TIDMTPFG
RNS Number : 6587W
Property Franchise Group PLC (The)
27 April 2021
27 April 2021
THE PROPERTY FRANCHISE GROUP PLC
("TPFG", the "Company" or the "Group")
Final Results and Q1 Trading Update
Resilient business model delivers strong growth in profit
The Property Franchise Group PLC, the leading property
franchisor in the UK, is pleased to announce its full year results
for the year ended 31 December 2020 ("FY20"). In addition, the
Group also provides an update on trading in Q1 2021.
Financial highlights FY20
-- Network income increased to GBP94m (2019: GBP93m)
-- Group revenue increased to GBP11.5m (2019: GBP11.4m)
-- Management Service Fees of GBP9.4m (2019: GBP9.7m)
o 70% Lettings and 30% Sales
-- Adjusted EBITDA* increased 8% to GBP5.8m (2019: GBP5.3m)
-- Profit before tax up 20% to GBP4.8m (2019: GBP4.0m)
-- Operating margin of 42% (2019: 35%)
-- Dividends paid for FY20 of 8.7p (2019: 2.6p)
-- The Group maintained a strong balance sheet, with net cash of
GBP8.8m at the year-end (2019: net cash GBP4.0m). Net debt at 31
March 21 was GBP7.3m.
Operational highlights
-- Sales agreed pipelines at year-end:
o High street-led brands' almost double December 2019 at
GBP10.3m (2019: GBP5.2m)
o EweMove's more than double December 2019 at GBP5.6m (2019:
GBP2.5m)
-- 11 assisted portfolio acquisitions by franchisees, adding:
o 1,305 managed properties; and
o GBP0.1m of annualised MSF
-- Managing 58,000 rental properties (2019: 58,000)
-- Strengthened senior management team to provide franchisees with enhanced support
-- Commenced negotiations for the acquisition of Hunters.
Effective completion was post-period end on 19 March 2021
-- Government Covid-19 financial support received of GBP0.09m
under the Coronavirus Job Retention Scheme to be repaid this
month
Q1 Trading update
TPFG high street-led brands
-- Network income increased 13% to GBP23m (2020: GBP20m)
-- Sales agreed pipeline on 31 March up 45% on prior year at GBP9.4m (2020: GBP6.4m)
-- Sales exchanges up 49% on prior year at 2,553 (2020: 1,594)
-- Managing 55,000 rental properties on 31 March (2020: 56,000)
-- 7 new satellite offices linked to operational 'hubs' (2020: nil)
-- Total offices on 31 March were 235 (2020: 241)
EweMove
-- Network income more than doubled to GBP5m (2020: GBP2m)
-- Sales agreed pipeline on 31 March up 120% on prior year at 1,976 properties (202: 897)
-- Sales completions up 102% on prior year at 1,229 (2020: 607)
-- Managing 3,000 rental properties on 31 March (2020: 2,000)
-- Franchise sales significantly up year on year at 20 (2020: 3)
-- Total offices 135 (2020: 123)
Hunters
-- Network income increased 69% to GBP16m (2020: GBP10m)
-- Sales agreed pipeline on 31 March up 45% on prior year at GBP16.3m (2020: GBP11.3m)
-- Sales exchanges up 65% on prior year at 4,077 (2020: 2,467)
-- Managing 15,000 rental properties on 31 March (2020: 14,000)
-- Total offices 210 (2020: 204)
*Before exceptional items and share-based payment charges
Chief Executive Officer, Gareth Samples, commented:
"2020 and the year to date has seen the Group achieve many
significant milestones and I am very pleased with the results that
we have delivered. Whilst navigating the global pandemic we were
resourceful in protecting the business in the first half and had
the right strategy in place to take advantage of the buoyant
housing market throughout the remainder of the year. Our
franchisees have worked incredibly hard throughout the year and I
would like to thank all our network and the central team for their
continued dedication.
"The acquisition of Hunters post-period end and the strategic
partnership announced today with LSL has significantly bolstered
our position in the market, and I am excited to see what we can
achieve in the coming year. Looking forward, we have a strengthened
platform to focus on the growth of our Financial Services
capability, build upon the success of our hybrid offering, EweMove,
and leverage Hunters and TPFG's existing strengths across the
enlarged Group. We are confident that our success will be
underpinned by our unrivalled management team, scale, excellent
stable of brands and strong relationships with our
franchisees."
A video of CEO Gareth Samples providing an overview of the
results is available to watch here:
http://bit.ly/TPFG_FY20_overview
For further information, please contact:
The Property Franchise Group PLC
Gareth Samples, Chief Executive Officer
David Raggett, Chief Financial Officer 01202 405549
Cenkos Securities plc (Nominated Adviser and Broker)
Max Hartley, Callum Davidson
Julian Morse, Alex Pollen, Dale Bellis (Sales) 0207 397 8900
Alma PR
Susie Hudson
Justine James
Harriet Jackson 0203 405 0209
About The Property Franchise Group PLC:
The Property Franchise Group PLC (AIM: TPFG) is the largest
property franchisor in the UK and manages the second largest estate
agency network and portfolio of lettings properties in the UK.
The Company was founded in 1986 and has since grown to a diverse
portfolio of nine brands operating throughout the UK, comprising
longstanding high-street focused brands and a hybrid, no sale no
fee agency.
The Property Franchise Group's brands are Martin & Co,
EweMove, Hunters, CJ Hole, Ellis & Co, Parkers, Whitegates,
Mullucks & Country Properties.
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
It has been a remarkable year for us and our network. Despite
the challenges we all faced because of the Covid-19 pandemic, I am
pleased to report that we have made strong progress as a Group and
achieved a significant improvement in profit before tax, up to
GBP4.8m vs last year's GBP4.0m. We have also delivered revenues
ahead of last year and a host of operational achievements.
I am full of admiration for our franchisees, who have
demonstrated their local leadership skills and leveraged the
strengths of the franchise model to achieve exceptional performance
in the face of adversity. I am also very proud of our head office
teams, who have worked tirelessly to manage many new and complex
situations, providing our network with the highest quality of
support. I would like to take this opportunity to sincerely thank
all our colleagues across the Group.
An effective franchise model requires both franchisee and
franchisor to have a clear understanding of joint goals, ambitions,
and responsibilities. Whilst the disruption of the first lockdown
created a number of challenges, it also presented an opportunity
for us to reset our approach. We moved swiftly to deliver renewed
value to our franchisees. The quality, depth and integrity of the
support the central team provided was outstanding, and franchisees
have been very forthcoming in their gratitude to our response. It
is clear that franchisees see the benefits of being part of a
strong and capable Group.
Board focus during 2020
Responding to the pandemic understandably took up much of our
focus in the early part of the year. The safety of our staff,
franchisees and their customers were our primary concern, followed
closely by the continuation of our franchisees' business activity.
As such, we were quick to roll out equipment and test all systems
to ensure our teams could work remotely, completed ahead of the
first government lockdown. Thanks to our experience of remote
working and established channels of communication, we were able to
ensure franchisees and their staff were fully prepared and
supported throughout.
The Board met 15 times in the year as the circumstances of those
unprecedented and uncharted times dictated. We prioritised
stakeholder engagement, briefing major shareholders on our plans to
navigate the pandemic regularly alongside our usual periodic
presentations to shareholders.
Hunters acquisition and strengthening of our team
Our new CEO, Gareth Samples, joined the Group in February 2020
and formally took up his role in April 2020. He has provided
dynamic leadership during a challenging first year in the role. He
has not only navigated the pandemic, he has also refreshed our
growth strategy and strengthened our operations. On top of this, he
has now led the team on the delivery of a major milestone
post-period end, with the acquisition of Hunters.
The acquisition of Hunters, effective 19(th) March 2021, marks a
step change in scale and moves us significantly further ahead in
the execution of our strategy. With Hunters joining our Group we
have become the UK's largest property franchise business, and
indeed a significant player in the wider estate agency sector.
As part of the acquisition, we were delighted to welcome several
highly experienced and well-regarded new members of the management
into our team. Glynis Frew, previously Chief Executive of Hunters,
and Dean Fielding, formerly a Non-Executive Director of Hunters,
have both joined the TPFG Board, as an Executive Director and an
independent Non-Executive Director respectively. This marks a
considerable bolstering of our team and we know they will bring
significant value to the Group going forward.
Beyond these appointments, and as part of our commitment to our
new strategy, we have also expanded our senior management team with
the creation of a number of new Managing Director roles which
Gareth details further in his statement. The augmented executive
team has quickly built relationships and provided valuable support
to our network, exploring opportunities with franchise owners, and
agreeing courses of action for expanding their businesses in line
with our wider growth ambitions.
Market developments
As with many industries, Covid-19 has prompted an accelerated
rate of change over the last year. The pent-up demand in the
property sector experienced in the second half was fuelled by many
new factors, including new job relocations, the stamp duty holiday
and changing personal finance positions, along with homeowners
reassessing their housing needs during lockdown.
Looking forward, I believe that the housing market represents a
strong investment opportunity. The UK government has demonstrated
that the housing market is integral to a strong economy and that it
will implement initiatives to support its continued strength. We
have now seen the stamp duty holiday extension and announcement of
95% mortgages being offered by lenders, which together with the
onset of a new era of flexible working, gives us confidence that
strong market demand will be maintained for some time.
Our founding brand, Martin & Co, was an early pioneer of
franchising in estate agency, and we are pleased to note that the
model is today firmly established. We believe, as the industry
evolves, it will ultimately become the pre-eminent model and we
intend TPFG to be at the forefront of that evolution.
