Final Results

RNS Number : 3442K

Property Franchise Group PLC (The)

10 April 2018

The Property Franchise Group plc

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

Final Results

The Property Franchise Group PLC, one of the UK's largest property franchises, today announces its final results for the year ended 31 December 2017.

Financial highlights:

· Group revenue increased 23% to £10.2m (2016: £8.3m)

· Adjusted EBITDA* increased 14% to £4.4m (2016: £3.9m)

· Adjusted operating profit* increased 8% to £3.8m (2016: £3.5m)

· Profit before tax increased 33% to £4.3m (2016: £3.2m)

· Management Service Fees increased 20% to £8.3m (2016: £6.9m)

· EPS increased 9% to 14.2p (2016: 13.0p)

· Cash at year end of £2.6m (2016: £2.0m) and bank debt of £2.5m (2016: £3.4m)

· Proposed final dividend of 5.4p, for a total 2017 dividend of 7.5p, a 15% increase over last year (2016: 6.5p)

*Before exceptional items and share-based payment charges

Operational highlights:

· Company name changed to reflect the transition to a multi-brand franchisor

· Despite unexpected management disruption EweMove traded profitably in H2

· New brand leadership team appointed

· Expanding UK network with 403 offices (2016: 377), comprising 283 traditional brands and 120 EweMove

· Serving c.52,000 tenanted managed properties at the year end (2016: c.48,000)

· Recruited six new franchisees for the traditional brands, and 31 new franchisees for EweMove

· Lettings accounts for 70% of Management Service Fees (2016: 74%)

· New websites for the traditional brands delivered a 265% increase in leads Q4 2017 versus Q4 2016

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

"We are very pleased to have delivered another year of strong growth for our stakeholders, particularly as the property industry has continued to be a tough environment to operate in. Our traditional brands have performed well across sales and lettings, and it is pleasing that this lettings growth was achieved both organically and through the assisted acquisition of local competitors' portfolios by our franchisees.

"Our decision to acquire the online player EweMove has proven to be rewarding, with the business delivering significant revenue growth to the Group this year, as well as providing us with the digital marketing insight to leverage better performance in our traditional high street brands. EweMove remains a highly trusted brand, its 'no sale, no fee' model is popular with customers and provides a differentiator in the online market. As we continue to add experienced estate agents to the EweMove network, we are excited by the opportunity to build up our share of the online estate agency market.

"Our financial position is robust with a strong balance sheet, a relatively low level of gearing and high levels of cash generation. This together with our franchise model, weighting towards lettings and multifaceted growth strategy leaves the Group well-positioned to withstand developments within the industry and to capitalise on opportunities that arise."

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)

Julian Morse (Sales)

0207 397 8900

Alma PR

Josh Royston

Rebecca Sanders-Hewett

Susie Hudson

0203 865 9667

Chairman's statement

Strong progress despite market headwinds

The consensus view of the residential property market was that 2017 was a disappointing year compared to 2016. However, 2017 was a strong year of growth for The Property Franchise Group, demonstrating the resilience of its business model in a challenging market. All of our brands increased revenues year-on-year. This growth was supported by the "assisted acquisitions" programme, which assisted our lettings agents both operationally and financially to purchase independent competitors' lettings businesses. In the first full year of the programme we added 2,012 tenanted managed properties. I'm delighted to report that this was matched by an almost identical increase in our managed portfolio through organic growth.

Tenant Fee Ban

The Government has provided a degree of clarity on its intention to ban tenant fees in England & Wales. A ban in Scotland has been in existence since 2012.

The intention appears to be an outright ban, rather than a cap, on landlords and their letting agents charging any type of pre-tenancy fee. It's not clear whether certain in-tenancy fees will be allowed.

The timing of the implementation of the ban appears to be Q1 2019 which means that the Group's trading for 2018 would be unaffected by the ban. The Group is already taking action to mitigate the effects of the ban which is expected to put at risk 16% of our franchisees' lettings revenue, and at a Group level 9% of total revenue, if annualised*. Mitigation factors include; through organic means and by acquisition, accelerating the size of the tenanted managed portfolio, developing income from financial services & conveyancing referrals. The Group will continue to closely monitor any developments associated with the Tenant Fee Ban and the associated potential impact.

*Both percentages quoted based on 2017 trading

Brand website re-development

One of our objectives when we purchased EweMove was to translate some of its digital marketing capabilities into better performance for our traditional brands. During 2017 we re-developed each of our five traditional brand websites, starting with Whitegates. Although the technology platform is common, the look and feel of each site is different, to reflect the heritage and values of the particular brand. There is divergence on functionality, with Whitegates embracing all of the tried and tested EweMove concepts such as web pages optimised for lead conversion, Google "pay-per-click", "live chat", downloadable property valuations and functionality to book a valuation appointment. Overall, the website project generated nearly 17,000 new business leads at an average cost to our franchisees of £24 per lead. The board believes that the new websites delivered a competitive advantage in H2 2017.

Name Change

On 16 March 2017 the Company changed its name from MartinCo PLC to The Property Franchise Group PLC. It was time to recognise the transformation from a single franchisor to a multi-franchisor of residential agents.

Outlook

The Group's intention is to be well-positioned for all eventualities and developments in the estate agency and letting agency space. Despite the market challenges, the Group delivered another strong set of results in this, its fourth full year on AIM.

My thanks go to the executives, 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 an increased final dividend of 5.4p per ordinary share for 2017.

Richard Martin

Chairman

Chief Executive's statement

Benefits of a genuine multi-brand strategy in a changing industry landscape

In 2017 we concentrated on further development of the six property brands which we already own, continuing to build upon our genuine multi-brand strategy which sees us invested in competing businesses. An important part of this was to recruit a new brand leadership team to see us through the next growth phase, which we achieved this year.

After our acquisition of Xperience Franchising and Whitegates in 2014, we focused on consolidation, driving out duplicate costs and leveraging economies of scale. By 2016 we had reaped the fruits of that approach; the combined businesses delivered £1.0m of after tax earnings against a net cash consideration of £5.1m.

However, EweMove is a very different proposition. It is a fully-functioning franchisor with its own proprietary technology "EweReka" sitting on an industrial scale platform. Its HQ staff are based in Cleckheaton, Bradford and culturally, it is very different from our traditional high street brands. Consequently, our intention was always to keep EweMove separate from our existing brands and benefit from some of its digital marketing expertise, without needing to fold it into our traditional support infrastructure.

The key to success with EweMove is to drive the numbers of "local representatives", to continue to recruit franchisees at current levels, to encourage more experienced estate agents to join the brand and to reduce its franchisee attrition rate.

EweMove incurred losses in H1 trading. However with the departure of the founders at the end of June 2017, and the arrival of the new Managing Director, the business returned to profit in H2 trading, and, pleasingly, the number of franchises rose to 120 by year end.

The online or hybrid space is very topical in the property industry. It has been estimated that circa £250m has been raised by our competitors since they launched, with a number of the top players becoming increasingly high profile.

Unlike those companies where the customer proposition is focused on saving commission, EweMove's promise is above all to get the customer's property sold. However, EweMove does share several characteristics with the best-known brands; it is nationally recognised, does not rely on high street offices, and operates 24/7 for customer convenience.

A genuine multi-brand strategy is more than just a collection of brands. EweMove shows the clarity of our thinking as it gives us an exciting play in the online, hybrid space and hedges against deterioration in trading conditions for our traditional high street model. We have crystallised the price we paid for EweMove, which is relatively modest compared to the sums invested in competing businesses, and have management in place to see us through the next growth phase.

