REG - Mortgage Adv Bureau - Interim Results
29/09/2020 07:00
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RNS Number : 3700A Mortgage Advice Bureau(Holdings)PLC 29 September 2020
MORTGAGE ADVICE BUREAU (HOLDINGS) PLC
("MAB" or "the Group")
29 September 2020
Interim Results for the six months ended 30 June 2020
Mortgage Advice Bureau (Holdings) PLC (AIM: MAB1.L) is pleased to announce its
interim results for the six months ended 30 June 2020.
Financial highlights
● Revenue up 4% to £63.5m (H1 2019: £60.9m), including £6.1m of revenue
generated by First Mortgage, acquired in July 2019
● Gross profit up 22% to £17.2m (H1 2019: £14.2m)
● Gross margin of 27.2% (H1 2019: 23.3%)
● Adjusted overheads ratio((1)) of 14.9% (H1 2019: 11.2%)
● Adjusted profit before tax((2)) up 6% to £7.9m (H1 2019: £7.4m)
● Statutory profit before tax down 15% to £6.1m (H1 2019: £7.2m)
● Adjusted profit before tax margin((2)) of 12.4% (H1 2019: 12.2%)
● Reported profit before tax margin of 9.6% (H1 2019: 11.8%)
● Adjusted((2)) EPS up 7% to 13.2p (H1 2019: 12.3p)
● Basic EPS down 15% to 10.1p (H1 2019: 11.9p)
● Continued high operating profit to adjusted cash conversion((3)) of 97% (H1
2019: 99%)
Operational highlights
● Adviser numbers remained stable over the period, with 1,470 Advisers at 30
June 2020 (including 101 furloughed Advisers) (31 December 2019: 1,457)
● Average number of active Advisers((4)) up 12% to 1,396 (H1 2019: 1,242)
● Revenue per active Adviser down 7%((5))
● Gross mortgage completions (including product transfers) up 8% to £7.5bn (H1
2019: £6.9bn)
● Gross mortgage completions with new lenders up 2% to £6.4bn (H1 2019:
£6.3bn)
● Market share of new mortgage lending up 17% to 5.9% (H1 2019: 5.0%((6)))
● Launch of "MAB Later Life", a new proposition in the specialist later life
lending market
Post period end
● Continued strong trading since the re-opening of the housing market, with MAB
new mortgage applications at record levels
● Adviser numbers increased to 1,523 at 25 September 2019
● Australian Finance Group Ltd (ASX: AFG) becomes our new joint venture partner
in Australia
● Agreement to acquire a 40% stake in Meridian Holdings Group Ltd ("Meridian"),
our leading new build AR
Peter Brodnicki, Chief Executive, commented:
"These results illustrate the resilience of our operating model and the
quality and dedication of our management team and staff throughout the
Covid-19 pandemic. By reacting quickly and redeploying our resources to
capture all possible opportunities during the pandemic, we ensured that our H1
performance remained strong.
"Against an exceptionally challenging market where housing transactions were
25% lower than in H1 2019, we grew our revenue by 4% to £63.5m (H1 2019:
£60.9m), including £6.1m of revenue generated by our subsidiary First
Mortgage, acquired in July 2019. Gross mortgage completions grew by 8%, and
our market share by 17%, delivering on our strategy to grow market share in
all market conditions whilst maintaining a strong financial position.
"Adjusted earnings per share rose by 7% to 13.2 pence (H1 2019: 12.3 pence),
while basic earnings per share decreased by 15% to 10.1 pence (H1 2019: 11.9
pence), with the adverse revenue impact of the reduction in mortgage
completions being partially offset by the Board and MAB's non-furloughed
employees taking a 20% paycut in Q2 2020 as the pandemic escalated.
"I am very pleased with the progress we have achieved during the period and as
a result of our strong trading since the period end, the Board has approved
the reimbursement of these paycuts, which will increase staff costs by a total
of £0.8m in the second half. Subject to this strong performance continuing
throughout the remainder of the second half, and in the absence of any new
restrictions being imposed that significantly adversely impact the housing
market in the remainder of this year, we also intend to repay the £0.5m of
Government grant income the Group has received.
"The Group is currently trading strongly and, in the absence of any such new
restrictions, we expect adjusted profit before tax for the full year to be
significantly ahead of the market's current expectations. However, due to
the uncertainty arising from the pandemic, the Board intends to only pay a
final dividend in respect of the year ending 31 December 2020. As previously
announced, the Board remains committed to paying a further 6.4 pence per
share.
"The planned roll out of our new platform has continued and at pace, with the
crisis accelerating our development of new technology projects in many areas
of the business, particularly those critical to supporting the new ways of
working adopted by our Appointed Representatives ("ARs") during the lockdown.
"We have also launched 'MAB Later Life', a new and unique proposition in the
later life market developed in partnership with a leading integrated provider
of later life lending products. This is an exciting opportunity to broaden our
addressable market in a highly intermediated segment where specialist advice
is a key differentiator. Entering the later life market with a best in class
proposition will enable MAB to attract the highest quality advisers in this
sector which will help us build market share.
"In addition, Australian Finance Group Ltd ("AFG") becomes our new joint
venture partner to roll out our well established and successful UK model in
Australia. Listed on the Australian Stock Exchange, AFG is a leading
Australian mortgage network with extensive distribution channels and a strong
broker proposition. This new joint venture is an exciting development and a
real step change for our Australian operations, that will allow us to scale by
attracting the best brokers into our differentiated model.
"Despite the economic challenges that lie ahead, the strong factors that
underpin housing demand, combined with existing and future Government support,
cause us to be optimistic about the outlook.
"We continue to deliver sustainable long-term growth by providing the best
solutions and outcomes for our ARs and customers driven by our significant
focus on technology developments. We plan to continue growing our market share
and mortgage completions, whilst leading the evolution of intermediary
distribution."
(1 )MAB uses adjusted results as key performance indicators as the Directors
believe that these provide a more consistent measure of operating performance
by adjusting for acquisition related charges and significant one-off or
non-cash items. Adjusted overheads ratio is stated before £0.2m amortisation
of acquired intangibles and £0.4m of additional non-cash operating expenses
relating to the put and call option agreement to acquire the remaining 20% of
First Mortgage in H1 2020 and one-off costs associated with the acquisition of
First Mortgage of £0.2m in H1 2019.
(2) Adjusted profit before tax is stated before the items in (1) above and the
loan write off and loan provision totalling £1.7m and £0.5m of Government
grant income in H1 2020. Adjusted earnings per share is stated before the
items in (1) above and the loan write off and loan provision totalling £1.7m
and £0.5m of Government grant income in H1 2020, net of any associated tax
effects.
(3 )Adjusted cash conversion is cash generated from operating activities
adjusted for movements in non-trading items, including loans to AR firms and
associates totalling £0.3m in H1 2020 (H1 2019: £1.6m), £(0.2)m of
Government grant income received (H1 2019: nil), and increases in restricted
cash balances of £0.3m in H1 2020 (H1 2019: £1.0m), as a percentage of
adjusted operating profit.
(4) An active Adviser is an Adviser who has not been furloughed, and is
therefore able to write business.
(5 )Based on average number of active Advisers.
(6 )UK Finance regularly updates its estimates. MAB previously reported a 5.1%
market share in H1 2019 based on overall gross new mortgage lending of
£125.1bn, but that figure has slightly increased since, causing our actual
market share to be 5.0% in H1 2019.
Current Trading and Outlook
Since the re-opening of the housing market (initially in England on 13 May and
then in Scotland, Wales and Northern Ireland at the end of June), there has
been a sharp increase in purchase-related mortgage activity, despite the
highly restricted availability of higher loan to value mortgages. Advisers
continue to engage remotely with customers, with the number of mortgage
applications across the network reaching record levels.
Recruitment activity has also picked up strongly, both in terms of organic
growth and new ARs. All the Advisers who were furloughed are now back at work,
and as at 25 September 2020 our Adviser number was 1,523. We believe that
until the longer-term picture becomes more certain, some of our AR firms will
remain cautious on Adviser recruitment, but will look to strengthen their
teams where required in terms of Adviser quality.
The Group is currently trading strongly and, in the absence of any new
restrictions being imposed that significantly adversely impact the housing
market in the remainder of this year, we expect adjusted profit before tax for
the full year to be significantly ahead of the market's current
expectations. However, due to the uncertainty arising from the pandemic, the
Board intends to only pay a final dividend in respect of the year ending 31
December 2020. As previously announced, the Board remains committed to paying
a further 6.4 pence per share when it considers it prudent to do so.
For further information please contact:
Mortgage Advice Bureau (Holdings) Plc Tel: +44 (0) 1332 525007
Peter Brodnicki - Chief Executive Officer
Ben Thompson - Deputy Chief Executive Officer
Lucy Tilley - Chief Financial Officer
Numis Securities
Limited
Tel: +44 (0)20 7260 1000
Stephen Westgate / Hugo Rubinstein / Laura White
Media Enquiries:
investorrelations@mab.org.uk
Analyst presentation
There will be an analyst presentation to discuss the results at 9:30am
today.