Dividend
In line with the Board's ongoing focus on cash management, and
similarly to many quoted companies, we did not pay a final dividend
for 2019. However, we were one of the first companies to reinstate
dividends with an interim payment of 2.1 pence per TPFG share in
September 2020. We also decided to pay a second interim dividend,
in lieu of a final dividend for FY 2020, of 6.6 pence on 23
February 2021. Going forward we intend to maintain our progressive
dividend policy.
Furlough repayment
Post-period end and aligned to the current strength of the
business and its balance sheet, the Board made the decision to
repay the GBP0.09m Government Covid-19 financial support received
under the Coronavirus Job Retention Scheme.
Outlook
Trading in the current year has begun well. The primary areas of
growth and focus for us in the year ahead will be the increase in
franchisees, residential sales activity, portfolio acquisitions,
growing our financial services' revenues, improving our digital
support channels and integrating Hunters into the Group.
We go into the period ahead closer to our franchisees than ever
before, and as a result, stronger as a Group. We are confident that
we are very well placed to push forward with our new strategy and
long-standing growth plans.
Richard Martin
Non-Executive Chairman
26 April 2021
Chief Executive's statement
I am delighted to be reporting on The Property Franchise Group's
full year results; the first in my role as Chief Executive Officer.
Since I joined the Group in February 2020, the pandemic has driven
a huge amount of change in our market. However, I am pleased to say
that the Group has navigated the challenges and seized the
opportunities that came with those changes. It has continued to
drive growth and, ultimately, delivered a very strong set of
results. I would like to take this opportunity to thank the entire
team and our franchisees, whose dedication and resourcefulness has
underpinned the year's progress.
Following a resilient performance in the more challenging first
half, momentum built quickly when restrictions were eased in the
summer and the pent-up demand started to flow through. Bolstered
further by the stamp duty holiday initiative, the remainder of the
year saw activity levels remain very high with the Group delivering
record profits in the second half.
We increased our revenue for a seventh consecutive year to
GBP11.5m (FY19: GBP11.4m) thanks to the acquisition of Auxilium
Partnership Ltd and increased our operating margin to 42% (FY19:
35%). The Group achieved a profit before tax of GBP4.8m (FY19:
GBP4.0m). We have remained cash generative throughout the year and
our cash balance increased to GBP8.8m as at December 2020, with net
cash generated from operations of GBP5.4m (FY19: GBP4.7m) The
strength of our balance sheet provided the stability needed to
build further momentum behind our growth strategy.
Strong performance from the high-street led brands
The Group's high-street lettings and estate agency brands
operated by our franchisees delivered a strong performance. Whilst
sales and lettings activities were suspended by the Government from
16 March to 13 May, our franchisees were proactive in responding to
the surge in activity from the pent-up demand following the
re-opening of the housing market. They subsequently delivered a
record year of activity for the Group. Lettings continues to be our
most significant and important source of MSF from these brands
accounting for 79% of total MSF.
Our focus on digital marketing remains key, as it is an
essential tool in running a successful estate and lettings agency
business. Our franchisees' ability to deliver a quick recovery was
in part driven by digital marketing and it remains a key part of
the Group's core strategy for future growth.
As with the wider industry, our franchisees in our high-street
led brands demonstrated that they could adapt to an environment
that observed social distancing guidelines. As our market is driven
by consumer behaviour, we have ensured that we have embraced
digital solutions together as part of their offering to customers'
evolving needs and requirements. Virtual viewings and valuations
are now an established offering that provide efficiencies that can
benefit franchisees and customers alike. We will continue to
enhance our own technology in line with that development.
Hybrid model EweMove thrives
EweMove delivered its best ever half year performance in H2 and
continues to demonstrate the benefits of its unique, hybrid, highly
customer centric and flexible cost-based model.
The hybrid estate agency model continues to be an appealing
option for estate agents and buyers alike. EweMove recruited 11 new
franchisees in the year, despite being temporarily closed to
recruitment for half the year and during a period of significant
uncertainty, demonstrating that it is a highly desirable model for
people who are looking to become franchisees.
During the period, EweMove was awarded 'Best National Sales
Agency' and 'Best National Lettings Agency' at the EA Masters
Awards 2020. These are highly regarded awards in the industry and
one of the highest accolades that the brand could receive. We are
delighted with the recognition the brand is receiving and the
traction it is gaining, which positions it well and supports our
objective of doubling the size of the network in the next two
years.
Our COVID-19 response
With over 330 businesses depending on us to guide and inform
them through an unprecedented period, we responded quickly and
developed a comprehensive approach to maintaining operations and
safeguarding our future. This included getting to grips with the
requirements of the furlough scheme and the other government
support available, advising franchisees on what actions they should
take and working with them to identify how they could reduce costs
as much as possible. Though the second half of the year proved to
be a lot more positive, we continued to guide our franchisees
closely throughout the period and I am proud of the role we played
in supporting each and every franchisee across the year.
Supporting our franchisees
Since joining the Group, one area of key focus for me has been
the level of support we provide to our franchisees. The pandemic
undoubtedly sharpened our focus on strengthening relationships with
our franchisees and accelerated the way in which we went about
implementing changes. We have now made tangible progress and
re-affirmed our internal approach, culture and attitude, clearly
recognising that our purpose as a business, and every individual
role within that, is to support the franchisees and to help them to
become more successful.
In line with this purpose, we enhanced our experienced senior
management team, who are focused on understanding which parts of
the strategy each franchisee is keen to embrace and ultimately, to
help them grow their business. In October we welcomed Eric Walker,
as Managing Director of Martin & Co (South and Scotland)
shortly followed up by the appointment of Gareth Williams as
Managing Director of Martin & Co (Midlands and North). They
join Kate Randall, MD of CJ Hole, Ellis & Co, Parkers and
Whitegates and Nick Neill, MD of EweMove. Finally, Glynis Frew will
continue to lead Hunters as its Managing Director. This represents
an extremely experienced and skilled MD team.
Our franchisees have responded very positively to our commitment
to support them with such a high calibre new team and feedback on
its initial impact has been extremely positive and encouraging. The
Managing Directors are regularly communicating with them about the
opportunities we perceive for their businesses and helping them to
understand the actions needed to realise the opportunities.
Executing on strategic growth opportunities
As part of my recruitment, I was set the task of identifying how
to substantially grow the Group. Having achieved buy in from our
Board and been appointed, I have been keen to implement that growth
strategy held back initially by the pandemic. There are six core
areas of focus, where we believe there is a significant opportunity
to build on existing foundations, many of which will be further
accelerated or enhanced with the acquisition of Hunters in March
2021. The key areas to develop are as follows:
-- Lettings growth
o We intend to continue to grow the portfolio of tenanted
properties managed by our franchise network through acquisition
(our own and assisting franchisees), through more engaging and
informing services for our landlords, and by addressing the causes
of attrition.
-- Develop sales activity in the high street-led brands
o Overall, these brands are missing revenue opportunities by
their focus on lettings. Through the provision of additional
support and training, we believe there is a good opportunity to
increase the level of sales activity executed by our high
street-led brands.
-- Financial services growth
o It is our intention for all our customers to have access to a
full-service lettings and estate agency service, and financial
services provision is part of that journey.
o It is our intention to grow the number of financial services
advisers serving our network to over 100 across all brands by the
end of 2021.
-- EweMove recruitment
o We are aiming to double the number of territories occupied by
EweMove franchisees (115 as at 01/01/2021) by the end of 2022 which
involves a significant increase in recruitment.
-- Acquisitions (franchisee and franchisor level)
o We support the acquisition by our franchisees of local
competitors' lettings books. These acquisitions increase the
stability and profitability of their businesses.
o We will also consider the acquisition of other franchise
brands where it is clear it would bring value to the Group.
-- Digital marketing
o Best-in-class digital marketing is essential to running a
successful estate and/or lettings agency business and we continue
to invest in our capabilities.
We made good progress against several of these initiatives over
the year, and post period end. We have of course, met one of our
key acquisition objectives with the completion of our acquisition
of Hunters (please see below). This also supports our ambitions to
grow our portfolio of managed properties, Hunters having 15,000 at
acquisition, and to expand residential sales activity and footprint
in the high street-led brands, as we plan to leverage Hunters'
existing sales knowledge across the Group.
We have also made strides forward in other areas. We recruited
11 EweMove franchisees in the year, a good performance given the
industry backdrop, and have recruited 20 more in Q1 FY21. The total
number of territories occupied is now at 135, in line with our 2022
target. We made 11 assisted acquisitions in the year, adding 1,305
managed properties to the Group's portfolio. Our announcement
regarding the strategic partnership with LSL will help us
significantly on our journey to grow the number of financial
service advisers available to the Group and allow franchisees to
pursue their own financial services growth ambitions.
Acquisition of Hunters*
We are delighted to have completed the acquisition of Hunters
Property PLC on 19(th) March 2021, a property franchise business
with 210 branches nationwide specialising in residential sales and
lettings. Hunters is a strong brand in the industry and boasts an
extremely experienced management team led by Glynis Frew. The
combined businesses create the leading UK property franchisor, with
enhanced scale and geographic reach; nine brands and over 550
outlets across the UK.
Through the acquisition our value proposition to franchisees and
customers has been enhanced and we now have the additional
resources to build a stronger and more efficient franchised
network. Moreover, because of our accelerated route to growth and
enhanced capabilities, we have been presented with several new
growth opportunities.
We see great opportunity ahead and very much look forward to
working with Glynis Frew and her team as we continue to grow our
market share in the sector.
Strategic Partnership with LSL
We are incredibly excited by the opportunities presented through
our strategic partnership with LSL, announced today. This results
from the acquisition of Hunters and the work undertaken in 2020 on
the delivery of our strategic objective with regards to financial
services. It involves the supply of mortgage and protection advice
throughout our franchised network to all their customers.
