TIDMTPFG
RNS Number : 1282I
Property Franchise Group PLC (The)
31 March 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS DEFINED IN
ARTICLE 7 OF THE MARKET ABUSE REGULATION NO. 596/2014 ("MAR").
31 March 2020
The Property Franchise Group PLC
("TPFG", the "Company" or the "Group")
Full Year Results
The Property Franchise Group PLC, one of the UK's largest
property franchises, today announces its final results for the year
ended 31 December 2019.
Financial highlights:
-- Group revenue of GBP11.4m (FY 2018: GBP11.2m)
-- Adjusted EBITDA* increased 5% to GBP5.3m (FY 2018: GBP5.1m)
-- Profit before tax of GBP4.0m (FY 2018: GBP4.3m)
-- Profit before tax, after removing the impact of a share-based premium charge, of GBP4.4m
-- Operating margin held at 39% (FY 2018: 39%)
-- Management Service Fees increased 3% to GBP9.7m (FY 2018: GBP9.4m)
-- Strong balance sheet with net cash of GBP4.0m (FY 2018: GBP2.3m)
*Before exceptional items and share-based payment charges
Operational highlights:
-- Franchisees successfully mitigated much of the impact of the
tenant fee ban and achieved a record performance for lettings
revenue
-- Pay-per-click marketing delivered a 54% increase in leads to c.47,000 (2018: c.30,000)
-- 24 acquisitions at the franchisee level added 2,381 managed properties (2018: 3,115)
-- 372 trading offices at year end (2018: 377) managing 58,000
rental properties (2018: 55,000)
-- Launched Financial Services division, and a ppointed Mark
Graves to the new role of Financial Services Director post-period
end
-- Gareth Samples appointed as CEO Designate post-period end
Current trading and outlook
Following the year end, trading during the first two months of
the year was in line with expectations. Throughout March the Group
has been responding operationally to the impact of the Government's
measures to contain the spread of COVID-19. All our franchisees'
high street premises have closed, with property management and
client accounting activities being carried out by home-based staff
using cloud-based software. At the behest of the Government, all
estate agency activity is effectively suspended, temporarily.
Revenue at the franchisee level from the portfolio of tenanted
managed properties was GBP3.8m in February representing circa
GBP15k of recurring income per trading office (excluding EweMove),
which we expect to prove substantially resilient in the coming
months. The Group has temporarily suspended minimum MSF thresholds
for franchisees meaning that our revenue will be directly linked to
their revenue during this period. We have also agreed to waive
franchisees' National Marketing Fund contributions for the duration
of the crisis.
Like many companies currently, the COVID-19 pandemic has
necessitated a change in the Group's strategy. Our current focus is
on securing revenue, as well as cash flow and cost management
within the core business. This will include some of our head office
roles being furloughed in accordance with the UK Government scheme,
so that the key skills of our already lean central team are
retained within the Group in the long term. All remaining central
office staff, including board directors, are taking a voluntary
salary reduction with bonuses and commissions indefinitely
postponed. We will also be deferring new growth initiatives for the
time being.
In line with this approach, the Board has resolved to suspend
the proposal of the final dividend, a decision that will be kept
under review. Whilst the Board is committed to the payment of
dividends, it recognises that at this time maintaining a strong
balance sheet is critical, and there may be acquisition
opportunities ahead.
The Board is confident that the Company is well positioned to
weather the wider economic damage caused by COVID-19 because of our
nil debt, strong balance sheet, and sufficient cash headroom, as
well as the fact we are a business heavily weighted towards
lettings, with its recurring income streams (c. 49% of all MSF
revenues are derived from property management commission). The
Company also remains strongly cash generative.
At this stage it is too early to assess how the evolving
Government response to COVID-19 will impact the Group over the
longer term, and therefore it is not currently possible to provide
guidance on future earnings. Despite this the Board is confident
that The Property Franchise Group is in a strong position to emerge
well-positioned for growth when market conditions begin to return
to normality.
Ian Wilson, Chief Executive Officer of The Property Franchise
Group, commented:
"With the Group facing a very challenging trading environment we
have focused all of our efforts on intensive support to our
franchisees, which at this time largely takes the form of advice
and guidance rather than tactical financial assistance. We have
also been working hard to negotiate with suppliers on franchisees'
behalf. Under the leadership of incoming CEO Gareth Samples, the
Board's focus in the period ahead will be on navigating the
challenges this unprecedented situation brings and supporting our
network. Over the longer term we have the utmost confidence that
the strength of our franchise model and clear strategy means that
we are well positioned to resume a growth trajectory and to add
value for all our stakeholders."
For further information, please contact:
The Property Franchise Group PLC 01202 292829
Ian Wilson, Chief Executive Officer
David Raggett, Chief Financial Officer
Cenkos Securities plc 0207 397 8900
Max Hartley, Callum Davidson (Nominated Adviser)
Alma PR 0203 405 0209
Susie Hudson, Justine James, Harriet Jackson
About The Property Franchise Group PLC:
The Property Franchise Group PLC (AIM: TPFG) is one of the
largest property franchises in the UK. The Company was founded in
1986 and has since grown to a diverse portfolio of six brands
operating throughout the UK, comprising longstanding high-street
brands and a hybrid, no sale no fee agency.
The Property Franchise Group's brands include:
-- Martin & Co: a national lettings focused brand
-- EweMove: a national, digitally enabled, hybrid sales and
lettings brand
-- CJ Hole: a full-service estate agency serving the West
Country for 151 years
-- Ellis & Co: a full-service estate agency serving London
for 168 years
-- Parkers: a full-service estate agency serving the M4 corridor
for 70 years
-- Whitegates: a full-service estate agency serving the Midlands
and North of England for 40 years
Headquartered in Bournemouth, UK, the Company was listed on AIM
on the London Stock Exchange in 2013. More information is available
at www.propertyfranchise.co.uk
Chairman's statement
Our industry is currently facing unparalleled challenges due to
the COVID-19 pandemic and the associated preventative measures. The
health and safety of our colleagues and their end customers is
paramount, and we are therefore responding with a significant
change in how the business will operate until conditions
normalise.
Whilst the uncertainty we face is very substantial we are in the
thankful position of having nil debt, which means no bank covenants
to consider at this time, as well as a strong balance sheet.
Furthermore, franchisees and their teams are well-equipped to
continue working remotely. The business is also heavily weighted
towards lettings and within that it is heavily weighted towards
revenue from our portfolio of tenanted managed properties. These
facts, together with the ingenuity and experience of Management,
give us confidence that we will be both a going concern in 12
months' time (see note 2 in our financial statements for more
information) and in a position to build momentum in the business
again and to seize commercial opportunities, including for
financial services, when conditions become more predictable.
Below is a review of our progress in 2019.
Overview
Over 2019 we saw continued political uncertainty, the
implementation of the tenant fee ban and downward pressure on
estate agency fees arising from hybrid model estate agencies'
attempts to capture market share. Notwithstanding these challenges,
I am pleased to report that we increased our revenues and gross
profit for the sixth successive year since our IPO in December
2013, with profit before tax, after removing the impact of a
share-based premium charge, increasing 3% year on year. The Group's
network revenue for the period increased to GBP93m (2018:
GBP92m).
The industry in 2019
The uncertainty of the UK general election and the implication
that Britain's exit from the European Union was still not a settled
matter was seen to somewhat dampen the housing market in the
period. The property market's value decreased by 0.8% in 2019* to
GBP11.5 billion, and 31 January 2020 marked an upsurge in online
searches for estate agents.
Political uncertainty for our industry also takes the form of a
long-debated intention by politicians of all hues to properly
regulate the lettings sector and impose minimum professional
standards. We anticipate that such regulation being implemented
would benefit groups such as ours, which already acts as a
regulator of its franchisees, and which has an excellent track
record for training and continuous professional development.
Strengths of the franchise business model
Our progress over the period was underpinned by the strength of
the Group's franchise model and its motivated and resourceful
franchisees. This was augmented by the foresight and discipline of
the management team who run the franchisor business. For example,
as the Board had anticipated that the Group's revenue would be put
under some pressure in the year, we continued our focus on careful
cost management. We had also foreseen that English & Welsh
letting agents would be banned from charging tenant fees, following
the political success derived from the same measure in Scotland in
2012, and therefore put in place a mitigation strategy which
started with workshops with Martin & Co franchisees in the
summer of 2017, in order to minimise the impact.
Another demonstration of the strength of our model during the
period was the way that we were able to track shifts in consumer
behaviour within our sector, and ensure our franchisees adapted
their business models to mitigate risks and capitalise on
opportunities. New entrants, and particularly hybrid agents,
typically provide services 24/7 and charge fixed fees. We responded
quickly to ensure our traditional brands were able to compete. We
did this by enabling our traditional brand franchisees to extend
their "effective" trading hours through devices such as "live chat"
and online booking through the relevant brand's website.
Growth Strategy
During the year, we continued to evaluate the acquisition of
master rights in other property franchise systems but none of our
targets met our strict criteria. Over the longer term we remain
committed to expanding our market share of UK property sales and
lettings through acquisition at both the corporate and franchisee
level, although as previously mentioned growth initiatives such as
this are currently deferred.
During 2019 we also reviewed our financial services strategy. As
previously communicated, management identified a number of suitable
target businesses which could be acquired to enable TPFG to broker
mortgage products sourced from lenders, life assurance and general
insurance business off the volume of buyer leads being generated by
our marketing. With this opportunity presented to us, we made the
decision to launch a Financial Services division post-period end,
appointed Mark Graves to lead its development and bought a
controlling share in Auxilium Partnership Limited (see note 30 to
the financial statements). The pursuit of acquisition targets in
the division have currently been postponed in response to the
increased macro-economic uncertainty associated with COVID-19.
Our People
Mark Graves, a highly experienced figure in financial services,
is to be our new head of this division. Otherwise the headcount was
kept flat year-on-year at 48 full time employees. We see this
efficiency as a key benefit of a franchise business model.
Financial performance
Our performance was underpinned by growth in Management Services
Fees from GBP9.4m to GBP9.7m, which we delivered notwithstanding
the loss of tenant fees from 1 June 2019. This in turn helped
generate cash from operations of GBP4.7m and drove cash up to
GBP4.0m at the year-end after GBP2.2m of dividend payments.
Dividend
The Board was looking forward to recommending an increased final
dividend having considered the results for 2019 in February 2020.
However, despite the strong financial position of the Group, given
the rising level of uncertainty as to how the situation regarding
COVID-19 will develop, alongside the other measures being taken to
preserve the Group's cash position, the Board has decided not to
recommend a final dividend for 2019. It will review this decision
during the year as the outlook becomes clearer.
Outlook
I would like to thank my co-Directors, the dedicated head office
teams in both Bournemouth & Cleckheaton, and our many excellent
franchisees and their staff for their efforts over the last year. I
would also like to take this opportunity to give the Board's
sincere thanks to Ian Wilson who has led TPFG since IPO for his
hard work, ingenuity and the passion he has always shown for our
Company.
Gareth Samples, our incoming CEO, joins us at a challenging
time, however from his track record and the short period of time he
has been with the Group, I am confident that he has the right
experience, tenacity and strength of leadership to guide the Group
through the period ahead.
Richard Martin
Chairman
The Property Franchise Group plc
*iProspect research commissioned by TPFG
Chief Executive's statement
2019 was a busy year for the Group, as we navigated a number of
challenges and sought out new opportunities for growth. The key
activities were conducting a review of our financial services
strategy and advising and assisting our franchisees on the
appropriate course of action to mitigate the effects of the
Government's tenant fee ban.
We moved both revenue and gross profits forward, albeit
modestly, and were also pleased to have strengthened our balance
sheet, having paid down all debt at the end of 2019.
Reaping the benefits of increased digital marketing
investment
Investment in the period by both franchisees and franchisors in
a bespoke customer relationship management ('CRM') system and
pay-per-click advertising campaigns substantially increased leads
generated through digital marketing. In 2019 we generated 49,105
leads for our traditional brands from these channels compared to
30,769 in 2018, a 59.6% year-on-year increase. We also made
progress with average pay-per-click cost per lead which fell from
GBP11.20 to GBP8.29, a 26% year-on-year reduction. Tight management
of the programme content to keep it relevant to the recipient has
meant that open rates for our CRM delivered emails stood at between
66% to 72% depending on brand and click-through rates varied from
25% to 30%.
Building strong relationships with landlords
The private rented sector is still growing, albeit the pace has
slowed. Currently only a minority of private landlords engage an
agent to manage their property. In 2019 we surveyed our Martin
& Co landlord base. Over 1,500 responses were received and
pleasingly 92% of respondents stated that they would recommend
Martin & Co to other landlords. The impact of the Government's
preventative measures for COVID-19 will make life much more
difficult for landlords who do not benefit from the professional
assistance of an agent and we believe that there is scope to
increase our managed portfolio significantly in future years.
Our tenanted managed portfolio
Our franchisees made 24 acquisitions in 2019, slightly down on
2018, with the market in letting agency businesses for sale quieter
than we and the business brokers had expected. Pleasingly we also
continued to grow our portfolio organically. By the year end we
were serving 58,000 tenanted managed properties, up 3,000 on the
previous year.
Tenant fee ban
The tenant fee ban represented a potential loss of GBP0.5m of
revenue in the seven months from its introduction on 1 June 2019.
In the event, partly because of the Government allowing some
categories of fees to remain chargeable during the "transition
period" extending until 31 May 2020, and partly as a result of
workshops and training which the franchisors delivered to their
franchisees, the impact was lessened and we achieved GBP0.2m growth
in lettings MSF year-on-year.
We were particularly satisfied with this achievement considering
that our franchisees banked total tenant fees in the three months
to December 2018 of GBP2.2m, which fell to GBP0.37m in the same
period of 2019. We were also encouraged that at the end of the year
68% of our franchisees in England & Wales had proven to us that
they were at least 50% mitigated, 52% were at least 75% mitigated
and 43% were 100% or more mitigated.