Those analysts wishing to attend are asked to contact
investorrelations@mab.org.uk
Copies of this interim results announcement are available at
www.mortgageadvicebureau.com/investor-relations
Chief Executive's Review
I am very pleased with MAB's performance in the first half of this financial
year given the exceptionally challenging market conditions. Once again, we
outperformed the wider market and managed to continue to grow both our revenue
and market share in a market that contracted heavily despite the strong start
to the year.
Our growth in mortgage completions arranged is set out below:
H1 2020 H1 2019 Increase
£bn £bn
New mortgage lending 6.4 6.3 +2%
Product Transfers 1.1 0.6 +65%
Gross mortgage lending 7.5 6.9 +8%
In terms of the wider market, Q1 saw a year-on-year improvement with a 5%
increase in UK gross new mortgage lending activity (excluding product
transfers). However, the lockdown led to a dramatic fall in mortgage activity
in Q2, with April and May housing transactions down 58% and 53% year-on-year
and UK gross new mortgage lending (excluding product transfers) down 33% and
37% respectively.
Purchase mortgages were the hardest hit, with year-on-year residential
purchase mortgage lending volumes decreasing by 46% in Q2 and buy-to-let
purchase mortgage lending volumes decreasing by 44%. Re-financing activity
held up better, partially driven by the strength in product transfers.
Home-owner and buy-to-let re-mortgage lending volumes decreased by 15% and 21%
respectively in Q2, whilst product transfer lending volumes grew by 4%
year-on-year.
Against this negative backdrop, our total gross mortgage completions
(including product transfers) increased by 8% to £7.5 billion (H1 2019: £6.9
billion), including £0.7 billion of mortgage completions by First Mortgage.
Gross mortgage completions arranged through new lenders((1)) (excluding
product transfers) increased by 2% to £6.4 billion (H1 2019: £6.3 billion).
Our growth in new mortgage lending combined with the overall contraction of
the mortgage market led to an increase in our share of UK new mortgage lending
by 17% from 5.0%((2)) to 5.9%, despite the housing market in Scotland, where
MAB has a particularly strong presence, remaining closed for seven weeks
longer than in England.
MAB responded quickly and effectively to the pandemic, prioritising the health
and safety of staff and ensuring our resources were deployed where our
Advisers needed them most. We rolled out more than 40 new campaigns and
initiatives to our AR network in April and May alone, supporting Advisers to
optimise the many re-financing and protection opportunities.
Our decisive response to the pandemic also allowed us to capitalise on the
increase in product transfer numbers, achieving a 65% increase in product
transfer completions during the period.
Whilst lenders were facing major operational and capacity issues, MAB launched
a national contact campaign and helpline to support new and existing customers
who were addressing their own financial challenges brought about by the
pandemic. This resulted in customer relationships being further strengthened,
and new business opportunities being identified.
Our AR firms were quick to adapt their business models and adopt new ways of
working. During the lockdown, the transition to full telephony advice, already
an important and fast-growing area of the business, was seamless. An
increasing number of Advisers continue to engage remotely with customers and
we are working closely with our AR partners to ensure that the increased
levels of existing customer focus and business efficiency remain, now that
purchase transaction levels have recovered to more normal levels.
Progressing our technology initiatives remained a priority throughout the
period to ensure key projects relating to increased operational efficiency,
lead generation and productivity are delivered to plan. Additional technology
enhancements in support of the new ways of working adopted by our ARs have
also been accelerated.
Covid-19 has made securing a mortgage more challenging and complex, as lenders
have struggled with significant operational challenges, including the high
number of payment holidays taken up by borrowers and the need to consistently
apply lending policies. As a result, consumer reliance on mortgage
intermediaries has increased, with intermediary market share strengthening as
a result. In addition, execution-only sales by lenders have not progressed
during the period.
Overall, Adviser numbers remained stable during the period. As at 20 March
2020, Adviser numbers had grown to 1,484 (31 December 2019: 1,457) despite a
noticeable pandemic-related slowdown in the run-up to that date. During the
lockdown, we understandably saw normal levels of attrition in Adviser numbers
and very limited recruitment of new Advisers. At 30 June 2020, Adviser count
stood at 1,470 (including 101 Advisers remaining furloughed). Since the
re-opening of the housing market and the relaxing of social distancing, our
pipeline of new AR firms has grown substantially. Our existing firms have now
started to strengthen their teams where required in terms of Adviser quality,
with those who planned organic growth in 2020 recommencing those plans.
(1) 'Gross mortgage lending arranged with new lenders' means either a new
mortgage in connection with a house purchase or a re-mortgage with a different
lender to the customer's existing lender.
(2) UK Finance regularly updates its estimates. MAB previously reported a 5.1%
market share in H1 2019 based on overall gross new mortgage lending of
£125.1bn, but that figure has slightly increased since, causing our actual
market share to be 5.0% in H1 2019.
Delivering our strategy
Recruitment of Advisers
During Q2 2020, we saw normal levels of attrition in Adviser numbers with our
AR firms also placing around 245 Advisers on furlough at the height of the
crisis. Recruitment of new Advisers was however very limited, and although
discussions with potential new ARs continued, no new firms were added over
this quarter.
Subsequently, recruitment activity has picked up strongly, both in terms of
organic growth and new ARs. As at 30 June 2020, our Adviser number was 1,470
including 101 furloughed Advisers. All the Advisers who were furloughed are
now back at work, and as at 25 September 2020, our Adviser number was 1,523.
We believe that until the longer-term picture becomes more certain, some AR
firms will remain cautious about Adviser recruitment, but will look to
strengthen their teams where required in terms of Adviser quality.
The speed, level and quality of support delivered to our ARs and their
Advisers during such unprecedented times was exceptional, bringing us even
closer together and more aligned than ever.
However, the lack of meaningful support received during the pandemic by many
AR firms outside of MAB has led these firms to review their existing network
relationships. This is creating opportunities that MAB is already capitalising
on, with AR recruitment activity building very strongly.
Technology
Following the successful conclusion of our testing and pilot periods we are
now rolling out our new technology platform to all ARs, with the aim of having
this concluded by the end of Q1 2021.
The first release of our platform has focused on lead generation and client
retention, which are both key drivers in terms of Adviser growth and our plans
to increase productivity.
Further developments will quickly follow, delivering greater Adviser
efficiency and simplifying mortgage application processes, as well as
providing better tools for customers in terms of how they research, receive
advice and transact.
Throughout the period we accelerated the development of many technology
projects critical to supporting the new ways of working adopted as a result of
the pandemic. This included bringing forward our commitment to strengthen our
compliance proposition to ARs. Recognising the impact of remote working, we
have built and rolled out a new compliance platform which will bring about
significant efficiencies in our operations and risk management.
Lead Generation
Customer lead generation is a key area of focus for MAB, which combined with
technology developments will drive Adviser growth and productivity.
Consequently, we have widened our focus on additional ways of acquiring
customers cost effectively and at scale.
Our ARs generate their own leads primarily from builders, estate agents and
their existing customer base and this continues to be a major focus for them.
In addition, MAB is combining significant technology developments, data
profiling and marketing initiatives to engage with customers online and
capture missed opportunities across these three primary lead sources, whilst
also widening reach through digital lead generation from a far greater and
diverse audience. This includes courting potential customers a great deal
earlier than they are currently, such as those starting to research their
first home or next purchase, and then nurturing them through the process and
helping them become "purchase ready".
We are very pleased with the progress we have made and expect this initiative
to gain real momentum in 2021, building to become a major contributor to our
future growth.
Broadening our addressable market
During the period we launched the first phase of "MAB Later Life", a new
initiative in partnership with a leading, specialist provider of later life
lending. Broadening our addressable market to include products for over 55s is
an important part of our strategy to extend our proposition.
The later life market is an important growth segment which is highly
intermediated, with customers needing comprehensive financial advice and
appropriate solutions to release equity, often to supplement inadequate
pension provision or provide inter-generational assistance to their family.
The first phase of this strategic alliance has seen the distribution of later
life mortgage products through a group of existing specialist MAB advisers
working under the MAB Later Life brand. We are now extending this new
opportunity to firms currently outside of MAB that are looking for a best in
class proposition to capitalise on their specialism in this sector.
Investment strategy
We continue to make strategic investments in new and existing distribution
partners. Earlier this month we agreed to acquire a 40% investment in
Meridian, our leading new build AR. Meridian will have a key role to play in
our plans to achieve even stronger market share growth in this specialist
sector.
As announced today, AFG becomes our new joint venture partner to roll out our
model in Australia. AFG is a leading mortgage network in Australia with
extensive distribution channels and a strong broker proposition. This new
joint venture is an exciting development and a real step change for our
Australian operations, that will allow us to attract the best brokers into our
differentiated model.
Summary
This period has again proved how MAB can weather adverse market conditions and
perform strongly. MAB consistently outperforms the market, and our response to
the Covid-19 pandemic could not have been more decisive and effective.
Despite the significant disruption to the housing market and to mortgage
lending, we are capitalising on the opportunities that have arisen from these
challenging times to achieve our growth and performance objectives.
