TIDMMAB1
RNS Number : 2209T
Mortgage Advice Bureau(Holdings)PLC
19 March 2019
19 March 2019
MORTGAGE ADVICE BUREAU (HOLDINGS) PLC
("MAB" or "the Group")
Final results for the year ended 31 December 2018
Mortgage Advice Bureau (Holdings) PLC (AIM: MAB1.L) is pleased
to announce its final results for the year ended 31 December
2018.
Financial highlights
-- Tenth consecutive year of strong revenue and profit growth
-- Revenue up 13% to GBP123.3m (2017: GBP108.8m)
-- Gross profit up 10% to GBP28.4m (2017: GBP25.9m)
-- Gross margin of 23.1% (2017: 23.8%)
-- Overheads ratio of 10.7% (2017: 10.9%)
-- Profit before tax up 8% to GBP15.7m (2017: GBP14.5m)
-- Profit before tax margin of 12.7% (2017: 13.4%)
-- Basic EPS up 9% to 25.9p (2017: 23.8p)
-- Continued high operating profit to adjusted cash conversion(1) of 113% (2017: 109%)
-- Proposed final dividend of 12.7p making proposed total
ordinary dividends for the year of 23.3p (2017: 21.4p), up 9%
(payout ratio of 90%)
Operational highlights
-- Average number of Advisers in 2018 up 12% to 1,130 (2017: 1,008)
-- Adviser numbers up 13% to 1,213 at 31 December 2018 (2017: 1,078)
-- Revenue per Adviser up 1%(2)
-- Gross mortgage lending arranged (including product transfers)
up 18% to GBP14.0bn (2017: GBP11.9bn)
-- Gross mortgage lending arranged with new lenders(3) up 14% to GBP12.7bn (2017: GBP11.2bn(4) )
-- Market share of new mortgage lending up 10% to 4.7% (2017: 4.3%(5) )
Post period end
-- Adviser numbers have increased to 1,234 at 15 March 2019
Peter Brodnicki, Chief Executive commented:
"I am delighted to report another set of strong results. Despite
continued political uncertainty we have achieved robust growth in
revenue, up 13% to GBP123m, which has translated into strong growth
in EPS up 9% to 25.9p. Accordingly, the Board is pleased to propose
the payment of an increased final dividend of 12.7p per share,
making total proposed ordinary dividends for the year of 23.3p, up
9% on the prior year.
"MAB continues to deliver on its strategy to grow market share
in all market conditions whilst maintaining a strong financial
position. Our mortgage completions increased by 18% and our market
share by 10%. We are pleased to have now completed the first
development phase of our new platform, which we are commencing
testing with a number of our business partners, before rolling out
to the remainder of our firms over the course of this year.
"We are focused on delivering sustainable long-term growth and
providing the best possible solutions and outcomes for our
customers. We plan to continue growing our market share and
mortgage completions, whilst leading the evolution of intermediary
distribution that we expect to see over the coming years."
2018 2017 Change
Revenue GBP123.3m GBP108.8m +13%
Gross profit GBP28.4m GBP25.9m +10%
Gross profit margin 23.1% 23.8%
Profit before tax GBP15.7m GBP14.5m +8%
PBT margin 12.7% 13.4%
Basic EPS 25.9p 23.8p +9%
Proposed final dividend per share 12.7p 11.9p +7%
Proposed total ordinary dividends
per share 23.3p 21.4p +9%
Operating profit to headline cash
conversion(5) 128% 120%
Operating profit to adjusted cash
conversion(1) 113% 109%
(1) Adjusted cash conversion is headline cash conversion
adjusted for increases in restricted cash balances of GBP2.3m in
2018 (2017: GBP1.5m) as a percentage of operating profit.
(2) Based on Average number of Advisers
(3) 'Gross mortgage lending arranged with new lenders' means
either a new mortgage in connection with a house purchase or a
re-mortgage with a different lender to the customer's existing
lender
(4) 2017 figure re-stated to exclude Product Transfers of
GBP0.7bn.
(5) Headline cash conversion is cash generated from operating
activities adjusted for movements in non-trading items including
loans to Appointed Representative firms ("ARs") and loans to
associates totalling GBP2.2m in 2018 (2017: GBP0.7m) as a
percentage of operating profit.
Current Trading and Outlook
UK Finance predicts that new gross mortgage lending will rise to
GBP278bn for 2019, indicating that the market is likely to be
broadly similar in the near term. These figures exclude Product
Transfers, and it has only been over the last year or so that the
large lenders have engaged intermediaries to help them to retain
their existing mortgage borrowers. The latest UK Finance statistics
indicate that the product transfer market is likely to continue to
increase from the c. GBP160bn for 2018.
Due to the uncertainty resulting from the extended Brexit
negotiations current trading for our estate agency based ARs
continues to be muted and similar to our experience towards the end
of 2018. As a result we expect revenue per adviser to be broadly
flat in 2019. Adviser numbers have continued to grow since the
period end with the Group having 1,234 Advisers at 15 March 2019.
We have good visibility that supports our anticipated growth in
Adviser numbers from new ARs. The majority of our existing ARs have
strong growth plans for 2019 and 2020, however those that operate
primarily in the estate agency sector are tending to pause their
expansion plans and delay filling vacancies. This will impact
marginally upon our average Adviser figures for 2019. Due to the
many initiatives that MAB has in place, we expect the growth in
revenue per adviser and adviser growth to return to normal levels
in 2020. These assumptions are based on no noticeable improvement
in the housing market in 2019 and 2020.
When the political climate becomes clearer, we expect to see
overall confidence return. At this point we should see the start of
some pent-up demand in the housing market being released and our
estate agency focused AR's responding in terms of delivering
adviser growth. We are confident that our strategy, driven by our
customers and their changing expectations, will continue to drive
growth in MAB's market share year on year and deliver attractive
returns to investors.
For further information please contact:
Mortgage Advice Bureau (Holdings) Plc Tel: +44 (0) 1332 525007
Peter Brodnicki - Chief Executive
Ben Thompson - Managing Director
David Preece - Chief Operating Officer
Lucy Tilley - Finance Director
Numis Securities Limited (NOMAD and Broker) Tel: +44 (0)20 7260
1000
Stephen Westgate / Hugo Rubinstein (Corporate
Finance)
Michael Burke (Corporate Broking)
Media Enquiries:
investorrelations@mab.org.uk
Analyst presentation
There will be an analyst presentation to discuss the results at
9:00am today at Numis Securities Limited, 10 Paternoster Square,
London, EC4M 7LT.
Those analysts wishing to attend are asked to contact
investorrelations@mab.org.uk
Copies of this final results announcement are available at
www.mortgageadvicebureau.com/investor-relations
Chief Executive's Review
This has been a strong performance from MAB given the current
confidence level in the UK economy. Revenue and profits have
continued to increase, building on our consistent track record of
delivering growth.
Our growth in mortgage lending arranged is set out below:
2018 2017 Increase
GBPbn GBPbn
------ ------ ---------
New mortgage lending 12.7 11.2 +14%
------ ------ ---------
Product Transfers 1.3 0.7 +79%
------ ------ ---------
Gross mortgage lending 14.0 11.9 +18%
====== ====== ---------
Total gross mortgage lending arranged (including Product
Transfers) increased by 18% to GBP14.0bn (2017: GBP11.9bn). Gross
mortgage lending arranged through new lenders(1) increased by 14%
to GBP12.7bn (2017: GBP11.2bn). This growth in purchase and
re-mortgage lending takes our overall share of UK new mortgage
lending up 10% to 4.7%, from 4.3% (2) .
This growth was achieved in a weaker house purchase market
during 2018. Although one or two segments of mortgage lending have
risen during the year, overall housing transactions have reduced by
2.5%, hence our full year 2018 results represent a clear
outperformance against the housing market.
Our fintech developments have progressed well. We are pleased to
have completed the first development phase of our new platform,
which we are commencing testing with a number of our business
partners, before rolling out to the remainder of our firms over the
course of this year. This new agile technology platform will
provide our advisers with increased and improved interaction with
mortgage customers, and, most importantly, ensure that those
customers receive an even better mortgage and home-moving or
re-mortgaging experience. As a result, in time we expect our new
technology platform to ultimately deliver improvements in adviser
productivity, as well as streamline processes within MAB, thereby
delivering cost efficiencies and hence increased profitability.
We believe that our innovation and investment in technology will
further differentiate us from our competitors, supporting adviser
growth and improved profitability.
(1) 'Gross mortgage lending arranged with new lenders' means
either a new mortgage in connection with a house purchase or a
re-mortgage with a different lender to the customer's existing
lender
(2) 2017 figure re-stated to exclude Product Transfers of
GBP0.7bn.
Market environment
Housing transactions by volume overall for 2018 were 2.5% below
2017, having been 5% below in the prior comparative period to H1
2018. Overall house moves continue to be low versus historical
averages and they remain in a flat, yet relatively stable,
environment. The current house purchase market remains
predominantly comprised of those moving home due to
non-discretionary lifestyle factors, first time buyers and serious
investors. There are multiple factors that contribute to this,
including constrained affordability, increased levels of stamp duty
for some, lack of available property to move to and, of course, an
overall air of uncertainty caused by the current political
environment.
The national picture for mortgages shows that First Time Buyer
activity was slightly up over the year and home-movers slightly
down, effectively cancelling each other out overall. Buy to Let
purchase has continued to slow, reflecting the taxation and other
changes applied to landlords over the last few years. This slowdown
is mirrored in a recent UK Residential Market Survey by the Royal
Institute of Chartered Surveyors (January 2019), which shows an
eleventh consecutive quarter of reductions in new instructions in
the lettings sector.
We expect this prolonged period of lower housing transactions to
contribute to the pent-up demand that at some point will need to be
released, perhaps when consumer confidence returns.
Mortgage rates remain at or near record lows, meaning that
although housing has become more expensive, servicing mortgage debt
is cheap compared to previous decades. The low cost of borrowing,
in conjunction with incentives for First Time Buyers such as the
Help to Buy Scheme and lenders offering a wider range of products
to First Time Buyers, mean that the mortgage market should continue
broadly at its current run rate, regardless of the impact of the
factors above.
Consumer awareness and increased competition amongst lenders
have been the catalysts for a higher level of re-mortgaging, with
both residential and buy to let re-mortgaging showing 13% and 12%
increases respectively on 2017, as well as the emergence of more
Product Transfers as customers lock in to new deals.
The UK Finance industry data on gross new mortgage lending
excludes product transfers. As intermediaries start to build their
share in the growing Product Transfer market, the latest UK Finance
statistics indicate that the product transfer market is likely to
continue to increase from the c. GBP160bn for 2018. As anticipated,
Product Transfers typically deliver lower overall income per
transaction compared to re-mortgages, with the impact of this
partially offset by Product Transfers having a much lower dropout
to completion and delivering banked income in a shorter timeframe.
Product transfers present our Advisers with new opportunities for
incremental customer interaction especially as MAB has historically
been predominantly a house purchase focused model. We expect
activity in this area to remain strong, and MAB is well positioned
to capitalise on this development and grow its market share.
In terms of the national housing outlook, it is expected that in
the near term transactions will remain suppressed across almost all
parts of the UK, with some of the near term pessimism linked to the
lack of clarity around the timing of the departure of the UK from
the EU. Housing stock for sale is set to remain at or close to
record lows. The twelve month outlook for house prices on a
national level remains broadly flat. With the exception of London
and the South East, prices are anticipated to at least hold steady
across the other UK regions over this time horizon.
UK Finance predicts a broadly similar market for gross new
mortgage lending (which excludes Product Transfers) for 2019.
Intermediary market share(1) has increased slightly to 74% for
2018. MAB and its non-estate agency based ARs' growth is not
directly reliant on increasing housing transactions, property
prices, or intermediary market share as our continued year on year
growth demonstrates.
Looking ahead, 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.
(1) Excluding Buy To Let, where intermediaries have a higher
market share, and Product Transfers, where intermediaries have a
lower market share
Delivering on our strategy
Technology developments
Technology is integral to our business. Importantly, we are
building our new technology platform to enhance the advice process
and enable more choice for our customers in terms of how they
research, receive advice and transact. Our platform is designed to
improve the customer and adviser experience. We are designing this
technology to create efficiencies for our ARs and MAB, to engage
more customers earlier in the transaction process and to optimise
management of national lead sources, as opposed to trying to build
technology to replace advice.
