Earnings Release • Sep 26, 2017
Earnings Release
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RNS Number : 7678R
Mortgage Advice Bureau(Holdings)PLC
26 September 2017
MORTGAGE ADVICE BUREAU (HOLDINGS) PLC
("MAB" or "the Group")
26 September 2017
Interim Results
Mortgage Advice Bureau (Holdings) PLC (AIM: MAB1.L) is pleased to announce its interim results for the six months ended 30 June 2017.
Financial highlights
· Revenue up 15% to £49.6m (H1 2016: £43.1m)
· Gross profit up 20% to £12.0m (H1 2016: £9.9m)
· Gross margin increase to 24.1% (H1 2016: 23.1%)
· Underlying1 overheads ratio of 11.5% (H1 2016: 11.7%)
· Profit before tax up 19% to £6.3m (H1 2016: £5.3m)
· Profit before tax margin increase to 12.7% (H1 2016: 12.3%)
· EPS up 23% to 10.6p (H1 2016: 8.6p)
· High operating profit to headline cash conversion2 of 119% (H1 2016: 159%)
· High operating profit to adjusted cash conversion3 of 116% (H1 2016: 118%)
· Interim dividend up 22% to 9.5p (H1 2016: 7.8p)
· Strong financial position with significant surplus on regulatory capital requirement
· Total cash balances of £19.0m (31 Dec 2016: £18.7m)
· Unrestricted cash balances of £10.9m (31 Dec 2016: £10.8m)
Operational highlights
· Adviser numbers up 6% to 1,008 at 30 June 2017 (31 Dec 2016: 950)
· Average number of Advisers during the period up 14% to 974 (H1 2016: 851)
· Market share up 10% to 4.4% (H1 2016: 4.0%)
· Gross mortgage lending up 9% to £5.2bn (H1 2016: £4.8bn)
Post period end highlights
· Adviser numbers up 38 from period end to 1,046 at 22 September 2017
· Two new Proposition Directors, one for Mortgages and one for Protection, join the senior management team
| H1 2017 | H1 2016 | Change | |
| Revenue | £49.6m | £43.1m | +15% |
| Gross profit | £12.0m | £9.9m | +20% |
| Gross profit margin | 24.1% | 23.1% | |
| Profit before tax | £6.3m | £5.3m | +19% |
| PBT margin | 12.7% | 12.3% | |
| EPS | 10.6p | 8.6p | +23% |
| Interim dividend per share | 9.5p | 7.8p | +22% |
| Operating profit to headline cash conversion2 | 119% | 159% | |
| Operating profit to adjusted cash conversion3 | 116% | 118% |
1 Before additional FSCS levy costs of £0.2m (H1 2016: £nil).
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 £0.3m in H1 2017 (H1 2016: £0.1m) as a percentage of operating profit.
3 Adjusted cash conversion is headline cash adjusted for increases in restricted cash balances of £0.2m in H1 2017 (H1 2016: £0.9m) and additional cash balances (H1 2017: £nil; H1 2016: £1.2m) held due to the timing of the weekly AR commission payment in relation to the period end, as a percentage of operating profit.
Peter Brodnicki, Chief Executive commented:
"I am delighted to report another set of excellent results, with profit before tax up 19%, improved margins and market share increasing by 10% compared to the same period last year. We also continue to enjoy a strong financial position.
"MAB has never been better positioned in terms of the quality of distribution that we continue to attract, the calibre and breadth of the management team that we have strengthened, and the fast pace of fintech developments that we are achieving.
"Our strategy is designed to deliver speed, ease and convenience which will further enhance our customer, AR, and adviser propositions. In an ever-evolving world of digitisation, MAB's goal is to combine the very best of digital customer solutions, telephony and face to face advice with the customer in control of how they research, receive advice and transact. This will enable us to continue growing our market share, whilst leading the evolution of intermediary distribution that we expect to see over the next five years."
Current Trading and Outlook
Current trading is in line with the Board's expectations. Adviser numbers have continued to grow since the period end with the Group having 1,046 Advisers at 22 September 2017, and we remain confident about our planned growth in adviser numbers in both the remainder of 2017 and 2018, both organically and from new ARs.
Although UK Finance1 has not recently updated its estimates for gross mortgage lending for 2017 and 2018, the current run rate broadly supports their previous estimates of £248bn and £252bn for 2017 and 2018 respectively, indicating the market is likely to be relatively flat in the near term. We are confident that our strategy, driven by our customers' future direction of travel, will continue to drive growth in MAB's market share year on year and deliver attractive returns to investors.
1 UK Finance has been recently created by combining most of the activities of the Council of Mortgage Lenders ("CML"), the Asset Based Finance Association, the British Bankers' Association, Financial Fraud Action UK, Payments UK and the UK Cards Association.
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:
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 [email protected]
Copies of interim report
Copies of the interim report are available at www.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 10% to 4.4% (H1 2016: 4.0%). Our fintech developments continue to progress well and serve to enhance our high quality business model. Our strategy remains focused on securing further growth through technology and specialisation, increasing our market share in all conditions and delivering strong returns for our investors.