Hybrid agency model
2019 was a year of consolidation for our hybrid model EweMove.
We made incremental progress on network footprint, moving from 118
to 122 occupied franchise territories over the year and despite a
reduction in lead volume we increased our productivity per
franchise from 2.5 sales and lettings completions per month in 2018
to 2.8 in 2019. This translated into additional revenues of GBP0.4m
and an improvement in adjusted EBITDA to GBP0.8m in 2019.
Financial Services
As previously announced, post period end the Group launched a
new financial services division of which further details exist in
the note on events after the reporting date at the end of our
Annual Report. We consider financial services to be a logical
extension to our core franchise business and are well-placed to
capitalise on the opportunity due to the high volume of buyer leads
generated by our network, (circa 92,000 annually). Given the
increasing level of macro-economic uncertainty we have seen
post-period end associated with COVID-19 the pursuit of acquisition
targets within this new division has temporarily been paused. We
are, however, continuing to develop the division with our first
goal to ensure that all of our franchisees have access to either a
local broker in their office, or to a call centre broker with a
proven track record of converting leads through this channel.
Outlook
This is my last report as the CEO and I'm proud of our
achievements and track record since the IPO, delivering what I and
my partner on this voyage, CFO David Raggett, promised to
investors: expansion, capital growth and (to date) a progressive
dividend policy. My successor as CEO, Gareth Samples, has a
challenging period ahead of him, but no CEO has experience of
managing a business through a worldwide pandemic and Gareth brings
fresh energy and insight to the role. His strong property
background equips him with the market insight to guide our
franchisees in their response to the economic ramifications of
COVID-19 and to spot the opportunities as they arise post-pandemic.
The business is on a strong footing and we are confident it is well
positioned for further sustainable growth in the long-term.
Ian Wilson
Chief Executive Officer
The Property Franchise Group PLC
Financial Review
Over the period, our accelerated mitigation of the tenant fee
ban and EweMove's improved earnings kept us on track.
Our focus on our managed properties' portfolio, operating margin
and return on capital employed underpins our investment decisions
and delivery of growth in shareholder value.
In a flat housing market environment (6th year at circa 1.2m**
transactions) and, with the ban on tenants' fees commencing on 1
June 2019, we successfully took action to mitigate the impacts of
the tenant fee ban on our traditional brands' franchisees, to
continue the growth in our managed properties portfolio (up 5%),
and to build EweMove's sustainable profit path.
**HMRC UK Property Transaction Statistics 21 February 2020
Revenue
Group revenue for the financial year to 31 December 2019 was
GBP11.4m (2018: GBP11.2m), an increase of GBP0.2m (1%) over the
prior year. EweMove contributed GBP0.4m to the increase as its
revenue increased 13% to GBP3.1m (2018: GBP2.7m).
Management Service Fees ("MSF"), our key underlying revenue
stream, increased 3% from GBP9.4m to GBP9.7m and represented 85%
(2018: 84%) of the Group's revenue with the remainder being from
franchise sales of GBP0.2m (2018: GBP0.3m), and ancillary services
to support MSF generation of GBP1.5m (2018: GBP1.6m).
Lettings contributed 69% of MSF (2018: 68%), sales contributed
30% of MSF (2018: 31%) and financial services contributed 1% of MSF
(2018: 1%). Lettings MSF grew by 4% in the year excluding the
amortisation of prepaid assisted acquisitions support, of which
one-third was derived from assisted acquisitions in the year, and
sales MSF grew by 2%.
Our franchise sales activity was predominantly focused on
reselling existing franchises to experienced franchise owners in
the traditional brands, and to encouraging new entrants into
EweMove. Resale activity was subdued in 2019 resulting in eight
resales (2018:22). Sales to new entrants into EweMove was buoyant
with 25 in the year (2018: 23).
Operating profit
Although headline operating profit declined to GBP4.0m (2018:
GBP4.3m), operating profit before exceptional items, amortisation
of acquired intangibles and share-based payments charges ("Adjusted
operating profit") increased from GBP4.9m to GBP5.0m (2%) and the
resulting operating margin was 44% (2018: 43%).
Given challenging market conditions caused by the uncertainty
around Brexit and the tenant fee ban, there was a heightened
priority to maintain focused control on costs in 2019.
Administrative expenses were unchanged year on year at GBP5.8m.
Share options are granted to almost all employees, once they
have passed the qualifying conditions, to encourage their alignment
with our strategy of growing earnings per share and, thereby,
dividend per share. Underlying progress was made towards the EPS
growth target set for the three years ended 31 December 2020. An
assessment of the share-based payment charge resulting from the
options granted was made at 31 December 2019 resulting in GBP0.4m
being charged to the profit and loss account. There was a full
year's charge in 2019, whereas, in 2018, the charge was for five
months from August 2018 (2018: GBP0.2m before netting with a prior
year charge release). Further details can be found in notes 4, 5
and 28 to the consolidated financial statements.
2019 2018
Revenue GBP11.4m GBP11.2m
--------------- --------------
Management Service Fees GBP9.7m GBP9.4m
--------------- --------------
Administrative expenses GBP5.8m GBP5.8m
--------------- --------------
Adjusted operating profit* GBP5.0m GBP4.9m
--------------- --------------
Operating profit GBP4.0m GBP4.3m
--------------- --------------
Adjusted profit before tax* GBP4.9m GBP4.8m
--------------- --------------
Profit before tax GBP4.0m GBP4.3m
--------------- --------------
Adjusted EBITDA* GBP5.3m GBP5.1m
--------------- --------------
Dividend 2.6p** 8.4p
--------------- --------------
*Before exceptional costs, amortisation of acquired intangibles
and share-based payment charges. **Excludes a final dividend for
2019. None recommended by the Board at this time .
EBITDA
Adjusted EBITDA for 2019 was GBP5.3m (2018: GBP5.1m) an increase
of GBP0.2m (5%) over the prior year. EweMove contributed GBP0.4m of
this increase through additional gross margin whereas revenue from
franchise sales and support services within the traditional brands
decreased by GBP0.2m.
Profit before tax
The profit before tax was GBP4.0m for 2019 (2018: GBP4.3m) which
includes the share-based payment charge of GBP0.4m. Excluding
exceptional costs, amortisation arising on acquired intangibles and
the share-based payments charges, the adjusted profit before tax
increased from GBP4.8m to GBP4.9m (2%).
Taxation
The effective rate of corporation tax for the year was 19.1%
(2018: 19.8%). The total tax charge for 2019 was GBP0.8m (2018:
GBP0.8m).
Earnings per share
Basic earnings per share ("EPS") for the year was 12.5p (2018:
13.3p), a reduction of 6% based on the average number of shares in
issue for the period of 25,822,750 (2018: 25,822,750).
Diluted EPS for the year was 12.1p (2018: 13.1p) a reduction of
8% based on the average number of shares in issue for the period
plus an estimate for the dilutive effect of option grants vesting,
being 26,692,929 (2018: 26,033,872).
The reduction in EPS for both measures results from the
reduction in profit before tax year on year caused by the increased
share-based payment charge in 2019 and, for diluted EPS, the
additional shares. Adjusted basic EPS for the year was 16.2p (2018:
15.4p), an increase of 5% based on the average number of shares in
issue for the period of 25,822,750 (2018: 25,822,750).
Adjusted diluted EPS for the year was 15.6p (2018 15.3p), an
increase of 2% based on an estimate of shares in issue of
26,692,929 (2018: 26,033,872).
The adjustments to earnings to derive the adjusted EPS figures
total GBP0.9m (2018: GBP0.5m) and result from the share-based
payment charge and the amortisation of acquired in tangibles.
The profit attributable to owners was GBP3.2m (2018: GBP3.4m)
with the reduction of GBP0.2m due to the impact of the share-based
payment charge being offset by the increase in revenue.
Dividends
The Board was looking forward to recommending an increased final
dividend having considered the results for 2019 in February 2020.
However, despite the strong financial position of the Group, given
the rising level of uncertainty as to how the situation regarding
COVID-19 will develop, alongside the other measures being taken to
preserve the Group's cash position, the Board has decided not to
recommend a final dividend for 2019. It will review this decision
during the year as the outlook becomes clearer.
Cash flow
The Group is strongly operationally cash generative.
The net cash inflow from operating activities in 2019 was
GBP4.7m (2018: GBP4.5m) as the Group continued to generate strong
operating cash inflows.
The net cash outflow from investing activities was GBP0.7m
(2018: outflow GBP0.3m). This consisted of GBP0.1m spent on our CRM
system, GBP0.4m provided to franchisees to support their
acquisitions of managed properties under the assisted acquisitions
program and GBP0.2m lent to Mark Graves to buyout Auxilium
Partnership Limited from his partner (more details in note 30). In
2018, the majority of the net outflow was due to payments made to
franchisees under the assisted acquisitions program.
Loan repayments totalling GBP1.6m (2018: GBP0.9m) plus interest
payments of GBP0.05m (2018: GBP0.1m) were made on the Santander UK
plc loans during 2019 fully repaying those loans. Dividend payments
totalling GBP2.2m were made in the year (2018: GBP2.0m).
Liquidity
The Group had cash balances of GBP4.0m at 31 December 2019
(2018: GBP3.9m) and no bank debt (2018: GBP1.6m). It entered into
negotiations with Barclays for a new revolving cash facility at the
year-end of GBP5m so as to be able to supplement its cash generated
organically in the pursuance of its strategic objectives.
Key performance indicators
The Group uses a number of key financial and non-financial
performance indicators to measure performance. The Group also
adjusts certain well-known financial performance measures for
share-based payment charges, amortisation on acquired intangibles
and exceptional items so as to aid comparability between reporting
periods.
The key financial measures are as follows:
-- Management Service Fees
-- Adjusted operating profit and margin
-- Adjusted EBITDA
-- Adjusted profit before tax
-- Adjusted earnings per share
These have been discussed above in further detail.
The key non-financial measures focus on some long-standing
drivers of financial performance as well as reflecting the Board's
continued investment in its assisted acquisitions programme and
digital marketing:
-- Number of properties listed for sale
-- Number of properties let
-- Number of properties sold
-- Number of leads generated through digital marketing
-- Number of managed properties
-- Number of managed properties acquired through assisted acquisitions
All bar two of these measures are detailed in my review and all
are detailed throughout the Strategic Report. Digital marketing is
a relatively new investment for the Group following the acquisition
of EweMove in September 2016 and progress with this is detailed on
page 14 of the Annual Report.
Financial position
The consolidated statement of financial position remains strong
with total assets of GBP21.1m (2018: GBP20.8m) due mainly to an
increase in prepaid assisted acquisition support of GBP0.2m. There
was a reduction of GBP1.3m in liabilities during the year. This
reduction in liabilities was due to repayments of bank debt
totalling GBP1.6m, an increase in trade payables of GBP0.5m caused
by the timing of invoices from suppliers of services to our
national marketing initiatives and from the suppliers of our
software licences for 2020 (GBP0.2m of which is recognised in
prepayments) and a reduction in deferred tax of GBP0.2m.
The Group finished the year with the total equity attributable
to owners of GBP17.3m, an increase of GBP1.5m or 10% over FY18.
The Group generated strong cash inflows again in 2019
underpinned by the fact that 49% of its Management Service Fees are
derived from the management of tenanted properties. This meant it
could fully repay its outstanding bank debt a year earlier than
scheduled. Thus, it faces the uncertainty created by COVID-19 in a
relatively strong position, enabling the Board to substantiate that
it has a reasonable prospect of being a going concern beyond 31
March 2021 (see note 2 of the consolidated financial statements on
page 45 of the Annual Report) and to take advantage of the
opportunities that may present themselves at that time.
