TIDMMAB1
RNS Number : 2130I
Mortgage Advice Bureau(Holdings)PLC
20 March 2018
MORTGAGE ADVICE BUREAU (HOLDINGS) PLC
("MAB" or "the Group")
20 March 2018
Final Results for the year ended 31 December 2017
Mortgage Advice Bureau (Holdings) PLC (AIM: MAB1.L) is pleased
to announce its final results for the year ended 31 December
2017.
Financial highlights
-- Ninth consecutive year of strong revenue
and profit growth
-- Revenue up 17% to GBP108.8m (2016: GBP92.8m)
-- Gross profit up 17% to GBP25.9m (2016:
GBP22.1m)
-- Gross margin maintained at 23.8% (2016:
23.9%)
-- Overheads ratio of 10.9% (2016: 11.1%)
-- Reported profit before tax of GBP14.5m
(2016: GBP15.2m(1) )
-- Profit before exceptional gain and tax
up 16% to GBP14.5m (2016: GBP12.5m(2) )
-- Profit margin before exceptional gain and
tax maintained at 13.4% (2016: 13.5%(2)
)
-- Basic EPS of 23.8p (2016: 25.6p(1) )
-- Adjusted EPS up 17% to 23.8p (2016: 20.3p(2)
)
-- Continued high operating profit to headline
cash conversion(3) of 120% (2016: 128%)
-- Continued high operating profit to adjusted
cash conversion(4) of 109% (2016: 111%)
-- Proposed final dividend of 11.9p making
proposed total ordinary dividends for the
year of 21.4p (2016: 18.3p), up 17% (payout
ratio of 90%)
-- Strong financial position with significant
surplus on regulatory capital requirement
-- Total cash balances of GBP22.6m (31 Dec
2016: GBP18.7m)
-- Unrestricted cash balances of GBP13.2m
(31 Dec 2016: GBP10.8m)
Operational highlights
-- Average number of Advisers in 2017 up 14%
to 1,008 (2016: 888)
-- Adviser numbers up 13% to 1,078 at 31 December
2017 (2016: 950)
-- Revenue per Adviser up 3%(5)
-- Market share up 13% to 4.6% (2016: 4.1%)
-- Gross mortgage completions up 18.5% to
GBP11.9bn (2016: GBP10.0bn)
Post period end
-- Adviser numbers have increased to 1,096
at 16 March 2018
--- -------------------------------------------------
-- Stephen Smith joins MAB Board as a Non-Executive
Director
--- -------------------------------------------------
-- MAB receives 'Best Mortgage Broker' award
at Mortgage Strategy 2018 Awards
--- -------------------------------------------------
2017 2016 Change
----------------------------- --------- ----------- ------
Revenue GBP108.8m GBP92.8m +17%
----------------------------- --------- ----------- ------
Gross profit GBP25.9m GBP22.1m +17%
----------------------------- --------- ----------- ------
Gross profit margin 23.8% 23.9%
----------------------------- --------- ----------- ------
Profit before tax GBP14.5m GBP15.2m(1)
----------------------------- --------- ----------- ------
Profit before exceptional
gain and tax GBP14.5m GBP12.5m(2) +16%
----------------------------- --------- ----------- ------
PBT margin 13.4% 13.5%(2)
----------------------------- --------- ----------- ------
Adjusted EPS 23.8p 20.3p(2) +17%
----------------------------- --------- ----------- ------
Basic EPS 23.8p 25.6p(1)
----------------------------- --------- ----------- ------
Proposed final dividend
per share 11.9p 10.5p +13%
----------------------------- --------- ----------- ------
Proposed total ordinary
dividends per share 21.4p 18.3p +17%
----------------------------- --------- ----------- ------
Operating profit to headline
cash conversion(2) 120% 128%
----------------------------- --------- ----------- ------
Operating profit to adjusted
cash conversion(3) 109% 111%
----------------------------- --------- ----------- ------
(1) Includes exceptional gain of GBP2.7m profit on disposal of
49% stake in Capital Private Finance Limited in 2016.
(2) Excludes exceptional gain of GBP2.7m profit on disposal of
49% stake in Capital Private Finance Limited in 2016.
(3) Headline cash conversion is cash generated from operating
activities adjusted for movements in non-trading items including
loans to Appointed Representative firms ("ARs") and loans to
associates totalling GBP0.7m in 2017 (2016: GBP0.4m) as a
percentage of operating profit.
(4) Adjusted cash conversion is headline cash conversion
adjusted for increases in restricted cash balances of GBP1.5m in
2017 (2016: GBP2.1m) and additional cash balances (2017: GBPnil;
2016: GBPnil) held due to the timing of the weekly AR commission
payment in relation to the period end, as a percentage of operating
profit.
(5) Based on Average number of Advisers
Peter Brodnicki, Chief Executive commented:
"I am delighted to report another set of excellent results.
Strong growth in revenue, up 17% to GBP108.8m has translated into
strong growth in adjusted EPS up 17% to 23.8p. Accordingly, the
Board is pleased to propose the payment of an increased final
dividend of 11.9p per share, making total proposed ordinary
dividends for the year of 21.4p, up 17% on the prior year.
"MAB continues to deliver on its strategy in all market
conditions whilst maintaining a strong financial position. Our
mortgage completions increased by 18.5% and our market share
increased by 13%. Achievements across the business continue to be
recognised by a number of industry awards, including being named
Best Mortgage Broker at the 2018 Mortgage Strategy Awards.
"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 next five years."
Outlook
UK Finance's estimate for gross mortgage lending in 2017 of
GBP258bn, implies market growth of 5% since 2016. UK Finance
recently increased its estimate for gross mortgage lending in 2018
to GBP260bn, as well as publishing a first estimate for 2019 of
GBP271bn. Gross mortgage lending is therefore expected to be
relatively flat for 2018 and show a 4% increase for 2019.
Adviser numbers have increased since the year end to 1,096 at 16
March 2018. We remain confident about our planned growth in adviser
numbers in 2018 and beyond, both organically and from new ARs.
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. The Board's expectations for the year remain
unchanged.
For further information please contact:
Mortgage Advice Bureau (Holdings) Plc Tel: +44 (0) 1332 525007
Peter Brodnicki - Chief Executive
David Preece - Chief Operating Officer
Lucy Tilley - Finance Director
Zeus Capital Tel: +44 (0)20 3829 5000
Martin Green
Nicholas How
Pippa Underwood
Canaccord Genuity Tel: +44 (0)20 7523 8350
Andrew Buchanan
Richard Andrews
Media Enquiries:
investorrelations@mab.org.uk
Analyst presentation
There will be an analyst presentation to discuss the results at
08:30am today at Canaccord Genuity Limited, 88 Wood Street, London,
EC2V 7QR.
Those analysts wishing to attend are asked to contact
investorrelations@mab.org.uk
Copies of this final results announcement are available at
investor.mortgageadvicebureau.com
Chief Executive's Review
I am delighted to report another period of strong revenue and
profit growth, with our market share increasing by 13% to 4.6%
(2016: 4.1%) and our mortgage completions increasing by 18.5% to
GBP11.9bn. Our fintech developments are progressing well and serve
to enhance our high-quality business model. Our strategy remains
focused on securing further growth through technology, lead
generation and specialisation which will increase our market share
and the number of mortgage completions in all market conditions,
enabling us to continue to deliver strong returns to our
investors.
We are just over a year into our three-year plan that is focused
on building solutions for the future; this will ensure MAB is able
to maintain and build upon its leading position in the intermediary
sector. We continue to invest in our core business model with our
plans for 2020 and beyond designed to secure sustainable long-term
growth whilst continuing to deliver strong results in the
meantime.
Market environment
Activity overall in the housing market has remained steady over
the last year and was not noticeably affected by the general
election in early June. The current house purchase market remains
predominantly comprised of those moving home due to
non-discretionary lifestyle factors, first time buyers and serious
investors. The residential remortgage market has seen 14% growth by
loan value on 2016, mostly ahead of the widely anticipated increase
in the Bank of England base rate and with strong competition
amongst lenders for new business.
Despite increases in first time buyer transactions, housing
transaction volumes overall have remained relatively flat as the
number of amateur landlords has reduced. Mortgage transactions by
both volume and value have increased by 4% and 5% respectively in
2017 driven by both remortgages and first time buyers. UK Finance
predicts a relatively flat market for gross mortgage lending for
2018, with a 4% increase for 2019 as the Government continues to
manage the UK's exit from the EU. UK Finance also predict that
housing transactions will remain flat over the next two years.
