Consolidated statement of cash flows

for the year ended 31 December 2021

			Notes	2021 £'000	2020 £'000
Cash flows from operating activities
Profit for the year before tax				23,182	14,859
Adjustments for:
Depreciation of property, plant and equipment			12	385	383
Depreciation of right of use assets			13	383	381
Amortisation of intangibles			14	558	601
(Profit) from sale of non-listed equity investment				(311)	-
Share based payments				1,210	625
Share of profit from associates			15	(1,011)	(36)
Impairment and amount written off associates			15	408	473
Gains on fair value movements taken to profit and loss				(611)	-
Dividends received from associates			15	275	158
Finance income			8	(45)	(120)
Finance expense			8	160	234
				24,583	17,558
Changes in working capital
(Increase) / Decrease in trade and other receivables			18	(1,475)	2,361
Increase in trade and other payables			20	6,053	1,291
Increase in provisions			22	1,140	841
Cash generated from operating activities				30,301	22,051
Interest received			8	47	139
Income taxes paid				(3,433)	(4,372)
Net cash generated from operating activities				26,915	17,818
Cash flows from investing activities
Purchase of property, plant and equipment			12	(205)	(306)
Purchase of intangibles			14	-	(1)
Proceeds from sale of non-listed equity investment				331	-
Investments in associates			15	(5,010)	(2,345)
Investment in non-listed equity shares			16	(2,500)	-
Net cash used in investing activities				(7,384)	(2,652)
Cash flows from financing activities
Proceeds from borrowings			8	-	12,000
Repayment of borrowings			8	-	(12,000)
Interest paid			8	(160)	(234)
Principal element of lease payments			13	(349)	(348)
Issue of shares			24	-	4,328
Dividends paid			11	(17,339)	(6,712)
Dividends paid to minority interest				(253)	(86)
Net cash used in financing activities				(18,101)	(3,052)
Net increase in cash and cash equivalents		1,430				12,114
Cash and cash equivalents at the beginning of year		32,981				20,867
Cash and cash equivalents at the end of the year		34,411				32,981

 

The notes that follow form part of these financial statements

Notes to the consolidated financial statements
for the year ended 31 December 2021

1      Accounting policies

Basis of preparation

 

The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The policies have been consistently applied to all the years presented.

The consolidated financial statements are presented in Great British Pounds and all amounts are rounded to the relevant thousands, unless otherwise stated.

These financial statements have been prepared in accordance with UK adopted International Accounting Standards that are applicable to companies that prepare financial statements in accordance with IFRSs.

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 2.

The financial statements have been prepared on a historical cost basis, except for investments in non-listed equities and derivative financial instruments relating to investments in associates that have been measured at fair value.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report as set out earlier in these financial statements. The financial position of the Group, its cash flows and liquidity position are described in these financial statements.

The Group made an operating profit of £23.3m during 2021 (2020: £15.0m) and had net current assets of £8.3m as at 31 December 2021 (31 December 2020: £14.6m) and equity attributable to owners of the Group of £38.8m (31 December 2020: £35.6m).

Going concern

The Directors have assessed the Enlarged Group's prospects until 31 December 2023, taking into consideration the current operating environment, including the impact of recently increased geopolitical and macroeconomic uncertainty and inflationary pressures on property and lending markets. The Directors' financial modelling considers the Enlarged Group's profit, cash flows, regulatory capital requirements, borrowing covenants and other key financial metrics over the period.

These metrics are subject to sensitivity analysis, which involves flexing a number of key assumptions underlying the projections, including the effect of recently increased geopolitical and macroeconomic uncertainty and inflationary pressures and their impact on the UK property and lending markets and the Group's revenue mix, which the Directors consider to be severe but plausible stress tests on the Enlarged Group's cash position, banking covenants and regulatory capital adequacy. The Group's financial modelling shows that the Enlarged Group should continue to be cash generative, maintain a surplus on its regulatory capital requirements and be able to operate within its current financing arrangements. 

