transfers. UK housing transactions fell by 11% over the same
period. MAB significantly outperformed the market in all four
quarters of the year.
We also achieved excellent progress on our strategic
initiatives. The campaigns we rolled out in support of our
Appointed Representative (" ARs") and their Advisers to ensure
opportunities were maximised during and after the housing market
shutdown were incredibly well received, and further cemented our
close relationships with our ARs.
Progression of our technology initiatives was a priority
throughout the period, thereby ensuring that investment in key
projects relating to increased operational efficiency, lead
generation and productivity continued to be delivered to plan. The
pandemic also triggered additional technology requirements,
enhancements and new growth initiatives. We strongly believe that
this is the time to continue investing in new technology and
extending our business model to fully leverage our leading
proposition and deliver operational efficiency.
Our recruitment of ARs and Advisers resumed at pace after the
housing market reopened and throughout the second half of the year.
By 31 December 2020, our total Adviser count stood at 1,580(2) , an
8% increase on last year, despite the very limited recruitment
achieved during the national lockdown in Q2 2020. Our recruitment
pipeline remains very healthy, and as at 19 March 2021 our Adviser
numbers had grown to 1,637(2) .
In terms of broadening our addressable market, 2020 was also a
year of significant progress, with the launch of MAB Later Life, a
new best-in-class proposition for brokers in the high growth later
life segment, in partnership with Key Group. We are also delighted
to have announced our new joint venture partner in Australia,
Australian Finance Group Ltd, helping us to accelerate the rollout
of our leading distribution and advice model in Australia.
During the year, we continued to strengthen our management team
with the addition of a Chief Commercial Officer, a new Chief
Information Officer, a Head of Partnerships, and a Head of Digital
Transformation. These are all key new roles that will help us to
achieve our growth ambitions, providing specific focus on lead
generation, the performance of our investments, and the delivery of
our technology developments.
I am proud of the way in which we have supported our staff, our
ARs and their Advisers, and our customers during exceptionally
difficult times. The health, safety and wellbeing of our employees
has been and continues to be our top priority, and I am
exceptionally grateful for their hard work and dedication. The
campaigns we launched to help support new and existing clients in
addressing the financial challenges brought about by the pandemic
were also extremely well received, including our National Mortgage
Information Support Service campaign.
As a result of strong written business in H2 2020, it was with
great satisfaction that the Board was able to approve the repayment
in full of all the precautionary pay cuts applied in Q2 2020, as
well as the Government furlough grants. In December 2020, the Group
also repaid the GBP12m Revolving Credit Facility in full, and paid
the 6.4 pence per share "catch-up" dividend to shareholders.
Delivering our strategy
We believe that the significant and ongoing investment being
made in the team, technology and infrastructure, combined with
maturing and new growth drivers, put MAB in a strong position to
capitalise on additional opportunities for continued and increased
levels of growth, as well as deliver operational leverage.
Clearly, increasing Adviser numbers remains a key growth driver,
and we do not expect that to change in the medium term. In fact,
our strategic initiatives are enhancing our proposition still
further and as a result are impacting positively on Adviser and AR
recruitment.
Recruitment of Advisers
The pandemic presented many challenges to MAB in 2020. During
the first national lockdown in Q2 2020, our ARs immediately put
their recruitment plans on hold which affected our organic growth
in Adviser numbers.
Since the housing market re-opened in England in mid May 2020
and then in Scotland, Wales and Northern Ireland at the end of June
2020, there has been a sharp recovery in written business. This in
turn meant that our recruitment activity also picked up strongly,
as our ARs grew increasingly confident and started strengthening
their teams again. This trend has continued for the remainder of
2020 and into 2021 despite continued social mobility
restrictions.
Despite the many challenges, the Group is pleased to report an
8% growth in new Advisers to 1,580(2) (2019: 1,457). The average
number of active Advisers(3) for 2020 rose from 1,341 to 1,455, an
increase of 9% (6% excluding First Mortgage).
We have seen the pipeline of new ARs build strongly. However,
since MAB's AR recruitment is mainly focused on larger ARs, given
the restrictions that have been in place for large parts of 2020
and since the beginning of the year, some of these discussions have
been delayed, and are unable to conclude at present. When
restrictions are lifted, we expect these discussions can be quickly
concluded.
Technology
We are very pleased with the progress we made in the last year.
The rollout of our new technology platform started in 2020 and
continues into 2021.
During the first national lockdown in 2020 we needed to
prioritise IT resource to focus on providing new solutions for the
various challenges that remote working presented at the time, and
as a result, new technology initiatives were and continue to be
implemented.
We also chose to bring forward the transformation of our risk
and compliance technology. This decision was made to support and
enable secure communication and the transfer of confidential
personal documents between customers and MAB, at a time when all
customer interaction had instantly become remote, as opposed to
face to face. We also further developed and successfully deployed
our proprietary risk management platform, to enable managers and
business owners to better identify and manage any potential
compliance risks, whilst working entirely remotely. In addition, we
integrated our MIDAS Pro platform with new and more secure payment
collection technology, again supporting remote working and ensuring
adherence to new and heightened regulatory requirements.
Our focus is now firmly on completing the platform rollout and
continuing to add many new features and improved functionality such
as our new lead management platform.
We are also excited to have established our new relationship
with the technology firm MQube, to explore the practical
applications of machine learning and artificial intelligence for
mortgages. The actual process of applying for a mortgage today
could be greatly simplified and made more efficient, benefitting
both the Adviser and customer. Through this new relationship, we
will be leveraging MQube's expertise and investment in data, to
help us to deliver efficiencies that benefit all stakeholders in
the mortgage process, including lenders.
Our plans to increase Adviser efficiency and productivity also
include the integration with lenders, however progression on that
front has been slower than we had hoped. This was solely due to the
impact of the pandemic and the entirely unforeseen operational
strain it placed on lenders. Towards the end of the year, we
completed our first full integration with a top ten lender. We have
now also seen integration become an urgent priority for lenders,
particularly as some of their operational strain has become more
manageable and they recognise the need to deliver new processes
that can be more operationally resilient and efficient in the
future. We expect more top ten lenders to follow in 2021.
Our digital plans will deliver enhanced customer engagement,
optimise existing income streams, generate new lead flow and
revenue, as well as service customers through the digital channels
they are choosing to use. For MAB and its ARs, it will also result
in greater efficiencies and better decisions informed by data. New
data and technology-enabled products and business models can change
the dynamics of our sector, which is why we remain of the view that
market leading technology combined with our unique business model
will further enhance MAB's competitive advantage.
Lead Generation
We expect our lead generation strategy to become a major new
contributor to MAB's growth plans. Although MAB AR firms have
typically sourced, acquired and serviced customers largely or
wholly through their own contacts and relationships (for example
through local estate agents or builders), MAB will now be playing
an increasingly important role in adding to that lead flow.
Reliability, quality and scalability of lead flow drives every
aspect of Adviser and firm performance, and MAB's unique business
model is key to our ability to drive meaningful lead flow through
our partner firms.
This strategy will in turn increase Adviser productivity, drive
organic Adviser growth and AR firm recruitment, and further enhance
consumer brand awareness.
Investment continues to be made in technology, extending our
business model and increased specialisation in our marketing team
in order to support this strategy, with further equity investment
also expected in distribution and strategically important lead
sources.
During the pandemic more customers have been forced to research
and transact digitally. The progress we have made over the last two
years, and in particular over the last 12 months, has positioned
the business well in this regard. This means making faster progress
using data and technology to significantly increase the number of
lead sources. This will increase the number of customers we engage
with, how and when we engage, and widen the range of products and
services that are offered to those customers. The development of
our new lead management platform will allow us to fully leverage
our unique business model and deliver this strategy.
Early customer capture is core to our strategy, and since the
year end MAB has secured contracts with two high profile brands in
line with that strategy, namely Moneybox, and the soon to launch
property portal, Boomin.
Moneybox, which is a saving and investing app, has launched its
app-integrated mortgage service, offering customers a simple way to
find the best mortgage for them supported by a telephone advice
team. Already helping hundreds of thousands of customers save for
their first home through its popular Lifetime ISAs and other
products, Moneybox now wants to help people on the next step of
their journey to home ownership and has partnered with MAB to do
so.
Boomin, the next generation property site, is partnering with
MAB to provide mortgage services across various parts of its
platform. Boomin will offer something different and will not only
appeal to the millions of home-movers in the UK with its unique
features but also to the much bigger passive audience of customers
who are early in their journey, looking for inspiration and who
have a deeper interest in everything property. MAB will be able to
connect with this audience earlier and in a more meaningful and
varied way and offer them a more integrated and seamless experience
as they move from passive to active.
Another new development is the launch of MAB's Home Buying Buddy
app as part of our strategic partnership with Life Moments, a
fintech business whose digital coaching technology engages and
nurtures consumers to achieve their life goals. The app is designed
to help existing and future customers develop a clear and informed
plan for the purchase of their home, as well as address the growing
complexity of the home buying landscape.
This strategic partnership seeks to empower consumers to better
understand financial products and equip MAB with customer insights
to inform future proposition development. This is major step
forward in terms of how we can further engage with our customers
and offer a more personalised experience. It allows us to deliver
tangible value to the customer from the early stages of their
research process and home buying journey. It is a great example of
how through collaborating with mission-aligned firms, we can help
more of our customers play life better.
As customers adapt and change how they research and buy mortgage
products and services, MAB plans to be firmly at the forefront of
this change, making lead generation a clear priority, thereby
ensuring the Group's future growth and success.
Larger Addressable Market
The Group's core market, comprising of people actively moving
home or re-financing, remains buoyant, with significant and
long-term upside growth potential for MAB. There are however other
addressable markets for MAB to extend into, and these opportunities
further support our lead generation strategy.
Firstly, there are tenants or younger people living at home with
their family, many of whom aspire to become homeowners for the
first time. Identifying and supporting future first time buyers to
become mortgage and purchase ready is an important strategic
priority for MAB, with much of that strategy achievable by
leveraging the extensive lettings, estate agency, and new build
distribution we have in the Group.
Broadening our addressable market to include products for the
over 55s is also an important part of our strategy, and towards the
end of 2020 we were delighted to launch MAB Later Life, an
exclusive strategic alliance with Key Group that provides brokers
with a best-in-class proposition in the specialist later life
market. Although the UK has remained almost entirely in lockdown
since then, we are pleased with the progress we have made.
The later life market is underpinned by strong factors such as
pension under-provision and the need for long term care and estate
planning. It also extends to cover products that are suitable for
people coming off interest only mortgages, as well as older
borrowers wanting to provide inter-generational support for their
families.
This is an important growth segment for MAB and is highly
intermediated, with customers needing comprehensive advice from
specialist brokers, and we aim to continue our learning and growth
in this market through 2021 and beyond.
Future first-time buyers and later life are just two elements of
our strategy to broaden our addressable market, and our continued
investment in the future of our digital strategy will allow MAB to
further leverage its unique business model. This will not only
drive new lead sources to our AR firms, but also generate new
income opportunities from future and existing mortgage
customers.
To support our plans to widen our customer offering, we will be
launching Be Money Sure as an additional consumer brand for all
non-mortgage related sales. The brand will be introduced to
existing customers as we extend the products and services that we
are able to offer them, but it will also be utilised with customers
we capture earlier in the mortgage research process, that may
consider our extended offering to be of more immediate
interest.
Investment Strategy
The Group continues to make strategic investments:
- to help existing or new distribution partners to accelerate their growth plans;
- to accelerate MAB's lead generation strategy; and
- to establish or enhance MAB's specialisms in key market segments (for example, new homes).
In October 2020, we completed a 40% investment in Meridian
Holdings Group Ltd ("Meridian"), our leading new build AR. Meridian
has a key role to play in our plans to achieve even stronger market
share growth in this specialist sector. In March 2021, Meridian
agreed to acquire Metro Finance Brokers Ltd, a leading shared
ownership firm based in Sheffield. This is an excellent strategic
fit for Meridian, with a complementary client base and route to
markets.
In Australia, Australian Finance Group Ltd ("AFG") has become
our new joint venture partner for MAB Broker Services Pty Ltd,
helping us to accelerate the rollout of our leading distribution
and advice model in Australia. Listed on the Australian Stock
Exchange, AFG is a leading mortgage network in Australia with
extensive distribution channels and a strong broker proposition.
This is an exciting development and a real step-change for our
Australian operations, that will allow us to attract the best
brokers into our differentiated model.