The immediate and comprehensive support MAB provided to our AR firms in
response to the pandemic stood out relative to some other operators in our
sector. This further differentiation has positively contributed to our
pipeline of potential new AR firms, which has been building rapidly since
certain social distancing measures have been relaxed.
There have been no delays to our planned technology developments as a result
of Covid-19. In addition, our team successfully re-prioritised developments to
respond to an overnight change in how Advisers needed to engage with customers
and support the heightened focus required to maximise the opportunities
outside of house purchase transactions.
We also strengthened the management team during the period with the addition
of a Head of Partnerships, a Chief Commercial Officer and a new Chief
Information Officer. These are all key new roles focused on lead generation,
the performance of our investments, and the delivery of our technology
developments.
Our new MAB Later Life initiative provides MAB with a unique, best in class
proposition to broaden our addressable market and drive additional adviser
growth. In addition, our new joint venture with AFG provides the optimal
platform for growth in Australia, with our UK model now adapted, tested and
proven in this market.
Our investment in Meridian will be an important part of our plans to increase
market share in the specialist new build sector. We continue to consider
investments that will enhance our proposition and deliver strong additional
profit growth.
Despite a turbulent year to date and the continued uncertainty arising from
the pandemic, we have continued to strengthen MAB's proposition and our
ability to deliver continued year-on-year market share growth, increased
efficiency and profitability. We remain very positive about what we can
achieve in 2021 and beyond.
Business Review of the year
I am pleased to report further growth in revenue of 4% to £63.5m, including
£6.1m from our First Mortgage subsidiary acquired in July 2019. MAB's gross
mortgage completions (including product transfers) increased by 8% to £7.4bn
(H1 2019: £6.9bn). Excluding product transfers, our gross new mortgage
completions increased by 2% and this, together with a 13% contraction of the
overall new mortgage lending market, led to a 17% increase in our share of UK
gross new mortgage lending to 5.9% (H1 2019: 5.0%((1))).
Market environment
In Q1 2020, gross new mortgage lending activity (excluding product transfers)
increased by 5%, as consumer confidence strengthened post the December 2019 UK
General Election. UK housing transaction volumes were relatively flat over
this quarter, with a 1% decrease year-on-year.
In Q2 2020, the closure of the housing market during lockdown led to a
dramatic 30% fall in gross new mortgage lending compared to Q2 2019, with
housing transactions down 47% over the same period.
Overall, gross new mortgage lending activity in H1 2020 fell by 13% to
£109.7bn (H1 2019: £126.0bn((1))), excluding product transfers. UK housing
transactions fell by 25% over the reporting period versus the comparative
period in 2019 as illustrated in the graph below.
Due to the current uncertainty, UK Finance has not updated its estimates of
gross new mortgage lending for the full year.
http://www.rns-pdf.londonstockexchange.com/rns/3700A_3-2020-9-28.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3700A_3-2020-9-28.pdf)
Source: HM Revenue and Customs
In terms of segmental breakdown, residential purchase lending volumes
increased by 6% in Q1 2020, whilst home-owner re-mortgage lending volumes
increased by 3%. In Q2 2020, purchase transactions were the hardest hit as a
result of the lockdown, with year-on-year residential and buy-to-let purchase
lending volumes falling by 46% and 44% respectively. Re-financing activity was
less adversely impacted, with a shift towards product transfers due to the
ease with which they can be transacted even in lockdown conditions and the
reduced availability of re-financing products. Product transfer lending
volumes grew by 4% year-on-year in Q2 2020, partially offsetting more
significant declines in other types of re-financing, with home-owner and
buy-to-let re-mortgage lending volumes decreasing by 15% and 21% respectively.
As illustrated in the graph below, for the first six months of the year
residential and buy-to-let purchase lending volumes fell by 22% and 13%
respectively. Re-mortgage lending volumes were less affected, with home-owner
and buy-to-let re-mortgage lending volumes decreasing by 6% and 7%
respectively. Product transfers lending volumes increased by 4% in the period.
http://www.rns-pdf.londonstockexchange.com/rns/3700A_2-2020-9-28.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3700A_2-2020-9-28.pdf)
Source: UK Finance
Approximately 79% of UK residential mortgage transactions (excluding buy to
let, where intermediaries have a higher market share, and product transfers
where intermediaries have a lower market share) were via intermediaries in H1
2020 (H1 2019: 77%). MAB expects this position to remain broadly stable in the
near term.
In response to the crisis, the Government and the Bank of England announced a
strong package of temporary measures in support of both mortgage lenders and
borrowers, including reduced capital buffer requirements for banks, in
addition to helping them cut lending rates by setting the Bank of England base
rate at a record low of 0.1%. The increase in the stamp duty threshold is
likely to further support the housing market recovery in the short term, as
will wider Government measures including increased housing investment and the
continued availability of the Help to Buy Equity Loan and Shared Ownership
schemes.
(1) UK Finance regularly updates its estimates. MAB previously reported
£125.1bn for H1 2019 but this figure has slightly increased to £126.0bn
since, causing our actual market share to be 5.0% in H1 2019.
Financial review
We measure the development, performance and position of our business against a
number of key indicators.
http://www.rns-pdf.londonstockexchange.com/rns/3700A_1-2020-9-28.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3700A_1-2020-9-28.pdf)
Revenue
Group revenue increased by 4% to £63.5m (H1 2019: £60.9m), including £6.1m
of revenue generated by First Mortgage, with strong growth in Q1 2020 offset
by the adverse impact of the national lockdown in Q2 2020. Normally, a key
driver of revenue is the average number of Advisers during the period.
However, in Q2 2020 a number of Advisers were furloughed by ARs and the
productivity of active Advisers((1)) was adversely impacted by the closure of
the housing market during lockdown, resulting in a £3.5m (6%) reduction in
organic revenue for the first half.
In Q1 2020, revenue was up 25% on the prior year (14% excluding First
Mortgage), with average Adviser numbers up 19% (13% excluding First Mortgage)
and average revenue per Adviser up 5% (1% excluding First Mortgage),
reflecting the start of the impact of improving market conditions and change
in customer sentiment post the UK General Election, as well as the success of
our growth strategy.
This trend was reversed in Q2 2020 as the adverse impact of lockdown on
mortgage completions started to bite, with revenue down 14% (22% excluding
First Mortgage) compared to the prior year. Average active Adviser((1))
numbers were up 7% (1% excluding First Mortgage) and average revenue per
active Adviser((1)) decreased by 19% (23% excluding First Mortgage).
The Group continued to generate revenue from three core areas, summarised as
follows:
Group Excluding First Mortgage
Income source H1 2020 H1 2019 Change H1 2020 H1 2019 Change
%
%
£m £m £m £m
Mortgage Procuration Fees 27.6 26.7 +3 25.1 26.7 -6
Protection and General Insurance Commission 26.3 23.6 +11 22.9 23.6 -3
Client Fees 8.1 9.7 -16 8.1 9.7 -16
Other Income 1.5 0.9 +63 1.2 0.9 +37
Total 63.5 60.9 +4 57.4 60.9 -6
Despite the adverse impact of the pandemic in Q2 2020, all key income sources,
other than client fees, continued to grow as a result of the positive
contribution from First Mortgage.
During the period, MAB's mortgage mix saw a higher proportion of re-mortgage
and product transfer business as lockdown severely restricted the completion
of purchase transactions. Product transfers generate a lower procuration fee
than re-mortgages and purchase mortgages. As a result of the change in mix and
delays in the progression of housing transactions, mortgage procuration fees
increased by only 3% despite gross mortgage completions (including product
transfers) increasing by 8%.
Excluding First Mortgage, gross mortgage completions (including product
transfers) decreased by 3% with mortgage procuration fees reducing by 6% as a
result of the change in mix.
Client fees reduced by 16% in the period resulting from a considerable
reduction in the attachment rate of client fees and the change in the mortgage
mix in Q2 2020 for MAB excluding First Mortgage, which does not charge client
fees.
The increase of 11% in protection and general insurance commission for the
Group reflects both the impact of the First Mortgage acquisition and the
increase in protection attachment rates and freestanding protection sales in
Q2 2020 after the Group prioritised resources in this area. For the Group
excluding First Mortgage, protection and general insurance commission
decreased by 3% with improved attachment rates and freestanding protection
sales in Q2 2020 mitigating in part the 6% reduction in mortgage procuration
fees.
MAB's revenue, in terms of proportion, is split as follows:
Income source H1 2020 H1 2019
Mortgage Procuration Fees 44% 44%
Protection and General Insurance Commission 41% 39%
Client Fees 13% 16%
Other Income 2% 1%
Total 100% 100%
The slight increase in the proportion of protection and general insurance
commission reflects the increase in protection attachment rates and in
freestanding protection sales in Q2 2020. As anticipated, the proportion of
client fees fell following the acquisition of First Mortgage, but this change
in revenue mix was made more pronounced by the considerable reduction in the
attachment rate of client fees and the change of mortgage mix in Q2 2020 for
MAB excluding First Mortgage. We expect client fees to become increasingly
dependent upon the type and complexity of the mortgage transaction, as well as
the delivery channel. This will lead to a broader spread of client fees on
mortgage transactions, which, by their nature, are our lowest margin revenue
stream.