David Raggett
Chief Financial Officer
The Property Franchise Group PLC
Consolidated statement of comprehensive income
for the year ended 31 December 2019
2019 2018
Notes GBP GBP
-------------------------------------------------- ----- ----------- -----------
Revenue 7 11,350,327 11,245,613
Cost of sales (1,066,849) (1,080,271)
-------------------------------------------------- ----- ----------- -----------
Gross profit 10,283,478 10,165,342
Administrative expenses 8 (5,820,277) (5,783,482)
Share-based payments charge 9, 28 (441,709) (49,857)
Operating profit 10 4,021,492 4,332,003
Finance income 11 11,012 8,968
Finance costs 11 (38,310) (71,494)
-------------------------------------------------- ----- ----------- -----------
Profit before income tax expense 3,994,194 4,269,477
Income tax expense 12 (761,788) (847,041)
-------------------------------------------------- ----- ----------- -----------
Profit and total comprehensive income for the
year attributable to owners 3,232,406 3,422,436
-------------------------------------------------- ----- ----------- -----------
Earnings per share
Statutory
-------------------------------------------------- ----- ----------- -----------
Earnings per share attributable to owners 13 12.5p 13.3p
-------------------------------------------------- ----- ----------- -----------
Diluted Earnings per share attributable to owners 13 12.1p 13.1p
-------------------------------------------------- ----- ----------- -----------
Adjusted
-------------------------------------------------- ----- -----
Earnings per share attributable to owners 13 16.2p 15.4p
-------------------------------------------------- ----- -----
Diluted Earnings per share attributable to owners 13 15.6p 15.3p
-------------------------------------------------- ----- -----
Consolidated statement of financial position
31 December 2019
2019 2018
Notes GBP GBP
-------------------------------------- ----- ---------- ----------
Assets
Non-current assets
Intangible assets 15 14,786,402 15,324,755
Property, plant and equipment 16 77,555 103,584
Right-of-use assets 17 74,580 -
Prepaid assisted acquisitions support 18 657,948 453,836
-------------------------------------- ----- ---------- ----------
15,596,485 15,882,175
-------------------------------------- ----- ---------- ----------
Current assets
Trade and other receivables 20 1,483,009 1,096,274
Cash and cash equivalents 4,011,463 3,857,988
5,494,472 4,954,262
-------------------------------------- ----- ---------- ----------
Total assets 21,090,957 20,836,437
-------------------------------------- ----- ---------- ----------
Equity
Shareholders' equity
Called up share capital 21 258,228 258,228
Share premium 22 4,039,800 4,039,800
Other reserves 23 3,506,892 2,983,861
Retained earnings 9,449,675 8,442,960
Total equity attributable to owners 17,254,595 15,724,849
-------------------------------------- ----- ---------- ----------
Liabilities
Non-current liabilities
Borrowings 24 - 700,000
Lease liabilities 17 25,089 -
Deferred tax 26 1,140,227 1,372,196
-------------------------------------- ----- ---------- ----------
1,165,316 2,072,196
Current liabilities
Borrowings 24 - 900,000
Trade and other payables 25 2,000,175 1,476,819
Lease liabilities 17 52,660 -
Tax payable 618,211 662,573
-------------------------------------- ----- ---------- ----------
2,671,046 3,039,392
-------------------------------------- ----- ---------- ----------
Total liabilities 3,836,362 5,111,588
-------------------------------------- ----- ---------- ----------
Total equity and liabilities 21,090,957 20,836,437
-------------------------------------- ----- ---------- ----------
The financial statements were approved and authorised for issue
by the Board of Directors on 30 March 2020 and were signed on its
behalf by:
David Raggett
Chief Financial Officer
Company statement of financial position
31 December 2019 (Company No: 08721920)
2019 2018
Notes GBP GBP
----------------------------- ----- ---------- ----------
Assets
Non-current assets
Investments 19 33,899,664 33,803,886
Deferred tax asset 26 215,293 30,101
----------------------------- ----- ---------- ----------
34,114,957 33,833,987
----------------------------- ----- ---------- ----------
Current assets
Trade and other receivables 20 421,903 361,520
Cash and cash equivalents 1,073,774 1,278,026
----------------------------- ----- ---------- ----------
1,495,677 1,639,546
----------------------------- ----- ---------- ----------
Total assets 35,610,634 35,473,533
----------------------------- ----- ---------- ----------
Equity
Shareholders' equity
Called up share capital 21 258,228 258,228
Share premium 22 4,039,800 4,039,800
Other reserves 23 21,496,792 20,973,761
Retained earnings 9,640,327 8,537,181
----------------------------- ----- ---------- ----------
Total equity 35,435,147 33,808,970
----------------------------- ----- ---------- ----------
Liabilities
Non-current liabilities
Borrowings 24 - 700,000
----------------------------- ----- ---------- ----------
- 700,000
Current liabilities
Borrowings 24 - 900,000
Trade and other payables 25 175,487 64,563
----------------------------- ----- ---------- ----------
175,487 964,563
----------------------------- ----- ---------- ----------
Total liabilities 175,487 1,664,563
----------------------------- ----- ---------- ----------
Total equity and liabilities 35,610,634 35,473,533
----------------------------- ----- ---------- ----------
As permitted by Section 408 of the Companies Act 2006, the
income statement of the Parent Company is not presented as part of
these financial statements. The Parent Company's profit for the
financial year was GBP3,323,903 (2018: GBP3,420,015).
The financial statements were approved and authorised for issue
by the Board of Directors on 30 March 2020 and were signed on its
behalf by:
David Raggett
Chief Financial Officer
Consolidated statement of changes in equity
for the year ended 31 December 2019
Attributable to owners
---------------------------------------------------------
Called
up share Retained Share Other Total
capital earnings premium reserves equity
GBP GBP GBP GBP GBP
------------------------------------- --------- ----------- --------- --------- -----------
Balance at 1 January 2018 258,228 7,034,699 4,039,800 2,934,004 14,266,731
------------------------------------- --------- ----------- --------- --------- -----------
Profit and total comprehensive
income - 3,422,436 - - 3,422,436
------------------------------------- --------- ----------- --------- --------- -----------
Dividends - (2,014,175) - - (2,014,175)
Share-based payments charge - - - 49,857 49,857
------------------------------------- --------- ----------- --------- --------- -----------
Total transactions with owners - (2,014,175) - 49,857 (1,964,318)
------------------------------------- --------- ----------- --------- --------- -----------
Balance at 31 December 2018 258,228 8,442,960 4,039,800 2,983,861 15,724,849
------------------------------------- --------- ----------- --------- --------- -----------
Effect of adoption of IFRS 16
(net of tax) (note 17) - (4,933) - - (4,933)
------------------------------------- --------- ----------- --------- --------- -----------
1 January 2019 as restated 258,228 8,438,027 4,039,800 2,983,861 15,719,916
------------------------------------- --------- ----------- --------- --------- -----------
Profit and total comprehensive
income - 3,232,405 - - 3,232,405
------------------------------------- --------- ----------- --------- --------- -----------
Dividends - (2,220,757) - - (2,220,757)
Deferred tax on share-based payments - - - 81,322 81,322
Share-based payments charge - - - 441,709 441,709
------------------------------------- --------- ----------- --------- --------- -----------
Total transactions with owners - (2,220,757) - 523,031 (1,697,726)
------------------------------------- --------- ----------- --------- --------- -----------
Balance at 31 December 2019 258,228 9,449,675 4,039,800 3,506,892 17,254,595
------------------------------------- --------- ----------- --------- --------- -----------
Company statement of changes in equity
for the year ended 31 December 2019
Called
up share Retained Share Other Total
capital earnings premium reserves equity
GBP GBP GBP GBP GBP
------------------------------------- --------- ----------- --------- ---------- -----------
Balance as at 1 January 2018 258,228 7,131,341 4,039,800 20,923,904 32,353,273
------------------------------------- --------- ----------- --------- ---------- -----------
Profit and total comprehensive
income - 3,420,015 - - 3,420,015
------------------------------------- --------- ----------- --------- ---------- -----------
Dividends - (2,014,175) - - (2,014,175)
Share-based payments charge - - - 49,857 49,857
------------------------------------- --------- ----------- --------- ---------- -----------
Total transactions with owners - (2,014,175) - 49,857 (1,964,318)
------------------------------------- --------- ----------- --------- ---------- -----------
Balance as at 31 December 2018 258,228 8,537,181 4,039,800 20,973,761 33,808,970
------------------------------------- --------- ----------- --------- ---------- -----------
Profit and total comprehensive
income - 3,323,903 - - 3,323,903
------------------------------------- --------- ----------- --------- ---------- -----------
Dividends - (2,220,757) - - (2,220,757)
Deferred tax on share-based payments - - - 81,322 81,322
Share-based payments charge - - - 441,709 441,709
------------------------------------- --------- ----------- --------- ---------- -----------
Total transactions with owners - (2,220,757) - 523,031 (1,697,726)
------------------------------------- --------- ----------- --------- ---------- -----------
Balance as at 31 December 2019 258,228 9,640,327 4,039,800 21,496,792 35,435,147
------------------------------------- --------- ----------- --------- ---------- -----------
Consolidated statement of cash flows
for the year ended 31 December 2019
2019 2018
Notes GBP GBP
----------------------------------------------- ----- ----------- -----------
Cash flows from operating activities
Cash generated from operations A 5,705,243 5,314,349
Interest paid (41,380) (75,346)
Tax paid (973,361) (771,779)
----------------------------------------------- ----- ----------- -----------
Net cash from operating activities 4,690,502 4,467,224
----------------------------------------------- ----- ----------- -----------
Cash flows from investing activities
Purchase of intangible assets (73,467) (20,000)
Purchase of tangible assets (7,960) (30,505)
Assisted acquisitions support (386,332) (248,050)
Loan 30 (200,000) -
Interest received 11,012 8,968
----------------------------------------------- ----- ----------- -----------
Net cash used in investing activities (656,747) (289,587)
----------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
Repayment of bank loan (1,600,000) (900,000)
Equity dividends paid (2,220,757) (2,014,175)
Principal paid on lease liabilities (56,533) -
Interest paid on lease liabilities (2,990) -
----------------------------------------------- ----- ----------- -----------
Net cash used in financing activities (3,880,280) (2,914,175)
----------------------------------------------- ----- ----------- -----------
Increase in cash and cash equivalents 153,475 1,263,462
Cash and cash equivalents at beginning of year 3,857,988 2,594,526
----------------------------------------------- ----- ----------- -----------
Cash and cash equivalents at end of year 4,011,463 3,857,988
----------------------------------------------- ----- ----------- -----------
Notes to the consolidated statement of cash flows
for the year ended 31 December 2019
A. Reconciliation of profit before income tax to cash generated
from operations
2019 2018
GBP GBP
------------------------------------------------------ --------- ---------
Cash flows from operating activities
Profit before income tax 3,994,194 4,269,477
Depreciation of property, plant and equipment 33,989 33,416
Amortisation of intangibles 611,820 592,323
Amortisation of prepaid assisted acquisitions support 174,149 88,701
Amortisation of right-of-use assets 54,769 -
Share-based payments charge 441,709 49,857
Loss on disposal of intangible assets - 17,989
Finance costs 38,310 71,494
Finance income (11,012) (8,968)
------------------------------------------------------ --------- ---------
Operating cash flow before changes in working capital 5,337,928 5,114,289
(Increase) / decrease in trade and other receivables (186,734) 21,062
Increase in trade and other payables 554,049 178,998
------------------------------------------------------ --------- ---------
Cash generated from operations 5,705,243 5,314,349
------------------------------------------------------ --------- ---------
Company statement of cash flows
for the year ended 31 December 2019
2019 2018
Notes GBP GBP
------------------------------------------------- ----- ----------- -----------
Cash flows from operating activities
Cash generated from operations C (812,137) (179,425)
Interest paid (41,380) (75,346)
------------------------------------------------- ----- ----------- -----------
Net cash used in operating activities (853,517) (254,771)
------------------------------------------------- ----- ----------- -----------
Cash flows from investing activities
Interest received 22 12
Loan 30 (200,000) -
Equity dividends received 4,670,000 4,100,000
------------------------------------------------- ----- ----------- -----------
Net cash generated from investing activities 4,470,022 4,100,012
------------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
Repayment of bank loan (1,600,000) (900,000)
Equity dividend paid (2,220,757) (2,014,175)
------------------------------------------------- ----- ----------- -----------
Net cash used in financing activities (3,820,757) (2,914,175)
------------------------------------------------- ----- ----------- -----------
(Decrease)/Increase in cash and cash equivalents (204,252) 931,066
Cash and cash equivalents at beginning of year 1,278,026 346,960
------------------------------------------------- ----- ----------- -----------
Cash and cash equivalents at end of year 1,073,774 1,278,026
------------------------------------------------- ----- ----------- -----------
Notes to the Company statement of cash flows
for the year ended 31 December 2019
C. Reconciliation of profit before income tax to cash generated
from operations
2019 2018
GBP GBP
------------------------------------------------------ ----------- -----------
Cash flows from operating activities
Profit before income tax 3,390,952 3,257,306
Share-based payments charge 345,931 22,046
Finance costs 35,320 71,494
Finance income (22) (12)
Equity dividend received (4,670,000) (4,100,000)
------------------------------------------------------ ----------- -----------
Operating cash flow before changes in working capital (897,819) (749,166)
(Increase) / decrease in trade and other receivables (25,241) 568,037
Increase in trade and other payables 110,923 1,704
------------------------------------------------------ ----------- -----------
Cash used in operations (812,137) (179,425)
------------------------------------------------------ ----------- -----------
Notes to the consolidated and Company financial statements
for the year ended 31 December 2019
1. General information
The principal activity of The Property Franchise Group PLC and
its Subsidiaries is that of a UK residential property franchise
business. The Group operates in the UK. The Company is a public
limited company incorporated and domiciled in the UK and listed on
AIM. The address of its head office and registered office is 2 St
Stephen's Court, St Stephen's Road, Bournemouth, Dorset, UK.
2. Basis of preparation
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRSs") as adopted by the European Union and the Companies Act
2006 applicable to companies reporting under IFRS. The consolidated
financial statements have been prepared under the historical cost
convention.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 5.
The presentational currency of the financial statements is in
British pounds and amounts are rounded to the nearest pound.
Going concern
Due to the uncertainty created by Covid-9, the decision was
taken to create a working capital model focused on the potential
impacts of Covid-19 and the actions that the Board can take to
mitigate those impacts. This uses as its basis the budget for 2020,
the management accounts for the first two months of trading in 2020
and the actual results for 2019. The time period reviewed is from 1
March 2020 to 31 March 2021.
Our focus on operating margin, return on capital employed and
free cash flow generation means the Group started the period under
review with no debt and cash of GBP4.0m.
Last year the Group spent GBP6.1m on cost of sales and
administrative expenses (excluding depreciation, amortisation and
share-based payment charges).
The Board have looked at these costs in detail and identified
savings in payments to contractors and general administrative
expenses. In addition, with the support of our employees and
reshaping ourselves to focus solely on supporting our franchise
network during this period the Board estimates that significant
savings can be achieved.
Our suppliers have already started to announce financial support
mainly by discounting their services. The Group will feed these
discounts through to our franchise network. Hence, no account is
taken off them in this assessment.
The model assumes that all discretionary expenditure is
suspended for the period under review. It was GBP2.7m in 2019 and
included dividend payments of GBP2.2m. Any such expenditure will
only be made if it is clear it can be afforded.
During the period under review it is estimated that there will
be a release from working capital of GBP0.3m.
At the start of the period, the Group owed GBP1.0m to HMRC. Of
this, the next VAT payment will be automatically deferred. Support
exists to help with time to pay and the Group will maximise the
benefit of this and other Government support as it becomes
available.
The Board has concluded, after reviewing the work performed and
detailed above that, even without taking into account the cash from
revenues that will still to flow into the Group, there is a
reasonable expectation that the Group has adequate resources to
continue in operation until at least 31 March 2021. Accordingly,
they have adopted the going concern basis in preparing these
financial statements.