As well as progressing with EweMove we achieved satisfying network revenue growth at all of our traditional brands, Whitegates leading with 14%, CJ Hole 9%, Parkers 6%, Martin & Co 5% and Ellis & Co 3%. These figures are not quoted on a "like-for-like" basis. In all 178 traditional brand offices grew their revenue year-on-year and 105 offices had static or shrinking revenue. We had 3 franchisees managing 800+ properties, 21 franchisees managing 500+ and 59 franchisees managing 300+. The overall pattern was of pleasing revenue growth, in a marketplace where many competitors were reportedly in reverse gear. However, we cannot be complacent. Whilst our best franchisees made good progress, other franchisees found trading conditions difficult. Management are alive to the possibility that there will be both opportunities for our franchisees to act as consolidators at their local level, buying up competitor's letting portfolios, but there will also be consolidation opportunities within the Group, with strong and capable franchisees buying out their weaker neighbours.

Ian Wilson

Chief Executive Officer

Financial Review

Improved use of digital marketing and support for franchisee acquisitions delivers increased profits.

In a flat housing market environment (fourth year at circa 1.2m** transactions) and with challenges for the lettings market starting to crystallise, we focused on winning more sales instructions (up 23%), growing our managed properties portfolio (up 8%) and putting EweMove on a sustainable profit path.

**HMRC UK Property Transaction Statistics 21 February 2018.

Revenue

Group revenue for the financial year to 31 December 2017 was £10.2m (2016: £8.3m), an increase of £1.9m (23%) over the prior year. The first full year of EweMove contributed £1.5m (79%) of this increase.

Management Service Fees ("MSF") increased 20% from £6.9m to £8.3m and represented 81% (2016: 83%) of Group revenue with the remainder being from franchise sales and ancillary services to support MSF generation.

Lettings contributed 70% of MSF (2016: 74%), sales contributed 29% of MSF (2016: 25%) and financial services contributed 1% of MSF (2016: 1%). Lettings MSF grew by 13% in the year and sales MSF grew by 47%.

Operating profit

Adjusted operating profit increased from £3.5m to £3.8m (8%) and the margin decreased from 42% to 37%.

	2017 £m	2016 £m
Revenue	10.2	8.3
Admin expenses	5.3	4.2
Adjusted operating profit*	3.8	3.5
Operating profit	4.3	3.3
Adjusted profit before tax*	3.7	3.4
Profit before tax	4.3	3.2
Adjusted EBITDA*	4.4	3.9

*Before exceptional costs and share-based payment charges.

Administration expenses, including the first full year of EweMove, increased by £1.1m. EweMove's administration expenses contributed all of this increase.

EBITDA

Adjusted EBITDA for 2017 was £4.4m (2016: £3.9m) an increase of £0.5m (14%) over the prior year. The traditional brands contributed all of this increase mainly through growth in turnover of £0.4m.

Exceptional items

The net exceptional gain for 2017 was £0.7m (2016: exceptional cost £0.3m) and relates entirely to EweMove being the reduction in deferred consideration payable of £1.2m and an impairment charge of £0.5m against the master franchise agreement (2016: acquisition costs for EweMove and redundancy payments). For further details of the impairment please see note 16 to the financial statements.

Profit before tax

The profit before tax was £4.3m for 2017, an increase of £1.1m (33%) over the prior year, of which the net exceptional gain contributed £0.7m.

Taxation

The effective rate of corporation tax for the year was 19.25% (2016: 20%). The total tax charge for 2017 was £0.6m (2016: £0.2m). The increase of £0.4m is due to the growth in profits from ordinary activities which contributed £0.2m and the reduction in relief on share-based payments of £0.2m. Management exercised options over 979,200 ordinary shares in FY16 generating a notional gain of £1.5m and tax relief of £0.3m whereas in 2017 they exercised options over 522,000 ordinary shares generating a notional gain of £0.7m and tax relief of £0.1m.

Earnings per share

Earnings per share for the year was 14.2p (2016: 13.0p), an increase of 9%. The profit attributable to owners increased to £3.7m (2016: £3.0m).

Dividends

The Board is recommending a final dividend of 5.4p per share for 2017 which, together with the interim dividend of 2.1p per share paid to shareholders on 6 October 2017, equates to a total dividend for the financial year of 7.5p (2016: 6.5p) an increase of 15%. If approved, it will be paid on 21 May 2018 to all shareholders on the register on 20 April 2018. Our shares will be marked ex-dividend on 19 April 2018.

Cash flow

The Group is strongly operationally cash generative.

The net cash inflow from operating activities in 2017 was £4.4m (2016: £2.4m) as the Group continues to generate strong operating cash inflows.

The net cash outflow from investing activities was £1.4m (2016: outflow £4.8m) due to £1.0m of consideration paid to the founders of EweMove in return for them forgoing any rights to deferred consideration, £0.2m invested in new websites and £0.2m paid to acquire rights to income from customer lists (2016: acquisition of EweMove).

Loan repayments totalling £0.9m (2016: £0.6m) plus interest payments of £0.1m (2016; £0.1m) were made on the Santander UK plc loans during 2017 leaving £2.5m (2016: £3.4m) outstanding. Dividend payments were £1.7m (2016: £1.4m).

Liquidity

The Group had cash balances of £2.6m at 31 December 2017 (2016: £2.0m).

Financial position

The balance sheet remains strong with total assets of £20m (2016: £20m) and a reduction of £2.5m in liabilities during the year. This reduction in liabilities was due to repayments of bank debt totaling £0.9m, a £2.2m reduction in deferred consideration as a result of the settlement reached with the founders of EweMove, an increase in tax payable of £0.4m partly due to increased profitability but also due to lower tax deductions for options exercised and an increase in other payables of £0.2m of which deferred income accounted for £0.1m.

The Group finished the year with the total equity attributable to owners of £14.3m, an increase of £2.1m or 17% over FY16.

The Group is strongly operationally cash generative which, together with the undrawn facility from Santander UK plc of £2.5m, puts it in a strong position to continue to fulfil its strategic plan.

David Raggett

Chief Financial Officer

Consolidated statement of comprehensive income

for the year ended 31 December 2017

	Notes	2017 £	2016 £
Continuing operations
Revenue	7	10,169,996	8,301,375
Cost of sales		(1,058,535)	(570,912)
Gross profit		9,111,461	7,730,463
Administrative expenses	8	(5,332,534)	(4,217,399)
Share-based payments charge	9, 29	(137,020)	-
Operating profit before exceptional items		3,641,907	3,513,064
Exceptional items	10	701,463	(254,945)
Operating profit	11	4,343,370	3,258,119
Finance income	12	28,075	52,909
Finance costs	12	(120,769)	(119,106)
Profit before income tax expense		4,250,676	3,191,922
Income tax expense	13	(598,917)	(197,576)
Profit and total comprehensive income for the year attributable to owners		3,651,759	2,994,346
Earnings per share attributable to owners	14	14.2p	13.0p
Diluted Earnings per share attributable to owners	14	14.2p	12.8p

Consolidated statement of financial position

31 December 2017

	Notes	2017 £	2016 £
Assets
Non-current assets
Intangible assets	16	16,204,749	16,820,336
Property, plant and equipment	17	109,266	125,984
		16,314,015	16,946,320
Current assets
Trade and other receivables	19	1,117,337	1,477,047
Cash and cash equivalents		2,594,526	2,045,621
		3,711,863	3,522,668
Total assets		20,025,878	20,468,988
Equity
Shareholders' equity
Called up share capital	20	258,228	253,008
Share premium	21	7,016,584	6,929,723
Other reserves	22	(42,780)	(75,422)
Retained earnings		7,034,699	5,078,584
Total equity attributable to owners		14,266,731	12,185,893
Liabilities
Non-current liabilities
Borrowings	23	1,600,000	2,500,000
Deferred tax	26	1,467,598	1,475,481
Deferred consideration	28	-	2,179,146
		3,067,598	6,154,627
Current liabilities
Borrowings	23	900,000	900,000
Trade and other payables	24	1,299,638	1,150,243
Tax payable		491,911	78,225
		2,691,549	2,128,468
Total liabilities		5,759,147	8,283,095
Total equity and liabilities		20,025,878	20,468,988

The financial statements were approved and authorised for issue by the Board of Directors on 9 April 2018 and were signed on its behalf by:

David Raggett

Chief Financial Officer

Company statement of financial position

31 December 2017

(Company No: 08721920)

		2017	2016
	Notes	£	£
Assets
Non-current assets
Investments	18	33,776,075	34,249,674
Deferred tax asset	26	23,318	104,378
		33,799,393	34,354,052
Current assets
Trade and other receivables	19	840,211	674,024
Cash and cash equivalents		346,960	199,377
		1,187,171	873,401
Total assets		34,986,564	35,227,453
Equity
Shareholders' equity
Called up share capital	20	258,228	253,008
Share premium	21	7,016,584	6,929,723
Other reserves	22	17,947,120	17,914,478
Retained earnings		7,131,341	4,433,624
Total equity		32,353,273	29,530,833
Liabilities
Non-current liabilities
Borrowings	23	1,600,000	2,500,000
Deferred consideration	28	-	2,179,146
		1,600,000	4,679,146
Current liabilities
Borrowings	23	900,000	900,000
Trade and other payables	24	133,291	117,474
		1,033,291	1,017,474
Total liabilities		2,633,291	5,696,620
Total equity and liabilities		34,986,564	35,227,453

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 £4,393,361 (2016: £5,840,528).