Intermediary market share(1) has remained broadly stable at just
over 70%. MAB and its ARs growth is not directly reliant on
increasing housing transactions, property prices, or intermediary
market share as our continued year on year growth demonstrates.
Intermediaries previously had limited access to the product
switching market, where customers change products with their
existing lender. However, the vast majority of lenders now provide
intermediaries with full access to their switching products. The UK
Finance industry data on gross mortgage lending currently excludes
product switches with the same lender, but we expect UK Finance to
confirm the size of the product switching market later on this
year. Whilst it is still relatively early to assess the impact of
this increased access to product switches, we expect product
switches will typically deliver lower overall income per
transaction compared to a remortgage, with this mostly offset by
switches having a much lower dropout to completion. In addition, we
expect product switches to deliver banked income in a shorter
timeframe.
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.
Recent RICS(2) commentary on house prices suggests that on a
national level, house prices have resumed a modest growth
trajectory. However, the national figure conceals diverging trends
across different parts of the UK, with London and, to a lesser
extent, the South East, East Anglia and the North East experiencing
pressure on prices, whereas house prices are quite firmly on an
upward trend in other areas, including the North West, Northern
Ireland and Wales.
(1) excluding Buy-To-Let, where intermediaries have a higher
market share, and product switches with the same lender
(2) Royal Institution of Chartered Surveyors
Delivering on our strategy
Fintech developments
We continue developing our technology solutions which are at the
centre of our plans to further enhance our unique business model.
This will enable us to increase our market share and gross mortgage
completions both by delivering what our customers will rightly
start to expect and by enabling our AR partners and advisers to
continue competing at the highest level. These fintech developments
will play an ever-increasing role in customer acquisition and
conversion, as well as retention, by allowing advisers to identify
future engagement opportunities with their customers more
accurately and efficiently.
We are embracing fintech developments to enhance both face to
face advice and our newer fast-growing and highly scalable
telephony advice model. This will enable us to access a wider range
of lead sources and provide greater choice to the consumer in how
they research, receive advice and transact. As a result, we believe
MAB's proportion of telephone advice is likely to increase,
complementing the face to face advice that remains highly valued by
consumers. Both these channels will continue to be supported by
increasingly streamlined digital processes.
To allow us to capitalise fully upon our fintech developments we
will consider investments in selected technology propositions where
these can accelerate the development of our customer proposition
and lead generation solutions. In addition, we expect our IT
capital expenditure and IT costs to increase by a modest
amount.
Driving income opportunities
MAB is focused on securing long term sustainable growth and
providing the best possible solutions and outcomes to its
customers. Against the backdrop of a changing consumer landscape,
we will look to increase the range of services offered to our
customers by adopting new developments in technology and working
closely with lenders.
One of our key objectives is to maximise protection
opportunities by achieving even higher levels and consistency of
protection advice. To help facilitate this we were delighted to
appoint Andy Walton to the new role of Proposition Director,
Protection last year.
Our plans for direct-to-consumer marketing are progressing well,
and we expect to be in a controlled testing phase during Q2 2018.
Whilst MAB will use a range of media to target as many channels as
possible, we expect to see the degree of digital content grow in
line with the increasingly digital solutions that will be bought to
all stages of the client journey.
We invested a further GBP0.2m in on-line conveyancing business,
Sort Group Limited, towards the end of 2017, increasing our
ownership from 33.25% to 43.25%. Every mortgage requires
conveyancing and this further investment reflects the importance we
place on technology in delivering a seamless and fully integrated
end-to-end service for MAB's customers across their entire purchase
and remortgage processes. Our plans with Sort Group Limited include
developing a far closer association between conveyancing and
mortgages to provide a more seamless service for consumers as well
as enhancing lead generation. Sort Group Limited has two main
trading subsidiaries, Sort Limited and Sort Legal Limited. Whilst
Sort Limited had a record year and continues to grow strongly, Sort
Legal Limited is a major new initiative that brings ownership of
legal services into Sort Group Limited, considerably increasing its
distribution and capacity. As a result of this, Sort Limited
results were offset by the start-up costs in Sort Legal Limited
during 2017.
Our joint venture in Australia, MAB Broker Services, is trading
in line with our expectations. We continue to review progress and
are in the early stages of implementation of a structure similar to
our UK network partner initiative in Australia, having identified
potential key partners.
MAB continually looks for where the biggest growth sectors may
be for intermediaries in the future. We believe that lending into
retirement represents one of the clear growth opportunities and, as
such, are in the early stages of building the foundations of
solutions for this market; equity release being one of these
solutions, a market which is currently dominated by specialist
intermediaries.
Summary
We are just over a year into our three-year plan that is focused
on building solutions for the future; this will ensure MAB is able
to maintain and build upon its leading position in the intermediary
sector. We continue to invest in our core business model with our
plans for 2020 and beyond designed to secure sustainable long-term
growth whilst continuing to deliver strong results in the meantime.
From a resource and technology perspective we have been focussed on
being ready for GDPR for quite some time, and consider ourselves to
be well positioned and prepared for GDPR.
As technology allows us to have more consistent and targeted
interaction with our customers and when artificial
intelligence/machine learning allows us to identify how different
consumer groups behave and the services they require, this will
give us opportunities in the medium and long term to identify
future new revenue sources and ensure continued and diversified
growth.
Having made a number of key strategic investments, MAB continues
to consider further investments where there is a close alignment
with our strategic objectives. 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
proposition, lead generation and distribution. However, given our
strong financial position and prospects for growth, we do not
expect any such investment to adversely affect our payout ratio or
the future growth in dividends.
Our plans for the future also include broadening the Executive
Board due to the growth and widening range of opportunities for
MAB.
Business Review of the year
I am pleased to report further strong growth in revenue of 17%
to GBP108.8m with profit before tax (and exceptional gain in 2016)
rising by 16% to GBP14.5m. MAB's gross mortgage lending increased
by 18.5% to GBP11.9bn in 2017 (2016: GBP10.0bn) with the average
number of Advisers increasing by 14%. MAB's overall share of UK new
mortgage lending increased by 13% to 4.6% (2016: 4.1%).
Industry data and trends
Mortgage lending activity in 2017 grew by 5% to GBP258bn (2016:
GBP246bn). UK Finance recently increased its estimate for gross
mortgage lending for 2018 to GBP260bn, as well as publishing a
first estimate for 2019 of GBP271bn; gross mortgage lending growth
is therefore expected to be relatively flat for 2018 and show a 4%
increase for 2019. We are confident that our strategy, driven by
our customer's future direction of travel, will continue to drive
growth in our market share and mortgage completions year on year
and deliver attractive returns to investors.
UK property transactions by volume for 2017 were c. 1% lower
than in 2016. The spike in buy-to-let ("BTL") transactions ahead of
the stamp duty changes in April 2016 is evident in the graph
below.
http://www.rns-pdf.londonstockexchange.com/rns/2130I_2-2018-3-19.pdf
Source: HM Revenue and Customs
UK property inflation of 4.8%(1) and an increase in remortgage
volumes of 11% and first time buyer transactions of 8% more than
offset the slight reduction in UK property transactions and the 10%
reduction in BTL transactions, leading to an increase in UK
mortgage lending of 5% overall, as illustrated in the graph
below.
(1) Land Registry House Price Index
http://www.rns-pdf.londonstockexchange.com/rns/2130I_1-2018-3-19.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 2017 for home-owner purchases
(including first time buyers) and remortgages grew by 9% and 14%
respectively. UK gross mortgage lending in 2017 for BTL purchases
and BTL remortgages reduced by 28% and 4% respectively.
Just over 70% of UK mortgage transactions (excluding BTL, where
intermediaries have a higher market share, and product switches
with the same lender) were via an intermediary in 2017, which is
broadly stable compared to 2016 and MAB expects intermediary market
share 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/2130I_-2018-3-19.pdf
Revenue
Revenue increased by 17% to GBP108.8m (2016: GBP92.8m). 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 14% to 1,008 (2016: 888) 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 2017 2016 Increase
---------------------------------- ------ ----- ---------
GBPm GBPm
---------------------------------- ------ ----- ---------
Mortgage procuration fees 46.8 39.4 19%
---------------------------------- ------ ----- ---------
Protection and General Insurance
Commission 42.8 36.4 18%
---------------------------------- ------ ----- ---------
Client Fees 17.5 15.6 12%
---------------------------------- ------ ----- ---------
Other Income 1.7 1.4 22%
---------------------------------- ------ ----- ---------
Total 108.8 92.8 17%
---------------------------------- ------ ----- ---------
MAB's revenue, in terms of proportion, is split as follows:
Income source 2017 2016
---------------------------------- ----- -----
Mortgage procuration fees 43% 42%
---------------------------------- ----- -----
Protection and General Insurance
Commission 39% 39%
---------------------------------- ----- -----
Client Fees 16% 17%
---------------------------------- ----- -----
Other Income 2% 2%
---------------------------------- ----- -----
Total 100% 100%
---------------------------------- ----- -----
All income sources continued to grow strongly with the average
number of Advisers in the year increasing by 14%. We have seen an
increase in average revenue per adviser of 3%, demonstrating the
anticipated return to growth in productivity following the lull in
activity in the housing and mortgage markets surrounding the EU
referendum in 2016.