In January 2021, First Mortgage acquired a minority stake in M
& R FM Ltd ("First Mortgage North East"), a successful and
fast-growing broker based in Gateshead. Previously directly
authorised by the FCA, First Mortgage North East operated under the
First Mortgage franchise. This is the first investment by First
Mortgage as it seeks to leverage its strengths under MAB ownership
and further enhance its track record of profitable growth.
New Board appointment
On 1 March 2021, Mike Jones joined MAB as a Non-Executive
Director, having recently retired from Lloyds Banking Group. Mike's
leadership, vision and strategic thinking at the UK's leading
lender has shaped the intermediary and lending markets that exist
today. His appointment strengthens our Board and is a testament to
our huge ambition.
Summary
In a year of unprecedented challenges, MAB again delivered
growth in revenue, Adviser numbers, mortgage completions and market
share. One year after the onset of Covid-19, MAB has emerged a
stronger group, having continued to invest in its growth strategy,
including adapting and evolving its technology and lead generation
initiatives.
We are very pleased with our new investments, especially
considering the restrictions imposed over this period, as well as
with the performance and resilience of the majority of our existing
investments, which we expect to perform more strongly in 2021. As
previously highlighted, future investments and potential
acquisitions will include distribution and lead sources that we
believe are strategically important and scalable.
We have entered 2021 with a number of ongoing investment
discussions, which form part of our plans to fully leverage our
unique business model, and by doing so to start accelerating future
profit and market share growth over the next few years. This will
strengthen our market leading position still further.
Our new platform developments are a key enabler of our growth
plans and will deliver significant benefits in terms of our lead
generation strategy and operational efficiencies for MAB, its ARs,
Advisers and their customers.
We are delighted to have launched MAB Later Life, and in AFG we
have secured an exceptionally strong partner for MAB in Australia,
and we look forward to reporting success from there in due
course.
Broadening our addressable market extends our reach to a greater
number and wider profile of future customers and lead sources, and
supports our strategy of Adviser and productivity growth.
The pandemic and the successive lockdowns have brought about a
change in consumer sentiment, resulting in a greater focus and
prioritisation towards spending on current and new homes, and most
relevantly stimulating a greater number of home moves. This is
bolstered by the pent-up demand that built pre the General Election
in 2019 and only partially contributed to growth in 2020 due to
lockdown restrictions.
Looking ahead, we are confident that these key fundamentals
supporting the housing market combined with the return of greater
numbers of new mortgage products and less stringent lending
criteria, will lead to demand for housing remaining strong. Over
and above this, the recent Budget announcement and the Government's
housing policy will also prove positive for MAB.
Our maturing and new growth drivers, combined with the
significant investment continuing to be made in exceptionally high
calibre management, resource, and technology, put MAB in a very
strong position to start accelerating growth over the next few
years.
We look forward to what we hope are better times ahead for
everyone.
(1) UK Finance regularly updates its estimates. MAB previously
reported GBP267.6bn for 2019 but this figure has slightly increased
since.
(2) Includes the Advisers of a firm previously authorised under
an Appointed Representative agreement with MAB until 7 December
2020. MAB continues to provide services to this firm, now directly
authorised by the FCA.
(3) An active Adviser is an Adviser who had not been furloughed
and was therefore able to write business.
Market Review
After a buoyant Q1 2020 which saw a 4% year-on-year increase in
gross new mortgage lending after a lift in consumer confidence
following the December 2019 UK General Election, transaction
volumes plummeted when the housing market shut down in Q2 2020,
with gross new mortgage lending and housing transactions down 32%
and 47% respectively.
Q3 2020 remained heavily impacted despite the reopening of the
housing market due to pipeline conversion timeframes, with gross
new mortgage lending and housing transactions down 14% and 16%
respectively. However, the last quarter of the year rebounded well
with a 5% year-on-year increase in gross new mortgage
completions.
Overall for 2020, gross new mortgage lending activity fell by 9%
to GBP243.1bn (2019: GBP267.9bn(1) ), excluding product transfers.
UK housing transactions fell by 11% over the same period, with
monthly transactions shown in the graph below. Provisional figures
from HM Revenue & Customs show a 17% year-on-year increase in
property transactions in Q4 2020.
http://www.rns-pdf.londonstockexchange.com/rns/1039T_2-2021-3-22.pdf
Source: HM Revenue and Customs
In terms of segmental breakdown of gross new mortgage lending,
the purchase market was hit the hardest during the housing market
shutdown. During this time, there was a 46% drop in purchase
lending activity in Q2 2020, followed by a sharp return to growth
in Q4 2020 with a 28% year-on-year increase. UK quarterly house
price inflation(2) of 4% and 3% in the third and fourth quarters
respectively contributed to this growth. Overall, for the year,
house price inflation was c.9%, with the increase in average house
price in 2020 being c.3% higher than in 2019.
Re-financing activity held up better during the property
shutdown, partially driven by the strength in Product Transfers.
However, in both Q3 and Q4 2020, Home-owner and Buy-to-Let
re-mortgage lending values continued to experience year-on-year
decreases as the purchase segment dominated the market, which is
illustrated on the graph below. Product Transfers represented
GBP168bn of mortgage lending in 2020, a 1% increase compared to
2019.
http://www.rns-pdf.londonstockexchange.com/rns/1039T_1-2021-3-22.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)
The pandemic has made it much more complex for people to obtain
a new mortgage. Lenders have struggled with significant operational
challenges, including the high number of payment holidays taken up
by borrowers and the need to consistently apply tight and
restrictive lending policies. Consumer reliance on mortgage
intermediaries therefore has increased, with intermediary market
share strengthening as a result. Approximately 79% 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 2020 (2019:
77%). In addition, execution-only sales by lenders have not
meaningfully progressed during this period.
In response to the crisis, the Government and the Bank of
England announced a strong package of temporary measures in support
of both mortgage lenders and borrowers, including reduced capital
buffer requirements for banks. The Bank of England's base rate, cut
to a record low of 0.1% in March 2020, has stayed at the same level
since that date.
The increase in the stamp duty threshold, which took effect in
July 2020, has further supported the housing market recovery, as
have the Government's broader measures supporting housing
investment and the continued availability of the Help to Buy Equity
Loan and Shared Ownership schemes.
We remain confident that the fundamentals of house purchase
demand remain strong and are further supported by the launch of a
Mortgage Guarantee Scheme and extension of Stamp Duty relief
announced in the Budget earlier this month. The Intermediary
Mortgage Lenders Association's ("IMLA") current estimate of gross
new mortgage lending for 2021 (published in January 2021 before the
Budget announcement in March 2021) is GBP283bn, representing a 16%
increase compared to 2020 and a 6% increase compared to 2019. In
addition, we anticipate that the increased average pipeline
conversion timeframes that we have seen over the last year and has
pushed completions into 2021, will revert to usual timescales by
the end of the year.
(1) UK Finance regularly updates its estimates. MAB previously
reported GBP267.6bn for 2019 but this figure has slightly increased
since
(2) Land Registry House Price Index
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/1039T_3-2021-3-22.pdf
Revenue
Group revenue increased by 3% to GBP148.3m (2019: GBP143.7m),
including GBP14.7m of revenue generated by First Mortgage.
Excluding First Mortgage, Group revenue decreased by 1%. Strong
growth in Q1 2020 was offset by the adverse impact of the first
national lockdown on Q2 and Q3 2020 revenue, followed by a
significant recovery in Q4 2020 where the housing market remained
open during the second national lockdown. Normally, a key driver of
revenue is the average number of Advisers during the year. However,
in Q2 and Q3 2020 certain ARs furloughed a number of their Advisers
(albeit a smaller number in Q3), and therefore the average numbers
of active Advisers(1) is a more appropriate figure during this
pandemic affected year. The housing market closure during the first
national lockdown adversely impacted active Adviser(1)
productivity, resulting in a GBP2.0m (1%) reduction in organic
revenue for the year.
In Q1 2020, revenue was up 25% on the prior year (14% excluding
First Mortgage), with average Adviser numbers up 19% (13% excluding
First Mortgage) and average revenue per Adviser up 5% (1% excluding
First Mortgage), reflecting the start of the impact of improving
market conditions and change in customer sentiment post the UK
General Election, as well as the success of our growth
strategy.
This trend was reversed in Q2 2020 as the adverse impact of the
first national lockdown on mortgage completions started to bite,
with revenue down 14% (22% excluding First Mortgage) compared to
the prior year. Average active Adviser(1) numbers were up 7% (1%
excluding First Mortgage) and average revenue per active Adviser(1)
decreased by 19% (23% excluding First Mortgage).
In Q3 2020, as a result of lower written house purchase business
in Q2 2020, and despite the considerable increase in written house
purchase activity in Q3 2020, revenue was down 7% on the prior year
(which included First Mortgage from Q3 2019 onwards) despite
average active Advisers being up 2% with average revenue per active
Adviser(1) decreasing by 9%.
Q4 2020 saw a marked increase in completions resulting from the
increase in written business activity in Q3 2020 and revenue was up
12% on the prior year with average Advisers up 7%; with average
revenue per Adviser up by 4%.
The Group continued to generate revenue from three core areas,
summarised as follows:
Group Excluding First
Mortgage
Income source 2020 2019 Change 2020 2019 Change
% %
------- ------- -------- ------- ------- --------
GBPm GBPm GBPm GBPm
------- ------- -------- ------- ------- --------
Mortgage Procuration Fees 67.2 64.3 +4 61.2 60.6 +1
------- ------- -------- ------- ------- --------
Protection and General Insurance
Commission 58.8 56.2 +5 50.8 52.3 -3
------- ------- -------- ------- ------- --------
Client Fees 19.0 20.2 -6 19.0 20.2 -6
------- ------- -------- ------- ------- --------
Other Income 3.3 3.0 +10 2.6 2.5 +1
------- ------- -------- ------- ------- --------
Total 148.3 143.7 +3 133.6 135.6 -1
------- ------- -------- ------- ------- --------
Despite the adverse impact of the pandemic on Q2 and Q3 2020
revenue, all key income sources for the Group, other than client
fees, continued to grow due to the positive contribution from First
Mortgage, which is summarised as follows:
Income source 2020 2 July Increase,
2019 - %
31 Dec
2019
GBPm GBPm
------ ---------- -----------
Mortgage procuration fees 6.0 3.8 +61
------ ---------- -----------
Protection and General Insurance
Commission 8.0 3.9 +105
------ ---------- -----------
Other Income 0.7 0.4 +72
------ ---------- -----------
Total 14.7 8.1 +81
------ ---------- -----------
Following H1 2020, when we saw a higher proportion of
refinancing business as lockdown severely restricted the completion
of purchase transactions in Q2, the mortgage mix mostly rebalanced
for the year overall due to the considerable increase in house
purchase activity in H2 2020, though we did have a higher
proportion of Product Transfers than in the prior year. Mortgage
procuration fees for the Group increased by 4% with mortgage
completions up 5% overall for the year, with Product Transfers
typically generating a lower procuration fee than purchase
mortgages and re-mortgages.
Excluding First Mortgage, gross mortgage completions increased
by 3% with mortgage procuration fees increasing by 1% primarily due
to the increased proportion of Product Transfers.
The increase of 5% in protection and general insurance
commission for the Group reflects the impact of the First Mortgage
acquisition and associated revenue synergies with procuration fees
up 4% and mortgage completions up 5% for the year. For the Group
excluding First Mortgage, protection and general insurance
commission decreased by 3% with a 1% increase in procuration fees
as Advisers focused on mortgages for purchase business in H2 2020
and protection sales also have a natural lag in terms of timing of
commission payment.
Client fees reduced by 6% in the year resulting from more
business being conducted remotely and the increase in Product
Transfers as a proportion of the mortgage mix, leading to a
reduction in the overall attachment rate of client fees for MAB
excluding First Mortgage, which does not charge client fees.
First Mortgage, which only started to contribute to Group
revenue in H2 2019, was impacted by a longer lockdown in Scotland
in Q2 2020. As a result, First Mortgage's contribution to Group
revenue increased by 81% to GBP14.7m with procuration fees up 61%
and protection and general insurance commission up 105% reflecting
in particular the product related synergies that the Group started
to benefit from in the latter part of H2 2019.
