Preliminary results

RNS Number : 7574U

Belvoir Lettings PLC

02 April 2019

 

                                                                                                                                                                                    2 April 2019

BELVOIR!
             

BELVOIR LETTINGS PLC

(the "Company", the "Group" or "Belvoir")

Preliminary results for the year ended 31 December 2018

Record Results and 22^nd year of Continued Growth

Belvoir Lettings plc (AIM: BLV), the UK's largest property franchise group, is pleased to announce its preliminary results for the year ended 31 December 2018.

Financial highlights

·      21% increase in Group revenue to £13.7m (2017: £11.3m)

·      Growth in management service fees (MSF) of 7% to £8.5m (2017: £7.9m)

·      Strong lettings bias reflected in gross profit ratio of 71% lettings:18% sales:11% financial services (2017: 74%:19%:7%)

·      Exceptional credit of £0.8m on finalisation of Northwood earn out

·      40% increase in profit before tax to £5.5m (2017: £3.9m)

·      Strong cash flow from operating activities of £4.6m (2017: £3.7m)

·      Increased year-end bank balance of £1.8m (2017: £1.4m)

·      Net debt of £9.6m (2017: £5.1m) following £4.2m Northwood earn out settled in cash and the £4.0m MAB Glos cash consideration.  Net debt to adjusted EBITDA is 1.8.  

·      Adjusted fully diluted EPS of 11.7p (2017: 10.7p)

·      Recommended final dividend up 9% to 3.8p (2017: 3.5p) giving total dividend for the year of 7.2p (2017: 6.9p)

Operational highlights

·      Acquisition of MAB Glos, a network of 87 financial services advisers operating through 64 offices

·      Further integration of Northwood into Group functions, reducing cost base by £0.2m p.a.

·      26 (2017: 23) franchisee assisted acquisitions completed, adding over £6.9m (2017: £3.3m) of network revenue; ahead of £6.6m target

·      8% increase in properties under management at 62,780 (2017: 58,020)

·      Average MSF per office up 8% to £28,333 (2017: £26,333)

·      Recruitment of ten (2017: six) new franchise owners

·      Net increase of 94 financial service advisers (including 87 MAB Glos advisers) to 123 (2017: 29)

·      Number of offices up to 365 (2017: 300)

·      Encouraging start to 2019

Dorian Gonsalves, Chief Executive Officer of Belvoir Lettings, commented:

"The Group achieved another year of significant growth with revenue up 21% to £13.7m (2017: £11.3m), outperforming both the sales and lettings elements of the housing market and the financial services market.  The increase in our like-for-like lettings MSF of 2.6% outstripped the 1% rental index, and lettings were boosted further by a 4.5% uplift from our assisted acquisitions programme which performed ahead of our expectations.  Meanwhile, our sales MSF increased by 8.4% against the backdrop of a flat sales market in which a 2% fall in the number of UK property transactions was compensated by a modest increase of 2.5% in house prices.  Revenue from Brook, our 2017 financial services acquisition, increased by 20%, on a full year basis, compared with a 3.7% increase in the value of gross mortgage advances.

2018 saw the Group invest further into financial services with the acquisition of MAB Glos which has provided a platform for Belvoir to build a nationwide network of financial advisers to work with our franchise owners to maximise the sales of mortgages and other property-related financial services to our customers.

Belvoir is uniquely positioned within the property sector, benefiting from the agility of a franchise business model compared with the larger corporate players, whilst providing our networks with the Central Office systems and support, not available to the smaller independent agents.  Our value creating strategy has enabled us to consistently deliver profit growth for over two decades and achieve a threefold increase in profit before tax since 2014.  Belvoir is a strongly cash generative business with revenues underpinned by the recurring 'annuity-style' lettings income stream coupled with the diversification into complementary property-related services, which will enable the Group to overcome changes and outperform in the sector over the coming year."

For further details:

Belvoir Lettings PLC Dorian Gonsalves, Chief Executive Officer Louise George, Chief Financial Officer	01476 584900 [e-mail]
Cantor Fitzgerald Europe Rick Thompson, Phil Davies, Will Goode	0207 894 7000
Buchanan Charles Ryland, Victoria Hayns, Maddie Seacombe, Tilly Abraham	0207 466 5000 [e-mail]

Note to Editors:

About Belvoir Lettings PLC

Founded in 1995 and listed on AIM in 2012 (BLV.L), Belvoir operates a nationwide property franchise group with 365 offices across four brands specialising in residential lettings, property management, residential sales and property-related financial services. With its Central Office in Grantham, Lincolnshire, the Group manages 62,780 properties and reported revenue of £13.7m in 2018 making Belvoir the largest property franchise group in the UK.

Chairman's statement

Belvoir achieved a  22^nd year of uninterrupted profit growth despite the backdrop of another challenging year for the property industry with a flat sales market, the ongoing threat of the tenant fee ban and the uncertainties surrounding Brexit.

I am pleased to report that the Belvoir Group significantly increased profitability, once again showing how, as a franchising network, it can rise above the challenges of the sector, and indeed use them to capitalise on the business growth opportunities available.

Performance

In 2018 revenue increased by 21% and profit before tax by 40% driven by a strong performance from our property franchise network and additional contributions from our recent financial services acquisitions.  These are impressive figures in a flat property market which saw a modest UK rental index growth and a small increase in house prices offset by a reduction in residential property transactions.  The Group's franchise owners continue to thrive by taking advantage of the numerous growth opportunities available to them, including the roll out of property sales, the assisted acquisitions programme, the use of our strong branding and marketing materials, and our growing financial services offering.  Whilst closures have been witnessed elsewhere in the sector, the number of high street offices within our property network remains at 300 with the average MSF per franchise office up to £28,333 (2017: £26,333) compared to just £19,753 in 2014.  This increase of 43% over four years is affirmatory of our focus on supporting our franchisees to develop their businesses.

