Final Results

RNS Number : 5947B

Property Franchise Group PLC (The)

05 April 2017

The Property Franchise Group PLC ("TPFG" or the "Group")

Final Results for the Year Ended 31 December 2016

Strong results trend continues

The Property Franchise Group PLC, the UK's largest property franchisor with 6 brands across a network of 377 offices, today announces its full year results for the year ended 31 December 2016.

The Directors' vision is to leverage TPFG's proven franchisor infrastructure, underpinned by its strong regional and national property brands, to build a significant share of the UK residential lettings and estate agency market. The Group's multi-brand strategy, which allows more than one brand of franchise to operate in a given location, means it is able to appeal to different market sectors and maximise its potential overall share of local market sales and lettings transactions.

Financial Highlights

·	Group revenue increased 16% to £8.3m (2015: £7.1m)
·	EBITDA* increased 23% to £3.9m (2015: £3.2m)
·	Operating profit* increased 21% to £3.5m (2015: £2.9m)
·	Profit before tax increased 19% to £3.2m (2015: £2.7m)
·	Management Service Fees increased 11% to £6.9m (2015: £6.2m)
·	Net assets increased 60% to £12.2m (2015: £7.6m)
·	Earnings per share increased 33% to 13.0 pence (2015: 9.8 pence)
·	Strongly cash generative from operations with cash of £2.0m at year end and £5m debt facility (£1.6m undrawn at the year-end)
·	Proposed final dividend of 4.5 pence, making a total for 2016 of 6.5 pence, up 10% on 2015 of 5.9 pence

*Before exceptional costs

Operational Highlights

·	Acquisition of on-line "hybrid" EweMove Sales & Lettings Ltd in September 2016 progressing well with 12 EweMove franchises sold from 1^st January to 31 March 2017
·	Number of tenanted managed properties increased from 45,000 to 48,000 at the year end
·	16 new franchisees recruited, 9 for resales of existing territories and 7 for new territories
·	Group remains heavily weighted toward lettings, accounting for 74% of Management Service Fee revenue
·	Commenced roll out of financial services, with two thirds of offices (excluding EweMove) signed up as introducers and trained by the year end

Ian Wilson, Chief Executive Officer of The Property Franchise Group, commented:

"2016 marked our third full year on AIM and I am delighted to report that the Group has delivered another strong set of results for the year. Our scalable multi-brand platform has resulted in the continued organic growth of our brands and enabled us to realise operational efficiencies borne out of the consolidation of the four brands acquired through "Xperience".

"The year also saw us acquire EweMove, the on-line "hybrid" with a unique customer service proposition, which provides us with a strategically important foothold in the rapidly developing market for on-line lettings and estate agency services".

"Looking ahead, we remain confident in the outlook for the business and believe the fundamental drivers for continued expansion of the private rented sector remain in place. Our multi-brand strategy, weighting towards lettings, together with our exposure to on-line through EweMove, leaves us well placed to grow our market share and continue to deliver returns for shareholders."

For further information, please contact:

The Property Franchise Group PLC

Ian Wilson, Chief Executive Officer

David Raggett, Chief Financial Officer

01202 292829

Cenkos Securities plc

Max Hartley (Nominated Adviser), Alex Aylen (Sales)

0207 397 8925

Bell Pottinger

David Rydell, Henry Lerwill

020 3772 2500

Chairman's statement

2016 was another year of solid growth for the Group despite headwinds for the housing market from tax changes and uncertainty surrounding the vote to leave the European Union. The additional rate of stamp duty on second homes and buy-to-let purchases for individuals had the consequence of a rush to complete transactions before the April 2016 deadline. This resulted in a surge in Group sales in March followed by a comparatively quieter period.

Summer uncertainty around the vote to leave the European Union appeared to undermine consumer confidence and instruction levels fell for both sales and lettings before recovering in the final quarter.

In the autumn, the Government announced its intention to limit or possibly ban tenant fees in England, which it subsequently tempered with an offer of consultation with trade bodies. At the time of writing, the timetable and the extent of any ban remains unclear. In Scotland, where a ban has existed since November 2012, our experience has been that the impacts on revenue were mitigated in just over one year.

Given these recent changes and the resultant increase in the level of uncertainty within the property market, it would be reasonable for the Group to adopt a cautious approach. However, the Board has observed a shift in the traditionally conservative estate agency and lettings sector, with the growth (albeit from a low base) of on-line agents.

On-line agents have no physical office premises and their pricing models are typically based on listing fees rather than completions. Estate agency services are becoming commoditised on the internet and consumers' expectations may now be to interact with their agent on a 24/7 basis, or at least outside of normal office hours.

We purchased EweMove in September 2016, a relative newcomer by the standards of other brands in the Group, having started trading in late 2013. Its consciously consumer centric culture, adoption of cutting edge internet marketing techniques and 24/7 manned call centre make it unique within our brand stable. In accordance with other on-line agents, the model eschews the need for high street premises.

Its franchisees charge broadly in line with other high street estate agents, on a traditional success fee basis. It's service and not price which differentiate its offering, as EweMove is the No.1 most trusted estate agent and letting agent on TrustPilot.

Much of the innovative on-line marketing used by EweMove is being imported for the benefit of our traditional high street brands, and we will keep under review EweMove's pricing model to align it with customer preferences.

This strategic move signals the Group's intention to be well-positioned for all eventualities and developments in the estate agency and letting agency space. Despite the challenges set out above, the Group has delivered another strong set of results in this, its third full year on AIM.

My thanks go to the executive, their teams and my fellow Board members for their outstanding efforts over the last year.

I am delighted to announce that the Board has recommended a final dividend of 4.5p per ordinary share for 2016.

Richard Martin

Chairman

4 April 2017

Chief Executive's statement

Benefits of a multiple brand strategy

With our acquisition of four regional property brands (Ellis & Co, Parkers, CJ Hole and Whitegates, together "Xperience") from Legal & General in October 2014 we set out a vision for the Group as owner of multiple property brands, within a franchise model, where previously our efforts had been focused on Martin & Co solely, our national, letting specialist franchised business, and the only brand which we owned at our launch on AIM in December 2013.

In 2015 the story was of consolidation, driving out duplicate costs and leveraging economies of scale. By 2016 we reaped the fruits of that approach - the Xperience business delivered £1m of after tax earnings against its net cash consideration of £5.1m.

The Xperience brands were tilted 54% to 46% estate agency over lettings revenue and we saw the potential to import our Martin & Co "know-how" and grow their lettings income stream. And so it proved, with lettings revenue at Xperience now 54% versus sales revenue at 46%. Xperience lettings revenue growth was 12% in 2016 against 4% growth in lettings revenue at Martin & Co, the more mature model.

However, recognising that consolidation has its natural limits we actively searched for other acquisition opportunities at the franchisor level. We identified a number of targets, and considered which would best complement our stable of brands.

The fastest growing property franchise in 2014 and 2015 had been EweMove, based in Cleckheaton. Its "tongue in cheek" sheep brand theme, the antithesis of a stereotypical public view of predatory estate agents. Its powerful central technology hub generating on-line leads, 24/7 call handling and administration support proved enormously appealing to the franchise buying public.

Ranked No. 1 on Trust Pilot for both Estate Agency and Lettings, EweMove occupied 90 franchise territories by September 2016. EweMove is a "hybrid" rather than "on-line" operation because while local franchisees do not require commercial premises, the model does not disavow premises either.