MAB's revenue, in terms of proportion, is split as follows:
Income source 2020 2019
Mortgage Procuration Fees 45% 45%
------ ------
Protection and General Insurance
Commission 40% 39%
------ ------
Client Fees 13% 14%
------ ------
Other Income 2% 2%
------ ------
Total 100% 100%
------ ------
Despite the fluctuation in mortgage mix during the year
resulting from the pandemic, the only notable change to the overall
mix for the year was an increase in Product Transfers. The slight
increase in the proportion of protection and general insurance
commission reflects the additional revenue synergies achieved in
First Mortgage. As anticipated, the proportion of client fees has
reduced following the acquisition of First Mortgage who do not
charge client fees, but the reduction in attachment rate of client
fees resulting from more business being conducted remotely has also
added to this. We expect client fees to become increasingly
dependent upon the type and complexity of the mortgage transaction,
as well as the delivery channel. This will lead to a broader spread
of client fees on mortgage transactions, which, by their nature,
are our lowest margin revenue stream.
Government grant income
Government grant income of GBP0.5m was received during the year
due to some employees being placed on furlough during the months of
April, May and June 2020. These amounts were repaid in full in
December 2020.
Gross profit margin
As anticipated, gross profit margin increased to 26.9% (2019:
25.3%) due to a full year of contribution from First Mortgage,
which has a higher gross margin of c.65% due to its Advisers being
directly employed. Excluding First Mortgage, gross profit margin
remained broadly stable at 22.7% (2019: 23.1%). The Group typically
receives a slightly reduced margin (revenue share) 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 and hence we
expect to see a degree of erosion of our underlying gross profit
margin due to the continued growth of our existing ARs and the
addition of new larger ARs.
MAB continues to provide services to a firm previously
authorised under an Appointed Representative agreement until 7
December 2020 but now directly authorised by the FCA. As a result,
going forward, the fees received by MAB will represent the total
income received by MAB in respect of this arrangement. No
commission will be paid out by MAB to this firm as it receives its
income direct. The effect of this will be to marginally increase
the gross profit margin going forward.
Overheads
Overheads increased by GBP3.8m to GBP22.7m, reflecting the full
year impact of the acquisition of First Mortgage which increased
overheads for the year by GBP2.7m. In addition there was an
increase of GBP0.5m in MAB (excluding First Mortgage) overheads and
a further GBP0.6m increase relating to a full year of the
amortisation of acquired intangibles and non-cash operating
expenses relating to the put and call option agreement to acquire
the remaining 20% of First Mortgage.
Adjusted(2) overheads as a percentage of revenue were 14.5%
(2019: 12.4%). The anticipated increase in overheads as a
percentage of revenue, due to the full year impact of First
Mortgage's operating model having a higher overheads ratio than
MAB, was exacerbated by curtailed growth in revenue as a result of
the pandemic with Group overhead savings not fully offsetting this.
Excluding First Mortgage, adjusted(2) overheads as a percentage of
revenue were 11.9% (2019: 10.8%).
MAB has been investing in its technology platform and extending
its business model and continues to do so. All development work on
MIDAS Pro platform is expensed. In addition, MAB continues to
invest in its marketing team to drive lead generation
opportunities.
Our FCA and FSCS regulatory fees and charges are usually closely
correlated to growth in revenue. Previously, in 2019 MAB had
benefitted from a reduction in its FSCS levies due to its
protection and general insurance commission moving from the Life
and Pensions Intermediation funding class of the FSCS (which had
borne increasing levies in recent years, primarily due to pension
transfer and self-invested personal pension (SIPP) related advice
claims in the wider market) to the General Insurance Distribution
funding class. In January 2021, the FSCS published its Plan and
Budget for 2021/22, which indicated that the 'retail pool'
contribution from both Home Finance Intermediation and General
Insurance Distribution will be substantially higher than in the
prior year, due to increased business failures as a result of the
pandemic, an increase in complex pension advice claims and further
failures of SIPP operators. As a result, MAB expects its FSCS levy
cost for the year ended 31 December 2021 to be c. GBP1.5m higher
than in the prior year. The reaction of other mortgage
intermediaries to this unfair allocation of levies has been widely
reported and MAB is supporting the challenge by the Association of
Mortgage Intermediaries (AMI), the trade association that
represents the views and interests of UK mortgage brokers, so that
future levies can become better signposted and fairer.
Despite this headwind, MAB continues to benefit from the
scalable nature of the remainder of its cost base, where those
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.
Associates
MAB's share of profits from associates was GBP0.04m (2019:
GBP0.3m). In addition, during the period MAB wrote off the GBP1.1m
loan balance due from Freedom 365 Mortgage Solutions Limited due to
the adverse impact of the pandemic on its financial results. MAB
has also made a provision of GBP0.6m against the full balance of
the loan due from Eagle & Lion Limited and reduced the value of
the investment in The Mortgage Broker Group Limited by GBP0.5m to
reflect the fair value carrying amount of the investment.
The remainder of the Group's associates have performed well
during the pandemic and whilst their profits in 2020 were adversely
impacted, they are in a strong position to contribute positively to
the Group's results in 2021. MAB considers that the value of a
number of these investments exceeds their balance sheet value as
accounted for using the equity accounting method under IAS 28.
Profit before tax and margin thereon
In a year heavily affected by the pandemic, adjusted(3) profit
before tax decreased by 5% to GBP17.8m (2019: GBP18.7m), with the
margin thereon decreasing to 12.0% (2019: 13.0%). Statutory profit
before tax reduced to GBP14.9m (2019: GBP17.7m) with the margin
thereon being 10.0% (2019: 12.3%).
Finance revenue
Finance income of GBP0.1m (2019: GBP0.1m) reflects continued low
interest rates and interest income accrued on loans to associates.
Finance expense of GBP0.2m (2019: GBP0.1m) reflects the interest
payable on MAB's Revolving Credit Facility of GBP12m, (drawn down
in full at the end of March) and interest expenses on lease
liabilities. MAB repaid its GBP12m Revolving Credit Facility in
full on 23 December 2020.
Taxation
The effective rate of tax reduced to 14.2% (2019: 16.8%),
principally due to the deduction arising from the exercise of
employee share options being higher than in the prior year. We
expect our effective tax rate to continue to be marginally below
the prevailing UK corporation tax rate, subject to tax credits for
MAB's research and development expenditure on the continued
development of MIDAS Pro platform, MAB's proprietary software,
still being available and further tax deductions arising from the
exercise of employee share options.
Earnings per share and dividend
Adjusted(3) earnings per share decreased by 5% to 28.6 pence
(2019: 30.1 pence). Basic earnings per share decreased by 16% to
23.7 pence (2019: 28.2 pence).
The Board is pleased to propose a final dividend of 19.2 per
share (2019: 6.4 pence), which represents a cash outlay of
GBP10.2m. Following payment of the dividend, the Group will retain
significant surplus regulatory reserves. The proposed final
dividend represents circa 75% of the Group's adjusted(4) post-tax
and minority interest profits for 2020 and reflects our ongoing
intention to distribute excess capital in line with our previously
announced dividend policy.
The record date for the final dividend will be 30 April 2021 and
the payment date 28 May 2021. The ex-dividend date will be 29 April
2021.
Cash flow and cash conversion
The Group's operations produce positive cash flow. This is
reflected in the net cash generated from operating activities of
GBP17.8m (2019: GBP20.4m).
Headline cash conversion(5) was:
2020 115%
2019 131%
-----------------
Adjusted cash conversion(6) was:
2020 112%
-----------------
2019 119%
-----------------
The Group's operations are capital-light, with the most
significant ongoing capital investment being in computer equipment.
Only GBP0.3m of capital expenditure on office and computer
equipment was required during the year (2019: GBP0.2m). 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 platform is treated as expenditure.
The Group had no bank borrowings on 31 December 2020 (2019:
GBPnil). The Group had unrestricted bank balances of GBP18.6m on 31
December 2020 (31 December 2019: GBP7.0m).
The Group has a regulatory capital requirement amounting to 2.5%
of regulated revenue. On 31 December 2020 this regulatory capital
requirement was GBP3.4m (31 December 2019: GBP3.1m), with the Group
having a surplus of GBP17.7m (31 December 2019: GBP11.7m).
The following table demonstrates how cash generated from
operations was applied:
GBPm
Unrestricted bank balances at the beginning of the year 7.0
Cash generated from operating activities excluding movements in restricted balances and dividends
received from associates 21.4
Issue of shares 4.3
Dividends received from associates 0.2
Dividends paid (6.7)
Dividends paid to minority interest (0.1)
Tax paid (4.4)
Investment in associates (2.3)
Net interest paid and principal element of lease payments (0.5)
Capital expenditure (0.3)
Unrestricted net bank balances at the end of the year 18.6
---------------------------------------------------------------------------------------------------- -------
(1) An active Adviser is an Adviser who had not been furloughed
and was therefore able to write business.
(2) Adjusted for GBP0.4m (2019: GBP0.2m) of amortisation of
acquired intangibles and GBP0.9m (2019: GBP0.4m) of additional
non-cash operating expenses relating to the put and call option
agreement to acquire the remaining 20% of First Mortgage. 2019 also
excludes one-off costs associated with the acquisition of First
Mortgage of GBP0.4m
(3) Adjusted for the items in (2) above and the loan write off
and loan provision totalling GBP1.7m. Adjusted earnings per share
is also stated before these items, net of any associated tax
effects.
(4) Adjusted for non-cash First Mortgage acquisition related
items of GBP1.2m (2019: GBP0.6m).
(5) Headline cash conversion is cash generated from operating
activities adjusted for movements in non-trading items, including
loans to AR firms and associates totalling GBP(1.5)m in 2020 (2019:
GBP0.9m), as a percentage of adjusted operating profit.
(6) Adjusted cash conversion is headline cash conversion
adjusted for increases in restricted cash balances of GBP0.5m in
2020 (2019: GBP2.2m) as a percentage of adjusted operating
profit.
Independent auditor's report to the members of Mortgage Advice
Bureau (Holdings) PLC
Opinion on the financial statements
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 2020 and of the Group's profit for the year then
ended;
-- the Group financial statements have been properly prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006;
-- 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.
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 2020 which comprise
the consolidated statement of comprehensive income, consolidated
and company statement of financial position, consolidated and
company statement of changes in equity, consolidated statement of
cash flows, and notes to the financial statements, including a
summary of significant accounting policies. The financial reporting
framework that has been applied in the preparation of the Group's
financial statements is applicable law and international accounting
standards in conformity with the requirements of the Companies Act
2006. The financial reporting framework that has been applied in
the preparation of the Parent Company's 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).
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 believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
Following the recommendation of the Audit Committee we were
appointed by the Board to audit the financial statements for the
year ended 31 December 2020 and subsequent financial periods., In
respect of the year ended we were appointed at the Annual General
Meeting on 26 May 2020 to audit the financial statements for the
year ended 31 December 2020. The period of total uninterrupted
engagement is 7 years, covering the years ended 31 December 2014 to
31 December 2020.
We remain 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.
The non-audit services prohibited by that standard were not
provided to the Group or the Parent Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the Directors' assessment of the Group's ability to
continue to adopt the going concern basis of accounting
included:
-- In evaluating whether the Group is a going-concern, we have
assessed the reasonableness of the assumptions within management's
forecast for liquidity and profitability for a period of 12 months
from the signing of these accounts, agreeing back to supporting
evidence. This involved considering the base and stress scenarios
testing undertaken by management to support the Going concern
assessment which included assumptions about the potential impact
this could have on revenue (mainly from purchase mortgages) and
possible cost saving measures. We focused on the cash and capital
position during this period.
-- We have also searched publicly available information on house
market and house price index to assess any impact on the Group's
business.
-- We enquired with management and assessing the implications of COVID-19 on the business
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group's ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview
Key audit matters 2020 2019
Revenue Recognition P P
Clawback Provision P P
Carrying value P P
of loans to associates
and joint ventures
Going concern O P
Acquisition of O P
First Mortgage
Direct Limited
(FMD)
The acquisition of FMD is no longer considered
to be a key audit matter because the acquisition
and the related acquisition accounting occurred
in 2019. Going concern is no longer considered
a key audit matter as there is no significant
risk identified from the Group's ability to
continue as a going concern.
Materiality Group financial statements as a whole
GBP804,000 (2019: GBP885,000) based on 5%
(2019: 5%) of Profit before tax, over a 3
year average (2019 - based on standalone year).
----------------------------------------------------
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including the Group's system of internal
control, and assessing the risks of material misstatement in the
financial statements. We also addressed the risk of management
override of internal controls, including assessing whether there
was evidence of bias by the Directors that may have represented a
risk of material misstatement.