The financial statements were approved and authorised for issue by the Board of Directors on 9 April 2018 and were signed on its behalf by:

David Raggett

Chief Financial Officer

Consolidated statement of changes in equity

for the year ended 31 December 2017

	Attributable to owners
	Called up share	Retained	Share	Other	Total
	capital	earnings	premium	reserves	equity
	£	£	£	£	£
Balance at 1 January 2016	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
Profit and total comprehensive income	-	3,651,759	-	-	3,651,759
Issue of share capital
Issue of share capital - exercise of options	5,220	-	86,861	-	92,081
Dividends	-	(1,695,644)	-	-	(1,695,644)
Deferred tax on share-based payments	-	-	-	(104,378)	(104,378)
Share-based payments charge	-	-	-	137,020	137,020
Total transactions with owners	5,220	(1,695,644)	86,861	32,642	(1,570,921)
Balance at 31 December 2017	258,228	7,034,699	7,016,584	(42,780)	14,266,731

Company statement of changes in equity

for the year ended 31 December 2017

	Called up share	Retained	Share	Other	Total
	capital	earnings	premium	reserves	equity
	£	£	£	£	£
Balance as at 1 January 2016	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
Profit and total comprehensive income	-	4,393,361	-	-	4,393,361
Issue of share capital
Issue of share capital - exercise of options	5,220	-	86,861	-	92,081
Dividends	-	(1,695,644)	-	-	(1,695,644)
Deferred tax on share-based payments	-	-	-	(104,378)	(104,378)
Share-based payments charge	-	-	-	137,020	137,020
Total transactions with owners	5,220	(1,695,644)	86,861	32,642	(1,570,921)
Balance as at 31 December 2017	258,228	7,131,341	7,016,584	17,947,120	32,353,273

Consolidated statement of cash flows

for the year ended 31 December 2017

		2017	2016
	Notes	£	£
Cash flows from operating activities
Cash generated from operations	A	4,839,650	3,063,415
Interest paid		(102,887)	(88,668)
Tax paid		(297,166)	(602,833)
Net cash from operating activities		4,439,597	2,371,914
Cash flows from investing activities
Purchase of subsidiary undertakings net of cash acquired	B	(1,000,000)	(4,821,051)
Purchase of intangible assets		(402,364)	(91,621)
Purchase of tangible assets		(12,840)	(13,960)
Proceeds from sale of intangible assets		-	36,660
Interest received		28,075	52,909
Net cash used in investing activities		(1,387,129)	(4,837,063)
Cash flows from financing activities
Issue of ordinary shares		92,081	172,731
Repayment of bank loan		(900,000)	(600,000)
Drawdown of bank loan		-	2,000,000
Equity dividends paid		(1,695,644)	(1,408,015)
Net cash (used in) / generated from financing activities		(2,503,563)	164,716
Increase/(decrease) in cash and cash equivalents		548,905	(2,300,433)
Cash and cash equivalents at beginning of year		2,045,621	4,346,054
Cash and cash equivalents at end of year		2,594,526	2,045,621

Notes to the consolidated statement of cash flows

for the year ended 31 December 2017

A. Reconciliation of profit before income tax to cash generated from operations

	2017	2016
	£	£
Cash flows from operating activities
Profit before income tax	4,250,676	3,191,922
Depreciation and amortisation charges	646,006	354,247
Net exceptional income	(701,463)	-
Share-based payments charge	137,020	-
Loss on disposal of intangible assets	2,579	7,811
Finance costs	120,769	119,106
Finance income	(28,075)	(52,909)
Operating cash flow before changes in working capital	4,427,512	3,620,177
Decrease / (increase) in trade and other receivables	359,710	(504,453)
Increase / (decrease) in trade and other payables	52,428	(52,309)
Cash generated from operations	4,839,650	3,063,415

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".

	2017	2016
	£	£
Consideration - cash element	1,000,000	5,000,000
Less: Cash acquired	-	(178,949)
Purchase of subsidiary undertakings net of cash acquired	1,000,000	4,821,051

Company statement of cash flows

for the year ended 31 December 2017

		2017	2016
	Notes	£	£
Cash flows from operating activities
Cash generated from operations	C	(496,993)	(1,459,633)
Interest paid		(102,887)	(88,668)
Net cash used in operating activities		(599,880)	(1,548,301)
Cash flows from investing activities
Purchase of subsidiary undertakings net of cash acquired		(1,000,000)	(4,821,051)
Interest received		1,026	8,436
Equity dividends received		4,250,000	6,200,000
Net cash generated from investing activities		3,251,026	1,387,385
Cash flows from financing activities
Issue of ordinary shares		92,081	172,731
Repayment of bank loan		(900,000)	(600,000)
Drawdown of bank loan		-	2,000,000
Equity dividend paid		(1,695,644)	(1,408,015)
Net cash (used in) / generated from financing activities		(2,503,563)	164,716
Increase in cash and cash equivalents		147,583	3,800
Cash and cash equivalents at beginning of year		199,377	195,577
Cash and cash equivalents at end of year		346,960	199,377

Notes to the Company statement of cash flows

for the year ended 31 December 2017

C. Reconciliation of profit before income tax to cash generated from operations

	2017	2016
	£	£
Cash flows from operating activities
Profit before income tax	4,075,966	5,390,493
Net exceptional income	(701,463)	-
Share-based payments charge	110,619	-
Finance costs	120,769	119,106
Finance income	(1,026)	(8,436)
Equity dividend received	(4,250,000)	(6,200,000)
Operating cash flow before changes in working capital	(645,135)	(698,837)
Decrease / (increase) in trade and other receivables	127,890	(176,486)
Increase / (decrease) in trade and other payables	20,252	(584,310)
Cash (used in)/generated from operations	(496,993)	(1,459,633)

Notes to the consolidated and Company financial statements

for the year ended 31 December 2017

1. General information

The principal activity of The Property Franchise Group PLC and its Subsidiaries is that of a UK residential property franchise business. The Group operates in the UK. The Company is a public limited company incorporated and domiciled in the UK and listed on AIM. The address of its head office and registered office is 2 St Stephen's Court, St Stephen's Road, Bournemouth, Dorset, UK.

2. Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) 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 new or amended standards are mandatory for the first time for the period beginning 1 January 2017:

Standard	Key requirements	Effective date
Amendments to IAS 7	Disclosure initiatives	1 January 2017
Amendments to IAS 12	Recognition of deferred tax assets for unrealised losses	1 January 2017
Amendments to IFRS 12	Disclosure of interests in other entities	1 January 2017

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 2017, and 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
Amendments to IFRS 2	Classification and measurement of share based payments	1 January 2018
IFRS 16	Leases	1 January 2019

IFRS 9 'Financial Instruments'

IFRS 9 will supersede IAS 39 in its entirety, and is effective for accounting periods commencing on or after 1 January 2018. Any changes to recognition and measurement will be applied retrospectively by adjusting the opening balance sheet at that time.