Outlook
We will continue to focus on acquiring businesses that expand
our footprint, enhance current revenue streams, and deliver new
revenue streams.
We expect the positive increase in market activity seen in the
second half of 2020 to continue in 2021 due to the Government's
focus on assisting our sector and the quick rollout of vaccines
allowing greater freedom of movement. Whilst uncertainties
continue, and we have yet to see the full impacts of the pandemic,
we see good reasons to believe that the residential housing market
will be a beneficiary.
We have set a clear agenda for growth, which both our people and
franchisees are fully behind. We have already started delivering on
our new strategy and, with the enhanced management team, we will
continue to build and invest for the future.
Gareth Samples
Chief Executive
26 April 2021
Acquisition of Hunters
Terms of the Acquisition
Effective on 19(th) March 2021, The Property Franchise Group Plc
acquired the entire issued share capital of Hunters Property Plc in
exchange for GBP14.53m in cash and 5,551,916 ordinary shares of 1p
each in TPFG, valuing the acquired group at GBP26.1m.
About Hunters Group
Hunters opened its first office in York in 1992. It was
established on the principles of excellent customer service,
unrivalled pro-activity and achieving the best possible results for
its customers. It was driven by the goal of being the UK's
favourite estate agent.
By the time of its acquisition, Hunters Group had grown to be a
top three sales agency brand by residential properties sold subject
to contract and had achieved nine consecutive years with customer
satisfaction exceeding 90%. Along the way it had won more than 30
awards and been featured in the Sunday Times Best 100
Companies.
2005 saw the start of expansion with the creation of a
franchising model which has subsequently led to great success in
persuading independent agents to convert to the Hunters brand and
system. It has also grown its franchising business through the
acquisition of Countrywide Plc's franchising arm in 2011, Country
Properties in 2015 and Besley Hill in 2017.
Hunters has added a total of 46 branches through acquisition
and, in the seven years to December 2020, opened 153 branches.
Network income has steadily increased alongside the growth in the
number of offices.
Today Hunters operates through 210 offices in England mainly
under the Hunters brand with Country Properties accounting for 15
of the offices and Mullucks for 3 of the offices. It operates 10 of
the offices itself.
Financial Performance for 2020
2020 saw a very strong performance despite the enforced
lockdowns and disruption caused by the pandemic. Through the
central team and franchisees pulling together, the Hunters Group
achieved both record profitability and improved its customer
service rating to 97%.
The Hunters Group reported consolidated turnover down by 11%
year on year, partly due to franchising two owned offices and
changes in service charges to franchisees resulting from the
pandemic. Once these elements were adjusted for, turnover dropped
by only 4% from GBP13.0m to GBP12.5m.
Hunters Audited Performance 2020 2019 Change
GBP'm GBP'm %
------ ------ -------
Turnover 12.46 13.99 (11)%
EBITDA 3.47 2.76 26%
PBT 1.53 0.9 70%
Adjusted PBT* 2.81 2.06 36%
Basic EPS (pence) 3.96 2.28 74%
Basic adjusted EPS
(pence) 7.87 5.86 34%
Net debt 0.00 3.22 100%
------ ------ -------
* Before exceptional costs, amortisation of acquired intangibles
and share-based payment charges.
Following the lifting of the first lockdown in May 2020
significant positive activity was seen in the residential sales
market. As can be seen from the KPIs below, this translated into a
substantial increase in the sales agreed pipeline which reached a
record at the year-end of GBP17.3m. Furthermore, despite losing
almost two months of activity during the first lockdown, fees
invoiced by the network for exchanged deals recovered to match the
prior year.
Hunters Non- Financial
KPIs 2020 2019 Change
%
--------- --------- -------
Customer service rating 97% 96% 1%
Number of offices 209 206 1%
Offices opened 9 20 (55)%
Average office turnover GBP0.2m GBP0.2m 1%
Network's exchange fees
invoiced GBP27.7m GBP27.7m 0%
Network's lettings income GBP15.5m GBP14.6m 7%
Network's Pipeline (sales
agreed) GBP17.3m GBP9.4m 83%
Managed properties 14,588 13,842 5%
--------- --------- -------
The Hunters Group generated an 112% increase in net cash from
operations in 2020 at GBP4.1m (2019: GBP1.9). This meant that by
the year-end, notwithstanding the Covid loan of GBP3.5m, the
business had net debt (excluding lease liabilities) of less than
GBP5,000.
This positive performance also translated into an 20% increase
in net assets on 31 December 2020 of GBP9.0m (2019: GBP7.6m)
At the same time the opening of branches borne from success with
attracting independent agents to Hunters has seen MSF increase by
35% over the period to GBP3.5m, very similar to the grow of MSF for
TPFG at 36%.
Adjusted EBITDA grew by 67% over the period to GBP3.5m, driven
by the opening of new offices and growth in the portfolio of
managed properties. This was even faster than TPFG which, over the
same period, has generated an increase in adjusted EBITDA of
46%.
2020 was a strong year for profitability and net cash generated
from operations as Hunters Group took action to curtail
discretionary expenditure and reorganise its resources. Net cash
generated was strong at GBP4.1m.
Hunters Group has grown net assets by 61% over the period to
9.0m compared to 68% growth in TPFG to GBP20.6m.
Chief Financial Officer's statement - TPFG FY20 Financial
Review
Sharp focus on cost and cash management delivers strong
results.
In 2020 several key attributes of TPFG's business model came to
the fore. The business benefitted from being a financially strong
franchised network that was quick to adapt and resourceful. It
benefitted from having built a large managed portfolio supported by
its franchisors. It benefitted from its franchisors having strong
operating margins and an experienced team capable of supporting
rapid change. Last but not least, TPFG benefitted from being a Plc
with clear views about cash allocation and how to support its
stakeholders for long-term benefit.
2020 started with increased sales activity, giving way in March
to a two-month lockdown. From 13 May 2020 sales activity picked up,
assisted by the stamp duty holiday, however sales revenue was held
back by sales taking significantly longer to complete. Lettings
transactions went digital and lettings income proved resilient.
Revenue
Group revenue for the financial year to 31 December 2020 was
GBP11.5m (2019: GBP11.4m), an increase of GBP0.1m (1%) over the
prior year.
Management Service Fees ("MSF"), our key underlying revenue
stream, decreased 3% from GBP9.7m to GBP9.4m and represented 82%
(2019: 85%) of the Group's revenue. The remainder of Group revenue
was from franchise sales of GBP0.2m (2019: GBP0.2m), ancillary
services to support MSF generation of GBP1.5m (2019: GBP1.5m) and,
new for 2020, revenue from financial services of GBP0.4m (2019:
nil).
Lettings contributed 70% of MSF (2019: 69%), sales contributed
29% of MSF (2019: 30%) and financial services contributed 1% of MSF
(2019: 1%). Lettings MSF decreased by 1% in the year, excluding the
amortisation of prepaid assisted acquisitions support, and sales
MSF decreased by 5%.
Our franchise sales activity was predominantly focused on
reselling existing franchises to experienced franchise owners in
the high street-led brands, and to encouraging new entrants into
EweMove. Resale activity was subdued in 2020 due to the pandemic.
Sales to new entrants into EweMove were high, given that recruiting
was temporarily paused for six months due to the uncertainty
created by the pandemic, with 11 new franchisees gained in the year
(2019: 25).
Operating profit
Headline operating profit increased 19% to GBP4.8m (2019:
GBP4.0m) with an operating margin of 42% (2019: 35%). Adjusted
operating profit before exceptional items, amortisation of acquired
intangibles and share-based payments charges increased 8% from
GBP5.0m to GBP5.4m and the resulting operating margin was 47%
(2019: 44%).
Given the challenging market conditions caused by the pandemic,
cost reductions were sought from all contributors including
suppliers, contractors, and our employees in March/April 2020. The
latter agreed to a 20% reduction in basic salaries and to the
suspension of bonuses, commissions and allowances. A small number
of employees were furloughed resulting in financial support of less
than GBP0.1m being received.
No sooner had we restructured the cost base and offices were
able to reopen. We saw activity in the sector return. Indeed, it
was evident from EweMove that customer demand was increasing
rapidly, and this necessitated reinstating third-party suppliers
and bringing back from furlough our own employees so that by July
we were almost at full strength again.
By the final quarter of 2020 we had settled into a more
predictable pattern of costs once more. Cost savings were not as
much as we had expected in April 2020, in part because the Board
decided to repay the voluntary 20% reduction in salaries agreed to
by employees and to fully pay the bonuses and commissions that had
been suspended in Q1 2020. This was in recognition of the efforts
of the Group's employees and in recognition of the profit before
tax achieved. Post year end the Board has also decided to repay the
furlough monies received of GBP0.09m.
As a result, cost of sales was reduced by 13% to GBP0.9m (2019:
GBP1.1m) and administrative expenses were reduced by 3% to GBP5.7m
(2019: GBP5.8m).
Share options were issued to the Executive Directors in 2020
over a maximum of 200,000 shares and in 2019 over a maximum of
100,000 shares. However, most of the potential shares available
under share options resulted from share options granted to almost
all employees in 2017 and 2018. Those granted in 2017 and 2018 have
come to the end of their assessment periods. Almost all the options
issued in 2018 were "parallel" options whereby the holders could
either exercise their options issued in 2017 or their options
issued in 2018 but not both. After careful consideration and, for
the options issued in 2018, a detailed review of underlying
performance in 2020, the vesting percentages for both schemes were
determined at 25%.
An assessment of the share-based payment charges resulting from
the options granted was made on 31 December 2020 resulting in
GBP0.1m being charged to the profit and loss account (2019:
GBP0.4m). Further details can be found in notes 4, 5 and 27 to the
consolidated financial statements.