Changes in accounting policies
a) New standards, amendments and interpretations effective from
1 January 2019
The following new or amended standards are mandatory for the
first time for the period beginning 1 January 2019 and have been
adopted in the annual financial statements for the year ended 31
December 2019:
Standard Key requirements
-------- --------------------------------------
IFRS 16 Leases
IFRIC 23 Uncertainty over income tax treatments
-------- --------------------------------------
The Group adopted IFRS 16 and IFRIC 23 with a transition date of
1 January 2019. The Group has chosen not to restate comparatives on
adoption of both standards, and therefore, the revised requirements
are not reflected in the prior year financial statements. Rather,
these changes have
been processed at the date of initial application (i.e. 1
January 2019) and recognised in the opening equity balances.
Details of the impact these two standards have had are given below.
Other new and amended standards and Interpretations issued by the
IASB did not impact the Group as they are either not relevant to
the Group's activities or require accounting which is consistent
with the Group's current accounting policies
IFRS 16 "Leases"
IFRS 16 requires that almost all leases are brought onto
lessees' balance sheets under a single model (except leases of less
than 12 months and leases of low-value assets), eliminating the
distinction between operating and finance leases. IFRS 16 has been
adopted for the first time in these Group consolidated financial
statements.
Transition Method and Practical Expedients Utilised
The Group adopted IFRS 16 using the modified retrospective
approach, with recognition of transitional adjustments on the date
of initial application (1 January 2019), without restatement of
comparative figures.
The definition of a lease under IFRS 16 was applied only to
contracts entered into or changed on or after 1 January 2019. IFRS
16 provides for certain optional practical expedients, including
those related to the initial adoption of the standard. The Group
applied the following practical expedients when applying IFRS16 to
leases previously classified as operating leases under IAS 17:
(a) Apply a single discount rate to a portfolio of leases with
reasonably similar characteristics;
(b) Exclude initial direct costs from the measurement of
right-of-use assets at the date of initial application for leases
where the right-of-use asset was determined as if IFRS 16 had been
applied since the commencement date; and
(c) Reliance on previous assessments on whether leases are
onerous as opposed to preparing an impairment review under IAS 36
as at the date of initial application;
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of
ownership. Currently, the Group holds some non-cancellable
operating leases but no finance leases. All operating leases relate
to office premises. The Group has recognised a right-of-use asset
and a corresponding liability in respect of all these leases. The
right-of-use asset was recognised at the carrying value that would
have resulted from IFRS 16 being applied from the commencement date
of the leases. The lease liabilities were measured at the present
value of the remaining lease payments, discounted using the Group's
incremental borrowing rate as at 1 January 2019.The Group's
incremental borrowing rate is the rate at which a similar borrowing
could be obtained from an independent creditor under comparable
terms and conditions. The weighted-average rate applied was 4%.
See note 17 for details of the accounting entries recognised in
these financial statements and the effect of the change in
accounting policy.
IFRIC 23 "Uncertainty over income tax treatments"
IFRIC 23 provides guidance on the accounting for current and
deferred tax liabilities and assets in circumstances in which there
is uncertainty over income tax treatments. The Interpretation
requires:
-- The Group to determine whether uncertain tax treatments
should be considered separately, or together as a group, based on
which approach provides better predictions of the resolution;
-- The Group to determine if it is probable that the tax
authorities will accept the uncertain tax treatment; and
-- If it is not probable that the uncertain tax treatment will
be accepted, measure the tax uncertainty based on the most likely
amount or expected value, depending on whichever method better
predicts the resolution of the uncertainty. This measurement is
required to be based on the assumption that each of the tax
authorities will examine amounts they have a right to examine and
have full knowledge of all related information when making those
examinations.
b) New standards, amendments and interpretations not yet
effective
The following relevant new standards, amendments to standards
and interpretations have been issued, but are not effective for the
financial year beginning on 1 January 2019, and endorsed by the
European Union, and have not been early adopted:
Effective date as adopted
Standard Key requirements by the EU
-------- -------------------------------------- -------------------------
Presentation of Financial Statements
(Amendment -Definition of Material)
Accounting Policies, Changes
in
IAS 1 Accounting Estimates and Errors 1 January 2020
IAS 8 (Amendment - Definition of Material) 1 January 2020
Business Combinations
IFRS 3 (Amendment - Definition of Business) 1 January 2020
Revised Conceptual Framework
for Financial Reporting 1 January 2020
-------- -------------------------------------- -------------------------
The Group is currently assessing the impact of these new
accounting standards and amendments.
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all the years presented, unless
otherwise stated.
3. Basis of consolidation
The Group financial statements include those of the Parent
Company and its Subsidiaries, drawn up to 31 December 2019.
Subsidiaries are all entities over which the Group has control. The
Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are deconsolidated
from the date that control ceases.
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the fair values of the assets transferred, the
liabilities incurred to the former owners of the acquired business
and the equity interests issued by the Group. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values at
the acquisition date. Acquisition-related costs are expensed as
incurred.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated. When necessary, amounts reported by
Subsidiaries have been adjusted to conform to the Group's
accounting policies.
4. Significant accounting policies
Revenue recognition
Performance obligations and the timing of revenue
recognition
Revenue represents income, net of VAT, from the sale of
franchise agreements, resale fees and Management Service Fees
levied to franchisees monthly based on their turnover, and other
income being the provision of ad hoc services and ongoing support
to franchisees.
Traditional brands:
Fees from the sale of franchise agreements are not refundable.
These fees are for the use of the brand along with initial training
and support and promotion during the opening phase of the new
office. As such the Group has some initial obligations that extend
beyond the receipt of funds and signing of the franchise agreement
so an element of the fee is deferred and released as the
obligations are discharged, usually between 1 to 4 months after
receipt of funds, which is the typical period of on-boarding for
new franchisees.
Resale fees are recognised in the month that a contract for the
resale of a franchise is signed. Upon signing of the contract all
obligations have been completed.
Management Service Fees are recognised on a monthly basis and
other income is recognised when the services and support is
provided to the franchisee. There are no performance obligations
associated with levying the Management Service Fees. For ad hoc
services and support all performance obligations have been
fulfilled at the time of revenue recognition.
EweMove:
Fees from the sale of franchise agreements for the EweMove brand
are not refundable. Some new franchisees pay a higher fee to
include the first 12 months' licence fee, in this scenario the
licence fee element of the initial fee is deferred and released
over the first 12 months of trading of the franchise where no
monthly licence fees are payable. The franchise fee is for the use
of the brand along with initial support and promotion during the
opening phase of the new franchise. As such the Group has some
initial obligations that extend beyond the receipt of funds and
signing of the franchise agreement so an element of the fee is
deferred and released as the obligations are discharged, usually
between 1 to 4 months after receipt of funds, which is the typical
period of on-boarding for new franchisees.
Management Service Fees consist of monthly licence fees and
completion fees. Licence fees are recognised on a monthly basis,
completion fees are recognised when sales or lettings transactions
complete and other income is recognised when the services and
support are provided to the franchisee. There are no additional
performance obligations associated with levying the licence fee and
completion fees beyond providing access to the systems, brand and
marketing support. For ad hoc services and support all performance
obligations have been fulfilled at the time of revenue
recognition.
Operating profit
Profit from operations is stated before finance income, finance
costs and tax expense.
Business combinations
On the acquisition of a business, fair values are attributed to
the identifiable assets and liabilities and contingent liabilities
unless the fair value cannot be measured reliably in which case the
value is subsumed into goodwill. Where the fair values of acquired
contingent liabilities cannot be measured reliably, the assumed
contingent liability is not recognised but is disclosed in the same
manner as other contingent liabilities.
Goodwill is the difference between the fair value of the
consideration and the fair value of identifiable assets acquired.
Goodwill arising on acquisitions is capitalised and subject to an
impairment review, both annually and when there is an indication
that the carrying value may not be recoverable.
Intangible assets
Intangible assets with a finite life are carried at cost less
amortisation and any impairment losses. Intangible assets represent
items which meet the recognition criteria of IAS 38, in that it is
probable that future economic benefits attributable to the assets
will flow to the entity and the cost can be measured reliably.
In accordance with IFRS 3 Business Combinations, an intangible
asset acquired in a business combination is deemed to have a cost
to the Group of its fair value at the acquisition date. The fair
value of the intangible asset reflects market expectations about
the probability that the future economic benefits embodied in the
asset will flow to the Group.
Amortisation charges are included in administrative expenses in
the Statement of Comprehensive Income. Amortisation begins when the
intangible asset is first available for use and is provided at
rates calculated to write-off the cost of each intangible asset
over its expected useful life, on a straight-line basis, as
follows:
Brands - CJ Hole, Parkers, Ellis & Co Indefinite life
Brands - EweMove 21 years
Customer lists 5 years
Master franchise agreements - Whitegates, CJ Hole,
Parkers, Ellis & Co 25 years
Master franchise agreements - EweMove 15 years
Technology - Ewereka 5 years
Technology - Websites and CRM system 3 years
Acquired trade names are identified as separate intangible
assets where they can be reliably measured by valuation of future
cash flows. The trade names CJ Hole, Parkers and Ellis & Co are
assessed as having indefinite lives due to their long trading
histories.
Acquired customer lists are identified as a separate intangible
asset as they are separable and can be reliably measured by
valuation of future cash flows. This valuation also assesses the
life of the particular relationship. The life of the relationship
is assessed annually.
Customer lists are being written off over a remaining life of 5
years.
Acquired master franchise agreements are identified as a
separate intangible asset as they are separable and can be reliably
measured by valuation of future cash flows. The life of the
relationship is assessed annually. Master franchise agreements are
being written off over a remaining life of 15-25 years as
historical analyses shows that, on average, 4% - 10% of franchises
will change ownership per annum.
The cost of the new brand websites launched in 2017 have been
capitalised and are being amortised over 3 years from launch date,
being the expected period over which the websites are expected to
generate economic benefit.
The cost of the CRM system was capitalised in 2019 and is being
amortised over 3 years from launch date, being the expected period
over which the CRM system is expected to generate economic
benefit.
Subsequent to initial recognition, intangible assets are stated
at deemed cost less accumulated amortisation and impairment
charges, with the exception of indefinite life intangibles.
Impairment of non-financial assets
In respect of goodwill and intangible assets that have an
indefinite useful lives, management are required to assess whether
the recoverable amount of each exceeds their respective carrying
values at the end of each accounting period.
In respect of intangible assets with definite lives, management
are required to assess whether the recoverable amount exceeds the
carrying value where an indicator of impairment exists at the end
of each accounting period.
The recoverable amount is the higher of fair value less costs to
sell and value in use.
Impairment losses represent the amount by which the carrying
value exceeds the recoverable amount; they are recognised in profit
or loss. Impairment losses recognised in respect of cash generating
units are allocated first to reduce the carrying amount of any
goodwill allocated to the cash generating unit and then to reduce
the carrying amount of the other assets in the unit on a pro-rata
basis. Where an indicator of impairment exists against a definite
life asset and a subsequent valuation determines there to be
impairment, the intangible asset to which it relates is impaired by
the amount determined.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, an impairment loss is reversed if there
has been a change in the estimates used to determine the
recoverable amount.
An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if
no impairment loss had been recognised.
The master franchise agreement is assessed separately for
impairment as an independent asset that generates cash inflows that
are largely independent of those from other assets.
Investment in subsidiaries
Investments in subsidiaries are stated in the Parent Company's
balance sheet at cost less any provisions for impairments.
Property, plant and equipment
Items of property, plant and equipment are stated at cost of
acquisition less accumulated depreciation and impairment losses.
Depreciation is charged so as to write-off the cost of assets over
their estimated useful lives on the following bases:
Fixtures, fittings and office equipment 15% reducing balance
Computer equipment over 3 years
Short leasehold improvements over the lease term
Right-of-use assets
Right of use assets relate to operating leases that have been
brought onto the balance sheet under IFRS 16 (see note 2a). They
are initially measured at the amount of the lease liability,
reduced for any lease incentives received, and increased for:
-- lease payments made at or before commencement of the
lease;
-- initial direct costs incurred; and
-- the amount of any provision recognised where the group is
contractually required to dismantle, remove or restore the leased
asset
Subsequent to initial measurement right-of-use assets are
amortised on a straight-line basis over the remaining term of the
lease or over the remaining economic life of the asset if, rarely,
this is judged to be shorter than the lease term.
Lease liabilities
Lease liabilities are measured at the present value of the
contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in
the lease unless (as is typically the case) this is not readily
determinable, in which case the Group's incremental borrowing rate
on commencement of the lease is used. Variable lease payments are
only included in the measurement of the lease liability if they
depend on an index or rate. In such cases, the initial measurement
of the lease liability assumes the variable element will remain
unchanged throughout the lease term. Other variable lease payments
are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease
liability also includes:
-- amounts expected to be payable under any residual value
guarantee;
-- the exercise price of any purchase option granted in favour
of the group if it is reasonable certain to assess that option;
-- any penalties payable for terminating the lease, if the term
of the lease has been estimated on the basis of termination option
being exercised.
Subsequent to initial measurement lease liabilities increase as
a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made.
Prepaid assisted acquisitions support
Prepaid assisted acquisitions support represents amounts payable
to franchisees in relation to their acquisition of qualifying
managed property portfolios and amounts payable to brokers for
assisting with the acquisition of those portfolios. The payments
are recognised as an asset and amortised to the profit and loss
account over 5 years. The amounts payable to franchisees are
amortised as a reduction in revenue, whereas amounts payable to
brokers are amortised through cost of sales.
Income taxes
Income tax currently payable is calculated using the tax rates
in force or substantively enacted at the reporting date. Taxable
profit differs from accounting profit either because some income
and expenses are never taxable or deductible, or because the time
pattern that they are taxable or deductible differs between tax law
and their accounting treatment.