Market environment
Activity overall in the housing market has remained steady and was not noticeably affected by the general election in early June. The current house purchase market is predominantly comprised of those moving home due to non-discretionary lifestyle factors, first time buyers and serious investors, with first time buyers being the only consistently growing element at c. 10% by loan value since H1 2016 as the number of amateur landlords reduces. The residential remortgage market has seen c.12% growth by loan value on H1 2016, with strong competition amongst lenders for new business.
Housing transaction volumes and mortgage transactions by both volume and value have been relatively flat overall since the beginning of 2016, and are predicted to remain so throughout the rest of 2017 and 2018 as the UK Government continues to manage the exit of the UK from the EU. Intermediary market share1 has remained broadly stable and in the six months ended 30 June 2017 reached 73%. MAB and its ARs growth is not directly reliant on increasing housing transactions, property prices, or intermediary market share.
Intermediaries previously had limited access to the product switching market, where customers change products with their existing lender. However, more and more lenders are providing intermediaries with full access to the product switching market that is estimated to be of equivalent size to the c.£90bn remortgage market for 2016. The UK Finance industry data excludes product switches with the same lender. Currently it is too early to assess the impact of this increased access to the product switching market.
Recent RICS commentary on house prices suggests that house prices overall could remain flat for the remainder of the year. The national figure conceals diverging trends across parts of the UK, with London and, to a lesser extent, the South East experiencing pressure on activity and prices, whereas house prices remain quite firmly on an upward trend in some areas, led by Northern Ireland, the North West, Scotland and the South West.
1 excluding Buy-To-Let, where intermediaries have a higher market share, and product switches with the same lender
Delivering on our strategy
Fintech developments
Rapidly evolving technology solutions are at the centre of our plans to further increase our market share both by delivering what our customers will rightly start to expect and by enabling our AR partners and advisers to compete 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 more accurately and efficiently future engagement opportunities with their customers.
Our current fintech developments include building a scalable data management and telephone advice model, in order 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, MAB's proportion of telephone advice is likely to increase, complementing face to face advice which remains highly valued by consumers, and both will continue to be supported by increasingly streamlined digital processes.
Brand strategy
Our plans for direct to consumer marketing are progressing well, and we expect to be in test phase by the end of the year. We expect our fintech developments to enable MAB to maximise the short and long-term opportunities generated as our direct to consumer strategy evolves.
Driving income opportunities
MAB is focused on adopting developments in technology to increase the range of services offered to its customers. Our primary objective is to maximise protection opportunities by achieving even higher levels and consistency of protection advice, and in May we were delighted to announce the new role within MAB of Proposition Director, Protection.
Our investment in Sort Group Limited reflects our belief in the importance of technology in delivering a seamless and fully integrated end to end service for MAB's customers across their entire purchase and remortgage processes. We expect to increase both conveyancing instructions and mortgage leads by linking these two services together for clients of estate agents.
Our joint venture in Australia is trading in line with expectations and will have a full protection solution in place by the year end. We continue to review progress and are planning the implementation of a structure similar to our UK network partner initiative in Australia.
Summary
Having made a number of key strategic investments last year, the business has been strengthened still further in the first half of this financial year through two very high calibre appointments to the important new roles of Proposition Director, Mortgages, and Proposition Director, Protection. MAB continues to consider further investments where there is a close alignment with our strategic objectives.
MAB's direction of travel is very clear. The business has never been better positioned in terms of the quality of distribution that we continue to attract, the calibre and breadth of the management team that we have strengthened, and the fast pace of fintech developments that we are achieving.
Our strategy is designed to deliver speed, ease and convenience which will further enhance our customer, AR, and adviser propositions. In an ever-evolving world of digitisation, MAB's goal is to combine the very best of digital customer solutions, telephony and face to face advice with the customer in control of how they research, receive advice and transact. This will enable us to continue to grow our market share, whilst leading the evolution of intermediary distribution that we expect to see over the next five years.
Business Review of the half year
I am pleased to report strong growth in revenue of 15% to £49.6m with profit before tax rising by 19% to £6.3m. MAB's gross mortgage lending increased by 9% to £5.2bn in H1 2017 (H1 2016: £4.8bn) with the impact of an increase in average Advisers of 14% partially offset by the comparative period last year including a spike in Buy-To-Let ("BTL") lending ahead of stamp duty changes in April 2016. MAB's overall share of UK new mortgage lending increased by 10% to 4.4% (H1 2016: 4.0%).
Industry data and trends
Mortgage lending activity in H1 2017 was broadly flat at £119bn (H1 2016: £120bn) despite the spike in BTL lending ahead of the stamp duty changes in April 2016. Although UK Finance1 has not recently updated its estimates for gross mortgage lending for 2017 and 2018; the current run rate broadly supports their previous estimates of £248bn and £252bn for 2017 and 2018 respectively, therefore indicating the market is likely to be relatively flat in the near term. We are confident that our strategy, driven by our customer's future direction of travel, will continue to drive growth in our market share year on year and deliver attractive returns to investors.
1 UK Finance has been recently created by combining most of the activities of the Council of Mortgage Lenders ("CML"), the Asset Based Finance Association, the British Bankers' Association, Financial Fraud Action UK, Payments UK and the UK Cards Association.