2020 2019
Revenue GBP11.5m GBP11.4m
--------- ---------
Management Service Fees GBP9.4m GBP9.7m
--------- ---------
Administrative expenses GBP5.7m GBP5.8m
--------- ---------
Adjusted operating profit* GBP5.4m GBP5.0m
--------- ---------
Operating profit GBP4.8m GBP4.0m
--------- ---------
Adjusted profit before tax* GBP5.4m GBP4.9m
--------- ---------
Profit before tax GBP4.8m GBP4.0m
--------- ---------
Adjusted EBITDA* GBP5.7m GBP5.3m
--------- ---------
Dividend 8.7p 2.6p**
--------- ---------
* Before exceptional costs, amortisation of acquired intangibles
and share-based payment charges. ** No final dividend for 2019.
Adjusted EBITDA
Adjusted EBITDA for 2020 was GBP5.7m (2019: GBP5.3m), an
increase of GBP0.4m (8%) over the prior year. The high street-led
brands contributed GBP0.2m of this increase through cost reductions
offsetting the small reduction in revenue of GBP0.1m and EweMove
contributed GBP0.2m of this increase again through cost reductions
offsetting the reduction in revenue of GBP0.2m.
Profit before tax
Profit before tax was GBP4.8m for 2020 (2019: GBP4.0m) which
includes the share-based payment charge of GBP0.1m in 2020 (2019:
GBP0.4m). Excluding exceptional costs, amortisation arising on
acquired intangibles and the share-based payment charges, the
adjusted profit before tax increased from GBP4.9m to GBP5.4m
(9%).
Taxation
The effective rate of corporation tax for the year was 21.1%
(2019: 19.1%) due to the Government deciding not to implement the
17% rate of corporation tax which caused a deferred tax adjustment
of GBP0.1m. The total tax charge for 2020 was GBP1.0m (2019:
GBP0.8m).
Earnings per share
Basic earnings per share ("EPS") for the year was 14.6p (2019:
12.5p), an increase of 17% based on the average number of shares in
issue for the period of 25,822,750 (2019: 25,822,750).
Diluted EPS for the year was 14.4p (2019: 12.1p) an increase of
19% based on the average number of shares in issue for the period
plus an estimate for the dilutive effect of option grants vesting,
being 26,342,567 (2019: 26,692,929).
The increase in EPS for both measures results from the increase
in profit before tax year on year caused in the main by the cost
reduction measures during the year.
Adjusted basic EPS for the year was 16.8p (2019: 16.2p), an
increase of 4% based on the average number of shares in issue for
the period of 25,822,750 (2019: 25,822,750).
Adjusted diluted EPS for the year was 16.5p (2019: 15.6p), an
increase of 6% based on an estimate of diluted shares in issue of
26,342,567 (2019: 26,692,929).
The adjustments to earnings to derive the adjusted EPS figures
total GBP0.6m (2019: GBP0.9m) and result from the share-based
payment charge and the amortisation of acquired intangibles.
The profit attributable to owners was GBP3.8m (2019: GBP3.2m)
with the increase of GBP0.6m mainly due to the impact of the cost
reduction measures in 2020 and a lower share-based payment charge
in 2020.
Dividends
With the financial picture improving the Board took the
decision, despite significant uncertainty created by the pandemic,
to reinstate dividend payments in September 2020 at a time when few
companies had decided upon such a course of action. It was clear
that our business model had proved resilient. An interim dividend
of 2.1p per ordinary share was paid on 23(rd) September 2020.
Due to the proposed acquisition of the entire issued and to be
issued share capital in Hunters Property Plc the Board took the
decision to pay an interim dividend to existing shareholders of
6.6p per ordinary share in lieu of a final dividend for 2020. This
dividend was paid on 23 February 2021.
Cash flow
The Group is strongly operationally cash generative. The net
cash inflow from operating activities in 2020 was GBP5.4m (2019:
GBP4.7m) as the Group continued to generate strong operating cash
inflows.
The net cash outflow from investing activities was GBP0.1m
(2019: outflow GBP0.7m). This consisted of GBP0.1m for the purchase
of Auxilium Partnership Limited in January 2020, GBP0.2m provided
to franchisees to support their acquisitions of managed properties
under the assisted acquisitions program and GBP0.2m repaid by Mark
Graves following the purchase of 85% of the ordinary shares in
Auxilium Partnership Limited from him (more details in note 15). In
2019, most of the net outflow was due to payments made to
franchisees under the assisted acquisitions program and the loan of
GBP0.2m to Mark Graves.
There were no bank loans outstanding in 2020. In 2019 GBP1.6m in
repayments were made to Santander Plc to clear the outstanding
loans.
Dividend payments totalling GBP0.5m were made in the year (2019:
GBP2.2m).
Liquidity
The Group had cash balances of GBP8.8m on 31 December 2020
(2019: GBP4.0m) and no bank debt in either year. It entered
negotiations with Barclays Bank Plc for a new facility at the
year-end of up to GBP12.5m as part of its proposed acquisition of
Hunters Property Plc.
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.
Financial position
The consolidated statement of financial position remains strong
with total assets of GBP25.2m (2019: GBP21.1m) due mainly to an
increase in cash.
There was an increase of GBP0.8m in liabilities during the year
mainly due to the deferral of GBP0.5m of VAT under the Government's
pandemic support measures and, because of the Board deciding to pay
bonuses and commissions that had been suspended at the end of Q1
2020, an increased employment costs accrual of GBP0.3m.
The Group finished the year with the total equity attributable
to owners of GBP20.6m, an increase of GBP3.3m or 19% over FY19.
The Group generated stronger cash inflows than ever before in
2020 against a history of strong operational cash inflows due to
its operating margins. This provided the opportunity to discuss a
facility with Barclays Bank Plc of up to GBP12.5m and to further
pursue its acquisitive strategy in 2021 with the acquisition of
Hunters Property Plc (see note 30 of the consolidated financial
statements).
David Raggett
Chief Financial Officer
26 April 2021
Consolidated statement of comprehensive income
for the year ended 31 December 2020
2020 2019
Notes GBP GBP
---------------------------------------------------- ----- ----------- -----------
Revenue 7 11,464,495 11,350,327
Cost of sales (932,501) (1,066,849)
---------------------------------------------------- ----- ----------- -----------
Gross profit 10,531,994 10,283,478
Administrative expenses 8 (5,666,475) (5,820,277)
Share-based payments charge 9, 27 (68,023) (441,709)
Operating profit 10 4,797,496 4,021,492
Finance income 11 10,701 11,012
Finance costs 11 (3,328) (38,310)
---------------------------------------------------- ----- ----------- -----------
Profit before income tax expense 4,804,869 3,994,194
Income tax expense 12 (1,013,107) (761,788)
---------------------------------------------------- ----- ----------- -----------
Profit and total comprehensive income for the
year from continuing operations 3,791,762 3,232,406
---------------------------------------------------- ----- ----------- -----------
Profit and total comprehensive income for the
year attributable to:
---------------------------------------------------- ----- ----------- -----------
Owners of the parent 3,782,568 3,232,406
---------------------------------------------------- ----- ----------- -----------
Non-controlling interest 9,194 -
---------------------------------------------------- ----- ----------- -----------
3,791,762 3,232,406
---------------------------------------------------- ----- ----------- -----------
Earnings per share
Statutory
---------------------------------------------------- ----- ----------- -----------
Earnings per share attributable to owners of parent 13 14.6p 12.5p
---------------------------------------------------- ----- ----------- -----------
Diluted Earnings per share attributable to owners
of parent 13 14.4p 12.1p
---------------------------------------------------- ----- ----------- -----------
Adjusted
---------------------------------------------------- ----- -----
Earnings per share attributable to owners of parent 13 16.8p 16.2p
---------------------------------------------------- ----- -----
Diluted Earnings per share attributable to owners
of parent 13 16.5p 15.6p
---------------------------------------------------- ----- -----
Consolidated statement of financial position
31 December 2020
2020 2019
Notes GBP GBP
-------------------------------------- ----- ---------- ----------
Assets
Non-current assets
Intangible assets 15 14,380,282 14,786,402
Property, plant and equipment 16 66,530 77,555
Right-of-use assets 17 85,802 74,580
Prepaid assisted acquisitions support 18 599,952 657,948
-------------------------------------- ----- ---------- ----------
15,132,566 15,596,485
-------------------------------------- ----- ---------- ----------
Current assets
Trade and other receivables 20 1,292,549 1,483,009
Cash and cash equivalents 8,770,884 4,011,463
10,063,433 5,494,472
-------------------------------------- ----- ---------- ----------
Total assets 25,195,999 21,090,957
-------------------------------------- ----- ---------- ----------
Equity
Shareholders' equity
Called up share capital 21 258,228 258,228
Share premium 22 4,039,800 4,039,800
Other reserves 23 3,574,915 3,506,892
Retained earnings 12,689,965 9,449,675
-------------------------------------- ----- ---------- ----------
20,562,908 17,254,595
Non-controlling interest 9,194 -
Total equity attributable to owners 20,572,102 17,254,595
-------------------------------------- ----- ---------- ----------
Liabilities
Non-current liabilities
Lease liabilities 17 45,446 25,089
Deferred tax 27 1,114,544 1,140,227
-------------------------------------- ----- ---------- ----------
1,159,990 1,165,316
Current liabilities
Trade and other payables 26 2,750,348 2,000,175
Lease liabilities 17 41,085 52,660
Tax payable 672,474 618,211
-------------------------------------- ----- ---------- ----------
3,463,907 2,671,046
-------------------------------------- ----- ---------- ----------
Total liabilities 4,623,897 3,836,362
-------------------------------------- ----- ---------- ----------
Total equity and liabilities 25,195,999 21,090,957
-------------------------------------- ----- ---------- ----------
The financial statements were approved and authorised for issue
by the Board of Directors on 26 April 2021 and were signed on its
behalf by:
David Raggett
Chief Financial Officer
Company statement of financial position
31 December 2020 (Company No: 08721920)
2020 2019
Notes GBP GBP
----------------------------- ----- ---------- ----------
Assets
Non-current assets
Investments 19 34,082,997 33,899,664
Deferred tax asset 25 228,217 215,293
----------------------------- ----- ---------- ----------
34,311,214 34,114,957
----------------------------- ----- ---------- ----------
Current assets
Trade and other receivables 20 221,125 421,903
Cash and cash equivalents 4,600,718 1,073,774
----------------------------- ----- ---------- ----------
4,821,843 1,495,677
----------------------------- ----- ---------- ----------
Total assets 39,133,057 35,610,634
----------------------------- ----- ---------- ----------
Equity
Shareholders' equity
Called up share capital 21 258,228 258,228
Share premium 22 4,039,800 4,039,800
Other reserves 23 21,564,815 21,496,792
Retained earnings 13,123,373 9,640,327
----------------------------- ----- ---------- ----------
Total equity 38,986,216 35,435,147
----------------------------- ----- ---------- ----------
Current liabilities
Trade and other payables 24 146,841 175,487
Total liabilities 146,841 175,487
----------------------------- ----- ---------- ----------
Total equity and liabilities 39,133,057 35,610,634
----------------------------- ----- ---------- ----------
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 GBP4,025,324 (2019: GBP3,323,903).