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. A full scope audit was
carried out in respect of First Mortgage Direct Limited. The audit
of the Group and all entities were conducted by the Group audit
team.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified, 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 How the scope of our audit
addressed the key audit matter
Revenue Recognition The Group's revenue We responded to this risk
comprises of commissions by performing the following
Management's (including procuration procedures:
associated fees), client fees * We tested that revenue is recognised in line with
accounting and other income. Group approved policies that are in accordance with
policies Revenue recognition accounting standards.
are detailed is considered to be
on page 27. a significant audit
risk as it is a key * We tested the operating effectiveness of the
driver of return to reconciliation controls in place between revenue and
investors and there cash banked and agreed back to third party reports.
is a risk that there
could be manipulation
or omission of amounts * For commission income we obtained the third party
recorded in the system. reports and tested a sample back to cash receipts.
* Using third party reports, we recalculated all the
procuration fees independently.
* 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
* We vouched a sample of revenue to third party reports
and bank to check that they have been accounted in
the proper period and considered the reasonableness
of assumptions used within the analysis.
Key observations:
Based on these procedures
we consider revenue to have
been recognised appropriately
in line with accounting standards.
------------------------------ --------------------------------------------------------------
Clawback The clawback provision We responded to this risk
provision relates to the estimated by performing the following
value of repaying procedures:
Management's commission received * We compared the relevant assumptions e.g. unearned
associated up front on life assurance commission, likely future lapse rates and lapse rate
accounting policies that may history used in the model with third party reports.
policies lapse in a period
are detailed of up to four years
on page 56 following inception * For other assumptions e.g. age profile of the
with detail of the policies. commission received, the Group's share of any
about judgements The clawback provision clawback, and the success of the Appointed
in applying is considered a significant Representatives in preventing lapses and/or
accounting audit risk due to generating new income at the point of a lapse, we
policies the management judgement validated these to management's supporting analysis
and critical and estimation applied of the Group's actual experience.
accounting in calculating the
estimates provision and we therefore
on page 32 considered this to * We tested the arithmetical accuracy of the
. a key audit matter. spreadsheet model.
* We agreed inputs back to supporting documentation.
Key observations:
Based on the procedures undertaken
we consider the judgments
and estimates made by management
in calculating the clawback
provision to be reasonable.
------------------------------ --------------------------------------------------------------
Carrying The group has granted We responded to this risk
value of loans to its associates. by performing the following
loans to These loans are held procedures:
associates at amortised cost.
Management's The carrying value * We checked that the classification of the loans to
associated of loans to associates associates was in line with the requirements of IFRS
accounting is considered a significant 9 by checking that they meet the requirements to be
policies risk due to the judgements held at amortised cost.
are detailed and estimates used
on page 25 by management in the
& 26 with preparation of the * We reviewed loan agreements to test for any movement
detail about expected credit loss in loan balances in the year.
judgements model as required
in applying by accounting standards.
accounting * We reviewed the Expected Credit Loss model in respect
policies of the loans to associates and checked if this is in
and critical compliance with accounting standards, which involved:
accounting
estimates
on page 51.
* Agreeing the key inputs to managements analysis and
where relevant external specific loan documentation,
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.
------------------------------ --------------------------------------------------------------
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.
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.
In order to reduce to an appropriately low level the probability
that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent
of testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole and performance materiality
as follows:
Group financial statements Parent company financial statements
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
--------------- -------------- -------------------- -------------------
Materiality GBP804,000 GBP885,000 GBP223,000 GBP191,000
--------------- -------------- -------------------- -------------------
Basis for 5% of profit before 5% of net assets
determining tax (2020 - 3 year
materiality average, 2019 - standalone
year)
------------------------------- -----------------------------------------
Rationale Selected as our benchmark Given that the entity is a
for the as the entity is listed holding company, it is appropriate
benchmark with profitability to determine materiality based
applied seen as the main interest off of net assets.
of investors.
------------------------------- -----------------------------------------
Performance 75% of materiality 75% of materiality
materiality 2020 - GBP603,000 2020 - GBP167,000 (2019 -GBP143,000)
(2019 - GBP664,000)
------------------------------- -----------------------------------------
Basis for Lower level of materiality Lower level of materiality
determining applied in performance applied in performance of the
performance of the audit when audit when determining the
materiality determining the nature nature and extent of testing
and extent of testing applied to individual balances
applied to individual and classes of transactions.
balances and classes
of transactions.
------------------------------- -----------------------------------------
Component materiality
The materiality used for the audit of First Mortgage Direct
Limited as a component of the Group has been set at GBP109,000
(2019 - GBP117,000), calculated on the same bases as at the group
above.
Reporting threshold
We agreed with the Audit Committee that we would report to them
all individual audit differences in excess of GBP16,000 (2019:
GBP17,000) for the Group and GBP4,000 (2019: GBP5,000) for the
parent company. We also agreed to report differences below this
threshold that, in our view, warranted reporting on qualitative
grounds.
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. 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 course of 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 this gives rise to a material
misstatement in the financial statements themselves. 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.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and
matters as described below.
Strategic In our opinion, based on the work undertaken
report and in the course of the audit:
Directors' * the information given in the Strategic report and the
report 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.
In the light of the knowledge and understanding
of the Group and 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.
Matters on We have nothing to report in respect of the following
which we matters in relation to which the Companies Act
are required 2006 requires us to report to you if, in our
to report opinion:
by exception * 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.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
We gained an understanding of the legal and regulatory framework
applicable to the Group and the industry in which it operates and
considered the risk of acts by the Group which would be contrary to
applicable laws and regulations, including fraud. These included
but were not limited to compliance with the Financial Conduct
Authority ("FCA") regulations, FCA Mortgage Advice and Selling
Standards and tax legislation.
We focused on laws and regulations that could give rise to a
material misstatement in the company financial statements. Our
tests included, but were not limited to:
-- reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with relevant laws
and regulations discussed above;
-- enquiring of management and the audit committee;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
-- reading minutes of meetings of those charged with governance,
reviewing internal audit reports and correspondence with the
Financial Conduct Authority;
-- in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments;
-- assessing whether the judgements made in making accounting
estimates are indicative of a potential bias; and evaluating the
business rationale of any significant transactions that are unusual
or outside the normal course of business; and
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists and remained alert to any indications of fraud
or non-compliance with laws and regulations throughout the audit.
As part of this discussion, we identified potential for fraud
through accounting estimates such as impairment and clawback
provision. See Key Audit Matters above.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms
part of our auditor's report.
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, UK
22 March 2021
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 2020
Note
2020 2019
GBP'000 GBP'000
----------------------------------------------- ------ ----------- -----------
Revenue 3 148,298 143,741
Cost of sales 4 (108,466) (107,316)
----------------------------------------------- ------ ----------- -----------
Gross profit 39,832 36,425
Administrative expenses (22,742) (18,877)
Impairment of loans to related parties 18 (1,680) -
Share of profit of associates, net of
tax 15 36 280
Impairment and amount written off associates 15 (473) (192)
----------------------------------------------- ------ ----------- -----------
Operating profit 14,973 17,636
----------------------------------------------- -----------
Analysed as:
Operating profit before charging 17,877 18,623
Amortisation of acquired intangibles 5 (367) (184)
Costs relating to First Mortgage option 5 (857) (430)
Acquisition costs 5 - (373)
Impairment of loans to related parties 18 (1,680) -
Operating profit 14,973 17,636
----------------------------------------------- ------ ----------- -----------
Finance income 8 120 147
Finance expense 8 (234) (86)
----------------------------------------------- ------ ----------- -----------
Profit before tax 14,859 17,697
Tax expense 9 (2,081) (2,968)
----------------------------------------------- ------ ----------- -----------
Profit for the year 12,778 14,729
----------------------------------------------- ------ ----------- -----------
Total comprehensive income 12,778 14,729
----------------------------------------------- ------ ----------- -----------
Profit is attributable to:
Equity owners of Parent Company
Non 12,379 14,499
Non-controlling interests 399 230
----------------------------------------------- ------ ----------- -----------
12,778 14,729
----------------------------------------------- ------ ----------- -----------
Earnings per share attributable to the owners of
the Parent Company
Basic 10 23.7p 28.2p
----------------------------------------------- ------ ----------- -----------
Diluted 10 23.6p 27.7p
----------------------------------------------- ------ ----------- -----------
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 2020
2020 2019
Note GBP'000 GBP'000
----------------------------------- ------- ---------- ----------
Assets
Non-current assets
Property, plant and equipment 12 2,847 2,924
Right of use assets 13 2,590 2,907
Goodwill 14 15,155 15,155
Other intangible assets 14 3,262 3,862
Investments in associates and
joint venture 15 4,883 3,133
Investments in non-listed equity
shares 16 75 75
Other receivables 18 806 3,330
Deferred tax asset 23 822 1,517
----------------------------------- ------- ---------- ----------
Total non-current assets 30,440 32,903
----------------------------------- ------- ---------- ----------
Current assets
Trade and other receivables 18 5,603 4,959
Cash and cash equivalents 19 32,981 20,867
----------------------------------- ------- ---------- ----------
Total current assets 38,584 25,826
----------------------------------- ------- ---------- ----------
Total assets 69,024 58,729
----------------------------------- ------- ---------- ----------
Equity and liabilities
Share capital 24 53 52
Share premium 9,778 5,451
Capital redemption reserve 20 20
Share option reserve 1,807 2,799
Retained earnings 23,882 17,272
----------------------------------- ------- ---------- ----------
Equity attributable to owners
of the Parent Company 35,540 25,594
Non-controlling interests 1,908 1,595
Total equity 37,448 27,189
----------------------------------- ------- ---------- ----------
Liabilities
Non-current liabilities
Provisions 22 4,576 3,735
Lease liabilities 13 2,352 2,645
Deferred tax liability 23 643 651
----------------------------------- ------- ---------- ----------
Total non-current liabilities 7,571 7,031
----------------------------------- ------- ---------- ----------
Current liabilities
Trade and other payables 20 23,662 22,371
Lease liabilities 13 343 334
Corporation tax liability - 1,804
----------------------------------- ------- ---------- ----------
Total current liabilities 24,005 24,509
----------------------------------- ------- ---------- ----------
Total liabilities 31,576 31,540
----------------------------------- ------- ---------- ----------
Total equity and liabilities 69,024 58,729
----------------------------------- ------- ---------- ----------
The notes that follow form part of these financial
statements.
The financial statements were approved by the Board of Directors
on 22 March 2021.
P Brodnicki L Tilley
Director Director
Consolidated statement of changes in equity
for the year ended 31 December 2020
Attributable to the holders
of the Parent Company
---------- ---------- ------------------------------------------------- ----------
Capital Share Non-controlling
Share Share redemption option Retained interests
capital premium reserve reserve earnings Total GBP'000 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Equity
GBP'000
------------------ ---------- ---------- ------------------------ --------- ------------ ---------- ----------------- ----------
Balance at 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 and 1
January
2020 52 5,451 20 2,799 17,272 25,594 1,595 27,189
Profit for the
year - - - - 12,379 12,379 399 12,778
Total
comprehensive
income - - - - 12,379 12,379 399 12,778
------------------ ---------- ---------- ------------------------ --------- ------------ ---------- ----------------- ----------
Transactions
with owners
Issue of shares 1 4,327 - - - 4,328 - 4,328
Share based
payment
transactions - - - 625 - 625 - 625
Deferred tax
asset
recognised in
equity - - - (674) - (674) - (674)
Reserve transfer - - - (943) 943 - - -
Dividends paid - - - - (6,712) (6,712) (86) (6,798)
Transactions
with owners 1 4,327 - (992) (5,769) (2,433) (86) (2,519)
------------------ ---------- ---------- ------------------------ --------- ------------ ---------- ----------------- ----------
Balance at 31
December
2020 53 9,778 20 1,807 23,882 35,540 1,908 37,448
------------------ ---------- ---------- ------------------------ --------- ------------ ---------- ----------------- ----------
Consolidated statement of cash flows
for the year ended 31 December 2020
Notes 2020 2019 GBP'000
GBP'000
---------------------------------------------------------- ----------- -------------- ----------------------
Cash flows from operating activities
Profit for the year before tax 14,859 17,697
Adjustments for:
Depreciation of property, plant
and equipment 12 383 303
Depreciation of right of use assets 13 381 187
Amortisation of intangibles 14 601 249
Share based payments 625 760
Share of profit from associates 15 (36) (280)
Impairment and amount written off
associates 15 473 192
Dividends received from associates 15 158 311
Finance income 8 (120) (147)
Finance expense 8 234 86
---------------------------------------------------------- ----------- -------------- ----------------------
17,558 19,358
Changes in working capital
Decrease in trade and other receivables 18 2,361 254
Increase in trade and other payables 20 1,291 2,566
Increase in provisions 22 841 586
Cash generated from operating activities 22, 051 22,764
Interest received 8 139 77
Income taxes paid (4,372) (2,360)
---------------------------------------------------------- ----------- -------------- ----------------------
Net cash generated from operating
activities 17,818 20,404
---------------------------------------------------------- ----------- -------------- ----------------------
Cash flows from investing activities
Payment for acquisition of subsidiary,
net of cash acquired - (12,223)
Purchase of property, plant and
equipment 12 (306) (186)
Purchase of intangibles 14 (1) (1)
Acquisitions of associates and investments 15 (2,345) (1,591)
Acquisition of investments in non-listed
equity shares 16 - (75)
Net cash used in investing activities (2,652) (14,076)
---------------------------------------------------------- ----------- -------------- ----------------------
Cash flows from financing activities
Proceeds from borrowings 8 12,000 6,500
Repayment of borrowings 8 (12,000) (6,500)
Interest paid 8 (234) (86)
Principal element of lease payments 13 (348) (163)
Issue of shares 24 4,328 1,358
Dividends paid 11 (6,712) (12,236)
Dividends paid to minority interest (86) -
---------------------------------------------------------- ----------- -------------- ----------------------
Net cash used in financing activities (3,052) (11,050)
---------------------------------------------------------- ----------- -------------- ----------------------
Net increase/(decrease)
in cash and cash equivalents 12,114 (4,722)
Cash and cash equivalents
at the beginning of year 20,867 25,589
---------------------------------------------- ----- -------------------------------- ---------
Cash and cash equivalents
at the end of the year 32,981 20,867
---------------------------------------------- ----- -------------------------------- ---------
The notes that follow form part
of these financial statements.