EweMove was beginning to generate (modest) positive cashflow. The Board considered both the potential to scale EweMove into a truly national brand, and the opportunity to import EweMove expertise on-line (founders and key suppliers) to complement the off-line traditional high street brand presence. We acquired EweMove on 5 September 2016.

We have a clear brand strategy as we enter 2017. Martin & Co is our national lettings brand, and has appeal to landlords letting, buying and selling investment properties. Ellis & Co, Parkers, CJ Hole & Whitegates are strong regional brands and have particular expertise with estate agency services. Collectively these are our "traditional" brands and operate from high street premises. EweMove is our "challenger" brand.

We remain positive about the outlook for our core lettings business, from which 74% of our management service fee income is derived.

We do not envisage the Government's recent interventions in the buy-to-let sector significantly impacting our business. Buy-to-let investors have generally reduced gearing in their portfolios over the years since 2008 and are believed to be able to absorb rising interest rates. We are well positioned to sell investment properties if investors decide to exit, and our research suggests that larger buy-to-let investors would purchase this stock. Early indications from the mortgage industry show that investors are beginning to incorporate their activities into trading companies to avoid the stamp duty surcharge and to retain the benefit of interest tax relief on buy-to-let loans.

We have rolled out financial services to two thirds of our traditional brand offices during 2016. The proposition is an across the market selection of mortgages and fee-free advice from our business partner London & Country. General Insurance products will be tied to Legal & General. The benefits of this strategy will be to add another revenue stream (currently sub-1% of Group revenues) and to develop a greater understanding of our customers.

Ian Wilson

Chief Executive Officer

4 April 2017

Chief Financial Officer's Review

Our multi-franchise strategy has delivered improvements in operating margin, EBITDA and PBT.

In what turned out to be another flat housing market in 2016 with 1.2m transactions* (2015 and 2014: 1.2m transactions) our focus has been on maintaining our share of sales (up 8%), growing our lettings revenue (up 9%), implementing our financial services offering and our next strategic acquisition.

* HMRC UK Property Transaction Statistics 21 February 2017

	2016	2015
	£m	£m
Group revenue	8.3	7.1
Admin expenses	4.2	3.9
Operating profit**	3.5	2.9
Operating profit	3.3	2.7
Profit before tax**	3.4	2.9
Profit before tax	3.2	2.7
EBITDA**	3.9	3.2

** before exceptional costs

Revenue

Group revenue for the financial year to 31 December 2016 was £8.3m (2015: £7.1m), an increase of £1.2m (16%) over the prior year. The incorporation of 4 month's revenue from the EweMove acquisition in September 2016 contributed £0.7m (58%) of this increase.

Management Service Fees ("MSF") increased 11% from £6.2m to £6.9m and represented 83% (2015: 87%) of Group revenue with the remainder being from franchise sales and ancillary services to support MSF generation.

Lettings contributed 74% of MSF (2015: 76%), sales contributed 25% of MSF (2015: 23%) and financial services contributed 1% of MSF (2015: 1%). Lettings MSF grew by 9% in the year and sales MSF grew by 19%.

Operating profit

Operating profit before exceptional items increased from £2.9m to £3.5m (21%) and the margin increased from 41% to 42%. Including exceptional items the operating margin increased from 38% to 39%.

Administration expenses, including the 4 months of the EweMove acquisition, increased by £0.3m. EweMove's administration expenses were £0.4m.

EBITDA

EBITDA before exceptional costs for 2016 was £3.9m (2015: £3.2m) an increase of £0.7m (23%) over the prior year. EweMove contributed 2% of the increase.

Exceptional items

The exceptional costs for 2016 are £0.3m (2015: £0.2m) and relate to the acquisition costs for EweMove and redundancy payments (2015: Xperience redundancy costs).

Profit before tax

The profit before tax was £3.2m for 2016, an increase of £0.5m (19%) over the prior year.

Taxation

The effective rate of corporation tax for the year was 20% (2015: 20.25%). The total tax charge for 2016 is £0.2m (2015: £0.5m).

Earnings per share

Earnings per share for the year was 13.0p (2015: 9.8p), an increase of 33%. The profit attributable to owners increased to £3.0m (2015: £2.2m).

Dividends

The Board is proposing a final dividend of 4.5p per share for 2016 which, together with the interim dividend of 2.0p per share paid to shareholders on 7 October 2016, equates to a total dividend for the financial year of 6.5p (2015: 5.9p) an increase of 10%.

Cash flow

The Group is highly operationally cash generative.

The net cash inflow from operating activities in 2016 was £2.4m (2015: £2.2m) as the Group continues to generate strong operating cash inflows.

The net cash outflow from investing activities was £4.8m (2015: inflow £0.3m) due principally to the acquisition of Ewemove in September 2016 (2015: sale of Saltaire portfolio).

Loan repayments totaling £0.6m (2015: £0.5m) plus interest payments of £0.1m (2015: £0.1m) were made on the Santander UK plc loan during 2016. Dividend payments were £1.4m (2015: £1.0m).

Liquidity

The Group had cash balances of £2.0m at 31 December 2016 (2015: £4.3m).

Financial position

The Group is strongly operationally cash generative which, together with the undrawn facility from Santander UK plc of £1.6m, puts it in a strong position to fulfil its strategic plan.

David Raggett

Chief Financial Officer

4 April 2017

Consolidated statement of comprehensive income

for the year ended 31 December 2016

	Notes	2016 £	2015 £
Continuing operations
Revenue	7	8,301,375	7,130,967
Cost of sales		(570,912)	(356,844)
Gross profit		7,730,463	6,774,123
Administrative expenses	8	(4,217,399)	(3,880,629)
Operating profit before exceptional items		3,513,064	2,893,494
Exceptional items	10	(254,945)	(166,069)
Operating profit	11	3,258,119	2,727,425
Finance income	12	52,909	50,914
Finance costs	12	(119,106)	(85,572)
Profit before income tax expense		3,191,922	2,692,767
Income tax expense	13	(197,576)	(538,667)
Profit and total comprehensive income for the year attributable to owners		2,994,346	2,154,100
Earnings per share attributable to owners	14	13.0p	9.8p
Diluted Earnings per share attributable to owners	14	12.8p	9.4p

Consolidated statement of financial position

31 December 2016

	Notes	2016 £	2015 £
Assets
Non-current assets
Intangible assets	17	16,820,336	6,014,336
Property, plant and equipment	18	125,984	140,241
		16,946,320	6,154,577
Current assets
Trade and other receivables	20	1,477,047	912,183
Cash and cash equivalents		2,045,621	4,346,054
		3,522,668	5,258,237

Total assets		20,468,988	11,412,814

Equity
Shareholders' equity
Called up share capital	21	253,008	220,000
Share premium	22	6,929,723	3,790,000
Other reserves	23	(75,422)	134,560
Retained earnings		5,078,584	3,492,253
Total equity attributable to owners		12,185,893	7,636,813

Liabilities
Non-current liabilities
Borrowings	24	2,500,000	1,500,000
Deferred tax	27	1,475,481	558,001
Provisions	29	2,179,146	--
		6,154,627	2,058,001
Current liabilities
Borrowings	24	900,000	500,000
Trade and other payables	25	1,150,243	916,924
Tax payable		78,225	301,076
		2,128,468	1,718,000
Total liabilities		8,283,095	3,776,001
Total equity and liabilities		20,468,988	11,412,814