Governance

During the year the Board adopted the 2018 Quoted Companies Alliance Corporate Governance Code (the "QCA Code") as the basis of the Group's governance framework, in line with the London Stock Exchange's changes to the AIM Rules requiring all AIM-listed companies to adopt and comply with a recognised corporate governance code.

Within the Belvoir Group we promote a culture of good governance in dealing with all key stakeholders: our franchisees, our financial advisers, our employees, our customers and our shareholders. Our corporate governance structures and processes and how they were applied throughout the year are reported upon in full later in this report.

Board changes

Since my report last April, Andrew Borkowski has stepped down as Non-Executive Director.  I would like to thank Andrew for his considerable contribution to the growth strategy of the Group over the last four years.  At the same time, I am delighted to welcome Paul George who joined the Board last June as a Non-Executive Director.  Paul currently has executive responsibilities for corporate governance and corporate reporting at the Financial Reporting Council.  His considerable experience and deep understanding of these areas have further strengthened the Board. 

The Group has a stable and highly skilled team of Directors and senior managers and as Chairman, I am indebted to them for their leadership, loyalty, hard work and professionalism.  Indeed, it is this longevity and stability of the senior team that provides the strong base from which the Group continues to grow and prosper in this competitive environment.

Shareholder returns

The Group aims to offer a reliable income stream to investors whilst also investing in the business to further its strategic growth objectives.  I am delighted to announce that our proposed final dividend payment for 2018 will be 3.8p (2017: 3.5p) giving a total dividend for the year of 7.2p (2017: 6.9p) in line with our progressive dividend policy.

Outlook

The Board is confident that 2019 will see further opportunities for growth for the Belvoir Group as the sector continues to consolidate.  It has finally been announced that the tenant fee ban will come into effect in June; however, due to the steps we have taken to mitigate the effects of the ban, the impact on Belvoir's continuing growth will be significantly mitigated.  Overall, I am confident that the Belvoir Group will continue to grow in both size and reputation during this coming exciting year, leading the way in both the property and franchising industries.

Mike Goddard

Chairman

Operating review

The Group achieved another year of significant growth outperforming both the sales and lettings elements of the housing market and the property-related financial services market.

Performance

Management service fees (MSF), our main source of revenue from our property franchisees, increased by 7.3% with growth across all three brands both from lettings and sales.  Our like-for-like lettings growth of 2.6% was more than double the rental index of 1%¹.  Lettings were further boosted by 4.5% from our successful assisted acquisition strategy.  Against a backdrop of a 2%² decrease in the number of UK property transactions and a modest increase of 2.5%³ in house prices, our MSF from sales increased by 8.4%.

Financial services are of growing importance to the Group following our acquisition of Brook and MAB Glos, and now represents 10% of gross profit.   Brook, on a full-year comparative basis, increased its revenue from financial services by 20% compared with a 3.7%⁴ increase in the value of gross mortgage advances.

The Group's network revenue, this being total revenue across all our Group companies, franchisees and advisers, now stands at £83m (2017: £74m) with 62,780 (2017: 58,010) properties under management, marking another noteworthy year of growth.

Our strategic priorities

Our Group strategy is to develop individual businesses operating within a network supported by a Central Office function.  In recent years, we have migrated from operating solely through our original franchise network, Belvoir, to encompassing Newton Fallowell and Northwood as part of a multi-brand strategy, and we still see further strategic opportunities from bringing other significant franchise networks into the Group.

Having built a platform of 300 franchised offices across our three brands, we have targeted growth of those offices through organic growth and franchisee-led acquisitions and additional property-related income streams, and this is evidenced by the significant average MSF per office growth.

Our assisted acquisitions strategy has proved to be an incredible success story.  In 2018 we processed 26 (2017: 23) deals bringing on board a total of £6.9m (2017: £3.3m) additional network revenue, which exceeded our target of £6.6m and doubled for the second year running.  The Group's Central Office lent £0.6m to facilitate these deals which was 9% of total consideration.  At the year end there were a further 81 franchise owners registered on our assisted acquisitions programme and 24 opportunities under consideration. 

Financial services is the first step in our broader strategy of bringing other property-related services into the Group.  Brook and MAB Glos provide the platform for building a nationwide network of financial advisers to maximise the penetration of mortgages and other property-related financial services to our customers, to the mutual benefit of the advisers themselves, our franchisees and the wider Group.

Creating value

We believe that the creation of value for our shareholders is deliverable through the creation of value for our franchisees and financial advisers, and it is this belief that underpins the strategies outlined above.  There are economies of scale in operating a larger network and our focus on the growth of existing offices can be achieved with minimal increase in overheads.  The Group has consistently delivered profit growth, and since 2014 adjusted profit before tax has increased three-fold to £5.5m (2014: £1.8m) and adjusted earnings per share has more than doubled to 12.4p (2014: 5.6p).  Our dividend of 7.2p (2017: 6.9p) with cover at 1.8x provides a strong and reliable yield for our investors, whilst retaining funding for the Group's growth strategy.