Notes to the consolidated financial statements
for the year ended 31 December 2020
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 and 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
Accounting Standards in conformity with the requirements 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 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 GBP15.0m during 2020
(2019: GBP17.6m) and had net current assets of GBP14.6m at 31
December 2020 (31 December 2019: GBP1.3m) and equity attributable
to owners of the Group of GBP35.6m (31 December 2019:
GBP25.6m).
Going concern
The Directors have assessed the Group's prospects until 31
December 2022, taking into consideration the current operating
environment, including the impact of the coronavirus pandemic on
property and lending markets. 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 effect of pandemic-related social
restrictions and their 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 2020
New standards, interpretations and amendments applied for the
first time
The Group applied IFRS 16: Covid-19 Related Rent Concessions for
the first time. The nature and the effect of the changes as a
result of adoption of this new accounting standard is described
below.
Several other standards and interpretations apply for the first
time in 2020 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.
-- IFRS16: Covid-19 Related Rent Concessions. IFRS 16 was
amended to provide a practical expedient for lessees accounting for
rent concessions that arise as a direct consequence of the COVID-19
pandemic and satisfy the following criteria:
-- The change in lease payments results in revised consideration
for the lease that is substantially the same as, or less than, the
consideration for the lease immediately preceding the change;
-- the reduction in lease payments affects only payments
originally due on or before 30 June 2021; and
-- there are is no substantive change to other terms and conditions of the lease.
Rent concessions that satisfy these criteria may be accounted
for in accordance with the practical expedient, which means the
lessee does not need to assess whether the rent concession meets
the definition of a lease modification. Lessees apply other
requirements in IFRS 16 in accounting for the concession.
Due to the impact of the first Government lockdown, the Group
received rent concessions in the form of 'rent forgiveness' from
lessors due to the Group being unable to operate from premises with
all employees working from home. Substantially all the rent
concessions entered into during year satisfy the criteria to apply
the practical expedient. The application of the practical expedient
has resulted in the reduction of total lease liabilities of GBP0.1m
and the subsequent benefit has been recorded in the Consolidated
statement of comprehensive income under administrative expenses.
The application of this new standard also resulted in a 0.1p
benefit on both basic and diluted earnings per share.
New standards with no impact on the Group
-- 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. Entities do
not have to revisit such transactions that occurred in prior
periods.
-- 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.
-- 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.
-- Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate
Benchmark Reform. The amendments to IFRS 9 and IAS 39 Financial
Instruments: Recognition and Measurement provide a number of
reliefs, which apply to all hedging relationships that are directly
affected by interest rate benchmark reform. A hedging relationship
is affected if the reform gives rise to uncertainty about the
timing and/or amount of benchmark-based cash flows of the hedged
item or the hedging instrument. The Group does not have any
interest rate hedge relationships.
New standards, 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.
Future new standards and interpretations
A number of new standards and amendments to standards and
interpretations will be effective for future years and, therefore,
have not been applied in preparing these consolidated Financial
Statements. At the date of authorisation of these Financial
Statements, the following standards and interpretations were in
issue but have not been applied in these Financial Statements as
they were not yet effective:
Standard or Interpretation Periods commencing
on or after
Amendments to IFRS 17 and IFRS 4, 'Insurance 1 January 2021
contracts', deferral of IFRS 9
--------------------
Amendments to IFRS 7, IFRS 4 and IFRS 16 Interest 1 January 2021
Rate Benchmark Reform - Phase 2
--------------------
Amendments to IAS 1, Presentation of financial 1 January 2022
statements' on classification of liabilities
--------------------
Amendments to IFRS 3, IAS 16, IAS 17 and annual 1 January 2022
improvements on IFRS 1, IFRS 9, IAS 41 and
IFRS 1
--------------------
IFRS 17, 'Insurance contracts' 1 January 2023
--------------------
Other than to expand certain disclosures within the Financial
Statements, the Directors do not expect the adoption of these
standards and interpretations listed above to have a material
impact on the Financial Statements of the Group in future
periods.
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. More information
on the impairment of associates is included in note 2.
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 tested annually
for impairment or 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 into one of the following
categories dependent on the purpose for which the financial asset
was acquired.
-- Fair value through profit or loss
-- Amortised cost
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 and other parties
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.
The Group adopted the modified transition approach and 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
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.
Two property leases contain variable lease payments linked to
current market rental from January 2023 and 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 2020, 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 GBP0.7m 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
units (CGUs) 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. The
Group operates a revenue share model with its trading partners and
therefore commissions are paid in line with the Group revenue
recognition policy and 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. More information on the clawback provision is included
in note 2.
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.
Significant events and transactions
The World Health Organisation declared coronavirus and Covid-19
a global health emergency on 30 January 2020. Since then, the Group
has experienced disruption to its operations with the effects on
the Group's consolidated financial statements for the year ended 31
December 2020 summarised as follows:
a. Reduced growth in sales and cash flows
The Group's revenue (see note 3) has been adversely impacted by
the first Government lockdown in March 2020, albeit written
business started to recover from mid-May as the housing market in
England reopened followed by Scotland, Wales and Northern Ireland
at the end of June. This has reduced the revenue growth of the
Group in the year ended 31 December 2020.
b. Impairment of loans to related parties
The first Government lockdown has impacted the performance of
some of the Group's investments. As disclosed in note 18, an amount
of GBP1.1m has been written off in respect of the loan to Freedom
365 Mortgage Solutions Limited and an increase in expected credit
losses of GBP0.6m has been made in respect of the loan to Eagle and
Lion Limited.
c. Government grant income
The Group utilised the Coronavirus Job Retention Scheme ("CJRS")
due to the Government imposed lockdown causing the closure of the
housing market for a period of time and a number of employees being
put on furlough as a result.
Included within the Statement of Comprehensive Income at the
Group's Interim reporting date was GBP0.5m relating to the CJRS
grants and this was presented within Government grant income,
rather than reducing the related expense. On 15 December 2020 the
Group fully repaid the CJRS grants received following stronger than
expected trading during the second half of the year.
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 14.
(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 18.
(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
Appointed Representatives in preventing lapses and/or generating
new income at the point of a lapse. A 0.5% change (absolute) in
lapse rates causes a GBP0.3m change in the provision. A 2% change
(absolute) in the recoveries rate causes a GBP0.1m change in the
provision. More information is included in note 22.
(d) Impairment of investments in associates
The Group is required to test, on an annual basis, whether any
investments in associates have suffered any impairment.
The Group uses two methods to test for impairment,
-- Net Present Value of the next 5 year's projected free cash flow and terminal value.
-- Valuation of business on a multiple basis.
The use of both methods requires the estimation of future cash
flows, future profit before tax and choice of discount rate. Actual
outcomes may vary. Where the carrying amount in the consolidated
statement of financial position is in excess of the estimated
value, the Group will make an impairment charge against the
investment value and charge this amount to the consolidated
statement of comprehensive income under impairment and amount
written off associates.
(e) Share Options, employer's National Insurance Contributions and Deferred Tax
Under the Group's equity-settled share based remuneration
schemes (see note 29), estimates are made in assessing the fair
value of options granted. The fair value is spread over the vesting
period in accordance with IFRS 2. The Group engages an external
expert in assessing fair value, both Black-Scholes and Stochastic
models are used, and estimates are made as to the Group's expected
dividend yield and the expected volatility of the Group's share
price.
In addition, the Group estimates the employer's National
Insurance Contributions that will fall due on exercise of options,
and provides for this over the vesting period. In doing so,
estimates as to the share price at vesting and the proportion of
options from each grant that will vest are made with reference to
the Group's prospects.
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 the proportion of options likely
to vest and an estimate of share price at vesting. The carrying
amount of deferred tax assets relating to share options at 31
December 2020 was GBP0.8m (2019: GBP1.5m).
3 Revenue
The Group operates in one segment being that of the provision of
financial services in the UK. Revenue is derived as follows:
2020 2019
GBP'000 GBP'000
Mortgage procuration fees 67,232 64,384
Protection and general insurance commission 58,826 56,220
Client fees 18,975 20,158
Other income 3,265 2,979
----------------------------------------------- ---------- ----------
148,298 143,741
---------------------------------------------- ---------- ----------
4 Cost of sales
Costs of sales are as follows:
2020 2019
GBP'000 GBP'000
Commissions paid 101,885 102,301
Impairment of trade receivables 16 79
Wages and salary costs 6,565 4,936
----------------------------------- --------- ---------
108,466 107,316
---------------------------------- --------- ---------
2020 2019
Wages and salary costs GBP'000 GBP'000
------------------------------------- ----------- ----------
Gross 5,446 4,006
Employers' National Insurance 593 470
Defined contribution pension costs 350 214
Other direct costs 176 246
6,565 4,936
------------------------------------- ----------- ----------
5 Acquisition costs
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").
Costs relating to the amortisation of acquired intangibles
amounted to GBP367,000 (2019: GBP183,500) in the year ended 31
December 2020. 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, GBP414,674
(2019: GBP202,000) has been included within administrative expenses
under staff costs, and in accordance with IFRS 2, a further
GBP442,428 (2019: GBP227,968) has been included within
administrative expenses under share based payments (see note
29).
Non-recurring costs incurred in the year ended 31 December 2019
in relation to the acquisition of First Mortgage amounted to
GBP373,000 and were included within administrative expenses.
6 Profit from operations
Profit from operations is stated after charging the
following:
2020 2019
GBP'000 GBP'000
-------------------------------------------------- ----------- -----------
Depreciation of property, plant and equipment 383 303
Depreciation of right of use assets 381 187
Amortisation of intangibles 601 249
Auditor remuneration:
Fees payable to the Group's auditor for
the audit of the Group's financial statements. 122 70
Fees payable to the Group's auditor and
its associates for other services:
Audit of the accounts of subsidiaries 10 10
Audit-related assurance services 25 20
Tax advisory services 3 -
-------------------------------------------------- ----------- -----------
The disclosure of amounts paid to the Group's auditor have been
enhanced.
Profits from associates are disclosed as part of the operating
profit as this is the operational nature of the Group.
7 Staff costs
Staff costs, including executive and non-executive Directors'
remuneration, were as follows:
2020 2019
GBP'000 GBP'000
------------------------------------- ----------- ----------
Wages and salaries 16,910 13,636
Share based payments (see note 29) 967 1,289
Social security costs 1,763 1,428
Defined contribution pension costs 1,199 671
Other employee benefits 537 202
------------------------------------- ----------- ----------
21,376 17,226
------------------------------------- ----------- ----------
The average number of people employed 2020 2019
by the Group during the year was: Number Number
---------------------------------------- --------- ---------
Executive Directors 3 3
Advisers 89 49
Compliance 74 74
Sales and marketing 71 57
Operations 154 104
---------------------------------------- --------- ---------
Total 391 287
---------------------------------------- --------- ---------
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.