The core areas addressed within IFRS 9 are as follows:

· Classification and measurement of financial assets and liabilities

· Impairment of financial assets

· Hedge accounting.

The Group does not expect any material changes in relation to the classification and measurement of financial assets and liabilities, nor the impairment of financial assets, nor for hedge accounting.

IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 will be effective for the Group from 1 January 2018, replacing IAS 18 'Revenue', IAS 11 'Construction contracts' and related interpretations. Any changes to the recognition and measurement will be applied retrospectively by adjusting the opening balance sheet at that time.

The standard establishes a principles-based approach for revenue recognition and is based on the concept of recognising revenue for obligations only when they are satisfied and the control of goods and services is transferred. It applies to all contracts with customers, except those in the scope of other standards.

The Group has performed an assessment which has highlighted that the new standard will impact on franchise sales revenue recognition but not Management Service Fee recognition or the recognition of other income. Franchise sales revenue currently consists of four elements:-

1. a fee to buy a new franchise territory which is recognised upon the earlier of receipt of funds or signing of the franchise agreement

2. a fee to buy a franchise territory that is being sold through the exit of the current franchisee which is recognised upon the earlier of receipt of funds or signing of the franchise agreement

3. a fee paid by the seller of the franchise which is recognised in the month that a contract for the resale of a franchise is signed

4. a fee paid upfront by franchisees for the first 12 months use of its systems which is deferred and released over the first 12 months as the obligations are discharged.

For the fees described at points 1 and 2 above the franchisors have some initial obligations that extend beyond the receipt of funds and the signing of a franchise agreement. It is likely that some of the revenue will be deferred and released as the Group discharges its initial obligations to new franchisees, including the provision of training and initial support. Current estimates are that the period of release will be between 1 to 4 months with the majority released by month 2. From the work performed to date the Group believes that the adoption of IFRS 15 will not have a material impact on the consolidated financial statements.

IFRS 16 'Leases '

IFRS 16 requires that almost all leases will be brought onto lessees' balance sheets under a single model (except leases of less than 12 months and leases of low-value assets), eliminating the distinction between operating and finance leases. The Directors anticipate that IFRS 16 will be adopted in the Group's consolidated financial statements when it becomes mandatory. Currently, the Group holds some non-cancellable operating leases but no finance leases. For the Group's non-cancellable operating lease commitments of £0.1m as at 31 December 2017 (Note 25), a preliminary assessment indicates that these arrangements will continue to meet the definition of a lease under IFRS 16. Thus, the Group will have to recognise a right-of-use asset and a corresponding liability in respect of all these leases - unless they qualify for low value or short-term leases upon the application of IFRS 16. The Group believes that the adoption of IFRS 16 will not have a material impact on the consolidated financial statements.

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

3. Basis of consolidation

The Group financial statements include those of the Parent Company and its subsidiaries, drawn up to 31 December 2017. 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. Acquisition-related costs are expensed as incurred.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. When necessary amounts reported by subsidiaries have been adjusted to conform to the Group's accounting policies.

4. Significant accounting policies

Revenue recognition

Revenue represents income, net of VAT, from the sale of franchise agreements, resale fees and management service fees levied to franchisees monthly based on their turnover, and other income being the provision of training and ongoing support to franchisees.

Traditional brands: 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 and other income is recognised when the training and support is provided to the franchisee.

EweMove: 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. Management service fees consist of monthly license fees and completion fees. License fees are recognised on a monthly basis, completion fees are recognised when sales or lettings transactions complete and other income is recognised when the training and support is provided to the franchisee.

Operating profit

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

Business combinations

On the acquisition of a business, fair values are attributed to the identifiable assets and liabilities and contingent liabilities unless the fair value cannot be measured reliably in which case the value is subsumed into goodwill. Where the fair values of acquired contingent liabilities cannot be measured reliably, the assumed contingent liability is not recognised but is disclosed in the same manner as other contingent liabilities.

Goodwill is the difference between the fair value of the consideration and the fair value of identifiable assets acquired. Goodwill arising on acquisitions is capitalised and subject to an impairment review, both annually and when there is an indication that the carrying value may not be recoverable.

Intangible assets

Intangible assets with a finite life are carried at cost less amortisation and any impairment losses. Intangible assets represent items which meet the recognition criteria of IAS 38, in that it is probable that future economic benefits attributable to the assets will flow to the entity and the cost can be measured reliably.

In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group.

Amortisation charges are included in administrative expenses in the Statement of Comprehensive Income. Amortisation begins when the intangible asset is first available for use and is provided at rates calculated to write off the cost of each intangible asset over its expected useful life, on a straight line basis, as follows:

Brands - CJ Hole, Parkers, Ellis & Co	Indefinite life
Brands - Ewemove	21 years
Customer lists including cashback	5 years
Master franchise agreements - Whitegates, CJ Hole, Parkers, Ellis & Co	25 years
Master franchise agreements - Ewemove	15 years
Technology - Ewereka	5 years
Technology - Websites	3 years

Acquired trade names are identified as separate intangible assets where they can be reliably measured by valuation of future cash flows. The trade names CJ Hole, Parkers and Ellis & Co are assessed as having indefinite lives due to their long trading histories.

Acquired customer lists are identified as a separate intangible asset as they are separable and can be reliably measured by valuation of future cash flows. This valuation also assesses the life of the particular relationship. The life of the relationship is assessed annually. Cashback given to franchisees who have made an eligible acquisition is capitalised as an intangible asset and amortised over 5 years, being the typical length of a franchise agreement.

Customer lists are being written off over a remaining life of 5 years.

Acquired master franchise agreements are identified as a separate intangible asset as they are separable and can be reliably measured by valuation of future cash flows. The life of the relationship is assessed annually. Master franchise agreements are being written off over a remaining life of 15-25 years as historical analyses shows that, on average, 4% - 10% of franchises will change ownership per annum.

The cost of the new brand websites launched in 2017 have been capitalised and are being amortised over 3 years from launch date, being the expected period over which the websites are expected to generate economic benefit.

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

Impairment of non-financial assets

The carrying amounts of the Group's non-current assets are reviewed for impairment annually or whenever events and changes in circumstances indicate that the carrying amount may not be recoverable. If any such indication exists, the asset's recoverable amount is estimated.

In respect of goodwill and intangible assets that have indefinite useful lives, management are required to assess whether the recoverable amount of each exceeds their respective carrying values at the end of each accounting period.

In respect of intangible assets with definite lives, management are required to assess whether the recoverable amount exceeds the carrying value where an indicator of impairment exists at the end of each accounting period.

The recoverable amount is the higher of fair value less costs to sell and value in use.

Impairment losses represent the amount by which the carrying value exceeds the recoverable amount; they are recognised in profit or loss. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash generating unit and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. Where an indicator of impairment exists against a definite life asset and a subsequent valuation determines there to be impairment, the intangible asset to which it relates is impaired by the amount determined.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Investment in subsidiaries

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

Property, plant and equipment

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

Fixtures, fittings and office equipment	15% reducing balance
Computer equipment	over 3 years
Short leasehold improvements	over the lease term

Income taxes

Income tax currently payable is calculated using the tax rates in force or substantively enacted at the reporting date. Taxable profit differs from accounting profit either because some income and expenses are never taxable or deductible, or because the time pattern that they are taxable or deductible differs between tax law and their accounting treatment.

The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except if it arises from transactions or events that are recognised in other comprehensive income or directly in equity

Deferred tax

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

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement. For share based payments the deferred tax credit is recognised in the income statement to the extent that it offsets the share based charge, with any remaining element after offset being shown in the statement of changes in equity.

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 and Company only have 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.

Impairment of financial assets

For trade receivables and loans to franchisees, which are reported net of provisions, such provisions are recorded in a separate provision account with the loss being recognised within other operating costs 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.

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 provision 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.

Financial liabilities

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

Trade payables, other payables and other short-term monetary liabilities, are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

Share-based payments

The Company issues equity-settled share-based payments to employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments are amortised through the consolidated statement of comprehensive income over the vesting period of the options, together with a corresponding increase in equity, based upon the Company's estimate of the shares that will eventually vest.