Company statement of financial position

31 December 2016

(Company No: 08721920)

	Notes	2016 £	2015 £
Assets
Non-current assets
Investments	19	34,249,674	24,100,284
Deferred tax asset	27	104,378	314,360
		34,354,052	24,414,644
Current assets
Trade and other receivables	20	674,024	201,040
Cash and cash equivalents		199,377	195,577
		873,401	396,617
Total assets		35,227,453	24,811,261

Equity
Shareholders' equity
Called up share capital	21	253,008	220,000
Share premium	22	6,929,723	3,790,000
Other reserves	23	17,914,478	18,124,460
Retained earnings		4,433,624	1,111
Total equity		29,530,833	22,135,571

Liabilities
Non-current liabilities
Borrowings	24	2,500,000	1,500,000
Provisions	29	2,179,146	--
		4,679,146	1,500,000
Current liabilities
Borrowings	24	900,000	500,000
Trade and other payables	25	117,474	675,690
		1,017,474	1,175,690
Total liabilities		5,696,620	2,675,690
Total equity and liabilities		35,227,453	24,811,261

Consolidated statement of changes in equity

for the year ended 31 December 2016

Attibutable to owners

	Called up share capital £	Retained earnings £	Share premium £	Other reserves £	Total equity £
Balance at 1 January 2015	220,000	2,328,153	3,790,000	(61,406)	6,276,747
Profit and total comprehensive income	-	2,154,100	-	-	2,154,100
Dividends	-	(990,000)	-	-	(990,000)
Deferred tax on share-based payments	-	-	-	195,966	195,966
Total transactions with owners	--	(990,000)	--	195,966	(794,034)
Balance at 31 December 2015	220,000	3,492,253	3,790,000	134,560	7,636,813
Profit and total comprehensive income	-	2,994,346	-	-	2,994,346
Issue of share capital
Issue of share capital - acquisition consideration	23,216	-	2,976,784	-	3,000,000
Issue of share capital - exercise of options	9,792	-	162,939	-	172,731
Dividends	-	(1,408,015)	-	-	(1,408,015)
Deferred tax on share-based payments	-	-	-	(209,982)	(209,982)
Total transactions with owners	33,008	(1,408,015)	3,139,723	(209,982)	1,554,734
Balance at 31 December 2016	253,008	5,078,584	6,929,723	(75,422)	12,185,893

Company statement of changes in equity

for the year ended 31 December 2016

	Called up share capital £	Retained earnings £	Share premium £	Other reserves £	Total equity £
Balance as at 1 January 2015	220,000	35,466	3,790,000	17,928,494	21,973,960
Profit and total comprehensive income	-	955,645	-	-	955,645
Dividends	-	(990,000)	-	-	(990,000)
Deferred tax on share-based payments	-	-	-	195,966	195,966
Total transactions with owners	-	(990,000)	-	195,966	(794,034)
Balance as at 31 December 2015	220,000	1,111	3,790,000	18,124,460	22,135,571
Profit and total comprehensive income	--	5,840,528	--	--	5,840,528
Issue of share capital
Issue of share capital - acquisition consideration	23,216	--	2,976,784	--	3,000,000
Issue of share capital - exercise of options	9,792	--	162,939	--	172,731
Dividends	--	(1,408,015)	--	--	(1,408,015)
Deferred tax on share-based payments	--	--	--	(209,982)	(209,982)
Total transactions with owners	33,008	(1,408,015)	3,139,723	(209,982)	1,554,734
Balance as at 31 December 2016	253,008	4,433,624	6,929,723	17,914,478	29,530,833

Consolidated statement of cash flows

for the year ended 31 December 2016

	Notes	2016 £	2015 £
Cash flows from operating activities
Cash generated from operations	A	3,063,415	2,871,051
Interest paid		(88,668)	(94,064)
Tax paid		(602,833)	(616,402)
Net cash from operating activities		2,371,914	2,160,585
Cash flows from investing activities
Purchase of subsidiary undertakings net of cash acquired	B	(4,821,051)	--
Purchase of intangible assets		(91,621)	--
Purchase of tangible assets		(13,960)	(67,199)
Proceeds from sale of intangible assets		36,660	324 495
Interest received		52,909	50,914
Net cash (used in)/ generated from investing activities		(4,837,063)	308,210
Cash flows from financing activities
Issue of ordinary shares Repayment of bank loan		172,731 (600,000)	-- (500,000)
Drawdown of bank loan		2,000,000	--
Equity dividends paid		(1,408,015)	(990,000)
Net cash generated from /(used in) financing activities		164,716	(1,490,000)
(Decrease)/increase in cash and cash equivalents		(2,300,433)	978,795
Cash and cash equivalents at beginning of year		4,346,054	3,367,259
Cash and cash equivalents at end of year		2,045,621	4,346,054

Notes to the consolidated statement of cash flows

for the year ended 31 December 2016

A. Reconciliation of profit before income tax to cash generated from operations	2016	2015
	£	£
Cash flows from operating activities
Profit before income tax	3,191,922	2,692,767
Depreciation and amortisation charges	354,247	259,607
Loss on disposal of intangible assets	7,811	14,194
Finance costs	119,106	85,572
Finance income	(52,909)	(50,914)
Operating cash flow before changes in working capital	3,620,177	3,001,226
Increase in trade and other receivables	(504,453)	(15,363)
Decrease in trade and other payables	(52,309)	(114,812)
Cash generated from operations	3,063,415	2,871,051

B. Purchase of Subsidiary undertakings net of cash acquired

On 5 September 2016 the Group obtained control of Ewemove Sales & Lettings Ltd "ESLL" and its dormant subsidiary Ewesheep Ltd "EL".

	Total £
Consideration	5,000,000
Less: Cash acquired	(178,949)
Purchase of subsidiary undertakings net of cash acquired	4,821,051

Company statement of cash flows

for the year ended 31 December 2016

	Notes	2016 £	2015 £
Cash flows from operating activities Cash generated from operations	C	(1,459,633)	381,040
Interest paid		(88,668)	(94,064)
Net cash (used in)/generated from operating activities		(1,548,301)	286,976
Cash flows from investing activities Purchase of subsidiary undertakings net of cash acquired		(4,821,051)	--
Interest received		8,436	5,132
Equity dividends received		6,200,000	1,380,000
Net cash generated from investing activities		1,387,385	1,385,132
Cash flows from financing activities Issue of ordinary shares		172,731	--
Repayment of bank loan		(600,000)	(500,000)
Drawdown of bank loan		2,000,000	-
Equity dividend paid		(1,408,015)	(990,000)
Net cash generated from/(used in) financing activities		164,716	(1,490,000)
Increase in cash and cash equivalents		3,800	182,108
Cash and cash equivalents at beginning of year		195,577	13,469
Cash and cash equivalents at end of year		199,377	195,577

Notes to the Company statement of cash flows

for the year ended 31 December 2016

C. Reconciliation of loss before income tax to cash generated from operations	2016	2015
	£	£
Cash flows from operating activities
Profit before income tax	5,390,493	849,556
Finance costs	119,106	85,572
Finance income	(8,436)	(5,132)
Equity dividend received	(6,200,000)	(1,380,000)
Operating cash flow before changes in working capital	(698,837)	(450,004)
(Increase)/decrease in trade and other receivables	(176,486)	249,545
Increase/(decrease) in trade and other payables	(584,310)	581,499
Cash (used in)/generated from operations	(1,459,633)	381,040

Notes to the consolidated financial statements

for the year ended 31 December 2016

1. General information

The principal activity of The Property Franchise Group PLC (formerly MartinCo 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

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2015, but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 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.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 5.