The tax expense for the period comprises current and deferred
tax. Tax is recognised in profit or loss, except if it arises from
transactions or events that are recognised in other comprehensive
income or directly in equity.
Deferred tax
Deferred income taxes are calculated using the liability method
on temporary differences, at the tax rate that is substantively
enacted at the balance sheet date. Deferred tax is generally
provided on the difference between the carrying amount of assets
and liabilities and their tax bases. However, deferred tax is not
provided on the initial recognition of goodwill, nor on the initial
recognition of an asset or liability unless the related transaction
is a business combination or affects tax or accounting profit. Tax
losses available to be carried forward as well as other income tax
credits to the Group are assessed for recognition as deferred tax
assets.
Deferred tax liabilities are provided in full, with no
discounting. Deferred tax assets are recognised to the extent that
it is probable that the underlying deductible temporary differences
will be able to be offset against future taxable income. Current
and deferred tax assets and liabilities are calculated at tax rates
that are expected to apply to their respective period of
realisation, provided they are enacted or substantively enacted at
the balance sheet date. Changes in deferred tax assets or
liabilities are recognised as a component of tax expense in the
income statement. For share-based payments the deferred tax credit
is recognised in the income statement to the extent that it offsets
the share-based charge, with any remaining element after offset
being shown in the statement of changes in equity.
Cash and cash equivalents
Cash and cash equivalents are defined as cash balances in hand
and in the bank (including short-term cash deposits).
Financial assets
The Group and Company only have financial assets comprising
trade and other receivables and cash and cash equivalents in the
Consolidated Statement of Financial Position.
These assets arise principally from the provision of goods and
services to customers (eg. trade receivables), but also incorporate
other types of financial assets where the objective is to hold
these assets in order to collect contractual cash flows and the
contractual cash flows are solely payments of principal and
interest. They are initially recognised at fair value plus
transaction costs that are directly attributable to their
acquisition or issue, and are subsequently carried at amortised
cost using the effective interest rate method, less provision. for
impairment.
Impairment of financial assets
Impairment provisions for current and non-current trade
receivables are recognised based on the simplified approach within
IFRS 9 using a provision matrix in the determination of the
lifetime expected credit losses. During this process the
probability of the non-payment of the trade receivables is
assessed. This probability is then multiplied by the amount of the
expected loss arising from default to determine the lifetime
expected credit loss for the trade receivables. For trade
receivables, which are reported net, such provisions are recorded
in a separate provision account with the loss being recognised
within administrative expenses in the consolidated statement of
comprehensive income. On confirmation that the trade receivable
will not be collectable, the gross carrying value of the asset is
written off against the associated provision.
Impairment provisions for receivables from related parties and
loans to related parties are recognised based on a forward looking
expected credit loss model. The methodology used to determine the
amount of the provision is based on whether there has been a
significant increase in credit risk since initial recognition of
the financial asset. For those where the credit risk has not
increased significantly since initial recognition of the financial
asset, 12 month expected credit losses along with gross interest
income are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses along with
the gross interest income are recognised. For those that are
determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
Financial liabilities
Financial liabilities are comprised of trade and other payables,
borrowings and other short-term monetary liabilities, which are
recognised at amortised cost.
Trade payables, other payables and other short-term monetary
liabilities, are initially recognised at fair value and
subsequently carried at amortised cost using the effective interest
method.
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently carried at
amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the
income statement over the period of the borrowings using the
effective interest method.
Fees paid on the establishment of loan facilities are recognised
as transaction costs of the loan to the extent that it is probable
that some or all of the facility will be drawn down. In this case,
the fee is deferred until the draw-down occurs. To the extent there
is no evidence that it is probable that some or all of the facility
will be drawn down, the fee is capitalised as a pre-payment for
liquidity services and amortised over the period of the facility to
which it relates.
Share-based payments
The Company issues equity-settled share-based payments to
employees. Equity-settled share-based payments are measured at fair
value at the date of grant. The fair value determined at the grant
date of the equity-settled share-based payments are amortised
through the Consolidated Statement of Comprehensive Income over the
vesting period of the options, together with a corresponding
increase in equity, based upon the Company's estimate of the shares
that will eventually vest.
Fair value is measured using the Black-Scholes option pricing
model taking into account the following inputs:
-- the exercise price of the option;
-- the life of the option;
-- the market price on the date of the grant of the option;
-- the expected volatility of the share price;
-- the dividends expected on the shares; and
-- the risk free interest rate for the life of the option.
The expected life used in the model has been adjusted, based on
management's best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations.
At the end of each reporting period, the Group revises its
estimates of the number of options that are expected to vest based
on the non-market conditions and recognises the impact of the
revision to original estimates, if any, in the income statement,
with a corresponding adjustment to equity.
5. Critical accounting estimates and judgements and key sources
of estimation uncertainty
The Company 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 estimates and
assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
Impairment of intangible assets
The Group is required to test, where indicators of impairment
exist or there are intangible assets with indefinite lives, whether
intangible assets have 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. Key assumptions for the value in use calculation
are described in note 15.
Share-based payment charge ("SBPC")
The aggregate fair value expense of each grant is determined
through using the Black-Scholes model detailed above and an
estimate for the attainment of the non-market based performance
conditions in FY20 and FY21. The estimate of earnings per share
("EPS"), the non-market based performance measure, in FY20 relies
on the assumptions made regarding the achievement of the current
year's budget and, in FY21, relies on a projection of earnings
taking into account available market data and performance
trends.
At this juncture it's estimated that 48% of the non-market based
performance condition will be met for the share option scheme with
an FY20 EPS target. This is the main component of the SBPC.
However, that percentage attainment is highly sensitive to the
earnings and, therefore, profit actually achieved in FY20 and, as
Ian Wilson holds an option over a maximum of 1m shares, the
assessment made about his entitlement on his retirement.
A GBP0.1m increase in profit before taxation for FY20 equates to
achievement of an estimated 10% increase in attainment to 58%. This
causes the estimated fair value of the SBPC from inception until 31
December 19 to increase by GBP0.1m and the estimated fair value of
the lifetime SBPC to increase by GBP0.24m at 31 December 2019.
Similarly, a GBP0.1m decrease in profit before taxation in FY20
equates to achievement of an estimated 10% decrease in attainment
to 38%. This causes the estimated fair value of the SBPC to reduce
from inception until 31 December 2019 by GBP0.1m and the estimated
fair value of the lifetime SBPC to decrease by GBP0.24m at 31
December 2019
For every month that Ian retires before 31 December 2020,
assuming no other leavers, the standard time pro-rata assumption
and an attainment of 48%, the estimated fair value of the lifetime
SBPC reduces by GBP0.02m
6. Segmental reporting
The Board of Directors, as the chief operating decision-making
body, review financial information for and make decisions about the
Group's overall franchising business and have identified a single
operating segment, that of property franchising.
7. Revenue
The Directors believe there to be 3 material income streams
relevant to property franchising which are split as follows:
2019 2018
GBP GBP
------------------------ ---------- ----------
Management Service Fees 9,661,737 9,402,896
Franchise sales 194,702 289,808
Other 1,493,888 1,552,909
------------------------ ---------- ----------
11,350,327 11,245,613
------------------------ ---------- ----------
All revenue is earned in the UK and no customer represents
greater than 10% of total revenue in either of the years
reported.
Other revenue relates to ad hoc services and ongoing support to
franchisees.
See note 20 for details of accrued income and note 25 for
details of deferred income.
See note 18 for the value of prepaid assisted acquisitions
support amortised as a deduction from Management Service Fees.
8. Administrative expenses
Administrative expenses relate to those expenses that are not
directly attributable to any specific sales activity.
Administrative expenses for the year were as follows:
2019 2018
GBP GBP
Employee costs (see note 9) 3,097,124 3,110,452
Marketing and digital costs 571,931 617,274
Property costs 129,082 129,626
General administrative costs 1,355,551 1,333,807
Amortisation 666,589 592,323
----------------------------- --------- ---------
5,820,277 5,783,482
----------------------------- --------- ---------
9. Employees and Directors
Average numbers of employees (including Directors), employed
during the year:
Group Company
---------- ----------
2019 2018 2019 2018
--------------- ---- ---- ---- ----
Administration 39 41 - -
Management 9 9 2 2
--------------- ---- ---- ---- ----
48 50 2 2
--------------- ---- ---- ---- ----
Employee costs (including Directors) during the year amounted
to:
Group Company
-------------------- ----------------
2019 2018 2019 2018
GBP GBP GBP GBP
---------------------------- --------- --------- ------- -------
Wages and salaries 2,711,683 2,737,019 554,213 502,118
Social security costs 328,693 331,577 62,245 59,381
Pension costs 56,748 41,856 10,544 10,044
---------------------------- --------- --------- ------- -------
3,097,124 3,110,452 627,002 571,543
---------------------------- --------- --------- ------- -------
Share-based payments charge 441,709 49,857 345,931 22,046
---------------------------- --------- --------- ------- -------
Key management personnel are defined as Directors and executives
of the Group. Details of the remuneration of the key management
personnel are shown below:
2019 2018
GBP GBP
---------------------------- --------- ---------
Wages and salaries 1,497,467 1,452,880
Social security costs 193,729 187,711
Pension costs 30,513 25,736
---------------------------- --------- ---------
1,721,709 1,666,327
---------------------------- --------- ---------
Share-based payments charge 402,498 46,847
---------------------------- --------- ---------
Details of the Directors' emoluments are disclosed in the
Directors' remuneration report on pages 29 to 30 of the Annual
Report. The share-based payments charge for the current year has
been charged to the Statement of Comprehensive Income, of this
GBP340,697 (2018: GBP21,772) relates to Directors.
10. Operating profit
2019 2018
GBP GBP
------------------------------------------------------ --------- ---------
The operating profit is stated after charging:
Depreciation 33,989 33,416
Amortisation - intangibles 611,820 592,323
Amortisation - prepaid assisted acquisitions support 174,149 88,701
Amortisation - leases 54,769 -
Share-based payments charge 441,709 49,857
Auditor's remuneration (see below) 50,000 45,000
Staff costs (note 9) 3,097,124 3,110,452
Operating lease expenditure - 67,333
Audit services
* Audit of the Company and consolidated accounts 50,000 45,000
* Audit related assurance services - -
Other non-audit services
* Corporate finance services - -
* Tax advisory services - -
* IT consultancy services - -
------------------------------------------------------ --------- ---------
50,000 45,000
------------------------------------------------------ --------- ---------
Comprising:
Audit services 50,000 45,000
Non-audit services - -
------------------------------------------------------ --------- ---------
50,000 45,000
------------------------------------------------------ --------- ---------
11. Finance income and costs
2019 2018
GBP GBP
--------------------- ------ -----
Finance income:
Bank interest 5,696 6,464
Other similar income 5,316 2,504
--------------------- ------ -----
11,012 8,968
--------------------- ------ -----
2019 2018
GBP GBP
-------------------------------------- ------ ------
Finance costs:
Bank interest 35,320 71,494
Interest expense on lease liabilities 2,990 -
38,310 71,494
-------------------------------------- ------ ------
12. Taxation
2019 2018
GBP GBP
------------------------------------------------------ --------- --------
Current tax 943,765 925,702
Adjustments in respect of previous periods (31,329) 16,740
------------------------------------------------------ --------- --------
Current tax total 912,436 942,442
------------------------------------------------------ --------- --------
Deferred tax credit on acquired business combinations (75,557) (88,618)
Deferred tax credit on share-based payments (75,091) (6,783)
------------------------------------------------------ --------- --------
Deferred tax total (150,648) (95,401)
------------------------------------------------------ --------- --------
Total tax charge in statement of comprehensive income 761,788 847,041
------------------------------------------------------ --------- --------
The tax assessed for the period is higher (2018: higher) than
the standard rate of corporation tax in the UK. The difference is
explained below.
2019 2018
GBP GBP
---------------------------------------------------------- --------- ---------
Profit on ordinary activities before tax 3,994,194 4,269,477
Profit on ordinary activities multiplied by the effective
standard rate of corporation tax in the UK of 19% 758,897 811,200
Effects of:
Expenses not deductible for tax purposes 10,344 9,412
Depreciation in excess of capital allowances 23,876 9,689
Adjustments in respect of previous periods (31,329) 16,740
---------------------------------------------------------- --------- ---------
Total tax charge in respect of continuing activities 761,788 847,041
---------------------------------------------------------- --------- ---------
13. Earnings per share
Earnings per share is calculated by dividing the profit for the
financial year by the weighted average number of shares during the
year.
2019 2018
GBP GBP
----------------------------------------------------- --------- ---------
Profit for the financial year attributable to owners 3,232,406 3,422,436
Amortisation on acquired intangibles 498,441 498,441
Share-based payments charge 441,709 49,857
Adjusted profit for the financial year 4,172,556 3,970,734
Weighted average number of shares
Number used in basic earnings per share 25,822,750 25,822,750
Dilutive effect of share options on ordinary shares 870,179 211,122
---------------------------------------------------- ---------- ----------
Number used in diluted earnings per share 26,692,929 26,033,872
---------------------------------------------------- ---------- ----------
Basic earnings per share 12.5p 13.3p
Diluted earnings per share 12.1p 13.1p
---------------------------------------------------- ---------- ----------
Adjusted basic earnings per share 16.2p 15.4p
Adjusted diluted earnings per share 15.6p 15.3p
---------------------------------------------------- ---------- ----------
There were options over 2,209,800 ordinary shares outstanding at
31 December 2019; 2,145,000 had not yet vested and have performance
conditions which will determine whether they vest or not in the
future. The remaining option over 64,800 ordinary shares was
exercisable at 31 December 2019 and the average share price during
the year ended 31 December 2019 was above exercise price. For these
reasons in 2019 there is a dilutive effect of share options on the
earnings per share calculation.