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

· the exercise price of the option;

· the life of the option;

· the market price on the date of the grant of the option;

· the expected volatility of the share price;

· the dividends expected on the shares; and

· the risk free interest rate for the life of the option.

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

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market conditions and recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

Deferred consideration

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 intangible assets

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 16. The result of these calculations was that for EweMove, whilst the value in use exceeded the carrying value of the intangible assets it had reduced by £0.5m over the original calculation at acquisition. This reduction was traced to a reduction in the value in use of the master franchise agreement. Accordingly, an impairment of £0.5m was made against the carrying value of the master franchise agreement of EweMove.

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 £nil (2016: £5.2m) as detailed further in note 16.

Share-based payment charge

The aggregate fair value expense of each grant is determined through using the Black-Scholes model detailed above and an estimate for the attainment of the non-market based performance condition in FY19. The estimate of earnings per share, the non-market based performance measure, relies on the assumptions regarding the achievement of the current year's budget and a projection of earnings for FY19, taking into account available market data and performance trends. At this juncture it's estimated that 26.5% of the non-market based performance condition will be met.

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:

	2017	2016
	£	£
Management Service Fee	8,281,238	6,874,542
Franchise sales	569,857	412,448
Other	1,318,901	1,014,385
	10,169,996	8,301,375

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:

	2017	2016
	£	£
Employee costs (see note 9)	2,704,417	2,392,050
Marketing and digital costs	592,931	436,855
Property costs	134,315	110,659
General administrative costs	1,284,078	951,805
Amortisation	616,793	326,030
	5,332,534	4,217,399

9. Employees and Directors

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

	Group		Company
	2017	2016	2017	2016
Administration	39	35	-	-
Management	9	9	2	2
	48	44	2	2

Employee costs (including Directors) during the year amounted to:

	Group		Company
	2017	2016	2017	2016
	£	£	£	£
Wages and salaries	2,403,067	2,132,615	424,581	367,898
Social security costs	289,756	249,988	45,062	34,964
Pension costs	11,594	9,447	1,328	1,382
	2,704,417	2,392,050	470,971	404,244
Share-based payments charge	137,020	-	110,619	-
Exceptional costs arising through redundancy	-	105,347	-	-

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

	2017	2016
	£	£
Wages and salaries	1,206,556	952,009
Social security costs	155,259	122,142
Pension costs	3,194	1,647
	1,365,009	1,075,798
Share-based payments charge	126,367	-
Exceptional costs arising through redundancy	-	90,855

Details of the Directors' emoluments are disclosed in the Directors' remuneration report on pages 28 to 29. The share-based payments charge for the current year has been charged to the Statement of Comprehensive Income of this £110,452 relates to Directors. In the prior year, as it was immaterial, no charge was made to the Statement of Comprehensive Income.

10. Exceptional items

The net exceptional income in the year ended 31 December 2017 of £701,463 all relates to EweMove. It consists of the reduction in deferred consideration payable of £1,179,146 and the associated unwinding of discounting on deferred consideration in the year (see note 12) and an impairment charge of £500,000 against the master franchise agreement following a revaluation due to evidence suggesting that the business's value may have been impaired (see note 5).

The exceptional costs in the year ended 31 December 2016 consist of £149,598 acquisition costs for EweMove and £105,347 redundancy costs as a result of restructuring the Group.

11. Operating profit

	2017	2016
	£	£
The operating profit is stated after charging:
Depreciation	29,212	28,217
Amortisation	616,794	326,030
Share-based payments charge	137,020	-
Loss on disposal of intangible assets	2,579	7,811
Auditor's remuneration (see below)	62,500	66,250
Staff costs (note 9)	2,704,417	2,392,050
Operating lease expenditure	70,000	64,500
Exceptional items	(701,463)	254,945
Audit services
- Audit of the Company and consolidated accounts	55,500	62,500
- Audit related assurance services	7,000	3,750
Other non-audit services
- Corporate finance services	-	41,250
- Tax advisory services	-	26,500
- IT consultancy services	11,641	-
	74,141	134,000
Comprising:
Audit services	62,500	66,250
Non-audit services	11,641	67,750
	74,141	134,000

12. Finance income and costs

	2017	2016
	£	£
Finance income:
Bank interest	16,176	34,052
Other similar income	11,899	18,857
	28,075	52,909

	2017	2016
	£	£
Finance costs:
Bank interest	98,452	89,350
Unwinding of discounting on deferred consideration	22,317	29,756
	120,769	119,106

13. Taxation

	2017	2016
	£	£
Current tax	667,065	386,610
Adjustments in respect of previous periods	43,787	(8,741)
Current tax total	710,852	377,869
Deferred tax credit on acquired business combinations	(88,617)	(46,485)
Deferred tax credit on share-based payments	(23,318)	-
Adjustment to deferred tax rate from 20% to 17%	-	(133,808)
Deferred tax total	(111,935)	(180,293)
Total tax charge in statement of comprehensive income	598,917	197,576

The tax assessed for the period is lower than the standard rate of corporation tax in the UK. The difference is explained below.

	2017	2016
	£	£
Profit on ordinary activities before tax	4,250,676	3,191,922
Profit on ordinary activities multiplied by the effective standard rate of corporation tax in the UK of 19.25%
(2016: 20%)	818,255	638,384
Effects of:
Income / expenses not deductible for tax purposes	(105,946)	20,576
Depreciation in excess of capital allowances	-	(22,430)
Effect of change in rate used for deferred tax	(14,815)	(133,808)
Tax relief on share based payments	(142,364)	(296,405)
Adjustments in respect of previous periods	43,787	(8,741)
Total tax charge in respect of continuing activities	598,917	197,576

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.

	2017	2016
	£	£
Earnings per ordinary share
Profit from continuing operations	3,651,759	2,994,346
	3,651,759	2,994,346

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.

	2017	2016
	Number	Number
Weighted average number of shares
Number used in basic earnings per share	25,651,423	23,017,702
Dilutive effect of share options on ordinary shares	-	457,132
Number used in diluted earnings per share	25,651,423	23,474,834

There were options over 2,204,800 ordinary shares outstanding at 31 December 2017; 2,140,000 had not yet vested and have performance conditions which will determine whether they vest or not in the future. The remaining option over 64,800 ordinary shares was exercisable at 31 December 2017 but the average share price during the year ended 31 December 2017 was below the exercise price. For these reasons in 2017 there is no dilutive effect of share options on the earnings per share calculation.

In 2016 all options outstanding at 31 December 2016 had met their vesting conditions, therefore there was a dilutive effect of all share options on the earnings per share calculation.

15. Dividends

	2017	2016
	£	£
Final Dividend for 2016
4.5p per share paid 11 May 2017 (2016: 4.1p per share paid 16 May 2016)	1,153,366	902,000
Interim Dividend for 2017
2.1p per share paid 6 October 2017 (2016: 2p per share paid 7 October 2016)	542,278	506,015
Total dividend paid	1,695,644	1,408,015

The Directors propose a final dividend for 2017 of 5.4p per share totalling £1,394,429, which they expect will be paid on 21 May 2018. As this is subject to approval by the shareholders no provision has been made for this in these financial statements.

16. Intangible assets

	Master Franchise Agreement	Brands	Technology	Customer lists	Goodwill	Total
	£	£	£	£	£	£
Cost
Brought forward 1 January 2016	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 28)	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
Additions	-	-	181,506	322,344	-	503,850
Disposals	-	-	-	(11,665)	-	(11,665)
Carried forward 31 December 2017	7,803,436	1,972,239	274,210	627,504	7,226,160	17,903,549

Amortisation & Impairment
Brought forward at 1 January 2016	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
Charge for year	413,174	66,726	42,938	93,956	-	616,794
Impairment	500,000	-	-	-	-	500,000
Eliminated on disposals	-	-	-	(9,022)	-	(9,022)
Carried forward 31 December 2017	1,325,528	88,968	49,118	235,186	-	1,698,800
Net book value
At 31 December 2017	6,477,908	1,883,271	225,092	392,318	7,226,160	16,204,749
At 31 December 2016	7,391,082	1,949,997	86,524	166,573	7,226,160	16,820,336

The carrying amount of goodwill relates to four (2016: four) 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 2017 and projections through to 31 December 2019. 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.