We believe that full advice should and will remain of paramount
importance to customers who are looking to make significant life
decisions, like buying a home or protecting their home and family
for example. We feel that technology should play a key role in
helping customers to move home and re-mortgage more
expediently.
In terms of our own technology progress, we are pleased to have
completed the first development phase of our new platform, which we
are commencing testing with a number of our business partners,
before rolling out to the remainder of our firms over the course of
this year.
Our new platform has been deliberately built to be agile,
enabling us to continually evolve its overall shape, design and
performance, driven by customer behaviour and expectations. We will
continuously seek improvements and enhancements to the platform,
thereby ensuring the adviser and customer experience can become the
best it can potentially be. Our objective is to ensure we have a
future proof business model that stays relevant to all customers
regardless of how they want to research, receive advice and
transact.
Through committing investment and focus towards this continuous
project, we aim to have a platform that becomes best-of-breed in
our market, enabling us to attract more firms and advisers into
MAB, as well as helping customers to benefit from a more seamless
and speedy home-buying and re-mortgage process.
This first phase of development is the beginning of our journey
in achieving that. Some of the key benefits of this phase include
supporting our lead generation and management strategy, introducing
significant time saving efficiencies into the information gathering
process and delivering live updates to our customers 24/7.
We expect our new technology platform to ultimately deliver
improvements in adviser productivity, as well as streamline
processes within MAB, thereby delivering cost efficiencies and
hence increased profitability. Each phase of this new technology
will further strengthen our unique business model.
Whilst we continue to prioritise, accentuate and support the
value of advice from adviser to customer, we are also cognisant of
wider technology changes, both in our market and in other sectors.
We are alive to possible future changes in customer research and
buying behaviour and need to be able to anticipate and react to
change, as well as make the most of any associated new
opportunities that might arise from change.
Looking to the future and new models that may emerge in the
mortgage market, our technology is being built such that MAB will
be agile in responding to all new models, driven by the way in
which customers decide they want to research, receive advice and
transact. We will be able to respond quickly and tailor solutions
to their demands as well as apply these solutions cross border.
Through anticipating any potential market changes, we are
positioning the business as well as we can do technologically, to
capture increasing numbers of new customer-related
opportunities.
Driving income opportunities
In a market that remains challenged, with political and perhaps
wider uncertainty, it is important for us to continue our emphasis
on increasing our market share as well as focusing on wider Group
success and profitability through new opportunities.
Broadening our addressable market
Currently MAB typically interacts with customers aged between 35
and 65 whilst they are buying their first homes and then moving
and/or re-mortgaging. Many first time buyers have previously been
renting properties between the ages of 20 and 35. Through our
strong estate agency relationships we intend to nurture these
customers at a younger age. We will provide protection solutions to
tenants who rent pre home ownership, as well as to those renting on
a permanent basis.
Additionally, we are looking to serve better our customers who
are aged 60 and over. There is a new market segment that is
emerging relating to lending into retirement, or, so-called 'Later
Life Lending'. The most specialist part of this market is "Equity
Release" where no repayments of capital or interest are made. Some
lenders have already expanded their mortgage portfolios to also
include interest only products that help customers to borrow money
at older ages, and, also to borrow that money until they are much
older. This relaxation or innovation is in response to demand from
an ageing population, and those that want to provide
intergenerational assistance to help family members to fund
university or a first home for example.
It is estimated that Later Life Lending will represent c.
GBP80bn of additional outstanding mortgage lending by 2027(1) . It
is also estimated that the housing wealth of the 'over-55s' is
worth GBP2.5 trillion(2) . Again, the anticipated growth in this
market presents MAB with incremental opportunities, as a direct
result of a new and growing market segment which will be highly
intermediated, with customers requiring full advice.
(1) Centre for Economics and Business Research and more 2
life
(2) Swiss Re Term and Health Watch 2017
Extending product portfolio
Currently MAB is typically involved in the 'middle part' of the
home-moving process, whereas we aim ultimately to be involved from
start to finish. MAB intends to become far more involved in the
home moving experience as a whole. In the medium term, we intend to
expand our involvement beyond the mortgage transaction, through
vertical integration with the ultimate aim of using technology to
assist in the whole home moving process for a customer, and
increasing the footprint of our services for homeowners as well as
home movers thereby adding further customer value. We will explore
how best to integrate this into our mortgage and protection
process.
We continue to nurture and grow our portfolio of investments,
with a view to helping them become more meaningful to MAB, both
from a financial perspective and in terms of where and how they fit
into the MAB business model.
For example, new business levels through our conveyancing
platform business Sort Refer have continued to rise, as they also
have in our surveying business Pinnacle Surveyors. We see it as
increasingly important to broaden our home-moving related presence
and join all elements of the customer journey together, enhancing
our overall proposition and customer experience, and our
investments in these two businesses echo both our desire and
success in that regard.
Protection
We take pride not just in helping customers with securing their
new mortgage borrowing, but importantly we seek to provide
customers with appropriate and adequate protection and insurance
against both unforeseen and tragic circumstances.
The consistency of protection offerings in the mortgage market
can vary widely. Over the course of the last year we have been
embedding protection more deeply into our technology driven
processes, and have built such processes to help ensure that
protection opportunities are not missed. In addition to this, we
have implemented centralised internal outsourcing solutions for our
customers where their needs are best served by a different MAB
adviser.
Firstly, this is to ensure that all MAB customers receive a
consistent experience regardless of which adviser they meet with,
and secondly through making this more integral to the mortgage
process, we ensure that all customers with a genuine protection
need are offered the chance to take out adequate cover, thereby
protecting their most important assets, namely their homes and
families.
This change has helped us to maintain healthy margins over a
period in time when there has been downward pressure arising from a
slowdown in housing transactions and more of a move towards Product
Transfer business.
Product Transfers and Re-mortgages
Our success with Product Transfers lags the market average for
intermediaries due to MAB historically being primarily a purchased
focused model. Our technology developments this year will start to
impact positively on our penetration rate of these opportunities
and we expect to steadily increase our share of this market
segment.
Overseas expansion
We continue to test and learn overseas, through our business in
Australia. Currently, we do not use MAB's bespoke technology in
this market, and we expect to launch our new technology platform in
Australia in 2020. A clear strategy to escalate growth has been
agreed and the delivery of MAB's new technology platform will allow
market share growth to escalate at a far faster rate in 2020 and
beyond, as well as allow MAB to explore other potential cross
border opportunities in the medium term.
Summary
This has been another strong performance from MAB given the
current confidence level in the UK economy. We have a lot of
positive initiatives and new processes designed to ensure that we
continue to grow our market share and profitability at a time when
wider market conditions remain somewhat muted and in some ways
uncertain. Our investment in new technology will enable us to
continue our growth through the recruitment of new partner firms
and advisers. Our aim is to attract more firms, through the
provision of best-of-breed technology, services and business
support. We want to work with firms that want to work and grow with
MAB, and provide customers with the best possible advice and
experience.
We continue to invest and focus our efforts in keeping MAB at
the forefront of change, especially technological change. We intend
to have the best proposition for our advisers and we will continue
to help them to provide the best possible experience to their
customers. We will also continue investing in building our MAB
brand, and provide support in lead generation to help our AR firms
and advisers to grow their businesses and market share further.
This virtuous circle is the model we back and support, in order
to continue our track record of success, with technology very much
leading the way. We intend to balance investing in new technology
and driving new income opportunities, whilst continuing to deliver
strong financial results.
MAB has made (and continues to develop) several key strategic
investments and considers new opportunities that arise, as and when
they are deemed to clearly support, enhance and accelerate our
agenda of increasing our market share and profitability. Whilst our
investments to date have been relatively modest in size, we will
consider making larger investments to help accelerate the
development of our customer and adviser proposition, lead
generation and distribution.
Business Review of the Year
I am pleased to report further strong growth in revenue of 13%
to GBP123.3m with profit before tax rising by 8% to GBP15.7m. MAB's
gross mortgage lending (including product transfers) increased by
18% to GBP14.0bn in 2018 (2017: GBP11.9bn) with the average number
of Advisers increasing by 12%. MAB's overall share of UK new
mortgage lending increased by 10% to 4.7% (2017: 4.3%(1) ).
(1) 2017 figure re-stated to exclude Product Transfers of
GBP0.7bn.
Industry data and trends
Gross new mortgage lending activity in 2018 grew by 4% to
GBP268bn (2017: GBP258bn). UK Finance estimates new mortgage
lending of GBP278bn in 2019; indicating the market is likely to be
broadly similar in the near term. The UK Finance industry data on
gross new mortgage lending excludes Product Transfers. As
intermediaries start to build their share in the growing Product
Transfer market, the product transfer market is likely to continue
to increase from the c. GBP160bn for 2018 indicated by the latest
UK Finance statistics.
UK property transactions by volume for 2018 were c. 2.5% lower
than in 2017, with transactions in H1 2018 being 5% lower than H1
2017, and transactions in H2 2018 being 1% lower than H2 2017, as
shown in the graph below.
http://www.rns-pdf.londonstockexchange.com/rns/2209T_1-2019-3-18.pdf
Source: HM Revenue and Customs
11% increases in both residential and buy to let re-mortgage
volumes combined with property inflation of 3%(1) offset the slight
fall in property transactions and led to an increase in UK gross
new mortgage lending for the year of 4%, as illustrated in the
graph below.
(1) Land Registry House Price Index
http://www.rns-pdf.londonstockexchange.com/rns/2209T_2-2019-3-18.pdf
Source: UK Finance Regulated Mortgage Survey (excludes product
transfers with the same lender), Bank of England, UK Finance BTL
data (used for further analysis)
UK gross mortgage lending in 2018 for home-owner purchases
(including first time buyers) and remortgages grew by 2% and 13%
respectively. UK gross mortgage lending in 2018 for BTL remortgages
increased by 12%, with BTL purchases reducing by 15%.
Approximately 74% 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 2018 which is materially the same as 2017. MAB
expects this position to remain broadly stable going forward.
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/2209T_3-2019-3-18.pdf
Revenue
Revenue increased by 13% to GBP123.3m (2017: GBP108.8m). A key
driver of revenue is the average number of Advisers during the
period. Our business model continues to attract forward thinking
ARs who are seeking to expand and grow their own market share.
Average adviser numbers increased by 12% to 1,130 (2017: 1,008) due
to a combination of expansion by existing ARs and the recruitment
of new ARs.
The Group generates revenue from three core areas, summarised as
follows:
Income source 2018 2017 Increase
GBPm GBPm
------ ------ ---------
Mortgage procuration fees 56.2 46.8 20%
------ ------ ---------
Protection and General Insurance
Commission 47.0 42.8 10%
------ ------ ---------
Client Fees 18.3 17.5 5%
------ ------ ---------
Other Income 1.8 1.7 7%
------ ------ ---------
Total 123.3 108.8 13%
------ ------ ---------
MAB's revenue, in terms of proportion, is split as follows:
Income source 2018 2017
Mortgage procuration fees 46% 43%
----- -----
Protection and General Insurance
Commission 38% 39%
----- -----
Client Fees 15% 16%
----- -----
Other Income 1% 2%
----- -----
Total 100% 100%
----- -----
All income sources continued to grow with the average number of
Advisers in the period increasing by 12% on last year, with a 1%
increase in average revenue per adviser.
With gross mortgage lending arranged (including Product
Transfers) increasing by 18% for the year, mortgage procuration
fees increased by 20%. The increase of 10% in protection and
general insurance commission reflects a reduction in the proportion
of our residential purchase business, resulting from reduced house
purchase transactions, and an increase in re-mortgaging and Product
Transfers which have lower protection attachment rates. Client fees
rose by 5% in the year, reflecting the increase in re-mortgaging
and Product Transfers over the comparative period, where a client
fee is less likely to be charged.
The effect of increased re-mortgaging and Product Transfers
translates into the revenue mix which has skewed more in favour of
procuration fees in 2018.
