REG - Property FranchiseGp - Final Results
05/04/2022 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220405:nRSE2334Ha&default-theme=true
RNS Number : 2334H Property Franchise Group PLC (The) 05 April 2022
5 April 2022
THE PROPERTY FRANCHISE GROUP PLC
(the "Company" or the "Group")
Final Results
A transformational year
The Property Franchise Group, the UK's largest property franchisor, is pleased
to announce its final results for the year ended 31 December 2021 ("FY21").
Financial Highlights
· Network income increased 67% to £157m (2020: £94m)
- 17% like for like increase to £110m(1)
· Group revenue increased 118% to £24.0m (2020: £11.0m)
- 26% like for like increase to £13.9m(1)
· Management Service Fees ("royalties") increased 57% to £14.7m (2020:
£9.4m)
- 19% like for like increase to £11.2m(1)
· Adjusted operating margin(2) of 40% (2020: 48%)
· Adjusted EBITDA(3) increased 81% to £10.4m (2020: £5.8m)
- 19% like for like increase to £6.8m
· Profit before tax increased 35% to £6.4m (2020: £4.8m)
· Adjusted basic earnings per share increased 61% to 27.0p (2020:
16.8p)
· Highly cash generative as demonstrated by net debt of £2.7m at 31
Dec 2021 after borrowing £12.5m to fund the acquisition of Hunters (31 Dec
2021: net cash of £8.8m).
· Net cash generated from operations increased 65% to £8.9m after
acquisition costs of £0.9m (2020: £5.4m)
· Dividends paid and declared for FY21 of 11.6p (2020: 8.7p)
(1 )like for like comparison excluding the impact of the acquisition of
Hunters/Mortgage Genie and Aux Group disposal.
(2 )before share-based payments charge, exceptional items and amortisation
arising on consolidation
(3) before share-based payments charge, exceptional items and gain on
investment.
Operational Highlights
· Sales agreed pipeline increased 73% to £26.5m (2020: £15.3m)
· Managing 74,000 rental properties (2020: 58,000)
· Franchisees added 1,270 tenanted managed properties through
acquisitions.
· EweMove sold 58 new territories (2020: 11)
· Acquired Hunters in March 2021
· Launched five year strategic partnership with LSL in April 2021
· Acquired Mortgage Genie in September 2021
· Further strengthened senior management team to provide enhanced
franchisee support
Gareth Samples, Chief Executive Officer of The Property Franchise Group, said:
"2021 has been a milestone year for The Property Franchise Group. Our
determination to make the most of a buoyant sales market saw us achieve record
levels of like-for-like revenue, Management Service Fees and profits.
We also saw our strategic decisions deliver. The acquisition of Hunters,
completed in March, significantly added to our shareholder value. Our focus on
building EweMove resulted in record numbers of franchisees recruited. And last
but not least, our decision to bolster our central executive team has provided
immeasurable support to the franchisee network throughout the year, helping
them to become more successful.
Looking ahead, we see an exciting period of further development for all our
franchisees in 2022. While we expect over the year we'll see sales activity
return close to 2019 levels, so far we have seen continued high levels of
demand for both sales and lettings, well above pre-pandemic norms. Aside from
market conditions, we have great confidence that the execution of our
strategic initiatives, alongside the benefit of a full year's contribution
from our acquisitions, will underpin continued growth this year and beyond."
Investor presentation
The Company is hosting a live private investor presentation on Wednesday 6
April 2022 at 12:30. All existing and potential private investors interested
in attending are asked to register using the following link:
https://bit.ly/TPFG_FY_webinar
For further information, please contact:
The Property Franchise Group PLC 01202 405549
Gareth Samples, Chief Executive Officer
David Raggett, Chief Financial Officer
Canaccord Genuity Limited (Nominated Adviser and Broker) 0207 523 8000
Max Hartley
Tom Diehl
Alma PR 020 3405 0205
Susie Hudson propertyfranchise@almapr.co.uk
Justine James
Joe Pederzolli
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 (http://www.propertyfranchise.co.uk/)
CHAIRMAN'S STATEMENT
In this, my final Chairman's Statement before stepping down, I cannot think of
a more appropriate time to reflect on how we have achieved our current
position.
Our journey
Martin & Co opened its doors for trading in May 1986 in South Somerset. My
franchisor epiphany came when in 1993 I read a copy of 'Behind the Golden
Arches', the story of how Ray Kroc succeeded in building McDonald's into the
world's largest franchise network. In the months that followed I set about
designing the systems and procedures of our franchise model.
We launched Martin & Co as a franchise offering in May 1995. We were
convinced that provided we focused our efforts on our franchisee's success,
and the franchisees focused their efforts on the quality of the services they
were delivering to customers, then our success should duly follow.
Having built a substantial national lettings portfolio and a 180-branch
network, 2012 saw our return to the residential sales market in order to build
a second major revenue stream for our franchisees.
In December 2013, through an IPO, we became an AIM listed company. A true
milestone moment for me, my family and the business. Soon after, in October
2014 we acquired four franchise brands and their franchisees from Legal &
General - Whitegates, Ellis & Co, CJ Hole & Parkers - our vision being
to substantially improve their franchisees' lettings revenues and leverage our
group resources more effectively and efficiently.
With margins, profits and cash improving, we looked for our next acquisition.
After watching a period of sustained growth by EweMove in a growing
"hybrid/online" segment of the residential sales market, we acquired it in
September 2016. It's proven customer service credentials, coupled with a
sizeable "flock" and the ability to fund growth from operating cash flows gave
us confidence in its long-term potential.
Being a multi-brand franchisor, we felt the time was right in 2017 to re-brand
to The Property Franchise Group. We thought we had a resilient business model
and, when put to the test, by Brexit and Covid-19, it behaved in that way. In
March 2021, we acquired Hunters, Country Properties and Mullucks. Then to
support an expansion into financial services across a network heading towards
600 outlets, we signed a five-year strategic partnership with LSL Property
Services in April 2021 and acquired a mortgage broker, Mortgage Genie, in
September 2021.
It has been a truly exciting journey, meeting people who were seeking a
platform to build their own financial success, to achieve their ambitions,
shed the 9-5 job, or just provide themselves with an early worry-free
retirement. From the very start, the satisfaction of helping those people on
their journey has been enormously rewarding.
In those 36 years since founding Martin & Co, we have built a leading
national business, which has proven its ability time and again by
outperforming the sector. Of course, none of this would have occurred without
the hard work of our franchisees and head office staff. The skill and
dedication of a team of experts in their various fields, coupled to the
ambitions of people who want to build a business and future for themselves is
a powerful force.
Board focus during 2021
It's been a busy year for our Board given the two acquisitions completed in
the year, the strategic partnership with LSL, sale of Aux Group, and the
evaluation of existing and potential new operating systems for our
franchisees.
We also saw Board changes this year as Glynis Frew and Dean Fielding joined us
from Hunters in March providing us with continuity of management for Hunters
and further insight into our sector and the market. Since the year end, Glynis
has stepped down from our Board and taken up the post of Group Franchise
Training and Development Director. This role addresses our objective to
develop the next generation of leaders within the Group and our franchise
network as well as to be at the forefront of the Regulation of Property Agents
("RoPA"). Glynis has both the experience and tremendous passion necessary to
achieve this objective. We are very grateful for her continued service and
desire to take on a challenging remit.
We have been adjusting to being the largest UK property franchise business and
the second largest agency network in the sector. This has brought with it
additional opportunities such as to partner with third parties, acquire
complementary businesses and attract talented people. Of course, it has also
brought with it new risks which we carefully assess to ensure we continue to
generate class leading service and returns.
We continued to prioritise stakeholder engagement in 2021 with our Executive
Directors spending more time presenting to franchisees, investors, employees,
suppliers, and lenders on progress, our strategic initiatives and our vision.
Market developments
We entered 2021 with significant sales agreed pipelines as homeowners decided
to move for a myriad of reasons, including the stamp duty holiday. However, it
became clear from March onwards that stamp duty alone was not fuelling the
market and our sales pipeline remained strong. Having bought one of the
largest brands in residential sales we reaped the benefits, selling over
26,000 homes compared to 9,000 homes in 2020.
In the residential lettings market we saw less movement by tenants. However,
following the tenant fee ban, the evictions ban coming to an end, the increase
in house prices and other inflationary pressures, rents have risen. Typically,
rent increases of 6% to 8% were seen during 2021, a trend that is continuing
into the current financial year.
Looking forward, I continue to 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 need further properties to
rent to satisfy our labour shortages and ensure capacity exists where that
labour is required. Demand for rental properties remains strong and returns
should increase. In addition, early evidence in 2022 suggests a healthy
appetite remains to buy homes to satisfy post-covid lifestyle changes.
Dividend
We committed to a progressive dividend policy at the time of IPO, confident
that we could generate the earnings to both maintain a strong dividend cover
and yield. I am very proud of our record and confident that the Group can
continue to fulfill on this commitment. Since IPO, we have paid out 47.4p in
dividends to our supportive shareholders.
2021 has seen a step change in our profitability and net operating cash
generation. The Board has felt it only right to reflect that in the dividends
being paid. I am therefore pleased to announce that the Board has approved a
final dividend for 2021 of 7.8p (second interim for 2020: 6.6p) bringing the
total dividend for 2021 to 11.6p, an increase of 33% over the 8.7p paid for
2020.
Outlook
We are currently making strong progress with our strategic initiatives and I
have every confidence that the executive will be able to further report
positive and quantifiable results from this work in the near future.
We now have a Group which is capable of more rapid scaling up and we believe
our network of local business professionals will soon challenge the largest of
the corporate networks. Our year-on-year financial performance and returns are
testament to the capital-light strength of our franchise model and, as it has
in the US, we believe that franchising will become the dominant model in
residential agency with TPFG augmenting our position as a leading player.
I am extremely proud of the Group that we have built. It's been a fascinating
and inspiring journey made possible by our talented team, committed
franchisees, the support of my fellow Board members in shaping today's
business and by investors backing us. All have made a huge contribution to our
success.
I extend my sincere thanks and gratitude to all of them.
I am delighted to be passing the baton to Paul Latham. With many years of
relevant commercial and Board experience, I am confident that he will
successfully lead the Board to deliver further value for our stakeholders.
As for myself, whilst standing down as Chair, I have every confidence in our
potential for ongoing growth and can assure all stakeholders that our vision
for the future is every bit as exciting and ambitious as it was back in May
1995.
Richard Martin
Non-Executive Chairman
4 April 2022
CEO STATEMENT
It has been a transformational year for TPFG. Seeing our network enthused by
the buoyancy of the market, and having strengthened our franchisee-franchisor
relationships, our team has worked hard to support franchisees to reach their
goals.