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 2017 was 21 years 10 months.

The brand names under which XFL trades of C J Hole, Parkers and Ellis & Co have been in existence for between 70 years and 168 years. Management see them as strong brands with significant future value and has deemed them to have indefinite useful lives as there is no foreseeable limit to the period over which the assets are expected to generate net cash inflows for the Group. As a consequence, management annually assess whether the carrying value of these brands have been impaired.

The Relief-from-Royalty-Method was used to value the brand names. Looking at independent research of royalty rates, management selected pre-tax royalty rates of between 3% and 5% for the above brand names.

The after tax royalty rates were then applied to the projected cash flows of each brand. The projected cash flows being the forecast growth in current revenues using market data through to 31 December 2019. 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

Goodwill is assessed for impairment by comparing the carrying value to the value in use calculations. The value in use of the goodwill arising on the acquisition of Ewemove Sales & Lettings Ltd ("ESL") is based on the cash flows derived from the actual revenues and operating margins for 2017 and projections through to 31 December 2024. Thereafter projected revenue growth was assumed to 2.2% per annum.

A period of projected cash flows exceeding 5 years was deemed appropriate because the business has only been operating for four years, is continuing to recruit relatively high levels of new franchisees, each new franchisee should grow significantly in the first 5 years of operation and it has yet to develop the operational efficiencies of a mature franchisor.

Various events since acquisition, notably the founders deciding to leave the business, the decision to actively recruit experienced estate agents and the decision to change the licence fee, have caused a higher than originally projected attrition rate of franchisees who existed at acquisition. There has also been more development support required for franchisees without experience of the sector than was originally expected. As a result the business failed to achieve the projected EBITDA of £0.8m (achieved negative EBITDA of £0.1m). The revenue growth rates used in the valuation have been reduced and now range from 47% in FY18 to 5% in FY24.

The cash flows arising were discounted by the weighted average cost of capital being 16.39% which included a small companies' risk premium to allow for factors such as illiquidity in the shares. This resulted in the value in use exceeding the carrying value of the goodwill and separately identifiable intangible assets. However, the calculations did indicate that the enterprise's overall value had reduced by £0.5m compared to the value at acquisition.

The above events and the reduction in the enterprise's value suggested that the value of the master franchise agreement may have reduced. A re-valuation was performed. This used the:-

a) projections of revenue decline until no franchisees, existing at acquisition, remain; and

b) projections of operating margin until 2024 where thereafter they remain unaltered.

As these revenue streams represent the return from all the assets employed in generating those revenues, 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 16.39% was then applied.

The resulting value of the master franchise agreement was £0.5m lower than the carrying value. As a result an impairment of £0.5m has been charged to the master franchise agreement's carrying value.

The recent attrition rate of franchisees existing at acquisition implies that the remaining useful life of the master franchise agreement may be shorter than that originally assumed of 21 years. For this reason, the remaining useful life of the master franchise agreement has been reduced to 15 years. The period of amortisation remaining at 31 December 2017 was 13 years 8 months.

The remaining useful life of the brand name was also reviewed. It continues to attract and recruit the same level of franchisees as in previous years and to attract higher numbers of customers. Given these two factors the remaining useful life of the brand was considered to be unaltered at 21 years. The period of amortisation remaining at 31 December 2017 was 19 years and 8 months.

The following table reflects the level of movements required in revenue or costs which could result in a potential impairment per the value in use calculation of goodwill. A further percentage (fall)/increase, of the magnitude indicated in the table below, in any one of the key assumptions set out above would result in a removal of the headroom in the value-in-use calculation for goodwill in 2017. Thus, if the discount rate increased by more than 14.5% to above 18.77%, an impairment change would result against goodwill, all other assumptions remaining unchanged.

Assumption	Judgement	Sensitivity
Discount rate	As indicated above the rate used is 16.39%	14.5%
Revenue - FY18 to FY24	The range of growth rates for FY18 to FY24 are stated above	(18%)
Direct costs - all years	Assumed to be 31% of revenue for all years	20%
Indirect costs - all years	Assumed to be 46% of revenue in FY18 and then decline linearly to 29% of revenue in FY25 onwards	20%
Direct and indirect costs - all years	As indicated above for direct and indirect costs	10%

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
	2017	2016	2017	2016
	£	£	£	£
Xperience Franchising Limited	912,716	912,716	571,000	571,000
Whitegates Estate Agency Limited	400,501	400,501	-	-
Martin & Co (UK) Limited	75,000	75,000	-	-
Ewemove Sales & Lettings Ltd	5,837,943	5,837,943	-	-
	7,226,160	7,226,160	571,000	571,000

Website Costs included in Technology

In 2017 new websites were launched for each of the five traditional brands. The costs associated with these websites have been capitalised as intangible assets as the purpose of the websites is to generate leads and revenue for the network.

Cashback included in Customer lists

The additions in customer lists in 2017 represent sums provided to franchisees that have made qualifying acquisitions to grow their lettings portfolios. The sum provided is based on a calculation of the estimated increase in MSF as a result of the acquisition. In providing these sums the group ensures that franchisees are contractually bound to the relevant franchisor for a period in excess of that required for the economic benefits to exceed the sums provided.

Company

No goodwill or customer lists exist in the parent company.

17. Property, plant and equipment

Group

	Short leasehold improvements £	Office equipment £	Fixtures & fittings £	Total £
Cost
Brought forward 1 January 2016	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
Additions	-	9,955	2,885	12,840
Disposals	-	(732)	-	(732)
Carried forward 31 December 2017	37,034	107,885	157,124	302,043
Depreciation
Brought forward 1 January 2016	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
Charge for year	3,703	14,569	10,940	29,212
Depreciation on disposals	-	(386)	-	(386)
Carried forward 31 December 2017	21,872	53,125	117,780	192,777
Net book value
At 31 December 2017	15,162	54,760	39,344	109,266
At 31 December 2016	18,865	59,720	47,399	125,984

18. Investments

Company

	Shares in Group
	undertakings
	£
Cost
At 1 January 2016	24,100,284
Additions	10,149,390
At 31 December 2016	34,249,674
Capital contribution to subsidiaries - share options	26,401
Impairment of Investment	(500,000)
At 31 December 2017	33,776,075
Net book value
At 31 December 2017	33,776,075
At 31 December 2016	34,249,674

The Property Franchise Group PLC was incorporated on 7 October 2013. On the 10 December 2013 a share for share exchange acquisition took place with Martin & Co (UK) Limited; 17,990,000 ordinary shares in The Property Franchise Group PLC were exchanged for 100% of the issued share capital in Martin & Co (UK) Limited.

On 31 October 2014 the Company acquired the entire issued share capital of Xperience Franchising Limited and Whitegates Estate Agency Limited for a consideration of £6,110,284.

On 5 September 2016 the Company acquired the entire issued share capital of Ewemove Sales & Lettings Ltd, and its dormant subsidiary Ewesheep Ltd, for a consideration of £8,000,000 plus £500,000 paid on 30 July 2017 and £500,000 paid on 31 December 2017 (see note 28).

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

At the year-end The Property Franchise Group PLC has guaranteed all liabilities of Martin & Co (UK) Limited, Xperience Franchising Limited, Whitegates Estate Agency Limited, 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 in EweMove has been considered for impairment through value in use calculations and it was determined that an impairment of £500,000 against the carrying value of the master franchise agreement was appropriate(see note 5 - Impairment of intangible assets), this has been accounted for in the year ended 31 December 2017.

The carrying values of the other investments (all companies except for EweMove) have been considered for impairment and it has been determined that the value of the discounted future cash inflows exceeds the carrying value. Thus, there is no impairment charge.