With MAB's gross mortgage completions increasing by 18.5% in
2017, mortgage procuration fees increased by 19%; and protection
and general insurance commission grew by 18%. Client fees, which
are not linked to the mortgage value, grew by 12%, reflecting an
increase in remortgaging and product switching where fees are
generally lower. Looking ahead, we expect to see 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 was broadly maintained at 23.8% (2016:
23.9%). 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 10.9% (2016: 11.1%).
This reduction in underlying overheads as a percentage of revenue
demonstrates the scalable nature of the cost base. Certain costs,
primarily those relating to compliance, which represent
approximately 40% 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 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, we expect our amortisation on IT
capital expenditure and IT costs to increase by a modest
amount.
Profit before tax and margin thereon
Profit before tax rose by 16% to GBP14.5m (2016: GBP12.5m,
excluding an exceptional GBP2.7m profit on disposal of 49% stake in
Capital Private Finance Limited) with the margin thereon being
13.4% (2016: 13.5%).
Net finance revenue
Net finance revenues of GBP0.04m (2016: GBP0.07m) reflect
continued low interest rates.
Taxation
The effective rate of tax fell to 17.2% (2016: 18.4%),
principally due to the tax deduction arising following the exercise
of the first 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 the continued
availability of tax credits for MAB's research and development
expenditure on our continued development of MIDAS Pro, MAB's
proprietary software, and further tax deductions arising from the
exercise of share options.
Earnings per share and dividend
Adjusted earnings per share rose by 17% to 23.8 pence (2016:
20.3 pence(1) ).
The Board is pleased to propose a final dividend for the year
ended 31 December 2017 of 11.9 pence per share (2016: 10.5 pence
per share), amounting to a cash cost of GBP6.0m. 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 2017
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 27 April 2018 and the
payment date is 22 May 2018. The ex-dividend date will be 26 April
2018.
Cash flow and cash conversion
The Group's operations produce positive cash flow. This is
reflected in the net cash inflow from operating activities of
GBP14.5m (2016: GBP13.4m).
Headline cash conversion (1) was:
2017 120%
------------------ -----------------
2016 128%
------------------ -----------------
Adjusted cash conversion (2) was:
-------------------------------------
2017 109%
------------------ -----------------
2016 111%
------------------ -----------------
The Group's operations are capital light with our most
significant ongoing capital investment being in computer equipment.
Only GBP0.1m of capital expenditure on office and computer
equipment was required during the period (2016: GBP0.3m). Group
policy is not to provide company cars, and, other than on IT as
indicated above, no 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 2017 (2016:
GBPnil) with unrestricted bank balances of GBP13.2m (31 December
2016: GBP10.8m).
The Group has a regulatory capital requirement amounting to 2.5%
of regulated revenue. At 31 December 2017 this regulatory capital
requirement was GBP2.5m (31 December 2016: GBP2.1m), with the Group
having a surplus of GBP9.5m.
The following table demonstrates how cash generated from
operations was applied:
GBPm
Unrestricted bank balances at the beginning of the year 10.8
Cash generated from operating activities excluding movements in restricted balances and dividends
received from associates 14.8
Issue of shares 0.5
Dividends received from associates 0.4
Dividends paid (10.7)
Tax paid (2.2)
Capital expenditure (including new website) (0.2)
Investments in associates (0.2)
Unrestricted bank balances at the end of the period 13.2
-------------------------------------------------------------------------------------------------- ------
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) Excludes the exceptional gain of GBP2.7m profit on disposal
of 49% stake in Capital Private Finance Limited in 2016.
(2) Headline cash conversion is cash generated from operating
activities adjusted for movements in non-trading items including
loans to Appointed Representative firms ("ARs") and loans to
associates totalling GBP0.7m in 2017 (2016: GBP0.4m) as a
percentage of operating profit.
(3) Adjusted cash conversion is headline cash conversion
adjusted for increases in restricted cash balances of GBP1.5m in
2017 (2016: GBP2.1m) and additional cash balances (2017: GBPnil;
2016: GBPnil) held due to the timing of the weekly AR commission
payment in relation to the period end, as a percentage of operating
profit.
Outlook
UK Finance's estimate for gross mortgage lending in 2017 of
GBP258bn, implies market growth of 5% since 2016. UK Finance
recently increased its estimate for gross mortgage lending in 2018
to GBP260bn, as well as publishing a first estimate for 2019 of
GBP271bn. Gross mortgage lending is therefore expected to be
relatively flat for 2018 and show a 4% increase for 2019.
Adviser numbers have increased since the year end to 1,096 at 16
March 2018. We remain confident about our planned growth in adviser
numbers in 2018 and beyond, both organically and from new ARs.
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. The Board's expectations for the year remain
unchanged.
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 2017 which comprise
the consolidated statement of comprehensive income, the
consolidated statement of financial position and the company
statement of financial position, the consolidated statement of
changes in equity and the company statement of changes in equity,
the consolidated statement of cash flows and the 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 2017 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 Audit response
matters description
------------- ----------------------- ------------------------------------------------------------
Revenue Revenue comprises We responded to this
recognition of commissions, risk by performing the
(Note 3) client fees and following procedures:
other income. * We have checked the effectiveness of the
Revenue is processed reconciliation between revenue and cash banked.
in the operating
system upon receipt
of third party * We have checked on a sample basis that the third
reports once party reports have been properly accounted for in
transactions order to verify the completeness of revenue.
have been exchanged
or completed
and is then accounted * Using third party reports, we have recalculated the
for when it is majority of the mortgage related fees independently.
matched with
cash received
in the bank on * We have performed cut-off tests by verifying back to
a monthly basis. third party reports.
Revenue recognition
is considered
to be a significant
audit risk as No material misstatements
it is a key driver were detected as a result
of return to of our testing.
investors and
there is a risk
that there could
be misstatement
or omission of
amounts recorded
in the system.
------------- ----------------------- ------------------------------------------------------------
Key audit Key audit matter Audit response
matters description
----------- --------------------- ----------------------------------------------------------------
Clawback The clawback
provision provision relates * We have reviewed the methodology applied by
(Note 19) to the estimated management in determining the claw back provision.
value of repaying
commission received
up front on life * Lapse rates, recoveries and unearned indemnity
assurance policies commission values used in calculating the claw back
that may lapse provision have been agreed to system reports, third
in a period of party data and historical data.
up to four years
following inception
of the policies. * Where management applied judgements, we have
The clawback performed a sensitivity analysis.
provision is
considered to
be a significant
audit risk due No material misstatements
to the management were detected as a result
judgement and of our testing.
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.
----------- --------------------- ----------------------------------------------------------------
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.
Based on our professional judgement, we determined materiality
for the group to be GBP700,000 (2016: GBP790,000) which represents
5% of profit before tax. We have used profit before tax as a
benchmark given the importance of profit as a measure for
shareholders in assessing the performance of the Group. We have
then set the performance materiality at 75% (2016:75%) due to few
identified misstatements in the past.
We determined materiality for the parent to be GBP192,000 (2016:
GBP165,000) which represents 5% of net assets. We have used net
assets as the parent acts as a holding company only. We have then
set the performance materiality at 75% (2016:75%) 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 GBP14,000 (2016: GBP16,000) for
the group and GBP4,000 (2016: GBP3,000) for the parent. 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
This report is made solely to the 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
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 company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
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.