UK property transactions by volume for H1 2017 were 6% lower than H1 2016, with the spike in BTL transactions ahead of the stamp duty changes in April 2016 illustrated in the graph below.
Source: HM Revenue and Customs
http://www.rns-pdf.londonstockexchange.com/rns/7678R_-2017-9-25.pdf
Property inflation of 4.0%(1) and an increase in remortgage volumes of 10% offset the fall in transactions to leave UK mortgage lending during the period flat overall, as illustrated in the graph below.
(1) Land Registry House Price Index
Source: UK Finance Regulated Mortgage Survey (excludes product transfers with the same lender), Bank of England, UK Finance BTL data (used for further analysis)
http://www.rns-pdf.londonstockexchange.com/rns/7678R_1-2017-9-25.pdf
UK gross mortgage lending in H1 2017 for home-owner purchases and remortgages grew by 5% and 12% respectively compared to the same period last year. UK gross mortgage lending in H1 2017 for BTL purchases and BTL remortgages reduced by 45% and 10% respectively.
Approximately 73% 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 H1 2017 which is broadly stable compared to 2016. MAB expects this position to remain broadly stable going forward.
Financial review
We measure the development, performance and position of our business against a number of key indicators.
http://www.rns-pdf.londonstockexchange.com/rns/7678R_2-2017-9-25.pdf
Revenues
Revenues increased by 15% to £49.6m (H1 2016: £43.1m). 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 974 in the six months ended 30 June 2017 (H1 2016: 851) due to a combination of expansion by existing ARs and the recruitment of new ARs.
The Group generates revenue from three core areas, summarised as follows:
| Income source | H1 2017 | H1 2016 | Increase |
| £m | £m | ||
| Mortgage procuration fees | 20.5 | 19.0 | 8% |
| Protection and General Insurance Commission | 19.8 | 16.0 | 24% |
| Client Fees | 8.5 | 7.4 | 14% |
| Other Income | 0.8 | 0.7 | 24% |
| Total | 49.6 | 43.1 | 15% |
http://www.rns-pdf.londonstockexchange.com/rns/7678R_3-2017-9-25.pdf
MAB's revenue, in terms of proportion, is split as follows:
| Income source | H1 2017 | H1 2016 |
| Mortgage procuration fees | 41% | 44% |
| Protection and General Insurance Commission | 40% | 37% |
| Client Fees | 17% | 17% |
| Other Income | 2% | 2% |
| Total | 100% | 100% |
http://www.rns-pdf.londonstockexchange.com/rns/7678R_4-2017-9-25.pdf
All income sources continued to grow strongly with the average number of Advisers in the period increasing by 14% on the same period last year, with modest growth in productivity in the six months ended 30 June 2017. This followed a 9% increase in average revenue per Adviser in H1 2016 due to the spike in BTL lending ahead of April 2016. A more informative figure is provided by MAB's compound annual growth rate over the last two years for average revenue per Adviser of 5%.
With gross mortgage lending increasing by 9% in the period, mortgage procuration fees increased by 8%; this reflects the change in gross mortgage lending mix since H1 2016 (where MAB's gross mortgage lending had a higher proportion of BTL mortgages than usual) as a slightly higher procuration fee is earned on BTL mortgages. The strong increase of 24% in protection and general insurance commission reflects the lower proportion of protection in H1 2016 resulting from protection penetration being lower for BTL mortgages.
The effects of the spike in BTL lending ahead of April 2016 distort comparison against the prior period. More informative figures are provided by MAB's compound annual growth rate over the last two years for mortgage procuration fees and protection and general insurance commission being 29% and 25% respectively, with average Advisers having a compound annual growth rate of 20%.
With the spike in BTL lending also affecting the revenue mix in H1 2016, this had the effect of increasing the proportion of mortgage procuration fees and reducing the proportion of protection revenues due to the lower protection penetration for BTL mortgages. As expected, the revenue mix has now rebalanced to more typical levels in H1 2017.
Gross profit margin
Gross profit margin increased to 24.1% (H1 2016: 23.1%) as a result of the revenue mix rebalancing following the spike in BTL lending in H1 2016. 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
Underlying overheads as a percentage of revenue were 11.5% (H1 2016: 11.7%). This reduction in underlying overheads as a percentage of revenue demonstrates the scalable nature of the cost base. Including additional FSCS levy costs of £0.2m incurred in H1 2017 (H1 2016: £nil), overheads as a percentage of revenue were 12.0%.
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. Going forward, we expect to see a further reduction in underlying overheads as a proportion of revenue.
Profit before tax and margin thereon
Profit before tax rose by 19% to £6.3m (H1 2016: £5.3m) with the margin thereon being 12.7% (H1 2016: 12.3%).
Net finance revenue
Net finance revenues of £0.01m (H1 2016: £0.04m) reflect continued low interest rates.
Taxation
The effective rate of tax fell to 14.6% (H1 2016: 17.8%), 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 tax credits for MAB's research and development expenditure on our continued development of MIDAS Pro, MAB's proprietary software, still being available and further tax deductions arising from the exercise of share options.