The presentational currency of the financial statements is in British pounds and amounts are rounded to the nearest pound.

Going Concern

The Group has produced detailed budgets, projections and cash flow forecasts. The Directors have concluded after reviewing these budgets, projections and forecasts, making appropriate enquiries of the business and having considered uncertainties under the current economic environment, 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.

New standards, amendments and interpretations issued

The following relevant new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning on 1 January 2016, as endorsed by the European Union, and have not been early adopted:

Standard	Key requirements	Effective date as adopted by the EU
IFRS 9	Financial Instruments	1 January 2018
IFRS 15	Revenue from contracts with customers	1 January 2018

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group when the relevant standards and interpretations come into effect. 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.

The following standards have been issued by the IASB but have not yet been endorsed by the EU:

Standard

Key requirements

Effective date

IFRS 16

Amendments to IAS 7

Amendments to IAS 12

Leases

Disclosure initiatives

Recognition of deferred tax assets for unrealised losses

1 January 2019

1 January 2017

Amendments to IFRS 2

Classification and measurement of share based payments

1 January 2018

While the above standards have not been adopted by the EU the company is currently assessing their impact.

Notes to the consolidated financial statements

for the year ended 31 December 2016

3. Basis of consolidation

The Group financial statements include those of the parent company and its subsidiaries, drawn up to 31 December 2016. 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 acquiree 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. The Group recognises any non-controlling interest in the acquiree on an acquisition-by- acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets. 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 with the Group's accounting policies.

4. Significant accounting policies

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 the provision of training and ongoing support to franchisees.

Fees from the sale of franchise agreements are not refundable and are recognised upon the earlier of the receipt of funds or the signing of the franchise agreement. 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. Resale fees are recognised in the month that a contract for the resale of a franchise is signed. Management service fees are recognised on a monthly basis, with other fees recognised when the training and support is provided to the franchisee.

Fees from the sale of franchise agreements for the Ewemove brand are treated differently to the other brands, because an element of the initial fee is deferred and released over the first 12 months of trading of the franchise, where no monthly license fees are payable.

Operating profit

Profit from operations is stated before finance income, finance costs and tax expense.

Intangible assets - goodwill

Goodwill (being the difference between the fair value of consideration paid and the fair value of the identifiable assets at the date of acquisition) is capitalised. Goodwill is not amortised, but subject to an annual review for impairment (or more frequently if necessary). Any impairment is charged to the profit or loss as it arises.

An impairment loss is recognised for the amount by which the carrying value of goodwill exceeds its recoverable amount, which the Directors assess on a 'value in use' basis. To determine the value in use, management estimates expected future cash flows from trading operations, each business being one cash generating unit, and determines a suitable growth rate in order to calculate the present value of those cash flows. The discount factor reflects management's assessment of the risk profile of the business.

Notes to the consolidated financial statements

for the year ended 31 December 2016

4. Significant accounting policies continued

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, as follows:

Brands - CJ Hole, Parkers, Ellis & Co Indefinite life

Brands - Ewemove 21 years

Customer lists 5 years

Master franchise agreements - Whitegates, CJ Hole, Parkers, Ellis & Co 25 years

Master franchise agreements - Ewemove 21 years

Technology 5 years

Acquired customer relationships 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 relationship assets are being written off over a remaining life of 5 years.

Acquired master franchise agreements are identified as a separate intangible asset as they are separable and can be reliably measured by valuation of future cash flows. The life of the relationship is assessed annually. Master franchise agreements are being written off over a remaining life of 21-25 years as historical analyses shows that, on average, 4-5% of franchises will change ownership per annum.

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.

Subsequent to initial recognition, intangible assets are stated at deemed cost less accumulated amortisation and impairment charges.

Investment in subsidiaries

Investments in subsidiaries are stated in the parent company's balance sheet at cost less any provisions for impairments.

Notes to the consolidated financial statements

for the year ended 31 December 2016

4. Significant accounting policies (continued)

Property, plant and equipment

Items of property, plant and equipment are stated at cost of acquisition less accumulated depreciation and impairment losses. Depreciation is charged so as to write off the cost of assets over their estimated useful lives on the following bases:

Fixtures, fittings and office equipment 15% reducing balance

Computer equipment over 3 years

Short leasehold improvements over the lease term

Income taxes

Current tax is the tax currently payable based on the taxable profit for the year.

Deferred tax

Deferred income taxes are calculated using the liability method on temporary differences, at the tax rate that is substantively enacted at the balance sheet date. Deferred tax is generally provided on the difference between the carrying amount of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement.

Operating lease commitments

Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged to profit/loss on a straight-line basis over the period of the lease.

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 only has financial assets classified as loans and receivables. The loans and receivables comprise trade and other receivables and cash and cash equivalents in the Consolidated Statement of Financial Position. Cash and cash equivalents (which exclude any client account monies) include cash in hand and deposits held at call with banks.

Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of services to franchisees (e.g. trade receivables), but also incorporate other types of contractual monetary asset. 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 provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms of the receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Notes to the consolidated financial statements

for the year ended 31 December 2016

4. Significant accounting policies (continued)

Financial liabilities

Financial liabilities are comprised of trade payables, borrowings and other short-term monetary liabilities, which are recognised at amortised cost.

Trade 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 options

The Company issues equity-settled share-based payments to certain 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 is expensed on a straight- line basis over the vesting period, together with a corresponding increase in equity, based upon the Company's estimate of the shares that will eventually vest.

Fair value is measured using the Black-Scholes option pricing model taking into account the following inputs:

·	the exercise price of the option;
·	the life of the option;
·	the market price on the date of the grant of the option;
·	the expected volatility of the share price;
·	the dividends expected on the shares; and
·	the risk free interest rate for the life of the option.

The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations.

Provisions

A provision is recognised in the Statement of Financial Position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The increase in the provision due to the passage of time is recognised in finance costs.

5. Critical accounting estimates and judgements and key sources of estimation uncertainty

The Company makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Impairment of intangibles

The Group is required to test, where indicators of impairment exist, whether intangibles 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.

Valuation of separable intangibles 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 £5.2m (2015: £nil) as detailed further in note 17.

Notes to the consolidated financial statements

for the year ended 31 December 2016

6.Segmental reporting

The Board of Directors, as the chief operating decision-making body, review financial information for and make decisions about the Group's overall franchising business and have identified a single operating segment, that of property franchising.

7.Revenue

The Directors believe there to be three material income streams relevant to property franchising which are split as follows:

	2016 £	2015 £
Management Service Fee	6,874,542	6,190,911
Franchise sales	412,448	316,847
Other	1,014,385	623,209
	8,301,375	7,130,967

All revenue is earned in the UK and no customer represents greater than 10 per cent of total revenue in either of the years reported. Other revenue relates to training and ongoing support to franchisees.