Based on the results of the financial modelling, the Directors expect that the Enlarged Group will be able to continue in operation and meet its liabilities as they fall due over the 12 months from the approval of the financial statements. Accordingly, the Directors continue to adopt the going concern basis for the preparation of the financial statements.

Changes in accounting policies

 

New standards, interpretations and amendments effective for the year ended 31 December 2021

 

New standards, interpretations and amendments applied for the first time

 

The Group applied a number of standards and interpretations for the first time in 2021 but these did not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

 

New standards with no impact on the Group

·      Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform - Phase 2. Under the detailed rules of IFRS 9 Financial Instruments, modifying a financial contract can require recognition of a significant gain or loss in the consolidated statement of comprehensive income. However, the amendments introduce a practical expedient if a change results directly from IBOR reform and occurs on an 'economically equivalent' basis. In these cases, changes will be accounted for by updating the effective interest rate. The Group does not have any interest rate hedge relationships.

·      Amendments to IFR16 - Covid 19 related rent concessions beyond 30 June 2021. In March 2021, the IASB amended IFRS 16 Leases, extending the practical expedient to permit lessees to apply it to rent concessions for which reductions in lease payments affect payments originally due on or before 30 June 2022. This amendment is applicable for annual reporting periods beginning on or after 1 April 2021, with early application permitted. The Group did not receive any rent concessions beyond 30 June 2021.

 

New standards, interpretations and amendments not yet effective

 

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

 

Future new standards and interpretations

A number of new standards and amendments to standards and interpretations will be effective for future years and, therefore, have not been applied in preparing these consolidated financial statements. At the date of authorisation of these Financial Statements, the following standards and interpretations were in issue but have not been applied in these Financial Statements as they were not yet effective:

Standard or Interpretation	Periods commencing on or after
Amendments to IFRS 3, IAS 16, IAS 17 and annual improvements on IFRS 1, IFRS 9, IAS 41 and IFRS 1	1 January 2022
Amendments to IAS 37 Onerous contracts - Cost of fulfilling a contract	1 January 2022
Amendments to IAS 16 Property, plant and equipment - Proceeds before intended use	1 January 2022
Amendments to IFRS 3 - Reference to the conceptual framework	1 January 2022
IFRS 17 - Insurance contracts	1 January 2023
Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of accounting policies	1 January 2023
Amendments to IAS 8 - Definition of accounting estimates	1 January 2023
Amendments to IAS 12 - Deferred tax related to assets and liabilities arising from a single transaction	1 January 2023
Amendments to IAS 1 Presentation of financial statements - On classification of liabilities	1 January 2023

Other than to expand certain disclosures within the Financial Statements, the Directors do not expect the adoption of these standards and interpretations listed above to have a material impact on the Financial Statements of the Group in future periods.

Current versus non-current classification

The Group presents assets and liabilities in the consolidated statement of financial position based on current/non-current classification. An asset is current when it is:

 

·      Expected to be realised or intended to be sold or consumed in the normal operating cycle.

·      Held primarily for the purpose of trading.

·      Expected to be realised within twelve months after the reporting date.

 

All other assets are classified as non-current.

 

Assets included in current assets are expected to be realised within twelve months after the reporting date. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables approximates their fair value.

Basis of consolidation

Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

 

The consolidated financial statements present the results of the company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

 

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the consolidated statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

 

Associates

 

Where the Group has the power to participate in, but not control the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated statement of financial position at cost. Subsequently associates are accounted for using the equity method, where the Group's share of post-acquisition profits and losses and other comprehensive income is recognised in the consolidated statement of comprehensive income (except for losses in excess of the Group's investment in the associate unless there is an obligation to make good those losses).

 

Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the associate.

 

Any premium paid for an associate above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. Where there is objective evidence that the investment in an associate has been impaired the carrying amount of the investment is tested for impairment. More information on the impairment of associates is included in note 2.

Joint ventures

 

The Group accounts for its interests in joint ventures in the same manner as investments in associates (i.e. using the equity method).

 

Any premium paid for an investment in a joint venture above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in the joint venture. Where there is objective evidence that the investment in a joint venture has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

 

Property, plant and equipment

 

Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs.