We supported more franchisees this year than in the last decade, to grow
multiple revenue streams and expand geographically. We have seen eight
franchisees open new offices and 17 open "spokes", the latter intended to
exploit more of their existing territories whilst using the resources of the
supporting office.
In line with our acquisition strategy, the Group completed the acquisitions of
Hunters and Mortgage Genie as well as launching a five-year strategic
partnership with LSL. The Hunters acquisition was our most significant to date
and has delivered significant financial and strategic benefits. Mortgage Genie
and the LSL partnership are additional milestones for the Group and both bring
exciting potential growth opportunities.
The year ahead provides further grounds for optimism. The backdrop of more
normalised sales market conditions will allow us and our franchisees more time
to focus on implementing our stated strategic initiatives, underpinning our
long-term sustainable success.
Financial overview
We have increased our revenue every year since IPO and this was our eighth
consecutive year with revenue up 118% to £24.0m (2020: £11.0m) largely
driven by the acquisition of Hunters which contributed £9.8m. The Group
achieved an adjusted operating margin of 40% (2020: 48%) compared to the
3-year average pre-2020 of 43% reflecting good progress with the
post-acquisition synergies and a lower operating margin from Hunters' owned
offices. Profit before tax increased 35% to £6.4m (2020: £4.8m).
We are a strongly cash generative business and 2021 saw net cash generated
from operations of £8.9m (2020: £5.4m). Hence, despite borrowing £12.5m to
part-fund the cash consideration for Hunters of £14.5m, the £0.9m of costs
for that acquisition and assuming Hunters' bank debt of £3.0m, our net debt
had reduced to only £2.7m at 31 December 2021 (2020: net cash £8.8m).
Moreover, the continued strength of our balance sheet provides the stability
needed to build further momentum behind our ongoing growth initiatives.
Our network's lettings performance
Whilst we have grown our sales capabilities this year, lettings remains at the
core of our DNA and represented 53% of Group MSF in 2021. Our expectation is
that lettings will represent 60% of total MSF in a less buoyant sales
market.
I am delighted to report that the network started the year with 58,000
tenanted managed properties and finished it with 74,000, an increase of 27%.
Much of the increase came from the acquisition of Hunters, with the remainder
being attributable to acquisitions by franchisees. Our franchisees acquired
1,270 (2020: 1,305) tenanted managed properties through our assisted
acquisition initiative during the year. While external factors have suppressed
acquisition opportunities in recent years, we expect there to be more
acquisitions in 2022 and are already seeing increased activity.
We let 40,000 properties in 2021 up from 28,000 in 2020, the increase as a
result of the Hunters acquisition.
We have seen rents rising on new lets and renewed tenancies between
approximately 6% to 8%. Zoopla reported the fastest growth in rents in Q4
2021 than at any time over the last 13 years. Across the UK rents increased
8.3% in 2021 to an average of £969 per calendar month. Affordability as a
percentage of a single earner's income remains broadly in line with the
10-year average of 36%.
Management service fees from lettings were up 18% to £7.9m (2020: £6.6m) of
which Hunters contributed £0.9m of the increase, high-street led brands
£0.2m and EweMove £0.2m.
Our network's sales performance
We experienced a surge in demand for residential property in 2021, reaching
a level I have not experienced before during my 30 years in the sector. The
latest figures from HMRC show sales completions of 1.47m (non-seasonally
adjusted) for 2021 against our pre-Covid comparator of 1.18m in 2019.
We came into 2021 with our sales agreed pipeline double the prior year end
and, following the acquisition of Hunters, the Group had a sales' agreed
pipeline of £31.0m as at 31 March 2021. The market continued to be strong
across the remainder of the year and we ended 2021 with a sales' agreed
pipeline of £26.5m, 55% higher than at 31 December 2019 (pre-Covid
comparator). The high-street led brands delivered an increase of 65% and
EweMove an increase of 76% against the pre-Covid comparator. Although we did
not own Hunters in 2019, the pre-Covid comparator for Hunters was a 44%
increase.
During 2021, the Group listed over 31,000 homes for sale, agreed sales on over
32,000 homes and helped buyers complete on almost 26,000 homes.
Management service fees from sales were up 145% to £6.9m (2020: £2.8m) of
which Hunters contributed £2.6m of the increase, high-street led brands
£0.9m and EweMove £0.6m.
Our view is that the re-prioritisation of housing needs will continue to be a
factor in 2022 but the supply of stock will be the critical factor and
therefore a similar market to 2019 is likely. That's just under 1.2m
transactions or a 20% reduction over 2021. So far, however, 2022 has started
better than we expected.
Strategic initiatives delivering growth
We have made significant progress this year with our strategic initiatives as
first set out in September 2020.
Lettings growth
Our assisted acquisitions programme brought another 1,270 tenanted managed
properties into the network. This should add a further £1.2m to network
income on an annualised basis. We have also increased our expertise and the
funds committed to this initiative with the aim of accelerating our progress.
Develop sales activity in the high street-led brands
In 2021 we encouraged franchisees to build their sales activities and benefit
from the buoyant market. Our success is evident from average sales per office
being 42% higher in the high-street led brands at the end of 2021 compared to
2019.
Financial services growth
It is our intention for all our network's end customers to have access to a
full-service lettings and estate agency service, and financial services
provision is part of that offering.
Pleasingly, we signed a 5-year strategic partnership with LSL in April 2021
and whilst market conditions initially limited our capacity to recruit
financial advisers (against our initial target of 100 by the end of 2021),
these have been improving in recent months. We also had our first block of
franchisees start on the journey to run their own mortgage brokerages.
EweMove recruitment
We sold a record 58 new territories in 2021, finishing the year with 167
territories under contract. We have experienced continued strong lead flow in
2022.
We are aiming to double the number of territories occupied by EweMove
franchisees to 230 by the end of 2022.
Acquisitions
We acquired Hunters Property plc on 19 March 2021. It operates under three
brands from 208 high street offices: Hunters, Country Properties and Mullucks.
The acquisition has been materially integrated into the Group and has
delivered significant financial and strategic benefits. We will help its
franchisees grow their lettings revenues to a more balanced level to improve
their financial stability and increase the resale value of their franchises.
In September 2021 we bought Mortgage Genie, a mortgage broker supporting our
commitment to developing a financial services income stream and providing
capacity to service our franchisees requirements. We will continue to consider
the acquisition of further financial services businesses which can enhance our
offering.
Digital marketing
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.
Towards the end of 2021 we saw the completion of new websites with additional
consumer functionality and, in co-operation with an experienced partner, a new
CRM platform.
EweMove grows ever stronger
EweMove delivered a record performance in 2021 as it continues to demonstrate
the benefits of its unique, hybrid, highly customer centric and flexible
cost-based model.
EweMove's revenue increased by 41% to £4.1m (2020: £2.9m) and its adjusted
profit before tax (which excludes exceptional items, share based payment
charges, amortisation arising on consolidation) increased by 67% to £1.5m
(2020: £0.9m). Its operating margin increased from 31% in 2020 to 37% in
2021. Importantly, profit before tax has quadrupled since 2018.
Milestone year for Hunters
Whilst our financial statements and commentary above focuses on Hunters since
we acquired it on 19 March, I'd like to touch on its entire year here.
Hunters opened six offices in 2021 (2020: 9). Revenue was £12.8m (2020:
£12.5m) and adjusted profit before tax which excludes exceptional items,
share based payment charges, amortisation arising on consolidation increased
by 29% to £3.6m (2020: £2.8m). The results from streamlining costs post
acquisition accounted for circa £0.4m of the increase.
Following a strategic review, Hunters launched a hybrid offering post-period
end - Hunters Personal - which is nascent but has so far been well received.
Looking forward in 2022, final integration continues with consolidation into
Group functions which will generate further cost savings. Alongside this we'll
be driving revenue growth opportunities with the development of more lettings
income, a new hybrid offering to promote, and the continued rollout of
financial services to their network.
Supporting our franchisees
A key focus for the leadership team has been developing the support we provide
to our franchisees. Our internal approach, culture and attitude, clearly
recognises 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.
We have more franchisees than ever to support and as such we have been
enhancing our leadership team. We welcomed Ellie Hall in September as Managing
Director of Martin & Co (Midlands and North). Her specialism is the
acquisition of lettings businesses which she has performed very successfully
for our competitors over many years. Towards the end of 2021 we started to
build additional training capabilities, and post-period end announced that
these will be led by Glynis Frew once she has fully handed over Hunters' MD
reins to Gareth Williams. We also recruited three further regional managers.
The feedback received from franchisees clearly indicates that we are heading
in the right direction. There is a renewed sense of advocacy in our network
and pride in what has been achieved. We are sought out more often for advice
and the progress we have made is typified by the strong reputation that our
team holds. That provides me with the energy and passion to ensure we keep
delivering on our commitment.
Outlook
In 2022, we expect a similar residential sales market to 2019 and will
therefore be focusing on encouraging franchisees to drive the activities which
underpin our strategic initiatives. We have assembled the team to support
them, and we are confident in our ability to execute.
Whilst we appear to have weathered the worst of the pandemic, none of us
currently understand the implications of the conflict in Ukraine and the
increasing cost of living. However, what we do know is that the Government has
thus far been supportive of our sector, rental inflation is happening, and we
are seeing greater sales activity than we were expecting so far this year.
With a significant lettings business, a hybrid model with a flexible cost
base, the strength from our network of committed franchisees and a platform
capable of scaling faster, we remain confident in our ability to grow the
Group and continue to deliver value for our shareholders.
Gareth Samples
Chief Executive
4 April 2022
FINANCIAL REVIEW
In 2021 we forged ahead with our six strategic initiatives alongside a buoyant
sales market. Our progress was undoubtedly helped by our investment in a new
leadership team in late 2020, and further investment in 2021, giving us the
bandwidth and expertise to implement and develop all our initiatives.
We added 17 companies in the year through the acquisitions of Hunters on 19
March 2021 and Mortgage Genie on 6 September 2021. The former put us at the
forefront of sales agency networks in the UK and grew our tenanted managed
portfolio by 25%. The latter complements our 5-year strategic partnership with
LSL Property Services, and overall ambition to develop a meaningful third
revenue stream from financial services.
Our scale allowed us to use Group functions more efficiently, start to
eliminate operational resource duplication and agree several beneficial
long-term partnership arrangements. That, on top of saving duplicated PLC
costs, meant an initial £0.4m of annualised cost savings were achieved.
On a like-for-like basis including Hunters (artificial because we did not own
Hunters until March 2021), the sales agreed pipeline was £32.6m at the start
of the year and finished 2021 at £26.5m. Whilst the conversion of sales
agreed into completion income started slowly in the year, the volume of
transactions and longevity have been pleasing and the benefits of this will
continue to be felt for at least Q1 2022.
By the year end we had exceeded 74,000 tenanted managed properties and rents
were rising by circa 8% per annum by the end of the year. These two factors
drove our lettings result in 2021 and as the latter will take several years to
be substantially reflected across the portfolio, it should drive growth in
income in 2022 and beyond.