Government grant income
Government grant income of £0.5m was received due to some employees being
placed on furlough during the months of April, May and June 2020.
Gross profit margin
As anticipated, gross profit margin increased to 27.2% (H1 2019: 23.3%) due to
the acquisition of First Mortgage, which naturally has a higher gross margin
of c.65% as its advisers are directly employed. Excluding First Mortgage,
gross profit margin was 23.3% (H1 2019: 23.3%). The Group typically receives a
slightly reduced margin as its existing ARs grow their revenue organically
through increasing their Adviser numbers. In addition, larger new ARs
typically join the Group on lower than average margins due to their existing
scale and hence we expect to see some further erosion of our underlying gross
profit margin due to the continued growth of our existing ARs and the addition
of new larger ARs.
Overheads
Overheads as a percentage of revenue before £0.2m of amortisation of acquired
intangibles and £0.4m of additional non-cash operating expenses relating to
the put and call option agreement to acquire the remaining 20% of First
Mortgage in H1 2020 and one-off costs associated with the acquisition of First
Mortgage of £0.2m in H1 2019 were 14.9% (H1 2019: 11.2%).
This increase in overheads as a percentage of revenue was anticipated and
results from First Mortgage naturally having a higher overheads ratio than
that of MAB due to its operating model. Excluding FMD, overheads as a
percentage of revenue were 11.6% (H1 2019: 11.2%), with the reduction in
completions not quite being offset by the salary cuts of 20% taken by the
Board and MAB's non-furloughed employees, and 50% by the Chief Executive
Officer in Q2 2020, as the pandemic escalated. On 1 July, MAB's staff that
were still furloughed returned to work, with the exception of some of those
within First Mortgage due to the timing of the Scottish property market
reopening.
MAB continues to benefit from the scalable nature of the majority of its cost
base. Certain costs, primarily those relating to compliance personnel, are
closely correlated to growth in the number of Advisers, due to the high
standards we demand and the requirement to maintain regulatory spans of
control. The balance of our compliance costs mainly relate to FCA and FSCS
regulatory fees and charges. The remainder of MAB's costs typically rise at a
slower rate than revenue which will, in part, counter the expected erosion of
MAB's underlying gross margin as the business continues to grow.
As a result of MAB's IT plans and capital expenditure, as previously
indicated, we expect our IT costs and our amortisation on IT capital
expenditure to increase by a modest amount. All development work on MIDAS Pro
and our new platform technology are treated as revenue expenditure.
Associates
MAB's share of profits from associates was £0.1m (H1 2019: loss of
£0.04m). During the period MAB wrote off the £1.1m loan balance due from
Freedom 365 Mortgage Solutions Limited due to the adverse impact of the
pandemic on its business model. MAB has also made a provision of £0.6m
against the full balance of the loan due from Eagle & Lion Limited. The
remainder of the Group's associates have performed well during the pandemic
and whilst profit levels within these businesses will be impacted this year
they are in a strong position to contribute positively to the Group's results
as we move into 2021.
Profit before tax and margin thereon
Adjusted((2)) profit before tax rose by 6% to £7.9m (H1 2019: £7.4m), with
the margin thereon increasing to 12.4% (H1 2019: 12.2%). Statutory profit
before tax reduced to £6.1m (H1 2019: £7.2m) with the margin thereon being
9.6% (H1 2019: 11.8%).
Finance revenue
Finance income of £0.08m (H1 2019: £0.08m) reflects continued low interest
rates and interest income accrued on loans to associates. Finance expense of
£0.12m reflects the interest payable on MAB's Revolving Credit Facility of
£12m which was drawn down in full at the end of March and interest expenses
on lease liabilities.
Taxation
The effective rate of tax reduced to 12.4% (H1 2019: 15.3%), principally due
to the write off of the balance of the loan due from Freedom 365 Mortgage
Solutions Limited and the provision made against the loan due from Eagle and
Lion Limited, as well as the tax deduction arising from the exercise of
employee and Appointed Representative share options being higher than in the
prior year. We expect our effective tax rate to continue to be marginally
below the prevailing UK corporation tax rate, subject to tax credits for MAB's
research and development expenditure on the continued development of MIDAS
Pro, MAB's proprietary software, still being available and further tax
deductions arising from the exercise of employee share options.
Earnings per share and dividend
Adjusted((2)) earnings per share rose by 7% to 13.2 pence (H1 2019: 12.3
pence). Basic earnings per share decreased by 15% to 10.1 pence (H1 2019: 11.9
pence).
The Group is currently trading strongly, however due to the uncertainty
arising from the pandemic, the Board intends to only pay a final dividend in
respect of the year ending 31 December 2020. As previously announced, the
Board remains committed to paying a further 6.4 pence per share when it
considers it prudent to do so.
Cash flow and cash conversion
The Group's operations produce positive cash flow. This is reflected in the
net cash generated from operating activities of £5.9m (H1 2019: £5.4m).
Headline cash conversion((3)) was:
H1 2020 101%
H1 2019 113%
Adjusted cash conversion((4)) was:
H1 2020 97%
H1 2019 99%
The Group's operations are capital light with our most significant ongoing
capital investment being in computer equipment. Only £0.2m of capital
expenditure on office and computer equipment was required during the period
(H1 2019: £0.1m). Group policy is not to provide company cars, and no other
significant capital expenditure is foreseen in the coming year. All
development work on MIDAS Pro is treated as revenue expenditure.
The Group had bank borrowings of £12m at 30 June 2020 (30 June 2019: £nil)
having drawn down the Group's revolving credit facility in full in March.
The Group had unrestricted bank balances of £21.5m at 30 June 2020, including
the £12m drawn down under the RCF (31 December 2019: £7.0m).
The Group has a regulatory capital requirement amounting to 2.5% of regulated
revenue. At 30 June 2020 this regulatory capital requirement was £2.9m (31
December 2019: £3.1m), with the Group having a surplus of £15.6m.
The following table demonstrates how cash generated from operations was
applied:
£m
Unrestricted bank balances at the beginning of the year 7.0
Cash generated from operating activities excluding movements in restricted 7.5
balances and dividends received from associates
Issue of shares 0.6
Dividends received from associates 0.1
Dividends paid (3.4)
Tax paid (2.0)
Net interest paid and principal element of lease payments (0.2)
Capital expenditure (0.2)
Unrestricted net bank balances and cash held in escrow at the end of the 9.4
period
The Group's treasury strategy is to reduce risk by spreading deposits over a
number of institutions rather than to seek marginal improvements in returns.
(1) An active Adviser is an Adviser who has not been furloughed, and is
therefore able to write business.
(2) In H1 2020 adjusted for £0.2m amortisation of acquired intangibles and
£0.4m of additional non-cash operating expenses relating to the put and call
option agreement to acquire the remaining 20% of First Mortgage, the loan
write off and loan provision totalling £1.7m, and £0.5m of Government grant
income (resulting in a £1.8m net adjustment in H1 2020). In H1 2019 adjusted
for one-off costs associated with the acquisition of First Mortgage of £0.2m.
(3 )Headline cash conversion is cash generated from operating activities
adjusted for movements in non-trading items, including loans to AR firms and
associates totalling £0.3m in H1 2020 (H1 2019: £1.6m), and £(0.2)m of
government grant income received (H1 2019: nil), resulting in a £(0.2)m net
adjustment, as a percentage of adjusted operating profit.
(4 )Adjusted cash conversion is headline cash conversion adjusted for
increases in restricted cash balances of £0.3m in H1 2020 (H1 2019: £1.0m)
as a percentage of adjusted operating profit.
INDEPENDENT REVIEW REPORT TO MORTGAGE ADVICE BUREAU (HOLDINGS) PLC
Introduction
We have been engaged by the Company to review the half year report for the six
months ended 30 June 2020 which comprises the interim condensed consolidated
statement of comprehensive income, interim condensed consolidated statement of
financial position, interim condensed consolidated statement of changes in
equity and interim condensed consolidated statement of cash flows and notes to
the interim condensed consolidated financial statements.
We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of
financial statements.