Leigh Treacy (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
19 March 2018
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 2017
Note
2017 2016
GBP'000 GBP'000
----------------------------------------- ---------- --------- ---------
Revenue 3 108,847 92,848
Cost of sales 4 (82,945) (70,700)
----------------------------------------- ---------- --------- ---------
Gross profit 25,902 22,148
Administrative expenses (11,909) (10,296)
Share of profit of associates 13 500 611
----------------------------------------- ---------- --------- ---------
Operating profit 14,493 12,463
Finance income 7 42 73
Exceptional profit on disposal
of asset held for sale 13 - 2,690
Profit before tax 14,535 15,226
Tax expense 8 (2,494) (2,307)
----------------------------------------- ---------- --------- ---------
Profit for the year attributable
to equity holders of parent
company 12,041 12,919
----------------------------------------- ---------- --------- ---------
Other comprehensive income
Other comprehensive income
to be reclassified to
profit or loss in subsequent
periods (net of tax):
Net gain on asset held
for sale - 2,152
Transfer to realised profit - (2,152)
----------------------------------------- --------- --------------------
Net other comprehensive - -
income to be reclassified
to profit and loss in
subsequent periods net
of tax
Other comprehensive income - -
Total comprehensive income
attributable to equity
holders of parent company 12,041 12,919
----------------------------------------- --------- --------------------
Earnings per share attributable to the
owners of the parent company
Basic 9 23.8p 25.6p
----------------------------------------- ---------- --------- ---------
Diluted 9 23.2p 25.2p
----------------------------------------- ---------- --------- ---------
The notes that follow form part of these financial
statements.
Consolidated statement of financial position
as at 31 December 2017
2017 2016
Note GBP'000 GBP'000
------------------------------- ------ --------- ---------
Assets
Non-current assets
Property, plant and
equipment 11 2,648 2,720
Goodwill 12 4,114 4,114
Other intangible assets 12 98 9
Investments 13 1,339 1,008
Deferred tax asset 20 925 72
Total non-current assets 9,124 7,923
------------------------------- ------ --------- ---------
Current assets
Trade and other receivables 15 4,426 3,256
Cash and cash equivalents 16 22,551 18,711
------------------------------- ------ --------- ---------
Total current assets 26,977 21,967
------------------------------- ------ --------- ---------
Total assets 36,101 29,890
------------------------------- ------ --------- ---------
Equity and liabilities
Equity attributable to owners
of the parent company
Share capital 21 51 51
Share premium 3,574 3,042
Capital redemption
reserve 20 20
Share option reserve 1,450 380
Retained earnings 13,071 11,680
------------------------------- ------ --------- ---------
Total equity 18,166 15,173
------------------------------- ------ --------- ---------
Liabilities
Non-current liabilities
Contingent consideration 13 - 50
Provisions 19 1,496 1,219
Deferred tax liability 20 51 40
------------------------------- ------ --------- ---------
Total non-current liabilities 1,547 1,309
------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 17 14,999 12,405
Corporation tax liability 1,389 1,003
------------------------------- ------ --------- ---------
Total current liabilities 16,388 13,408
------------------------------- ------ --------- ---------
Total liabilities 17,935 14,717
------------------------------- ------ --------- ---------
Total equity and liabilities 36,101 29,890
------------------------------- ------ --------- ---------
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 2017
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 2016 51 3,042 20 157 9,635 12,905
Profit for the
year - - - - 12,919 12,919
--------------------- ---------- ---------- ------------ --------- ----------- -----------
Total comprehensive
income - - - 12,919 12,919
--------------------- ---------- ---------- ------------ --------- ----------- -----------
Transactions
with owners
Share based payment
transactions - - - 223 - 223
Dividends paid - - - - (10,874) (10,874)
--------------------- ---------- ---------- ------------ --------- ----------- -----------
Transactions
with owners - - - 223 (10,874) (10,651)
--------------------- ---------- ---------- ------------ --------- ----------- -----------
Balance at 31
December 2016
and 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 51 3,574 20 1,450 13,071 18,166
--------------------- ---------- ---------- ------------ --------- ----------- -----------
The notes that follow form part of these financial
statements.
Consolidated statement of cash flows
for the year ended 31 December 2017
Notes 2017 2016
GBP'000 GBP'000
--------------------------------- ------ ---------- ---------
Cash flows from operating
activities
Profit for the year before
tax 14,535 15,226
Adjustments for:
Depreciation of property,
plant and equipment 11 201 193
Amortisation of intangibles 12 14 18
Profit on disposal of asset
held for sale - (2,690)
Share based payments 333 223
Share of profit from associates 13 (500) (611)
Dividends received from
associates 13 353 567
Finance income 7 (42) (73)
--------------------------------- ------ ---------- ---------
14,894 12,853
Changes in working capital
Increase in trade and other
receivables (1,159) (405)
Increase in trade and other
payables 2,594 2,886
Increase in provisions 277 301
Cash generated from operating
activities 16,606 15,635
Income taxes paid (2,151) (2,278)
--------------------------------- ------ ---------- ---------
Net cash generated from
operating activities 14,455 13,357
--------------------------------- ------ ---------- ---------
Cash flows from investing
activities
Purchase of property, plant
and equipment 11 (129) (292)
Purchase of intangibles 12 (103)
Proceeds from sale of associate - 2,694
Acquisitions of associates
and investments 13 (184) (203)
Deferred consideration
on acquisition of associates 13 (50) -
--------------------------------- ------ ---------- ---------
Net cash used in investing
activities (466) 2,199
--------------------------------- ------ ---------- ---------
Cash flows from financing
activities
Interest received 7 31 73
Issue of shares 21 532 -
Dividends paid 10 (10,712) (10,874)
--------------------------------- ------ ---------- ---------
Net cash used in financing
activities (10,149) (10,801)
--------------------------------- ------ ---------- ---------
Net increase in cash and
cash equivalents 3,840 4,755
Cash and cash equivalents
at the beginning of year 18,711 13,956
--------------------------------- ------ ---------- ---------
Cash and cash equivalents
at the end of the year 22,551 18,711
--------------------------------- ------ ---------- ---------
The notes that follow form part of these financial
statements
Notes to the consolidated financial statements
for the year ended 31 December 2017
1 Accounting policies
Basis of preparation
The principal accounting policies adopted in the preparation of
the consolidated financial statements are set out below. The
policies have been consistently applied to all the years
presented.
The consolidated financial statements are presented in Great
British Pounds, which is also the Group's functional currency. All
amounts are rounded to the relevant thousands, unless otherwise
stated.
These financial statements have been prepared under the
historical cost convention and in accordance with International
Financial Reporting Standards, International Accounting Standards
and Interpretations (collectively IFRSs) issued by the
International Accounting Standards Board (IASB) as adopted by the
European Union (EU) (EU "adopted IFRSs") and with those parts of
the Companies Act 2006 that are applicable to companies that
prepare financial statements in accordance with IFRSs.
The preparation of financial statements in compliance with
adopted EU IFRS requires the use of certain critical accounting
estimates. It also requires Group management to exercise judgement
in applying the Group's accounting policies. The areas where
significant judgements and estimates have been made in preparing
the financial statements and their effect are disclosed in note
2.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic Report as set out earlier in 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 GBP14.5m during 2017
(2016: GBP12.5 million) and had net current assets of GBP10.5m at
31 December 2017 (31 December 2016: GBP8.6m) and equity
attributable to owners of the Group of GBP18.2m (31 December 2016:
GBP15.2m).
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 2017
The following new standards, interpretations and amendments are
effective for annual periods beginning on or after 1 January 2017
and have been applied in preparing these financial statements. None
of these new standards or interpretations have a significant impact
on the annual consolidated financial statements of the Group.
-- IAS 7 Disclosure Initiative - Amendments to IAS 7. The
amendments to IAS 7 Statement of Cash Flows are part of the IASB's
Disclosure Initiative and require an entity to provide disclosures
that enable users of financial statements to evaluate changes in
liabilities arising from financing activities, including both
changes arising from cash flows and non-cash changes. On initial
application of the amendment, entities are not required to provide
comparative information for preceding periods. These amendments are
effective for annual periods beginning on or after 1 January 2017,
with early application permitted. Application of the amendments has
had no impact on the Group.
-- IAS 12 Income Taxes Recognition of Deferred Tax Assets for
Unrealised Losses - Amendments to IAS 12. The amendments clarify
that an entity needs to consider whether tax law restricts the
sources of taxable profits against which it may make deductions on
the reversal of that deductible temporary difference related to
unrealised losses. Furthermore, the amendments provide guidance on
how an entity should determine future taxable profits and explain
the circumstances in which taxable profit may include the recovery
of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively.
However, on initial application of the amendments, the change in
the opening equity of the earliest comparative period may be
recognised in the opening retained earnings (or in another
component of equity, as appropriate), without allocating the change
between opening retained earnings and other components of equity.