Revenue
Group revenue for the financial year to 31 December 2021 was £24.0m (2020:
£11.0m), an increase of £13m (118%) over the prior year. Hunters contributed
£9.8m to revenue. There was like-for-like growth (excluding Hunters) of 26%
to £13.9m
Management Service Fees ("MSF"), our key underlying revenue stream, increased
57% from £9.4m to £14.7m and represented 61% (2020: 85%) of the Group's
revenue. Hunters contributed £3.5m of MSF. There was like-for-like growth
(excluding Hunters) of 19% to £11.2m.
The remainder of Group revenue was from owned offices £4.7m (2020: nil),
franchise sales of £0.6m (2020: £0.2m), ancillary services to support MSF
generation of £3.6m (2020: £1.5m) and revenue from financial services of
£0.4m (2020: £0.4m).
Lettings contributed 53% of MSF (2020: 70%), sales contributed 46% of MSF
(2020: 29%) and financial services contributed 1% of MSF (2020: 1%). Lettings
MSF increased by 19% in the year, excluding the amortisation of prepaid
assisted acquisitions support, and sales MSF increased by 145%.
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 recovered in 2021.
Territory sales in EweMove set a new record of 58 (2020: 11).
2021 2020
Revenue £24.0m £11.0m
Management Service Fees £14.7m £9.4m
Administrative expenses £12.7m £5.3m
Adjusted operating profit* £9.7m £5.3m
Operating profit £6.7m £4.8m
Adjusted profit before tax* £9.4m £5.3m
Profit before tax £6.4m £4.8m
Adjusted EBITDA* £10.4m £5.7m
Dividend 11.6p 8.7p
*Before exceptional costs, amortisation of acquired intangibles, share-based
payment charges and gain on listed investment
Operating profit
Headline operating profit increased 34% to £6.7m (2020: £4.8m) with an
operating margin of 27% (2020: 43%). Adjusted operating profit before
exceptional items, amortisation of acquired intangibles and share-based
payments charges increased 82% from £5.3m to £9.7m and the resulting
operating margin was 40% (2020: 48%).
The average adjusted operating margin for the three years prior to 2020 was
43%. The operating margin for 2021 is lower than prior years due to Hunters
operating some of its offices itself, which is a lower margin activity. There
has been good progress with the initial post-acquisition synergies realising
£0.4m of cost savings and we continue to seek further synergies in 2022.
As a result of the acquisitions in 2021, cost of sales increased by 297% to
£3.7m (2020: £0.9m) and administrative expenses increased by 147% to £13.0m
(2020: £5.3m), which included exceptional costs and the cost of repaying the
furlough money back to HMRC in full of £0.09m.
Exceptional costs were £0.9m due to the acquisition of Hunters Property plc.
Share options were granted to the Executive Directors in 2021 over a maximum
of 1,200,000 shares, with 100,000 arising through a deferred bonus plan,
adding to those granted in 2020 over a maximum of 200,000 shares. There were
also share options granted to senior employees in 2021 amounting to a maximum
of 425,500 shares on the same conditions as those applying to the Executive
Directors. All other grants for previous years vested during 2021.
An assessment of the share-based payment charges resulting from the options
granted was made on 31 December 2021 resulting in £1.0m being charged to the
profit and loss account (2020: £0.1m).
Adjusted EBITDA
Adjusted EBITDA for 2021 was £10.4m (2020: £5.7m), an increase of £4.7m
(81%) over the prior year.
The high street-led brands contributed £5.2m (includes PLC costs), Hunters
contributed £3.6m, and EweMove contributed £1.6m.
Profit before tax
Profit before tax was £6.4m for 2021 (2020: £4.8m). Excluding exceptional
costs of £0.9m (2020: nil), amortisation arising on acquired intangibles of
£1.2m (2020: £0.5m), the share-based payment charges of £1.0m (2020:
£0.1m) and the gain on the listed investment of £0.1m (2020: nil), the
adjusted profit before tax increased by 76% from £5.3m to £9.4m. The
high-street led brands contributed £4.9m (includes PLC costs), Hunters
contributed £3.0m and EweMove contributed £1.5m.
Taxation
The effective rate of corporation tax for the year was 42.7% (2020: 21.2%) due
to the Government increasing corporation tax from 19% to 25% from April 2023
which has caused a deferred tax adjustment of £1.5m. The total tax charge for
2021 was £2.74m (2020: £1.0m).
Discontinued operations
On 22 July 2021 the Group disposed of its majority shareholding in Aux Group
Limited. This resulted from the decision to partner LSL so as to scale up more
quickly without the regulatory burdens. A cost of £0.2m has been recognised
under discontinued operations being the loss on disposal of £0.3m less the
profit after tax up to the point of disposal of £0.1m.
Earnings per share
Basic earnings per share ("EPS") for the year was 11.3p (2020: 14.6p), a
decrease of 23% based on an 19% increase in the average number of shares in
issue for the period to 30,622,102 (2020: 25,822,750). EPS is significantly
impacted in the year by the deferred tax rate change from 19% to 25% that was
substantially enacted on 24 May 2021, reducing earnings by £1.5m.
Diluted EPS for the year was 11.3p (2020: 14.4p) a decrease of 22% based on
the average number of shares in issue for the period plus an estimate for the
dilutive effect of option grants vesting, being 30,721,692 (2020: 26,342,567).
Again, this is also impacted by the deferred tax rate change reducing earnings
by £1.5m in 2021.
The impact of the deferred tax rate change of £1.5m is to reduce basic EPS
from 16.3p to 11.3p in the year and diluted EPS from 16.3p to 11.3p in the
year.
Adjusted basic EPS for the year was 27.0p (2020: 16.8p), an increase of 61%
based on the average number of shares in issue for the period of 30,622,102
(2020: 25,822,750).
Adjusted diluted EPS for the year was 26.9p (2020: 16.5p), an increase of 63%
based on an estimate of diluted shares in issue of 30,721,692 (2020:
26,342,567).
The adjustments to earnings to derive the adjusted EPS figures total £4.8m
(2020: £0.6m) and result from the share-based payment charge of £1.0m,
amortisation of acquired intangibles of £1.2m, exceptional costs of £0.9m, a
deferred tax rate change generating a charge of £1.5m, and a loss on disposal
of subsidiary of £0.2m
The profit attributable to owners was £3.5m (2020: £3.8m).
Dividends
The Board remains committed to its progressive dividend policy whilst
maintaining strong dividend cover as part of its overall cash allocation
policy.
The Group has made significant progress with its strategic initiatives and is
generating significantly more cash than ever before. As a result, the Board is
pleased to announce a final dividend of 7.8p (second interim dividend for
2020: 6.6p), an increase of 18%, bringing the total dividend for 2021 to 11.6p
(2020: 8.7p). It will be paid on 27 May 2022 to all shareholders on the
register on 29 April 2022. Our shares will be marked ex-dividend on 28 April
2022. The total amount payable is £2.5m.
Cash flow
The Group is strongly operationally cash generative. The net cash inflow from
operating activities in 2021 was £8.9m (2020: £5.4m).
The net cash outflow from investing activities was £13.7m (2020: outflow
£0.1m). This consisted of £13.0m for the purchase of Hunters Property PLC,
£0.1m for the purchase of Mortgage Genie Limited and its sister company,
£0.3m on the disposal of Auxilium and £0.3m for the purchase of assets. In
2020, £0.2m was paid to franchisees following their purchase of tenanted
managed properties and the acquisition of Auxilium Partnership Ltd netted to a
cash inflow of £0.1m following a loan repayment of £0.2m.
The Group borrowed £12.5m from Barclays to fund all bar £2.0m of the cash
element of the consideration for Hunters Property Plc. This was made up of a
revolving credit facility of £5.0m and a term loan of £7.5m repayable over 4
years. The Group had no bank borrowings in the prior year. It made repayments
against the term loan of £1.4m during 2021. In addition, the Group repaid
loans that Hunters had with HSBC of 3.0m.
Dividend payments totalling £2.9m were paid in the year (2020: £0.5m).
Shares were purchased by the TPFG EBT for £0.3m (2020: £nil).
Liquidity
The Group had cash balances of £8.4m on 31 December 2021 (2020: £8.8m) and
due to the bank loans mentioned above its net debt was £2.7m (2020: net cash
£8.8m).
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 payments 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 £60.4m (2020: £25.2m), the significant increase being mainly due
to the acquisition of Hunters Property plc.
There was an increase of £22.4m in liabilities during the year due to the new
bank loan which contributed £11.1m of the increase as well as from an
increase in the deferred tax liability of £4.5m resulting from the Hunters
acquisition and the increase in the deferred tax rate, and an increase in
other liabilities mainly resulting from the Hunters acquisition of £6.8m.
The Group finished the year with the total equity attributable to owners of
£33.6m, an increase of £13.1m or 64% over the prior year.
The Group generated stronger cash inflows than ever before in 2021 due to its
operating margins, acquisitions and the strength of the residential sales
market. This has quickly brought the net debt down from a high of £7.3m
following the acquisition of Hunters to a net debt of £2.7m at the year end.
David Raggett
Chief Financial Officer
4 April 2022
Consolidated statement of comprehensive income
for the year ended 31 December 2021
Notes 2021 2020
£'000 £'000
Revenue 7 24,042 11,017
Cost of sales (3,697) (933)
Gross profit 20,345 10,084
Administrative expenses 8 (12,719) (5,257)
Share-based payments charge 9, 33 (970) (68)
Operating profit 11 6,656 4,759
Finance income 12 4 11
Finance costs 12 (320) (3)
Other gains and losses 21 83 -
Profit before income tax expense 6,423 4,767
Income tax expense 13 (2,745) (1,008)
Profit for the year from continuing operations 3,678 3,759
Discontinued operations 14 (169) 33
Profit and total comprehensive income for the year 3,509 3,792
Profit and total comprehensive income for the year attributable to:
Owners of the parent 3,469 3,783
Non-controlling interest 40 9
3,509 3,792
Earnings per share attributable to owners of parent 15 11.3p 14.6p
Diluted Earnings per share attributable to owners of parent 15 11.3p 14.4p
Adjusted results
Adjusted profit for the financial year (1) 15 8,256 4,349
Earnings per share attributable to owners of parent 15 27.0p 16.8p
Diluted Earnings per share attributable to owners of parent 15 26.9p 16.5p
1. Adjusted profit for the financial year is reconciled to the
statutory profit for the year in note 15. Adjusted profit for 2021 is the
profit before charging £1.5m deferred tax rate adjustment, £1.2m
amortisation on acquired intangibles, £1.0m share based payments charge,
£0.85m exceptional costs, and £0.2m other items.