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:

	2016 £	2015 £
Employee costs (see note 9)	2,392,050	2,353,365
Property costs	110,659	179,845
General administrative costs	1,388,660	1,106,988
Amortisation	326,030	240,491
	4,217,399	3,880,629

9.Employees and Directors

Average numbers of employees (including Directors), employed during the year:

	Group		Company
	2016	2015	2016	2015
Administration	35	30	--	--
Management	9	9	2	2
	44	39	2	2

Notes to the consolidated financial statements

for the year ended 31 December 2016

9. Employees and Directors (continued) Employee costs (including Directors) during the year amounted to:
	2016 £	2015 £
Wages and salaries	2,132,615	2,107,274
Social security costs	249,988	246,091
Pension costs	9,447	--
	2,392,050	2,353,365
Exceptional costs arising through redundancy	105,347	166,069

Key management personnel are defined as Directors and executives of the Group. Details of the remuneration of the key management personnel are shown below:

	2016 £	2015 £
Wages and salaries	952,009	1,014,249
Social security costs	122,142	126,817
Pension contributions	1,647	-
	1,075,798	1,141,066
Exceptional costs arising through redundancy	90,855	-

Details of the Directors' emoluments are disclosed in the Directors' Remuneration Report on pages 24 to 25. The share-based payments charge for the current year and the prior year were immaterial so were not charged to the income statement.

10. Exceptional items

The exceptional items consist of £149,598 acquisition costs for Ewemove Sales & Lettings Ltd and £105,347 redundancy costs as a result of restructuring. In the prior year exceptional items represented redundancy costs relating to the acquisition of Xperience Franchising Limited and Whitegates Estate Agency Limited.

11. Operating profit	2016	2015
	£	£
The operating profit is stated after charging: Depreciation	28,217	19,166
Amortisation	326,030	240,491
Loss on disposal of intangible assets	7,811	14,194
Auditor's remuneration (see below)	134,000	49,250
Staff costs (note 9)	2,497,397	2,519,434
Operating lease expenditure	64,500	65,634
Audit services
- Audit of the Company and consolidated accounts	62,500	45,000
- Audit related assurance services	3,750	4,250
Other non-audit services
- Corporate finance services	41,250	--
- Tax advisory services	26,500	--
	134,000	49,250
Comprising: Audit services	66,250	49,250
Non-audit services	67,750	--
	134,000	49,250

Notes to the consolidated financial statements

for the year ended 31 December 2016

12. Finance income and costs	2016	2015
	£	£
Finance income:
Bank interest	34,052	33,742
Other similar income	18,857	17,172
	52,909	50,914
	2016 £	2015 £
Finance costs: Bank interest	89,350	85,572
Unwinding of discounting on deferred consideration	29,756	--
	119,106	85,572

13. Taxation
	2016 £	2015 £
Current tax	386,610	575,836
Adjustments in respect of previous periods	(8,741)	--
Current tax total	377,869	575,836

Deferred tax credit on acquired business combinations	(46,485)	(37,169)
Adjustment to deferred tax rate from 20% to 17%	(133,808)	--
Deferred tax total	(180,293)	(37,169)

Total tax charge in statement of comprehensive income	197,576	538,667
The tax assessed for the period is lower than the standard rate of corporation tax in the UK. The difference is explained below.
	2016 £	2015 £
Profit on ordinary activities before tax Profit on ordinary activities multiplied by the effective standard rate of corporation tax in the UK of 20%	3,191,922	2,692,767
(2015: 20.25%) Effects of: Expenses not deductible for tax purposes	638,384 20,576	545,285 18,201
Depreciation in excess of capital allowances	(22,430)	(26,693)
Effect of change in rate used for deferred tax	(133,808)	--
Tax relief on share based payments	(296,405)	--
Adjustments in respect of previous periods	(8,741)	--
Losses carried forward	--	1,874
Total tax charge in respect of continuing activities	197,576	538,667

Notes to the consolidated financial statements

for the year ended 31 December 2016

14. 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.

2016

2015

Earnings per ordinary share

Profit from continuing operations

2,994,346

2,154,100

2,994,346

2,154,100

Diluted earnings per ordinary share

The charge relating to share-based payments is immaterial and therefore the earnings used in the diluted earnings per ordinary share calculation are the same as that shown above.

	2016 Number	2015 Number
Weighted average number of shares Number used in basic earnings per share	23,017,702	22,000,000
Dilutive effect of share options on ordinary shares	457,132	848,442
Number used in diluted earnings per share	23,474,834	22,848,442

15. Profit of Parent Company

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 £5,840,528 (2015: £955,645).

16. Dividends

	2016 £		2015 £
Final Dividend for 2015 4.1p per share paid 16 May 2016 (2015: 2.7p per share paid 11 May 2015)	902,000		594,000
Interim Dividend for 2016
2p per share paid 7 October 2016 (2015: 1.8p per share paid 30 September 2016)		506,015	396,000

Total dividend paid	1,408,015		990,000

The Directors propose a final dividend for 2016 of 4.5p per share totalling £1,138,534, which they expect will be paid on 11 May 2017. As this is subject to approval by the shareholders no provision has been made for this in these financial statements.

Notes to the consolidated financial statements

for the year ended 31 December 2016

17. Intangible assets
		Master Franchise Agreement £	Brands £	Technology £	Customer lists £	Goodwill £	Total £
Cost Brought forward 1 January 2015		4,075,085	571,000	--	280,521	1,388,217	6,314,823
Disposals		--	--	--	(19,267)	--	(19,267)
Carried forward 31 December 2015		4,075,085	571,000	--	261,254	1,388,217	6,295,556
Additions - acquired separately		--	--	--	91,621	--	91,621
Additions - acquired business combinations (note	e 29)	3,728,351	1,401,239	92,704	--	5,837,943	11,060,237
Disposals		--	--	--	(36,050)	--	(36,050)
Carried forward 31 December 2016		7,803,436	1,972,239	92,704	316,825	7,226,160	17,411,364
Amortisation
Brought forward at 1 January 2015		27,167	--	--	17,483	--	44,650
Charge for year		163,003	--	--	77,488	--	240,491
Eliminated on disposals		--	--	--	(3,921)	--	(3,921)
Carried forward 31 December 2015		190,170	--	--	91,050	--	281,220
Charge for year		222,184	22,242	6,180	75,424	--	326,030
Eliminated on disposals		--	--	--	(16,222)	--	(16,222)
Carried forward 31 December 2016		412,354	22,242	6,180	150,252	--	591,028
Net book value At 31 December 2016
At 31 December 2016		7,391,082	1,949,997	86,524	166,573	7,226,160	16,820,336
At 31 December 2015		3,884,915	571,000	--	170,204	1,338,217	6,014,336

The carrying amount of goodwill relates to four (2015: three) 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 acquired October 2014

Goodwill is assessed for impairment by comparing the carrying value to the value in use calculations. The value in use of the goodwill arising on the acquisitions of Xperience Franchising Limited ("XFL") and Whitegates Estate Agency Limited ("WEAL") is based on the cash flows derived from the actual revenues and operating margins for 2016 and projections through to 31 December 2018. 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 intangibles assets that exceeded the carrying values of the respective companies' goodwill.

Notes to the consolidated financial statements

for the year ended 31 December 2016

17. Intangible assets (continued)

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 2016 was 22 years 10 months.

The brand names under which XFL trades of C J Hole, Parkers and Ellis & Co have been in existence for between 69 years and 167 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.