The financial statements were approved and authorised for issue
by the Board of Directors on 26 April 2021 and were signed on its
behalf by:
David Raggett
Chief Financial Officer
Consolidated statement of changes in equity
for the year ended 31 December 2020
Attributable to owners
--------------------------------------------------------- ------------------------ ------------
Called Non-controlling Tptal equity
up share Retained Share Other Total interest GBP
capital earnings premium reserves equity GBP
GBP GBP GBP GBP GBP
------------------- --------- ----------- --------- --------- ----------- ------------------------ ------------
Balance at 1
January 2019 258,228 8,438,027 4,039,800 2,983,861 15,719,916 - 15,719,916
------------------- --------- ----------- --------- --------- ----------- ------------------------ ------------
Profit and total
comprehensive
income - 3,232,405 - - 3,232,405 - 3,232,405
------------------- --------- ----------- --------- --------- ----------- ------------------------ ------------
Dividends - (2,220,757) - - (2,220,757) - (2,220,757)
Deferred tax on
share-based
payments - - - 81,322 81,322 - 81,322
Share-based
payments charge - - - 441,709 441,709 - 441,709
------------------- --------- ----------- --------- --------- ----------- ------------------------ ------------
Total transactions
with owners - (2,220,757) - 523,031 (1,697,726) - (1,697,726)
------------------- --------- ----------- --------- --------- ----------- ------------------------ ------------
Balance at 31
December 2019 258,228 9,449,675 4,039,800 3,506,892 17,254,595 - 17,254,595
------------------- --------- ----------- --------- --------- ----------- ------------------------ ------------
Profit and total
comprehensive
income - 3,782,568 - - 3,782,568 9,194 3,791,762
------------------- --------- ----------- --------- --------- ----------- ------------------------ ------------
Dividends - (542,278) - - (542,278) - (542,278)
Share-based
payments charge - - - 68,023 68,023 - 68,023
------------------- --------- ----------- --------- --------- ----------- ------------------------ ------------
Total transactions
with owners - (542,278) - 68,023 (474,255) - (474,255)
------------------- --------- ----------- --------- --------- ----------- ------------------------ ------------
Balance at 31
December 2020 258,228 12,689,965 4,039,800 3,574,915 20,562,908 9,194 20,572,102
------------------- --------- ----------- --------- --------- ----------- ------------------------ ------------
Company statement of changes in equity
for the year ended 31 December 2020
Called
up share Retained Share Other Total
capital earnings premium reserves equity
GBP GBP GBP GBP GBP
------------------------------------- --------- ----------- --------- ---------- -----------
Balance as at 1 January 2019 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
------------------------------------- --------- ----------- --------- ---------- -----------
Profit and total comprehensive
income - 4,025,324 - - 4,025,324
------------------------------------- --------- ----------- --------- ---------- -----------
Dividends - (542,278) - - (542,278)
Share-based payments charge - - - 68,023 68,023
------------------------------------- --------- ----------- --------- ---------- -----------
Total transactions with owners - (542,278) - 68,023 (474,255)
------------------------------------- --------- ----------- --------- ---------- -----------
Balance as at 31 December 2020 258,228 13,123,373 4,039,800 21,564,815 38,986,216
------------------------------------- --------- ----------- --------- ---------- -----------
Consolidated statement of cash flows
for the year ended 31 December 2020
2020 2019
Notes GBP GBP
----------------------------------------------- ----- --------- -----------
Cash flows from operating activities
Cash generated from operations A 6,377,977 5,705,243
Interest paid - (41,380)
Tax paid (971,869) (973,361)
----------------------------------------------- ----- --------- -----------
Net cash from operating activities 5,406,108 4,690,502
----------------------------------------------- ----- --------- -----------
Cash flows from investing activities
Purchase of subsidiary net of cash acquired (81,250) -
Purchase of intangible assets - (73,467)
Purchase of tangible assets (17,259) (7,960)
Assisted acquisitions support (155,034) (386,332)
Loan made 29 - (200,000)
Loan repaid 29 200,000 -
Interest received 10,701 11,012
----------------------------------------------- ----- --------- -----------
Net cash used in investing activities (42,842) (656,747)
----------------------------------------------- ----- --------- -----------
Cash flows from financing activities
Repayment of bank loan - (1,600,000)
Equity dividends paid (542,278) (2,220,757)
Principal paid on lease liabilities (58,239) (56,533)
Interest paid on lease liabilities (3,328) (2,990)
----------------------------------------------- ----- --------- -----------
Net cash used in financing activities (603,845) (3,880,280)
----------------------------------------------- ----- --------- -----------
Increase in cash and cash equivalents 4,759,421 153,475
Cash and cash equivalents at beginning of year 4,011,463 3,857,988
----------------------------------------------- ----- --------- -----------
Cash and cash equivalents at end of year 8,770,884 4,011,463
----------------------------------------------- ----- --------- -----------
Notes to the consolidated statement of cash flows
for the year ended 31 December 2020
A. Reconciliation of profit before income tax to cash generated
from operations
2020 2019
GBP GBP
------------------------------------------------------ --------- ---------
Cash flows from operating activities
Profit before income tax 4,804,869 3,994,194
Depreciation of property, plant and equipment 28,284 33,989
Amortisation of intangibles 590,546 611,820
Amortisation of prepaid assisted acquisitions support 213,030 174,149
Amortisation of right-of-use assets 55,799 54,769
Share-based payments charge 68,023 441,709
Finance costs 3,328 38,310
Finance income (10,701) (11,012)
------------------------------------------------------ --------- ---------
Operating cash flow before changes in working capital 5,753,178 5,337,928
Increase in trade and other receivables (18,142) (186,734)
Increase in trade and other payables 642,941 554,049
------------------------------------------------------ --------- ---------
Cash generated from operations 6,377,977 5,705,243
------------------------------------------------------ --------- ---------
Company statement of cash flows
for the year ended 31 December 2020
2020 2019
Notes GBP GBP
----------------------------------------------- ----- --------- -----------
Cash flows from operating activities
Cash generated from operations C (659,534) (812,137)
Interest paid - (41,380)
----------------------------------------------- ----- --------- -----------
Net cash used in operating activities (659,534) (853,517)
----------------------------------------------- ----- --------- -----------
Cash flows from investing activities
Purchase of subsidiary net of cash acquired (81,250) -
Interest received 6 22
Loan made 29 - (200,000)
Loan repaid 29 200,000
Equity dividends received 4,610,000 4,670,000
----------------------------------------------- ----- --------- -----------
Net cash generated from investing activities 4,728,756 4,470,022
----------------------------------------------- ----- --------- -----------
Cash flows from financing activities
Repayment of bank loan - (1,600,000)
Equity dividend paid (542,278) (2,220,757)
----------------------------------------------- ----- --------- -----------
Net cash used in financing activities (542,278) (3,820,757)
----------------------------------------------- ----- --------- -----------
Increase in cash and cash equivalents 3,526,944 (204,252)
Cash and cash equivalents at beginning of year 1,073,774 1,278,026
----------------------------------------------- ----- --------- -----------
Cash and cash equivalents at end of year 4,600,718 1,073,774
----------------------------------------------- ----- --------- -----------
Notes to the Company statement of cash flows
for the year ended 31 December 2020
C. Reconciliation of profit before income tax to cash generated
from operations
2020 2019
GBP GBP
------------------------------------------------------ ----------- -----------
Cash flows from operating activities
Profit before income tax 3,898,029 3,390,952
Share-based payments charge 84,690 345,931
Finance costs - 35,320
Finance income (6) (22)
Equity dividend received (4,610,000) (4,670,000)
------------------------------------------------------ ----------- -----------
Operating cash flow before changes in working capital (627.287) (897,819)
Increase in trade and other receivables (162,520) (25,241)
Increase in trade and other payables 130,273 110,923
------------------------------------------------------ ----------- -----------
Cash used in operations (659,534) (812,137)
------------------------------------------------------ ----------- -----------
Notes to the consolidated and Company financial statements
for the year ended 31 December 2020
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") in conformity with the requirements of the Companies Act
2006 and, as regards the Parent Company financial statements, as
applied in accordance with the provisions of the Companies Act
2006. 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
The Group has produced detailed budgets, projections and cash
flow forecasts which incorporate the recently acquired Hunters
Property PLC business. These have been stress tested to understand
the impacts of reductions in revenue and costs. The Directors have
concluded after reviewing these budgets, projections and forecasts,
making appropriate enquiries of the business and having considered
uncertainties under the current economic environment as a result of
the Covid-19 pandemic, that there is a reasonable expectation that
the Group has adequate resources to continue in operation for the
foreseeable future. Accordingly, they have adopted the going
concern basis in preparing the financial statements.