Our marketplace

House price increases and rental growth were both at historically low levels nationally.  House price inflation of 2.5%³ was the lowest annual growth since July 2013 and the rental index of 1%¹ was the lowest reported by the ONS over the last seven years. However, within these national figures, there were significant regional variations.  The uncertainty caused by the potential impact of Brexit has had a disproportionate impact on the property market in London with house prices falling by 0.6%³ and rents increasing by just 0.2%¹.  By comparison the East and West Midlands reported the largest and second largest rent increases at 2.5%¹ and 1.8%¹, and house prices in these regions also performed well up 4.2%³ and 5.2%³ respectively.  Belvoir has benefited from the regional variations as 35% of our property franchise offices are based in the Midlands, including our strong estate agency brand, Newton Fallowell, and our exposure to the London market is limited to 7% of our offices.

The proportion of households in the private rented rector (PRS) has remained static and whilst the changes to the tax regime for landlords has seen landlord instructions decline, this has not been at the rate expected. Further legislative changes including the tenant fee ban, compulsory client money protection for lettings agents, and, in the longer term, the introduction of a redress scheme for tenants of the 52% of private landlords managing their own portfolio will undoubtedly impact on the lettings market in the coming years.

Belvoir is well prepared for the tenant fee ban, which comes into force on 1 June 2019 and is likely to have a significant effect on the landscape of lettings agents. Furthermore, our lettings agents are unaffected by the introduction of compulsory client money protection on 1 April 2019 as this has been a requirement of our franchisees for many years, so  we will benefit from all agents being required to operate on the same playing field.  We predict that up to 20% of agents which heavily rely on tenant fees or do not hold client money in a separate account to their trading account will either choose to sell their portfolios or go out of business.  Our franchisees see the opportunities that consolidation in the market present and many are already working with our acquisitions team to secure those businesses that become available.

Outlook

Belvoir is uniquely positioned within the property sector benefiting from the agility of a franchise business model compared with the larger corporate players, whilst providing our networks with the Central Office systems and support not available to the smaller independent agents.  Our revenue is underpinned by the recurring "annuity-style" lettings income stream, and coupled with this we have diversified into complementary property-related services, which will enable the Group to overcome changes in the sector over the forthcoming year.

Dorian Gonsalves

Chief Executive Officer

¹https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/indexofprivatehousingrentalprices/december2018

²https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/771859/UK_Tables_Jan_2019__cir_.pdf

3 https://www.gov.uk/government/publications/uk-house-price-index-summary-december-2018/uk-house-price-index-summary-december-2018

⁴https://www.fca.org.uk/data/mortgage-lending-statistics

Financial review

Revenue

Group revenue in 2018 increased by 21% to £13.7m (2017: £11.3m) reflecting the full year's impact of our 2017 acquisition of Brook and the 2018 acquisition of MAB Glos.

MSF, our key underlying revenue stream, increased by 7.3% to £8.5m (2017: £7.9m).  Lettings MSF was up 7.1% of which 4.5% resulted from Belvoir's successful assisted acquisitions programme and 2.6% was attributable to like-for-like growth, and MSF from property sales was up 8.4%.

Income from corporate-owned offices was down £0.4m as a result of the disposal of three Belvoir offices to franchisees between November 2017 and March 2018.  As planned, at the year end there were two corporate-owned offices, the original Grantham offices of Belvoir and Newton Fallowell, which are both profitable and will be retained for future development purposes.

Within our property franchise division the ratio of lettings to sales remains at 80:20 (2017: 80:20).

Revenue from franchise sales in 2018 was £0.2m (2017: £0.3m).  The Group's recruitment policy is geared towards bringing on new franchise owners via a resale of an existing franchised territory or into a "hot start" where a portfolio acquisition is executed at the time of opening, providing our new franchise owners a launch pad.  During 2018, we processed ten (2017: five) resales and opened in six (2017: nine) new territories which included two "hot starts" and the conversion of an independent agency. 

Revenue from financial services benefited from a full year ownership of Brook acquired July 2017 and of five weeks trading of MAB Glos acquired November 2018.  As a result revenue from financial services is up three-fold to £3.6m (2017: £1.2m).

Gross profit

The inclusion of financial services over the past two years has introduced gross profit into our reporting due to the commission paid to the financial advisers being a direct cost.  Gross profit increased by 5% to £11.3m (2017: £10.8m).

The greater significance of financial services to the Group is evidenced by our gross profit ratio by business activity of lettings to sales to financial services being 71%:18%:11% (2017: 74%:19%:7%).

Administrative expenses

Non-exceptional administrative expenses increased by £0.1m to £6.6m (2017: £6.5m).  The incremental cost of operating Brook for a full year (2017: 24 weeks) and one month of MAB Glos added £0.3m.  This was mitigated by £0.5m cost savings due to further restructuring within Northwood and from the franchising out of three corporate offices.  Also, within administrative expenses there is a charge of £0.2m (2017: £0.1m) associated with the share options issued to Directors and certain staff between 2014 and 2018.  Full disclosure is detailed in note 28 to the accounts.

Exceptional administrative expenses of £0.2m (2017: £0.3m) include £0.1m relating to legal and professional fees associated with the acquisition of MAB Glos (2017: £0.1m in relation to the acquisition of Brook) and £0.1m (2017: £0.1m) in relation to Northwood restructuring costs as further functions were transferred.  Further transaction costs of £0.2m were incurred in 2017 on an abortive merger offer.

Operating profit

Operating profit was £4.5m (2017: £3.9m), an increase of 16% over the prior year.

Other income

Other income of £0.1m (2017: £nil) related to the valuation of share options in Mortgage Advice Bureau (Holdings) plc, arising from the acquisition of Newton Fallowell Limited and Brook Financial Services Limited.

Exceptional items

Exceptional items include a credit of £0.8m (2017: charge of £0.1m).  This reflected the change in fair value to contingent consideration following the final settlement of the Northwood consideration which was based on performance during the year to 31 May 2018.