 

Depreciation is provided on all items of property, plant and equipment at rates calculated to write off the cost of each asset on a straight line basis over their expected useful lives, as follows:

 

Freehold land                    not depreciated

Freehold buildings             36 years

Fixtures and fittings           5 years

Computer equipment         3 years

 

Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognised in the income statement. The Directors reassess the useful economic life of the assets annually.

 

Goodwill

Goodwill represents the excess of a cost of a business combination over the Group's interest in the fair value of identifiable assets under IFRS 3 Business Combinations.

 

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

 

Other intangible assets

 

Intangible assets other than goodwill acquired by the Group comprise licences, the website software, customer contracts and trademarks and are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the consolidated statement of comprehensive income within administrative expenses on a straight line basis over the period of the licence agreements or expected useful life of the asset and is charged once the asset is in use. Assets are tested annually for impairment or more frequently if events or circumstances indicate potential impairment.

 

Amortisation, which is reviewed annually, is provided on intangible assets to write off the cost of each asset on a straight line basis over its expected useful life as follows:

 

Licences                                                         6 years

Website and Software                                     3 years

Customer contracts                                         9 years

Trademarks                                                     10 years

 

Impairment of non-financial assets

 

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are tested annually for impairment or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of the asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

 

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows, its cash generating units ('CGUs'). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from the synergies of the combination giving rise to the goodwill.

 

Impairment charges are included in profit or loss except to the extent that they reverse gains previously recognised in other comprehensive income. An impairment loss for goodwill is not reversed.

 

Financial assets

 

In the consolidated statement of financial position, the Group classifies its financial assets into one of the following categories dependent on the purpose for which the financial asset was acquired.

 

·      Fair value through profit or loss

·      Amortised cost

 

Loans and trade receivables

 

Loans and trade receivables are non-derivative financial assets with fixed or determinable payments which arise principally through the Group's trading activities, and these assets arise principally to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

 

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

 

Impairment provisions for loans to associates and other parties are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

 

Cash and cash equivalents

 

Cash and cash equivalents include cash in hand and deposits held at call with banks with an original maturity of three months or less.

 

Investments in non-listed equity shares

 

Investments in non-listed shares are non-derivative financial assets, and are carried at fair value, with gains and losses arising from changes in fair value taken directly to the consolidated statement of comprehensive income.

 

Derivative financial instruments

 

Derivative financial instruments comprise option contracts to acquire additional ordinary share capital of associates of the Group. Derivative financial instruments are carried at fair value, with gains and losses arising from changes in fair value taken directly to the consolidated statement of comprehensive income. Fair values of derivatives are determined using valuation techniques, including option pricing models.

 

Financial liabilities

 

Trade and other payables are recognised initially at fair value and subsequently carried at amortised cost.

 

Leases

 

The Group's leasing activities and how they are accounted for

 

The Group leases a number of properties from which it operates. Rental contracts are typically made for fixed periods of five to ten years, with break clauses negotiated for some of these.

 

Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices.

 

The Group adopted the modified transition approach and from 1 January 2019, all leases are accounted for by recognising a right of use asset and a corresponding liability at the date at which the leased asset is available for use by the Group, except for:

 

·      leases of low value assets; and

·      leases with a duration of 12 months or less

 

Payments associated with short-term leases and leases of low value assets will continue to be recognised on a straight line basis as an expense in the consolidated statement of comprehensive income. Low value assets within the Group comprise of IT equipment.

 

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

 

·      fixed payments (including in-substance fixed payments), less any lease incentives receivable;

·      variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date; and

·      payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

 

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the Group's incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right of use asset in a similar economic environment with similar terms, security and conditions.

 

To determine the incremental borrowing rate, the Group:

 

·     where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;

·     where it does not have recent third party financing, the Group uses a build-up approach that

starts with a risk-free interest rate adjusted for credit risk for leases held by the Group; and

·     makes adjustments specific to the lease, e.g. term, country and security.