Looking ahead, we expect client fees to become increasingly
dependent upon the type and complexity of the mortgage transaction,
as well as the delivery channel. This will lead to a broader spread
of client fees on mortgage transactions, which, by their nature,
are our lowest margin revenue stream.
Gross profit margin
Gross profit margin for the year was 23.1% (2017: 23.8%) partly
due to the revenue mix being less in favour of protection resulting
from a reduction in house purchase mortgages and an increase in
re-mortgages and Product Transfers. The Group typically receives a
slightly reduced margin as its existing ARs grow their revenue
organically through increasing their Adviser numbers. In addition,
larger new ARs typically join the Group on lower than average
margins due to their existing scale, which therefore impacts upon
the Group's gross margin.
Going forward, we expect to see some further erosion of gross
profit margin due to the continued growth of our existing ARs and
the addition of new larger ARs.
Overheads
Overheads as a percentage of revenue were 10.7% (2017: 10.9%).
This reduction in overheads as a percentage of revenue results from
the scalable nature of the majority of the cost base as well as our
regulatory costs being broadly consistent with the prior year due
to a change in FSCS charging periods this year to realign with the
FCA financial year, offset by increased IT costs as indicated.
Certain costs, primarily those relating to compliance personnel,
which represent approximately 20% of our cost base, are closely
correlated to the growth in the number of Advisers, due to the high
standards we demand and the requirement to maintain regulatory
spans of control. The balance of our compliance costs mainly relate
to FCA and FSCS regulatory fees and charges. The FCA have now
confirmed that pure protection intermediation has moved from the
Life and Pensions Intermediation funding class of FSCS to the
General Insurance Distribution funding class to ensure a fairer
distribution of levies. Due to these changes we believe there won't
be more than a modest increase in our FCA and FSCS fees in 2019.
The majority of the remainder of MAB's costs typically rise at a
slower rate than revenue which will, in part, counter the expected
erosion of gross margin as the business continues to grow.
As a result of MAB's IT plans, and as previously indicated, we
expect our amortisation on IT capital expenditure and IT costs to
increase by a modest amount. All development work on MIDAS Pro is
treated as revenue expenditure.
Profit before tax and margin thereon
Profit before tax rose by 8% to GBP15.7m (2017: GBP14.5m) with
the margin thereon being 12.7% (2017: 13.4%).
Net finance revenue
Net finance revenues of GBP0.08m (2017: GBP0.04m) reflect
continued low interest rates.
Taxation
The effective rate of tax fell to 15.9% (2017: 17.2%),
principally due to the tax deduction arising following the exercise
of the second tranche of employee share options since IPO. Going
forward we expect our effective tax rate to be marginally below the
prevailing UK corporation tax rate subject to tax credits for MAB's
research and development expenditure on our continued development
of MIDAS Pro, MAB's proprietary software, still being available and
further tax deductions arising from the exercise of share
options.
Earnings per share and dividend
Earnings per share rose by 9% to 25.9 pence (2017: 23.8
pence).
The Board is pleased to propose a final dividend for the year
ended 31 December 2018 of 12.7 pence per share (2017: 11.9 pence
per share), amounting to a cash cost of GBP6.5m. Following payment
of the dividend, the Group will continue to maintain significant
surplus regulatory reserves. This proposed final dividend
represents circa 90% of the Group's post-tax profits for H2 2018
and reflects our ongoing intention to distribute excess capital.
MAB requires circa 10% of its profit after tax to fund increased
regulatory capital and other regular capital expenditure.
The record date for the final dividend is 26 April 2019 and the
payment date is 24 May 2019. The ex-dividend date will be 25 April
2019.
Cash flow and cash conversion
The Group's operations produce positive cash flow. This is
reflected in the net cash generated from operating activities of
GBP14.9m (2017: GBP14.5m).
Headline cash conversion (1) was:
2018 128%
2017 120%
-----------------
Adjusted cash conversion (2) was:
2018 113%
-----------------
2017 109%
-----------------
The Group's operations are capital light with our most
significant ongoing capital investment being in computer equipment.
Only GBP0.8m of capital expenditure on office and computer
equipment and software licences was required during the period
(2017: 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 is treated as revenue
expenditure.
The Group had no bank borrowings at 31 December 2018 (2017:
GBPnil) with unrestricted bank balances of GBP13.9m (31 December
2017: GBP13.2m).
The Group has a regulatory capital requirement amounting to 2.5%
of regulated revenue. At 31 December 2018 this regulatory capital
requirement was GBP2.8m (31 December 2017: GBP2.5m), with the Group
having a surplus of GBP12.0m.
The following table demonstrates how cash generated from
operations was applied:
GBPm
Unrestricted bank balances at the beginning of the year 13.2
Cash generated from operating activities excluding movements in restricted balances and dividends
received from associates 15.0
Issue of shares 0.5
Dividends received from associates 0.4
Dividends paid (11.5)
Tax paid (2.8)
Capital expenditure (including software) (0.8)
Investments in associates (0.1)
Unrestricted bank balances at the end of the period 13.9
-------------------------------------------------------------------------------------------------- ------
The Group's treasury strategy is to reduce risk by spreading
deposits over a number of institutions rather than to seek marginal
improvements in returns.
(1) Headline cash conversion is cash generated from operating
activities adjusted for movements in non-trading items including
loans to Appointed Representative firms ("ARs") and loans to
associates totalling GBP2.2m in 2018 (2017: GBP0.7m) as a
percentage of operating profit.
(2) Adjusted cash conversion is headline cash conversion
adjusted for increases in restricted cash balances of GBP2.3m in
2018 (2017: GBP1.5m) as a percentage of operating profit.
Current Trading and Outlook
UK Finance predicts that new gross mortgage lending will rise to
GBP278bn for 2019, indicating that the market is likely to be
broadly similar in the near term. These figures exclude Product
Transfers, and it has only been over the last year or so that the
large lenders have engaged intermediaries to help them to retain
their existing mortgage borrowers. The latest UK Finance statistics
indicate that the product transfer market is likely to continue to
increase from the c. GBP160bn for 2018.
Due to the uncertainty resulting from the extended Brexit
negotiations current trading continues to be muted for our estate
agency based ARs and similar to our experience towards the end of
2018. As a result we expect revenue per adviser to be broadly flat
in 2019. Adviser numbers have continued to grow since the period
end with the Group having 1,234 Advisers at 15 March 2019. We have
good visibility that supports our anticipated growth in Adviser
numbers from new ARs. The majority of our existing ARs have strong
growth plans for 2019 and 2020, however those that operate
primarily in the estate agency sector are tending to pause their
expansion plans and delay filling vacancies. This will impact
marginally upon our average Adviser figures for 2019. Due to the
many initiatives that MAB has in place, we expect the growth in
revenue per adviser and adviser growth to return to normal levels
in 2020. These assumptions are based on no noticeable improvement
in the housing market in 2019 and 2020.
When the political climate becomes clearer, we expect to see
overall confidence return. At this point we should see the start of
some pent-up demand in the housing market being released, and our
estate agency focused AR's responding in terms of delivering
adviser growth. We are confident that our strategy, driven by our
customers and their changing expectations, will continue to drive
growth in MAB's market share year on year and deliver attractive
returns to investors.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF MORTGAGE ADVICE
BUREAU (HOLDINGS) PLC
Opinion
We have audited the financial statements of Mortgage Advice
Bureau (Holdings) plc (the "parent company") and its subsidiaries
(the 'group') for the year ended 31 December 2018 which comprise
the consolidated statement of comprehensive income, the
consolidated and company statement of financial position, the
consolidated and company statement of changes in equity, the
consolidated and company 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 financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. The financial reporting framework that has been
applied in the preparation of the parent company financial
statements is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard 102 The Financial
Reporting Standard in the United Kingdom and Republic of Ireland
(United Kingdom Generally Accepted Accounting Practice).
In our opinion:
-- the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs as at 31
December 2018 and of the group's profit for the year then
ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the group
and the parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you
where:
-- the directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the group's or the parent company's ability to continue
to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are
authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Key audit Key audit matter How we addressed the key audit
matters description matter in the audit
Revenue recognition Revenue comprises We responded to this risk by
(Note 3) of commissions, client performing the following procedures:
fees and other income.
* We tested the operating effectiveness of controls in
Revenue is processed place over the reconciliation between revenue and
in the operating cash banked.
system upon receipt
of third party reports
once transactions * We tested on a sample basis that the third party
have been exchanged revenue reports had been properly accounted for in
or completed and respect of the completeness of revenue.
is then accounted
for when it is matched
with cash received * Using third party reports, we recalculated the
in the bank on a procuration fees independently.
monthly basis.
Revenue recognition * We performed cut-off tests by verifying back to third
is considered to party reports.
be a significant
audit risk as it
is a key driver of
return to investors
and there is a risk
that there could
be manipulation or
omission of amounts
recorded in the
system.
----------------------- -----------------------------------------------------------------------
Clawback provision The clawback provision
(Note 19) relates to the * We undertook a critical assessment of the calculated
estimated provision and validated all inputs and assumptions
value of repaying used in determining the clawback provision.
commission received
up front on life
assurance policies * We have compared all the assumptions used in the
that may lapse in model with third party statements.
a period of up to
four years following
inception of the
policies.
The clawback provision
is considered a
significant
audit risk due to
the management
judgement
and estimation applied
in calculating the
provision. The
provision
is determined using
a model which 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 share
of any clawback,
likely future lapse
rates, lapse rate
history, and the
success of the
in-house
team that focuses
on preventing lapses
and/or generating
new income at the
point of a lapse.
----------------------- -----------------------------------------------------------------------
Carrying value The group has granted
of loans to loans to its * As IFRS 9 was adopted on 1 January 2018, we performed
associates associates. audit procedures on the
(Note 13) These loans are held
at amortised cost.
opening balances to gain assurance
The carrying value on the transition from IAS 39.
of loans to associates This included
is considered a evaluating the accounting interpretations
significant for compliance with IFRS 9 and
risk due to the testing the
judgements adjustments and disclosures
and estimates used made on transition.
by management in * We ensured that the classification of the loans to
the preparation of associates was in line with the requirements of IFRS
the expected credit 9.
loss model as required
by IFRS 9 together
with the relevant * We reviewed the agreements for new loans granted
disclosures required during the year.
* We reviewed the Expected Credit Loss model in respect
of the loans to associates and checked if this is in
compliance with IFRS 9, which involved:
* Critical assessment over inputs used for
determination of the level of credit risk, stage
allocation, exposure at default, probability of
default and loss given default; and
* Sensitivity analysis performed on the inputs used.
* We assessed the adequacy and appropriateness of
disclosures for compliance with accounting standards
IFRS 9 and IFRS 7.
----------------------- -----------------------------------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements.
Materiality Purpose Key considerations Quantum
measure and benchmarks (GBP)
Financial Assessing GBP787,000
statement whether * A principal consideration for members of the company (31 December
materiality. the financial in assessing the financial performance of the group 2017:
statements GBP700,000)
(5% of profit as a whole
before tax) present
a true and fair
view.
---------------- ----------------------------------------------------------- ----------------
Performance Lower level of GBP590,000
materiality. materiality * Financial statement materiality (31 December
applied in 2017:
(75% of materiality) performance GBP525,000)
of the audit * Risk and control environment
when
determining the
nature and * No history of misstatements
extent
of testing
applied
to individual
balances
and classes of
transactions.
---------------- ----------------------------------------------------------- ----------------
We determined materiality for the parent company to be
GBP218,000 (2017: GBP192,000) which represents 5% of net assets. We
have used net assets as the parent company acts as a holding
company only. We have then set the performance materiality at 75%
(2017:75%) due no identified misstatements in the past.
We agreed with the audit committee that we would report to the
committee all individual audit differences identified during the
course of our audit in excess of GBP15,000 (2017: GBP14,000) for
the group and GBP4,000 (2017: GBP4,000) for the parent company. We
also agreed to report differences below these thresholds that, in
our view warranted reporting on qualitative grounds.