Earnings per share and dividend
Earnings per share increased to 10.6 pence (H1 2016: 8.6 pence).
The Board is pleased to confirm an interim dividend for the year ending 31 December 2017 of 9.5p per share, amounting to a total of £4.8m. Following payment of the interim dividend, the Group will retain a significant surplus on its regulatory capital requirement. The interim dividend represents c. 90% of the Group's post-tax profits for H1 2017 and reflects our intention to distribute excess capital going forward. MAB typically requires c. 10% of profit after tax to fund increased regulatory capital and other capital expenditure.
The record date for the interim dividend is 6 October 2017 and the payment date is 27 October 2017. The ex-dividend date will be 5 October 2017.
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 £5.8m (H1 2016: £7.4m).
Headline cash conversion (1) was:
H1 2017 119%
H1 2016 159%
Adjusted cash conversion (2) was:
H1 2017 116%
H1 2016 118%
The Group's operations are capital light with our most significant ongoing capital investment being in computer equipment. Only £0.06m of capital expenditure was required during the period (H1 2016: £0.05m). Group policy is not to provide company cars, and no other significant capital expenditure is foreseen in the coming year. All development work on MIDAS Pro is treated as revenue expenditure.
The Group had no bank borrowings at 30 June 2017 (H1 2016: £nil) with unrestricted bank balances of £10.9m (31 December 2016: £10.8m).
The Group has a regulatory capital requirement amounting to 2.5% of regulated revenue. At 30 June 2017 this regulatory capital requirement was £2.2m (31 December 2016: £2.1m).
The following table demonstrates how cash generated from operations was applied:
| £m | |
| 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 | 6.8 |
| Issue of shares | 0.5 |
| Dividends received from associates | 0.2 |
| Dividends paid | (5.9) |
| Tax paid | (1.3) |
| Capital expenditure | (0.1) |
| Investments in associates | (0.1) |
| Unrestricted bank balances at the end of the period | 10.9 |
The Group's treasury strategy is to reduce risk by spreading deposits over a number of institutions rather than to seek marginal improvements in returns.
1 Headline cash conversion is cash generated from operating activities adjusted for movements in non-trading items including loans to Appointed Representative firms ("ARs") and loans to associates totalling £0.3m in H1 2017 (H1 2016: £0.1m) as a percentage of operating profit.
2 Adjusted cash conversion is headline cash adjusted for increases in restricted cash balances of £0.2m in H1 2017 (H1 2016: £0.9m) and additional cash balances (H1 2017: £nil; H1 2016: £1.2m) held due to the timing of the weekly AR commission payment in relation to the period end, as a percentage of operating profit.
Current Trading and Outlook
Current trading is in line with the Board's expectations. Adviser numbers have continued to grow since the period end with the Group having 1,046 Advisers at 22 September 2017, and we remain confident about our planned growth in adviser numbers in both the remainder of 2017 and 2018, both organically and from new ARs.
Although UK Finance1 has not recently updated its estimates for gross mortgage lending for 2017 and 2018, the current run rate broadly supports their previous estimates of £248bn and £252bn for 2017 and 2018 respectively, indicating the market is likely to be relatively flat in the near term. We are confident that our strategy, driven by our customers' future direction of travel, will continue to drive growth in MAB's market share year on year and deliver attractive returns to investors.
1 UK Finance has been recently created by combining most of the activities of the Council of Mortgage Lenders ("CML"), the Asset Based Finance Association, the British Bankers' Association, Financial Fraud Action UK, Payments UK and the UK Cards Association.
INDEPENDENT REVIEW REPORT TO MORTGAGE ADVICE BUREAU (HOLDINGS) PLC
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprises the interim condensed consolidated statement of financial position, interim condensed consolidated statement of comprehensive income, interim condensed consolidated statement of changes in equity and interim condensed consolidated statement of cash flows.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.