2020 2019
GBP'000 GBP'000
------------------------------------- ---------- ----------
Wages and salaries 1,380 2,083
Share based payments 101 285
Social security costs 633 307
Defined contribution pension costs 6 17
Other employment benefits 9 2
------------------------------------- ---------- ----------
2,129 2,694
------------------------------------- ---------- ----------
During the year retirement benefits were accruing to 2 Directors
(2019: 2) in respect of defined contribution pension schemes.
The total amount payable to the highest paid Director in respect
of emoluments was GBP393,112 (2019: GBP666,835). The value of the
Group's contributions paid to a defined contribution pension scheme
in respect of the highest paid Director amounted to GBPnil (2019:
GBPnil).
8 Finance income and expense
Finance income 2020 2019
GBP'000 GBP'000
------------------------------------------------- ----------- ----------
Interest income 105 77
Interest income accrued on loans to associates 15 70
------------------------------------------------- ----------- ----------
120 147
------------------------------------------------- ----------- ----------
Finance expense 2020 2019
GBP'000 GBP'000
--------------------------------------- ----------- ----------
Interest expense 171 51
Interest expense on lease liabilities 63 35
--------------------------------------- ----------- ----------
234 86
--------------------------------------- ----------- ----------
During the year, interest accrued in previous years of GBP34,039
was paid (2019: GBPnil).
On 18 June 2019, in connection with the acquisition of First
Mortgage, the Group entered into an agreement with NatWest in
respect of a new revolving credit facility for GBP12m. Drawdowns of
GBP6.5m were fully repaid by 31 December 2019. To give the Group
additional flexibility to react quickly and capitalise on potential
opportunities, the Group drew down its revolving credit facility in
full in March 2020. At 30 June 2020, the balance of GBP12.083m was
shown as a current liability within the Consolidated statement of
financial position, since it was due to be fully repaid in March
2021, and was made up of GBP12m principal loan balance and
GBP83,000 accrued interest. The Group repaid the principal and all
outstanding interest on 23 December 2020. In respect of the Group's
revolving credit facility for GBP12m, the Group has given security
to NatWest in the form of fixed and floating charges over the
assets of Mortgage Advice Bureau Limited, Mortgage Advice Bureau
(Derby) Limited and Mortgage Advice Bureau (Holdings) Plc.
Loan covenants
Under the terms of the revolving credit facility, the Group is
required to comply with the following financial covenants:
-- Interest cover shall not be less than 5:1
-- Debt to EBITDA ratio shall not exceed 2:1
The Group has complied with these covenants throughout the
year.
9 Income tax
2020 2019
GBP'000 GBP'000
------------------------------------------------- ----------- ----------
Current tax expense
UK corporation tax charge on profit for
the year 2,068 3,170
Adjustment to charge in respect of prior
periods - (62)
Total current tax 2,068 3,108
------------------------------------------------- ----------- ----------
Deferred tax expense
Origination and reversal of timing differences (23) (69)
Temporary difference on share based payments (9) (127)
Adjustment due to change in tax rates 45 -
Adjustment to deferred tax charge in
respect of prior periods - 56
Total deferred tax (see note 23) 13 (140)
------------------------------------------------- ----------- ----------
Total tax expense 2,081 2,968
------------------------------------------------- ----------- ----------
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% (2019: 19%) applied to profit for the year
is as follows:
2020 2019
GBP'000 GBP'000
------------------------------------------------- ----------- ----------
Profit for the year before tax 14,859 17,697
------------------------------------------------- ----------- ----------
Expected tax charge based on corporation
tax rate 2,823 3,363
Expenses not deductible for tax purposes
amortisation and impairment 120 188
Research & Development allowances (230) (285)
Tax on share options exercised (760) (263)
Adjustment to deferred tax charge in
respect of prior periods - 56
Adjustment to corporation tax charge
in respect of prior periods - (62)
Adjustment to deferred tax charge due 45 -
to change in tax rate
Profits from associates (7) (53)
Amounts written off investments 90 -
Effect of lower deferred tax rate - 24
------------------------------------------------- ----------- ----------
Total tax expense 2,081 2,968
------------------------------------------------- ----------- ----------
For the year ended 31 December 2020 the deferred tax charge
relating to unexercised share options, recognised in equity was
-GBP674,337 (2019: GBP544,179).
10 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.
2020 2019
Basic earnings per share GBP'000 GBP'000
------------------------------------------- ------------- -------------
Profit for the year attributable
to the owners of the parent 12,379 14,499
------------------------------------------- ------------- -------------
Weighted average number of shares
in issue 52,134,684 51,413,922
------------------------------------------- ------------- -------------
Basic earnings per share (in pence
per share) 23.7p 28.2 p
------------------------------------------- ------------- -------------
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.
2020 2019
Diluted earnings per share GBP'000 GBP'000
------------------------------------------- ------------- -------------
Profit for the year attributable
to the owners of the parent 12,379 14,499
------------------------------------------- ------------- -------------
Weighted average number of shares
in issue 52,478,416 52,434,259
------------------------------------------- ------------- -------------
Diluted earnings per share (in pence
per share) 23.6p 27.7 p
------------------------------------------- ------------- -------------
The share data used in the basic and diluted earnings per share
computations are as follows:
Weighted average number of ordinary 2020 2019
shares
-------------------------------------- ------------ ------------
Issued ordinary shares at start
of year 51,612,207 51,105,708
Effect of shares issued during year 522,477 308,214
-------------------------------------- ------------ ------------
Basic weighted average number of
shares 52,134,684 51,413,922
Potential ordinary shares arising
from options 343,732 1,020,337
-------------------------------------- ------------ ------------
Diluted weighted average number
of shares 52,478,416 52,434,259
-------------------------------------- ------------ ------------
The reconciliation between the basic and adjusted figures is as
follows:
2020 2019 2020 2019 2020 2019
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 year 12,379 14,499 23.7 28.2 23.6 27.7
Adjustments:
Amortisation of acquired
intangibles 367 184 0.7 0.4 0.7 0.3
Costs relating to
the First Mortgage
Direct option 857 430 1.6 0.8 1.6 0.8
Impairment of loans
to related parties 1,680 - 3.2 - 3.2 -
Acquisition costs - 373 - 0.7 - 0.7
Tax effect of adjustments (319) - (0.6) - (0.6) -
---------------------------- ---------- ---------- ------------ ------------ ------------ ------------
Adjusted earnings 14,964 15,486 28.6 30.1 28.5 29.5
---------------------------- ---------- ---------- ------------ ------------ ------------ ------------
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, ongoing non-cash items
relating to the acquisition of First Mortgage Direct Limited and
impairment of loans to related parties, net of tax.
11 Dividends
2020 2019
GBP'000 GBP'000
---------
Dividends paid and declared during the
year:
Final dividend for 2019: 6.4p per share
(2018: 12.7p) 3,311 6,507
Interim dividend for 2020: 6.4p per
share (2019: 11.1p) 3,401 5,729
------------------------------------------------- ------- ---------
6,712 12,236
------------------------------------------------ ------- ---------
Equity dividends on ordinary shares:
Proposed for approval by shareholders
at the AGM:
Final dividend for 2020: 19.2p per
share (2019: 6.4p) 10,205 3,305
----------------------------------------- -------- -------
10,205 3,305
---------------------------------------- -------- -------
The record date for the final dividend is 30 April 2021 and the
payment date is 28 May 2021. The ex-dividend date will be 29 April
2021. The Company statement of changes in equity shows that the
Company has positive reserves at 31 December 2020 of GBP856,000.
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. The proposed final dividend for 2020
has not been provided for in these financial statements, as it has
not yet been approved for payment by shareholders.
12 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 2020 2,536 919 1,037 4,492
Additions - 96 210 306
At 31 December 2020 2,536 1,015 1,247 4,798
---------------------------- ----------- -------------- ------------- -----------
Depreciation
At 1 January 2020 234 503 831 1,568
Charge for the year 58 169 156 383
At 31 December 2020 292 672 987 1,951
---------------------------- ----------- -------------- ------------- -----------
Net Book Value
At 31 December 2020 2,244 343 260 2,847
---------------------------- ----------- -------------- ------------- -----------
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
13 Right of use assets
Leases
This note provides information for leases where the Group is a
lessee.
The consolidated statement of financial position shows the
following amounts on leases:
Right of use assets Land and Buildings Total
GBP'000 GBP'000
---------------------- -------------------- ----------
At 1 January 2020 2,907 2,907
Additions 64 64
Depreciation (381) (381)
----------------------- -------------------- ----------
At 31 December 2020 2,590 2,590
----------------------- -------------------- ----------
Lease liabilities Land and Buildings Total
GBP'000 GBP'000
---------------------- -------------------- ----------
At 1 January 2020 2,979 2,979
Additions 64 64
Interest expense 63 63
Lease payments (411) (411)
----------------------- -------------------- ----------
At 31 December 2020 2,695 2,695
----------------------- -------------------- ----------
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
-------------------------------- -------------------- ----------
The present value of the lease liabilities is as follows:
31 December 2020 Within 1 - 2 -5 After Total
1 year 2 years years 5 years
-------------------------------- --------- ---------- -------- ---------- -------
Lease payments (undiscounted) 401 390 1,142 1,006 2,939
Finance charges (58) (50) (101) (35) (244)
--------------------------------- --------- ---------- -------- ---------- -------
Net present values 343 340 1,041 971 2,695
--------------------------------- --------- ---------- -------- ---------- -------
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
--------------------------------- --------- ---------- -------- ---------- -------
Leases
The Consolidated statement of comprehensive income shows the
following amounts relating to leases:
2020 2019
GBP'000 GBP'000
--------------------------------------------- ---------- ----------
Depreciation charge of right of use assets 381 187
Interest expense 63 35
Low value lease expense 3 3
---------------------------------------------- ---------- ----------
14 Intangible assets
Goodwill 2020 2019
GBP'000 GBP'000
-------------------------------- ---------- ----------
Cost
As at 1 January 15,308 4,267
Acquisition of business (note
30) - 11,041
---------------------------------- ---------- ----------
At 31 December 15,308 15,308
---------------------------------- ---------- ----------
Accumulated impairment
At 1 January and 31 December (153) (153)
Net book value
At 31 December 15,155 15,155
---------------------------------- ---------- ----------
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 2019
(see note 30). 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 reviews
conducted at the end of 2020 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.
Goodwill arose on the acquisition of FMD and has since been
allocated to this CGU of the Group. 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 21% 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 2020 108 140 570 1,980 1,470 4,268
Additions - - 1 - - 1
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
At 31 December
2020 108 140 571 1,980 1,470 4,269
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
Accumulated Amortisation
At 1 January 2020 108 96 18 110 74 406
Charge for the
year - 44 190 220 147 601
At 31 December
2020 108 140 208 330 221 1,007
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
Net book value
At 31 December
2020 - - 363 1,650 1,249 3,262
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
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
---------------------------- ---------- ---------- ---------- ------------ ------------- ----------
15 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 Capital House, Pride 49 Provision of financial
Place, Derby DE24 services
8QR
Freedom 365 Mortgage Gresley House, Ten 35 Provision of financial
Solutions Limited(1) 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, 49 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 48.05 Provision of financial
PTY Limited Street, Milsons Point, services
NSW 2061
Eagle and Lion 22 West Mall, Clifton, 49 Provision of financial
Limited Bristol, BS8 4BQ services
The Mortgage Broker The Granary Crowhill 25 Provision of financial
Group Limited Farm, Ravensden Road, services
MK44 2QS
Meridian Holdings 68 Pullman Road, 40 Provision of financial
Group Limited Wigston, Leicester, services
LE18 2DB
----------------------- --------------------------- -------------- ------------------------
(1) On 13 January 2021 the Group ceased to have an investment in
this entity, having entered into a deed of termination.
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:
2020 2019
GBP'000 GBP'000
---------------------------------------------------- ---------- ----------
At 1 January 3,133 1,573
Additions 2,345 1,783
Credit/(charge) to the statement of comprehensive
income:
Share of profit 36 280
Impairment and amount written off (473) (192)
---------------------------------------------------- ---------- ----------
(437) 88
Dividends received (158) (311)
---------------------------------------------------- ---------- ----------
At 31 December 4,883 3,133
---------------------------------------------------- ---------- ----------
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 49% of the results
of Clear Mortgage Solutions Limited and Eagle and Lion Limited by
virtue of its 49% equity stakes, 48.05% of the results of MAB
Broker Services PTY Limited by virtue of its 48.05% equity stake,
40% of the results of Meridian Group Holdings Limited by virtue of
its 40% equity stake, previously (prior to termination of the
investment) 35% of the results of Freedom 365 Mortgage Solutions
Limited by virtue of its 35% equity stake, 25% of the results of
Buildstore Limited and The Mortgage Broker Group Limited by virtue
of its 25% equity stakes and 20% of the results of Vita Financial
Limited by virtue of its 20% 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 2020 is GBPnil (2019: GBPnil).