An overview of the scope of our audit
Our audit approach was scoped by obtaining an understanding of
the Group's activities, the key functions undertaken by the Board
and the overall control environment. Based on this understanding we
assessed those aspects of the Group's transactions and balances
which were most likely to give rise to a material misstatement at a
Group level.
The audit of the Group was conducted by BDO LLP directly at
Group level as the Group's accounting system records all
transactions as a Group with each transaction marked with a company
code to enable financial statements to be produced for each
subsidiary when required. The audit of the parent company was
conducted by BDO LLP after its financial statements were
deconsolidated from the Group accounting system.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and
the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not
visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the parent company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
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.
Leigh Treacy (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
18 March 2019
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 2018
Note
2018 2017
GBP'000 GBP'000
--------------------------------------------------- ------------- ---------- ---------
Revenue 3 123,291 108,847
Cost of sales 4 (94,851) (82,945)
--------------------------------------------------- ------------- ---------- ---------
Gross profit 28,440 25,902
Administrative expenses (13,201) (11,909)
Share of profit of associates 13 361 500
--------------------------------------------------- ------------- ---------- ---------
Operating profit 15,600 14,493
Finance income 7 82 42
Profit before tax 15,682 14,535
Tax expense 8 (2,492) (2,494)
--------------------------------------------------- ------------- ---------- ---------
Profit for the year attributable to
equity holders of parent company 13,190 12,041
--------------------------------------------------- ------------- ---------- ---------
Total comprehensive income attributable
to equity holders of parent company 13,190 12,041
--------------------------------------------------- --------------------- ---------
Earnings per share attributable to the owners of
the parent company
Basic 9 25.9p 23.8p
--------------------------------------------------- ------------- ---------- ---------
Diluted 9 25.3p 23.2p
--------------------------------------------------- ------------- ---------- ---------
The notes that follow form part of these financial
statements.
Consolidated statement of financial position
as at 31 December 2018
2018 2017
Note GBP'000 GBP'000
-------------------------------- ------ --------- ---------
Assets
Non-current assets
Property, plant and equipment 11 2,616 2,648
Goodwill 12 4,114 4,114
Other intangible assets 12 645 98
Investments 13 1,573 1,339
Other receivables 15 2,296 1,276
Deferred tax asset 20 878 925
Total non-current assets 12,122 10,400
-------------------------------- ------ --------- ---------
Current assets
Trade and other receivables 15 4,603 3,150
Cash and cash equivalents 16 25,589 22,551
-------------------------------- ------ --------- ---------
Total current assets 30,192 25,701
-------------------------------- ------ --------- ---------
Total assets 42,314 36,101
-------------------------------- ------ --------- ---------
Equity and liabilities
Equity attributable to owners of the
parent company
Share capital 21 51 51
Share premium 4,094 3,574
Capital redemption reserve 20 20
Share option reserve 1,675 1,450
Retained earnings 14,829 13,071
-------------------------------- ------ --------- ---------
Total equity 20,669 18,166
-------------------------------- ------ --------- ---------
Liabilities
Non-current liabilities
Provisions 19 1,704 1,496
Deferred tax liability 20 54 51
-------------------------------- ------ --------- ---------
Total non-current liabilities 1,758 1,547
-------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 17 18,690 14,999
Corporation tax liability 1,197 1,389
-------------------------------- ------ --------- ---------
Total current liabilities 19,887 16,388
-------------------------------- ------ --------- ---------
Total liabilities 21,645 17,935
-------------------------------- ------ --------- ---------
Total equity and liabilities 42,314 36,101
-------------------------------- ------ --------- ---------
The notes that follow form part of these financial
statements.
The financial statements were approved by the Board of Directors
on
P Brodnicki L Tilley
Director Director
Consolidated statement of changes in equity
for the year ended 31 December 2018
Capital Share
Share Share redemption option Retained Total
capital premium reserve reserve earnings Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------- ---------- ------------ --------- ----------- -----------
Balance at 1 January
2017 51 3,042 20 380 11,680 15,173
Profit for the year - - - - 12,041 12,041
------------------------ ---------- ---------- ------------ --------- ----------- -----------
Total comprehensive
income - - - - 12,041 12,041
------------------------ ---------- ---------- ------------ --------- ----------- -----------
Transactions with
owners
Issue of shares - 532 - - - 532
Share based payment
transactions - - - 333 - 333
Deferred tax asset
recognised in equity - - - 799 - 799
Reserve transfer - - - (62) 62 -
Dividends paid - - - - (10,712) (10,712)
------------------------ ---------- ---------- ------------ --------- ----------- -----------
Transactions with
owners - 532 - 1,070 (10,650) (9,048)
------------------------ ---------- ---------- ------------ --------- ----------- -----------
Balance at 31 December
2017 and 1 January
2018 51 3,574 20 1,450 13,071 18,166
Profit for the year - - - - 13,190 13,190
Total comprehensive
income - - - - 13,190 13,190
------------------------ ---------- ---------- ------------ --------- ----------- -----------
Transactions with
owners
Issue of shares - 520 - - - 520
Share based payment
transactions - - - 477 - 477
Deferred tax asset
recognised in equity - - - (185) - (185)
Reserve transfer - - - (67) 67 -
Dividends paid - - - - (11,499) (11,499)
Transactions with
owners - 520 - 225 (11,432) (10,687)
------------------------ ---------- ---------- ------------ --------- ----------- -----------
Balance at 31 December
2018 51 4,094 20 1,675 14,829 20,669
------------------------ ---------- ---------- ------------ --------- ----------- -----------
The notes that follow form part of these financial
statements
Consolidated statement of cash flows
for the year ended 31 December 2018
Notes 2018 2017
GBP'000 GBP'000
------------------------------------------- ------ ---------- ---------
Cash flows from operating activities
Profit for the year before tax 15,682 14,535
Adjustments for:
Depreciation of property, plant
and equipment 11 207 201
Amortisation of intangibles 12 44 14
Share based payments 477 333
Share of profit from associates 13 (494) (500)
Dividends received from associates 13 392 353
Finance income 7 (82) (42)
------------------------------------------- ------ ---------- ---------
16,226 14,894
Changes in working capital
Increase in trade and other receivables
(other than accrued interest income) 7 (2,437) (1,159)
Increase in trade and other payables 3,691 2,594
Increase in provisions 208 277
Cash generated from operating activities 17,688 16,606
Income taxes paid (2,818) (2,151)
------------------------------------------- ------ ---------- ---------
Net cash generated from operating
activities 14,870 14,455
------------------------------------------- ------ ---------- ---------
Cash flows from investing activities
Purchase of property, plant and
equipment 11 (175) (129)
Purchase of intangibles 12 (591) (103)
Acquisitions of associates and
investments 13 (132) (184)
Deferred consideration on acquisition
of associates - (50)
------------------------------------------- ------ ---------- ---------
Net cash used in investing activities (898) (466)
------------------------------------------- ------ ---------- ---------
Cash flows from financing activities
Interest received 7 45 31
Issue of shares 21 520 532
Dividends paid 10 (11,499) (10,712)
------------------------------------------- ------ ---------- ---------
Net cash used in financing activities (10,934) (10,149)
------------------------------------------- ------ ---------- ---------
Net increase in cash and cash equivalents 3,038 3,840
Cash and cash equivalents at the
beginning of year 22,551 18,711
------------------------------------------- ------ ---------- ---------
Cash and cash equivalents at the
end of the year 25,589 22,551
------------------------------------------- ------ ---------- ---------
The notes that follow form part of these financial
statements
Notes to the consolidated financial statements
for the year ended 31 December 2018
1 Accounting policies
Basis of preparation
The principal accounting policies adopted in the preparation of
the consolidated financial statements are set out below. The
policies have been consistently applied to all the years
presented.
The consolidated financial statements are presented in Great
British Pounds, which is also the Group's functional currency. All
amounts are rounded to the relevant thousands, unless otherwise
stated.
These financial statements have been prepared under the
historical cost convention and in accordance with International
Financial Reporting Standards, International Accounting Standards
and Interpretations (collectively IFRSs) issued by the
International Accounting Standards Board (IASB) as adopted by the
European Union (EU) (EU "adopted IFRSs") and with those parts of
the Companies Act 2006 that are applicable to companies that
prepare financial statements in accordance with IFRSs.
The preparation of financial statements in compliance with
adopted EU IFRS requires the use of certain critical accounting
estimates. It also requires Group management to exercise judgement
in applying the Group's accounting policies. The areas where
significant judgements and estimates have been made in preparing
the financial statements and their effect are disclosed in note
2.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out earlier in this announcement. 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 GBP15.6m during 2018
(2017: GBP14.5 million) and had net current assets of GBP10.3m at
31 December 2018 (31 December 2017: GBP9.3m) and equity
attributable to owners of the Group of GBP20.7m (31 December 2017:
GBP18.2m).
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the annual
report and accounts.
Changes in accounting policies
New standards, interpretations and amendments effective for the
year ended 31 December 2018
The Group applied IFRS 9 for the first time. The nature and the
effect of the changes as a result of adoption of this new
accounting standard are described below.
Several other standards and interpretations apply for the first
time in 2018 but do not have an impact on the consolidated
financial statements of the Group. The Group has not early adopted
any standards, interpretations or amendments that have been issued
but are not yet effective.
-- IFRS 9 Financial Instruments.
The adoption of IFRS 9, which replaces IAS 39 Financial
Instruments: Recognition and Measurement from 1 January 2018 has
impacted its consolidated financial statements in one key area:
The Group has applied an expected credit loss model when
calculating impairment losses on its trade and other receivables
and its cash and cash equivalents. This resulted in increased
impairment provisions and greater judgement due to the need to
factor in forward looking information when estimating the
appropriate amount of provisions. In applying IFRS 9, the Group has
considered the probability of a default occurring over the
contractual life of its trade and other receivables on initial
recognition of those assets. Under the new model applied to all
trade and other receivables, the amount of impairment losses as at
1 January 2018 was not material. In accordance with the provisions
of IFRS 9, an impairment provision of GBP0.3m as at 31 December
2018 has been recognised in the consolidated financial statements
in respect of loans to associated companies.
The Group has chosen not to restate comparatives on adoption of
IFRS 9 and, therefore, this change has been processed at the date
of initial application (i.e. 1 January 2018), and presented in the
statement of changes in equity for the year to 31 December
2018.
-- IFRS 15 Revenue from Contracts with Customers. This sets out
the requirements for recognising revenue that apply to contracts
with customers, except for those covered by standards on leases,
insurance contracts and financial instruments. This standard did
not have any impact on the Group.
IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. Under IFRS 15,
revenue is recognised when a customer obtains control of the goods
or services.
Due to the nature of the revenue of the Group there is no impact
on the Group.
-- IFRS 2 Classification and Measurement of Share-based Payment
Transactions - Amendments to IFRS 2. This standard addresses three
main areas: the effects of vesting conditions on the measurement of
cash-settled share-based payment transaction; the classification of
a share-based payment transaction with net settlement features for
withholding tax obligations; and accounting where a modification to
the terms and conditions of a share-based payment transaction
changes its classification from cash-settled to equity-settled.
These amendments did not have any impact on the Group.
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.
-- IFRIC Interpretation 23 - Uncertainty over income tax
treatments. The interpretation addresses the accounting for income
taxes when tax treatments involve uncertainty that affects the
application of IAS 12 (Income taxes) and does not apply to taxes or
levies outside the scope of IAS 12, nor does it specifically
include requirements relating to interest and penalties associated
with uncertain tax treatments. The interpretation specifically
addresses the following:
-- Whether an entity considers uncertain tax treatments
separately
-- The assumptions an entity makes about the examination of tax
treatments by taxation authorities
-- How an entity determines taxable profit (tax loss), tax
basis, unused tax losses, unused tax credits and tax rates
-- How an entity considers changes in facts and
circumstances.
An entity must determine whether to consider each uncertain tax
treatment separately or together with one or more uncertain tax
treatments. The approach that better predicts the resolution of the
uncertainty should be followed. The interpretation is effective for
annual reporting periods beginning on or after 1 January 2019, but
certain transition reliefs are available. The Group will apply this
interpretation and it may affect its consolidated financial
statements and the required disclosures.