BDO LLP
Chartered Accountants and Registered Auditors
London
United Kingdom
Date
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Date 25 September 2017
Interim condensed consolidated statement of comprehensive income for the six months ended 30 June 2017
| Six months ended 30 June | |||
|---|---|---|---|
| Note | 2017 Unaudited £'000 |
2016 Unaudited £'000 |
|
| --- | --- | --- | --- |
| Revenue | 2 | 49,593 | 43,074 |
| Cost of sales | 2 | (37,623) | (33,138) |
| Gross profit | 11,970 | 9,936 | |
| Administrative expenses | (5,936) | (5,057) | |
| Share of profit from associate | 230 | 375 | |
| Profit from operations | 6,264 | 5,254 | |
| Finance income | 11 | 37 | |
| Profit before tax | 6,275 | 5,291 | |
| Tax expense | 3 | (915) | (942) |
| Profit for the period attributable to equity holders of parent company | 5,360 | 4,349 | |
| 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 | 5 | - | 2,152 |
| Net other comprehensive income to be reclassified to profit and loss in subsequent periods net of tax | - | 2,152 | |
| Other comprehensive income, net of tax | - | 2,152 | |
| Total comprehensive income, net of tax | 5,360 | 6,501 | |
| Earnings per share attributable to the owners of the parent | 4 | ||
| Basic | 10.6p | 8.6p | |
| Diluted | 10.4p | 8.5p |
Interim condensed consolidated statement of financial position
as at 30 June 2017 and 31 December 2016
| Note | 30 June 2017 Unaudited £'000 |
31 Dec 2016 Audited £'000 |
|
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 2,686 | 2,720 | |
| Goodwill | 7 | 4,114 | 4,114 |
| Other intangible assets | 79 | 9 | |
| Investments | 8 | 1,027 | 1,008 |
| Deferred tax asset | 480 | 72 | |
| Total non-current assets | 8,386 | 7,923 | |
| Current assets | |||
| Trade and other receivables | 9 | 3,543 | 3,256 |
| Cash and cash equivalents | 12 | 18,995 | 18,711 |
| Total current assets | 22,538 | 21,967 | |
| Total assets | 30,924 | 29,890 | |
| Equity and liabilities | |||
| Equity attributable to owners of the parent | |||
| Share capital | 13 | 51 | 51 |
| Share premium | 13 | 3,574 | 3,042 |
| Capital redemption reserve | 20 | 20 | |
| Share option reserve | 834 | 380 | |
| Retained earnings | 11,214 | 11,680 | |
| Total equity | 15,693 | 15,173 | |
| Liabilities | |||
| Non-current liabilities | |||
| Contingent consideration | - | 50 | |
| Provisions | 1,264 | 1,219 | |
| Deferred tax liability | 48 | 40 | |
| Total non-current liabilities | 1,312 | 1,309 | |
| Current liabilities | |||
| Trade and other payables | 10 | 13,287 | 12,405 |
| Corporation tax liability | 632 | 1,003 | |
| Total current liabilities | 13,919 | 13,408 | |
| Total liabilities | 15,231 | 14,717 | |
| Total equity and liabilities | 30,924 | 29,890 |
Interim condensed consolidated statement of changes in equity for the six months ended 30 June 2017
| Share Capital £'000 |
Share Premium £'000 |
Capital redemption reserve £'000 |
Share option reserve £'000 |
Asset held for sale reserve £'000 |
Retained earnings £'000 |
Total Equity £'000 |
|
|---|---|---|---|---|---|---|---|
| As at 1 January 2016 | 51 | 3,042 | 20 | 157 | - | 9,635 | 12,905 |
| Profit for the period | - | - | - | - | - | 4,349 | 4,349 |
| Other comprehensive income | - | - | - | - | 2,152 | - | 2,152 |
| Total comprehensive income | - | - | - | - | 2,152 | 4,349 | 6,501 |
| Transactions with owners | - | - | - | 2,152 | 4,349 | 6,501 | |
| Share based payment transactions | - | - | - | 81 | - | - | 81 |
| Dividends paid | - | - | - | - | - | (4,794) | (4,794) |
| Total transactions with owners | - | - | - | 81 | - | (4,794) | (4,713) |
| As at 30 June 2016 (unaudited) | 51 | 3,042 | 20 | 238 | 2,152 | 9,190 | 14,693 |
| As at 1 January 2017 | 51 | 3,042 | 20 | 380 | - | 11,680 | 15,173 |
| Profit for the period | - | - | - | - | - | 5,360 | 5,360 |
| Total comprehensive income | - | - | - | - | - | 5,360 | 5,360 |
| Transactions with owners | |||||||
| Issue of shares | - | 532 | - | - | - | - | 532 |
| Share based payment transactions | - | - | - | 184 | - | - | 184 |
| Deferred tax asset recognised in equity | - | - | - | 332 | - | - | 332 |
| Reserve transfer | - | - | - | (62) | - | 62 | - |
| Dividends paid | - | - | - | - | - | (5,888) | (5,888) |
| Total transactions with owners | - | 532 | - | 454 | - | (5,826) | (4,840) |
| As at 30 June 2017 (unaudited) | 51 | 3,574 | 20 | 834 | - | 11,214 | 15,693 |
Interim condensed consolidated statement of cash flows for the six months ended 30 June 2017
| Six months ended 30 June 30 June |
|||
|---|---|---|---|
| 2017 Unaudited £'000 |
2016 Unaudited £'000 |
||
| --- | --- | --- | --- |
| Cash flows from operating activities | |||
| Profit for the period before tax | 6,275 | 5,291 | |
| Adjustments for | |||
| Depreciation of property, plant and equipment | 95 | 87 | |
| Amortisation of intangibles | 9 | 9 | |
| Share based payments | 184 | 81 | |
| Share of profit from associates | (230) | (375) | |
| Dividends received from associates | 211 | 315 | |
| Finance income | (11) | (37) | |
| 6,533 | 5,371 | ||
| Changes in working capital | |||
| Increase in trade and other receivables | (287) | (240) | |
| Increase in trade and other payables | 882 | 3,040 | |
| Increase in provisions | 45 | 98 | |
| Cash generated from operating activities | 7,173 | 8,269 | |
| Income taxes paid | (1,354) | (915) | |
| Net cash inflow from operating activities | 5,819 | 7,354 | |
| Cash flows from investing activities | |||
| Purchase of property, plant and equipment | (61) | (50) | |
| Purchase of intangibles | (79) | - | |
| Acquisitions of associates, including deferred consideration | (50) | (200) | |
| Net cash outflow from investing activities | (190) | (250) | |
| Cash flows from financing activities | |||
| Interest received | 11 | 37 | |
| Issue of shares | 532 | - | |
| Dividends paid | (5,888) | (4,794) | |
| Net cash outflow from financing activities | (5,345) | (4,757) | |
| Increase in cash and cash equivalents | 284 | 2,347 | |
| Cash and cash equivalents at the beginning of the period | 18,711 | 13,956 | |
| Cash and cash equivalents at the end of the period | 18,995 | 16,303 |
Notes to the interim condensed consolidated financial statements for the six months ended 30 June 2017
1 Accounting policies
Corporate information
The interim condensed consolidated financial statements of Mortgage Advice Bureau (Holdings) Plc and its subsidiaries (collectively, "the Group") for the six months ended 30 June 2017 were authorised for issue in accordance with a resolution of the directors on 25 September 2017.