Profit before taxation

Profit before taxation of £5.5m (2017: £3.9m) is after interest receivable on franchisee loans of £0.3m (2017: £0.3m), which is regarded by the Group as part of its ongoing operations to extend the network reach.

Taxation

The effective rate of corporation tax for the year was 20.2% (2017: 24.2%).  In 2017 the effective rate of corporation tax was higher due to £0.3m of exceptional legal and professional costs associated with acquisitions and £0.1m of deemed interest on contingent consideration not being an allowable deduction from profits for tax purposes.  By comparison the effective rate of corporation tax in 2018 has been reduced by an exceptional credit of £0.8m relating to the change in fair value to contingent consideration not being allowable for tax purposes.

Earnings per share

Basic earnings per share was up 45% to 12.5p (2017: 8.6p) based on an average number of shares in issue in the year of 34,938,606 (2017: 34,638,939).  When diluted to incorporate 2,171,073 (2017: 1,830,399) share options, the earnings per share was 11.8p (2017: 8.1p).

Adjusted basic earnings per share of 12.4p (2017: 11.3p) reflects net adjustments of £0.04m credit (2017: £0.9m charge) for exceptional administrative costs, share-based payments, amortisation of acquired intangibles, profit/(loss) on disposal of corporate offices and adjustments relating to the Northwood contingent consideration.  The adjusted diluted earnings per share was 11.7p (2017: 10.7p).

The profit attributable to owners was up 48% to £4.4m (2017: £3.0m).

Dividends

The Board is proposing a final dividend for 2018 of 3.8p per share (2017: 3.5p). Together with the interim dividend of 3.4p paid to shareholders on 2 November 2018 this equates to a total dividend for the year of 7.2p per share (2017: 6.9p), a modest increase in line with the Board's progressive dividend policy.  Over the past five years the dividend cover has increased from 1 to 1.8x, reflecting the Board's aim to offer a reliable and growing income stream to investors whilst also investing in the business to further its strategic growth objectives.

Subject to shareholders' approval at the AGM on 16 May 2019, the dividend will be paid on 20 May 2019 based upon the register on 12 April 2019.  The ex-dividend date will be 11 April 2019.  

Cash flow

The net cash inflow from operations was £4.6m (2017: £3.7m) reflecting the enlarged Group.

The net cash used in investing activities was £6.4m (2017: £0.9m):

·      On 26 November 2018 the Group acquired the entire share capital of MAB (Gloucester) Limited, a network of specialist mortgage advisers, for cash consideration of £4.0m; the net cash flow impact was £3.3m after settlement of certain vendor-related balances on completion

·      The Newton Fallowell Grantham lettings franchise was acquired for £0.3m and brought into the corporate-owned Newton Fallowell Grantham sales office.

·      The deferred and contingent consideration of £4.2m relating to the acquisition of Northwood was settled in cash.

·      £0.05m was received following the sale of Belvoir Cumbria and Belvoir Sleaford, which had been operated as corporate offices, to new franchise owners.

·      During the year the net cash inflow from the franchise loan book was £1.1m (2017:  £0.1m).

·      £0.1m was returned from the Northwood escrow account to settle a tax liability.

During the year, loans advanced by the HSBC totalled £12.0m out of which £6.5m settled the NatWest loan, and for which there was an arrangement fee of £0.1m.  £0.5m was repaid to HSBC during the year.  Finance costs were £0.2m (2017: £0.2m) and dividend payments totalled £2.4m (2017: £2.4m).  As a result, net cash inflow from financing activities totalled £2.3m (2017: net cash outflow of £3.1m). 

Liquidity and capital resources

At the year end the Group had cash balances of £1.8m (2017: £1.4m) and a term loan of £11.5m (2017: £6.4m).  The Group entered into new banking facilities with HSBC on 28 March 2018.  As part of that process the NatWest bank loan of £6.5m was settled and a new revolving credit facility of £12.0m was put in its place.  This provided the Group with sufficient liquidity to settle the Northwood earn-out and to acquire MAB Glos in cash.  The HSBC facility is repayable £0.9m per year in half-yearly repayments until March 2023 followed by a final repayment of £7.9m.

Financial position

The Group continues to operate from a sound financial platform and is strongly cash generative.  This, together with the £1.8m opening cash balance, will enable the Group to meet the bank loan repayment of £0.9m in 2019.  Also, the capital repayments from the existing franchisee loan book will enable the Group to give further financial assistance to franchisees acquiring local managed lettings portfolios, which delivers both network growth and favourable rates of return for the Group.

Key performance indicators

The Group uses a number of key financial and non-financial performance indicators to measure performance.  The Group also uses alternative performance measures to improve comparability of information between reporting periods and across the sector for uncontrollable and one-off factors, which impact upon IFRS measures, to aid the users of the annual report in understanding the activity taking place across the Group's portfolio.

The Board has reviewed and updated the KPIs below to ensure that they remain relevant to the Group's operations. Following the Group's investment in two financial services businesses, the Board has recognised the need to introduce new KPIs to track the performance of the financial services division.  Also, the assisted acquisitions growth strategy is achieving increased success in the territories affected, and so the average size of the franchise offices is deemed by the Board to be as important an indicator of progress as the number of offices itself.  As such, the key performance indicators have been extended to include the net financial services commission as a key financial indicator, and the average MSF per franchise office, the number of financial advisers and the average commission per adviser as new key non-financial indicators.

The key financial indicators are as follows:

·      management service fees;

·      net financial services commission;

·      adjusted net profit before tax; and

·      adjusted earnings per share.