Entities applying this relief must disclose that fact. These
amendments are effective for annual periods beginning on or after 1
January 2017 with early application permitted. If an entity applies
the amendments for an earlier period, it must disclose that fact.
Application of the amendments has had no impact on the Group.
-- Annual Improvements Cycle - 2014-2016
Amendments to IFRS 12 - Disclosure of interest in other
entities. The amendments clarify that the disclosure requirements
in IFRS 12, other than those in paragraphs B10-B16, apply to an
entity's interest in a subsidiary, a joint venture or an associate
(or a portion of its interest in a joint venture or an associate)
that is classified (or included in a disposal group that is
classified) as held for sale. These amendments did not affect the
Group's financial statements.
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.
-- IFRS 9 Financial Instruments. The group has identified that
the adoption of IFRS 9, which replaces IAS 39 Financial
Instruments: Recognition and Measurement from 1 January 2018, could
impact its consolidated financial statements in one key area:
The Group will need to apply an expected credit loss model when
calculating impairment losses on its trade and other receivables
and its cash and cash equivalents. This may result 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 must
consider the probability of a default occurring over the
contractual life of its trade 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 31 December 2017
is not material, resulting in an immaterial increase in the
impairment provision as at 1 January 2018 under IFRS 9 compared to
IAS 39.
-- IFRS 15 Revenue from Contracts with Customers. This was
issued by the IASB on 28 May 2014 and applies to an entity's first
annual IFRS financial statements for a period beginning on or after
1 January 2018. It 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 is not expected to have any impact on
the Group.
-- IFRS 2 Classification and Measurement of Share-based Payment
Transactions - Amendments to IFRS 2. The IASB issued amendments to
IFRS 2 Share-based Payment that address 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.
On adoption, entities are required to apply the amendments
without restating prior periods, but retrospective application is
permitted if elected for all three amendments and other criteria
are met. The amendments are effective for annual periods beginning
on or after 1 January 2018, with early application permitted. These
amendments are not expected to have any impact on the Group.
-- IFRS 16 Leases. IFRS 16 was issued in January 2016 and it
replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement
contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27
Evaluating the Substance of Transactions involving the Legal Form
of a Lease. IFRS 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires
lessees to account for all leases under a single on-balance sheet
model similar to the accounting for finance leases under IAS 17.
The standard includes two recognition exemptions for lessees -
leases of 'low-value' assets (e.g., personal computers) and
short-term leases (i.e., leases with a lease term of 12 months or
less). At the commencement date of a lease, a lessee will recognise
a liability to make lease payments (i.e., the lease liability) and
an asset representing the right to use the underlying asset during
the lease term (i.e., the right-of-use asset). Lessees will be
required to separately recognise the interest expenses on the lease
liability and the depreciation expense on the right-of-use
asset.
Lessees will be also required to remeasure the lease liability
upon the occurrence of certain events (e.g. a change in the lease
term, a change in future lease payments resulting from a change in
an index or rate used to determine those payments). The lessee will
generally recognise the amount of the remeasurement of the lease
liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from
today's accounting under IAS 17. Lessors will continue to classify
all leases using the same classification principle as in IAS 17 and
distinguish between two types of leases: operating and finance
leases.
IFRS 16 also requires lessees and lessors to make more extensive
disclosures than IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1
January 2019. Early application is permitted, but not before an
entity applies IFRS 15. A lessee can choose to apply the standard
using either a full retrospective or a modified retrospective
approach. The standard's transition provisions permit certain
reliefs. This standard is not expected to have any impact on the
Group.
-- IFRIC Interpretation 23 - Uncertainty over income tax
treatments. The interpretation addresses the accounting for income
taxes when tax treatments involve uncertainty that affects the
application of IAS 12 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.
-- IFRS 17 - Insurance contracts. IFRS 17, a comprehensive new
accounting standard for insurance contracts covering recognition
and measurement, presentation and disclosure was issued in May
2017. Once effective, IFRS 17 will replace IFRS 4. IFRS 17 applies
to all types of insurance contracts, regardless of the type of
entities that issue them, as well as to certain guarantees and
financial instruments with discretionary participation features.
The objective of IFRS 17 is to provide an accounting model for
insurance contracts that is more useful and consistent for
insurers.
IFRS 17 is effective for reporting periods beginning on or after
1 January 2021, with comparative figures required. Early
application is permitted, provided the entity also applies IFRS 9
and IFRS 15 on or before the date it first applies IFRS 17. This
standard is not applicable to the Group.
-- Amendments to IFRS 10 and IAS 28: Sale or contribution of
Assets between an Investor and its Associate or Joint Venture. The
amendments address the conflict between IFRS 10, Consolidated
Financial Statements and IAS 28 in dealing with the loss of control
of a subsidiary that is sold or contributed to an associate or
joint venture. The amendments clarify that the gain or loss
resulting from the sale or contribution of assets that constitute a
business, as defined in IFRS 3, between an investor and its
associate or joint venture, is recognised in full. Any gain or loss
resulting from the sale or contribution of assets that do not
constitute a business, however, is recognised only to the extent of
unrelated investors' interests in the associate or joint venture.
The IASB has deferred the effective date of these amendments
indefinitely, but an entity that early adopts the amendments must
apply them prospectively. The Group will apply these amendments
when they become effective.
Current versus non-current classification
The Group presents assets and liabilities in the statement of
financial position based on current/non-current classification. An
asset is current when it is:
-- Expected to be realised or intended to
be sold or consumed in the normal operating
cycle
-- Held primarily for the purpose of trading
-- Expected to be realised within twelve months
after the reporting date
All other assets are classified as non-current.
Assets included in current assets which are expected to be
realised within twelve months after the reporting date are measured
at fair value which is their book value. Fair value for investments
in unquoted equity shares is the net proceeds that would be
received for the sale of the asset where this can be reasonably
determined.
Basis of consolidation
Where the company has control over an investee, it is classified
as a subsidiary. The company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the
company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between group
companies are therefore eliminated in full.
The consolidated financial statements incorporate the results of
business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases.
Entities that are not subsidiaries but where the Group has
significant influence (i.e. the power to participate in the
financial and operating policy decisions) are accounted for as
associates. The results and assets and liabilities of the
associates and joint venture are included in the consolidated
accounts using the equity method of accounting.
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 and the website 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. 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 the website 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.
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. These are recognised at original fair value
less appropriate provision for impairment and subsequently measured
at amortised cost.
Impairment provisions are recognised when there is objective
evidence (such as significant financial difficulties on the part of
the counterparty or default or significant delay in payment) that
the Group will be unable to collect all of the amounts, the amount
of such a provision being the difference between the net carrying
amount and the present value of the future expected cash flows
associated with the impaired receivable. For trade receivables,
which are reported net, such provisions are recorded in a separate
allowance 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.
Cash and cash equivalents include cash in hand and deposits held
at call with banks with an original maturity of three months or
less.
Trade and other payables
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.
Leased assets
Rentals under operating leases are charged on a straight line
basis over the lease term, even if the payments are not made on
such a basis. Benefits received and receivable as an incentive to
sign an operating lease are similarly spread on a straight line
basis over the lease term.
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.
Exceptional items
As permitted by IAS 1 'Presentation and disclosure' - certain
items are presented separately in the income statement as
exceptional where, in the judgement of the Directors, they need to
be disclosed by virtue of their nature, size or incidence in order
to obtain a clear and consistent presentation of the Group's
underlying business performance. Examples of material and
non-recurring items which may give rise to disclosure as
exceptional items include asset impairments, costs associated with
acquiring new businesses and profits on the disposal of
investments.
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.
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.
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.