Mortgage Advice Bureau (Holdings) Plc (the Company) is a limited company incorporated and domiciled in England whose shares are publicly traded. The registered office is located at Capital House, Pride Place, Pride Park, Derby. The Group's principal activity is the provision of financial services.
Basis of preparation
The interim condensed consolidated financial statements for the six months ended 30 June 2017 have been prepared in accordance with IAS 34 Interim Financial Reporting. The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2016 annual financial statements.
The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's IFRS financial information as at 31 December 2016.
The information relating to the six months ended 30 June 2017 and the six months ended 30 June 2016 is unaudited and does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2016 have been reported on by its auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified and did not draw attention to any matters by way of emphasis, or contain a statement under section 498(2) or (3) of the Companies Act 2006.
The judgements, estimates and assumptions applied in the interim financial statements, including the key sources of estimation uncertainty, were the same as those applied in the Group's last annual financial statements for the year ended 31 December 2016.
Significant accounting policies
The accounting policies applied are consistent with those described in the Annual Report and Group financial statements 2016.
There are no new or amended standards effective in the period which have had a material impact on the condensed consolidated interim financial statements.
Future new standards and interpretations
A number of new standards and amendments to standards and interpretations will be effective for future annual and interim periods and, therefore, have not been applied in preparing these condensed consolidated interim financial statements. At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective:
| Standard or interpretation | Periods commencing on or after | |
| IFRS 9 | Financial Instruments | 1 January 2018 |
| IFRS 15 | Revenue from Contracts with Customers | 1 January 2018 |
| IFRS 16 | Leases | 1 January 2019 |
IFRS 9 Financial Instruments. This will eventually replace IAS 39 in its entirety. However, the process has been divided into three main components (classification and measurement, impairment and hedge accounting). This standard becomes effective for accounting periods beginning on or after 1 January 2018. Its adoption may result in changes to the classification and measurements of the Group's financial instruments, including any impairment thereof.
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 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 under 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.
Current versus non-current classification
The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is:
· Expected to be realised or intended to be sold or consumed in the normal operating cycle
· Held primarily for the purpose of trading
· Expected to be realised within twelve months after the reporting date
All other assets are classified as non-current.
Assets included in current assets which are expected to be realised within twelve months after the reporting date are measured at fair value which is their book value. Fair value for investments in unquoted equity shares is the net proceeds that would be received for the sale of the asset where this can be reasonably determined.
Basis of consolidation
Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.
The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.
Entities that are not subsidiaries but where the Group has significant influence (i.e. the power to participate in the financial and operating policy decisions) are accounted for as associates. The results and assets and liabilities of the associates are included in the consolidated accounts using the equity method of accounting.
Segment Reporting
An operating segment is a distinguishable segment of an entity that engages in business activities from which it may earn revenues and incur expenses and whose operating results are reviewed regularly by the entity's chief operating decision maker ("CODM") The Board reviews the Group's operations and financial position as a whole and therefore considers that it has only one operating segment, being the provision of financial services operating solely within the UK. The information presented to the CODM directly reflects that presented in the financial statements and they review the performance of the Group by reference to the results of the operating segment against budget.
Operating profit is the profit measure, as disclosed on the face of the consolidated statement of comprehensive income that is reviewed by the CODM.
During the six month period to 30 June 2017, there have been no changes from the prior periods in the measurement methods used to determine operating segments and reported segment profit or loss.
2 Revenue
The Group operates in one segment being that of the provision of financial services in the UK.
Revenue is derived as follows:
| Six months ended 30 June | ||||
| 2017 Unaudited |
2016 Unaudited |
|||
| £'000 | £'000 | |||
| Mortgage related products | 28,972 | 26,393 | ||
| Insurance and other protection products | 19,818 | 16,033 | ||
| Other income | 803 | 648 | ||
| 49,593 | 43,074 | |||
| Costs of sales are as follows: | 2017 Unaudited |
2016 Unaudited |
||
| £'000 | £'000 | |||
| Commissions paid | 36,860 | 32,507 | ||
| Wages and salary costs | 763 | 631 | ||
| 37,623 | 33,138 | |||
There is no significant seasonality to income which arises fairly evenly throughout the year and therefore profits also arise fairly evenly throughout the financial year.