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 up until December 2029. The projected cash flows being the forecast growth in current revenues using market data through to 31 December 2018 . 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 acquired September 2016

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 2016, projections of revenue decline until no existing franchisees remain and projections of operating margin until 2023 where thereafter they remain unaltered. 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 16.4% was applied which approximated the company's WACC as the risk profile of the master franchise rights was seen as commensurate with that of the overall company. The resulting present value was not increased by the tax adjusted benefit as due to a change in tax legislation, the amortisation of master franchise rights are not deductible for UK corporation tax from 15th July 2015. The master franchise rights are being amortised over 21 years. The period of amortisation remaining at 31 December 2016 was 20 years 8 months.

The brand name under which ESL trades of EweMove has a unique culture, a deliberate sheep theme, is part of a new way of selling houses, is a developing national brand, 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 21 years and, with this as the assets' useful life, the period of amortisation remaining at 31 December 2016 was 20 years and 8 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 4%.

The after tax royalty rate was then applied to the projected cash flows of the brand up until December 2041. The projected cash flows being the forecast growth in current revenues using market data and assumptions through to 31 December 2018. 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 16.4%. 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.

Notes to the consolidated financial statements

for the year ended 31 December 2016

17. Intangible assets (continued)

ESL has developed an operating platform known as EweReka. It combines a number of cloud based applications, services and data stores together with a series of websites to provide an integrated platform from which to run the EweMove business at franchisor and franchisee level. None of the applications, data stores or websites (apart from ESL's own) are owned by ESL.

EweReka's value was assessed through assessing the cost of replicating it, a method known as Depreciated Replacement Cost and assuming a required return of 16.4% ("DRC")

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
	2016 £	2015 £	2016 £	2015 £
Xperience Franchising Limited	912,716	912,716	571,000	571,000
Whitegates Estate Agency Limited	400,501	400,501	--	-
Martin & Co (UK) Limited	75,000	75,000	--	-
Ewemove Sales & Lettings Ltd	5,837,943	--	--	--
	7,226,160	1,388,217	571,000	571,000

Company

No goodwill or customer lists exist in the parent company.

Notes to the consolidated financial statements

for the year ended 31 December 2016

18. Property, plant and equipment Group
	Short leasehold improvements		Office equipment		Fixtures & fittings	Total
	£		£		£	£
Cost Brought forward 1 January 2015		37,034		52,869	118,873	208,776
Additions		-		35,798	31,401	67,199
Carried forward 31 December 2015		37,034		88,667	150,274	275,975
Additions		-		9,995	3,965	13,960
Carried forward 31 December 2016		37,034		98,662	154,239	289,935
Depreciation Brought forward 1 January 2015		10,762		15,948	89,908	116,618
Charge for year		3,704		8,897	6,515	19,116
Carried forward 31 December 2015		14,466		24,845	96,423	135,734
Charge for year		3,703		14,097	10,417	28,217
Carried forward 31 December 2016		18,169		38,942	106,840	163,951
Net book value At 31 December 2016		18,865		59,720	47,399	125,984
At 31 December 2015		22,568		63,822	53,851	140,241

19. Investments

Company

	Shares in Group undertakings £
Cost

At 1 January 2015 and at 1 January 2016	24,100,284
Additions	10,149,390
At 31 December 2016
Net book value
At 31 December 2016	34,249,674
At 31 December 2015	24,100,284

The Property Franchise Group PLC (formerly MartinCo 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 a consideration of £8,000,000 paid upon acquisition and up to a further £7,000,000 payable around April 2019, dependent on the Group financial performance for the year ended 31 December 2018 (see notes 29 and 32).

Martin & Co (UK) Limited, Xperience Franchising Limited, Whitegates Estate Agency Limited, Ewemove Sales & Lettings Ltd and Ewesheep Ltd are exempt from the requirements of the Companies Act 2006 relating to the audit of accounts under section 479A of the Companies Act 2006.

Notes to the consolidated financial statements

for the year ended 31 December 2016

19. Investments (continued)

At the year-end The Property Franchise Group PLC has guaranteed all liabilities of Martin & Co (UK) Limited, Xperience Franchising Limited, Whitegates Estate Agency Limited, Ewemove Sales & Lettings Ltd and Ewesheep Ltd. The value of the contingent liability resulting from this guarantee is unknown at the year-end.

The carrying value of the investment has been considered for impairment and it has been determined that the value of the discounted future cash inflows exceeds the carrying value. Thus, there is no impairment charge.

The Company's investments at the balance sheet date in the share capital of companies include the following, which all have their registered offices at the same address as the Company:

Subsidiaries	Share class	% ownership and voting rights		Country of incorporation
Martin & Co (UK) Limited	Ordinary	100		England
Xperience Franchising Limited	Ordinary	100		England
Whitegates Estate Agency Limited	Ordinary	100		England
Ewemove Sales & Lettings Ltd	Ordinary	100		England
Ewesheep Ltd*	Ordinary	100		England

*indirectly owned


20. Trade and other receivables

		Group 2016 £	2015 £		Company 2016 £	2015 £
Trade receivables		280,637	91,856		-	-
Loans to franchisees		203,036	174,848		-	-
Other receivables		6,177	52,945		24,393	5,001
Amounts due from group undertakings		-	-		237,334	--
Prepayments and accrued income		987,197	592,534		40,709	15,691
Tax receivable		-	-		371,588	180,348
		1,477,047	912,183		674,024	201,040

Trade receivables are stated net of bad debt provisions of £43,325 (2015: £37,678).

Ageing of trade receivables

The following is an analysis of trade receivables that are past due 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:

	2016 £	2015 £
Group Not more than 3 months	47,755	37,875
More than 3 months but not more than 6 months	51,289	13,666
More than 6 months but not more than 1 year	10,961	584
	110,005	52,125

An allowance has been made against the overdue receivables based on historic default experience. 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. During the year a loan was made to a franchisee for £50k and is secured by way of a fixed and floating charge over their assets. At 31 December 2016 £36k was outstanding in relation to this loan. In a prior year a loan was made to a franchisee for £147k and is secured by way of a fixed and floating charge over their assets. Subsequent to 31 December 2016 £138k has been repaid in relation to this loan.

Notes to the consolidated financial statements

for the year ended 31 December 2016

21. Called up share capital 2016		2015
Number	£	Number	£
Group Authorised, allotted issued and fully paid ordinary shares of 1p each 25,300,750	253,008	22,000,000	220,000
Company Authorised, allotted issued and fully paid ordinary shares of 1p each 25,300,750	253,008	22,000,000	220,000

On 5 September 2016 2,321,550 shares at market price were issued to the vendors of Ewemove Sales & Lettings Ltd in settlement of £3,000,000 of the acquisition consideration.
On 20 September 2016 979,200 shares were issued to a Director as a result of the exercise of share options at 17.64p.
22. Share premium
The movements in share premium are directly related to the share issues detailed in note 21.
23. Other reserves
	Merger reserve	Share-based payment reserve		Total
	£	£		£
Group 1 January 2015	(179,800)	118,394	(61,406)
Deferred tax on share options	-	195,966	195,966
1 January 2016	(179,800)	314,360	134,560
Deferred tax on share options	--	(209,982)	(209,982)
31 December 2016	(179,800)	104,378	(75,422)
Company 1 January 2015	17,810,100	118,394	17,928,494
Deferred tax on share options	-	195,966	195,966
1 January 2016	17,810,100	314,360	18,124,460
Deferred tax on share options	--	(209,982)	(209,982)
31 December 2016	17,810,100	104,378	17,914,478

Merger reserve

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 as set out in Financial Reporting Standard 6 - Acquisitions and Mergers.