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. Trade
receivables are reviewed for impairment if they are past due and
are not repaid within the terms of the contracts. Other
receivables, which include loans, are reviewed for impairment when
there are any indications that they may not be recoverable and that
security held against the balance may be inadequate to fully cover
the amount outstanding. A provision for impairment will be made if
following review of the balances, the Group considers it unlikely
that any balance will be recovered. 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 2017 was
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:
2017 2016
GBP'000 GBP'000
Mortgage related products 64,289 55,011
Insurance and other protection
products 42,854 36,444
Other income 1,704 1,393
--------------------------------- -------- --------
108,847 92,848
-------------------------------- -------- --------
4 Cost of sales
Costs of sales are as follows:
2017 2016
GBP'000 GBP'000
Commissions paid 81,265 69,380
Wages and salary costs 1,680 1,320
------------------------- -------- --------
82,945 70,700
------------------------ -------- --------
2017 2016
Wages and salary costs GBP'000 GBP'000
------------------------------- ---------- ---------
Gross 1,302 1,015
Employers' National Insurance 151 115
Defined contribution pension
costs 48 35
Other Direct Costs 179 155
1,680 1,320
------------------------------- ---------- ---------
5 Profit from operations
Profit from operations is stated after charging the
following:
2017 2016
GBP'000 GBP'000
--------------------------------- ---------- ----------
Depreciation of property, plant
and equipment 201 193
Amortisation of intangibles 14 18
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. 32 27
--------------------------------- ---------- ----------
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:
2017 2016
GBP'000 GBP'000
------------------------------- ---------- ---------
Wages and salaries 7,271 6,410
Share based payments 670 315
Social security costs 739 712
Defined contribution pension
costs 188 150
------------------------------- ---------- ---------
8,868 7,587
------------------------------- ---------- ---------
The average number of people Number Number
employed by the Group during
the year was:
------------------------------- ---------- ---------
Executive Directors 3 3
Compliance 59 52
Sales and marketing 43 40
Operations 52 46
------------------------------- ---------- ---------
Total 157 141
------------------------------- ---------- ---------
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.
2017 2016
GBP'000 GBP'000
------------------------------ --------- ---------
Wages and salaries 1,420 1,568
Share based payments 145 86
Defined contribution pension
costs 21 19
------------------------------ --------- ---------
1,586 1,673
------------------------------ --------- ---------
During the year retirement benefits were accruing to 1 director
(2016: 1) in respect of defined contribution pension schemes.
The total amount payable to the highest paid director in respect
of emoluments was GBP598,738 (2016: GBP619,873). The value of the
Group's contributions paid to a defined contribution pension scheme
in respect of the highest paid director amounted to GBPnil (2016:
GBPnil).
7 Finance income
2017 2016
GBP'000 GBP'000
---------------------------- ---------- ---------
Interest income 31 73
Interest income accrued on 11 --
loans to associates
---------------------------- ---------- ---------
42 73
---------------------------- ---------- ---------
8 Income Tax
2017 2016
GBP'000 GBP'000
----------------------------------- ---------- ---------
Current tax expense
UK corporation tax charge on
profit for the year 2,537 2,367
Total current tax 2,537 2,367
----------------------------------- ---------- ---------
Deferred tax expense
Origination and reversal of
timing differences 5 (58)
Temporary difference on share (71) -
based payments
Adjustment to deferred tax 23 -
charge in respect of prior
periods
Effect of change in tax rate
on opening liability - (2)
----------------------------------- ---------- ---------
Total Deferred Tax (see note
20) (43) (60)
----------------------------------- ---------- ---------
Total tax expense 2,494 2,307
----------------------------------- ---------- ---------
The reasons for the difference between the
actual charge for the year and the standard
rate of corporation tax in the United Kingdom
of 19.25% (2016: 20%) applied to profit for
the year is as follows:
2017 2016
GBP'000 GBP'000
----------------------------------- ---------- ---------
Profit for the year before
tax 14,535 15,226
----------------------------------- ---------- ---------
Expected tax charge based on
corporation tax rate 2,798 3,045
Expenses not deductible for
tax purposes
amortisation and impairment 56 62
Adjustment for non-taxable
profit on sale of asset held
for sale - (538)
Research & Development allowances (135) (148)
Tax on share options exercised (163) -
Adjustment to deferred tax 23 -
charge in respect of prior
periods
Profits from associates (96) (122)
Effect of lower deferred tax
rate 11 10
Rate change on deferred tax
liability - (2)
----------------------------------- ---------- ---------
Total tax expense 2,494 2,307
----------------------------------- ---------- ---------
For the year ended 31 December 2017 the deferred tax, relating
to unexercised share options, recognised in equity was GBP799,387
(2016: GBPnil).
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% (2016:
17%).
9 Earnings Per Share
a) 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.
2017 2016
Basic earnings per share GBP'000 GBP'000
----------------------------------- ----------- -----------
Profit for the year attributable
to the owners of the parent 12,041 12,919
----------------------------------- ----------- -----------
Weighted average number of shares
in issue 50,697,207 50,461,600
----------------------------------- ----------- -----------
Basic earnings per share (in
pence per share) 23.8p 25.6p
----------------------------------- ----------- -----------
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.
2017 2016
Diluted earnings per share GBP'000 GBP'000
----------------------------------- ----------- -----------
Profit for the year attributable
to the owners of the parent 12,041 12,919
----------------------------------- ----------- -----------
Weighted average number of shares
in issue 51,948,051 51,238,503
----------------------------------- ----------- -----------
Basic earnings per share (in
pence per share) 23.2p 25.2p
----------------------------------- ----------- -----------
The share data used in the basic and diluted earnings per share
computations are as follows:
Weighted average number of ordinary 2017 2016
shares
------------------------------------- ----------- -----------
Issued ordinary shares at start
of period 50,461,600 50,461,600
Effect of shares issued during 235,607 -
period
------------------------------------- ----------- -----------
Basic weighted average number
of shares 50,697,207 50,461,600
Potential ordinary shares arising
from options 1,250,844 776,903
------------------------------------- ----------- -----------
Diluted weighted average number
of shares 51,948,051 51,283,503
------------------------------------- ----------- -----------
b) Adjusted earnings per share
2017 2016
GBP'000 GBP'000
----------------------------------- ----------- -----------
Profit for the year attributable
to the owners of the parent 12,041 12,919
Adjusted for the following items
net of tax:
Profit on disposal of asset held
for sale - (2,690)
----------------------------------- ----------- -----------
Adjusted earnings net of tax 12,041 10,229
----------------------------------- ----------- -----------
Weighted average number of shares
in issue 50,697,207 50,461,600
----------------------------------- ----------- -----------
Adjusted basic earnings per share
(in pence per share) 23.8p 20.3p
Adjusted diluted earnings per
share (in pence per share) 23.2p 20.0p
----------------------------------- ----------- -----------
10 Dividends
2017 2016
GBP'000 GBP'000
--------
Dividends paid and declared
during the year:
Final dividend for 2016:10.5p
per share (2016: 9.5p) 5,333 4,794
Special dividend: 1.1p per
share (2016: 4.25p) 555 2,145
Interim dividend for 2017:
9.5p per share (2016: 7.8p) 4,824 3,935
------------------------------------ ------- --------
10,712 10,874
----------------------------------- ------- --------
Equity dividends on ordinary
shares:
Further special dividend:
1.1p per share - 555
Proposed for approval:
Final dividend for 2017: 11.9p
per share (2016: 10.5p) 6,044 5,298
--------------------------------- ------ ------
6,044 5,853
-------------------------------- ------ ------
The record date for the final dividend is 27 April 2018 and the
payment date is 22 May 2018.The ex-dividend date will be 26 April
2018.
11 Property, Plant and Equipment
Freehold
land Fixtures Computer
and & fittings equipment Total
building 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
------------------- ---------- ------------- ------------ ----------
Freehold
land Fixtures Computer
and & fittings equipment Total
building GBP'000 GBP'000 GBP'000
GBP'000
------------------- ---------- ------------- ------------ ----------
Cost
At 1 January 2016 2,409 288 588 3,285
Additions 52 147 93 292
At 31 December
2016 2,461 435 681 3,577
------------------- ---------- ------------- ------------ ----------
Depreciation
At 1 January 2016 13 240 411 664
Charge for the
year 54 27 112 193
At 31 December
2016 67 267 523 857
------------------- ---------- ------------- ------------ ----------
Net Book Value
At 31 December
2016 2,394 168 158 2,720
12 Intangible Assets
Goodwill 2017 2016
GBP'000 GBP'000
------------------------ --------- ---------
Cost
As at 1 January and 31
December 4,267 4,267
-------------------------- --------- ---------
Accumulated impairment
At 1 January 153 153
At 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 2017 concluded that there had been no
impairment of goodwill.