3 Income Tax
The Group calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings. The major components of income tax expense in the interim condensed statements of comprehensive income are:
| Six months ended 30 June | |||
|---|---|---|---|
| 2017 Unaudited £'000 |
2016 Unaudited £'000 |
||
| --- | --- | --- | --- |
| Current tax expense | |||
| UK corporation tax charge on profit for the period | 984 | 949 | |
| Adjustments for over provision in prior periods | - | - | |
| Total current tax | 984 | 949 | |
| Deferred tax expense | |||
| Origination and reversal of timing differences | (19) | (7) | |
| Temporary difference on share based payments | (50) | - | |
| Total deferred tax | (69) | (7) | |
| Total tax expenses | 915 | 942 |
For the period ended 30 June 2017, the deferred tax recognised in equity was £331,973.
4 Earnings per share
Both the basic and diluted earnings per share have been calculated using the profit attributable to shareholders of the parent company, Mortgage Advice Bureau (Holdings) plc, as the numerator. No adjustments to profits were necessary during the six month period to 30 June 2017 and 30 June 2016.
The weighted average number of shares for the purposes of the calculation of diluted earnings per share can be reconciled to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows:
| Six months ended 30 June | |||
|---|---|---|---|
| 2017 Unaudited |
2016 Unaudited |
||
| --- | --- | --- | --- |
| Weighted average number of shares used in basic earnings per share | 50,605,575 | 50,461,600 | |
| Potential ordinary shares arising from options | 768,232 | 671,477 | |
| Weighted average number of shares used in diluted earnings per share | 51,373,807 | 51,133,077 |
5 Components of other comprehensive income
| Six months ended 30 June | |||
|---|---|---|---|
| 2017 Unaudited £'000 |
2016 Unaudited £'000 |
||
| --- | --- | --- | --- |
| Asset held for sale: | |||
| Gains arising during the period | - | 2,690 | |
| Deferred tax on gain arising in the period | - | (538) | |
| Gains arising during the period (net of tax) | - | 2,152 |
6 Dividends
| Six months ended 30 June 2017 Unaudited |
Six months ended 30 June 2016 Unaudited |
Year ended 31 December 2016 Audited |
||
| £'000 | £'000 | £'000 | ||
| Dividends paid and declared during the period: | ||||
| On ordinary shares at 10.5p per share (2016: 9.5p) | 5,333 | 4,794 | 4,794 | |
| Special dividend: 1.1p per share (2016:4.25p) | 555 | - | 2,145 | |
| Interim dividend for 2016: 7.8p per share | - | - | 3,935 | |
| 5,888 | 4,794 | 10,874 | ||
| Equity dividends on ordinary shares: | ||||
| Further special dividend: 1.1p per share | - | - | 555 | |
| Proposed for approval: | ||||
| Interim dividend for 2017: 9.5p per share (2016: 7.8p) | 4,825 | 3,935 | - | |
| Final dividend for 2016: 10.5p per share | - | - | 5,298 | |
| 4,825 | 3,935 | 5,853 | ||
The record date for the interim dividend is 6 October 2017and the payment date is 27 October 2017.
7 Goodwill
The goodwill relates to the acquisition of Talk Limited in 2012, and in particular its main operating subsidiary Mortgage Talk Limited. The goodwill is deemed to have an indefinite useful life. It is currently carried at cost and is reviewed annually for impairment.
Under IAS 36, "Impairment of assets", the Group is required to review and test its goodwill annually each year or in the event of a significant change in circumstances. The impairment review conducted at the end of 2016 concluded that there had been no impairment of goodwill and the recoverable amount is in excess of £16 million.
The key basis for determining that there was no impairment to the carrying value of goodwill was disclosed in the annual consolidated financial statements for the year ended 31 December 2016. There are no matters which have arisen in the period to 30 June 2017 which indicated that an impairment review was required at that date.
8 Investments in associates and joint ventures
The investment in associates at the reporting date is as follows:
| 30 June 2017 Unaudited £'000 |
31 December 2016 Audited £'000 |
|
| At start of the period | 1,008 | 715 |
| Additions | - | 253 |
| Disposals | - | (4) |
| Share of profit | 230 | 611 |
| Dividends received | (211) | (567) |
| At period end | 1,027 | 1,008 |
9 Trade and Other Receivables
| 30 June 2017 Unaudited |
31 December 2016 Audited |
|
| £'000 | £'000 | |
| Trade receivables not past due | 876 | 757 |
| Trade receivables past due but not impaired | 11 | 55 |
| Trade receivables past due but impaired | 269 | 481 |
| Trade receivables | 1,156 | 1,293 |
| Less provision for impairment of trade receivables | (269) | (481) |
| Trade receivables - net | 887 | 812 |
| Amounts due from associates | 491 | 318 |
| Prepayments and accrued income | 2,165 | 2,126 |
| 3,543 | 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.