In 2018 there were options over 2,184,800 ordinary shares
outstanding at 31 December 2018; 2,120,000 had not yet vested and
had performance conditions which would determine whether they vest
or not in the future. The remaining option over 64,800 ordinary
shares was exercisable at 31 December 2018 but the average share
price during the year ended 31 December 2018 was below the exercise
price. For these reasons in 2018 there is no dilutive effect of
share options on the earnings per share calculation.
The charge relating to share-based payments that have a dilutive
effect is immaterial and therefore the earnings used in the diluted
earnings per ordinary share calculation are the earning per
ordinary share calculation before dilution.
14. Dividends
2019 2018
GBP GBP
--------------------------------------------------------- --------- ---------
Final dividend for 2018
6.0p per share paid 28 May 2019 (2018: 5.4p per share
paid 21 May 2018) 1,549,365 1,394,429
Interim dividend for 2019
2.6p per share paid 1 October 2019 (2018: 2.4p per share
paid 3 October 2018) 671,392 619,746
--------------------------------------------------------- --------- ---------
Total dividend paid 2,220,757 2,014,175
--------------------------------------------------------- --------- ---------
15. Intangible assets
Master
Franchise Customer
Agreement Brands Technology lists Goodwill Total
GBP GBP GBP GBP GBP GBP
------------------------------- ---------- --------- ---------- --------- --------- ----------
Cost
Brought forward 1 January 2018 7,803,436 1,972,239 274,210 301,712 7,226,160 17,577,757
Additions - - - 20,000 - 20,000
Disposals - - - (106,772) - (106,772)
------------------------------- ---------- --------- ---------- --------- --------- ----------
Carried forward 31 December
2018 7,803,436 1,972,239 274,210 214,940 7,226,160 17,490,985
Additions - - 63,467 10,000 - 73,467
Carried forward 31 December
2019 7,803,436 1,972,239 337,677 224,940 7,226,160 17,564,452
------------------------------- ---------- --------- ---------- --------- --------- ----------
Amortisation & Impairment
Brought forward at 1 January
2018 1,325,528 88,968 49,118 201,846 - 1,665,460
Charge for year 413,174 66,726 79,037 33,386 - 592,323
Eliminated on disposals - - - (91,553) - (91,553)
------------------------------- ---------- --------- ---------- --------- --------- ----------
Carried forward 31 December
2018 1,738,702 155,694 128,155 143,679 - 2,166,230
Charge for year 413,174 66,726 109,642 22,278 - 611,820
Carried forward 31 December
2019 2,151,876 222,420 237,797 165,957 - 2,778,050
------------------------------- ---------- --------- ---------- --------- --------- ----------
Net book value
At 31 December 2019 5,651,560 1,749,819 99,880 58,983 7,226,160 14,786,402
------------------------------- ---------- --------- ---------- --------- --------- ----------
At 31 December 2018 6,064,734 1,816,545 146,055 71,261 7,226,160 15,324,755
------------------------------- ---------- --------- ---------- --------- --------- ----------
The carrying amount of goodwill relates to 4 (2018: 4) cash
generating units, and reflects the difference between the fair
value of consideration transferred and the fair value of assets and
liabilities purchased.
Business combinations completed in October 2014
Goodwill is assessed for impairment by comparing the carrying
value to the value in use calculations. The value in use of the
goodwill arising on the acquisitions of Xperience Franchising
Limited ("XFL") and Whitegates Estate Agency Limited ("WEAL") is
based on the cash flows derived from the actual revenues and
operating margins for 2019 and projections through to 31 December
2021. Thereafter projected revenue growth was assumed to decline
linearly to a long-term growth rate of 2.2%.
The cash flows arising were discounted by the weighted average
cost of capital which included a small companies' risk premium to
allow for factors such as illiquidity in the shares. These discount
rates were 13.5% for XFL and 15.0% for WEAL, the latter higher rate
reflecting WEAL's smaller size and more volatile earnings. This
resulted in a total value for each company of the identifiable
intangible assets that exceeded the carrying values of the
respective companies' goodwill.
The Directors do not consider goodwill to be impaired. The
Directors believe that no reasonably possible change in assumptions
at the year end will cause the value in use to fall below the
carrying value and hence impair the goodwill.
The master franchise agreements are being amortised over 25
years. The period of amortisation remaining at 31 December 2019 was
19 years 10 months.
The brand names under which XFL trades of C J Hole, Parkers and
Ellis & Co have been in existence for between 71 years and 169
years. Management see them as strong brands with significant future
value and has deemed them to have indefinite useful lives as there
is no foreseeable limit to the period over which the assets are
expected to generate net cash inflows for the Group. As a
consequence, management annually assess whether the carrying value
of these brands have been impaired.
The Relief-from-Royalty-Method was used to value the brand
names. Looking at independent research of royalty rates, management
selected pre-tax royalty rates of between 3% and 5% for the above
brand names.
The after tax royalty rates were then applied to the projected
cash flows of each brand. The projected cash flows being the
forecast growth in current revenues using market data through to 31
December 2021. Thereafter projected revenue growth was assumed to
decline linearly to a long-term growth rate of 2.2%. The after tax
cash flows determined through this process were then discounted at
13.5% to determine a value for each brand name. This discount rate
approximated the Company's WACC as the risk profile of the brand
names was seen as commensurate with that of the overall Company.
The values derived exceeded their carrying values.
The Directors believe that no reasonably possible change in
assumptions at the year end will cause the value in use of the
brands names CJ Hole, Parkers and Ellis & Co to fall below
their carrying values and hence impair their intangible values.
The Whitegates brand was valued in a similar manner and deemed
to have an immaterial value when the acquisition was made
principally due to its lack of profitability over preceding years.
It is therefore not recognised separately.
Business combination completed in September 2016
Goodwill is assessed for impairment by comparing the carrying
value to the value in use calculations. The value in use of the
goodwill arising on the acquisition of EweMove Sales & Lettings
Ltd ("ESL") is based on the cash flows derived from the actual
revenues and operating margins for 2019 and projections through to
31 December 2024. Thereafter projected revenue growth was assumed
to be 2.2% per annum.
A period of projected cash flows exceeding 5 years was deemed
appropriate because the business has only been operating for 6
years, is continuing to recruit relatively high levels of new
franchisees, each new franchisee should grow significantly in the
first 5 years of operation and it has yet to develop the
operational efficiencies of a mature franchisor.
The revenue growth rates used in the valuation range from 14% in
FY20 to 4% in FY24.
The cash flows arising were discounted by the weighted average
cost of capital being 13.77% which included a small companies' risk
premium to allow for factors such as illiquidity in the shares.
This resulted in the value in use exceeding the carrying value of
the goodwill and separately identifiable intangible assets. The
enterprise's overall value exceeds the cash generating unit's
carrying value.
The useful life of the master franchise agreement was assessed
as 15 years and remains unchanged. The period of amortisation
remaining at 31 December 2019 was 11 years 8 months.
The remaining useful life of the brand name was also reviewed.
It continues to attract and recruit the same level of franchisees
as in previous years and to attract higher numbers of customers.
Given these 2 factors the remaining useful life of the brand was
considered to be unaltered at 21 years. The period of amortisation
remaining at 31 December 2019 was 17 years and 8 months.
The carrying value of EweMove the identified cash generating
unit, was GBP9.6m at 31 December 2019 whereas the recoverable
amount was assessed to be GBP12.2m at the same date. Headroom of
GBP2.6m therefore existed at the year end.
The following table reflects the level of movements required in
revenue or costs which could result in a potential impairment per
the value in use calculation of goodwill. A further percentage
(fall)/increase, of the magnitude indicated in the table below, in
any one of the key assumptions set out above would result in a
removal of the headroom in the value in use calculation for
goodwill in 2019. Thus, if the discount rate increased by 31% to
18%, an impairment change would result against goodwill, all other
assumptions remaining unchanged.
Assumption Judgement Sensitivity
----------------------- ------------------------------------------- -----------
Discount rate As indicated above the rate used is 13.77% 31%
The range of growth rates for FY20 to FY25
Revenue - FY20 to FY25 are stated above (27%)
Direct costs - all
years Assumed to be 24% of revenue for all years 42%
Assumed to be 48% of revenue in FY20 and
Indirect costs - all then decline linearly to 38% of revenue
years in FY23 onwards 31%
Direct and indirect As indicated above for direct and indirect
costs - all years costs 18%
----------------------- ------------------------------------------- -----------
Goodwill and indefinite life intangible assets have been
allocated for impairment testing purposes to the following cash
generating units.
The carrying values are as follows:
Goodwill Brands
-------------------- ----------------
2019 2018 2019 2018
GBP GBP GBP GBP
--------------------------------- --------- --------- ------- -------
Xperience Franchising Limited 912,716 912,716 571,000 571,000
Whitegates Estate Agency Limited 400,501 400,501 - -
Martin & Co (UK) Limited 75,000 75,000 - -
EweMove Sales & Lettings Ltd 5,837,943 5,837,943 - -
--------------------------------- --------- --------- ------- -------
7,226,160 7,226,160 571,000 571,000
--------------------------------- --------- --------- ------- -------
Website costs included in technology
In 2017 new websites were launched for each of the 5 traditional
brands. The costs associated with these websites have been
capitalised as intangible assets as the purpose of the websites is
to generate leads and revenue for the network.
Company
No goodwill or customer lists exist in the Parent Company.
16. Property, plant and equipment
Group
Fixtures
Short leasehold Office &
improvements equipment fittings Total
GBP GBP GBP GBP
--------------------------------- --------------- ---------- --------- -------
Cost
Brought forward 1 January 2018 37,034 107,885 157,124 302,043
Additions - 26,522 3,983 30,505
Disposals - (4,067) - (4,067)
--------------------------------- --------------- ---------- --------- -------
Carried forward 31 December 2018 37,034 130,340 161,107 328,481
Additions - 7,380 580 7,960
Carried forward 31 December 2018 37,034 137,720 161,687 336,441
--------------------------------- --------------- ---------- --------- -------
Depreciation
Brought forward 1 January 2018 21,872 53,125 117,780 192,777
Charge for year 3,703 19,554 10,159 33,416
Disposals - (1,296) - (1,296)
--------------------------------- --------------- ---------- --------- -------
Carried forward 31 December 2018 25,575 71,383 127,939 224,897
Charge for year 3,703 20,688 9,598 33,989
Carried forward 31 December 2019 29,278 92,071 137,537 258,886
--------------------------------- --------------- ---------- --------- -------
Net book value
At 31 December 2019 7,756 45,649 24,150 77,555
--------------------------------- --------------- ---------- --------- -------
At 31 December 2018 11,459 58,957 33,168 103,584
--------------------------------- --------------- ---------- --------- -------
17. Leases
The Group's has operating leases for its office premises in
Bournemouth and Cleckheaton. Under IFRS16, which was adopted on 1
January 2019 these operating leases are accounted for by
recognising a right-of-use asset and a lease liability, there has
been no restatement of comparative figures. For an explanation of
the transitional requirements that were applied as at 1 January
2019 see note 2a.
Right-of-use assets
Land and
Buildings Total
GBP GBP
--------------------------------- ---------- --------
At 1 January 2019 74,523 74,523
Additions 54,826 54,826
Amortisation (54,769) (54,769)
Carried forward 31 December 2019 74,580 74,580
---------------------------------- ---------- --------
Lease liabilities
Land and
Buildings Total
GBP GBP
--------------------------------- ---------- --------
At 1 January 2019 79,456 79,456
Additions 54,133 54,133
Interest expenses 2,990 2,990
Lease payments (58,830) (58,830)
Carried forward 31 December 2019 77,749 77,749
---------------------------------- ---------- --------
Maturity analysis of lease liabilities as at 31 December
2019:
Up to Between Between Between
3 months 3 and 12 1 and 2 2 and 5
months years years
GBP GBP GBP GBP
------------------ --------- --------- -------- --------
Lease liabilities 16,050 36,610 18,755 6,334
------------------ --------- --------- -------- --------
The following table reconciles the minimum lease commitments
disclosed in the Group's 31 December 2018 annual financial
statements to the amount of lease liabilities recognised on 1
January 2019:
1 January
2019
GBP
------------------------------------------------ ---------
Minimum lease commitments at 31 December
2018 81,200
Effect of discounting using incremental
borrowing rate at date of initial application (1,744)
Lease liability at 1 January 2019 79,456
-------------------------------------------------- ---------
18. Prepaid assisted acquisitions support
Group
Total
GBP
----------------------------------- -------
Cost
Brought forward 1 January 2018 325,792
Additions 250,085
Disposals -
Carried forward 31 December 2018 575,877
Additions 386,332
Disposals (8,071)
Carried forward 31 December 2019 954,138
-------------------------------------- -------
Amortisation
Brought forward 1 January 2018 33,340
Charge for year - to revenue 61,492
Charge for year - to cost of sales 27,209
Carried forward 31 December 2018 122,041
Charge for year - to revenue 119,457
Charge for year - to cost of sales 54,692
Carried forward 31 December 2019 296,190
-------------------------------------- -------
Net book value
At 31 December 2019 657,948
-------------------------------------- -------
At 31 December 2018 453,836
-------------------------------------- -------
Cashback and broker's commission is presented as prepaid
assisted acquisitions support
The additions represent sums provided to franchisees that have
made qualifying acquisitions to grow their lettings' portfolios.
The cashback sum provided is based on a calculation of the
estimated increase in MSF as a result of the acquisition and the
sum provided for broker's commission is based on the charge payable
to the broker. In providing these sums the Group ensures that
franchisees are contractually bound to the relevant franchisor for
a period in excess of that required for the economic benefits to
exceed the sums provided.
Company
No prepaid assisted acquisitions support exists in the Parent
Company.