The key non-financial indicators are as follows:

·      number of franchised offices;

·      number of managed properties;

·      average MSF per franchised office;

·      additional MSF arising from assisted acquisitions;

·      number of financial advisers; and

·      average commission per adviser.

The KPIs will be reported on in further detail in the Annual Report.

Louise George
Chief Financial Officer

Group statement of comprehensive income

For the financial year ended 31 December 2018

	Notes	2018 £'000	2017 £'000
Continuing operations
Revenue	3	13,702	11,299
Cost of sales	4	(2,372)	(510)
Gross profit		11,330	10,789
Administrative expenses
Non-exceptional	4	(6,616)	(6,540)
Exceptional	6	(169)	(326)
		(6,785)	(6,866)
Operating profit		4,545	3,923
Changes in fair value to contingent consideration	6	809	(134)
Finance costs		(226)	(192)
Finance income		265	313
Other income		87	-
Profit before taxation		5,480	3,910
Taxation		(1,106)	(948)
Profit and total comprehensive income for the financial year		4,374	2,962
Profit for the year attributable to the equity holders of the parent company		4,374	2,962
Basic earnings per share from continuing operations	8	12.5p	8.6p
Diluted earnings per share from continuing operations	8	11.8p	8.1p

The Group's results shown above are derived entirely from continuing operations.

The accompanying notes form an integral part of these condensed consolidated financial statements.

Statements of financial position

As at 31 December 2018

	Notes	Group			Company
		2018 £'000	Restated 2017 £'000		2018 £'000	2017 £'000
Assets
Non-current assets
Intangible assets		29,156	26,162		-	-
Investments		-	-		39,722	39,533
Financial assets		159	-		-	-
Property, plant and equipment		646	635		35	45
Trade and other receivables		2,768	3,617		-	-
		32,729	30,414		39,757	39,578
Current assets
Trade and other receivables		3,729	2,813		6,490	4,931
Cash and cash equivalents		1,798	1,350		214	226
		5,527	4,163		6,704	5,157
Total assets		38,256	34,577		46,461	44,735
Liabilities
Non-current liabilities
Trade and other payables		-	-		-	-
Interest-bearing loans and borrowings	9	10,452	5,578		10,452	5,578
Deferred tax		2,018	1,989		6	8
		12,470	7,567		10,458	5,586
Current liabilities
Trade and other payables		2,499	6,137		1,169	5,657
Interest-bearing loans and borrowings	9	925	866		925	866
Tax payable		769	566		-	-
		4,193	7,569		2,094	6,523
Total liabilities		16,663	15,136		12,552	12,109
Total net assets		21,593	19,441		33,909	32,626
Equity
Shareholders' equity
Share capital	10	349	349		349	349
Share premium	10	12,006	12,006		12,006	12,006
Share-based payments reserve		337	148		337	148
Revaluation reserve		162	162		(50)	(50)
Merger reserve		(5,774)	(5,774)		8,101	8,101
Retained earnings		14,513	12,550		13,166	12,072
Total equity		21,593	19,441		33,909	32,626

The Company made a profit after tax of £3,505,000 (2017: £3,508,000).

The accompanying notes form an integral part of these condensed consolidated financial statements.

Statements of changes in equity

For the financial year ended 31 December 2018

Group

	Notes	Share capital £'000	Share premium £'000	Share-based payments reserve £'000	Revaluation reserve £'000	Merger reserve £'000	Retained earnings £'000	Total equity £'000
Balance at 1 January 2017		336	10,583	76	162	(5,774)	11,948	17,331
Changes in equity
Issue of equity share capital	10	13	1,423	-	-	-	-	1,436
Share-based payments	5	-	-	72	-	-	-	72
Dividends	7	-	-	-	-	-	(2,360)	(2,360)
Transactions with owners		13	1,423	72	-	-	(2,360)	(852)
Profit and total comprehensive income for the financial year		-	-	-	-	-	2,962	2,962
Balance at 31 December 2017		349	12,006	148	162	(5,774)	12,550	19,441
Issue of equity share capital	10	-	-	-	-	-	-	-
Share-based payments	5	-	-	189	-	-	-	189
Dividends	7	-	-	-	-	-	(2,411)	(2,411)
Transactions with owners		-	-	189	-	-	(2,411)	(2,222)
Profit and total comprehensive income for the financial year		-	-	-	-	-	4,374	4,374
Balance at 31 December 2018		349	12,006	337	162	(5,774)	14,513	21,593

Company

	Notes	Share capital £'000	Share premium £'000	Share-based payments reserve £'000	Revaluation reserve £'000	Merger reserve £'000	Retained earnings £'000	Total equity £'000
Balance at 1 January 2017		336	10,583	76	(50)	8,101	10,924	29,970
Changes in equity
Issue of equity share capital	10	13	1,423	-	-	-	-	1,436
Share-based payments	5	-	-	72	-	-	-	72
Dividends	7	-	-	-	-	-	(2,360)	(2,360)
Transactions with owners		13	1,423	72	-	-	(2,360)	(852)
Profit and total comprehensive income for the financial year		-	-	-	-	-	3,508	3,508
Balance at 31 December 2017		349	12,006	148	(50)	8,101	12,072	32,626
Issue of equity share capital	10	-	-	-	-	-	-	-
Share-based payments	5	-	-	189	-	-	-	189
Dividends	7	-	-	-	-	-	(2,411)	(2,411)
Transactions with owners		-	-	189	-	-	(2,411)	(2,222)
Profit and total comprehensive income for the financial year		-	-	-	-	-	3,505	3,505
Balance at 31 December 2018		349	12,006	337	(50)	8,101	13,166	33,909

The accompanying notes form an integral part of these condensed consolidated financial statements.