Consolidated statement of financial position
31 December 2021
Notes 2021 2020
£'000 £'000
Assets
Non-current assets
Intangible assets 17 46,498 14,380
Property, plant and equipment 18 217 68
Right-of-use assets 19 1,568 86
Prepaid assisted acquisitions support 20 424 600
Investments 21 169 -
Investment properties 22 256 -
49,132 15,134
Current assets
Trade and other receivables 23 2,820 1,291
Cash and cash equivalents 8,413 8,771
11,233 10,062
Total assets 60,365 25,196
Equity
Shareholders' equity
Called up share capital 24 320 258
Share premium 25 4,129 4,040
Own share reserve 27 (348) -
Merger reserve 26 14,345 2,797
Other reserves 27 905 778
Retained earnings 13,999 12,690
33,350 20,563
Non-controlling interest 6 9
Total equity attributable to owners 33,356 20,572
Liabilities
Non-current liabilities
Borrowings 28 9,219 -
Lease liabilities 19 2,275 45
Deferred tax 30 5,570 1,115
Provisions 31 212 -
17,276 1,160
Current liabilities
Borrowings 28 1,875 -
Trade and other payables 29 6,280 2,750
Lease liabilities 19 465 41
Tax payable 1,113 673
9,733 3,464
Total liabilities 27,009 4,624
Total equity and liabilities 60,365 25,196
The financial statements were approved and authorised for issue by the Board
of Directors on 4 April 2022 and were signed on its behalf by:
David Raggett
Chief Financial Officer
Company statement of financial position
31 December 2021 (Company No: 08721920)
Notes 2021 2020
£'000 £'000
Assets
Non-current assets
Investments 21 60,743 34,083
Deferred tax asset 30 377 228
61,120 34,311
Current assets
Trade and other receivables 23 811 221
Cash and cash equivalents 4,635 4,601
5,446 4,822
Total assets 66,566 39,133
Equity
Shareholders' equity
Called up share capital 24 320 258
Share premium 25 4,129 4,040
Own share reserve 27 (348) -
Merger reserve 26 32,335 20,787
Other reserves 27 905 778
Retained earnings 16,668 13,123
Total equity 54,009 38,986
Liabilities
Non-current liabilities
Borrowings 28 9,219 -
9,219 -
Current liabilities
Borrowings 28 1,875 -
Trade and other payables 29 1,463 147
3,338 147
Total liabilities 12,557 147
Total equity and liabilities 66,566 39,133
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 £5.705m (2020: £4.025m).
The financial statements were approved and authorised for issue by the Board
of Directors on 4 April 2022 and were signed on its behalf by:
David Raggett
Chief Financial Officer
Consolidated statement of changes in equity
for the year ended 31 December 2021
Attributable to owners
Called up share Retained Share Own share Merger Other Total Non-controlling Tptal
capital earnings premium reserve reserve reserves equity interest equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2020 258 9,449 4,040 - 2,797 710 17,254 - 17,254
Profit and total comprehensive income - 3,783 - - - - 3,783 9 3,792
Dividends - (542) - - - - (542) - (542)
Share-based payments charge - - - - - 68 68 - 68
Total transactions with owners - (542) - - - 68 (474) - (474)
Balance at 31 December 2020 258 12,690 4,040 - 2,797 778 20,563 9 20,572
Profit and total comprehensive income - 3,469 - - - - 3,469 40 3,509
Disposal of subsidiary - - - - - - - (43) (43)
Dividends - (2,922) - - - - (2,922) - (2,922)
Shares issued - acquisition consideration 55 - - - 11,548 - 11,603 - 11,603
Shares issued - share option exercises 7 762 89 - - (762) 96 - 96
Purchase of shares by Employee Benefit Trust - - - (348) - - (348) - (348)
Release of deferred tax on share based payments - - - - - (81) (81) (81)
-
Share-based payments charge - - - - - 970 970 - 970
Total transactions with owners 62 (2,160) 89 (348) 11,548 127 9.318 - 9,318
Balance at 31 December 2021 320 13,999 4,129 (348) 14,345 905 33,350 6 33,356
Company statement of changes in equity
for the year ended 31 December 2021
Called up share Retained Share Own share reserve Merger Other Total
capital earnings premium £'000 reserve reserves equity
£'000 £'000 £'000 £'000 £'000 £'000
Balance as at 1 January 2020 258 9,640 4,040 - 20,787 710 35,435
Profit and total comprehensive income - 4,025 - - - - 4,025
Dividends - (542) - - - - (542)
Share-based payments charge - - - - - 68 68
Total transactions with owners - (542) - - - 68 (474)
Balance as at 31 December 2020 258 13,123 4,040 - 20,787 778 38,986
Profit and total comprehensive income - 5,705 - - - - 5,705
Dividends - (2,922) - - - - (2,922)
Shares issued - acquisition consideration 55 - - - 11,548 - 11,603
Shares issued - share option exercises 7 762 89 - - (762) 96
Purchase of shares by Employee Benefit Trust - - - (348) - - (348)
Release of deferred tax on share based payments - - - - - (81) (81)
Share-based payments charge - - - - - 970 970
Total transactions with owners 62 (2,160) 89 (348) 11,548 127 9,318
Balance as at 31 December 2021 320 16,668 4,129 (348) 32,335 905 54,009
Consolidated statement of cash flows
for the year ended 31 December 2021
Notes 2021 2020
£'000 £'000
Cash flows from operating activities
Cash generated from operations A 10,856 6,378
Interest paid (232) -
Tax paid (1,679) (972)
Net cash from operating activities 8,945 5,406
Cash flows from investing activities
Acquisition of subsidiary net of cash acquired - Hunters B (13,041) -
Acquisition of subsidiary net of cash acquired - The Mortgage Genie C (103) -
Acquisition of subsidiary net of cash acquired - Auxilium - (81)
Disposal of subsidiary net of cash disposed of - Auxilium D (323) -
Purchase of intangible assets (116) -
Purchase of tangible assets (87) (18)
Assisted acquisitions support (57) (155)
Loan repaid - 200
Interest received 4 11
Net cash used in investing activities (13,723) (43)
Cash flows from financing activities
Issue of ordinary shares 96 -
Equity dividends paid (2,922) (542)
Purchase of shares by Employee Benefit Trust (348) -
Bank loan drawn 12,500 -
Bank loan repaid (4,419) -
Principal paid on lease liabilities (399) (59)
Interest paid on lease liabilities (88) (3)
Net cash used in financing activities 4,420 (604)
(Decrease) / Increase in cash and cash equivalents (358) 4,759
Cash and cash equivalents at beginning of year 8,771 4,012
Cash and cash equivalents at end of year 8,413 8,771
Notes to the consolidated statement of cash flows
for the year ended 31 December 2021
A. Reconciliation of profit before income tax to cash generated from
operations
2021 2020
£'000 £'000
Cash flows from operating activities
Profit before income tax 6,423 4,767
Profit before income tax - discontinued 152 38
Depreciation of property, plant and equipment 79 28
Amortisation of intangibles 1,249 591
Amortisation of prepaid assisted acquisitions support 233 213
Amortisation of right-of-use assets 317 56
Share-based payments charge 970 68
Gain on revaluation of listed investment (83) -
Finance costs 320 3
Finance income (4) (11)
Operating cash flow before changes in working capital 9,656 5,753
Decrease/(increase) in trade and other receivables 247 (18)
Increase in trade and other payables 953 643
Cash generated from operations 10,856 6,378
B. Acquisition of Subsidiary undertakings net of cash acquired
On 19 March 2021 the Group obtained control of Hunters Property plc and it's
subsidiaries.
2021 2020
£'000 £'000
Consideration - cash element 14,531 -
Less: Cash acquired (1,490) -
Acquisition of subsidiary undertakings net of cash acquired 13,041 -
C. Acquisition of Subsidiary undertakings net of cash acquired
On 6 September 2021 the Group obtained control of The Mortgage Genie Limited
and The Genie Group UK Ltd.
2021 2020
£'000 £'000
Consideration - cash element 400 -
Less: Cash acquired (297) -
Acquisition of subsidiary undertakings net of cash acquired 103 -
D. Disposal of Subsidiary undertakings net of cash disposed of
On 22 July 2021 the Group disposed of its controlling interest in Aux Group
Limited and Auxilium Partnership Limited
2021 2020
£'000 £'000
Consideration - cash element 20 -
Less: Cash disposed of (343) -
Disposal of subsidiary undertakings net of cash disposed of (323) -
Company statement of cash flows
for the year ended 31 December 2021
Notes 2021 2020
£'000 £'000
Cash flows from operating activities
Cash generated from operations E (1,005) (660)
Interest paid (220) -
Net cash used in operating activities (1,225) (660)
Cash flows from investing activities
Acquisition of subsidiary - Hunters (14,531) (81)
Acquisition of subsidiary - The Mortgage Genie (400) -
Disposal of subsidiary - Auxilium 20 -
Loan repaid - 200
Equity dividends received 8,250 4,610
Net cash generated from investing activities (6,661) 4,729
Cash flows from financing activities
Issue of ordinary shares 96 -
Equity dividends paid (2,922) (542)
Purchase of own shares by Employee Benefit Trust (348) -
Bank loan drawn 12,500 -
Bank loan repaid (1,406) -
Net cash used in financing activities 7,920 (542)
Increase in cash and cash equivalents 34 3,527
Cash and cash equivalents at beginning of year 4,601 1,074
Cash and cash equivalents at end of year 4,635 4,601
Notes to the Company statement of cash flows
for the year ended 31 December 2021
E. Reconciliation of profit before income tax to cash generated from
operations
2021 2020
£'000 £'000
Cash flows from operating activities
Profit before income tax 4,846 3,898
Share-based payments charge 773 85
Gain on revaluation of listed investment (68) -
Loss on disposal of subsidiary 180 -
Finance costs 220 -
Finance income - -
Equity dividend received (8,250) (4,610)
Operating cash flow before changes in working capital (2,299) (627)
Increase in trade and other receivables (8) (163)
Increase in trade and other payables 1,302 130
Cash used in operations (1,005) (660)
Notes to the consolidated and Company financial statements
for the year ended 31 December 2021
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
UK adopted international accounting standards 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 modified to include the
revaluation of certain investments at fair value.
The preparation of financial statements in accordance with UK adopted
international accounting standards 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 thousand pounds.
Going concern
The Group has produced detailed budgets, projections and cash flow forecasts,
which include a forecast of future bank covenant compliance. 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, 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 2021
We do not consider there to be any relevant new standards, amendments to
standards or interpretations, that are effective for the financial year
beginning on 1 January 2021, which would have a material impact on the
financial statements.
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 2021, 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 2021. 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. In addition there is lettings and residential
sales income, net of VAT, from a small number of Hunters' owned offices and
financial services commissions.
Franchises excluding EweMove:
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.