In addition, the Group may need to establish processes and
procedures to obtain information that is necessary to apply the
Interpretation on a timely basis.
-- Amendments to IFRS 10 and IAS 28: Sale or contribution of
Assets between an Investor and its Associate or Joint Venture. The
amendments address the conflict between IFRS 10, Consolidated
Financial Statements and IAS 28 in dealing with the loss of control
of a subsidiary that is sold or contributed to an associate or
joint venture. The amendments clarify that the gain or loss
resulting from the sale or contribution of assets that constitute a
business, as defined in IFRS 3, between an investor and its
associate or joint venture, is recognised in full. Any gain or loss
resulting from the sale or contribution of assets that do not
constitute a business, however, is recognised only to the extent of
unrelated investors' interests in the associate or joint venture.
The IASB has deferred the effective date of these amendments
indefinitely, but an entity that early adopts the amendments must
apply them prospectively. The Group will apply these amendments
when they become effective.
-- Amendments to IAS 28: Long-term interests in associates and joint ventures.
The amendments clarify that an entity applies IFRS 9 to
long-term interests in an associate or joint venture to which the
equity method is not applied but that, in substance, form part of
the net investment in the associate or joint venture (long-term
interests). This clarification is relevant because it implies that
the expected credit loss model in IFRS 9 applies to such long-term
interests.
The amendments also clarified that, in applying IFRS 9, an
entity does not take account of any losses of the associate or
joint venture, or any impairment losses on the net investment,
recognised as adjustments to the net investment in the associate or
joint venture that arise from applying IAS 28 Investments in
Associates and Joint Ventures.
The amendments should be applied retrospectively and are
effective from 1 January 2019, with early application permitted.
The Group will apply these amendments when they become
effective.
Annual Improvements 2015-2017 Cycle (issued in December
2017)
-- IFRS 3 Business Combinations. The amendments clarify that,
when an entity obtains control of a business that is a joint
operation, it applies the requirements for a business combination
achieved in stages, including remeasuring previously held interests
in the assets and liabilities of the joint operation at fair value.
In doing so, the acquirer remeasures its entire previously held
interest in the joint operation.
An entity applies those amendments to business combinations for
which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after 1 January 2019,
with early application permitted. These amendments will apply on
future business combinations of the Group.
-- IFRS 11 Joint Arrangements. A party that participates in, but
does not have joint control of, a joint operation might obtain
joint control of the joint operation in which the activity of the
joint operation constitutes a business as defined in IFRS 3. The
amendments clarify that the previously held interests in that joint
operation are not remeasured.
An entity applies those amendments to transactions in which it
obtains joint control on or after the beginning of the first annual
reporting period beginning on or after 1 January 2019, with early
application permitted. These amendments are currently not
applicable to the Group but may apply to future transactions.
-- IAS 12 Income Taxes. The amendments clarify that the income
tax consequences of dividends are linked more directly to past
transactions or events that generated distributable profits than to
distributions to owners. Therefore, an entity recognises the income
tax consequences of dividends in profit or loss, other
comprehensive income or equity according to where the entity
originally recognised those past transactions or events.
An entity applies those amendments for annual reporting periods
beginning on or after 1 January 2019, with early application
permitted. When an entity first applies those amendments, it
applies them to the income tax consequences of dividends recognised
on or after the beginning of the earliest comparative period. Since
the Group's current practice is in line with these amendments, the
Group does not expect any effect on its consolidated financial
statements.
Current versus non-current classification
The Group presents assets and liabilities in the statement of
financial position based on current/non-current classification. An
asset is current when it is:
-- Expected to be realised or intended to be sold or consumed in the normal operating cycle
-- Held primarily for the purpose of trading
-- Expected to be realised within twelve months after the reporting date.
All other assets are classified as non-current.
Assets included in current assets which are expected to be
realised within twelve months after the reporting date are measured
at fair value which is their book value. Fair value for investments
in unquoted equity shares is the net proceeds that would be
received for the sale of the asset where this can be reasonably
determined.
Basis of consolidation
Where the company has control over an investee, it is classified
as a subsidiary. The company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the
company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between group
companies are therefore eliminated in full.
The consolidated financial statements incorporate the results of
business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases.
Associates
Where the Group has the power to participate in (but not
control) the financial and operating policy decisions of another
entity, it is classified as an associate. Associates are initially
recognised in the consolidated statement of financial position at
cost. Subsequently associates are accounted for using the equity
method, where the Group's share of post-acquisition profits and
losses and other comprehensive income is recognised in the
consolidated statement of profit and loss and other comprehensive
income (except for losses in excess of the Group's investment in
the associate unless there is an obligation to make good those
losses).
Profits and losses arising on transactions between the Group and
its associates are recognised only to the extent of unrelated
investors' interests in the associate. The investor's share in the
associate's profits and losses resulting from these transactions is
eliminated against the carrying value of the associate.
Any premium paid for an associate above the fair value of the
Group's share of the identifiable assets, liabilities and
contingent liabilities acquired is capitalised and included in the
carrying amount of the associate. Where there is objective evidence
that the investment in an associate has been impaired the carrying
amount of the investment is tested for impairment in the same way
as other non-financial assets.
Joint ventures
The Group accounts for its interests in joint ventures in the
same manner as investments in Associates (i.e. using the equity
method).
Any premium paid for an investment in a joint venture above the
fair value of the Group's share of the identifiable assets,
liabilities and contingent liabilities acquired is capitalised and
included in the carrying amount of the investment in 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 20%
Computer equipment 33%
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
licences at 16.7% per annum and on the website and software at
33.3% per annum, calculated to write off the cost of the asset on a
straight line basis over its expected useful life.
Impairment of non-financial assets
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where
the carrying value of the asset exceeds its recoverable amount
(i.e. the higher of value in use and fair value less costs to
sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
smallest group of assets to which it belongs for which there are
separately identifiable cash flows, its cash generating units
('CGUs'). Goodwill is allocated on initial recognition to each of
the group's CGUs that are expected to benefit from the synergies of
the combination giving rise to the goodwill.
Impairment charges are included in profit or loss except to the
extent that they reverse gains previously recognised in other
comprehensive income. An impairment loss for goodwill is not
reversed.
Financial assets
In the consolidated statement of financial position, the Group
classifies its financial assets as loans, trade receivables and
cash and cash equivalents. The classification depends on the
purpose for which the financial assets were acquired. Loans and
trade receivables are non-derivative financial assets with fixed or
determinable payments which arise principally through the Group's
trading activities, and these assets arise principally to collect
contractual cash flows and the contractual cash flows are solely
payments of principal and interest. They are initially recognised
at fair value plus transaction costs that are directly attributable
to their acquisition or issue, and are subsequently carried at
amortised cost using the effective interest rate method, less
provision for impairment.
Impairment provisions for trade receivables are recognised based
on the simplified approach within IFRS 9 using the lifetime
expected credit losses. During this process the probability of the
non-payment of the trade receivables is assessed. This probability
is then multiplied by the amount of the expected loss arising from
default to determine the lifetime expected credit loss for the
trade receivables. For trade receivables, which are reported net,
such provisions are recorded in a separate provision account with
the loss being recognised within cost of sales in the consolidated
statement of comprehensive income. On confirmation that the trade
receivable will not be collectable, the gross carrying value of the
asset is written off against the associated provision.
Impairment provisions for loans to associates are recognised
based on a forward looking expected credit loss model. The
methodology used to determine the amount of the provision is based
on whether there has been a significant increase in credit risk
since initial recognition of the financial asset. For those where
the credit risk has not increased significantly since initial
recognition of the financial asset, twelve month expected credit
losses along with gross interest income are recognised. For those
for which credit risk has increased significantly, lifetime
expected credit losses along with the gross interest income are
recognised. For those that are determined to be credit impaired,
lifetime expected credit losses along with interest income on a net
basis are recognised.
Cash and cash equivalents include cash in hand and deposits held
at call with banks with an original maturity of three months or
less.
Financial liabilities
Trade and other payables are recognised initially at fair value
and subsequently carried at amortised cost.
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 amounts
receivable by the Group in respect of all services provided.
Commissions payable to trading partners in respect of their share
of the commissions earned are included in cost of sales.
Commissions and client fees earned are accounted for when
received or guaranteed to be received, as until received it is not
possible to be certain that the transaction will be completed. In
the case of life commissions there is a possibility for a 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 provision is made for the expected level of commissions
repayable.
Other income comprises income from ancillary services such as
survey and conveyancing fees and is credited to the statement of
comprehensive income partly on an accruals basis.
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.
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 assets and liabilities are recognised where the
carrying amount of an asset or liability in the consolidated
statement of financial position differs from its tax base, except
for differences arising on investments in subsidiaries and jointly
controlled entities where the Group is able to control the timing
of the reversal of the difference and it is probable that the
difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantially enacted by the
statement of financial position date and are expected to apply when
the deferred tax liabilities or assets are settled or recovered.
Deferred tax balances are not discounted.
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.
Segment Reporting
An operating segment is a distinguishable segment of an entity
that engages in business activities from which it may earn revenues
and incur expenses and whose operating results are reviewed
regularly by the entity's chief operating decision maker (CODM).
The Board reviews the Group's operations and financial position as
a whole and therefore considers that it has only one operating
segment, being the provision of financial services operating solely
within the UK. The information presented to the CODM directly
reflects that presented in the financial statements and they review
the performance of the Group by reference to the results of the
operating segment against budget.
Operating profit is the profit measure, as disclosed on the face
of the combined income statement that is reviewed by the CODM.
Dividends
Dividends are recognised when they become legally payable. In
the case of interim dividends to equity shareholders, this is when
they are paid. In the case of final dividends, this is when they
are approved by the shareholders.
Share-based payments
Where equity-settled share options are awarded to employees, the
fair value of the options at the date of grant is charged to the
statement of comprehensive income over the vesting period.
Non-market vesting conditions are taken into account by adjusting
the number of equity instruments expected to vest at each reporting
date so that, ultimately, the cumulative amount recognised over the
vesting period is based on the number of options that eventually
vest. Non-vesting conditions and market vesting conditions are
factored into the fair value of the options granted. As long as all
other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are
satisfied. The cumulative expense is not adjusted for failure to
achieve a market vesting condition or where a non-vesting condition
is not satisfied.
Where the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to
the statement of comprehensive income over the remaining vesting
period.
Where options are granted to persons other than employees, the
statement of comprehensive income is charged with the fair value of
the options at the date of the grant over the vesting period.
2 Critical Accounting Estimates and Judgements
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions. The Directors consider that the
estimates and judgements that have the most significant effect on
the carrying amounts of assets and liabilities within the financial
statements are set out below.
(a) Impairment of goodwill
The Group is required to test, on an annual basis, whether
goodwill has suffered any impairment. The recoverable amount is
determined based on value in use calculations. The use of this
method requires the estimation of future cash flows and the choice
of a discount rate in order to calculate the present value of the
cash flows. Actual outcomes may vary. More information including
carrying values is included in note 12.
(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 15.
(c) Clawback Provision
The provision relates to the estimated value of repaying
commission received up front on life assurance policies that may
lapse in a period of up to four years following inception. The
provision is calculated using a model that has been developed over
several years. The model uses a number of factors including the
total unearned commission at the point of calculation, the age
profile of the commission received, the Group's proportion of any
clawback, likely future lapse rates, and the success of the Group's
team that focuses on preventing lapses and/or generating new income
at the point of a lapse. More information is included in note
19.
(d) Freehold building
The freehold building is depreciated over its useful life. The
useful life is based on management's estimate of the period that
the asset will generate revenue and will be reviewed annually for
continued appropriateness. The carrying value will be tested for
impairment when there is an indication that the value of the asset
might be impaired. When carrying out an impairment test this would
be based on future cash flow forecasts and these forecasts would be
based on management judgement. No such indication of impairment has
been noted.
(e) Deferred tax assets
Deferred tax assets include temporary differences related to the
issue and exercise of share options. Recognition of the deferred
tax assets assigns an estimate of proportion of options likely to
vest and assumes share options will have a positive value at the
date of vesting, which is greater than the exercise price. The
carrying amount of deferred tax assets at 31 December 2018 was
GBP0.8m (2017: GBP0.9m).