Directors' responsibilities
The half year report including the financial information contained therein, is
the responsibility of and has been approved by the directors. The directors
are responsible for preparing the half year report in accordance with the
rules of the London Stock Exchange for companies trading securities on AIM
which require that the half-yearly report be presented and prepared in a form
consistent with that which will be adopted in the Company's annual accounts
having regard to the accounting standards applicable to such annual accounts.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half year report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information
Performed by the Independent Auditor of the Entity'', issued by the Financial
Reporting Council for use in the United Kingdom. A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on Auditing (UK)
and consequently does not enable us to obtain assurance that we would become
aware of all significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half year
financial report for the six months ended 30 June 2020 is not prepared, in all
material respects, in accordance with the rules of the London Stock Exchange
for companies trading securities on AIM.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the rules of the London
Stock Exchange for companies trading securities on AIM and for no other
purpose. No person is entitled to rely on this report unless such a person
is a person entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do so by our
prior written consent. Save as above, we do not accept responsibility for
this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London
United Kingdom
Date
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Interim condensed consolidated statement of comprehensive income for the six
months ended 30 June 2020
Six months ended 30 June
Note 2020 2019
Unaudited Unaudited
£'000
£'000
Revenue 2 63,464 60,893
Cost of sales 2 (46,220) (46,730)
Gross profit 17,244 14,163
Government grant income 1 513 -
Administrative expenses (10,033) (6,993)
Impairment of loans to related parties 11 (1,656) -
Share of profit from associates, net of tax 88 112
Amount written off associates - (155)
Operating profit 6,156 7,127
Analysed as:
Operating profit before: 7,898 7,330
Government grant income 1 513 -
Amortisation of acquired intangibles 3 (183) -
Costs relating to the First Mortgage option 3 (416) -
Acquisition costs 3 - (203)
Impairment of loans to related parties 11 (1,656) -
Operating profit 6,156 7,127
Finance income 4 75 77
Finance expense 4 (117) -
Profit before tax 6,114 7,204
Tax expense 5 (759) (1,100)
Profit for the period 5,355 6,104
Total comprehensive income 5,355 6,104
Profit is attributable to:
Equity owners of Parent Company 5,244 6,104
Non-controlling interests 111 -
5,355 6,104
Earnings per share attributable to the owners of the Parent Company 6
Basic 10.1p 11.9p
Diluted 10.0p 11.7p
Interim condensed consolidated statement of financial position
as at 30 June 2020 and 31 December 2019
Note 30 June 2020 31 Dec 2019
Unaudited Audited
£'000
£'000
Assets
Non-current assets
Property, plant and equipment 2,923 2,924
Right of use assets 2,722 2,907
Goodwill 8 15,155 15,155
Other intangible assets 3,561 3,862
Investments in associates and joint venture 9 3,163 3,133
Investment in non-listed equity shares 10 75 75
nvestments
Trade and other receivables 11 2,044 3,330
Deferred tax asset 1,201 1,517
Total non-current assets 30,844 32,903
Current assets
Trade and other receivables 11 5,126 4,959
Cash and cash equivalents 15 35,635 20,867
Total current assets 40,761 25,826
Total assets 71,605 58,729
Interim condensed consolidated statement of financial position
as at 30 June 2020 and 31 December 2019 (continued)
Note 30 June 2020 Unaudited 31 Dec 2019
£'000
Audited
£'000
AEquity and liabilities
Equity and liabilities
Share capital 16 52 52
Share premium 16 6,052 5,451
Capital redemption reserve 20 20
Share option reserve 2,368 2,799
Retained earnings 19,643 17,272
Equity attributable to owners of Parent Company 28,135 25,594
Non-controlling interests 1,620 1,595
Total equity 29,755 27,189
Liabilities
Non-current liabilities
Provisions 3,977 3,735
Lease liabilities 2,477 2,645
Deferred tax liability 692 651
Total non-current liabilities 7,146 7,031
Current liabilities
Trade and other payables 12 21,668 22,371
Loans and borrowings 13 12,083 -
Lease liabilities 317 334
Corporation tax liability 636 1,804
Total current liabilities 34,704 24,509
Total liabilities 41,850 31,540
Total equity and liabilities 71,605 58,729
Interim condensed consolidated statement of changes in equity for the six
months ended 30 June 2020
Attributable to the holders of the Parent Company
Share option reserve
Share capital Capital redemption reserve £'000 Non-controlling Interest £'000
£'000
£'000 Share Retained earnings Total equity £'000
£'000
premium Total
£'000
£'000
Balance at 1 January 2019 51 4,094 20 1,675 14,829 20,669 - 20,669
Profit for the period - - - - 6,104 6,104 - 6,104
Total comprehensive income - - - - 6,104 6,104 - 6,104
Transactions with owners
Issue of shares - 994 - - - 994 - 994
Share based payment transactions - - - 253 - 253 - 253
Deferred tax assets recognised in equity - - - 76 - 76 - 76
Reserve transfer - - - (132) 132 - - -
Dividends paid - - - - (6,506) (6,506) - (6,506)
Total transactions with owners
- 994 - 197 (6,374) (5,183) - (5,183)
Balance at 30 June 2019 (unaudited) 51 5,088 20 1,872 14,559 21,590
-
21,590
Balance at 1 January 2020 52 5,451 20 2,799 17,272 25,594 1,595 27,189
Profit for the period - - - - 5,244 5,244 111 5,355
Total comprehensive income - - - - 5,244 5,244
111 5,355
Transactions with owners
Issue of shares - 601 - - - 601 - 601
Share based payment transactions - - - 430 - 430 - 430
Deferred tax asset recognised in equity - - - (423) - (423) - (423)
Reserve transfer - - - (438) 438 - - -
Dividends paid - - - - (3,311) (3,311) (86) (3,397)
Total transactions with owners - 601 - (431) (2,873)
(2,703) (86) (2,789)
Balance at 30 June 2020 (unaudited) 52 6,052 20 2,368 19,643 28,135 1,620 29,755
Interim condensed consolidated statement of cash flows for the six months
ended 30 June 2020
Six months ended 30 June
2020 2019
Unaudited Unaudited
£'000
£'000
Cash flows from operating activities
Profit for the period before tax 6,114 7,204
Adjustments for
Depreciation of property, plant and equipment 189 104
Depreciation of right of use assets 185 -
Amortisation of intangibles 302 24
Share based payments 430 253
Share of profit from associates (88) (112)
Dividends received from associates 58 243
Finance income (75) (77)
Finance expense 117 -
7,232 7,639
Changes in working capital
Decrease/(Increase) in trade and other receivables (other than accrued 1,148 (979)
interest income)
Increase/(Decrease) in trade and other payables (703) (147)
Increase in clawback provisions 242 106
Cash generated from operating activities 7,919 6,619
Income taxes paid (1,993) (1,248)
Net cash generated from operating activities 5,926 5,371
Cash flows from investing activities
Purchase of property, plant and equipment (188) (80)
Purchase of Intangibles (1) -
Acquisitions of associates - (1,256)
Acquisition of unlisted investment - (75)
Net cash used in investing activities (189) (1,411)
Cash flows from financing activities
Proceeds from borrowings 12,000 -
Interest received 46 31
Interest paid (34) -
Principal element of lease payments (185) -
Issue of shares 601 994
Dividends paid (3,311) (6,506)
Dividends paid to minority interest (86) -
Net cash generated/(used) in financing activities 9,031 (5,481)
Net Increase/(Decrease) in cash and cash equivalents 14,768 (1,521)
Cash and cash equivalents at the beginning of the period 20,867 25,589
Cash and cash equivalents at the end of the period 35,635 24,068
Notes to the interim condensed consolidated financial statements for the six
months ended 30 June 2020
1 Accounting policies
Corporate information
The interim condensed consolidated financial statements of Mortgage Advice
Bureau (Holdings) Plc and its subsidiaries (collectively, "the Group") for the
six months ended 30 June 2020 were authorised for issue in accordance with a
resolution of the directors on 28 September 2020.
Mortgage Advice Bureau (Holdings) Plc ("the Company") is a limited company
incorporated and domiciled in England whose shares are publicly traded on the
Alternative Investment Market ("AIM"). The registered office is located at
Capital House, Pride Place, Pride Park, Derby, DE24 8QR. The Group's principal
activity is the provision of financial services.
Basis of preparation
The interim condensed consolidated financial statements for the six months
ended 30 June 2020 have been prepared in accordance with IAS 34 Interim
Financial Reporting. The Group has applied the same accounting policies and
methods of computation in its interim consolidated financial statements as in
its 2019 annual financial statements, other than as noted below.
The interim condensed consolidated financial statements do not include all the
information and disclosures required in the annual financial statements, and
should be read in conjunction with the Group's IFRS financial information as
at 31 December 2019.
The information relating to the six months ended 30 June 2020 and the six
months ended 30 June 2019 is unaudited and does not constitute statutory
financial statements within the meaning of section 434 of the Companies Act
2006. The Group's statutory financial statements for the year ended 31
December 2019 have been reported on by its auditor and delivered to the
Registrar of Companies. The report of the auditor was unqualified and did not
draw attention to any matters by way of emphasis, or contain a statement under
section 498(2) or (3) of the Companies Act 2006.
Going Concern
The Directors have assessed the Group's prospects until the end of 2021,
taking into consideration the current operating environment, including the
impact of the coronavirus pandemic on property and lending markets. To give
the Group additional flexibility to react quickly in this environment and
capitalise on potential opportunities the Group drew down its Revolving Credit
Facility of £12m in full in March 2020. The Directors' financial modelling
considers the Group's profit, cash flows, regulatory capital requirements,
borrowing covenants and other key financial metrics over the period.