Changes in accounting policies
a) New standards, amendments and interpretations effective from
1 January 2020
The following new or amended standards are mandatory for the
first time for the period beginning 1 January 2020 and have been
adopted in the annual financial statements for the year ended 31
December 2020:
Standard Key requirements
-------- --------------------------------------
Presentation of Financial Statements
(Amendment -Definition of Material)
IAS 1 Accounting Policies, Changes
in
Accounting Estimates and Errors
IAS 8 (Amendment - Definition of Material)
Business Combinations
IFRS 3 (Amendment - Definition of Business)
Revised Conceptual Framework
for Financial Reporting
-------- --------------------------------------
b) New standards, amendments and interpretations not yet
effective
We do not consider there to be any relevant new standards,
amendments to standards or interpretations that have been issued,
but are not effective for the financial year beginning on 1 January
2020, which would have a material impact on the financial
statements.
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 2020.
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 acquire 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.
Financial services commissions:
Financial services commissions received by Auxilium Partnership
Limited are recognised upon receipt, being a point in time when the
Group has met its obligations in delivering a customer to the
insurance partners. A provision is made for the best estimate of
future clawbacks resulting from policies being subsequently
cancelled, however this is not material to the financial
statements. There is no vat applicable to financial services
commissions.
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. 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, FY21 and FY22. The estimate of earnings per
share ("EPS"), the non-market based performance measure, in FY20
was based on actual financial performance, FY21 was based on budget
and FY22 relies on a projection of earnings taking into account
available market data and performance trends.
At this juncture 68% of the options based on FY21 performance
are expected to vest and 65% of the options based on the FY22
performance are expected to vest.
6. Segmental reporting
Following the acquisition of a majority share in Auxilium
Partnership Limited on 7 January 2020 the directors consider there
now to be two operating segments, being Property Franchising and
Other.
For the year ended 31 December 2020:
Property
Franchising Other Total
GBP GBP GBP
------------------------ ------------------ -------- -----------
Revenue 11,016,921 447,574 11,464,495
Segment profit before
tax 4,766,843 38,026 4,804,869
For the year ended 31 December 2019:
Property
Franchising Other Total
GBP GBP GBP
------------------------ ------------- -------- -----------
Revenue 11,350,327 - 11,350,327
Segment profit before
tax 3,994,194 - 3,994,194
The Other segment related to Financial Services. There was no
inter-segment revenue in any period.
7. Revenue
2020 2019
GBP GBP
-------------------------------- ---------- ----------
Property Franchising segment:
Management Service Fees 9,364,702 9,661,737
Franchise sales 145,068 194,702
Other 1,507,151 1,493,888
---------- ----------
11,016,921 11,350,327
Other segment:
Financial Services commissions 447,574 -
-------------------------------- ---------- ----------
11,464,495 11,350,327
-------------------------------- ---------- ----------
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 24 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:
2020 2019
GBP GBP
Employee costs (see note 9) 3,737,457 3,097,124
Marketing and digital costs 334,459 571,931
Property costs 130,271 129,082
General administrative costs 817,943 1,355,551
Amortisation 646,345 666,589
----------------------------- --------- ---------
5,666,475 5,820,277
----------------------------- --------- ---------
9. Employees and Directors
Average numbers of employees (including Directors), employed
during the year:
Group Company
---------- ----------
2020 2019 2020 2019
--------------- ---- ---- ---- ----
Administration 41 39 - -
Management 10 9 2 2
--------------- ---- ---- ---- ----
51 48 2 2
--------------- ---- ---- ---- ----
Employee costs (including Directors) during the year amounted
to:
Group Company
-------------------- ----------------
2020 2019 2020 2019
GBP GBP GBP GBP
---------------------------- --------- --------- ------- -------
Wages and salaries 3,267,477 2,711,683 580,482 554,213
Social security costs 398,013 328,693 66,863 62,245
Pension costs 71,967 56,748 15,166 10,544
---------------------------- --------- --------- ------- -------
3,737,457 3,097,124 662,511 627,002
---------------------------- --------- --------- ------- -------
Share-based payments charge 68,023 441,709 84,960 345,931
---------------------------- --------- --------- ------- -------
Key management personnel are defined as Directors and executives
of the Group. Details of the remuneration of the key management
personnel are shown below:
2020 2019
GBP GBP
---------------------------- --------- ---------
Wages and salaries 1,953,378 1,497,467
Social security costs 251,191 193,729
Pension costs 42,625 30,513
---------------------------- --------- ---------
2,247,194 1,721,709
---------------------------- --------- ---------
Share-based payments charge 71,954 402,498
---------------------------- --------- ---------
Details of the Directors' emoluments are disclosed in the
Directors' remuneration report on pages 42 to 44. The share-based
payments charge for the current year has been charged to the
Statement of Comprehensive Income, of this GBP85,451 (2019:
GBP340,697) relates to Directors.
10. Operating profit
2020 2019
GBP GBP
------------------------------------------------------ --------- ---------
The operating profit is stated after charging:
Depreciation 28,284 33,989
Amortisation - intangibles 590,546 611,820
Amortisation - prepaid assisted acquisitions support 213,030 174,149
Amortisation - leases 55,799 54,769
Share-based payments charge 68,023 441,709
Auditor's remuneration (see below) 58,000 50,000
Staff costs (note 9) 3,737,457 3,097,124
Audit services
* Audit of the Company and consolidated accounts 58,000 50,000
58,000 50,000
------------------------------------------------------ --------- ---------
11. Finance income and costs
2020 2019
GBP GBP
--------------------- ------ ------
Finance income:
Bank interest 6,227 5,696
Other similar income 4,474 5,316
--------------------- ------ ------
10,701 11,012
--------------------- ------ ------
2020 2019
GBP GBP
-------------------------------------- ----- ------
Finance costs:
Bank interest - 35,320
Interest expense on lease liabilities 3,328 2,990
3,328 38,310
-------------------------------------- ----- ------
12. Taxation
2020 2019
GBP GBP
------------------------------------------------------ --------- ---------
Current tax 1,035,649 943,765
Adjustments in respect of previous periods 3,141 (31,329)
------------------------------------------------------ --------- ---------
Current tax total 1,038,790 912,436
------------------------------------------------------ --------- ---------
Deferred tax credit on acquired business combinations (12,759) (75,557)
Deferred tax credit on share-based payments (12,924) (75,091)
------------------------------------------------------ --------- ---------
Deferred tax total (25,683) (150,648)
------------------------------------------------------ --------- ---------
Total tax charge in statement of comprehensive income 1,013,107 761,788
------------------------------------------------------ --------- ---------
The tax assessed for the period is higher (2019: higher) than
the standard rate of corporation tax in the UK. The difference is
explained below.
2020 2019
GBP GBP
---------------------------------------------------------- --------- ---------
Profit on ordinary activities before tax 4,804,869 3,994,194
Profit on ordinary activities multiplied by the effective
standard rate of corporation tax in the UK of 19% 912,925 758,897
Effects of:
Expenses not deductible for tax purposes 2,053 10,344
Depreciation in excess of capital allowances 12,420 23,876
Effect of change in deferred tax rate from 17% to 19% 82,568 -
Adjustments in respect of previous periods 3,141 (31,329)
---------------------------------------------------------- --------- ---------
Total tax charge in respect of continuing activities 1,013,107 761,788
---------------------------------------------------------- --------- ---------
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.
2020 2019
GBP GBP
-------------------------------------------------------- --------- ---------
Profit for the financial year attributable to owners of
the parent 3,782,568 3,232,406
Amortisation on acquired intangibles 498,441 498,441
Share-based payments charge 68,023 441,709
Adjusted profit for the financial year 4,349,032 4,172,556
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 519,817 870,179
---------------------------------------------------- ---------- ----------
Number used in diluted earnings per share 26,342,567 26,692,929
---------------------------------------------------- ---------- ----------
Basic earnings per share 14.6p 12.5p
Diluted earnings per share 14.4p 12.1p
---------------------------------------------------- ---------- ----------
Adjusted basic earnings per share 16.8p 16.2p
Adjusted diluted earnings per share 16.5p 15.6p
---------------------------------------------------- ---------- ----------
There were options over 2,379,800 ordinary shares outstanding at
31 December 2020; 300,000 had not yet vested and have performance
conditions which will determine whether they vest or not in the
future; 64,800 vested in a previous year and were exercisable at 31
December 2020, and it can be determined that 503,750 of the
remaining 2,015,000 options (25%) will vest based on these
financial statements. The average share price during the year ended
31 December 2020 was above exercise price of the options that had
either vested or were due to vest based on these financial
statements. For these reasons in 2020 there is a dilutive effect of
share options on the earnings per share calculation.