 

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

 

Right of use assets are measured at cost comprising the following:

·         the amount of the initial measurement of lease liability,

·         any lease payments made at or before the commencement date less any lease incentives

received, and

·         any initial direct costs.

 

Right of use assets are depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. The Group does not revalue its land and buildings that are presented within property, plant and equipment, and has chosen not to do so for the right of use buildings held by the Group.

 

Variable lease payments

 

The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right of use asset.

 

Three property leases contain variable lease payments linked to current market rental from January 2023, August 2023 and December 2024. A 1% fluctuation in market rent would impact total annual lease payments by approximately £16,000.

Extension and termination options

 

Termination options are included in a number of the leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group's operations. The majority of termination options held are exercisable only by the Group and not by the respective lessor.

 

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

 

For leases of property, the following factors are normally the most relevant:

·      If there are significant penalties to terminate, the Group is typically reasonably certain not to terminate.

·      If any leasehold improvements are expected to have a significant remaining value, the Group is typically reasonably certain not to terminate.

·      Otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset. Most extension options in offices have not been included in the lease liability, because the Group could replace the assets without significant cost or business disruption.

 

As at 31 December 2021, the carrying amounts of lease liabilities are not reduced by the amount of payments that would be avoided from exercising a break clause because it was considered reasonably certain that the Group would not exercise its right to break the lease. Total lease payments of £0.7m are potentially avoidable were the Group to exercise break clauses at the earliest opportunity.

 

Business combinations and goodwill

 

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

 

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

 

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with the changes in fair value recognised in the statement of profit or loss in accordance with IFRS 9. Other contingent consideration that is not within the scope of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognised in profit or loss.

 

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

 

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units).

 

Where goodwill has been allocated to the Group's cash-generating units (CGUs) and part of the operation within the unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash generating unit retained.

 

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the subsequent acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss.

 

Where a business combination is for less than the entire issued share capital of the acquiree and there is an option for the acquirer to purchase the remainder of the issued share capital of the business and/or for the vendor to sell the rest of the entire issued share capital of the business to the acquirer, then the acquirer will assess whether a non-controlling interest exists and also whether the instrument(s) fall within the scope of IFRS 9 Financial Instruments and is/are measured at fair value with the changes in fair value recognised in the statement of profit or loss in accordance with IFRS 9. 

Options that are not within the scope of IFRS 9 and are linked to service will be accounted for under IAS 19 Employee Benefits and/or IFRS 2 Share Based Payments as appropriate.

Retirement benefits: Defined contribution schemes

 

Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

 

Provisions

A provision is recognised in the consolidated 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 (see note 2c).

Share capital

 

Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Company's ordinary shares are classified as equity instruments. Incremental costs directly attributable to the issue of new shares are shown in share premium as a deduction from the proceeds.

 

Revenue

 

The Group recognises revenue from the following main sources:

•     Mortgage procuration fees paid to MAB by lenders via the L&G Mortgage Club.

•     Insurance commissions from advised sales of protection and general insurance policies

•     Client fees paid by the underlying customer for the provision of mortgage and protection advice

•     Other Income comprising income from services provided to directly authorised entities, fees in relation to Later Life lending and Wealth and ancillary services such as conveyancing and surveying

 

Mortgage procuration fees, insurance commissions and client fees are included at the gross amounts receivable by the Group in respect of all services provided. The Group operates a revenue share model with its trading partners and therefore commissions are paid in line with the Group revenue recognition policy and are included in cost of sales.

Mortgage procuration fees, insurance commissions and client fees earned are accounted for when received or guaranteed to be received, as until received it is not possible to be certain that the transaction will be completed. When mortgage procuration fees, insurance commissions and client fees are received this confirms that the performance obligation has been satisfied. In the case of life insurance commissions there is a possibility for a four year period after the inception of the policy that part of the commission earned may have to be repaid if the policy is cancelled during this period. A clawback provision is made for the expected level of commissions repayable. More information on the clawback provision is included in note 2.

Other income is credited to the consolidated statement of comprehensive income when received or guaranteed to be received.