These metrics are subject to sensitivity analysis, which involves flexing a
number of key assumptions underlying the projections, including further
potential localised lockdowns and their impact on the UK property market and
the Group's revenue mix, which the Directors consider to be severe but
plausible stress tests on the Group's cash position, banking covenants and
regulatory capital adequacy. The Group's financial modelling shows that the
Group should continue to be cash generative, maintain a surplus on its
regulatory capital requirements and be able to operate within its current
financing arrangements.
Based on the results of the financial modelling, the Directors expect that the
Group will be able to continue in operation and meet its liabilities as they
fall due over this period. Accordingly, the Directors continue to adopt the
going concern basis for the preparation of the financial statements.
Significant estimates and judgements
The judgements, estimates and assumptions applied in the interim financial
statements, including the key sources of estimation uncertainty, were the same
as those applied in the Group's last annual
financial statements for the year ended 31 December 2019, except where further
judgements and estimates have been made due to the effects of Covid-19. These
include:
a. Assessing whether the Group has reasonable assurance as to whether it
will comply with the conditions attached to Government grants; and
b. Assessing recoverability of loan balances outstanding to associates.
Significant accounting policies
The accounting policies applied are consistent with those described in the
Annual Report and Group financial statements for the year ended 31 December
2019. New or amended standards effective in the period have not had a material
impact on the condensed consolidated interim financial statements.
The Group has not early adopted any standards, interpretations or amendments
that have been issued but are not yet effective.
Future new standards and interpretations
A number of new standards and amendments to standards and interpretations will
be effective for future annual and interim periods and, therefore, have not
been applied in preparing these condensed consolidated interim financial
statements. At the date of authorisation of these financial statements, the
following standards and interpretations which have not been applied in these
financial statements were in issue but not yet effective:
Standard or interpretation Periods commencing on or after
Amendments to IFRS 10 and IAS 28 Sale or contribution of assets between an Investor and its Associates or Joint This has been deferred indefinitely
Ventures
IFRS 16 Covid-19 Related Rent Concessions 1 June 2020 (not yet endorsed for use in EU)
Amendments to IFRS 10 and IAS 28: Sale or contribution of Assets between an
Investor and its Associate or Joint Venture. The amendments address the
conflict between IFRS 10, Consolidated Financial Statements and IAS 28 in
dealing with the loss of control of a subsidiary that is sold or contributed
to an associate or joint venture. The amendments clarify that the gain or loss
resulting from the sale or contribution of assets that constitute a business,
as defined in IFRS 3, between an investor and its associate or joint venture,
is recognised in full. Any gain or loss resulting from the sale or
contribution of assets that do not constitute a business, however, is
recognised only to the extent of unrelated investors' interests in the
associate or joint venture. The IASB has deferred the effective date of these
amendments indefinitely, but an entity that early adopts the amendments must
apply them prospectively. The Group will apply these amendments when they
become effective.
IFRS16: Covid-19 Related Rent Concessions. IFRS 16 was amended to provide a
practical expedient for lessees accounting for rent concessions that arise as
a direct consequence of the Covid-19 pandemic and satisfy the following
criteria:
· The change in lease payments results in revised consideration for
the lease that is substantially the same as, or less than, the consideration
for the lease immediately preceding the change;
· the reduction in lease payments affects only payments originally
due on or before 30 June 2021; and
· there are is no substantive change to other terms and conditions
of the lease.
Rent concessions that satisfy these criteria may be accounted for in
accordance with the practical expedient, which means the lessee does not need
to assess whether the rent concession meets the definition of a lease
modification. Lessees apply other requirements in IFRS 16 in accounting for
the concession.
The amendment is effective 1 June 2020, however has not yet been endorsed for
adoption in the EU. The Group will apply this amendment retrospectively when
it is both effective and endorsed for use in the EU.
Significant events and transactions
The World Health Organisation declared coronavirus and Covid-19 a global
health emergency on 30 January 2020. Since then, the Group has experienced
disruption to its operations with the effects on the Group's interim
consolidated financial statements for the six months ended June 2020
summarised as follows:
a. Reduced growth in sales and cash flows
The Group's revenue (see note 2) has been adversely impacted by the Government
lockdown in March, albeit written business started to recover from mid-May as
the housing market in England reopened followed by Scotland, Wales and
Northern Ireland at the end of June. This has reduced the revenue growth of
the Group in the period to 30 June 2020.
b. Impairment of loans to related parties
The Government lockdown has impacted the performance of some of the Group's
investments.
As disclosed in Note 11, an amount of £1.1m has been written off in respect
of the loan to Freedom 365 Mortgage Solutions Limited and an increase in
expected credit losses of £0.6m has been made in respect of the loan to Eagle
and Lion Limited.
c. Government grant income
The Group utilised the Coronavirus Job Retention Scheme ("CJRS") due to the
Government imposed lockdown causing the closure of the housing market for a
period of time and a number of employees being put on furlough as a result.
Included within the Statement of Comprehensive Income is £0.5m relating to
the CJRS grants and this is presented within Government grant income, rather
than reducing the related expense.
Current versus non-current classification
The Group presents assets and liabilities in the statement of financial
position based on current/non-current classification. An asset is current when
it is:
· expected to be realised or intended to be sold or consumed in the
normal operating cycle; and
· held primarily for the purpose of trading; and
· expected to be realised within twelve months after the reporting
date.
All other assets are classified as non-current.
Assets included in current assets which are expected to be realised within
twelve months after the reporting date are measured at fair value which is
their book value. Fair value for investments in unquoted equity shares is the
net proceeds that would be received for the sale of the asset where this can
be reasonably determined.
Basis of consolidation
Where the Company has control over an investee, it is classified as a
subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the Company and
its subsidiaries ("the Group") as if they formed a single entity. Intercompany
transactions and balances between group companies are therefore eliminated in
full.
The consolidated financial statements incorporate the results of business
combinations using the acquisition method. In the statement of financial
position, the acquiree's identifiable assets, liabilities and contingent
liabilities are initially recognised at their fair values at the acquisition
date. The results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is obtained.
They are deconsolidated from the date on which control ceases.
Entities that are not subsidiaries but where the Group has significant
influence (i.e. the power to participate in the financial and operating policy
decisions) are accounted for as associates. The results and assets and
liabilities of the associates are included in the consolidated accounts using
the equity method of accounting.
Segment Reporting
An operating segment is a distinguishable segment of an entity that engages in
business activities from which it may earn revenues and incur expenses and
whose operating results are reviewed regularly by the entity's chief operating
decision maker ("CODM"). The Board of Directors (the CODM) reviews the Group's
operations and financial position as a whole and therefore considers that it
has only one operating segment, being the provision of financial services
operating solely within the UK. The information presented to the CODM directly
reflects that presented in the financial statements and they review the
performance of the Group by reference to the results of the operating segment
against budget.
Operating profit is the profit measure, as disclosed on the face of the
consolidated statement of comprehensive income that is reviewed by the CODM.
During the six month period to 30 June 2020, there have been no changes from
the prior periods in the measurement methods used to determine operating
segments and reported segment profit or loss.
2 Revenue
The Group operates in one segment being that of the provision of financial
services in the UK.
Revenue is derived as follows:
Six months ended 30 June
2020 2019
Unaudited Unaudited
£'000 £'000
Mortgage related products 35,728 36,385
Insurance and other protection products 26,271 23,612
Other income 1,465 896
63,464 60,893
Costs of sales are as follows:
2020 2019
Unaudited
Unaudited
£'000 £'000
Commissions paid 43,355 45,874
Impairment of trade receivables 4 (127)
Wages and salary costs 2,861 983
46,220 46,730
There is no significant seasonality to income which arises fairly evenly
throughout the year and therefore profits also arise fairly evenly throughout
the financial year.
3 Acquisition costs
On 2 July 2019 Mortgage Advice Bureau (Holdings) Plc acquired 80 per cent of
the entire issued share capital of First Mortgage Direct Limited ("First
Mortgage" or the "Business").
Costs relating to the amortisation of acquired intangibles amounted to
£183,000 in the six months ended 30 June 2020. The option (comprising the put
and the call option) over the remaining 20% of the issued share capital of
First Mortgage has been accounted for under IAS 19 Employee Benefits and IFRS
2 Share Based Payments due to its link to the service of First Mortgage's
Managing Director. In accordance with IAS 19, £188,000 has been included
within administrative expenses under staff costs, and in accordance with IFRS
2, a further £227,968 has been included within administrative expenses under
share based payments (see note 18).
Costs incurred in the six months ended 30 June 2019 in relation to the
acquisition of First Mortgage amounted to £202,772 and have been included
within administrative expenses.
4 Finance income and expense
Six months ended 30 June
2020 2019
Unaudited Unaudited
£'000
£'000
Finance income
Interest income 46 31
Interest income accrued on loans to associates 29 46
75 77
Finance expense
Interest expense - paid 1 -
Interest expense - accrued 83 -
Interest expense on lease liabilities 33 -
117 -
5 Income tax
The Group calculates the period income tax expense using the tax rate that
would be applicable to the expected total annual earnings. The major
components of income tax expense in the interim condensed statements of
comprehensive income are:
Six months ended 30 June
2020 2019
Unaudited Unaudited
£'000 £'000
Current tax expense
UK corporation tax charge on profit for the period 826 1,119
Total current tax 826 1,119
Deferred tax expense
Origination and reversal of timing differences (62) (7)
Temporary difference on share based payments (44) (12)
Adjustment due to rate change 39 -
Total deferred tax (67) (19)
Total tax expenses 759 1,100
For the period ended 30 June 2020, the deferred tax recognised in equity was
(£423,000).