Statements of cash flows

For the financial year ended 31 December 2018

	Notes	Group			Company
		2018 £'000	2017 £'000		2018 £'000	2017 £'000
Operating activities
Cash generated from/(used in) operating activities	11	5,612	4,612		(2,216)	2,183
Tax paid		(1,018)	(912)		-	-
Net cash flows generated from/(used in) operating activities		4,594	3,700		(2,216)	2,183
Investing activities
Acquisitions net of cash acquired	12	(3,595)	(1,854)		-	(3,647)
Working capital and cash introduced by companies acquired		-	29		-	-
Deferred and contingent consideration		(4,236)	(76)		(4,236)	(76)
Capital expenditure on property, plant and equipment		(140)	(114)		(2)	(52)
Disposal of corporate offices		45	324		-	-
Franchisee loans granted		(729)	(681)		-	-
Loans repaid by franchisees		1,806	761		-	-
Finance income received		265	313		4	-
Return of funds from escrow		145	434		145	434
Dividends received		-	-		4,000	4,445
Net cash flows (used in)/generated from investing activities		(6,439)	(864)		(89)	1,104
Financing activities
Bank loan advance		12,000	-		12,000	-
Loan repayments		(7,000)	(525)		(7,000)	(525)
Equity dividends paid	7	(2,411)	(2,360)		(2,411)	(2,360)
Finance costs		(296)	(192)		(296)	(192)
Net cash generated from/(used in) financing activities		2,293	(3,077)		2,293	(3,077)
Net change in cash and cash equivalents		448	(241)		(12)	210
Cash and cash equivalents at the beginning of the financial year		1,350	1,591		226	16
Cash and cash equivalents at the end of the financial year		1,798	1,350		214	226

The accompanying notes form an integral part of these condensed consolidated financial statements.

Notes to the condensed consolidated financial statements

For the financial year ended 31 December 2018

1 Approval

This announcement was approved by the Board of Directors on 2 April 2019.

2 Basis of preparation

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 2017, but is derived from those accounts.  Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's Annual General Meeting.  The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Sections 498(2) or (3) of the Companies Act 2006.

The Group and Company financial statements have been prepared under the historical cost convention with the exception of the freehold property which has been revalued and financial assets which are included at fair value through profit or loss. Being listed on AIM, the Company is required to present its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) interpretations as adopted by the European Union and with the Companies Act 2006 applicable to companies reporting under IFRS.

The finalisation of the fair value exercise carried out on the acquisition of Brook has resulted in an adjustment to reverse an accrual of £325,000 reported in 2017.  The 2017 statement of financial position has been restated to reflect this.  This has no impact on the profit before taxation for that year.

Standards adopted for the first time

A number of new and revised standards, including IFRS 9 and 15, are effective for annual periods beginning on or after 1 January 2018. Adoption of these standards, on a modified retrospective basis, has not had an impact on the Group's financial statements, except the following, set out below:

·      IFRS 9 Financial Instruments came into effect on 1 January 2018 and impacted the rules relating to the classification, measurement and impairment of financial assets. The Group holds all financial assets with the intention of collecting the contractual cash flows, and no contractual terms have failed the "solely payments of principal and interest" test. However, moving from the "incurred credit loss" model under IAS 39 to the "expected credit loss model" has given rise to an additional bad debt provision of £61,000.

·      IFRS 15 Revenue from Contracts with Customers came into effect on 1 January 2018 replacing IAS 18 Revenue and related interpretations.  It dealt with revenue recognition and established principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service.  The Group has carried out a review of existing contractual arrangements as part of this process to identify the customer contracts, the performance obligations, the transaction price and when the performance obligation is satisfied, and has determined that there was no material impact on the Group's revenue streams as set out in note 2.

Standards, amendments and interpretations to existing standards that are not yet effective

There is one new standard effective for annual periods beginning after 1 January 2019 which has an impact on the Group; this being IFRS 16 Leases which replaces IAS 17 Leases and related interpretations.  The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year ended 31 December 2018. All right-of-use assets will be measured at the amount of the lease liability on adoption, adjusted for any prepaid or accrued lease expenses.  This standard has not been applied in preparing these statements but will have an effect on the financial statements of the Group or Company as set out below:

IFRS 16 Leases addresses the definition of a lease, recognition and measurement of leases, and establishes principles for reporting useful information to users of financial statements about the leasing activities of both lessees and lessors.  A key change arising from IFRS 16 is that most operating leases will be accounted for on balance sheet for lessees. The Directors have reviewed the contracts for all property, vehicle and equipment leases held by the Group to identify any additional lease arrangements that would need to be recognised under IFRS 16.  As a result, approximately £0.4m would be recognised as additional tangible fixed assets together with an additional lease liability as of 1 January 2019, and the estimated 2019 operating charge of £0.1m would be replaced by an estimated depreciation and an interest charge of £0.1m.  This is not considered to be materially different to our reporting of operating profit.

There are no other new standards, amendments to existing standards or interpretations that are effective as at 31 December 2018 which have a significant impact on the Group.

3 Segmental information

The Executive Committee of the Board, as the chief operating decision maker, reviews financial information for and makes decisions about the Group's overall franchising business. In the year ended 31 December 2018 the Board identified two operating segments, that of franchisor of property agents and property-related financial services.

The Directors consider gross profit as the key performance measure. The reported segment is consistent with the Group's internal reporting for performance measurement and resources allocation.