The Board considers that it has only one operating segment and
therefore one cash generating unit so accordingly it is necessary
to assess the impact of the acquisition of Mortgage Talk Limited to
the Group. The value in use of Mortgage Talk Limited has therefore
been estimated based on the improvements in net profits which that
acquisition continues to bring to the Group. The forecast ongoing
profits generated by the acquisition of Mortgage Talk Limited
significantly exceed the value of goodwill and therefore no
impairment of the 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 and website 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
---------------------------- --------- --------- ---------
Licences Website Total
GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- ---------
Cost
At 1 January 2016 and
31 December 2016 108 - 108
Accumulated Amortisation
At 1 January 2016 81 - 81
Charge for the year 18 - 18
At 31 December 2016 99 - 99
---------------------------- --------- --------- ---------
Net book value
At 31 December 2016 9 - 9
---------------------------- --------- --------- ---------
13 Investments in Associates and Joint Venture
GBP'000
-------------------------------------------- --------
Investment in Associates and joint venture 1,339
Other Investments -
-------------------------------------------- --------
At 31 December 2017 1,339
-------------------------------------------- --------
At 31 December 2016 1,008
-------------------------------------------- --------
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
Registered office shares
Company name held Description
-------------------- --------------------- ------------- ---------------------
CO2 Commercial Profile House, 49 Property surveyors
Limited Stores Road,
Derby DE21 4BD
MAB Wealth Capital House, 49 Provision
Management Pride Place, of financial
Limited Derby DE24 8QR services
Freedom 365 Gresley House, 35 Provision
Mortgage Solutions Ten Pound Walk, of financial
Limited Doncaster DN4 services
5HX
Sort Group Burdsall House, 43.25 Conveyancing
Limited London Road, services
Derby DE24 8UX
Buildstore Nsb & Rc Lydiard 25 Provision
Limited Fields, Great of financial
Western Way, services
Swindon SN5 8UB
Clear Mortgage 114 Centrum House, 25 Provision
Solutions Limited Dundas Street, of financial
Edinburgh EH3 services
5DQ
Vita Financial 1(st) Floor Tudor 20 Provision
Limited House, 16 Cathedral of financial
Road, Cardiff services
CF11 9LJ
MAB Broker Level 7, 68 Alfred 45 Provision
Services PTY Street, Milsons of financial
Limited Point, NSW 2061 services
-------------------- --------------------- ------------- ---------------------
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:
2017 2016
GBP'000 GBP'000
-------------------- --------- ---------
At 1 January 1,008 715
Additions 184 253
Disposals - (4)
Share of profit 500 611
Dividends received (353) (567)
-------------------- --------- ---------
At 31 December 1,339 1,008
-------------------- --------- ---------
The Group was entitled to 49% of the results for Capital Private
Finance Limited up to 30 June 2016. The Group is also 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 and 20% of the results of Vita Financial Limited by virtue
of its 20% equity stake.
On 20 November 2017, the Group acquired a further 10% equity
stake in Sort Group Limited. At 31 December 2017 the Group was
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 and Sort Technology Limited at 31
December 2017 was 30%. Mortgage Advice Bureau Limited's effective
holding in Sort Limited at 31 December 2017 was 28%.
The carrying value of the Group's joint venture, MAB Broker
Services PTY Limited, at 31 December 2017 is GBPnil (2016: GBPnil).
In the period ended 30 June 2017, MAB Broker Services PTY reported
a loss of AUD0.5m.
Acquisitions and disposals
2017: The Group acquired a further 10% interest in Sort Group
Limited on 20 November 2017 at a cost of GBP183,817.
2016: During the year ended 31 December 2016, the Group acquired
a 25% interest in Clear Mortgage Solutions Limited at a cost of
GBP50,000 plus contingent consideration of up to GBP50,000 which
was paid in full in 2017. Also during 2016 the Group acquired a 20%
interest in Vita Financial Limited at a cost of GBP150,000, a 35%
interest in Freedom 365 Mortgage Solutions Limited at a cost of
GBP350 and a 45% interest in MAB Broker Services PTY Limited at a
cost of GBP2,666 (AUD4,500).
On 31 July 2016, the Group disposed of its 49% holding in
Capital Private Finance Limited for sale proceeds of GBP2.7m which
resulted in a net profit on sale of GBP2.69m.
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 2017
Limited Limited Limited Others Total
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 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
------------------------- ----------- ------------- ---------- ---------- ----------
Pinnacle
Surveyors
(England Sort
& Wales) Buildstore Group 2016
Limited Limited Limited Others Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ----------- ------------- ---------- ---------- ----------
Non-current assets 38 100 808 146 1,092
Cash balances 378 316 631 412 1,737
Current assets 572 247 80 266 1,165
Current liabilities (592) (587) (257) (800) (2,236)
Non-current liabilities
and provisions (2) (10) (2) (142) (156)
Revenue 3,723 3,271 3,921 2,641 13,556
Profit before taxation 1,020 176 455 148 1,799
Total comprehensive
income 816 134 337 25 1,312
Profit attributable
to Group 400 - 41 170 611
------------------------- ----------- ------------- ---------- ---------- ----------
Dividends received
from associates 357* - - 210 567
------------------------- ----------- ------------- ---------- ---------- ----------
All associates prepare their financial statements in accordance
with FRS 102 other 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 other than Sort Group Limited if
these were prepared in accordance with IFRS. For Sort Group Limited
amortisation of GBP86,981 (2016: GBP86,981) has been charged for
the year on goodwill arising on consolidation, no amortisation
would be charged under IFRS and goodwill instead be tested for
impairment at the balance sheet date.
* 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.
Other investments
Unlisted investment
The unlisted investment represents a 0.05% shareholding in
Twenty7tec Group Limited, a company that licenses certain mortgage
sourcing software. The net book value of the investment at 31
December 2017 was GBP150 (2016: GBP150).
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 Percentage
Company name of Incorporation of ordinary Nature of
shares business
held
---------------------------- ------------------ ------------- -----------------
Provision
Mortgage Advice England 100 of financial
Bureau Limited and Wales services
Mortgage Advice Provision
Bureau (Derby) of financial
Limited England 100 services
and Wales
Provision
England 100 of financial
Capital Protect and Wales services
Limited
Provision
Mortgage Talk England 100 of financial
Limited and Wales services
Intermediate
Talk Limited England 100 holding company
and Wales
Mortgage Advice Intermediate
Bureau Australia Australia 100 holding company
(Holdings) PTY
Limited
Mortgage Advice Holding
Bureau PTY Limited Australia 100 of intellectual
property
MABWM Limited England 100 Dormant
and Wales
Mortgage Advice
Bureau (UK) Limited England 100 Dormant
and Wales
MAB (Derby) Limited England 100 Dormant
and Wales
L&P 137 Limited England 100 Dormant
and Wales
Mortgage Talk (Partnership)
Limited England 100 Dormant
and Wales
Financial Talk England 100 Dormant
Limited and Wales
Survey Talk Limited England 100 Dormant
and Wales
L&P 134 Limited England 100 Dormant
and Wales
Loan Talk Limited England 100 Dormant
and Wales
MAB1 Limited England 100 Dormant
and 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.
Acquisitions
On 8 December 2016 the Group acquired a 100% interest in
Mortgage Advice Bureau Australia (Holdings) PTY Limited which was a
newly incorporated entity. 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
2017 2016
GBP'000 GBP'000
-------------------------------- -------- --------
Trade receivables not past
due 1,144 757
Trade receivables past due
but not impaired 13 55
Trade receivables past due
but impaired 273 481
-------------------------------- -------- --------
Trade receivables 1,430 1,293
Less provision for impairment
of trade receivables (273) (481)
-------------------------------- -------- --------
Trade receivables - net 1,157 812
Amounts due from associates 719 318
Prepayments and accrued income 2,550 2,126
-------------------------------- -------- --------
4,426 3,256
-------------------------------- -------- --------
Trade and other receivables are all current and the book value
is the same as their fair value. Trade receivables are reviewed for
impairment if they are past due and are not repaid within the terms
of the contracts.
Trade receivables include advances granted to Appointed
Representatives, which have contractual repayment terms. These
advances are considered to be past due when there is a delinquency
in interest or principal payments.
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 past due but not impaired
receivables would provide useful additional information. The Group
has not recognised a provision for impairment of these balances
because there is no objective evidence that they are impaired.
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:
2017 2016
GBP'000 GBP'000
--------------------------------- -------- --------
At 1 January 481 459
Impairment losses recognised - 25
Impairment provisions no longer
required (208) (3)
--------------------------------- -------- --------
At 31 December 273 481
--------------------------------- -------- --------
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
2017 2016
GBP'000 GBP'000
--------------------------------- --------- ---------
Unrestricted cash and bank
balances 13,170 10,811
Bank balances held in relation
to retained commissions 9,381 7,900
--------------------------------- --------- ---------
Cash and cash equivalents 22,551 18,711
--------------------------------- --------- ---------
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 (note 17).