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

Subsidiaries

	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

19. Trade and other receivables

	Group		Company
	2017	2016	2017	2016
	£	£	£	£
Trade receivables	137,860	280,637	-	-
Loans to franchisees	39,344	203,036	-	-
Other receivables	21,225	6,177	-	24,393
Amounts due from group undertakings	-	-	-	237,334
Prepayments and accrued income	918,908	987,197	39,684	40,709
Tax receivable	-	-	800,527	371,588
	1,117,337	1,477,047	840,211	674,024

Trade receivables are stated net of impairment provisions of £116,862 (2016: £43,325).

Ageing of trade receivables

The following is an analysis of trade receivables that are past due date but not impaired. These relate to a number of customers for whom there is no recent history of defaults. The ageing analysis of these trade receivables is as follows:

	2017	2016
	£	£
Group
Not more than 3 months	80,898	47,755
More than 3 months but not more than 6 months	11,926	51,289
More than 6 months but not more than 1 year	9,667	10,961
	102,491	110,005

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. In the prior 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 2017 £20k (2016: £36k) was outstanding in relation to this loan. In a prior year a loan was made to another franchisee for £147k and £19k was outstanding at 31 December 2017 in relation to this loan.

20. Called up share capital

	2017		2016
	Number	£	Number	£
Group
Authorised, allotted issued and fully paid ordinary shares of 1p each	25,822,750	258,228	25,300,750	253,008
Company
Authorised, allotted issued and fully paid ordinary shares of 1p each	25,822,750	258,228	25,300,750	253,008

Movements in shares are summarised below:



			Number of shares

At 1 January 2016			22,000,000
5 September 2016: shares issued to vendors of EweMove in settlement of £3m acquisition consideration			2,321,550
20 September 2016: shares issued upon exercise of share options at 17.64p by a Director			979,200
At 31 December 2016			25,300,750
12 April 2017: shares issued upon exercise of share options at 17.64p by a Director and two senior employees			329,600
2 June 2017: shares issued upon exercise of share options at 17.64p by a Director			192,400
At 31 December 2017			25,822,750

21. Share premium


	Number of shares	Share capital	Share premium
		£	£
At 1 January 2016	22,000,000	220,000	3,790,000
5 September 2016: share issue	2,321,550	23,216	2,976,784
20 September 2016: share issue	979,200	9,792	162,939
At 31 December 2016	25,300,750	253,008	6,929,723
12 April 2017: share issue	329,600	3,296	54,846
2 June 2017: share issue	192,400	1,924	32,015
At 31 December 2017	25,822,750	258,228	7,016,584

For further details of share issues refer to note 20.

22. Other reserves

		Share-based
	Merger reserve	payment reserve	Total
	£	£	£
Group
1 January 2016	(179,800)	314,360	134,560
Deferred tax on share options	-	(209,982)	(209,982)
1 January 2017	(179,800)	104,378	(75,422)
Deferred tax on share options	-	(104,378)	(104,378)
Share based payment charge	-	137,020	137,020
31 December 2017	(179,800)	137,020	(42,780)
Company
1 January 2016	17,810,100	314,360	18,124,460
Deferred tax on share options	-	(209,982)	(209,982)
1 January 2017	17,810,100	104,378	17,914,478
Deferred tax on share options	-	(104,378)	(104,378)
Share based payment charge	-	137,020	137,020
31 December 2017	17,810,100	137,020	17,947,120

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.

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.

23. Borrowings

	Group		Company
	2017	2016	2017	2016
	£	£	£	£
Repayable within 1 year:
Bank loan (term loan)	900,000	900,000	900,000	900,000
Repayable in more than 1 year:
Bank loan (term loan)	1,600,000	2,500,000	1,600,000	2,500,000
Bank loans due after more than 1 year are repayable as follows:
Between 1 and 2 years	900,000	900,000	900,000	900,000
Between 2 and 5 years	700,000	1,600,000	700,000	1,600,000

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 2017 was £1m (2016: £1.5m).

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 2017 the rate was 3.02% (2016: 2.88%). The amount outstanding at 31 December 2017 was £1.5m (2016: £1.9m).

At 31 December 2017 the unutilised amount of the facility was £2.5m (2016: £1.6m).

The cash flow movement in borrowings arising from financing activities during the year was £0.9m outflow (2016: £1.4m net inflow).

24. Trade and other payables

	Group		Company
	2017	2016	2017	2016
	£	£	£	£
Trade payables	154,076	253,027	14,427	49,599
Other taxes and social security	572,573	423,475	-	-
Other payables	49,707	26,725	2,070	1,592
Accruals and deferred income	523,282	447,016	61,606	66,283
Amounts owed to group undertakings	-	-	55,188	-
	1,299,638	1,150,243	133,291	117,474

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

25. 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
	2017	2016
	£	£
Group
Within 1 year	54,536	70,000
Between 1 and 5 years	86,200	158,736
	140,736	228,736

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

Company

No leases exist in the parent company.

26. Deferred tax

	Group		Company
	2017	2016	2017	2016
	£	£	£	£
Balance at beginning of year	(1,475,481)	(558,001)	104,378	314,360
Movement during the year:
Statement of changes in equity	(104,378)	(209,982)	(104,378)	(209,982)
Adjustment to deferred tax rate from 20% to 17%	-	133,808	-	-
Statement of comprehensive income	111,935	46,485	23,318	-
Other	326	-	-	-
Acquisitions	-	(887,791)	-	-
Balance at end of year	(1,467,598)	(1,475,481)	23,318	104,378

Deferred taxation has been provided as follows:

	Group		Company
	2017	2016	2017	2016
	£	£	£	£
Accelerated capital allowances	(5,895)	(6,220)	-	-
Share-based payments	23,318	104,378	23,318	104,378
Acquired business combinations	(1,485,021)	(1,573,639)	-	-
	(1,467,598)	(1,475,481)	23,318	104,378

27. Financial instruments

Financial instruments - Risk Management

The Group is exposed through its operations to the following financial risks:

· Credit risk

· Liquidity risk

· Interest rate risk

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them.

There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

Principal financial instruments

The principal financial instruments used by the Group and Company, from which financial instrument risk arises, are as follows:

· Receivables

· Loans to franchisees

· Cash at bank

· Trade and other payables

· Borrowings

Financial assets

Financial assets measured at amortised cost:

	Group		Company
	2017	2016	2017	2016
	£	£	£	£
Loans and receivables:
Trade receivables	137,860	280,637	-	-
Loans to franchisees	39,344	203,036	-	-
Other receivables	21,225	6,177	-	24,393
Cash and cash equivalents	2,594,526	2,045,621	346,960	199,377
Amounts owed by group undertakings	-	-	-	237,334
Accrued income	633,454	607,341	-	-
	3,426,409	3,142,812	346,960	461,104

Financial liabilities

Financial liabilities measured at amortised cost:

	Group		Company
	2017 £	2016 £	2017 £	2016 £
Other financial liabilities:
Bank loan	2,500,000	3,400,000	2,500,000	3,400,000
Trade payables	154,076	253,027	14,427	49,599
Other payables	49,707	26,725	2,070	1,592
Accruals	378,043	332,176	61,606	66,283
Amounts owed to group undertakings	-	-	55,188	-
	3,081,826	4,011,928	2,633,291	3,517,474

Maturity analysis of financial liabilities:

	Group		Company
	2017 £	2016 £	2017 £	2016 £
In less than one year:
Bank loan	967,609	999,472	967,609	999,472
Trade payables	154,076	253,027	14,427	49,599
Other payables	49,707	26,725	2,366	1,592
Accruals	378,043	332,176	61,606	66,283
Amount owed to group undertakings	-	-	55,188	-
	1,549,435	1,611,400	1,101,196	1,116,946
In more than one year:
Bank loan	1,663,236	2,622,331	1,663,236	2,622,331
	1,663,236	2,622,331	1,663,236	2,622,331

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.