 

Finance income

 

Finance income comprises interest receivable on cash at bank and interest recognised on loans to associates and other Appointed Representative firms. Interest income is recognised in the statement of comprehensive income as it accrues.

 

Foreign exchange

 

Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated statement of comprehensive income.

 

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).

 

Taxation

 

Income tax comprises current and deferred tax. Income tax is recognised in profit or loss other than if it relates to items recognised in other comprehensive income in which case it is recognised in other comprehensive income.

 

Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted by the consolidated statement of financial position date and any adjustment to tax payable in respect of previous years.

 

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

 

Deferred tax assets and liabilities are recognised for all taxable temporary differences, except for when:

·      The difference arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

•     In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

 

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that enough taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

 

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.

 

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognised in profit or loss.

 

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

•     the same taxable group company or;

•     different company entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets and liabilities are expected to be settled or recovered.

 

Sales taxes

 

Where sales tax is incurred on expenses and assets, expenses and assets are recognised net of the amount of sales tax, except:

•     When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable.

•     When receivables and payables are stated with the amount of sales tax included.

 

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statement of financial position.

 

Segment Reporting

 

An operating segment is a distinguishable segment of an entity that engages in business activities from which it may earn revenues and incur expenses and whose operating results are reviewed regularly by the entity's chief operating decision maker (CODM). The Board reviews the Group's operations and financial position as a whole and therefore considers that it has only one operating segment, being the provision of financial services operating solely within the UK. The information presented to the CODM directly reflects that presented in the financial statements and they review the performance of the Group by reference to the results of the operating segment against budget.

 

Operating profit is the profit measure, as disclosed on the face of the consolidated statement of comprehensive income that is reviewed by the CODM.

 

Dividends

 

Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when they are paid. In the case of final dividends, this is when they are approved by the shareholders.

 

Share-based payments

 

Where equity-settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period.  Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

 

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the remaining vesting period.

 

Where options are granted to persons other than employees, the consolidated statement of comprehensive income is charged with the fair value of the options at the date of the grant over the vesting period.

 

 

2      Critical accounting estimates and judgements

The Group 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 Directors consider that the estimates and judgements that have the most significant effect on the carrying amounts of assets and liabilities within the financial statements are set out below.

 

(a)        Impairment of goodwill

The Group is required to test, on an annual basis, whether goodwill has 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. Actual outcomes may vary. More information including carrying values is included in note 14.

 

(b)        Impairment of trade and other receivables

 

Judgement is required when determining if there is any impairment to the trade and other receivable balances, and the Group uses the simplified approach for trade receivables within IFRS 9 using the lifetime expected credit losses. During this process judgements about the probability of the non-payment of the trade receivables are made.

 

In considering impairment provisions for loans to associates the forward-looking expected credit loss model is used. In determining the lifetime expected credit losses for loans to associates, the Group has had to consider different scenarios for repayments of these loans and have also estimated percentage probabilities assigned to each scenario for each associate where applicable. More information is included in note 18.

 

(c)        Clawback provision

The provision relates to the estimated value of repaying commission received up front on protection policies that may lapse in a period of up to four years following inception. The provision is calculated using a model that has been developed over several years. The model uses a number of factors including the total unearned commission at the point of calculation, the age profile of the commission received, the Group's proportion of any clawback, likely future lapse rates, and the success of the Appointed Representatives in preventing lapses and/or generating new income at the point of a lapse. A 0.5% change (absolute) in lapse rates causes a £0.3m change in the provision. A 2% change (absolute) in the recoveries rate causes a £0.1m change in the provision. More information is included in note 22.

(d)      Investments in associates

 

The Group is required to test, on an annual basis, whether any investments in associates have suffered any impairment.

 

The Group uses two methods to test for impairment,

 

·      Net Present Value of the next 5 years projected free cash flow and terminal value.

·      Valuation of business on a multiple basis.

 

The use of both methods requires the estimation of future cash flows, future profit before tax and choice of discount rate. Actual outcomes may vary. Where the carrying amount in the consolidated statement of financial position is in excess of the estimated value, the Group will make an impairment charge against the investment value and charge this amount to the consolidated statement of comprehensive income under impairment and amount written off associates.