3 Revenue
The Group operates in one segment being that of the provision of
financial services in the UK. Revenue is derived as follows:
2018 2017
GBP'000 GBP'000
Mortgage related products 74,453 64,289
Insurance and other protection products 47,021 42,854
Other income 1,817 1,704
------------------------------------------ -------- --------
123,291 108,847
----------------------------------------- -------- --------
4 Cost of sales
Costs of sales are as follows:
2018 2017
GBP'000 GBP'000
Commissions paid 93,088 81,265
Wages and salary costs 1,763 1,680
------------------------- -------- --------
94,851 82,945
------------------------ -------- --------
2018 2017
Wages and salary costs GBP'000 GBP'000
------------------------------------ ---------- ---------
Gross 1,344 1,302
Employers' National Insurance 160 151
Defined contribution pension costs 61 48
Other Direct Costs 198 179
1,763 1,680
------------------------------------ ---------- ---------
5 Profit from operations
Profit from operations is stated after charging the
following:
2018 2017
GBP'000 GBP'000
----------------------------------------------- ---------- ----------
Depreciation of property, plant and equipment 207 201
Amortisation of intangibles 44 14
Auditors' remuneration:
Fees payable to the Group's auditors
for the audit of the Group's financial
statements. 10 10
Fees payable to the Group's auditors
for the audit of the Group's subsidiary
financial statements. 48 32
----------------------------------------------- ---------- ----------
Other administrative expenses are incurred in the ordinary
course of the business and do not include any non-recurring
items.
Profits from associates are disclosed as part of the operating
profit as this is the operational nature of the Group.
6 Staff costs
Staff costs, including executive and non-executive directors'
remuneration, were as follows:
2018 2017
GBP'000 GBP'000
--------------------------------------- ---------- ---------
Wages and salaries 7,692 7,271
Share based payments 801 670
Social security costs 765 739
Defined contribution pension costs 260 188
--------------------------------------- ---------- ---------
9,518 8,868
--------------------------------------- ---------- ---------
The average number of people employed Number Number
by the Group during the year was:
--------------------------------------- ---------- ---------
Executive Directors 4 3
Compliance 64 59
Sales and marketing 45 43
Operations 53 52
--------------------------------------- ---------- ---------
Total 166 157
--------------------------------------- ---------- ---------
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.
2018 2017
GBP'000 GBP'000
------------------------------------ --------- ---------
Wages and salaries 1,233 1,420
Share based payments 238 145
Defined contribution pension costs 34 21
------------------------------------ --------- ---------
1,505 1,586
------------------------------------ --------- ---------
During the year retirement benefits were accruing to 2 directors
(2017: 1) in respect of defined contribution pension schemes.
The total amount payable to the highest paid director in respect
of emoluments was GBP498,834 (2017: GBP598,738). The value of the
Group's contributions paid to a defined contribution pension scheme
in respect of the highest paid director amounted to GBPnil (2017:
GBPnil).
7 Finance income
2018 2017
GBP'000 GBP'000
------------------------------------------------ ---------- ---------
Interest income 45 31
Interest income accrued on loans to associates 37 11
------------------------------------------------ ---------- ---------
82 42
------------------------------------------------ ---------- ---------
8 Income Tax
2018 2017
GBP'000 GBP'000
------------------------------------------------ ---------- ---------
Current tax expense
UK corporation tax charge on profit for
the year 2,627 2,537
Total current tax 2,627 2,537
------------------------------------------------ ---------- ---------
Deferred tax expense
Origination and reversal of timing differences (64) 5
Temporary difference on share based payments (71) (71)
Adjustment to deferred tax charge in
respect of prior periods - 23
Total Deferred Tax (see note 20) (135) (43)
------------------------------------------------ ---------- ---------
Total tax expense 2,492 2,494
------------------------------------------------ ---------- ---------
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% (2017: 19.25%) applied to profit for the year
is as follows:
2018 2017
GBP'000 GBP'000
------------------------------------------------ ---------- ---------
Profit for the year before tax 15,682 14,535
------------------------------------------------ ---------- ---------
Expected tax charge based on corporation
tax rate 2,980 2,798
Expenses not deductible for tax purposes
amortisation and impairment 72 56
Research & Development allowances (212) (135)
Tax on share options exercised (269) (163)
Adjustment to deferred tax charge in
respect of prior periods - 23
Profits from associates (94) (96)
Effect of lower deferred tax rate 15 11
Total tax expense 2,492 2,494
------------------------------------------------ ---------- ---------
For the year ended 31 December 2018 the deferred tax charge
relating to unexercised share options, recognised in equity was
GBP184,671 (2017: credit GBP799,387).
Changes in the taxation rate
Legislation to reduce the main rate of corporation tax to 19%
from 1 April 2017 and to 17% from 1 April 2020 has been enacted and
so the deferred tax balance has been calculated at 17% (2017:
17%).
9 Earnings Per Share
Basic earnings per share are calculated by dividing net profit
for the year attributable to ordinary equity holders of the Company
by the weighted average number of ordinary shares outstanding
during the year.
2018 2017
Basic earnings per share GBP'000 GBP'000
---------------------------------------------- ----------- -----------
Profit for the year attributable to the
owners of the parent 13,190 12,041
---------------------------------------------- ----------- -----------
Weighted average number of shares in issue 51,022,846 50,697,207
---------------------------------------------- ----------- -----------
Basic earnings per share (in pence per
share) 25.9p 23.8p
---------------------------------------------- ----------- -----------
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.
2018 2017
Diluted earnings per share GBP'000 GBP'000
---------------------------------------------- ----------- -----------
Profit for the year attributable to the
owners of the parent 13,190 12,041
---------------------------------------------- ----------- -----------
Weighted average number of shares in issue 52,201,486 51,948,051
---------------------------------------------- ----------- -----------
Basic earnings per share (in pence per
share) 25.3p 23.2p
---------------------------------------------- ----------- -----------
The share data used in the basic and diluted earnings per share
computations are as follows:
Weighted average number of ordinary shares 2018 2017
-------------------------------------------- ----------- -----------
Issued ordinary shares at start of period 50,787,345 50,461,600
Effect of shares issued during period 235,501 235,607
-------------------------------------------- ----------- -----------
Basic weighted average number of shares 51,022,846 50,697,207
Potential ordinary shares arising from
options 1,178,640 1,250,844
-------------------------------------------- ----------- -----------
Diluted weighted average number of shares 52,201,486 51,948,051
-------------------------------------------- ----------- -----------
10 Dividends
2018 2017
GBP'000 GBP'000
--------
Dividends paid and declared during the
year:
Final dividend for 2017: 11.9p per share
(2016: 10.5p) 6,082 5,333
Special dividend: 1.1p per share (2017:
1.1p) - 555
Interim dividend for 2018: 10.6p per
share (2017: 9.5p) 5,417 4,824
------------------------------------------------ ------- --------
11,499 10,712
----------------------------------------------- ------- --------
Equity dividends on ordinary shares:
Proposed for approval:
Final dividend for 2018: 12.7p per
share (2017: 11.9p) 6,490 6,044
--------------------------------------- ------ ------
6,490 6,044
-------------------------------------- ------ ------
The record date for the final dividend is 26 April 2019 and the
payment date is 24 May 2019.The ex-dividend date will be 25 April
2019.
11 Property, Plant and Equipment
Freehold
land and Fixtures Computer
building & fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------- ------------- ------------ ----------
Cost
At 1 January 2018 2,461 494 751 3,706
Additions - 73 102 175
At 31 December 2018 2,461 567 853 3,881
--------------------- ---------- ------------- ------------ ----------
Depreciation
At 1 January 2018 122 314 622 1,058
Charge for the year 55 57 95 207
At 31 December 2018 177 371 717 1,265
--------------------- ---------- ------------- ------------ ----------
Net Book Value
At 31 December 2018 2,284 196 136 2,616
--------------------- ---------- ------------- ------------ ----------
Freehold
land and Fixtures Computer
building & fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------- ------------- ------------ ----------
Cost
At 1 January 2017 2,461 435 681 3,577
Additions - 59 70 129
At 31 December 2017 2,461 494 751 3,706
--------------------- ---------- ------------- ------------ ----------
Depreciation
At 1 January 2017 67 267 523 857
Charge for the year 55 47 99 201
At 31 December 2017 122 314 622 1,058
--------------------- ---------- ------------- ------------ ----------
Net Book Value
At 31 December 2017 2,339 180 129 2,648
12 Intangible Assets
Goodwill 2018 2017
GBP'000 GBP'000
--------------------------------- --------- ---------
Cost
As at 1 January and 31 December 4,267 4,267
----------------------------------- --------- ---------
Accumulated impairment
At 1 January and 31 December 153 153
Net book value
At 31 December 4,114 4,114
----------------------------------- --------- ---------
The goodwill relates to the acquisition of Talk Limited in 2012,
and in particular its main operating subsidiary Mortgage Talk
Limited. The goodwill is deemed to have an indefinite useful life.
It is currently carried at cost and is reviewed annually for
impairment.
Under IAS 36, "Impairment of assets", the Group is required to
review and test its goodwill annually each year or in the event of
a significant change in circumstances. The impairment review
conducted at the end of 2018 concluded that there had been no
impairment of goodwill.
The Board considers that it has only one operating segment and
one cash-generating unit (CGU). Goodwill arose on the acquisition
of Mortgage Talk Limited and has since been allocated to the single
CGU of the group. Impairment testing for the 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 the CGU and therefore no impairment
of goodwill is required. A discount rate of 10% has been applied to
these calculations. Management has considered forecast profits over
a three year period 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 forecast ongoing
profits.
Licences, website and software Licences Website Software Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------- --------- --------- ---------
Cost
At 1 January 2018 108 103 - 211
Additions - 37 554 591
---------------------------------- --------- --------- --------- ---------
At 31 December 2018 108 140 554 802
---------------------------------- --------- --------- --------- ---------
Accumulated Amortisation
At 1 January 2018 108 5 - 113
Charge for the year - 44 - 44
At 31 December 2018 108 49 - 157
---------------------------------- --------- --------- --------- ---------
Net book value
At 31 December 2018 - 91 554 645
---------------------------------- --------- --------- --------- ---------
Licences Website Total
GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- ---------
Cost
At 1 January 2017 108 - 108
Additions - 103 103
---------------------------- --------- --------- ---------
At 31 December 2017 108 103 211
---------------------------- --------- --------- ---------
Accumulated Amortisation
At 1 January 2017 99 - 99
Charge for the year 9 5 14
At 31 December 2017 108 5 113
---------------------------- --------- --------- ---------
Net book value
At 31 December 2017 - 98 98
---------------------------- --------- --------- ---------
13 Investments in Associates and Joint Venture
GBP'000
-------------------------------------------- --------
Investment in Associates and joint venture 1,573
Other Investments -
-------------------------------------------- --------
At 31 December 2018 1,573
-------------------------------------------- --------
At 31 December 2017 1,339
-------------------------------------------- --------
Investment 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
MAB Wealth Management Capital House, Pride 49 Provision of financial
Limited Place, Derby DE24 services
8QR
Freedom 365 Mortgage Gresley House, Ten 35 Provision of financial
Solutions Limited Pound Walk, Doncaster services
DN4 5HX
Sort Group Limited Burdsall House, London 43.25 Conveyancing services
Road, Derby DE24
8UX
Buildstore Limited Nsb & Rc Lydiard 25 Provision of financial
Fields, Great Western services
Way, Swindon SN5
8UB
Clear Mortgage 114 Centrum House, 25 Provision of financial
Solutions Limited Dundas Street, Edinburgh services
EH3 5DQ
Vita Financial 1(st) Floor Tudor 20 Provision of financial
Limited House, 16 Cathedral services
Road, Cardiff CF11
9LJ
MAB Broker Services Level 7, 68 Alfred 45 Provision of financial
PTY Limited Street, Milsons Point, services
NSW 2061
Eagle and Lion 8 Mortimer Road, 33.33 Provision of financial
Limited Clifton, Bristol, services
BS8 4EX
---------------------- -------------------------- ------------- -----------------------
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:
2018 2017
GBP'000 GBP'000
--------------------------------------------------- --------- ---------
At 1 January 1,339 1,008
Additions 265 184
Credit/(charge) to the statement of comprehensive
income
Share of profit 494 500
Amount written off (133) -
--------- ---------
361 500
Dividends received (392) (353)
--------------------------------------------------- --------- ---------
At 31 December 1,573 1,339
--------------------------------------------------- --------- ---------
The Group is entitled to 49% of the results of CO2 Commercial
Limited, and MAB Wealth Management Limited by virtue of its 49%
equity stakes. CO2 Commercial Limited is a dormant holding company,
and trades through its wholly owned subsidiary, Pinnacle Surveyors
(England & Wales) Limited. The Group is entitled to 45% of the
results of MAB Broker Services PTY Limited by virtue of its 45%
equity stake, 35% of the results of Freedom 365 Mortgage Solutions
Limited by virtue of its 35% equity stake, 25% of the results of
Buildstore Limited and Clear Mortgage Solutions Limited by virtue
of its 25% equity stakes, 20% of the results of Vita Financial
Limited by virtue of its 20% equity stake, and 33.33% of the
results of Eagle and Lion Limited by virtue of its 33.33% equity
stake.