In the year ended 30 June 2020, MAB Broker Services PTY Limited
reported a loss of AUD0.9m (2019: AUD0.9m).
Acquisitions and disposals
2020: The Group acquired a 40% interest in Meridian Holdings
Group Limited on 12 October 2020 at a cost of GBP1,340,000. The
Group acquired a further 24% interest in Clear Mortgage Solutions
Limited on 17 December 2020 at an initial consideration of
GBP461,593. In connection with Australian Finance Group Ltd
becoming the Group's new joint venture partner for MAB Broker
Services PTY Ltd, the Group increased its investment in MAB Broker
Services PTY Limited by 3.05% on 30 October 2020 at a cost of
GBP543,095 (AUD1,000,000). In accordance with IAS28 the Group
reduced the value of the investment in The Mortgage Broker Group
Limited by GBP472,850 to reflect the fair value carrying amount of
the investment.
2019: The Group acquired a 25% interest in The Mortgage Broker
Group Limited 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 Limited on 31July 2019 at a cost of GBP161,000. The Group
acquired a further 5% interest in Sort Limited 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 and this was subsequently written off.
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 2020
Limited Limited Limited Clear Others Total
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------ -------------- ----------- ----------- ----------- -----------
Non-current assets 25 188 386 94 499 1,192
Cash balances 575 764 1,409 1,067 3,806 7,621
Current assets (excluding
cash balances) 1,101 612 453 158 1,528 3,852
Current liabilities (789) (856) (1,327) (419) (1,098) (4,489)
Non-current liabilities
and provisions (359) (60) (171) (272) (2,056) (2,918)
Revenue 3,918 3,271 7,787 5,280 6,365 26,261
Profit/(loss) before
taxation 459 201 790 781 (711) 1,520
Total comprehensive
income (PAT) 375 163 557 470 (815) 750
Profit attributable
to Group 185 34 213 131 (527) 36
---------------------------- ------------ -------------- ----------- ----------- ----------- -----------
Dividends received
from associates 108* - - - 50 158
---------------------------- ------------ -------------- ----------- ----------- ----------- -----------
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/(loss) before
taxation 555 101 454 265 (253) 1,122
Total comprehensive
income 450 82 458 52 (411) 631
Profit attributable
to Group 220 18 132 13 (103) 280
---------------------------- ------------ -------------- ---------- ----------- ----------- -----------
Dividends received
from associates 311* - - - 311
---------------------------- ------------ -------------- ---------- ----------- ----------- -----------
* 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.
16 Investments in non-listed equity shares
GBP'000
---------------------- ---------
At 1 January 2020 75
Additions -
---------------------- ---------
At 31 December 2020 75
---------------------- ---------
17 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
Provision of
Mortgage Advice Bureau England and 100 financial services
(Derby) Limited 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
Provision of
First Mortgage Direct Scotland 80 financial services
Limited
Provision of
First Mortgage Limited Scotland 80 financial services
Provision of
Property Law Centre Scotland 80 financial services
Limited
Intermediate
Talk Limited England and 100 holding company
Wales
Mortgage Advice Bureau Intermediate
Australia (Holdings) Australia 100 holding company
PTY Limited
Holding of
Mortgage Advice Bureau Australia 100 intellectual
PTY Limited 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
MAB Private Finance England and 100 Dormant
Limited Wales
MAB Financial Planning England and 100 Dormant
Limited 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 30.
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.
Two of the Group's subsidiaries, First Mortgage Direct Ltd
(SC177681) and Property Law Centre (SC348791) are exempt from the
audit of individual accounts under section 479A of the Companies
Act 2006.
There are no restrictions regarding the utilisation of cash or
other resources held by any subsidiary.
18 Trade and other receivables
2020 2019
GBP'000 GBP'000
-------------------------------------------- --------- ---------
Trade receivables 1,460 1,936
Less provision for impairment of trade
receivables (379) (363)
-------------------------------------------- --------- ---------
Trade receivables - net 1,081 1,573
Receivables from related parties 12 15
Corporation tax 499 -
Other receivables 468 -
Loans to related parties 1,919 3,124
Less provision for impairment of loans
to related parties (614) (171)
Less amounts written off loans to related (1,069) -
parties
-------------------------------------------- --------- ---------
Total financial assets other than cash
and cash equivalents classified at
amortised costs 2,296 4,541
Prepayments and accrued income 4,113 3,748
-------------------------------------------- --------- ---------
Total trade and other receivables 6,409 8,289
-------------------------------------------- --------- ---------
Less: non-current portion - Loans to
related parties (220) (2,832)
Less: non-current - Trade receivables (586) (498)
-------------------------------------------- --------- ---------
Current portion 5,603 4,959
-------------------------------------------- --------- ---------
2020 2019
Reconciliation of movement in trade receivables GBP'000 GBP'000
to cash flow
-------------------------------------------------- --------- ---------
Movement per trade receivables (1,880) 1,390
Corporation tax (499) -
Acquisition of subsidiary - (1,766)
Accrued interest movement 18 (70)
Present value adjustment on interest free
loan - 192
-------------------------------------------------- --------- ---------
Total movement per cash flow (2,361) (254)
-------------------------------------------------- --------- ---------
The carrying value of trade and other receivables classified at
amortised cost approximates fair value.
Included within trade receivables are operational business
development loans to Appointed Representatives. The non-current
trade receivables balance is comprised of loans to Appointed
Representatives.
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 21.
Amount due in respect of corporation tax included above is owed
to the Group following overpayment during the year with the timing
of the Group's tax payments changing during the year. This reverses
in the following quarter.
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 2020 the lifetime expected loss provision for trade
receivables is GBP0.4m (2019: GBP0.4m) 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 2020 the lifetime expected loss provision for
loans to associates is GBP0.6m. One associate, Eagle and Lion
Limited, has been subject to a significant increase in credit risk
since initial recognition and, consequently lifetime expected
credit losses of GBP0.6m have been recognised and this accounts for
the vast majority of the lifetime expected loss provision for loans
to associates. For the remainder, 12 month expected credit losses
have been recognised. In addition, during the year, GBP1.1m has
been written off in respect to a loan to Freedom 365 Mortgage
Solutions Limited which represents the principal loan balance write
off and release of expected credit losses already recognised. The
movement in the impairment allowance for receivables for loans to
associates has been included in impairment of loans to related
parties in the consolidated statement of comprehensive income.
A summary of the movement in the provision for the impairment of
receivables is as follows:
2020 2019
GBP'000 GBP'000
------------------------------------------- --------- ---------
At 1 January 363 284
New provisions for impairment losses 81 70
Increases in existing provisions for
impairment losses 5 11
Impairment provisions no longer required (70) (2)
------------------------------------------- --------- ---------
At 31 December 379 363
------------------------------------------- --------- ---------
A summary of the movement in the provision for the impairment of
loans to related parties is as follows:
2020 2019
GBP'000 GBP'000
------------------------------------------- --------- ---------
At 1 January 171 290
Increases in existing provisions for
impairment losses 611 2
Impairment provisions no longer required (168) (121)
------------------------------------------- --------- ---------
At 31 December 614 171
------------------------------------------- --------- ---------
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 21.
19 Cash and cash equivalents
2020 2019
GBP'000 GBP'000
---------------------------------------------- ---------- --- ----------
Unrestricted cash and bank balances 18,550 6,987
Bank balances held in relation to retained
commissions 14,431 13,880
---------------------------------------------- ---------- --- ----------
Cash and cash equivalents 32,981 20,867
---------------------------------------------- ---------- --- ----------
Bank balances held in relation to retained commissions earned on
an indemnity basis protection 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 20).
20 Trade and other payables
2020 2019
GBP'000 GBP'000
------------------------------------------------ ---------- ----------
Appointed Representatives retained commission 14,431 13,880
Other trade payables 5,447 4,542
------------------------------------------------ ---------- ----------
Trade payables 19,878 18,422
Social security and other taxes 1,289 642
Other payables 154 203
Accruals 2,341 3,104
------------------------------------------------ ---------- ----------
23,662 22,371
------------------------------------------------ ---------- ----------
Should a protection 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 19.
As at 31 December 2020 and 31 December 2019, 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.
21 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 2020 2019
GBP'000 GBP'000
------------------------------ --------- ---------
Cash and cash equivalents 32,981 20,867
Trade and other receivables 2,296 4,541
Total financial assets 35,277 25,408
------------------------------ --------- ---------
Financial liabilities 2020 2019
GBP'000 GBP'000
------------------------------ --------- ---------
Trade and other payables 21,321 19,267
Accruals 2,341 3,104
Lease liabilities 2,695 3,235
Total financial liabilities 26,357 25,606
------------------------------ --------- ---------
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 18.
Financial assets - maximum exposure 2020 2019
GBP'000 GBP'000
------------------------------------- --------- ---------
Cash and cash equivalents 32,981 20,867
Trade and other receivables 2,296 4,541
------------------------------------- --------- ---------
Total financial assets 35,277 25,408
------------------------------------- --------- ---------
The carrying amounts stated above represent the Group's maximum
exposure to credit risk for trade and other receivables. An element
of this risk is mitigated by collateral held by the Group for
amounts due to them.
Trade receivables consist of a large number of unrelated trading
partners and therefore credit risk is 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
GBP325,538 (2019: GBP795,534) 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 2020 Within 1 - 2 -5 After Total
1 year 2 years years 5 years
--------------------------- --------- ---------- -------- ---------- --------
Trade and other payables 6,890 - - - 6,890
Accruals 1,620 67 654 - 2,341
Lease liabilities 401 390 1,142 1,006 2,939
---------------------------- --------- ---------- -------- ---------- --------
Total 8,911 457 1,796 1,006 12,170
---------------------------- --------- ---------- -------- ---------- --------
The appointed representatives retained commissions balance of
GBP14.4m 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.
22 Provisions
Clawback provision 2020 2019
GBP'000 GBP'000
-------------------------------------------- ---------- ----------
At 1 January 3,735 1,704
Acquisition of subsidiary - 1,445
Charged to the statement of comprehensive
income 841 586
-------------------------------------------- ---------- ----------
At 31 December 4,576 3,735
-------------------------------------------- ---------- ----------
The provision relates to refund liabilities for the estimated
cost of repaying commission income received upfront on protection
policies that may lapse in the four years following issue. Under
the Group's revenue contracts with protection providers, if the
policy is cancelled by the customer within a four year period after
the inception of the policy then a proportion of the commission
received upfront has to be repaid to the protection provider.
Provisions are held in the financial statements of four of the
Group's subsidiaries: Mortgage Advice Bureau Limited, Mortgage
Advice Bureau (Derby) Limited, First Mortgage Direct Limited and
First Mortgage Limited. The exact timing of any future repayments
(termed '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.
23 Deferred tax
Deferred tax is calculated in full on temporary differences
using a tax rate of 19% (2019: 17%).
The movement in deferred tax is shown below:
2020 2019
GBP'000 GBP'000
------------------------------------------- ---------- ----------
Net deferred tax asset - opening
balance 866 824
Recognised in the statement of
comprehensive income (13) 140
Transfer in on acquisition of subsidiary - (642)
Deferred tax movement recognised
in equity (674) 544
------------------------------------------- ---------- ----------
Net deferred tax asset - closing
balance 179 866
------------------------------------------- ---------- ----------
The deferred tax balance is made up as follows:
2020 2019
GBP'000 GBP'000
Accelerated capital allowances (643) (651)
Other timing differences 91 47
Share-based payment 731 1,470
--------------------------------- ---------- ----------
Net deferred tax asset 179 866
--------------------------------- ---------- ----------
Reflected in the statement of financial 2020 2019
position as follows: GBP'000 GBP'000
Deferred tax liability (643) (651)
Deferred tax asset 822 1,517
------------------------------------------ ---------- ----------
Net deferred tax asset net 179 866
------------------------------------------ ---------- ----------
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 in the year has been
to increase the tax charge by GBP45,476.
24 Share capital
Issued and fully paid 2020 2019
GBP'000 GBP'000
------------------------------- ---------- ----------
Ordinary shares of 0.1p each 53 52
------------------------------- ---------- ----------
Total share capital 53 52
------------------------------- ---------- ----------
During the year 1,540,980 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, exercise of the vested element of the Appointed
Representatives options issued in May 2015, partial exercise of
options issued in May 2016 and exercise of options issued in April
2017 at a total premium of GBP4.3m. See also note 29.