Management does not report on a geographical basis and no customer represents greater than 10% of total revenue in either of the periods reported. The Directors believe there to be: three material property franchise income streams, which are management service fees, revenue from corporate-owned offices and fees on the sale or resale of franchise territory fees; and one material financial services income stream, which is commission receivable on financial services.  These revenue streams are split as follows:

	Lettings			Property sales			Total revenue
	2018 £'000	2017 £'000		2018 £'000	2017 £'000		2018 £'000	2017 £'000
Management service fees	7,107	6,634		1,349	1,244		8,456	7,878
Corporate-owned offices	481	756		540	646		1,021	1,402
	7,588	7,390		1,889	1,890		9,477	9,280
Initial franchise fees and other resale commissions							198	310
Other income							468	514
Franchise property division							10,143	10,104
Commission receivable on financial services							3,559	1,195
Financial services division							3,559	1,195
Total revenue							13,702	11,299

Gross profit for the two divisions is split as follows:

							Gross profit
							2018 £'000	2017 £'000
Property franchise division							10,143	10,104
Financial services division							1,187	685
Total gross profit							11,330	10,789

Profit for the financial year

The parent company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own statement of comprehensive income in these financial statements. The profit on ordinary activities after taxation of the Company for the year was £3,505,000 (2017: £3,508,000).

4 Cost of sales and administrative expenses

Group

Cost of sales and administrative expenses (non-exceptional) by nature:

	2018 £'000	2017 £'000
Staff costs	3,880	4,013
Depreciation and amortisation	581	619
Marketing	326	365
Auditor's remuneration
- Fees payable to the Company's auditor for the audit of the Company's annual accounts	53	46
- Tax compliance services	16	14
- Statutory audit of subsidiaries	45	42
Operating lease expenditure	247	235
Financial services commission	1,694	363
Other cost of sales and administrative expenses	2,146	1,353
	8,988	7,050

5 Share-based payments

Administrative expenses includes a charge of £189,000 (2017: £72,000) after valuation of the Company's employee share options schemes in accordance with IFRS 2 'Share-based payments'. Under this standard, the fair value of the options at the grant date is spread over the vesting period. These items have been added back in the statement of changes in equity.

6 Exceptional items

Group

A total credit of £640,000 (2017: charge of £460,000) in relation to exceptional items in the year arose from:

	2018 £'000	2017 £'000
Transaction costs on acquisition	104	87
Transaction costs on abortive merger offer	-	191
Restructuring costs	65	48
Exceptional administration costs	169	326
Changes in fair value to contingent consideration	(809)	134
	(640)	460

Exceptional administration costs include £104,000 of professional fees in relation to the acquisition of MAB Glos and £65,000 of redundancy costs incurred as further elements of the Northwood operations were incorporated into Group functions.

Other exceptional items comprise a £809,000 reduction in the fair value of contingent consideration of Northwood following the end of the two-year earn out period.

These costs are deemed to be non-recurring.

7 Dividends

Group

	2018 £'000	2017 £'000
Final dividend for 2017
3.5p per share paid 31 May 2018 (2017: 3.4p per share paid 31 May 2017)	1,223	1,172
Interim dividends for 2018
3.4p per share paid 2 November 2018 (2017: 3.4p per share paid 27 October 2017)	1,188	1,188
Total dividend paid	2,411	2,360

The Directors propose a final dividend of 3.8p per share totalling £1,328,000, payable on 20 May 2019. As this remains conditional on shareholders' approval, provision has not been made in these financial statements.

8 Earnings per share

Group

Basic earnings per share is calculated by dividing the profit for the financial year by the weighted average number of ordinary shares in issue during the year. Options over ordinary shares and rights of conversion are described in note 28. The calculation of diluted earnings per share is derived from the basic earnings per share, adjusted to allow for the issue of shares under these instruments.

The Directors use adjusted earnings before exceptional items, amortisation of acquired intangibles and share-based payment expense as a measure of ongoing profitability and performance.  In this way, the adjusted measure eliminates non-recurring transactions and significant non-cash charges which can disproportionately affect the interpretation of ongoing performance and profitability.

Adjusted earnings per share and diluted adjusted earnings per share are calculated in the same way as basic and diluted earnings per share but using the adjusted earnings instead of the profit for the financial year.

	2018 £'000	2017 £'000
Profit for the financial year	4,374	2,962
Exceptional items	(640)	460
Amortisation of acquired intangibles	422	422
Share-based payment charge	189	72
Tax on deductible exceptional items	(10)	(10)
Adjusted profit for the financial year	4,335	3,906
Weighted average number of ordinary shares - basic	34,939	34,639
Weighted average number of ordinary shares - diluted	37,110	36,469
Basic earnings per share	12.5p	8.6p
Diluted earnings per share	11.8p	8.1p
Adjusted basic earnings per share	12.4p	11.3p
Adjusted diluted earnings per share	11.7p	10.7p

9 Maturity of borrowings and net debt

	2018 £'000	2017 £'000
Group and Company
Repayable in less than six months	658	615
Repayable in seven to twelve months	572	434
Current portion of long-term borrowings	1,230	1,049
Repayable in years one to five	11,279	5,938
Total borrowings	12,509	6,987
Less: interest included	(1,132)	(543)
Total debt	11,377	6,444
Less: cash and cash equivalents	(1,798)	(1,350)
Net debt	9,579	5,094

Borrowings comprise a term loan of £11,475,000 (2017: £6,475,000) secured by a fixed and floating charge over the Group assets and is repayable in half yearly instalments of £445,000 from June 2019 with a final payment of £7,868,000 in March 2023 and bears interest at 2.2% over the LIBOR rate.  The arrangement fee of £144,000 is being amortised over the life of the loan, which gave rise to a charge to the profit and loss account of £22,000 (2017: £9,000).  All bank covenants were complied with throughout the year.