The Group is entitled to 43.25% of the results of Sort Group
Limited by virtue of its 43.25% equity stake. Mortgage Advice
Bureau Limited's effective holding in Sort Limited, Sort Legal
Limited and Sort Technology Limited is now 32.5%, 36.8% and 41.1%
respectively.
The carrying value of the Group's joint venture, MAB Broker
Services PTY Limited, at 31 December 2018 is GBPnil (2017: GBPnil).
In the period ended 30 June 2018, MAB Broker Services PTY reported
a loss of AUD0.6m (2017: AUD0.5m).
Acquisitions and disposals
2018: The Group acquired a 33.33% interest in Eagle and Lion
Limited on 15 October 2018 at a cost of GBP131,460. In accordance
with IFRS 9 the Group increased the value of investments by
GBP133,324 to reflect the present value adjustment to an interest
free loan.
2017: The Group acquired a further 10% interest in Sort Group
Limited on 20 November 2017 at a cost of GBP183,817.
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 2018
Limited Limited Limited Others Total
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ----------- ------------- ---------- ---------- ----------
Non-current assets 20 181 771 101 1,073
Cash balances 520 356 542 99 1,517
Current assets (excluding
cash balances) 900 713 406 616 2,635
Current liabilities (749) (841) (1,157) (263) (3,010)
Non-current liabilities
and provisions (4) - (84) (166) (254)
Revenue 4,582 3,526 5,744 4,436 18,288
Profit before taxation 1,295 95 (52) 144 1,482
Total comprehensive income 1,046 77 (52) (67) 1,004
Profit attributable to
Group 512 19 (23) (14) 494
---------------------------- ----------- ------------- ---------- ---------- ----------
Dividends received from
associates 392* - - - 392
---------------------------- ----------- ------------- ---------- ---------- ----------
Pinnacle
Surveyors
(England Sort
& Wales) Buildstore Group 2017
Limited Limited Limited Others Total
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ----------- ------------- ---------- ---------- ----------
Non-current assets 30 64 719 109 922
Cash balances 594 444 619 203 1,860
Current assets (excluding
cash balances) 410 744 380 373 1,907
Current liabilities (579) (860) (632) (173) (2,244)
Non-current liabilities
and provisions (6) (60) (2) (217) (285)
Revenue 3,901 3,532 3,198 3,803 14,434
Profit before taxation 971 231 32 364 1,598
Total comprehensive income 785 186 25 158 1,154
Profit attributable to
Group 385 46 9 60 500
---------------------------- ----------- ------------- ---------- ---------- ----------
Dividends received from
associates 353* - - - 353
---------------------------- ----------- ------------- ---------- ---------- ----------
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
accounts of any of the associates if these were prepared in
accordance with IFRS.
* 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.
14 Subsidiaries
The subsidiaries of Mortgage Advice Bureau (Holdings) plc at the
reporting date have been included in the consolidated financial
statements. The subsidiaries are as follows:
Country of Percentage
Company name Incorporation of ordinary Nature of business
shares held
---------------------------- --------------- ------------- ---------------------
Provision of
Mortgage Advice Bureau England and 100 financial services
Limited Wales
Mortgage Advice Bureau Provision of
(Derby) Limited England and 100 financial services
Wales
Provision of
Capital Protect Limited England and 100 financial services
Wales
Provision of
Mortgage Talk Limited England and 100 financial services
Wales
Provision of
MABWM Limited England and 100 financial services
Wales
Intermediate
Talk Limited England and 100 holding company
Wales
Mortgage Advice Bureau Intermediate
Australia (Holdings) Australia 100 holding company
PTY Limited
Mortgage Advice Bureau Holding of
PTY Limited Australia 100 intellectual
property
Mortgage Advice Bureau
(UK) Limited England and 100 Dormant
Wales
Mortgage Advice Bureau
(Bristol) Limited England and 100 Dormant
Wales
MAB (Derby) Limited England and 100 Dormant
Wales
L&P 137 Limited England and 100 Dormant
Wales
Mortgage Talk (Partnership)
Limited England and 100 Dormant
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
---------------------------- --------------- ------------- ---------------------
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.
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.
Talk Limited holds 100% of the ordinary share capital of
Mortgage Talk Limited, L&P 137 Limited, Mortgage Talk
(Partnership) Limited, Financial Talk Limited and Survey Talk
Limited.
Mortgage Talk Limited holds 100% of the ordinary share capital
of Loan Talk Limited.
L&P 137 Limited holds 100% of the ordinary share capital of
L&P 134 Limited.
There are no restrictions regarding the utilisation of cash or
other resources held by any subsidiary.
15 Trade and Other Receivables
2018 2017
GBP'000 GBP'000
----------------------------------------------- -------- --------
Trade receivables 2,047 1,430
Less provision for impairment of trade
receivables (284) (273)
----------------------------------------------- -------- --------
Trade receivables - net 1,763 1,157
Receivables from related parties 29 -
Loans to related parties 2,257 719
Less provision for impairment of loans (290) -
to related parties
----------------------------------------------- -------- --------
Total financial assets other than cash
and cash equivalents classified as amortised
costs 3,759 1,876
Prepayments and accrued income 3,140 2,550
----------------------------------------------- -------- --------
Total trade and other receivables 6,899 4,426
----------------------------------------------- -------- --------
Less: non-current portion - Loans to
related parties (1,560) (667)
Less non-current - Trade receivables (736) (609)
----------------------------------------------- -------- --------
Current portion 4,603 3,150
----------------------------------------------- -------- --------
The carrying value of trade and other receivables classified at
amortised cost approximates fair value.
Impairment provisions for trade receivables are recognised based
on the simplified approach within IFRS 9 using the lifetime
expected credit losses. During this process the probability of the
non-payment of the trade receivables is assessed. This probability
is then multiplied by the amount of the expected loss arising from
default to determine the lifetime expected credit loss for the
trade receivables. For trade receivables, which are reported net,
such provisions are recorded in a separate provision account with
the loss being recognised within cost of sales in the consolidated
statement of comprehensive income. On confirmation that the trade
receivable will not be collectable, the gross carrying value of the
asset is written off against the associated provision. At 31
December 2018 the lifetime expected loss provision for trade
receivables is GBP0.3m. The movement in the impairment allowance
for trade receivables has been included in cost of sales in the
consolidated statement of comprehensive income.
Impairment provisions for loans to associates are recognised
based on a forward looking expected credit loss model. The
methodology used to determine the amount of the provision is based
on whether there has been a significant increase in credit risk
since initial recognition of the financial asset. For those where
the credit risk has not increased significantly since initial
recognition of the financial asset, twelve month expected credit
losses along with gross interest income are recognised. For those
for which credit risk has increased significantly, lifetime
expected credit losses along with the gross interest income are
recognised. For those that are determined to be credit impaired,
lifetime expected credit losses along with interest income on a net
basis are recognised. In determining the lifetime expected credit
losses for loans to associates, the Directors have considered
different scenarios for repayments of these loans and have applied
percentage probabilities to each scenario for each associate where
applicable.
At 31 December 2018 the lifetime expected loss provision for
loans to associates is GBP0.3m. One of these receivables has been
subject to a significant increase in credit risk since initial
recognition and, consequently, lifetime expected credit losses have
been recognised. For the remainder, 12 month expected credit losses
have been recognised. (There are no non-current receivable balances
lifetime expected credit losses.)
The movement in the impairment allowance for receivables for
loans to associates has been included in cost of sales in the
consolidated statement of comprehensive income.
Also included in trade receivables are amounts due from
Appointed Representatives relating to commissions that are
refundable to the Group when policy lapses or other reclaims exceed
new business. As these balances have no credit terms, the Board of
Directors consider these to be past due if they are not received
within seven days. In the management of these balances, the
Directors can recover them from subsequent new business entered
into with the Appointed Representative or utilise payables that are
owed to the same counterparties and included within payables as the
Group has the legally enforceable right of set off in such
circumstances. These payables are considered sufficient by the
Directors to recover receivable balances should they default, and,
accordingly, credit risk in this respect is minimal.
In light of the above, the Directors do not consider that
disclosure of an aging analysis of trade and other receivables
would provide useful additional information. Further information on
the credit quality of financial assets is set out in note 18.
A summary of the movement in the provision for the impairment of
receivables is as follows:
2018 2017
GBP'000 GBP'000
------------------------------------------ -------- --------
At 1 January 273 481
Impairment losses recognised 11 -
Impairment provisions no longer required - (208)
------------------------------------------ -------- --------
At 31 December 284 273
------------------------------------------ -------- --------
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 18.
No other balances are past due or impaired.
16 Cash and cash equivalents
2018 2017
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Unrestricted cash and bank balances 13,878 13,170
Bank balances held in relation to retained
commissions 11,711 9,381
--------------------------------------------- --------- ---------
Cash and cash equivalents 25,589 22,551
--------------------------------------------- --------- ---------
Bank balances held in relation to retained commissions earned on
an indemnity basis in relation to life policies are held to cover
potential future lapses in Appointed Representatives' commissions.
Operationally the Group does not treat these balances as available
funds. An equal and opposite liability is shown within Trade
Payables and other payables (note 17).
17 Trade and Other Payables
2018 2017
GBP'000 GBP'000
------------------------------------------------ --------- ---------
Appointed Representatives retained commission 11,711 9,381
Other trade payables 4,658 3,526
------------------------------------------------ --------- ---------
Trade payables 16,369 12,907
Social security and other taxes 783 315
Other payables 42 40
Accruals 1,496 1,737
------------------------------------------------ --------- ---------
18,690 14,999
------------------------------------------------ --------- ---------
Should a life policy be cancelled within four years of
inception, a proportion of the original commission will be clawed
back by the insurance provider. The majority of any such repayment
is payable by the Appointed Representative. It is the Group's
policy to retain a proportion of commission payable to the
Appointed Representative to cover such potential future lapses;
these sums remain a liability of the Group. This commission is held
in a separate ring fenced bank account as described in note 16.
As at 31 December 2018 and 31 December 2017, 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.
18 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 2018 2017
GBP'000 GBP'000
----------------------------- -------- --------
Cash and cash equivalents 25,589 22,551
Trade and other receivables 3,759 1,876
Total financial assets 29,348 24,427
----------------------------- -------- --------
Financial liabilities 2018 2017
GBP'000 GBP'000
----------------------------- -------- --------
Trade and other payables 17,194 13,262
Total financial liabilities 17,194 13,262
----------------------------- -------- --------
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 15.
Financial assets - maximum exposure 2018 2017
GBP'000 GBP'000
------------------------------------- -------- --------
Cash and cash equivalents 25,589 22,551
Trade and other receivables 3,759 1,876
------------------------------------- -------- --------
Total financial assets 29,348 24,427
------------------------------------- -------- --------
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
GBP825,357 (2017: GBP520,789) significantly reduces the credit
risk.
The Group's credit risk on cash and cash equivalents is limited
because the Group places funds on deposit with several UK banks all
of whom are A or BBB+ rated where applicable.