6 Earnings per share
Both the basic and diluted earnings per share have been calculated using the
profit attributable to shareholders of the Parent Company, Mortgage Advice
Bureau (Holdings) plc, as the numerator.
The weighted average number of shares for the purposes of the calculation of
diluted earnings per share can be reconciled to the weighted average number of
ordinary shares used in the calculation of basic earnings per share as
follows:
Six months ended 30 June
2020 2019
Unaudited Unaudited
Weighted average number of shares used in basic earnings per share 51,896,090 51,223,905
Potential ordinary shares arising from options 701,335 992,609
Weighted average number of shares used in diluted earnings per share 52,597,425 52,216,514
The Group uses adjusted results as a key performance indicator, as the
Directors believe that these provide a more consistent measure of operating
performance. Adjusted profit is therefore stated before Government grant
income, amortisation of acquired intangibles, costs relating to the option to
acquire the remaining 20% of First Mortgage, impairment of loans to related
parties for H1 2020 and acquisition costs for H1 2019. This presentation
shows the trend in earnings per ordinary share that is attributable to the
underlying trading activities of the Group.
The reconciliation between the basic and adjusted figures is as follows:
Six months ended 30 June Six months ended 30 June
2020 2019 2020 2019 2020 2019
Unaudited Unaudited Basic Basic Diluted Diluted
£'000 £'000 earnings earnings earnings earnings
per share per share per share per share
pence pence pence pence
Profit for the period 5,244 6,104 10.1 11.9 10.0 11.7
Adjustments:
Government grant income (447) - (0.9) - (0.9) -
Amortisation of acquired intangibles 183 - 0.4 - 0.3 -
Costs relating to the First Mortgage option 416 - 0.8 - 0.8 -
Acquisition costs - 203 - 0.4 - 0.4
Impairment of loans to related parties
1,656 - 3.2 - 3.1 -
Tax effect of adjustments (230) - (0.4) - (0.4) -
Adjusted earnings 6,822 6,307 13.2 12.3 12.9 12.1
Government grant income of £447,414 represents amounts attributable to the
equity owner of the parent company and excludes £65,735 attributable to
non-controlling interests included in the amounts shown in the consolidated
statement of comprehensive income.
7 Dividends
Six months ended 30 June Six months ended 30 June Year ended 31 December
2020 2019 2019
Unaudited Unaudited Audited
£'000 £'000 £'000
Dividends paid and declared during the period:
On ordinary shares at 6.4p per share (2019: 12.7p) 3,311 6,506 6,507
Interim dividend for 2019: 11.1p per share - - 5,729
3,311 6,506 12,236
Equity dividends on ordinary shares:
Declared:
Interim dividend for 2020: nil p per share (2019: 11.1p) - 5,711 -
Proposed for approval:
Final dividend for 2019: 6.4p per share - - 3,305
- 5,711 3,305
8 Goodwill
The goodwill relates to the acquisition of Talk Limited in 2012, and in
particular its main operating subsidiary Mortgage Talk Limited, and the
acquisition of First Mortgage Direct Limited ("FMD") in 2019. The goodwill
is deemed to have an indefinite useful life. It is currently carried at cost
and is reviewed annually for impairment.
Under IAS 36, "Impairment of assets", the Group is required to review and test
its goodwill annually each year or in the event of a significant change in
circumstances. The impairment review conducted at the end of 2019 concluded
that there had been no impairment of goodwill.
The key basis for determining that there was no impairment to the carrying
value of goodwill was disclosed in the annual consolidated financial
statements for the year ended 31 December 2019. Due to the Covid-19 pandemic,
an impairment review was also carried out at 30 June 2020 and this concluded
that there had been no impairment of goodwill at that date
9 Investments in associates and joint ventures
The investment in associates and joint ventures at the reporting date is as
follows:
30 June 2020 31 December 2019
Unaudited
Audited
£'000
£'000
At start of the period 3,133 1,573
Additions - 1,783
Credit to statement of comprehensive income
Share of profit 88 280
Amount written off - (192)
88 88
Dividends received (58) (311)
At period end 3,163 3,133
10 Investment in non-listed equity shares
30 June 31 December 2019
Audited
2020
£'000
Unaudited
£'000
At start of the period 75 -
Additions - 75
At period end 75 75
The investment represents a 2.23% interest in Yourkeys.
11 Trade and other receivables
30 June 31 December
2020 2019
Unaudited Audited
£'000 £'000
Trade receivables 1,630 1,936
Less provision for impairment of trade receivables (379) (363)
Trade receivables - net 1,251 1,573
Receivables from related parties 15 15
Other receivables 468 -
Loans to related parties 3,525 3,124
Less provision for impairment of loans to related parties (589) (171)
Less amounts written off loans to related parties (1,067) -
Total financial assets other than cash and cash equivalents classified at 3,603 4,541
amortised costs
Prepayments and accrued income 3,567 3,748
Total trade and other receivables 7,170 8,289
Less: non-current element - Loans to related parties (1,801) (2,832)
Less: non-current element - Trade and other receivables (243) (498)
Current element 5,126 4,959
The carrying value of trade and other receivables classified at amortised cost
approximates fair value.
Impairment provisions for trade receivables are recognised based on the
simplified approach within IFRS 9 using the lifetime expected credit losses.
During this process the probability of the non-payment of the trade
receivables is assessed. This probability is then multiplied by the amount of
the expected loss arising from default to determine the lifetime expected
credit loss for the trade receivables. For trade receivables, which are
reported net, such provisions are recorded in a separate provision account
with the loss being recognised within cost of sales in the consolidated
statement of comprehensive income. On confirmation that the trade receivable
will not be collectable, the gross carrying value of the asset is written off
against the associated provision. At 30 June 2020 the lifetime expected loss
provision for trade receivables is £0.4m. The movement in the impairment
allowance for trade receivables has been included in cost of sales in the
consolidated statement of comprehensive income.
Impairment provisions for loans to 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, twelve month expected credit losses along
with gross interest income are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses along with the gross
interest income are recognised. For those that are determined to be credit
impaired, lifetime expected credit losses along with interest income on a net
basis are recognised. In determining the lifetime expected credit losses for
loans to associates, the Directors have considered different scenarios for
repayments of these loans and have applied percentage probabilities to each
scenario for each associate where applicable.
At 30 June 2020 the lifetime expected loss provision for loans to associates
is £0.6m. One associate, Eagle and Lion Limited, has been subject to a
significant increase in credit risk since initial recognition and,
consequently lifetime expected credit losses of £0.6m have been recognised
and this accounts for the vast majority of the lifetime expected loss
provision for loans to associates. For the remainder, 12 month expected
credit losses have been recognised. In addition, during the period, £1.1m
has been written off in respect to a loan to Freedom 365 Mortgage Solutions
Limited which represents the principal loan balance write off and release of
expected credit losses already recognised.
The movement in the impairment allowance for receivables for loans to
associates has been included in impairment of loans to related parties in the
consolidated statement of comprehensive income.
Also included in trade receivables are amounts due from Appointed
Representatives relating to commissions that are refundable to the Group when
policy lapses or other reclaims exceed new business. As these balances have
no credit terms, the Board of Directors consider these to be past due if they
are not received within seven days. In the management of these balances, the
Directors can recover them from subsequent new business entered into with the
Appointed Representative or utilise payables that are owed to the same
counterparties and included within payables as the Group has the legally
enforceable right of set off in such circumstances. These payables are
considered sufficient by the Directors to recover receivable balances should
they default, and, accordingly, credit risk in this respect is minimal.
In light of the above, the Directors do not consider that disclosure of an
aging analysis of trade and other receivables would provide useful additional
information.
12 Trade and other payables
30 June 31 December 2019
2020
Audited
Unaudited
£'000 £'000
Appointed Representatives retained commission 14,185 13,880
Other trade payables 4,412 4,542
Trade payables 18,597 18,422
Social security and other taxes 1,039 642
Other payables 102 203
Accruals and deferred income 1,930 3,104
21,668 22,371
As at 30 June 2020 and 31 December 2019, the carrying value of trade and other
payables classified as financial liabilities measured at amortised cost
approximates fair value.
Appointed Representative retained commission is expected to be payable after
more than one year. Other trade payables normally fall due within 30 - 60
days.