10 Trade and Other Payables - current
| 30 June 2017 Unaudited |
31 December 2016 Audited |
|
| £'000 | £'000 | |
| Appointed Representatives retained commission | 8,126 | 7,900 |
| Other trade payables | 3,436 | 2,655 |
| Trade payables | 11,562 | 10,555 |
| Social security and other taxes | 257 | 240 |
| Other payables | 154 | 20 |
| Accruals | 1,314 | 1,590 |
| 13,287 | 12,405 |
As at 30 June 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.
11 Financial Instruments - risk management activities
Credit risk
Credit risk is the risk of financial loss to the Group if a trading partner or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from advanced loans to its trading partners which are classified as trade receivables. It is Group policy to assess the credit risk of trading partners before advancing loans or other credit facilities. Assessment of credit risk utilises external credit rating agencies. Personal guarantees are generally obtained from the Directors of its trading partners. Further disclosures regarding trade and other receivables are given in note 9.
Financial assets - maximum exposure
| 30 June 2017 Unaudited |
31 December 2016 Audited |
|
| £'000 | £'000 | |
| Cash and cash equivalents | 18,995 | 18,711 |
| Trade and other receivables | 1,378 | 1,130 |
| Total financial assets | 20,373 | 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 as those included in trade receivables; this collateral significantly reduces the credit risk.
The Group's credit risk on cash and cash equivalents is limited because the Group places funds on deposit with several UK banks all of whom are A or BBB+ rated where applicable.
12 Cash and cash equivalents
For the purpose of the interim condensed statement of cash flows, cash and cash equivalents are comprised of:
| 30 June 2017 Unaudited |
31 December 2016 Audited |
|
| £'000 | £'000 | |
| Unrestricted cash and bank balances | 10,869 | 10,811 |
| Bank balances held in relation to retained commissions | 8,126 | 7,900 |
| Cash and cash equivalents | 18,995 | 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 commission. Operationally, the Group does not treat these balances as available funds. An equal and opposite liability is shown within Trade Payables (note 10).
13 Share Capital
Issued and fully paid
| 30 June 2017 Unaudited |
31 December 2016 Audited |
||
| £'000 | £'000 | ||
| Ordinary shares of £0.001 each | 51 | 51 | |
| Total share capital | 51 | 51 | |
During the period 327,745 ordinary shares of £0.001 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 £531,980. See also note 15.
14 Related Party Transactions
The following details provide the total amount of transactions that have been entered into with related parties during the six months ended 30 June 2017 and 2016, as well as balances with related parties as at 30 June 2017 and 31 December 2016.
At 30 June 2017 there was a loan outstanding from Buildstore Limited, an associated company, of £45,000 (2016: £65,000) included in trade and other receivables. During the period the Group paid commissions of £520,807 (2016: £714,427) to Buildstore Limited.
During the period the Group received introducer commission from MAB Wealth Management Limited, an associated company of £5,917 (2016: £2,461). There is no balance outstanding with MAB Wealth Management Limited at 30 June 2017 (2016: £nil).
During the period the Group received introducer commission from Sort Limited, a subsidiary of an associated company of £92,743 (2016: £66,522). A loan of £118,288 was made to Sort Group Limited, an associated company during the period (2016: £5,195). There was an amount of £18,288 outstanding with Sort Group Limited at 30 June 2017 (2016: £nil) included in trade and other receivables.
During the period the Group paid commission to Clear Mortgage Solutions Limited, an associated company, of £975,710 (2016: £194,951).
During the period the Group purchased services from Mortgage 27 Limited, an associated company, of £3,600.
During the period the Group paid commission to Freedom 365 Mortgage Solutions Limited, an associated company, of £119,225 (2016: £nil). At 30 June 2017 there was a loan outstanding from Freedom 365 Mortgage Solutions Limited of £280,000 included in trade and other receivables (2016: £105,000).
During the period the Group paid commission to Vita Financial Limited, an associated company, of £347,784.
At 30 June 2017 there was a loan outstanding from MAB Broker Services PTY Limited, an associated company, of £148,138 (AUD250,000) included in trade and other receivables (2016: £148,138, AUD250,000).
During the period the Group received dividends from associated companies as follow:
| 2017 Unaudited £'000 |
2016 Unaudited £'000 |
|
|---|---|---|
| CO2 Commercial Limited | 211 | 167 |
| Capital Private Finance Limited | - | 148 |
| Total | 211 | 315 |
Capital Private Finance Limited was sold on 31 July 2016 and ceased to be an associated company from that date.
15 Share based payments
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 service conditions and achievement of performance conditions based on total shareholder return and earnings per share criteria. Subject to achievement of the performance conditions, the Options will be exercisable three years from the date of grant. The exercise price for the Options is 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.
Options exercised in April 2017 resulted in 327,745 ordinary shares being issued at an exercise price of £1.60 and £2.19. The price of the ordinary shares at the time of exercise was £4.24 per share.
For the six months ended 30 June 2017, the Group has recognised £247,065 of share based remuneration expense in the statement of comprehensive income (30 June 2016: £112,271) which includes the charge for equity-settled schemes of £184,479 and the matching element of the Group's Share Incentive Plan for all employees of £7,707.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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