19. Investments
Company
Shares
in Group
undertakings
GBP
----------------------------------------------------- -------------
Cost
At 1 January 2018 33,776,075
Capital contribution to subsidiaries - share options 27,811
At 31 December 2018 33,803,886
Capital contribution to subsidiaries - share options 95,778
----------------------------------------------------- -------------
At 31 December 2019 33,899,664
----------------------------------------------------- -------------
Net book value
At 31 December 2019 33,899,664
----------------------------------------------------- -------------
At 31 December 2018 33,803,886
----------------------------------------------------- -------------
The Property Franchise Group PLC was incorporated on 7 October
2013. On the 10 December 2013 a share for share exchange
acquisition took place with Martin & Co (UK) Limited;
17,990,000 ordinary shares in The Property Franchise Group PLC were
exchanged for 100% of the issued share capital in Martin & Co
(UK) Limited.
On 31 October 2014 the Company acquired the entire issued share
capital of Xperience Franchising Limited and Whitegates Estate
Agency Limited for a consideration of GBP6,110,284.
On 5 September 2016 the Company acquired the entire issued share
capital of EweMove Sales & Lettings Ltd, and its dormant
subsidiary Ewesheep Ltd, for an initial consideration of GBP8m. Of
the total consideration, GBP2.1m represented contingent
consideration, of which GBP0.5m was paid out on 30 July 2017 and
GBP0.5m was paid out on 31 December 2017. No further sums are
due.
Martin & Co (UK) Limited, Xperience Franchising Limited,
Whitegates Estate Agency Limited, EweMove Sales & Lettings Ltd
and Ewesheep Ltd are exempt from the requirements of the Companies
Act 2006 relating to the audit of accounts under section 479A of
the Companies Act 2006.
At the year-end The Property Franchise Group PLC has guaranteed
all liabilities of Martin & Co (UK) Limited, Xperience
Franchising Limited, Whitegates Estate Agency Limited and EweMove
Sales & Lettings Ltd. The value of the contingent liability
resulting from this guarantee is unknown at the year-end.
The carrying value of the investment in EweMove has been
considered for impairment through value in use calculations and it
was determined that no impairment was required in the year ended 31
December 2019.
The carrying values of the other investments (all companies
except for EweMove) have been considered for impairment and it has
been determined that the value of the discounted future cash
inflows exceeds the carrying value. Thus, there is no impairment
charge.
The Company's investments at the balance sheet date in the share
capital of companies include the following, which all have their
registered offices at the same address as the Company:
Subsidiaries
% ownership and
Share class voting rights Country of incorporation
------------------------ ----------- --------------- ------------------------
Martin & Co (UK) Limited Ordinary 100 England
Xperience Franchising
Limited Ordinary 100 England
Whitegates Estate Agency
Limited Ordinary 100 England
EweMove Sales & Lettings
Ltd Ordinary 100 England
Ewesheep Ltd* Ordinary 100 England
MartinCo Limited Ordinary 100 England
------------------------ ----------- --------------- ------------------------
* indirectly owned
20. Trade and other receivables
Group Company
-------------------- ----------------
2019 2018 2019 2018
GBP GBP GBP GBP
---------------------------------------------------- --------- --------- ------- -------
Trade receivables 233,601 217,040 2,172 3,191
Less: provision for impairment of trade receivables (153,814) (103,574) - -
---------------------------------------------------- --------- --------- ------- -------
Trade receivables - net of impairment provisions 79,787 113,466 2,172 3,191
Loans to franchisees 78,411 36,523 - -
Other receivables 202,607 8,539 200,137 5,556
Amounts due from Group undertakings - - - 160,782
Prepayments and accrued income 1,122,204 937,746 29,609 23,011
Tax receivable - - 189,985 168,980
---------------------------------------------------- --------- --------- ------- -------
1,483,009 1,096,274 421,903 361,520
---------------------------------------------------- --------- --------- ------- -------
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses using a lifetime expected credit loss
provision for trade receivables. To measure expected credit losses
on a collective basis, trade receivables are grouped based on
similar credit risk and aging. The expected loss rates are based on
the Group's historical credit losses experienced over the previous
year. Forward looking factors are considered to the extent that
they are deemed material.
The Group is entitled to the revenue by virtue of the terms in
the franchise agreements and can force the sale of a franchise to
recover a debt if necessary.
Ageing of trade receivables
The following is an analysis of trade receivables that are past
due date but not impaired. These relate to a number of customers
for whom there is no recent history of defaults. The ageing
analysis of these trade receivables is as follows:
2019 2018
GBP GBP
---------------------------------------------- ------ ------
Group
Not more than 3 months 33,634 70,149
More than 3 months but not more than 6 months - 18,080
More than 6 months but not more than 1 year - 4,585
---------------------------------------------- ------ ------
33,634 92,814
---------------------------------------------- ------ ------
The Directors consider that the carrying value of trade and
other receivables represents their fair value.
The Group does not hold any collateral as security for its trade
and other receivables.
In the year ended 31 December 2019 the Group made two new loans
to franchisees. Loan 1 was for GBP50k and is secured by way of a
fixed and floating charge over their assets. At the 31 December
2019 GBP50k was outstanding in relation to this loan. Capital
repayments will commence 12 months from issue. Loan 2 for GBP14k
which is secured by a personal guarantee. At the 31 December 2019
GBP13k was outstanding in relation to this loan.
In a prior year a loan was made to another franchisee for GBP30k
and as at 31 December 2019 GBP16k (2018: GBP23k) was outstanding in
relation to this loan.
Included within "Prepayments and accrued income" is accrued
income of GBP704k (2018: GBP663k) in relation to Management Service
Fees for some of our brands that are invoiced at the beginning of
the month following the month to which they relate.
21. Called up share capital
2019 2018
------------------- -------------------
Number GBP Number GBP
------------------------------------------- ---------- ------- ---------- -------
Group
Authorised, allotted issued and fully paid
ordinary shares of 1p each 25,822,750 258,228 25,822,750 258,228
------------------------------------------- ---------- ------- ---------- -------
Company
Authorised, allotted issued and fully paid
ordinary shares of 1p each 25,822,750 258,228 25,822,750 258,228
------------------------------------------- ---------- ------- ---------- -------
22. Share premium
Share Share
Number capital premium
of shares GBP GBP
----------------------------------------- ---------- -------- ---------
At 31 December 2018 and 31 December 2019 25,822,750 258,228 4,039,800
----------------------------------------- ---------- -------- ---------
23. Other reserves
Share-based Other reserve
Merger payment
reserve reserve GBP Total
GBP GBP GBP
------------------------------------- ---------- ----------- ------------- ----------
Group
1 January 2018 2,796,984 137,020 - 2,934,004
Share-based payment charge - 49,857 - 49,857
------------------------------------- ---------- ----------- ------------- ----------
1 January 2019 2,796,984 186,877 - 2,983,861
Share-based payment charge - 441,709 - 441,709
Deferred tax on share-based payments - - 81,322 81,322
------------------------------------- ---------- ----------- ------------- ----------
31 December 2019 2,796,984 628,586 81,322 3,506,892
------------------------------------- ---------- ----------- ------------- ----------
Company
1 January 2018 20,786,884 137,020 - 20,923,904
Share-based payment charge - 49,857 - 49,857
------------------------------------- ---------- ----------- ------------- ----------
1 January 2019 20,786,884 186,877 - 20,973,761
Share-based payment charge - 441,709 - 441,709
Deferred tax on share-based payments - - 81,322 81,322
------------------------------------- ---------- ----------- ------------- ----------
31 December 2019 20,786,884 628,586 81,322 21,496,792
------------------------------------- ---------- ----------- ------------- ----------
Merger reserve
Acquisition of Martin & Co (UK) Limited
The acquisition of Martin & Co (UK) Limited by The Property
Franchise Group PLC did not meet the definition of a business
combination and therefore, falls outside of the scope of IFRS 3.
This transaction was in 2013 and accounted for in accordance with
the principles of merger accounting.
The consideration paid to the shareholders of the subsidiary was
GBP17,990,000 (the value of the investment). As these shares had a
nominal value of GBP179,900, the merger reserve in the Company is
GBP17,810,000.
On consolidation the investment value of GBP17,990,000 is
eliminated so that the nominal value of the shares remaining is
GBP179,900 and, as there is a difference between the Company value
of the investment and the nominal value of the shares purchased in
the subsidiary of GBP100, this is also eliminated, to generate a
merger reserve in the Group of GBP179,800.
Acquisition of EweMove Sales & Lettings Ltd
The consideration for the acquisition of EweMove Sales &
Lettings Ltd included the issue of 2,321,550 shares to the vendors
at market price. A merger reserve of GBP2,796,984 is recognised in
the Group and the Company being the difference between the value of
the consideration and the nominal value of the shares issued as
consideration.
Share-based payment reserve
The share-based payments reserve comprises charges made to the
income statement in respect of share-based payments and related
deferred tax impacts under the Group's equity compensation
scheme.
24. Borrowings
Group Company
------------- -------------
2019 2018 2019 2018
GBP GBP GBP GBP
------------------------------------------ ---- ------- ---- -------
Repayable within 1 year:
Bank loan (term loan) - 900,000 - 900,000
Repayable in more than 1 year:
Bank loan (term loan) - 700,000 - 700,000
Bank loans due after more than 1 year are
repayable as follows:
Between 1 and 2 years - 700,000 - 700,000
As at 31 December 2019 the Company had no loans outstanding.
During the year all outstanding loans were repaid.
In 2018 the Company had a loan facility of GBP5m, and had drawn
down 2 term loans under this facility, referred to below as 'Loan
1' and 'Loan 2'. The loans were secured with a fixed and floating
charge over the Group's assets and a cross guarantee across all
companies in the Group.
Loan 1 - GBP2.5m drawn down on 30 October 2014 and was repayable
over 5 years in equal instalments. Interest was charged quarterly
on the outstanding amount and the rate is fixed during the term at
4.08%. The loan was repaid in full on 30 October 2019
Loan 2 - GBP2m drawn down on 5 September 2016 and was repayable
over 5 years in equal instalments. Interest was charged quarterly
on the outstanding amount; the rate is variable during the term at
2.5% above LIBOR. The loan was repaid in full on 24 October
2019.
The cash outflow for borrowings arising from financing
activities during the year was GBP1.6m (2018: GBP0.9m).
25. Trade and other payables
Group Company
-------------------- ---------------
2019 2018 2019 2018
GBP GBP GBP GBP
----------------------------------- --------- --------- ------- ------
Trade payables 741,576 164,181 38,659 15,596
Other taxes and social security 575,600 619,119 - -
Other payables 118,546 28,113 - -
Accruals and deferred income 564,453 665,406 22,839 48,967
Amounts owed to Group undertakings - - 113,989 -
----------------------------------- --------- --------- ------- ------
2,000,175 1,476,819 175,487 64,563
----------------------------------- --------- --------- ------- ------
The Directors consider that the carrying value of trade and
other payables approximates their fair value.
Included in "Accruals and deferred income" is deferred income of
GBP7k (2018: GBP36k) in relation to charges levied on franchisees
in advance and EweMove licence fees.
No trade payables at 31 December 2019 were overdue for payment.
One supplier invoiced a full year's worth of costs at the end of
the year amounting to GBP356k and one supplier invoiced its
software licence costs of GBP200k early (this is matched by a
prepayment of GBP200k).
26. Deferred tax
Group Company
------------------------ ---------------
2019 2018 2019 2018
GBP GBP GBP GBP
---------------------------------- ----------- ----------- ------- ------
Balance at beginning of year (1,372,196) (1,467,598) 30,101 23,318
Movement during the year:
Statement of changes in equity 81,322 - 81,322 -
Statement of comprehensive income 150,647 95,402 75,091 6,783
Other - - 28,779 -
Balance at end of year (1,140,227) (1,372,196) 215,293 30,101
---------------------------------- ----------- ----------- ------- ------
Deferred taxation has been provided as follows:
Group Company
------------------------ ---------------
2019 2018 2019 2018
GBP GBP GBP GBP
------------------------------- ----------- ----------- ------- ------
Accelerated capital allowances (18,956) (5,895) 28,779 -
Share-based payments 186,514 30,101 186,514 30,101
Acquired business combinations (1,307,785) (1,396,402) - -
(1,140,227) (1,372,196) 215,293 30,101
------------------------------- ----------- ----------- ------- ------
27. Financial instruments
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.
There have been no substantive changes in the Group's exposure
to financial instrument risks, its objectives, policies and
processes for managing those risks or the methods used to measure
them from previous periods unless otherwise stated in this
note.
Principal financial instruments
The principal financial instruments used by the Group and
Company, from which financial instrument risk arises, are as
follows:
-- Receivables
-- Loans to franchisees
-- Cash at bank
-- Trade and other payables
-- Borrowings
Financial assets
Financial assets measured at amortised cost:
Group Company
-------------------- --------------------
2019 2018 2019 2018
GBP GBP GBP GBP
---------------------------------- --------- --------- --------- ---------
Loans and receivables:
Trade receivables 79,787 113,466 2,172 3,191
Loans to franchisees 78,411 36,523 - -
Other receivables 202,607 8,539 200,137 -
Cash and cash equivalents 4,011,463 3,857,988 1,073,774 1,278,026
Accrued income 703,774 663,089 - -
Amount owed by Group undertakings - - - 70,428
5,076,042 4,679,605 1,276,083 1,351,645
---------------------------------- --------- --------- --------- ---------
Financial liabilities
Financial liabilities measured at amortised cost:
Group Company
-------------------- ------------------
2019 2018 2019 2018
GBP GBP GBP GBP
----------------------------------- --------- --------- ------- ---------
Other financial liabilities:
Bank loan - 1,600,000 - 1,600,000
Trade payables 741,576 164,181 38,659 15,596
Other payables 118,546 28,112 - -
Accruals 557,951 629,200 22,839 48,969
Amounts owed to Group undertakings - - 113,989 -
----------------------------------- --------- --------- ------- ---------
1,418,073 2,421,493 175,487 1,664,565
----------------------------------- --------- --------- ------- ---------
Maturity analysis of financial liabilities
Group Company
-------------------- ------------------
2019 2018 2019 2018
GBP GBP GBP GBP
---------------------------------- --------- --------- ------- ---------
In less than one year:
Bank loan - 940,519 - 940,519
Trade payables 741,576 164,181 38,659 15,596
Other payables 118,546 28,112 - -
Accruals 557,951 629,200 22,839 48,969
Amount owed to Group undertakings - - 113,989 -
---------------------------------- --------- --------- ------- ---------
1,418,073 1,762,012 175,487 1,005,084
---------------------------------- --------- --------- ------- ---------
In more than one year:
Bank loan - 722,715 - 722,715
---------------------------------- --------- --------- ------- ---------
- 722,715 - 722,715
---------------------------------- --------- --------- ------- ---------
All of the financial assets and liabilities above are recorded
in the statement of financial position at amortised cost. The above
maturity analysis amounts reflect the contractual undiscounted cash
flows, including future interest charges, which may differ from
carrying values of the liabilities at the reporting date.