The consideration paid to the shareholders of the Subsidiary was £17,990,000 (the value of the investment). As these shares had a nominal value of £179,900, the merger reserve in the Company is £17,810,100.

On consolidation the investment value of £17,990,000 is eliminated so that the nominal value of the shares remaining is £179,900 and, as there is a difference between the Company value of the investment and the nominal value of the shares purchased in the Subsidiary of £100, this is also eliminated, to generate a merger reserve in the Group of £179,800.

Share-based payment reserve

The share-based payments reserve comprises charges made to the income statement in respect of share-based payments and related deferred tax impacts under the Group's equity compensation scheme.

Notes to the consolidated financial statements

for the year ended 31 December 2016

24. Borrowings

	Group		Company
	2016 £	2015 £	2016 £	2015 £
Repayable within 1 year:
Bank loan (term loan)	900,000	500,000	900,000	500,000
Repayable in more than 1 year:
Bank loan (term loan)	2,500,000	1,500,000	2,500,000	1,500,000
Bank loans due after more than 1 year are repayable as follows:
Between 1 and 2 years	900,000	500,000	900,000	500,000
Between 2 and 5 years	1,600,000	1,000,000	1,600,000	1,000,000

The Company has a loan facility of £5m, and has drawn down two term loans under this facility, referred to below as 'Loan 1' and 'Loan 2'. 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.

Loan 1 - £2.5m drawn down on 30 October 2014 and is repayable over 5 years in equal instalments. Interest is charged quarterly on the outstanding amount and the rate is fixed during the term at 4.08%. The amount outstanding at 31 December 2016 was £1.5m (2015: £2m).

Loan 2 - £2m drawn down on 5 September 2016 and is repayable over 5 years in equal instalments. Interest is charged quarterly on the outstanding amount, the rate is variable during the term at 2.5% above LIBOR, at 31 December 2016 the rate was 2.88%. The amount outstanding at 31 December 2016 was £1.9m.

At 31 December 2016 the unutilised amount of the facility was £1.6m (2015: £3m).

25. Trade and other payables	Group		Company
	2016 £	2015 £	2016 £	2015 £
Trade payables	253,027	84,364	49,599	24,739
Other taxes and social security	423,475	391,889	---	9,343
Other payables	26,725	42,288	1,592	19,702
Accruals and deferred income	447,016	398,383	66,283	138,728
Amounts owed to group undertakings	-	-	--	483,178
	1,150,243	916,924	117,474	675,690

The Directors consider that the carrying value of trade and other payables approximates their fair value.

26. Leasing agreements

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

Non-cancellable operating leases

	2016 £	2015 £
Group Within 1 year	70,000	54,400
Between 1 and 5 years	158,736	190,200
	228,736	244,600

The lease arrangements above consist of those relating to land and buildings and office equipment.

Company

No leases exist in the parent company.

Notes to the consolidated financial statements

for the year ended 31 December 2016

27. Deferred tax asset/(liability)	Group		Company
	2016 £	2015 £	2016 £	2015 £
Balance at beginning of year Movement during the year: Statement of changes in equity	(558,001) (209,982)	(791,136) 195,966	314,360 (209,982)	118,394 195,966
Adjustment to deferred tax rate from 20% to 17%	133,808	--	--	--
Statement of comprehensive income Acquisitions	46,485 (887,791)	37,169 -	-- --	- -
Balance at end of year	(1,475,481)	(558,001)	104,378	314,360
Deferred taxation has been provided as follows:
	Group		Company
	2016 £	2015 £	2016 £	2015 £
Accelerated capital allowances	(6,220)	(6,220)	--	-
Share-based payments	104,378	314,360	104,378	314,360
Acquired business combinations	(1,573,639)	(866,141)	--	-
	(1,475,481)	(558,001)	104,378	314,360

28. 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

Notes to the consolidated financial statements

for the year ended 31 December 2016

28. Financial instruments (continued)

Financial assets Financial assets measured at amortised cost:
	Group		Company
	2016 £	2015 £	2016 £	2015 £
Loans and receivables: Trade receivables	280,637	91,856	--	--
Loans to franchisees	203,036	174,848	--	-
Other receivables	6,177	52,945	24,393	5,001
Cash and cash equivalents Amounts owed by group undertakings Accrued income	2,045,621 -- 607,341	4,364,054 - 543,526	199,377 237,334 -	195,577 -- -
	3,142,812	5,227,229	461,104	200,578

Financial liabilities

Financial liabilities measured at amortised cost:

Group Company

	2016 £	2015 £	2016 £	2015 £
Other financial liabilities:
Bank loan	3,400,000	2,000,000	3,400,000	2,000,000
Trade payables	253,027	84,364	49,599	24,739
Other payables	26,725	42,288	1,592	19,702
Accruals	332,176	355,983	66,283	111,228
Amounts owed to group undertakings	--	-	--	483,178
	4,011,928	2,482,635	3,517,474	2,638,847
Maturity analysis of financial liabilities:
	Group		Company
	2016 £	2015 £	2016 £		2015 £
In less than one year:
Bank loan	999,472	570,938	999,472		570,938
Trade payables	253,027	84,364	49,599		24,739
Other payables	26,725	42,288	1,592		19,702
Accruals	332,176	355,983	66,283		111,228
Amount owed to group undertakings	--	-	--		483,178
	1,611,400	1,053,573	1,116,946		1,209,785
In more than one year:
Bank loan	2,622,331	1,588,964	2,622,331		1,588,964
	2,622,331	1,588,964	2,622,331		1,588,964

All of the financial assets and liabilities above are recorded in the statement of financial position at amortised cost. The above maturity analysis amounts reflect the contractual undiscounted cash flows, including future interest charges, which may differ from carrying values of the liabilities at the reporting date.

Notes to the consolidated financial statements

for the year ended 31 December 2016

28. Financial instruments (continued)

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

Management considers capital to be the carrying amount of equity. The Group manages its capital to ensure its operations are adequately provided for, while maximising the return to shareholders through the effective management of its resources. 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 Group's objectives when managing capital are to safeguard its ability to continue as a going concern and so provide returns for shareholders. The Group meets its objectives by aiming to achieve growth which will generate regular and increasing returns to the shareholders.

The Group manages the capital structure and makes changes in light of changes in economic conditions. In order to maintain or adjust the capital structure, the Group 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.

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 each new franchisee is analysed individually for creditworthiness before a franchise is offered. The Group's review includes external ratings, when available, and in some cases bank references. The Group does not consider that it has significant concentration of credit risk.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future development, the Group monitors forecast cash inflows and outflows on a monthly basis.

Interest rate risk

The Group's exposure to changes in interest rate risk relates primarily to interest earning financial assets and interest bearing financial liabilities. Interest rate risk is managed by the Group on an on-going basis with the primary objective of limiting the effect of an adverse movement in interest rates. Hence the fixed rate of interest on the bank term loan. The Directors monitor movements in interest rates and have not prepared sensitivity analysis in relation to interest rates as they do not believe that any reasonable variance would have a material impact on the Group.

Fair values of financial instruments

The fair value of financial assets and liabilities is considered the same as the carrying values.