In 2019 there were options over 2,209,800 ordinary shares
outstanding at 31 December 2019; 2,145,000 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 2019 and the average share
price during the year ended 31 December 2019 was above the exercise
price. For these reasons in 2019 there is a 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
2020 2019
GBP GBP
--------------------------------------------------------- ------- ---------
Final dividend for 2019
No dividend paid (2019: 6.0p per share paid 28 May 2019) - 1,549,365
Interim dividend for 2020
2.1p per share paid 23 September 2020 (2019: 2.6p per
share paid 1 October 2019) 542,278 671,392
--------------------------------------------------------- ------- ---------
Total dividend paid 542,278 2,220,757
--------------------------------------------------------- ------- ---------
A dividend of 6.6p per share was paid in lieu of a final
dividend for 2020 on 23 February 2021, the total amount paid was
GBP1,704,302.
15. Intangible assets
Master
Franchise Customer
Agreement Brands Technology lists Goodwill Total
GBP GBP GBP GBP GBP GBP
------------------------------- ---------- --------- ---------- -------- --------- ----------
Cost
Brought forward 1 January 2019 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
Additions (note 29) - - - - 184,426 184,426
Carried forward 31 December
2020 7,803,436 1,972,239 337,677 224,940 7,410,586 17,748,878
------------------------------- ---------- --------- ---------- -------- --------- ----------
Amortisation & Impairment
Brought forward at 1 January
2019 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
Charge for year 413,174 66,726 75,810 34,836 - 590,546
Carried forward 31 December
2020 2,565,050 289,146 313,607 200,793 - 3,368,596
------------------------------- ---------- --------- ---------- -------- --------- ----------
Net book value
At 31 December 2020 5,238,386 1,683,093 24,070 24,147 7,410,586 14,380,282
------------------------------- ---------- --------- ---------- -------- --------- ----------
At 31 December 2019 5,651,560 1,749,819 99,880 58,983 7,226,160 14,786,402
------------------------------- ---------- --------- ---------- -------- --------- ----------
The carrying amount of goodwill relates to 5 (2019: 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 2020 and projections through to 31 December
2022. 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 2020 was
18 years 10 months.
The brand names under which XFL trades of C J Hole, Parkers and
Ellis & Co have been in existence for between 72 years and 170
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 2022. 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 2020 and projections through to
31 December 2025. 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 7
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 28% in
FY21 to 4% in FY25.The growth rate in FY21 is high because revenue
was lower in FY20 as a result of Covid-19.
The cash flows arising were discounted by the weighted average
cost of capital being 15,35% 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 2020 was 10 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 2020 was 16 years and 8 months.
The carrying value of EweMove the identified cash generating
unit, was GBP9.1m at 31 December 2020 whereas the recoverable
amount was assessed to be GBP11.5m at the same date. Headroom of
GBP2.4m 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 2020. Thus, if the discount rate increased by 24% to
19%, an impairment change would result against goodwill, all other
assumptions remaining unchanged.
Assumption Judgement Sensitivity
----------------------- ------------------------------------------- -----------
Discount rate As indicated above the rate used is 15.35% 24%
The range of growth rates for FY21 to FY25
Revenue - FY21 to FY25 are stated above (60%)
Direct costs - all
years Assumed to be 23% of revenue for all years 36%
Assumed to be 45% of revenue in FY21 and
Indirect costs - all then decline linearly to 38% of revenue
years in FY24 onwards 23%
Direct and indirect As indicated above for direct and indirect
costs - all years costs 14%
----------------------- ------------------------------------------- -----------
Business combination completed in January 2020
Details of the Acquisition of Auxilium Partnership Limited can
be found in note 29.
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
-------------------- ----------------
2020 2019 2020 2019
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 - -
Auxilium Partnership Limited 184,426 - - -
7,410,586 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 2019 37,034 130,340 161,107 328,481
Additions - 7,380 580 7,960
Carried forward 31 December 2019 37,034 137,720 161,687 336,441
---------------
Acquisitions - 1,613 1,082 2,695
Additions - 14,564 - 14,564
Carried forward 31 December 2020 37,034 153,897 162,769 353,700
--------------------------------- --------------- ---------- --------- -------
Depreciation
Brought forward 1 January 2019 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
Charge for year 3,702 19,774 4,808 28,284
Carried forward 31 December 2020 32,980 111,845 142,345 287,170
--------------------------------- --------------- ---------- --------- -------
Net book value
At 31 December 2020 4,054 42,052 20,424 66,530
--------------------------------- --------------- ---------- --------- -------
At 31 December 2019 7,756 45,649 24,150 77,555
--------------------------------- --------------- ---------- --------- -------
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,
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
Additions 67,021 67,021
Amortisation (55,799) (55,799)
---------------------------------- ---------- --------
Carried forward 31 December 2020 85,802 85,802
---------------------------------- ---------- --------
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
---------------------------------- ---------- --------
Additions 67,021 67,021
Interest expenses 3,328 3,328
Lease payments (61,567) (61,567)
---------------------------------- ---------- --------
Carried forward 31 December 2020 86,531 86,531
---------------------------------- ---------- --------
Maturity analysis of lease liabilities as at 31 December
2020:
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 10,271 30,814 29,556 15,890
------------------ --------- --------- -------- --------
18. Prepaid assisted acquisitions support
Group
Total
GBP
----------------------------------- ---------
Cost
Brought forward 1 January 2019 575,877
Additions 386,332
Disposals (8,071)
Carried forward 31 December 2019 954,138
Additions 155,034
Carried forward 31 December 2020 1,109,172
-------------------------------------- ---------
Amortisation
Brought forward 1 January 2019 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
Charge for year - to revenue 168,510
Charge for year - to cost of sales 44,520
Carried forward 31 December 2020 509,220
-------------------------------------- ---------
Net book value
At 31 December 2020 599,952
-------------------------------------- ---------
At 31 December 2019 657,948
-------------------------------------- ---------
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 2019 33,803,886
Capital contribution to subsidiaries - share options 95,778
At 31 December 2019 33,899,664
Acquisition of Auxilium Partnership Limited 200,000
Capital contribution to subsidiaries - share options (16,667)
----------------------------------------------------- -------------
At 31 December 2020 34,082,997
----------------------------------------------------- -------------
Net book value
At 31 December 2020 34,082,997
----------------------------------------------------- -------------
At 31 December 2019 33,899,664
----------------------------------------------------- -------------
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.
On 7 January 2020 the Company acquired the entire issued share
capital of Auxilium Partnership Limited for a total cash
consideration of GBP0.2m.
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 2020.
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
Aux Group Limited Ordinary 85 England
Auxilium Partnership
Limited* Ordinary 72 England
------------------------ ----------- --------------- ------------------------
* indirectly owned
20. Trade and other receivables
Group Company
-------------------- ----------------
2020 2019 2020 2019
GBP GBP GBP GBP
---------------------------------------------------- --------- --------- ------- -------
Trade receivables 212,262 233,601 3,192 2,172
Less: provision for impairment of trade receivables (155,668) (153,814) - -
---------------------------------------------------- --------- --------- ------- -------
Trade receivables - net of impairment provisions 56,594 79,787 3,192 2,172
Loans to franchisees 49,058 78,411 - -
Other receivables 5,287 202,607 137 200,137
Amounts due from Group undertakings - - 45,413 -
Prepayments and accrued income 1,181,610 1,122,204 34,979 29,609
Tax receivable - - 137,404 189,985
---------------------------------------------------- --------- --------- ------- -------
1,292,549 1,483,009 221,125 421,903
---------------------------------------------------- --------- --------- ------- -------
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:
2020 2019
GBP GBP
---------------------------------------------- ------ ------
Group
Not more than 3 months 31.834 33,634
More than 3 months but not more than 6 months - -
More than 6 months but not more than 1 year - -
---------------------------------------------- ------ ------
31,834 33,634
---------------------------------------------- ------ ------
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.
Included within "Prepayments and accrued income" is accrued
income of GBP841k (2019: GBP704k) 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 and EweMove
license fees.
21. Called up share capital
2020 2019
------------------- -------------------
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 2019 and 31 December 2020 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 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
------------------------------------- ---------- ----------- ------------- ----------
1 January 2020 2,796,984 628,586 81,322 3,506,892
Share-based payment charge - 68,023 - 68,023
Deferred tax on share-based payments - - - -
------------------------------------- ---------- ----------- ------------- ----------
31 December 2020 2,796,984 696,609 81,322 3,574,915
------------------------------------- ---------- ----------- ------------- ----------
Company
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
------------------------------------- ---------- ----------- ------------- ----------
1 January 2020 20,786,884 628,586 81,322 21,496,792
Share-based payment charge - 68,023 - 68,023
Deferred tax on share-based payments - - - -
------------------------------------- ---------- ----------- ------------- ----------
31 December 2020 20,786,884 696,609 81,322 21,564,815
------------------------------------- ---------- ----------- ------------- ----------
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. Trade and other payables
Group Company
-------------------- ----------------
2020 2019 2020 2019
GBP GBP GBP GBP
-------------------------------- --------- --------- ------- -------
Trade payables 176,389 741,576 36,870 38,659
Other taxes and social security 1,274,002 575,600 - -
Other payables 248,229 118,546 - -
Accruals and deferred income 1,051,728 564,453 109,971 22,839
2,750,348 2,000,175 146,841 175,487
-------------------------------- --------- --------- ------- -------
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
GBPnil (2019: GBP7k) in relation to charges levied on franchisees
in advance and EweMove licence fees.