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies and, whilst
retaining ultimate responsibility for them, it has delegated the
authority for designing and operating processes that ensure the
effective implementation of the objectives and policies to the
finance function. The Board receives monthly reports from the
finance function through which it reviews the effectiveness of the
processes put in place and the appropriateness of the objectives
and policies it sets.
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:
Capital management policy
The Board considers capital to be the carrying amount of equity
and debt. Its capital objective is to maintain a strong and
efficient capital base to support the Group's strategic objectives,
provide progressive returns for shareholders and safeguard the
Group's status as a going concern. The principal financial risks
faced by the Group are liquidity risk and interest rate risk. The
Directors review and agree policies for managing each of these
risks. These policies remain unchanged from previous years.
The Board monitors a broad range of financial metrics including
growth in MSF, operating margin, EBITDA, return on capital
employed, and balance sheet gearing.
It manages the capital structure and makes changes in light of
changes in economic conditions. In order to maintain or adjust the
capital structure, it may adjust the amount of dividends paid to
shareholders.
Credit risk
Credit risk is the risk of financial loss to the Group if a
franchisee or counterparty to a financial instrument fails to meet
its contractual obligations. It is Group policy to assess the
credit risk of new franchisees before entering contracts and to
obtain credit information during the franchise agreement to
highlight potential credit risks.
The highest risk exposure is in relation to loans to franchises
and their ability to service their debt. The Directors have
established a credit policy under which franchisees are analysed
for creditworthiness before a loan is offered. The Group's review
includes external ratings, when available, and in some cases bank
references. The Group does not consider that it currently has
significant concentration of credit risk with loans extended to
franchisees of GBP78k.
Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the finance charges and principal repayments on its
debt instruments. It is the risk that the Group will encounter
difficulty in meeting its financial obligations as they fall
due.
In order to maintain liquidity to ensure that sufficient funds
are available for ongoing operations and future development, the
Group monitors forecast cash inflows and outflows on a monthly
basis.
Interest rate risk
The Group's exposure to changes in interest rate risk relates
solely to interest earning financial assets as the Group has repaid
all it's borrowings in the year.
Fair values of financial instruments
The fair value of financial assets and liabilities is considered
the same as the carrying values.
28. Share-based payments
Enterprise Management Incentive ("EMI") Share Option Scheme
2017
During the year ended 31 December 2017 the Company implemented
an Enterprise Management Incentive scheme as part of the
remuneration for all staff and granted options over 2,290,000
ordinary shares at an exercise price of GBP0.01 each.
The options over 2,290,000 ordinary shares were granted to
different classes of employees at different times as follows:
1. Executive Directors were granted options over 1,500,000
ordinary shares on 9 June 2017
2. Staff were granted options over 185,000 ordinary shares on 20
July 2017
3. Leadership team recruits in FY17 were granted options over
605,000 ordinary shares on 14 September 2017
During the year ended 31 December 2017 an option was forfeited
over 150,000 shares following the departure of an employee. At 31
December 2017 options over 2,140,000 ordinary shares existed.
During the year ended 31 December 2018 options over 175,000
shares were forfeited following the departure of employees. At 31
December 2018 options over 1,965,000 ordinary shares existed.
These options have a vesting condition based on EPS targets for
the year ended 31 December 2019. The share-based payment charge
recognised in the year ended 31 December 2017 in respect of these
options was reversed in the year ended 31 December 2018 because
none of these options were expected to vest.
Enterprise Management Incentive ("EMI") Share Option Scheme
2018
On 1 August 2018 employees with options in the EMI Share Option
Scheme 2017 were granted options in a parallel scheme, over the
same number of shares, and with the same EPS target, but these are
exercisable 1 year later, after the approval of the financial
statements for the year ending 2020. Participants will only be able
to exercise one of their options. The total number of parallel
options granted was 1,965,000.
On 1 August 2018 new employees who did not have options in the
EMI Share Option Scheme 2017 were granted options over 155,000
shares at an exercise price of GBP0.01 each.
During the year ended 31 December 2019 options over 95,000 were
granted and options over 170,000 were forfeited.
At 31 December 2019 options over 2,045,000 (2018: 2,120,000)
ordinary shares existed.
These options have a vesting condition based on an EPS target
for the year ended 31 December 2020.
The following principal assumptions were used in the valuation
of each of the grants made in the year ended 31 December 2019 using
the Black-Scholes option pricing model:
Assumptions
Date of grant 31/01/2019 22/05/2019 06/08/2019
----------------------- ---------- ----------- ----------
Date of vesting 30/04/2021 30/04/2021 30/04/2021
----------------------- ---------- ----------- ----------
Share price at grant GBP1.215 GBP1.775 GBP1.735
----------------------- ---------- ----------- ----------
Exercise price GBP0.01 GBP0.01 GBP0.01
----------------------- ---------- ----------- ----------
Risk free rate 0.57% 0.57% 0.45%
----------------------- ---------- ----------- ----------
Dividend yield 5.70% 5.70% 4.90%
----------------------- ---------- ----------- ----------
2.25 1.92 1.73 years
Expected life years years
----------------------- ---------- ----------- ----------
Share price volatility 31.00% 31.00% 31.00%
----------------------- ---------- ----------- ----------
The weighted average contractual life remaining of these options
is 1 year and 4 months.
Expected volatility is a measure of the amount by which a share
price is expected to fluctuate during a period. The assumptions
used in valuing each grant are based on the daily historical
volatility of the share price over a period commensurate with the
expected term assumption.
The risk free rate of return is the implied yield at the date of
grant for a zero coupon UK government bond with a remaining term
equal to the expected term of the options.
It's expected that with an exercise price of GBP0.01, should the
EPS condition be met, all holders will exercise as soon as the
options vest. The Group announces its results usually within the
first 10 days of April. So, it has been assumed that all options
will be exercised on 30 April 2021.
EPS is measured as the basic earnings per share excluding any
exceptional income/costs and any share-based payments charges.
Further details can be found in the Directors' remuneration report
on pages 29 and 30 of the Annual Report.
Management has used the budget for FY20 and the market outlook
to determine, at 31 December 2019, the achievement of the EPS
condition.
The estimated fair value of the options over 2,045,000 ordinary
shares at 31 December 2019 was GBP1,189,467. This fair value,
moderated for the extent to which the options are expected to vest,
is spread as a charge between grant and the assumed vesting date.
Accordingly, a share-based payments charge of GBP418,495 has been
recognised in the Statement of Comprehensive Income in the year
ended 31 December 2019, which is the cumulative share-based
payments charge at 31 December 2019 less the cumulative share-based
payments charge recognised at 31 December 2018 of GBP186,877.
Enterprise Management Incentive ("EMI") Share Option Scheme
2019
On 6 August 2019 a new EMI Share Option Scheme 2019 was
introduced and an option over 100,000 ordinary shares at an
exercise price of GBP0.01 each was granted to a director under this
scheme.
This option has a vesting condition based on an EPS target for
the year ended 31 December 2021.
The following principal assumptions were used in the valuation
of the grant made in the year ended 31 December 2019 using the
Black-Scholes option pricing model:
Assumptions
Date of vesting 30/04/2022
----------------------- ----- ----------
Share price at grant GBP1.735
----------------------- ----- ----------
Exercise price GBP0.01
----------------------- ----- ----------
Risk free rate 0.45%
-------------------------------- ----------
Dividend yield 4.90%
-------------------------------- ----------
Expected life 2.73 years
----------------------- ----- ----------
Share price volatility 31.00%
-------------------------------- ----------
The weighted average contractual life remaining of this option
is 2 year and 4 months.
Expected volatility is a measure of the amount by which a share
price is expected to fluctuate during a period. The assumptions
used in valuing each grant are based on the daily historical
volatility of the share price over a period commensurate with the
expected term assumption.
The risk free rate of return is the implied yield at the date of
grant for a zero coupon UK government bond with a remaining term
equal to the expected term of the options.
It's expected that with an exercise price of GBP0.01, should the
EPS condition be met, the holder will exercise as soon as the
option vests. The Group announces its results usually within the
first 10 days of April. So, it has been assumed that the options
will be exercised on 30 April 2022.
EPS is measured as the basic earnings per share excluding any
exceptional income/costs and any share-based payments charges.
Further details can be found in the Directors' remuneration report
on pages 29 and 30 of the Annual Report.
Management has used the budget for FY20, the market outlook and
projections for FY21 to determine, at 31 December 2019, the
achievement of the EPS condition.
The estimated fair value of the option over 100,000 ordinary
shares at 31 December 2019 was GBP149,600. This fair value,
moderated for the extent to which the option is expected to vest,
is spread as a charge between grant and the assumed vesting date.
Accordingly, a share-based payments charge of GBP23,214 has been
recognised in the Statement of Comprehensive Income in the year
ended 31 December 2019.
Enterprise Management Incentive ("EMI") Share Option Scheme
2013
At 31 December 2019 all the conditions for the scheme had been
fulfilled.
The maximum term of the vested but unexercised option granted is
10 years from the grant date. The option allows the holder to
purchase 64,800 ordinary shares at an exercise price stated of
GBP1.385.
Movement in the number of ordinary shares under options for all
schemes was as follows:
2019 2018
GBP GBP
-------------------- --------------------
Weighted Weighted
average average
exercise exercise
price price
----------------------------------------- --------- --------- --------- ---------
Number of share options
Outstanding at the beginning of the year 2,184,800 GBP0.0508 2,204,800 GBP0.0504
Forfeited (170,000) GBP0.01 (175,000) GBP0.01
Granted 195,000 GBP0.01 155,000 GBP0.01
Outstanding at the end of the year 2,209,800 GBP0.0503 2,184,800 GBP0.0508
----------------------------------------- --------- --------- --------- ---------
The outstanding options at 31 December 2019 comprised 2,145,000
options with an exercise price of GBP0.01 and 64,800 options with
an exercise price of GBP1.385. The 64,800 options were exercisable
at 31 December 2019 and the remaining options were not yet
exercisable.
The outstanding options at 31 December 2018 comprised 2,120,000
options with an exercise price of GBP0.01 and 64,800 options with
an exercise price of GBP1.385. The 64,800 options were exercisable
at 31 December 2018 and the remaining options were not yet
exercisable.
The weighted average remaining contractual life of options is
1.5 years (2018: 2.5 years).
29. Related party disclosures
Transactions with Directors
Dividends
During the year the total interim and final dividends paid to
the Directors and their spouses were as follows:
2019 2018
GBP GBP
------------------------------------------------------- ------- -------
Interim and final dividend (ordinary shares of GBP0.01
each)
Richard Martin 842,536 838,556
Ian Wilson 127,221 115,378
Paul Latham 4,300 1,950
David Raggett 19,556 16,957
------------------------------------------------------- ------- -------
993,613 972,841
------------------------------------------------------- ------- -------
Directors' emoluments
Included within the remuneration of key management and personnel
detailed in note 9, the following amounts were paid to the
Directors:
2019 2018
GBP GBP
---------------------- ------- -------
Wages and salaries 729,624 715,502
Social security costs 92,363 90,224
Pension contribution 20,000 10,703
---------------------- ------- -------
841,987 816,429
---------------------- ------- -------
Details of Directors' interests in share options are disclosed
in the Directors' remuneration report on pages 29 and 30 of the
Annual Report.
30. Events after the reporting date
In December 2019 we decided to offer Mark Graves the role of CEO
of our financial services division after an introduction in the
Spring of 2019. Mark has 30 years of experience in financial
services provision to the residential property sector. He has held
roles as Managing Director of Sesame Bankhall Group, Head of
Network at Pink Network and Managing Director of Linear Financial
Services. Mark was in the process of buying Auxilium Partnership
Limited from his partner and we offered to lend him GBP0.2m
repayable by 31 March 2020 at the latest. This loan was made in
December 2019 and settled through equity in the acquired business
in January 2020. The outflow is shown in the Consolidated Statement
of Cash Flows under investing activities on page 41.
On 1 January 2020 Mark took up his role with us and we began
negotiations to affect the sale of Auxilium Partnership Limited to
our Group. We decided to create a financial services holding
company to hold all our investments into financial services. On 7
January 2020 that new company, Aux Group Limited (registered in
England and Wales under company number 12389325) was incorporated.
The Property Franchise Group Plc took an 85% holding in its share
capital. The remaining 15% was acquired by Mark Graves. On 7
January 2020 Aux Group Limited acquired 85% of the share capital of
Auxilium Partnership Limited (registered in England and Wales under
company number 11703495) from Mark Graves for GBP0.2m, which is
anticipated to be presented as goodwill in the financial statements
for the year ending 31 December 2020. Thus, the loan was repaid in
full. Aux Group Limited has an option to buy Mark's remaining 15%
shareholding in Auxilium Partnership Limited.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SDIFASESSEFD
(END) Dow Jones Newswires
March 31, 2020 02:00 ET (06:00 GMT)
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