Hunters owned offices:
Revenue from the sale of residential property is recognised, net of vat, at
the point the Group has performed its performance obligation to see the
transaction through to the exchange of contracts between a buyer and a vendor.
Revenue from lettings represents commission earned from operating as a
lettings agent, net of vat. Where the performance obligation relates to the
letting of a property the revenue is recognised at the point the property has
been let. Where the performance obligation relates to the management of a
lettings property revenue is recognised over the period the property is
managed.
Financial services commissions:
Financial services commissions received are recognised upon receipt, being a
point in time when the Group has met its obligations in delivering a customer
to the mortgage and / or insurance partners. A provision is made for the best
estimate of future clawbacks resulting from insurance policies being
subsequently cancelled, however this is not material to the financial
statements. There is no vat applicable to financial services commissions.
Rental income:
Rental income represents rent received from short term licensing arrangements
entered into to make use of vacant office space. The Group's obligation is to
provide office accommodation through the period of the license. Revenue is
recognised over the period of the license.
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
Brands - Hunters 20 years
Customer lists - lettings books 12 years
Customer lists - franchise development grants 15 years
Master franchise agreements - Whitegates, CJ Hole, Parkers, Ellis & Co 25 years
Master franchise agreements - Hunters 21 years
Master franchise agreements - EweMove 15 years
Technology - Ewereka 5 years
Technology - Websites, CRM system and Software 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 acquired as part of the Hunters acquisition relate to Lettings
books and are being written off over a remaining life of 12 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.
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.
Equity investments
Investments in the Group balance sheet represent listed investments which are
measured at market value and unlisted investments which are measured at cost.
Listed investments are revalued at fair value through the profit and loss
account based on the quoted share price.
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% - 25% reducing balance or 10% - 33% straight line
Computer equipment over 3 years
Leasehold buildings and 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.
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.
Investment properties
Investment property comprises a property held under a lease by Hunters which
is subleased to an independent third party. The investment property is held at
historic cost less accumulated depreciation, and is being depreciated over the
term of the lease as set out in the Property, plant and equipment note above.
It is recognised on this basis because it is a short term lease and as such it
is not possible to reliably determine a fair value.
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. On 24 May 2021 the Finance Bill 2021 was substantively enacted
which amends the corporation tax rate from 19% to 25% with effect from 1 April
2023. 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 the 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 Group and Company issue 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 Group and 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 and Company revise 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.
Valuation of separable intangible assets on acquisition
When valuing the intangibles acquired in a business combination, management
estimate the expected future cash flows from the asset and choose a suitable
discount rate in order to calculate the present value of those cash flows.
Separable intangibles valued on acquisitions made in year were £17.4m (2020:
£nil) as detailed further in note 17 and note 35.
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 17.
Share-based payment charge ("SBPC")
The aggregate fair value expense of each grant is determined through using the
Black-Scholes model and an estimate for the attainment of the performance
condition. The estimate of earnings per share ("EPS") for FY22 was based on
budget and FY23 relies on a projection of earnings taking into account
available market data and performance trends.
The vesting of the options granted in 2020 is dependent on adjusted EPS and
total shareholder return for FY22, 100% of these options are expected to vest
and a share based payment of £0.13m has been calculated on this basis and
recognised in the statement of comprehensive income in the year.
The vesting of the options granted in 2021 is dependent on adjusted EPS and
total shareholder return for FY23. The base adjusted EPS for the 2021 scheme
is 16.84p. If adjusted EPS reaches 26.95p in 2023 then 75% vesting is
achieved. If adj EPS reaches 27.79p then 100% vesting is achieved. A share
based payment charge of £0.33m has been calculated on the basis of 100%
vesting and has been recognised in the statement of comprehensive income in
the year. At this juncture 100% of the options are expected to vest. If the
assumption was changed to 75% vesting the charge would have been £0.28m. If
it were lower than 75% then the charge would be £nil.
The base share price for the 2021 scheme is 192p. If a combination of share
price growth and dividends paid reaches 154p then 75% vesting is achieved. If
a combination of share price growth and dividends paid reaches 173p then 100%
vesting is achieved. A share based payment charge of £0.33m has been
calculated on the basis of 100% vesting and has been recognised in the
statement of comprehensive income in the year. At this juncture 100% of the
options are expected to vest. If the assumption was changed to 75% vesting the
charge would have been £0.28m. If it were lower than 75% then the charge
would be £nil.
6. Segmental reporting
The directors consider there to be two operating segments in 2021 and 2020
being Property Franchising and Other.
For the year ended 31 December 2021:
Property
Franchising Other Total
Continuing £'000 £'000 £'000
Revenue 23,595 447 24,042
Segment profit before tax 6,363 60 6,423
Property
Franchising Other Total
Discontinued £'000 £'000 £'000
Revenue - 267 267
Segment profit before tax - 153 153
For the year ended 31 December 2020:
Property
Franchising Other Total
Continuing £'000 £'000 £'000
Revenue 11,017 - 11,017
Segment profit before tax 4,767 - 4,767
Property
Franchising Other Total
Discontinued £'000 £'000 £'000
Revenue - 448 448
Segment profit before tax - 38 38
The Other segment related to Financial Services in both years. There was no
inter-segment revenue in any period. See note 14 for details of discontinued
operations.
7. Revenue
2021 2020
£'000 £'000
Property Franchising segment: 14,706 9,365
Management Service Fees
Owned offices - lettings and sales fees 4,708 -
Franchise sales 589 145
Other 3,592 1,507
23,595 11,017
Other segment:
Financial Services commissions 447 -
24,042 11,017
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 23 for details of accrued income and note 29 for details of deferred
income.
See note 20 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:
2021 2020
£'000 £'000
Employee costs 6,301 3,370
Marketing and digital costs 995 334
Property costs 547 130
Amortisation 1,567 646
Exceptional costs (note 10) 853 -
Other administrative costs 2,456 777
12,719 5,257
9. Employees and Directors
Average numbers of employees (including Directors), employed during the year:
Group Company
2021 2020 2021 2020
Administration 171 41 1 -
Management 12 10 2 2
183 51 3 2
Employee costs (including Directors) during the year amounted to:
Group Company
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Wages and salaries 6,785 2,945 731 580
Social security costs 1,117 358 263 67
Pension costs 194 67 19 15
Private medical insurance 19 - - -
8,115 3,370 1,013 662
Share-based payments charge 970 68 773 85
Key management personnel are defined as Directors and executives of the Group.
Details of the remuneration of the key management personnel are shown below:
2021 2020
£'000 £'000
Wages and salaries 2,218 1,953
Social security costs 456 251
Pension costs 97 43
2,771 2,247
Share-based payments charge 902 72
Details of the Directors' emoluments are disclosed in the Directors'
remuneration report. The share-based payments charge for the current year has
been charged to the Statement of Comprehensive Income, of this £0.77m (2020:
£0.09m) relates to Directors.
10. Exceptional costs
Exceptional costs of £0.85m are included in administrative expenses for the
year ended 31 December 2021 which comprised costs associated with the
acquisition of Hunters Property plc.
11.Operating profit
2021 2020
£'000 £'000
The operating profit is stated after charging:
Depreciation 79 28
Amortisation - intangibles 1,249 591
Amortisation - prepaid assisted acquisitions support 233 213
Amortisation - leases 317 56
Share-based payments charge 970 68
Auditor's remuneration (see below) 113 58
Staff costs (note 9) 8,115 3,737
Exceptional costs (note 10) 853 -
Audit services
- Audit of the Company and consolidated accounts 113 58
113 58
12. Finance income and costs
2021 2020
£'000 £'000
'Finance income:
Bank interest 2 6
Other similar income 2 5
4 11
2021 2020
£'000 £'000
Finance costs:
Bank interest 232 -
Interest expense on lease liabilities 88 3
320 3
13. Taxation
2021 2020
£'000 £'000
Current tax 1,680 1,031
Adjustments in respect of previous periods 29 3
Current tax total 1,709 1,034
Deferred tax credit on acquired business combinations 1,245 (13)
Deferred tax credit on share-based payments (209) (13)
Deferred tax total 1,036 (26)
Total tax charge in statement of comprehensive income 2,745 1,008
The tax assessed for the period is higher (2020: higher) than the standard
rate of corporation tax in the UK. The difference is explained below.
2021 2020
£ £
Profit on ordinary activities before tax 6,423 4,767
Profit on ordinary activities multiplied by the effective standard rate of 1,220 906
corporation tax in the UK of 19%
Effects of:
Expenses not deductible for tax purposes 448 2
Depreciation in excess of capital allowances 12 13
Effect of change in deferred tax rate 1,540 83
Deferred tax provision (504) -
Adjustments in respect of previous periods 29 4
Total tax charge in respect of continuing activities 2,745 1,008
14. Discontinued operations
On 22 July 2021 the Group sold it's majority shareholdings in Aux Group
Limited and Auxilium Partnership Limited. Auxilium was a financial services
business operating as life assurance buyers club. The Group took the decision
to pursue a different approach to delivering its financial services strategy
so no longer operates a life assurance buyers club.
The profit of Aux Group Limited and Auxilium Partnership Limited for the
period up to 22 July 2021, net of tax, has been included in discontinued
operations and the profit net of tax for the comparative period has been moved
to discontinued operations. The difference between the proceeds received on
sale, £0.02m and the assets to be disposed of, £0.29m, resulted in an
impairment loss of £0.27m, which has been included in discontinued
operations. The profit for the period to 22 July 2021, net of tax, was
£0.1m.
15. 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.
2021 2020
£'000 £'000
Profit for the financial year attributable to owners of the parent 3,469 3,783
Amortisation on acquired intangibles 1,214 498
Share-based payments charge 970 68
Exceptional costs (note 10) 853 -
Deferred tax rate change from 19% to 25% 1,540 -
Discontinued operations - loss on disposal 293 -
Gain on revaluation of listed investment (83) -
Adjusted profit for the financial year 8,256 4,349
Weighted average number of shares
Number used in basic earnings per share 30,622,102 25,822,750
Dilutive effect of share options on ordinary shares 99,590 519,817
Number used in diluted earnings per share 30,721,692 26,342,567
Basic earnings per share 11.3p 14.6p
Diluted earnings per share 11.3p 14.4p
Adjusted basic earnings per share 27.0p 16.8p
Adjusted diluted earnings per share 26.9p 16.5p
There were options over 1,825,500 ordinary shares outstanding at 31 December
2021; 100,000 do not have performance conditions attached to them. The average
share price during the year ended 31 December 2021 was above exercise price of
the 100,000 options without performance conditions, for this reason in 2021
there is a dilutive effect of share options on the earnings per share
calculation.
In 2020 there were options over 2,379,800 ordinary shares outstanding at 31
December 2020; 300,000 had not yet vested and had performance conditions that
determined whether they would vest or not in the future; 64,800 vested in a
previous year and were exercisable at 31 December 2020, and it was determined
that 503,750 of the remaining 2,015,000 options (25%) would vest. 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 the 2020
financial statements. For these reasons in 2020 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.