25 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.
26 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 GBP1,199,044 (2019: GBP671,404). There were
contributions payable to the SIPP at 31 December 2020 of GBP36,128
(2019: GBP39,646).
27 Related party transactions
The following details provide the total amount of transactions
that have been entered into with related parties during the twelve
months ended 31 December 2020 and 2019, as well as balances with
related parties as at 31 December 2020 and 31 December 2019.
During the year the Group paid commission of GBP960,289 (2019:
GBP921,508) to Buildstore Limited, an associated company. At
December 31 2020, there was a balance of GBP21,213 (2019:
GBP47,932) of retained commission to cover future lapses and a loan
outstanding from Buildstore Limited of GBP17,757 (2019:
GBP36,565).
During the year the Group received introducer commission from
Sort Limited, a subsidiary of an associated company of GBP988,674
(2019: GBP885,470). There was an amount of GBP218,369 outstanding
with Sort Group Limited at 31 December 2020 (2019: GBP218,369)
included in trade and other receivables.
During the year the Group paid commission of GBP4,960,645 (2019:
GBP4,735,028) to Clear Mortgage Solutions Limited, an associated
company. At December 31 2020, there was a balance of GBP414,563
(2019: GBP265,992) of retained commission to cover future
lapses.
During the year the Group paid commission of GBP297,545 (2019:
GBP595,017) to Freedom 365 Mortgage Solutions Limited, an
associated company. At December 31 2020, there was a balance of
GBP78,402 (2019: GBP133,090) of retained commission to cover future
lapses and no loan outstanding from Freedom 365 Mortgage Solutions
Limited (2019: GBP1,202,453).
During the year the Group paid commission of GBP1,315,108 (2019:
GBP965,048) to Vita Financial Limited, an associated company. At
December 31 2020, there was a balance of GBP159,113 (2019:
GBP125,229) of retained commission to cover future lapses.
At 31 December 2020 there was no loan outstanding from MAB
Broker Services PTY Limited, an associated company (2019:
GBP1,014,535, AUD1,900,000).
During the year the Group paid commission of GBP222,730 (2019:
GBP280,829) to Eagle & Lion Limited, an associated company. At
December 31 2020, there was a balance of GBPnil (2019: GBP10,982)
of retained commission to cover future lapses and a loan
outstanding from Eagle & Lion Limited of GBP611,385 which has
been fully impaired due to a significant increase in expected
credit losses leaving a net balance of GBPnil (2019:
GBP565,000).
During the year the Group paid commission of GBP1,572,282 (2019:
GBP1354,386) to The Mortgage Broker Group Limited, an associated
company. At December 31 2020, there was a balance of GBP66,781
(2019: GBP72,081) of retained commission to cover future lapses and
no loan outstanding from The Mortgage Group Broker Limited (2019:
GBP84,705).
During the year the Group paid commission of GBP954,995 (2019:
GBPNil) to Meridian Holdings Group Limited, an associated company.
At December 31 2020, there was a balance of GBP545,578 (2019:
GBPNil) 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
GBPnil (2019: GBP7,200).
During the year the Group received dividends from associated
companies as follow:
2020 2019
GBP'000 GBP'000
------------------------- ---------- ----------
CO2 Commercial Limited 108 311
Lifetime FS Limited 50 -
------------------------- ---------- ----------
28 Ultimate controlling party
There is no ultimate controlling party.
29 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 2020:
-- 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
2020:
-- 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
2020:
-- 100% based on performance to 31 March 2020, exercisable
between 19 April 2020 and 18 April 2025.
For options granted during 2018 and outstanding at 1 January
2020
-- 100% based on performance to 31 March 2021, exercisable
between 11 April 2021 and 9 April 2026.
For options granted during 2019 and outstanding at 1 January
2020:
-- 100% based on performance to 31 March 2022, exercisable between 1 July 2022 and 1 July 2027.
For options granted during the year:
-- 100% based on performance to 31 March 2023, exercisable
between 22 April 2023 and 21 July 2028.
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:
2020 2020 2019 2019
WAEP Number WAEP Number
GBP GBP
--------------------------- ------- ------------- --------- -----------
Outstanding at 1 January 2.74 1,707,868 2.98 2,187,810
Granted during the
year 0.001 203,668 0.001 175,547
Exercised 3.30 (1,310,220) 2.68 (506,498)
Lapsed * - (96,854) - (148,991)
------------- -----------
Outstanding at 31
December 0.001 504,462 2.74 1,707,868
------------- -----------
*Due to not fully vesting, retirement or leaving the Group.
At 31 December 2020, 504,462 options over ordinary shares of 0.1
pence each in the Company were exercisable with a weighted average
exercise price of GBP0.001.
On 22 July 2020, 203,668 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") with a
weighted average fair value of GBP3.97 per option. 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 2.75 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 February 2020 resulted in 31,666 ordinary
shares being issued at an exercise price of GBP3.58. The price of
the ordinary shares at the time of exercise was GBP7.55-GBP7.60 per
share.
Options exercised in April 2020 resulted in 85,643 ordinary
shares being issued at exercise prices of GBP1.60 and GBP4.31. The
price of the ordinary shares at the time of exercise was GBP5.10
per share.
Options exercised in May 2020 resulted in 103,485 ordinary
shares being issued at exercise prices of GBP1.60 and GBP4.31. The
price of the ordinary shares at the time of exercise was GBP5.80
per share.
Options exercised in July 2020 resulted in 63,444 ordinary
shares being issued at exercise prices of GBP4.14 and GBP4.31. The
price of the ordinary shares at the time of exercise was GBP5.97
per share.
Options exercised in September 2020 resulted in 20,587 ordinary
shares being issued at an exercise price of GBP4.31. The price of
the ordinary shares at the time of exercise was GBP7.00 per
share.
Options exercised in October 2020 resulted in 924,102 ordinary
shares being issued at exercise prices of GBP1.60, GBP2.19, GBP3.58
and GBP4.31. The price of the ordinary shares at the time of
exercise was GBP7.02-GBP7.20 per share.
Options exercised in November 2020 resulted in 71,000 ordinary
shares being issued at exercise prices of GBP1.60 and GBP4.31. The
price of the ordinary shares at the time of exercise was GBP7.60
per share.
Options exercised in December 2020 resulted in 10,293 ordinary
shares being issued at an exercise price of GBP4.31. The price of
the ordinary shares at the time of exercise was GBP7.90 per
share.
For the share options outstanding under the Mortgage Advice
Bureau Executive Share Option Plan as at 31 December 2020, the
weighted average remaining contractual life is 1.5 years (2019: 0.5
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.
2020 2019
----------------------------- --------------- ---------------
Equity-settled
Option pricing model - EPS Black-Scholes Black-Scholes
Option pricing model - TSR Stochastic Stochastic
Exercise price GBP0.001 GBP0.001
Expected volatility 39.53% 31.22%
Expected dividend yield 3.98% 3.76%
Risk free interest rate 0.00% 0.58%
----------------------------- --------------- ---------------
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
3.98%.
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 2.75 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:
2020 2020 2019 2019
WAEP Number WAEP Number
--------------------------- ------- ----------- ------- ---------
Outstanding at 1 January 0.01p 255,000 0.01p 255,000
Granted during the - - - -
year
Exercised during the
year 0.01p (230,760) - -
Lapsed during the
year 0.01p (24,240) - -
--------------------------- ------- ----------- ------- ---------
Outstanding at 31
December 0.01p - 0.01p 255,000
--------------------------- ------- ----------- ------- ---------
Options exercised in June 2020 resulted in 230,760 ordinary
shares being issued at an exercise price of 0.01p per share. The
price of the ordinary shares at the time of exercise was GBP5.95
per share. There are no share options outstanding under the MAB AR
Option Plan as at 31 December 2020.
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 had a vesting period of 5 years from
the date of grant and calculation of the share-based payment was
based on these vesting periods.
Share-based remuneration expense
The share-based remuneration expense of GBP967,438 (2019:
GBP1,288,860) includes the charge for the equity-settled schemes of
GBP182,979 (2019: GBP533,133) and related employer's National
Insurance Contributions of GBP185,815 (2019: GBP297,207). Included
within the charge for the equity-settled scheme for the year are
gross charges of GBP610,413 and the reversal of GBP427,434 of
charges for the non-vesting proportions of the 2017 and 2018 grants
of options subject to EPS performance criteria and the non-vesting
proportion of AR options. Also included are the matching element of
the Group's Share Incentive Plan for all employees of GBP85,465
(2019: GBP62,565) and GBP442,428 (2019: 227,968) in respect of the
option relating to First Mortgage Direct Limited. IFRS 2 charges
relating to the non-vesting of proportions of the 2017 and 2018
grants of options subject to EPS performance criteria have been
reversed during the year.
Options exercised during the period resulted in a transfer from
the Share option reserve to Retained earnings of GBP943,000 (2019:
GBP180,000) reflected in the Consolidated statement of changes in
equity.
The Group did not enter into any share-based payment
transactions with parties other than employees during the current
or previous year.
30 Business combinations
Acquisition in the prior year
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 provides significant additional growth
opportunities and enables the Group to further grow its adviser
numbers and market share and has added 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 were 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 changes to provisional fair values during the
measurement period.
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 revolving credit
facility with National Westminster Bank Plc for GBP12m. As at 31
December 2020 the Group had no draw down on this facility (2019:
GBPnil).
Revenue and profit contributions
First Mortgage contributed revenues (pre synergies) of GBP13.3m
(2019: GBP7.6m) and profit after tax of GBP2.0m (2019: GBP1.1m) to
the Group for the year ended 31 December 2020.
31 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 Direct
Limited, 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
Direct Limited
GBP000's
------------------------------------------------ -----------------
Current assets 9,193
Current liabilities (1,625)
------------------------------------------------ -----------------
Current net assets 7,568
------------------------------------------------ -----------------
Non-current assets 2,870
Non-current liabilities (3,802)
------------------------------------------------ -----------------
Non-current net liabilities (932)
------------------------------------------------ -----------------
Net assets 6,636
------------------------------------------------ -----------------
Accumulated NCI 1,908
------------------------------------------------ -----------------
Summarised statement of comprehensive income GBP000's
------------------------------------------------ -----------------
Revenue 13,257
Profit for the period and total comprehensive
income 1,996
Profit allocated to NCI 399
Dividends paid to NCI 86
------------------------------------------------ -----------------
Summarised cash flows GBP000's
------------------------------------------------ -----------------
Cash flows from operating activities 2,490
Cash flows from investing activities (80)
Cash flows from financing activities (432)
Net increase in cash & cash equivalents 1,978
------------------------------------------------ -----------------
32 Contingent liabilities
The Group had no contingent liabilities at 31 December 2020 or
31 December 2019.
33 Events after the reporting date
In January 2021, the FSCS published its Plan and Budget for the
year ending 31st March 2022. In this the FSCS set out they expect
an ongoing rise in complex pension advice claims and further
failures of self-invested personal pension (SIPP) operators. FSCS
also forecast an increase in pay-outs for the insurance provision
class due to recent failures. Furthermore, due to the widespread
economic impacts of COVID-19, FSCS are also anticipating an
increase in failures across the industry. As a result of the
increased contributions to the retail pool, the Group expects to
pay significantly higher levies during the period 1 April 2021 to
31 March 2022, currently estimated to be circa GBP2m in total.
On 12 January 2021, First Mortgage Direct Limited acquired a 25%
stake in M&R FM Ltd, for an initial cash consideration of
GBP0.7m. M & R FM Ltd is a mortgage and protection broker based
in Gateshead. Previously directly authorised by the FCA, M & R
FM Ltd operated under the First Mortgage franchise.
34 Notes supporting statement of cash flows
Cash and cash equivalents for purposes of the statement of cash
flows comprises:
2020 2019
GBP'000 GBP'000
---------
Cash at bank available on demand 18,550 6,987
Bank balances held in relation to retained
commissions 14,431 13,880
Total cash and cash equivalents 32,981 20,867
---------
Financing activities for the purposes of the statement of cash
flows comprises:
2020 2019
GBP'000 GBP'000
---------
Lease liabilities 2,695 2,979
Loans and borrowings - -
Total financing activities 2,695 2,979
---------
A reconciliation of lease liabilities has been presented
separately in note 13. To give the Group additional flexibility to
react quickly and capitalise on potential opportunities, the Group
drew down its Revolving Credit Facility in full in March 2020. This
was fully repaid during the year including accrued interest of
GBP0.2m (2019 GBP0.05m).
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