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the finance function. The Board receives monthly reports from the finance function through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below:

Capital management policy

The Board considers capital to be the carrying amount of equity and debt. Its capital objective is to maintain a strong and efficient capital base to support the Group's strategic objectives, provide progressive returns for shareholders and safeguard the Group's status as a going concern. The principal financial risks faced by the Group are liquidity risk and interest rate risk. The Directors review and agree policies for managing each of these risks. These policies remain unchanged from previous years.

The Board monitors a broad range of financial metrics including growth in MSF, operating margin, EBITDA, return on capital employed, and balance sheet gearing.

It manages the capital structure and makes changes in light of changes in economic conditions. In order to maintain or adjust the capital structure, it may adjust the amount of dividends paid to shareholders.

Credit risk

Credit risk is the risk of financial loss to the Group if a franchisee or counterparty to a financial instrument fails to meet its contractual obligations. It is Group policy to assess the credit risk of new franchisees before entering contracts and to obtain credit information during the franchise agreement to highlight potential credit risks..

The highest risk exposure is in relation to loans to franchises and their ability to service their debt. The Directors have established a credit policy under which each franchisees are analysed for creditworthiness before a loan is offered. The Group's review includes external ratings, when available, and in some cases bank references. The Group does not consider that it currently has significant concentration of credit risk with loans extended to franchisees of £20k.

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 one of its two bank loans. If LIBOR increased by 1%, this would cost the group an extra £15k in interest for a full year. The Directors monitor movements in interest rates and believe that any reasonable fluctuation in LIBOR would not 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.

28. Deferred consideration

On 5 September 2016 the Group acquired 100% of the share capital of Ewemove Sales & Lettings Ltd ("ESL") and Ewesheep Ltd ("EL"). ESL is a franchisor of lettings and estate agents and EL is a dormant subsidiary of ESL. The initial consideration was £5m cash and £3m issue of ordinary shares. A further amount of up to £7m ("deferred consideration") was 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. A renegotiation took place and the deferred consideration was reduced to £1m, of which £0.5m was paid on 31 July 2017 and £0.5m was paid 31 December 2017. No further payment is due for the acquisition of ESL.

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
Unwinding of discounting to 31 December 2016 (charged as interest payable)	22,317
Reduction in deferred consideration following renegotiation	(1,201,463)
Payment of deferred consideration - 31 July 2017	(500,000)
Payment of deferred consideration - 31 December 2017	(500,000)
Fair value of deferred consideration at 31 December 2017	-

29. Share-based payments

Enterprise Management Incentive (EMI) Share Option Scheme 2017

During the year ended 31 December 2017 the Company implemented an Enterprise Management Incentive scheme as part of the remuneration for all staff and granted options over 2,290,000 ordinary shares at an exercise price of £0.01 each. Since grant, an option has been forfeited over 150,000 shares following the departure of an employee. At 31 December 2017 options over 2,140,000 ordinary shares existed.

These options have a vesting condition based on Earnings Per Share ("EPS") targets for the year ending 31 December 2019.

The options over 2,290,000 ordinary shares were granted to different classes of employees at different times as follows:-

1. Executive Directors were granted options over 1,500,000 ordinary shares on 9 June 2017("EMI - A")

2. Staff were granted options over 185,000 ordinary shares on 20 July 2017 ("EMI - B")

3. Leadership team recruits in FY17 were granted options over 605,000 ordinary shares on 14 September 2017 ("EMI - C").

The following principal assumptions were used in the valuation of each of the grants made in the year ended 31 December 2017 using the Black-Scholes option pricing model:-

Assumptions	EMI - A	EMI - B	EMI - C
Date of vesting	30/04/2020	30/04/2020	30/04/2020
Share price at grant	£1.615	£1.620	£1.285
Exercise price	£0.01	£0.01	£0.01
Risk free rate	0.17%	0.32%	0.34%
Dividend yield	4.02%	4.01%	5.06%
Expected life	2.89 years	2.78 years	2.63 years
Share price volatility	28.60%	29.00%	29.00%

The weighted average contractual life remaining of these options is 2 years and 4 months.

Expected volatility is a measure of the amount by which a share price is expected to fluctuate during a period. The assumptions used in valuing each grant are based on the daily historical volatility of the share price over a period commensurate with the expected term assumption.

The risk free rate of return is the implied yield at the date of grant for a zero coupon UK government bond with a remaining term equal to the expected term of the options.

It's expected that with an exercise price of £0.01, should the EPS condition be met, all holders will exercise as soon as the options vest. The Group announces its results usually within the first 10 days of April. So it has been assumed that all options will be exercised on 30 April 2020.

EPS is measured as the basic earnings per share excluding any exceptional income/costs and any share based payments charges. Further details can be found in the Directors Remuneration Report on pages 28 and 29.

Management has used the budget for FY18, the projections for FY19 and the market outlook to determine, at 31 December 2017, the achievement of the EPS condition.

The estimated fair value of the options over 2,140,000 ordinary shares at 31 December 2017 was £773,419. This fair value is spread as a charge between grant and the assumed vesting date. Accordingly, a share based option charge of £137,020 has been recognised in the Statement of Comprehensive Income in the year ended 31 December 2017.

Enterprise Management Incentive (EMI) Share Option Scheme 2013

At 31 December 2017 all the conditions for the scheme had been fulfilled.

During the year ended 31 December 2017 options vested over 586,800 ordinary shares and options over 522,000 ordinary shares were exercised leaving one option over 64,800 ordinary shares unexercised.

During the year ended 31 December 2016 an option over 979,200 ordinary shares vested and was exercised.

The maximum term of the vested but unexercised option granted is ten years from the grant date. The option allows the holder to purchase 64,800 ordinary shares at an exercise price stated of £1.385.

Movement in the number of ordinary share under options for all schemes was as follows:

	2017 £		2016 £
		Weighted		Weighted
		average		average
		exercise price		exercise price
Number of share options
Outstanding at the beginning of the year	586,800	£0.3099	1,721,200	£0.2798
Forfeited	(150,000)	£0.01	(220,000)	£0.985
Granted	2,290,000	£0.01	64,800	£1.385
Exercised	(522,000)	£0.1764	(979,200)	£0.1764
Outstanding at the end of the year	2,204,800	£0.0504	586,800	£0.3099

The outstanding options at 31 December 2017 comprised 2,140,000 options with an exercise price of £0.01 and 64,800 options with an exercise price of £1.385. The 64,800 options were exercisable at 31 December 2017 and the remaining options were not yet exercisable.

The outstanding options at 31 December 2016 comprised 522,000 with an exercise price of £0.1764 and 64,800 options with an exercise price of £1.385. There were no options that were exercisable at 31 December 2016.

The weighted average remaining contractual life of options is 2.5 years (2016: 6.9 years).

30. 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:

	2017 £	2016 £
Interim and Final dividend (ordinary shares of £0.01 each)
Richard Martin	725,997	670,997
Ian Wilson	97,614	59,234
Paul Latham	1,650	1,525
David Raggett	7,940	1,220
	833,201	732,976

Directors' emoluments

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

	2017	2016
	£	£
Wages and salaries	653,326	560,775
Social security costs	82,305	67,118
	735,631	627,893

Shareholder information

Financial calendar

Announcement of Preliminary results - 10 April 2018

Annual General Meeting - 16 May 2018

Half year results - 30 September 2018

Interim dividend - October 2018

Registered office address

The Property Franchise Group PLC

2 St Stephen's Court

St Stephen's Road

Bournemouth BH2 6LA

Company No. 08721920

01202 614 614

www.propertyfranchise.co.uk

Auditors

RSM UK Audit LLP

25 Farringdon Street

London

EC4A 4AB

Registrar

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol

BS13 8AE

www.propertyfranchise.co.uk

The Property Franchise Group PLC

2 St. Stephen's Court,

St. Stephen's Road,

Bournemouth,

Dorset,

BH2 6LA

Tel: 01202 292829

This information is provided by RNS

The company news service from the London Stock Exchange

END

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