16. Dividends
2021 2020
£'000 £'000
Final dividend for 2020
6.6p per share paid 23 February 2021 (2020: No final dividend paid) 1,704 -
Interim dividend for 2021
3.8p per share paid 11 October 2021 (2020: 2.1p per share paid 23 September 1,218 542
2020)
Total dividend paid 2,922 542
The Directors propose a final dividend for 2021 of 7.8p per share totalling
£2.488m, which they expect will be paid on 27 May 2022. As this is subject to
approval by the shareholders no provision has been made for this in these
financial statements.
17. Intangible assets
Master Franchise Brands Technology Customer lists Goodwill Total
Agreement £'000 £'000 £'000 £'000 £'000
£'000
Cost
Brought forward 1 January 2020 7,803 1,972 338 225 7,226 17,564
Additions - - - - 185 185
Carried forward 31 December 2020 7,803 1,972 338 225 7,411 17,749
Acquisitions (note 35) 10,789 3,060 14 3,556 16,017 33,436
Additions - - 51 65 - 116
Disposals - - - - (185) (185)
Carried forward 31 December 2021 18,592 5,032 403 3,846 23,243 51,116
Amortisation & Impairment
Brought forward at 1 January 2020 2,152 222 238 166 - 2,778
Charge for year 413 67 76 35 - 591
Carried forward 31 December 2020 2,565 289 314 201 - 3,369
Charge for year 798 181 30 240 - 1,249
Carried forward 31 December 2021 3,363 470 344 441 - 4,618
Net book value
At 31 December 2021 15,229 4,562 59 3,405 23,243 46,498
At 31 December 2020 5,238 1,683 24 24 7,411 14,380
The carrying amount of goodwill relates to 6 (2020: 5) 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 - Xperience & Whitegates
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 2021 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 2021 was 17 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 - EweMove
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 2021 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 32% in FY22 to 4% in
FY25.The growth rate in FY22 is high because of the significant number of new
franchisees recruited in FY21.
The cash flows arising were discounted by the weighted average cost of capital
being 13.72% 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 2021
was 9 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 2021 was 15 years and 8
months.
The carrying value of EweMove the identified cash generating unit, was £9.1m
at 31 December 2021 whereas the recoverable amount was assessed to be £16.9m
at the same date. Headroom of £7.8m 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 82%
to 25%, an impairment change would result against goodwill, all other
assumptions remaining unchanged.
Assumption Judgement Sensitivity
Discount rate As indicated above the rate used is 13.72% 82%
Revenue - FY22 to FY25 The range of growth rates for FY22 to FY25 are stated above (133%)
Direct costs - all years Assumed to be 21% of revenue for all years 88%
Indirect costs - all years Assumed to be 38% of revenue in FY22 but 40% previous average in FY23 onwards 47%
Direct and indirect costs - all years As indicated above for direct and indirect costs 31%
Business combination completed in January 2020 - Auxilium
Auxilium Partnership Limited was acquired in January 2020 and disposed of in
July 2021.
Business combination completed in March 2021 - Hunters
Details of the Acquisition of Hunters Property plc can be found in note 35.
The value of the master franchise agreement was based on the value of the cash
flows derived from the actual revenue and operating
margins for 2021, projections of revenue through to 2042 applying historic
attrition rates of 4% and growth rate of 2%. The revenue streams represent the
return from all the assets employed in generating those revenues. Thus, to
value the franchise rights separately, the fair value and expected rate of
return of these other assets, known as the contributory asset charge, was
determined and deducted.
A discount rate of 9.5% was applied which represented a 2% reduction on the
company's WACC as the risk profile of the master franchise rights was seen as
slightly less than that of the overall company. The resulting present value
was not increased by the tax adjusted benefit as the amortisation of master
franchise rights are not deductible for UK corporation tax. The master
franchise rights are being amortised over 21 years. The period of amortisation
remaining at 31 December 2021 was 20 years 3 months.
Hunters was founded in 1992 and in the following 30 years has established a
widely recognised brand within the estate agency sector, which attracts a
significant number of franchise enquiries and has a significant fixed element
to its royalties. Management expects to derive income from the brand for the
next 20 years and, with this as the assets' useful life, the period of
amortisation remaining at 31 December 2016 was 19 years 3 months.
The Relief-from-Royalty-Method was used to value the brand name. Looking at
independent research of royalty rates and taking into
account the factors highlighted in the last paragraph, management selected a
pre-tax royalty rate of 5%.
The after tax royalty rate was then applied to the projected cash flows of the
brand up until December 2042. The projected cash flows being
the forecast growth in revenues of 2% through to 2042. The after tax cash
flows determined through this process were then discounted at 11.5%. 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 value of the lettings books was based on the value of the cash flows
derived from the actual revenue and operating margins for 2021, projections of
revenue through to 2033 applying historic attrition rates of 4% and growth
rate of 2%. The revenue streams represent the return from all the assets
employed in generating those revenues. Thus, to value the lettings books
separately, the fair value and expected rate of return of these other assets,
known as the contributory asset charge, was determined and deducted.
A discount rate of 9.5% was applied which represented a 2% discount over the
company's WACC as the risk profile of the lettings books was seen as slightly
less than that of the overall company. The resulting present value was not
increased by the tax adjusted benefit as the amortisation of lettings books
are not deductible for UK corporation tax. The lettings books are being
amortised over 12 years. The period of amortisation remaining at 31 December
2021 was 11 years 3 months.
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 Hunters is based on the cash flows derived from the actual
revenues and operating margins for 2021 and projected revenue growth of 2%
assumed through 2042.
The cash flows arising were discounted by between 9.5% and 11.5% based on the
weighted average cost of capital for Hunters. This resulted in a total value
for the company of the identifiable intangible assets that exceeded the
carrying values of the company's 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 useful life of the master franchise agreement was assessed as 21 years and
remains unchanged. The period of amortisation remaining at 31 December 2021
was 20 years 3 months.
The Relief-from-Royalty-Method was used to value the brand names. Looking at
independent research of royalty rates, management selected a pre-tax royalty
rate of 5% for the Hunters brand.
The Directors believe that no reasonably possible change in assumptions at the
year end will cause the value in use of the Hunters brand to fall below its
carrying value and hence impair its intangible values.
The useful life of the lettings books was assessed as 12 years and remains
unchanged. The period of amortisation remaining at 31 December 2021 was 11
years 3 months.
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 this intangible.
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 2021. Thus, if the discount rate increased by 12%
to 12.9%%, an impairment change would result against goodwill, all other
assumptions remaining unchanged.
Assumption Judgement Sensitivity
Discount rate Weighted average cost of capital used of 11.5% 12%
Revenue - FY22 to FY25 The range of growth rates for FY22 (10%), FY23 to FY25 2% (196%)
Indirect costs - all years Assumed to be 66% of revenue 7%
Business combination completed in September 2021 - The Mortgage Genie
Details of the Acquisition of The Mortgage Genie Limited and The Genie Group
UK Ltd can be found in note 35.
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
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Xperience Franchising Limited 912 912 571 571
Whitegates Estate Agency Limited 401 401 - -
Martin & Co (UK) Limited 75 75 - -
EweMove Sales & Lettings Ltd 5,838 5,838 - -
Hunters Property Limited 15,871 - - -
The Mortgage Genie Limited & Genie Group UK Ltd 146 - - -
Auxilium Partnership Limited - 185 - -
23,243 7,411 571 571
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.
18. Property, plant and equipment
Group
Short leasehold Office Fixtures & Total
improvements equipment fittings £'000
£'000 £'000 £'000
Cost
Brought forward 1 January 2020 37 138 162 337
Acquisitions - 2 1 3
Additions - 15 - 15
Carried forward 31 December 2020 37 155 163 355
Acquisitions (note 35) - 62 99 161
Additions 7 64 16 87
Disposals - (14) (116) (130)
Carried forward 31 December 2021 44 267 162 473
Depreciation
Brought forward 1 January 2020 29 92 138 259
Charge for year 4 20 4 28
Carried forward 31 December 2020 33 112 142 287
Charge for year 6 48 25 79
Depreciation on disposals - (6) (104) (110)
Carried forward 31 December 2021 39 154 63 256
Net book value
At 31 December 2021 5 113 99 217
At 31 December 2020 4 43 21 68
19. Leases
The Group's has several operating leases relating to office premises and motor
vehicles. 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 Motor Total
£'000 vehicles £'000
£'000
At 1 January 2020 75 - 75
Additions 67 - 67
Amortisation (56) - (56)
Carried forward 31 December 2020 86 - 86
Acquisitions (note 35) 1,579 22 1,601
Additions 145 53 198
Amortisation (304) (13) (317)
Carried forward 31 December 2021 1,506 62 1,568
Lease liabilities
Land and Buildings Motor Total
£'000 vehicles £'000
£'000
At 1 January 2020 77 - 77
Additions 67 - 67
Interest expenses 3 - 3
Lease payments (61) - (61)
Carried forward 31 December 2020 86 - 86
Acquisitions (note 35) 2,833 22 2,855
Additions 145 53 198
Interest expenses 86 2 88
Lease payments (457) (30) (487)
Carried forward 31 December 2021 2,693 47 2,740
20. Prepaid assisted acquisitions support
Group
Total
£'000
Cost
Brought forward 1 January 2020 954
Additions 155
Carried forward 31 December 2020 1,109
Additions 57
Carried forward 31 December 2021 1,166
Amortisation
Brought forward 1 January 2020 296
Charge for year - to revenue 169
Charge for year - to cost of sales 44
Carried forward 31 December 2020 509
Charge for year - to revenue 188
Charge for year - to cost of sales 45
Carried forward 31 December 2021 742
Net book value
At 31 December 2021 424
At 31 December 2020 600
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.
21. Investments
Group
Shares in listed and unlisted companes Total
£'000
£'000
Cost
At 1 January 2020 and 1 January 2021 - -
Acquisitions (note 35) 61 61
Additions 25 25
Movement in fair value of listed investment 83 83
At 31 December 2021 169 169
Net book value
At 31 December 2021 169 169
At 31 December 2020 - -
Company
Shares in Group Shares in listed company Total
undertakings £'000
£'000 £'000
Cost
At 1 January 2020 33,900 - 33,900
Acquisition of Auxilium Partnership Limited 200 - 200
Capital contribution to subsidiaries - share options (17) - (17)
At 31 December 2020 34,083 - 34,083
Disposal of Auxilium Partnership Limited (200) - (200)
Acquisition of Hunters Property plc 26,134 - 26,134
Acquisition of The Mortgage Genie Limited and The Genie Group UK Ltd 461 - 461
Capital contribution to subsidiaries - share options 197 - 197
Movement in fair value of listed investment - 68 68
At 31 December 2021 60,675 68 60,743
Net book value
At 31 December 2021 60,675 68 60,743
At 31 December 2020 34,083 - 34,083
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 £6,110,284.