25. Deferred tax
Group Company
------------------------ ----------------
2020 2019 2020 2019
GBP GBP GBP GBP
---------------------------------- ----------- ----------- ------- -------
Balance at beginning of year (1,140,227) (1,372,196) 215,293 30,101
Movement during the year:
Statement of changes in equity - 81,322 - 81,322
Statement of comprehensive income 25,683 150,647 12,924 75,091
Other - - - 28,779
Balance at end of year (1,114,544) (1,140,227) 228,217 215,293
---------------------------------- ----------- ----------- ------- -------
Deferred taxation has been provided as follows:
Group Company
------------------------ ----------------
2020 2019 2020 2019
GBP GBP GBP GBP
------------------------------- ----------- ----------- ------- -------
Accelerated capital allowances 6,951 (18,956) 28,779 28,779
Share-based payments 199,438 186,514 199,438 186,514
Acquired business combinations (1,320,933) (1,307,785) - -
(1,114,544) (1,140,227) 228,217 215,293
------------------------------- ----------- ----------- ------- -------
26. 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
-------------------- --------------------
2020 2019 2020 2019
GBP GBP GBP GBP
---------------------------------- --------- --------- --------- ---------
Loans and receivables:
Trade receivables 56,594 79,787 3,192 2,172
Loans to franchisees 49,058 78,411 - -
Other receivables 5,287 202,607 137 200,137
Cash and cash equivalents 8,770,884 4,011,463 4,600,718 1,073,774
Accrued income 840,619 703,774 - -
Amount owed by Group undertakings - - 45,413 -
9,722,442 5,076,042 4,649,460 1,276,083
---------------------------------- --------- --------- --------- ---------
Financial liabilities
Financial liabilities measured at amortised cost:
Group Company
-------------------- ----------------
2020 2019 2020 2019
GBP GBP GBP GBP
----------------------------------- --------- --------- ------- -------
Other financial liabilities:
Trade payables 176,389 741,576 36,870 38,659
Other payables 248,229 118,546 - -
Accruals 1,051,984 557,951 109,971 22,839
Amounts owed to Group undertakings - - - 113,989
----------------------------------- --------- --------- ------- -------
1,476,602 1,418,073 146,841 175,487
----------------------------------- --------- --------- ------- -------
All of the financial assets and liabilities above are recorded
in the statement of financial position at amortised cost.
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 GBP49k.
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.
27. Share-based payments
Enterprise Management Incentive ("EMI") Share Option Scheme 2017
and ("EMI") Share Option Scheme 2018
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 because performance of
the parallel options (see below) was expected to be better.
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 2020 options over 30,000
shares were forfeited (2019: 170,000) and no options were granted
(2019: 95,000).
At 31 December 2020 options over 2,015,000 (2019: 2,045,000)
ordinary shares existed.
These options have a vesting condition based on an EPS target
for the year ended 31 December 2020.
The weighted average contractual life remaining of these options
is 4 months.
Management has used the actual performance for FY20 to determine
that 25% options will vest based the achievement of the EPS
condition.It is expected that with an exercise price of GBP0.01 all
holders will exercise as soon as the options vest. The Group
announced its results on 27 April 2021.
The estimated fair value of the options over 2,015,000 ordinary
shares at 31 December 2020 was GBP308,792. 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 GBP6,038 has been
recognised in the Statement of Comprehensive Income in the year
ended 31 December 2020, which is the cumulative share-based
payments charge at 31 December 2020 of GBP611,410 less the
cumulative share-based payments charge recognised at 31 December
2019 of GBP605,372.
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 weighted average contractual life remaining of this option
is 1 year and 4 months.
It is 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.
Management has used the budget for FY21, the market outlook and
projections for FY22 to determine, at 31 December 2020, the
achievement of the EPS condition.
The estimated fair value of the option over 100,000 ordinary
shares at 31 December 2020 was GBP102,296. 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 GBP29,369 has been
recognised in the Statement of Comprehensive Income in the year
ended 31 December 2020 being the difference between the cumulative
share based payments charge at 31 December 2020 of GBP52,583 and
the cumulative charge recognised at 31 December 2019 of
GBP23,214.
Enterprise Management Incentive ("EMI") Share Option Scheme
2020
On 23 July 2020 a new EMI Share Option Scheme 2020 was
introduced and an option over 100,000 ordinary shares each at an
exercise price of GBP0.01 each was granted to two directors under
this scheme.
This option has a vesting condition based on two performance
conditions; basic earnings per share adjusted for exceptional
income/costs and share based payments ("adjusted EPS") and total
shareholder return over the 3 years to 31 December 2022. Each
performance condition will apply to 50% of the award being made. In
respect of both performance conditions, growth of 15% over the
three year period will be required for threshold vesting of the
awards, with growth of 35% or higher required for all of the awards
to vest. The shares will be awarded on a sliding scale for growth
between 15% and 35%. None of the awards will vest for adjusted EPS
growth below 15% over the period.
The following principal assumptions were used in the valuation
of the grant made in the year ended 31 December 2020 using the
Black-Scholes option pricing model:
Assumptions
Date of vesting 30/04/2023
----------------------- ----- ----------
Share price at grant GBP1.80
----------------------- ----- ----------
Exercise price GBP0.01
----------------------- ----- ----------
Risk free rate 0.1%
-------------------------------- ----------
Dividend yield 4.90%
-------------------------------- ----------
Expected life 2.77 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 2023.
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 42 to 44.
Management has used the budget for FY21, the market outlook and
projections for FY22 to determine, at 31 December 2020, the
achievement of the EPS condition.
The estimated fair value of the option over 200,000 ordinary
shares at 31 December 2020 was GBP137,016. 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 GBP32,616 has been
recognised in the Statement of Comprehensive Income in the year
ended 31 December 2020.
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:
2020 2019
GBP GBP
-------------------- --------------------
Weighted Weighted
average average
exercise exercise
price price
----------------------------------------- --------- --------- --------- ---------
Number of share options
Outstanding at the beginning of the year 2,209,800 GBP0.0503 2,184,800 GBP0.0508
Forfeited (30,000) GBP0.01 (170,000) GBP0.01
Granted 200,000 GBP0.01 195,000 GBP0.01
Outstanding at the end of the year 2,379,800 GBP0.0474 2,209,800 GBP0.0503
----------------------------------------- --------- --------- --------- ---------
The outstanding options at 31 December 2020 comprised 2,315,000
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 2020, 2,015,000 are exercisable on the announcement
of these financial statements for the year ended 31 December 2020
and the remaining 300,000 options were not yet exercisable.
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 weighted average remaining contractual life of options is
0.39 years (2019: 1.5 years).
28. 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:
2020 2019
GBP GBP
------------------------------------------------------- ------- -------
Interim and final dividend (ordinary shares of GBP0.01
each)
Richard Martin 168,839 842,536
Ian Wilson (retired 30 April 2020) - 127,221
Paul Latham 1,050 4,300
David Raggett 4,755 19,556
------------------------------------------------------- ------- -------
174,644 993,613
------------------------------------------------------- ------- -------
Directors' emoluments
Included within the remuneration of key management and personnel
detailed in note 9, the following amounts were paid to the
Directors:
2020 2019
GBP GBP
---------------------- --------- -------
Wages and salaries 1,040,413 729,624
Social security costs 132,923 92,363
Pension contribution 19,230 20,000
---------------------- --------- -------
1,192,566 841,987
---------------------- --------- -------
Details of Directors' interests in share options are disclosed
in the Directors' remuneration report on pages 42 to 44.
29. Acquisitions
The Board are pursuing a strategy to develop financial services
as a revenue stream to complement lettings and sales MSF. In 2019
the opportunity arose to buy a majority share in a Auxilium
Partnership Limited, a life assurance buyers club, headed up by
Mark Graves, who has a wealth of knowledge and contacts in the
financial services industry. The intention was for Mark to help
develop a financial services franchise.
On 7 January 2020 the Group took an 85% share in Aux Group
Limited, a newly incorporated holding company, which on the same
date bought a 85% of the share capital of Auxilium Partnership
Limited. The minority shareholder of each of these companies is
Mark Graves.
The consideration was GBP200,000.
The fair value of the identifiable assets and liabilities
acquired and the consideration paid and payable are set out
below:
GBP
---------------------------------------------- ---------
Office and computer equipment 2,695
Trade and other receivables 8,600
Cash 118,750
Trade and other payables (114,471)
Net assets acquired 15,574
---------------------------------------------- ---------
Goodwill 184,426
---------------------------------------------- ---------
Consideration 200,000
---------------------------------------------- ---------
Satisfied by:
Repayment of loan made to Mark Graves in 2019 200,000
Total 200,000
---------------------------------------------- ---------
Post acquisition results
Total
GBP
---------------------------------------------------- -------
Revenue 447,574
Profit before tax since acquisition included in the
Consolidated statement of comprehensive income 38,026
------------------------------------------------------ -------
30. Events after the reporting date
Effective 19 March 2021 the Group acquired the entire issued
share capital of Hunters Property PLC, a competitor property
franchisor with a network of 200 offices across the UK.
Consideration of GBP26.1m was paid which comprised of each Hunters
shareholder receiving 0.1655 New shares in The Property Franchise
Group PLC and 43.2 pence in cash. It is likely that the majority of
consideration will be attributed to intangible fixed assets
including master franchise agreements, brands, technology and
goodwill.
Due to the proximity of the acquisition to the date the
financial statements were authorised for issue by the Board, it has
not been possible to provide all of the information required for
disclosure in accordance with IFRS 3 'Business Combinations'. The
main areas of non-disclosure include a qualitative description of
the factors which make up goodwill and a fair value of the amounts
recognised as of the acquisition date for each major class of
assets acquired and liabilities assumed. Further disclosure of the
items required under IFRS 3 will be included in the June 2021 half
year report.
On 25 March 2021 the Board decided to sell Auxilium Partnership
Limited back to Mark Graves (a director and minority shareholder of
this company). The business was bought in January 2020, just before
the arrival of the new CEO, and the Group has now decided to pursue
a different approach to its financial services strategy.
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END
FR BDLBLFZLLBBB
(END) Dow Jones Newswires
April 27, 2021 02:00 ET (06:00 GMT)
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