10 Called up share capital

	2018			2017
	Number	£'000		Number	£'000
Group and Company
Allotted, issued and fully paid
Ordinary shares of 1p each	34,938,606	349		34,938,606	349

	Group and Company Number	Nominal share capital £'000	Share premium £'000
At 1 January 2017	33,660,160	336	10,583
Issue of shares during the year:
23 January 2017 - share price 117p	803,284	8	928
12 July 2017 - share price 105p	475,162	5	495
At 31 December 2017	34,938,606	349	12,006
At 31 December 2018	34,938,606	349	12,006

11 Reconciliation of profit before taxation to cash generated from operations

Group

	2018 £'000	2017 £'000
Profit before taxation	5,480	3,910
Depreciation and amortisation charges (including impairment)	581	619
Share-based payment charge	189	72
Impairment of franchisee loan book	272	-
Impairment on sale of Newton Fallowell Newark trade and assets (note 26)	88	-
Loss on disposal of corporate offices	15	-
Changes in fair value to contingent consideration	(809)	134
Amortisation of debt costs	52	-
Finance costs	226	192
Finance income	(265)	(313)
MAB share option recognition and related income	(87)	-
	5,742	4,614
(Increase)/decrease in trade and other receivables	(1,393)	176
Increase/(decrease) in trade and other payables	1,263	(178)
Cash generated from operations	5,612	4,612

Company

	2018 £'000	2017 £'000
Profit before taxation	3,504	3,516
Dividend received	(4,000)	(4,445)
Changes in fair value to contingent consideration	(809)	134
Finance costs	223	192
Depreciation and amortisation charges	12	10
	(1,070)	(593)
(Increase)/decrease in trade and other receivables	(1,559)	3,356
Increase/(decrease)/increase in trade and other payables	413	(580)
Cash (used in)/generated from operations	(2,216)	2,183

12 Acquisitions

On 21 September 2018 Newton Fallowell Limited, a Group subsidiary, acquired Uplong Limited for £370,000, which operated the Newton Fallowell lettings franchise for Grantham and Newark.  The assets and trade of the Newark lettings portfolio were immediately sold to Belvoir Newark for £88,000 and the remaining assets and trade relating to the Grantham lettings portfolio were hived up into Newton Fallowell Limited.  The Newton Fallowell corporate office in Grantham now operates both sales and lettings out of the same premises. 

On 26 November 2018 Brook, a Group subsidiary, acquired 100% of the equity of MAB (Gloucester) Limited ("MAB Glos"), which, like Brook, trades as an appointed representative of Mortgage Advice Bureau, one of the UK's leading networks for mortgage intermediaries. As part of the Belvoir Group financial services division, MAB Glos will develop its network of financial advisers to offer mortgage products and services across all Group networks, increasing the Group's presence in the franchised property sector and opening up additional growth opportunities. Total consideration was £4,228,000.  Net assets acquired included certain vendor-related balances that were settled on completion leaving acquired cash of £692,000. The acquisition was satisfied from existing cash resources and the drawdown of existing bank facilities.

In October 2018 Belvoir Property Management (UK) Limited took back the Leeds South franchise which is now being managed on behalf of the Group by a neighbouring franchise owner for a period of time until a new franchise owner is appointed.

The above transactions met the definition of a business combination and have been accounted for using the acquisition method under IFRS 3. The assets and liabilities below are shown at their book values which have been, in general, assessed as also being the provisional fair values at acquisition.  The exceptions relate to the acquisition of MAB Glos for which fair value adjustments were made of a £109,000 accrual for the provision of unearned indemnity commission and £29,000 in recognition of the valuation of MAB share options.  There were no adjustments required on trade debtors on acquisition.

	Leeds South £'000	Uplong £'000	MAB Glos £'000	Total £'000
Intangible assets	47	200	-	247
Financial assets	-	-	29	29
Trade and other receivables	-	32	568	600
Cash and cash equivalents	-	27	692	719
Deferred tax liabilities	-	(38)	-	(38)
Trade and other payables	-	(44)	(258)	(302)
Identifiable net assets acquired	47	177	1,031	1,255
Goodwill on acquisition	-	105	3,197	3,302
Consideration	47	282	4,228	4,557
Consideration settled in cash	47	262	4,005	4,314
Deferred consideration	-	20	223	243
Total consideration	47	282	4,228	4,557

The goodwill represents the value attributable to the new businesses and the assembled and trained workforce. Deferred tax at 17% has been provided on the value of intangible assets defined as customer contracts. Acquisition costs of £104,000 were incurred and charged to exceptional items in the consolidated statement of comprehensive income.

	Uplong £'000	MAB Glos £'000	Total £'000
Post acquisition financial results
Revenue	57	544	601
Profit before tax	27	91	118

If the acquisitions had completed on the first day of the financial year, Group revenues would have been £17.3m and Group profit before tax would have been £6.3m.

13 Posting of accounts

It is intended that the financial statements for the year ended 31 December 2018 will be made available to shareholders on the company's website www.belvoirlettingsplc.com by 16 April 2019 and will also be available thereafter at the registered office, The Old Courthouse, 61a London Road, Grantham, NG31 6HR.

14 Annual General Meeting

The Annual General Meeting will be held at 10.00am on Thursday 16 May 2019 at the registered office, The Old Courthouse, 61a London Road, Grantham, NG31 6HR

 

END

 

 

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