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 £8m. Of the total consideration, £2.1m
represented contingent consideration, of which £0.5m was paid out on 30 July
2017 and £0.5m was paid out on 31 December 2017. No further sums are due.
On 7 January 2020 the Company acquired a majority share of Auxilium
Partnership Limited for a total cash consideration of £0.2m. The Company
disposed of this on 22 July 2021.
On 19 March 2021 the Company acquired the entire issued share capital of
Hunters Property plc for a total consideration of £26.1m.
On 6 September 2021 the Company acquired the entire issued share capital of
The Genie Group UK Ltd and 80% of the issued share capital of The Mortgage
Genie Limited for an initial cash consideration of £0.4m. A further
consideration of £0.06m is due which was based on working capital at the time
of acquisition.
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 2021.
The carrying value of the investment in Hunters Property Limited 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 2021.
The carrying values of the other investments (all companies except for EweMove
and Hunters) 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 listed investments comprise a 0.2% holding of ordinary shares in
OnTheMarket plc, a company listed on the Alternative Investment Market. The
movement in fair value of listed investment represents the difference between
original cost and market value. A decision was taken to measure at fair value
going forwards.
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
Share class % ownership and voting rights Country of incorporation
Company number
Martin & Co (UK) Limited 02999803 Ordinary 100 England
Xperience Franchising Limited 02334260 Ordinary 100 England
Whitegates Estate Agency Limited 00757788 Ordinary 100 England
EweMove Sales & Lettings Ltd 07191403 Ordinary 100 England
Ewesheep Ltd* 08191713 Ordinary 100 England
MartinCo Limited 09724369 Ordinary 100 England
Hunters Property Limited 09448465 Ordinary 100 England
Hunters Property Group Limited* 03947557 Ordinary 100 England
Greenrose Network (Franchise) Limited* 02934219 Ordinary 100 England
Hunters Franchising Limited* 05537909 Ordinary 100 England
Hunters (Midlands) Limited* 02587709 Ordinary 100 England
Hunters Financial Services Limited* 02604278 Ordinary 100 England
Hapollo Limited* 08008359 Ordinary 100 England
RealCube Limited* 07736494 Ordinary 100 England
Hunters Group Limited* 02965842 Ordinary 100 England
Hunters Land & New Homes Limited* 06292723 Ordinary 100 England
Maddison James Limited* 05920686 Ordinary 100 England
Herriot Cottages Limited* 04452874 Ordinary 100 England
Hunters Partners Limited* 03777494 Ordinary 100 England
Hunters Survey & Valuation Limited* 02602087 Ordinary 100 England
RealCube Technology Limited* 08139888 Ordinary 100 England
The Genie Group UK Ltd 12372201 Ordinary 100 England
The Mortgage Genie Limited 09803176 Ordinary 80 England
* indirectly owned
All companies in the Subsidiaries list above 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 all companies in the Subsidiaries list above. The value of the
contingent liability resulting from this guarantee is unknown at the year-end.
22. Investment properties
Group
Total
£'000
Cost
Brought forward 1 January 2020 and 1 January 2021 -
Acquisitions 292
Carried forward 31 December 2021 292
Depreciation
Brought forward 1 January 2020 and 1 January 2021 -
Charge for year 36
Carried forward 31 December 2021 36
Net book value
At 31 December 2021 256
At 31 December 2020 -
Investment property comprises a property held under operating lease within
Hunters Property Group Limited which is subleased to an independent third
party. The investment property is held at historic cost less accumulated
depreciation.
23. Trade and other receivables
Group Company
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Trade receivables 1,193 212 - 3
Less: provision for impairment of trade receivables (323) (155) - -
Trade receivables - net of impairment provisions 870 57 - 3
Loans to franchisees 31 49 - -
Other receivables 137 4 - -
Amounts due from Group undertakings - - 21 45
Prepayments and accrued income 1,782 1,181 47 36
Tax receivable - - 743 137
2,820 1,291 811 221
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:
2021 2020
£'000 £'000
Group
Not more than 3 months 137 32
More than 3 months but not more than 6 months 7 -
More than 6 months but not more than 1 year 13 -
157 32
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 £1.11m
(2020: £0.84m) 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. Hunters invoices to franchisees are
dated the same month to which they relate therefore their December month
balance is included in trade receivables rather than accrued income at the
year end.
24. Called up share capital
2021 2020
Number £'000 Number £'000
Group
Authorised, allotted issued and fully paid ordinary shares of 1p each 32,041,966 320 25,822,750 258
Company
Authorised, allotted issued and fully paid ordinary shares of 1p each 32,041,966 320 25,822,750 258
On 19 March 2021 5,551,916 shares were issued to the owners of Hunters
Property plc at market price of £2.09 as part of the purchase consideration
relating to the acquisition. The premium on the shares issued is included in
the merger reserve rather than share premium in line with accounting
principles.
On 19 May 2021 667,300 shares were issued to certain employees and directors
following the exercise of share options. 602,500 shares were issued at £0.01
and 64,800 shares were issued at £1.385. The premium on the 64,800 shares is
included in share premium.
25. Share premium
Number of shares Share capital Share premium
£'000 £'000
At 31 December 2021 32,041,966 320 4,129
At 31 December 2020 25,822,750 258 4,040
Details of the movements in shares can be found in note 23.
26. Merger reserve
Merger
reserve
£'000
Group
At 1 January 2020 and 1 January 2021 2,797
Acquisition of Hunters Property plc 11,548
At 31 December 2021 14,345
Company
At 1 January 2020 and 1 January 2021 20,787
Acquisition of Hunters Property plc 11,548
At 31 December 2021 32,335
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 £17.99m (the
value of the investment). As these shares had a nominal value of £179,900,
the merger reserve in the Company is £17.81m.
On consolidation the investment value of £17.99m is eliminated so that the
nominal value of the shares remaining is £0.1799m 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 £100, this is also eliminated,
to generate a merger reserve in the Group of £0.1798m.
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 £2.797m 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.
Acquisition of Hunters Property plc
The consideration for the acquisition of Hunters Property plc included the
issue of 5,551,916 shares to the vendors at market price. A merger reserve of
£11.548m 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.
27. Own share reserve and Other reserves
Own share reserve
Weighted average cost of own shares held in the Employee Benefit Trust.
Other reserves
Share-based Other reserve Total
payment reserve £'000
£'000 £'000
Group
At 1 January 2020 629 81 710
Share-based payment charge 68 - 68
At 1 January 2021 697 81 778
Share-based payment charge 970 - 970
Release of reserve - share options exercised (762) - (762)
Deferred tax on share-based payments - (81) (81)
At 31 December 2021 905 - 905
Company
At 1 January 2020 629 81 710
Share-based payment charge 68 - 68
At 1 January 2021 697 81 778
Share-based payment charge 970 - 970
Release of reserve - share options exercised (762) - (762)
Deferred tax on share-based payments - (81) (81)
At 31 December 2021 905 - 905
Share-based payment reserve
The share-based payments reserve comprises charges made to the income
statement in respect of share-based payments.
28. Borrowings
Group Company
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Repayable within 1 year:
Bank loan (term loan) 1,875 - 1,875 -
Repayable in more than 1 year:
Bank loan (term loan) 9,219 - 9,219 -
Bank loans due after more than 1 year are repayable as follows:
Between 1 and 2 years 1,875 - 1,875 -
Between 2 and 5 years 7,344 - 7,344 -
On 30 March 2021 the Company drew down a £12.5m loan facility provided by
Barclays to partially fund the purchase consideration for the acquisition of
Hunters Property plc. This loan facility comprises:
Term loan - £7.5m drawn down on 30 March 2021 and is repayable over 4 years
in equal instalments. Interest was charged quarterly on the outstanding amount
and the rate is 2.4% above Bank of England base rate. The amount outstanding
at 31 December 2021 was £6.1m (2020: £nil).
Revolving credit facility ("RCF") - £5m drawn down on 30 March 2021 and is
repayable on 26 January 2024 being the third anniversary of the date of
facility agreement. Interest is charged quarterly on the outstanding amount,
the rate is variable during the term at 2.2% above Bank of England base rate.
The amount outstanding at 31 December 2021 was £5m (2020: £nil).
The loans are secured with a fixed and floating charge over the Group's assets
and a cross guarantee across all companies in the Group.
The cash outflow for borrowings arising from financing activities during the
year was £4.4m (2020: £nil), this included the repayment of £3.0m in
relation to a Hunters loan balance at acquisition.
As at 31 December 2020 the Company had no loans outstanding.
29. Trade and other payables
Group Company
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Trade payables 850 176 39 37
Other taxes and social security 1,387 1,274 134 -
Other payables 159 248 - -
Amounts due to Group undertakings - - 102 -
Accruals and deferred income 3,884 1,052 1,188 110
6,280 2,750 1,463 147
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 £0.7m (2020:
£nil) in relation to revenue received in advance which will be recognised
over the next 4 years.
30. Deferred tax
Group Company
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Balance at beginning of year (1,115) (1,140) 228 215
Movement during the year:
Acquisitions (3,419) - - -
Adjustment to deferred tax rate from 19% to 25% (1,540) - 15 -
Statement of changes in equity - - - -
Statement of comprehensive income 657 25 287 13
Release of deferred tax balance relating to share options exercised in year (153) - (153) -
Other - - - -
Balance at end of year (5,570) (1,115) 377 228
Deferred taxation has been provided as follows:
Group Company
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Accelerated capital allowances 6 7 10 29
Share-based payments 409 199 367 199
Acquired business combinations (5,985) (1,321) - -
(5,570) (1,115) 377 228
31. Provisions
( )
The provisions relate to dilapidations on office buildings £0.21m (2020:
£nil) in relation to Hunters.
32. 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
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Loans and receivables:
Trade receivables 870 57 - 3
Loans to franchisees 31 49 - -
Other receivables 137 5 - -
Cash and cash equivalents 8,413 8,771 4,635 4,601
Accrued income 1,107 840 - -
Amount owed by Group undertakings - - 21 45
10,558 9,722 4,656 4,649
Financial liabilities
Financial liabilities measured at amortised cost:
Group Company
2021 2020 2021 2020
£'000
£'000
£'000
£'000
Other financial liabilities:
Trade payables 850 176 39 37
Other payables 159 248 134 -
Accruals 3,172 1,052 526 110
Amounts owed to Group undertakings - - 102 -
4,181 1,476 801 147
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
£31k.
The Group does not offer credit terms with regards sales and lettings
transactions occurring in the offices it operates itself, revenue is typically
recognised at the completion date of property or upon receipt of rent from
tenants.
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.