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 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 Finance Director, 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.
19 Provisions
Clawback provision 2018 2017
GBP'000 GBP'000
------------------------------------------- --------- ---------
At 1 January 1,496 1,219
Charged to the statement of comprehensive
income 208 277
------------------------------------------- --------- ---------
At 31 December 1,704 1,496
------------------------------------------- --------- ---------
The provision relates to the estimated cost of repaying
commission income received upfront on life assurance policies that
may lapse in the four years following issue. Provisions are held in
the financial statements of two of the group's subsidiaries:
Mortgage Advice Bureau Limited and Mortgage Advice Bureau (Derby)
Limited. The exact timing of any clawbacks 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.
20 Deferred Tax
Deferred tax is calculated in full on temporary differences
using a tax rate of 17% (2017: 17%). The reduction in the main rate
of corporation tax as set out in note 8 has been applied to
deferred tax balances which are expected to reverse in the
future.
The movement in deferred tax is shown below:
2018 2017
GBP'000 GBP'000
-------------------------------------- --------- ---------
Deferred tax asset - opening balance 874 32
Recognised in the statement of
comprehensive income 135 43
Deferred tax movement recognised
in equity (185) 799
-------------------------------------- --------- ---------
Deferred tax asset - closing balance 824 874
-------------------------------------- --------- ---------
The deferred tax balance is made up as follows:
2018 2017
GBP'000 GBP'000
Accelerated capital allowances (54) (51)
Other timing differences 79 12
Share-based payment 799 913
-------------------------------- --------- ---------
Net deferred tax asset 824 874
-------------------------------- --------- ---------
Reflected in the statement of financial 2018 2017
position as follows: GBP'000 GBP'000
Deferred tax liability (54) (51)
Deferred tax asset 878 925
----------------------------------------- --------- ---------
Deferred tax asset net 824 874
----------------------------------------- --------- ---------
Deferred tax liabilities have arisen due to capital allowances
which have been received ahead of the depreciation charged in the
accounts.
21 Share Capital
Issued and fully paid 2018 2017
GBP'000 GBP'000
-------------------------------- --------- ---------
Ordinary shares of 0.1p each 51 51
-------------------------------- --------- ---------
Total share capital 51 51
-------------------------------- --------- ---------
During the year 318,363 ordinary shares of GBP0.001 each were
issued following exercise of the second tranche of options issued
at the time of the Initial Public Offering of the Company at a
premium of GBP520,176. See also note 26.
22 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.
23 Retirement Benefits
The Group operates a defined contribution pension scheme for the
benefit of its employees and also makes contributions to a
self-invested personal pension ("SIPP"). The assets of the scheme
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 GBP260,254 (2017: GBP188,279). There were no
contributions payable to the fund or the SIPP at the statement of
financial position date (2017: GBPnil).
24 Related Party Transactions
The following details provide the total amount of transactions
that have been entered into with related parties during the year
ended 31 December 2018 and 2017, as well as balances with related
parties as at 31 December 2018 and 2017.
During the year the loan outstanding from Buildstore Limited, an
associated company, of GBP30,000 was repaid in full. During the
year the Group paid commissions of GBP681,268 (2017: GBP1,083,970)
to Buildstore Limited.
During the year the Group received introducer commission from
MAB Wealth Management Limited, an associated company of GBP5,463
(2017: GBP7,633). There is no balance outstanding with MAB Wealth
Management Limited at 31 December 2018 (2017: GBPnil).
During the year the Group received introducer commission from
Sort Limited, a subsidiary of an associated company of GBP699,279
(2017: GBP329,798). At 31 December 2018 there was an amount of
GBP126,562 (2017: GBP18,288) outstanding with Sort Group Limited,
an associated company and is included in trade and other
receivables.
During the year the Group paid commission to Clear Mortgage
Solutions Limited, an associated company, of GBP3,140,667 (2017:
GBP2,484,296).
During the year the Group purchased services from Twenty7tec
Group Limited, a company in which the Group holds an investment, of
GBP43,200 (2017: GBP25,200).
During the year the Group paid commission to Freedom 365
Mortgage Solutions Limited, an associated company, of GBP849,727
(2017: GBP567,849). At 31 December 2018 there was a loan
outstanding from Freedom 365 Mortgage Solutions Limited of
GBP1,121,698 and is included in trade and other receivables (2017:
GBP455,000).
During the year the Group paid commission to Vita Financial
Limited, an associated company, of GBP879,427 (2017: GBP740,351).
At 31 December 2018 there was a loan outstanding from Vita
Financial Limited of GBP27,000 and is included in trade and other
receivables.
At 31 December 2018 there was a loan outstanding from MAB Broker
Services PTY Limited, an associated company, of GBP616,329
(AUD1,115,000) included in trade and other receivables (2017:
GBP204,987, AUD350,000).
During the year the Group paid commission to Eagle & Lion
Limited, an associated company, of GBP80,513. At 31 December 2018
there was a loan outstanding from Eagle & Lion Limited of
GBP365,000 and is included in trade and other receivables.
The Group's related party transactions in the year include the
remuneration of the directors' emoluments, pension entitlements and
share-based payments disclosed in note 6 of the financial
statements.
During the year the Group received dividends from associated
companies as follow:
2018 2017
GBP'000 GBP'000
------------------------ --------- ---------
CO2 Commercial Limited 392 353
------------------------ --------- ---------
25 Ultimate Controlling Party
There is no ultimate controlling party.
26 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
options in both schemes vest or have vested as follows:
For options granted at IPO and on 20 May 2015 and outstanding at
1 January 2018:
-- 33.3% based on performance to 31 March 2018, exercisable
between that date and 11 November 2022,
-- 33.3% based on performance to 31 March 2018, exercisable
between 31 March 2019 and 11 November 2022,
-- 33.3% based on performance to 31 March 2018, exercisable
between 31 March 2020 and 11 November 2022,
For options granted during 2016 and outstanding at 1 January
2018:
-- 100% based on performance to 31 March 2019, exercisable between 4 May 2019 and 3 May 2024
For options granted during 2017 and outstanding at 1 January
2018:
-- 100% based on performance to 31 March 2020, exercisable
between 19 April 2020 and 18 April 2025
For options granted during the year:
-- 100% based on performance to 31 March 2021, exercisable between 11 April 2021 and 9 April 2026
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:
2018 2018 2017 2017
WAEP Number WAEP Number
GBP GBP
-------------------------- ------- ---------- ------- ----------
Outstanding at 1 January 3.01 2,412,342 2.32 2,171,822
Granted during the
year 0.001p 162,829 4.31 684,923
Exercised (1.63) (318,363) (1.63) (325,745)
Lapsed * - (121,197) - (118,658)
---------- ----------
Outstanding at 31
December 2.98 2,135,611 3.01 2,412,342
---------- ----------
*Due to retirement or leaving the Group
On 10 April 2018, 103,566 options over ordinary shares of 0.1
pence each in the Company were granted to the Executive Directors
and senior executives of MAB under the equity-settled Mortgage
Advice Bureau Executive Share Option Plan (the "Options"). Exercise
of the Options is subject to the service conditions and achievement
of performance conditions based on total shareholder return and
earnings per share criteria. Subject to achievement of the
performance conditions, the Options will be exercisable three years
from the date of grant. The exercise price for the Options is 0.1
pence, being the nominal cost of the Ordinary Shares.
On 7 June 2018, 59,263 options over ordinary shares of 0.1 pence
each in the Company were granted to Ben Thompson, Managing
Director, under the equity-settled Mortgage Advice Bureau Executive
Share Option Plan (the "Options"). Exercise of the Options is
subject to the service conditions and achievement of performance
conditions based on total shareholder return and earnings per share
criteria. Subject to achievement of the performance conditions, the
Options will be exercisable three years from the date of grant. The
exercise price for the Options is 0.1 pence, being the nominal cost
of the Ordinary Shares.
Options exercised in April 2018 resulted in 318,363 ordinary
shares being issued at an exercise price of GBP1.60 and GBP2.19.
The price of the ordinary shares at the time of exercise was
GBP6.27 per share.
For the share options outstanding under the Mortgage Advice
Bureau Executive Share Option Plan as at 31 December 2018, the
weighted average remaining contractual life is 0.9 years (2017 1.6
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.
2018 2017
---------------------------- -------------- --------------
Equity-settled
Option pricing model - EPS Black-Scholes Black-Scholes
Option pricing model - TSR Stochastic Stochastic
Exercise price GBP0.001 GBP4.3083
Expected volatility 38.73% 30%
Expected dividend yield 3.42% 4.18%
Risk free interest rate 0.91% 0.15%
---------------------------- -------------- --------------
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 median
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 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 3.42%.
The Options offer participants the opportunity to benefit from
increasing per share value without risking the current per share
price. The risk-free rate used is the rate of interest obtainable
from UK government securities as at the date of grant over the
expected terms.
The options granted this year have vesting periods of 3.0 years
from the date of grant and the calculation of the share based
payment is based on these vesting periods.
MAB AR Option Plan
The Group operates an equity-settled share plan, the AR Option
Plan, to reward selected ARs of the Group. The AR Option Plan
provides for options which have a nominal exercise price of price
of 0.01 pence per Share (or, for any individual AR, not less than
GBP1 on each occasion of exercise) to acquire Ordinary Shares
subject to performance conditions. Certain criteria must be met in
order for ARs to be eligible, including using the Mortgage Advice
Bureau brand and being party to an AR Agreement which provides for
an initial contract term of at least five years at the date of
grant. The AR Options will normally become exercisable following
the fifth anniversary of grant subject to the satisfaction of
performance conditions based on financial and other targets,
including quality of consumer outcomes, compliance standards and
continued use of the Mortgage Advice Bureau brand.
The number and weighted average exercise prices (WAEP) of, and
movements in, share options during the year for the MAB AR Option
Plan:
2018 2018 2017 2017
WAEP Number WAEP Number
-------------------------- ------ -------- ------ --------------------
Outstanding at 1 January 0.01p 255,000 0.01p 255,000
Granted during the - - - -
year
-------------------------- ------ -------- ------ --------------------
Outstanding at 31
December 0.01p 255,000 0.01p 255,000
-------------------------- ------ -------- ------ --------------------
For the share options outstanding under the MAB AR Option Plan
as at 31 December 2018, the weighted average remaining contractual
life is 1.4 years (2017: 2.4 years).
Expected volatility is a measure of an amount by which the share
price is expected to fluctuate during a period. As the Company only
listed in November 2014 there is insufficient historical data. We
have therefore used a proxy volatility figure based on the medium
volatilities, of dividend paying FTSE AIM 100 companies over each
of the expected terms.
Dividends paid on shares reduce the fair value of an award as a
participant does not receive the dividend income on these shares.
For the share options granted during 2015 the stub dividend in
respect of the period from Admission to 31 December 2014 has been
annualised and divided at the share price at date of grant to give
a dividend yield of 7.1%.
The options offer participants the opportunity to benefit from
increasing per share value without risking the current per share
price. The risk-free rate used is the rate of interest obtainable
from UK government securities as at the date of the grant over the
expected terms.
The options granted in 2015 have a vesting period of 5 years
from the date of grant and calculation of the share-based payment
is based on these vesting periods.
Share-based remuneration expense
The share-based remuneration expense of GBP800,676 (2017:
GBP670,465) includes the charge for the equity-settled schemes of
GBP631,416 (2017: GBP520,949) and the matching element of the
Group's Share Incentive Plan for all employees of GBP56,885 (2017:
GBP37,200).
The Group did not enter into any share-based payment
transactions with parties other than employees during the current
or previous period.
27 Contingent Liabilities
The group had no contingent liabilities at 31 December 2018 or
31 December 2017.
28 Events after the reporting date
There are no significant events to report after the reporting
date.
29 Notes supporting statement of cash flows
Cash and cash equivalents for purposes of the statement of cash
flows comprises:
2018 2017
GBP'000 GBP'000
---------------------------------- -------- --------
Cash at bank available on demand 21,997 18,982
Trade and other receivables 3,592 3,569
---------------------------------- -------- --------
Total financial assets 25,589 22,551
---------------------------------- -------- --------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GGURAWUPBGRR
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