17 Trade and Other Payables
2017 2016
GBP'000 GBP'000
------------------------------------- --------- ---------
Appointed Representatives retained
commission 9,381 7,900
Other trade payables 3,526 2,655
------------------------------------- --------- ---------
Trade payables 12,907 10,555
Social security and other taxes 315 240
Other payables 40 20
Accruals 1,737 1,590
------------------------------------- --------- ---------
14,999 12,405
------------------------------------- --------- ---------
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 2017 and 31 December 2016, the book value of
trade and other payables approximates their fair value given that
they are short term in nature.
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 2017 2016
GBP'000 GBP'000
----------------------------- -------- --------
Cash and cash equivalents 22,551 18,711
Trade and other receivables 1,876 1,130
Total financial assets 24,427 19,841
----------------------------- -------- --------
Financial liabilities 2017 2016
GBP'000 GBP'000
----------------------------- -------- --------
Trade and other payables 14,684 12,165
Total financial liabilities 14,684 12,165
----------------------------- -------- --------
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 2017 2016
exposure
GBP'000 GBP'000
----------------------------- -------- --------
Cash and cash equivalents 22,551 18,711
Trade and other receivables 1,876 1,130
----------------------------- -------- --------
Total financial assets 24,427 19,841
----------------------------- -------- --------
The carrying amounts stated above represent the Group's maximum
exposure to credit risk for trade and other receivables. An element
of this risk is mitigated by collateral held by the Group for
amounts due to them.
Trade receivables consist of a large number of unrelated trading
partners and therefore credit risk is limited. Due to the large
volume of trading partners the Group does not consider that there
is any significant credit risk as a result of the impact of
external market factors on their trading partners. Additionally,
within trade payables are amounts due to the same trading partners
that are included in trade receivables; this collateral of
GBP520,789 (2016: GBP509,169) 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 2017 2016
GBP'000 GBP'000
----------------------------- --------- ---------
At 1 January 1,219 918
Charged to the statement of
comprehensive income 277 301
----------------------------- --------- ---------
At 31 December 1,496 1,219
----------------------------- --------- ---------
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% (2016: 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:
2017 2016
GBP'000 GBP'000
---------------------------------- --------- ---------
Deferred tax asset/(liability)
- opening balance 32 (28)
Recognised in the statement
of comprehensive income 43 60
Deferred tax movement recognised 799 -
in equity
---------------------------------- --------- ---------
Deferred tax asset - closing
balance 874 32
---------------------------------- --------- ---------
The deferred tax balance is made up as follows:
2017 2016
GBP'000 GBP'000
Accelerated capital allowances (51) (40)
Share-based payment 925 72
-------------------------------- --------- ---------
Net deferred tax asset 874 32
-------------------------------- --------- ---------
Reflected in the statement 2017 2016
of financial position as GBP'000 GBP'000
follows:
Deferred tax liability (51) (40)
Deferred tax asset 925 72
---------------------------- --------- ---------
Deferred tax asset net 874 32
---------------------------- --------- ---------
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 2017 2016
GBP'000 GBP'000
--------------------------- --------- ---------
Ordinary shares of 0.1p
each 51 51
--------------------------- --------- ---------
Total share capital 51 51
--------------------------- --------- ---------
During the year 325,745 ordinary shares of GBP0.001 each were
issued following exercise of the first tranche of options issued at
the time of the Initial Public Offering of the Company at a premium
of GBP531,980. 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
reserve represents the cancellation
of part of the original share
capital premium of the company
at par value of any shares
Share option repurchased.
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 GBP188,279 (2016: GBP149,400). There were no
contributions payable to the fund or the SIPP at the statement of
financial position date (2016: 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 2017 and 2016, as well as balances with related
parties as at 31 December 2017 and 2016.
At 31 December 2017 there was a loan outstanding from Buildstore
Limited, an associated company, of GBP30,000 (2016: GBP65,000)
included in trade and other receivables. During the period the
Group paid commissions of GBP1,083,970 (2016: GBP1,499,513) to
Buildstore Limited.
During the year the Group received introducer commission from
MAB Wealth Management Limited, an associated company of GBP7,633
(2016: GBP9,345). There is no balance outstanding with MAB Wealth
Management Limited at 31 December 2017 (2016: GBPnil).
During the year the Group received introducer commission from
Sort Limited, a subsidiary of an associated company of GBP329,798
(2016: GBP181,105). A loan of GBP118,288 was made to Sort Group
Limited, an associated company during the year (2016: GBP5,195).
There was an amount of GBP18,288 outstanding with Sort Group
Limited at 31 December 2017 (2016: GBPnil) included in trade and
other receivables.
During the year the Group paid commission to Clear Mortgage
Solutions Limited, an associated company, of GBP2,484,296 (2016:
GBP877,217).
During the year the Group purchased services from Twenty7tec
Group Limited, a company in which the Group holds an investment, of
GBP25,200.
During the year the Group paid commission to Freedom 365
Mortgage Solutions Limited, an associated company, of GBP567,849
(2016: GBP5,400). At 31 December 2017 there was a loan outstanding
from Freedom 365 Mortgage Solutions Limited of GBP455,000 included
in trade and other receivables (2016: GBP105,000).
During the year the Group paid commission to Vita Financial
Limited, an associated company, of GBP740,351 (2016:
GBP208,445).
At 31 December 2017 there was a loan outstanding from MAB Broker
Services PTY Limited, an associated company, of GBP204,987
(AUD350,000) included in trade and other receivables (2016:
GBP148,138, AUD250,000).
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:
2017 2016
GBP'000 GBP'000
--------------------------------- --------- ---------
CO2 Commercial Limited 353 357
Capital Private Finance Limited - 210
--------------------------------- --------- ---------
Total 353 567
--------------------------------- --------- ---------
Capital Private Finance Limited was sold on 31 July 2016 and
ceased to be an associated company from that date.
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 2017:
-- 25% based on performance to 31 March 2017,
exercisable between that date and 11 November
2022,
-- 25% based on performance to 31 March 2018,
exercisable between that date and 11 November
2022,
-- 25% based on performance to 31 March 2018,
exercisable between 31 March 2019 and 11
November 2022,
-- 25% 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
2017:
-- 100% based on performance to 31 March 2019,
exercisable between that date and 3 May 2024
For options granted during the year:
-- 100% based on performance to 31 March 2020,
exercisable between that date and 18 April
2025
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:
2017 2017 2016 2016
WAEP Number WAEP Number
GBP GBP
---------------- ------- ---------- ------ ----------------
Outstanding at
1 January 2.32 2,171,822 1.63 1,400,342
Granted during
the year 4.31 624,599 3.58 771,480
Exercised (1.63) (325,745) - -
Lapsed * - (118,658) - -
---------------- ------- ---------- ------ ----------------
Outstanding at
31 December 2.98 2,352,018 2.32 2,171,822
---------------- ------- ---------- ------ ----------------
*Due to retirement or leaving the Group.
On 19 April 2017, 624,599 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 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 430.83 pence, being equal to the
average of the last three business days' closing price for the
ordinary shares of the Company prior to the date of grant.
On 10 July 2017, 60,324 options over ordinary shares of 0.1
pence each in the Company were granted to two senior executives of
MAB under the equity-settled Mortgage Advice Bureau Executive Share
Option Plan. Exercise of these options is subject to the
achievement of performance conditions based on total shareholder
return and earnings per share criteria. Subject to achievement of
the performance conditions, these options will be exercisable three
years from the date of grant. The exercise price for these options
is 414.42 pence, being equal to the average of the last three
business days' closing price for the ordinary shares of the Company
prior to the date of grant.
Options exercised in April 2017 resulted in 325,745 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
GBP4.24 per share.
For the share options outstanding under the Mortgage Advice
Bureau Executive Share Option Plan as at 31 December 2017, the
weighted average remaining contractual life is 1.6 years (2016 2.0
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.
2017 2016
---------------------------- -------------- --------------
Equity-settled
Option pricing model - EPS Black-Scholes Black-Scholes
Option pricing model - TSR Stochastic Stochastic
Exercise price GBP4.3083 GBP3.5775
Expected volatility 30% 30%
Expected dividend yield 4.18% 4.0%
Risk free interest rate 0.15% 0.47%
---------------------------- -------------- --------------
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 4.18%.
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:
2017 2017 2016 2016
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 2017, the weighted average remaining contractual
life is 2.4 years (2016: 3.4 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 GBP670,465 (2016:
GBP315,223) includes the charge for the equity-settled schemes of
GBP520,949 (2016: GBP221,717) and the matching element of the
Group's Share Incentive Plan for all employees of GBP37,200 (2016:
GBP52,506).
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 2017 or
31 December 2016.
28 Events after the reporting date
There are no significant events to report after the reporting
date.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GGUPAWUPRPUB
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