Notes to the consolidated financial statements

for the year ended 31 December 2016

29. Acquisitions

The board has observed a shift in the traditionally conservative estate agency sector with the growth (albeit from a low base) of "on-line" agents. These agents do not have physical premises and adopt pricing models based on listing fees rather than completions. As a result of evidence which showed the market share of instructions to be 5% for "on-line" agents and the results of a report it commissioned on the changing face of estate agency, the Board decided to pursue the acquisition of an operator rather than to build out its own operating platform, create a new brand and market heavily to establish it.

On 5 September 2016 the Group acquired 100% of the share capital of Ewemove Sales & Lettings Ltd ("ESLL") and Ewesheep Ltd ("EL"). ESLL is a franchisor of lettings and estate agents and EL is a dormant subsidiary of ESLL. The initial consideration was £5m cash and £3m issue of ordinary shares. A further amount of up to £7m is due to the vendors upon approval of the financial results for the year ended 31 December 2018 and subject to various targets for Group financial performance being met (see note 32).

The fair value of the identifiable assets and liabilities acquired and the consideration paid and payable are set out below:

				£

Brand names				1,401,239
Master franchise agreements				3,728,351
Ewereka technology Tanible assets				92,704
Trade and other receivables Cash				57,673
Cash				178,949
Trade and other payables				(148,678)
Deferred income				(111,000)
Deferred tax				(887,791)
Net assets acquired				4,311,447
Goodwill				5,837,943
Consideration				10,149,390
Satisfied by:
Cash to vendors				5,000,000
Ordinary shares to vendors				3,000,000
Fair value of deferred consideration payable based on Group financial results for year ended 31 December 2018				2,149,390
Total				10,149,390

Movement in deferred consideration post acquisition: £

Fair value of deferred consideration measured at acquisition 2,149,390

Unwinding of discounting to 31 December 2016 (charged as interest payable) 29,756

Fair value of deferred consideration at 31 December 2016 2,179,146

The amount of deferred consideration payable will be calculated once the consolidated financial statements for the year ended 31 December 2018 have been approved, it is expected that any payment due will be paid in April 2019 (see note 32).

The goodwill above represents the value attributable to the new businesses and the assembled and trained workforces. Deferred tax at 17% has been provided on the value of the intangible assets defined as brand names, master franchise agreements and Ewereka technology. Acquisition costs of £149,598 were incurred and charged to exceptional items in the Consolidated statement of comprehensive income.

Post acquisition results

ESLL EL Total

£m £m £m

Revenue

0.7

Profit before tax since acquisition included in the Consolidated statement of

comprehensive income

0.1

If the acquisition had completed on the first day of the financial year, Group revenues would have been £9.5m and Group profit before tax would have been £3.3m.

Ewemove is a "Hybrid" franchisor of letting and estate agents operating throughout England, Scotland and Wales.

Notes to the consolidated financial statements

for the year ended 31 December 2016

30. Share-based payments

Enterprise Management Incentive (EMI) Share Option Scheme

During the period ended 31 December 2013 the Company implemented an Enterprise Management Incentive scheme as part of the remuneration for senior management and granted 1,566,000 options over ordinary shares to directors and executives of the Group. Following an independent expert valuation of the scheme, the share-based payments charge was deemed by the company to be immaterial to the financial statements and therefore no charge has been recognised. The options were granted over a discretionary period and have varying vesting conditions. 64,800 of these options were forfeited in the year ended 31 December 2015 when the option holder ceased to be an employee.

During the year ended 31 December 2016 979,200 options vested and were exercised.

During the year ended 31 December 2016 the Company granted 64,800 options to an executive of the Group. The estimated fair value of the 64,800 options granted in the EMI plan in the year is £26,302. This was calculated using the Black-Scholes option pricing model which takes into account factors specific to share incentive plans, such as the vesting period. No charge has been included in the year as the charge is considered immaterial.

The vesting conditions of the 586,800 options in existence at 31 December 2016 include performance conditions including a profit before tax target in the year ending 31 December 2016 which has now been met.

The maximum term of the options granted is ten years from the grant date. Upon vesting, each of the 586,800 options allows the holder to purchase one ordinary share at an exercise price stated.

The estimated fair value of the 522,000 share option granted in the EMI plan in prior years is 0.97 pence. This was calculated by applying the Black-Scholes option pricing model which takes into account factors specific to share incentive plans, such as the vesting period.

During the year ended 31 December 2015 the Company granted 220,000 options to an executive of the Group, these options lapsed during the year ended 31 December 2016 when the option holder ceased to be an employee.

The following principal assumptions were used in the valuation of the options granted in the year ended 31 December 2016:

Expected term	4 years
Volatility	50%
Option life	September 2026
Risk free interest rate	2.03%
Exercise price	£1.385
Share price at date of grant	£1.385
Dividend yield	5%

Expected volatility is a measure of the amount by which a share price is expected to fluctuate during a period. Movement in the number of share options was as follows:

2016 £			2015 £
		Weighted average exercise price			Weighted average exercise price
Number of share options Outstanding at the beginning of the year	1,721,200	£0.2798	1,566,000		£0.1764
Forfeited	(220,000)	£0.985	(64,800)		£0.1764
Granted	64,800	£1.385	220,000		£0.985
Exercised	(979,200)	£0.1764	--		--
Outstanding at the end of the year	586,800	£0.3099	1,721,200		£0.2798
Exercisable at the end of the year	--	--	-	-

The weighted average remaining contractual life of options is 6.9 years (2015: 7.9 years).

Notes to the consolidated financial statements

for the year ended 31 December 2016

31. 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:

Interim and Final dividend (ordinary shares of £0.01 each) 2016 £ 2015 £

Richard Martin 670,997 494,998

Ian Wilson 59,234 29,250

Paul Latham 1,525 1,125

David Raggett 1,220 900

732,976 526,273

Director emoluments

Included within the remuneration of key management and personnel detailed in note 9, the following amounts were paid to the Directors:

	2016 £	2015 £
Wages and salaries	560,775	507,335
Social security costs	67,118	62,060
	627,893	569,395

Details of Directors' interests in share options are disclosed in the Directors' Remuneration Report on pages 24 and 25.

Transactions with Other Related Parties

Transactions with The Lettings Hub Limited (formerly the Landlord Hub Limited)

The Landlord Hub Limited was a related party by virtue of common shareholders as Mr R W Martin owned 35%, Mrs K M Martin owned 35%, Mr I Wilson owned 10%, Mrs H Shackell owned 10% and the daughters of Mr and Mrs R W Martin owned 5% each. During the year ended 31 December 2015 R W Martin and his family sold their shareholdings in The Landlord Hub Limited to an unconnected third party. Mr I Wilson retained his shareholding.

The Group has supplied recruitment services during the year of £1,725 (2015: £2,100). It has also earned commission on references supplied by The Landlord Hub Limited to its franchise network of £40,921 (2015: £53,770). At the 31 December 2016, The Landlord Hub Ltd owed the Group £33,203 (2015: £2,510).

32.Subsequent events

On 16 March 2017 a special resolution was passed to change the Company name from MartinCo PLC to The Property Franchise Group PLC.

On 29 March the Group announced that the deferred consideration payable to the founders of ESLL had been renegotiated to two cash payments of £0.5m on 31 July 2017 and £0.5m on 31 December 2017.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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