The following table sets out the contractual maturities (representing
undiscounted contractual cash-flows) of financial liabilities, including
future interest charges, which may differ from the carrying value of the
liabilities as at the reporting date:
Up to 3 months Between 3 and 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years
As at 31 December 2021 £'000 £'000 £'000 £'000 £'000
Trade and other payables - - - -
1,009
Loans and borrowings 469 1,406 1,875 7,344 -
Lease liabilities 151 420 524 971 1,144
Total 1,629 1,826 2,399 8,315 1,144
Interest rate risk
The Group's exposure to changes in interest rate risk relates primarily to
interest earning financial assets and interest bearing financial liabilities.
Interest rate risk is managed by the Group on an ongoing basis with the
primary objective of limiting the effect of an adverse movement in interest
rates. The Group has bank borrowings with a variable interest rate linked to
the Bank of England base rate (see note 28). The recent rate increases are in
line with expectations and the Group has factored in further changes to its
forecasts.
Fair values of financial instruments
The fair value of financial assets and liabilities is considered the same as
the carrying values.
33. Share-based payments
Enterprise Management Incentive ("EMI") Share Option Scheme 2021
On 24 April 2021 a new EMI Share Option Scheme 2021 was introduced, all
options under this scheme have an exercise price of £0.01.
This option has a vesting condition based on two performance conditions;
adjusted basic earnings per share adjusted for exceptional income/costs,
amortisation arising on consolidation and share-based payment charges
("adjusted EPS") and total shareholder return ("TSR") over the 3 years to 31
December 2023. Each performance condition will apply to 50% of the award being
made.
In respect of both performance conditions, growth of 60% in adjusted EPS and
80% in TSR over the three-year period will be required for threshold vesting
of the awards, with growth of 65% or higher in adjusted EPS and 90% or higher
in TSR required for all of the awards to vest. At threshold vesting, 75% of
the shares subject to each performance condition, will vest.
Grant - 24 April 2021
On 24 April 2021 an option over 700,000 ordinary shares was granted to the
Chief Executive Officer and an option over 400,000 ordinary shares was granted
to the Chief Financial Officer under this scheme.
The following principal assumptions were used in the valuation of the grant
made in the year ended 31 December 2021 using the Black-Scholes option pricing
model:
Assumptions
Date of vesting 30/04/2024
Share price at grant £2.15
Exercise price £0.01
Risk free rate 0.1%
Dividend yield 4.90%
Expected life 3 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 £0.01, 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 2024.
EPS is measured as the basic earnings per share excluding any exceptional
income/costs and any share-based payments charges.
Management has used the budget for FY22, the market outlook and projections
for FY23 to determine, at 31 December 2021, the achievement of the EPS
condition. The expectation is that 100% of the options will vest.
The estimated fair value of the option over 1,100,000 ordinary shares at 31
December 2021 was £2,035,015. 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
£459,221 has been recognised in the Statement of Comprehensive Income in the
year ended 31 December 2021.
Grant - 2 July 2021
On 2 July 2021 options over 425,500 ordinary shares were granted to a director
and senior management under this scheme.
Assumptions
Date of vesting 30/04/2024
Share price at grant £2.99
Exercise price £0.01
Risk free rate 0.1%
Dividend yield 4.90%
Expected life 2.83 years
Share price volatility 31.00%
The weighted average contractual life remaining of this option is 2 years 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 £0.01, 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 2024.
EPS is measured as the basic earnings per share excluding any exceptional
income/costs and any share-based payments charges.
Management has used the budget for FY22, the market outlook and projections
for FY23 to determine, at 31 December 2021, the achievement of the EPS
condition. The expectation is that 100% of the options will vest.
The estimated fair value of the option over 425,500 ordinary shares at 31
December 2021 was £1,141,535. 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
£201,122 has been recognised in the Statement of Comprehensive Income in the
year ended 31 December 2021.
Enterprise Management Incentive ("EMI") Share Option Scheme - CEO bonus
deferral
On 24 March 2021 the Chief Executive Officer was granted an option over
100,000 ordinary shares. The award of the nil cost option was in substitution
for two thirds of the total £150,000 performance-based cash bonus payable
to the Chief Executive Officer for the financial year to 31 December
2020, with a 100% uplift based on a 30-day VWAP applied to the deferred
element, and will become exercisable two years' after being granted subject
to continued employment, vesting criteria and malus conditions. Under the
award, the Chief Executive Officer is not be able to dispose of any of the
acquired shares for a further period of two years (save as required to pay
tax due on exercise).
The following principal assumptions were used in the valuation of the grant
made in the year ended 31 December 2021 using the Black-Scholes option pricing
model:
Assumptions
Date of vesting 23/03/2023
Share price at grant £2.34
Exercise price £0.01
Risk free rate 0.1%
Dividend yield 4.90%
Expected life 2 years
Share price volatility 31.00%
The weighted average contractual life remaining of this option is 1 year and 3
months.
The estimated fair value of the option over 100,000 ordinary shares at 31
December 2021 was £211,455. 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
£81,797 has been recognised in the Statement of Comprehensive Income in the
year ended 31 December 2021.
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 £0.01 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 weighted average contractual life remaining of this option is 1 year and 4
months.
It's expected that with an exercise price of £0.01, 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.
Management has used the budget for FY22, to determine, at 31 December 2021,
that it expects 100% of the options will vest.
The estimated fair value of the option over 200,000 ordinary shares at 31
December 2021 was £312,800. 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
£130,275 has been recognised in the Statement of Comprehensive Income in the
year ended 31 December 2021.
Enterprise Management Incentive ("EMI") Share Option Schemes 2013, 2017, 2018
and 2019
There are no options remaining under these schemes as all vested options were
exercised during 2021. Share-based payments charges totalling £97,389 were
recognised in the Statement of Comprehensive Income in the year ended 31
December 2021 in relation to share options that were exercised
Movement in the number of ordinary shares under options for all schemes was as
follows:
2021 2020
'000
'000
Weighted Weighted
average average
exercise price exercise price
Number of share options
Outstanding at the beginning of the year 2,380 £0.0474 2,210 £0.0503
Exercised (667) £0.14 - -
Forfeited (1,513) £0.01 (30) £0.01
Granted 1,626 £0.01 200 £0.01
Outstanding at the end of the year 1,826 £0.01 2,380 £0.0474
The outstanding options at 31 December 2021 comprised 1,825,500 options with
an exercise price of £0.01.100,000 are exercisable on 23/03/2023, 200,000 are
exercisable on 30/4/2023 and 1,525,500 are exercisable on 30/04/2024.
The outstanding options at 31 December 2020 comprised 2,315,000 options with
an exercise price of £0.01 and 64,800 options with an exercise price of
£1.385. The 64,800 options were exercisable at 31 December 2020, 2,015,000
were exercisable on the announcement of the financial statements for the year
ended 31 December 2020 and the remaining 300,000 options were not yet
exercisable.
During the year ended 31 December 2021:
- The 64,800 options were exercised on 19 May 2021
- 5,000 of the 2,015,000 options were forfeited leaving 2,010,000
remaining, 25% of these vested (502,500) and were exercised on 19 May 2021
resulting in 1,507,500 being forfeited.
- 100,000 of the 300,000 options mentioned above vested in full
and were exercised on 19 May 2021.
- 1,625,500 options were granted under the 2021 scheme and the CEO
bonus deferral scheme
The weighted average remaining contractual life of options is 2.3 years (2020:
0.4 years).
34. 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:
2021 2020
£'000
£'000
Interim and final dividend (ordinary shares of £0.01 each)
Richard Martin 836 169
Paul Latham 8 1
Phil Crooks 0 -
Dean Fielding 1 -
David Raggett 29 5
Glynis Frew 12 -
886 175
Directors' emoluments
Included within the remuneration of key management and personnel detailed in
note 9, the following amounts were paid to the Directors:
2021 2020
£'000 £'000
Wages and salaries 1,096 1,040
Social security costs 291 134
Pension contribution 76 19
1,463 1,193
Details of Directors' interests in share options are disclosed in the
Directors' remuneration report..
35. Acquisitions
Acquisition of Hunters Property plc
Effective 19 March 2021 the Group acquired the entire issued share capital of
Hunters Property plc, a competitor property franchisor with a network of 211
offices across the UK. Consideration of £26.1m 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. In addition the Group took over loans of
£3.0m which it repaid post completion, bringing total consideration to
£29.1m.
The fair value of the identifiable assets and liabilities acquired and the
consideration paid and payable are set out below:
£'000
Master franchise agreements 10,789
Brands 3,060
Lettings book 3,556
Right of use assets 1,601
Property, plant and equipment 161
Investments 353
Trade and other receivables 1,561
Cash 1,490
Trade and other payables (2,824)
Lease liabilities (2,855)
Provisions (197)
Deferred tax (3,419)
Net assets acquired 13,276
Goodwill 15,871
Consideration 29,147
Satisfied by:
New shares in The Property Franchise Group plc issued to Hunters shareholders 11,604
Cash paid to Hunters shareholders 14,531
Hunters loans repaid by The Property Franchise Group plc post completion 3,012
Total 29,147
Post acquisition results
Total
£'000
Revenue 9,776
Profit before tax since acquisition included in the Consolidated statement of 3,014
comprehensive income
Acquisition of The Mortgage Genie Limited and The Genie Group UK Ltd
The Board are pursuing a strategy to develop financial services as a revenue
stream to complement lettings and sales MSF. On 6 September 2021 the Group
took an 80% share in The Mortgage Genie Limited and acquired the entire share
capital of The Genie Group UK Limited. The minority shareholder of The
Mortgage Genie Limited is Matthew Stevens who continues as a director. Both
companies operate under the name The Mortgage Genie, an online mortgage
broker.
The initial consideration was £400,000 and a further consideration of
£61,400 was payable post completion based on opening balances, bringing the
total consideration to £461,400.
The fair value of the identifiable assets and liabilities acquired and the
consideration paid and payable are set out below:
£'000
Intangible asset - software 14
Trade and other receivables 182
Cash 297
Trade and other payables (178)
Net assets acquired 315
Goodwill 146
Consideration 461
Satisfied by:
Initial consideration paid on completion 400
Deferred consideration paid post 31 December 2021 61
Total 461
Post acquisition results
Total
£'000
Revenue 421
Profit before tax since acquisition included in the Consolidated statement of 35
comprehensive income
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR SSAEELEESEDLRecent news on Property Franchise
See all newsREG - Property FranchiseGp - Final Results
AnnouncementREG - Property FranchiseGp - Notice of Results & Presentations
AnnouncementREG - Cavendish Securities Property FranchiseGp - Form 8.5 (EPT/NON-RI)
AnnouncementREG - Property FranchiseGp - Notification of Major Holdings
AnnouncementREG - Singer Capital Property FranchiseGp - Form 8.5 (EPT/RI)
Announcement