13 Loans and borrowings
30 June 2020 31 December 2019
Unaudited
Audited
Current Non-current Total Current Non-current Total
£'000 £'000 £'000 £'000 £'000 £'000
Secured
Bank loans 12,083 - 12,083 - - -
Total secured borrowings 12,083 - 12,083 - - -
On 18 June 2019, in connection with the acquisition of First Mortgage, the
Group entered into an agreement with NatWest in respect of a new revolving
credit facility for £12m. To give the Group additional flexibility to react
quickly and capitalise on potential opportunities, the Group drew down its
Revolving Credit Facility in full in March 2020. This is shown as a current
liability within the Consolidated Statement of Financial Position as it is due
to be fully repaid in March 2021. The balance as at 30 June 2020 is made up of
£12m principal loan balance and £83,000 accrued interest. In respect of
the Group's Revolving Credit Facility for £12 million, the Group has given
security to NatWest in the form of fixed and floating charges over the assets
of Mortgage Advice Bureau Limited, Mortgage Advice Bureau (Derby) Limited and
Mortgage Advice Bureau (Holdings) Plc.
Loan covenants
Under the terms of the Revolving Credit Facility, the Group is required to
comply with the following financial covenants:
· Interest cover shall not be less than 5:1
· Debt to EBITDA ratio shall not exceed 2:1
The Group has complied with these covenants throughout the reporting period.
14 Financial instruments - risk management activities
Credit risk
Credit risk is the risk of financial loss to the Group if a trading partner or
counterparty to a financial instrument fails to meet its contractual
obligations. The Group is mainly exposed to credit risk from advanced loans to
its trading partners which are classified as trade receivables. It is Group
policy to assess the credit risk of trading partners before advancing loans or
other credit facilities. Assessment of credit risk utilises external credit
rating agencies. Personal guarantees are generally obtained from the
Directors of its trading partners. Further disclosures regarding trade and
other receivables are given in note 11.
Financial assets - maximum exposure
30 June 31 December 2019
2020
Audited
Unaudited
£'000 £'000
Cash and cash equivalents 35,635 20,867
Trade and other receivables 3,603 4,541
Total financial assets 39,238 25,408
Financial liabilities
30 June 31 December 2019
2020
Audited
Unaudited
£'000 £'000
Trade and other payables 18,699 18,625
Loans and borrowings 12,083 -
Accruals 1,930 3,104
Lease liabilities 2,794 3,235
Total financial liabilities 35,506 24,964
The carrying amounts stated above represent the Group's maximum exposure to
credit risk for trade and other receivables. An element of this risk is
mitigated by collateral held by the Group for amounts due to them.
Trade receivables consist of a large number of unrelated trading partners and
therefore credit risk is limited. Due to the large volume of trading partners
the Group does not consider that there is any significant credit risk as a
result of the impact of external market factors on their trading partners.
Additionally, within trade payables are amounts due to the same trading
partners as those included in trade receivables; this collateral significantly
reduces the credit risk.
The Group's credit risk on cash and cash equivalents is limited because the
Group places funds on deposit with National Westminster Bank Plc and Bank of
Scotland Plc which are A/A+ and A+ rated respectively.
15 Cash and cash equivalents
For the purpose of the interim condensed statement of cash flows, cash and
cash equivalents are comprised of:
30 June 2020 31 December 2019
Audited
Unaudited
£'000 £'000
Unrestricted cash and bank balances 21,450 6,987
Bank balances held in relation to retained commissions 14,185 13,880
Cash and cash equivalents 35,635 20,867
Bank balances held in relation to retained commissions earned on an indemnity
basis in relation to life policies are held to cover potential future lapses
in Appointed Representatives' commissions. Operationally, the Group does not
treat these balances as available funds. An equal and opposite liability is
shown within trade and other payables (note 12).
16 Share capital
Issued and fully paid
30 June 31 December 2019
2020 Audited
Unaudited
£'000 £'000
Ordinary shares of 0.1p each 52 52
Total share capital 52 52
During the period 451,554 ordinary shares of 0.1p each were issued following
partial exercise of the fourth tranche of options issued at the time of the
Initial Public Offering of the Company, partial exercise of options issued in
May 2016 and May 2017 and exercise of the options issued to Appointed
Representatives in May 2015 at a total premium of £0.6m. See also note 18.
17 Related Party Transactions
The following details provide the total amount of transactions that have been
entered into with related parties during the six months ended 30 June 2020 and
2019, as well as balances with related parties as at 30 June 2020 and 31
December 2019.
During the period the Group paid commission of £530,102 (2019: £227,575) to
Buildstore Limited, an associate company. There was a balance of £21,212
(2019: £47,932) of retained commission to cover future lapses. At 30 June
2020, there was a loan outstanding from Buildstore Limited of £26,391 (2019:
£36,565) included in trade and other receivables.
During the period the Group received introducer commission from Sort Limited,
a subsidiary of an associate company of £422,997 (2019: £389,157). There was
an amount of £218,369 outstanding from Sort Group Limited at 30 June 2020
(2019: £218,369) included in trade and other receivables.
During the period the Group paid commission of £1,864,044 (2019: £1,980,876)
to Clear Mortgage Solutions Limited, an associate company. There was a balance
of £311,683 (2019: £265,992) of retained commission to cover future lapses.
At 30 June 2020, there was no loan outstanding from Clear Mortgage Solutions
Limited (2019: £nil).
During the period the Group paid commission of £138,252 (2019: £297,349) to
Freedom 365 Mortgage Solutions Limited, an associate company. There was a
balance of £138,394 (2019: £133,090) of retained commission to cover future
lapses. At 30 June 2020, following the write off of the loan balance, there
was no loan outstanding from Freedom 365 Mortgage Solutions Limited (2019:
£1,202,453).
During the period the Group paid commission of £590,787 (2019: £426,730) to
Vita Financial Limited, an associate company. There was a balance of £121,571
(2019: £125,229) of retained commission to cover future lapses. At 30 June
2020, there was no loan outstanding from Vita Financial Limited (2019: £nil).
At 30 June 2020 there was a loan outstanding from MAB Broker Services PTY
Limited, an associate company, of £1,495,139 (AUD2,685,000) (2019:
£1,014,535, (AUD1,900,000)) included in trade and other receivables.
During the period the Group paid commission of £182,083 (2019: £106,138) to
Eagle & Lion Limited, an associate company. There was a balance of
£13,206 (2019: £10,982) of retained commission to cover future lapses. At 30
June 2020, there was a loan outstanding from Eagle & Lion Limited of
£587,181 which has been fully impaired due to a significant increase in
expected credit losses leaving a net balance of £nil (2019: £565,000).
During the period the Group paid commission of £678,928 (2019: £126,209) to
The Mortgage Broker Limited, an associate company. There was a balance of
£91,777 (2019: £72,081) of retained commission to cover future lapses. At 30
June 2020, there was a loan outstanding from The Mortgage Broker Limited of
£42,351 (2019: £84,705) included in trade and other receivables.
During the period the Group purchased services from Twenty7tec Group Limited,
a company in which the Group holds an investment, of £nil (2019: £7,200).
During the period the Group received dividends from associate companies as
follow:
Six months ended 30 June
2020 2019
Unaudited Unaudited
£'000
£'000
CO2 Commercial Limited 58 243
18 Share based payments
No options were granted during the period.
Options exercised in February 2020 resulted in 13,933 ordinary shares being
issued at an exercise price of £3.58. The price of the ordinary shares at the
time of exercise was £7.56 per share. Further options exercised in February
2020 resulted in 17,733 ordinary shares being issued at an exercise price of
£3.58. The price of the ordinary shares at the time of exercise was £7.60
per share.
Options exercised in April 2020 resulted in 85,643 ordinary shares being
issued at an exercise price of £1.60 and £4.31. The price of the ordinary
shares at the time of exercise was £5.10 per share.
Options exercised in May 2020 resulted in 103,485 ordinary shares being issued
at an exercise price of £1.60 and £4.31. The price of the ordinary shares at
the time of exercise was £5.80 per share.
Options exercised in June 2020 resulted in 230,760 ordinary shares being
issued at an exercise price at nominal value. The price of the ordinary shares
at the time of exercise was £5.95 per share.
For the six months ended 30 June 2020, the Group recognised £603,189 of
share based remuneration expense in the statement of comprehensive income
(2019: £442,490) which includes the charge for equity-settled schemes,
including Employer's National Insurance of £212,690 (2019: £371,717) and
the matching element of the Group's Share Incentive Plan for all employees of
£28,281 (2019: £37,037). This also includes £227,968 relating to the
IFRS2 charge of the First Mortgage option (2019: £nil).
19 Events after the reporting date
On 23 September 2020, the Group agreed to acquire a 40% interest in Meridian
Holdings Group Ltd, an appointed representative of the Group, at a cost of
£1.3 million.
On 25 September 2020, the Group agreed that Australian Finance Group Ltd
("AFG") is to become the Group's new joint venture partner for MAB Broker
Services Pty Ltd ("MAB Broker Services") in Australia. This will result in
the Group's loan to MAB Broker Services of AUD2,685,000 outstanding as at 30
June 2020 being repaid and the Group investing AUD1,000,000 in MAB Broker
Services.
On 28 September 2020, the Board approved the reimbursement of paycuts applied
to the Group's non-furloughed employees, increasing staff costs by £0.8m for
the full year.
There were no other material events after the reporting period, which have a
bearing on the understanding of the consolidated interim financial statements.
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