 

The Group continues to make investments in associates, with elements of deferred consideration in some cases, as well as enter into commitments or option agreements to increase its stake or fully acquire certain associates. In accounting for these, the Group has had to make certain estimates on the amounts of deferred consideration likely to be payable and also the future performance and value of these businesses in determining the fair value of the options.

 

(e)      Share options, Employer's National Insurance Contributions and Deferred tax 

Under the Group's equity-settled share based remuneration schemes (see note 29), estimates are made in assessing the fair value of options granted. The fair value is spread over the vesting period in accordance with IFRS 2. The Group engages an external expert in assessing fair value, both Black-Scholes and Stochastic models are used, and estimates are made as to the Group's expected dividend yield and the expected volatility of the Group's share price.

In addition, the Group estimates the employer's National Insurance Contributions that will fall due on exercise of options, and provides for this over the vesting period. In doing so, estimates as to the share price at vesting and the proportion of options from each grant that will vest are made with reference to the Group's prospects.

Deferred tax assets include temporary timing differences related to the issue and exercise of share options. Recognition of the deferred tax assets assigns an estimate of the proportion of options likely to vest and an estimate of share price at vesting. The carrying amount of deferred tax assets relating to share options as at 31 December 2021 was £1.8m (2020: £0.8m).

3           Revenue

The Group operates in one segment being that of the provision of financial services in the UK. Revenue is derived as follows:

		2021 £'000		2020 £'000
Mortgage procuration fees		85,108		67,232
Protection and general insurance commission		75,280		58,826
Client fees		23,230		18,975
Other income		5,045		3,265
		188,663		148,298

 

4      Cost of sales

 Costs of sales are as follows:

		2021	2020
		£'000	£'000
Commissions paid		129,639	101,885
Impairment of trade receivables		(5)	16
Wages and salary costs		8,063	6,565
		137,697	108,466

 

Wages and salary costs	2021 £'000	2020 £'000
Gross	6,642	5,446
Employer's National Insurance	752	593
Defined contribution pension costs	437	350
Other direct costs	232	176
	8,063	6,565

 

5      Acquisition costs
 

On 2 July 2019 Mortgage Advice Bureau (Holdings) plc acquired 80 per cent of the entire issued share capital of First Mortgage Direct Limited ("First Mortgage" or the "Business").

 

Costs relating to the amortisation of acquired intangibles amounted to £367,000 (2020: £367,000) in the year ended 31 December 2021. The option (comprising the put and the call option) over the remaining 20% of the issued share capital of First Mortgage has been accounted for under IAS 19 Employee Benefits and IFRS 2 Share Based Payments due to its link to the service of First Mortgage's Managing Director. In accordance with IAS 19, £424,606 (2020: £414,674) has been included within administrative expenses under staff costs, and in accordance with IFRS 2, a further £542,844 (2020: £442,428) has been included within administrative expenses under share based payments (see note 29).

 

 

6      Profit from operations

 

Profit from operations is stated after charging the following:

	2021 £'000	2020 £'000
Depreciation of property, plant and equipment	385	383
Depreciation of right of use assets	383	381
Amortisation of acquired intangibles	367	367
Amortisation of other intangibles	191	234
Costs related to First Mortgage Option	967	857
Impairment of loans to related parties	16	1,680
Auditor remuneration:
Fees payable to the Group's auditor for the audit of the Group's financial statements.	172	122
Fees payable to the Group's auditor and its associates for other services:
Audit of the accounts of subsidiaries	10	10
Audit related assurance services	25	25
Tax advisory services	-	3

 

Profits from associates are disclosed as part of the operating profit as this is the operational nature of the Group.

 

 

7      Staff costs

Staff costs, including executive and non-executive Directors' remuneration, are as follows:

	2021 £'000	2020 £'000
Wages and salaries	20,564	16,910
Share based payments (see note 29)	1,932	967
Social security costs	2,242	1,763
Defined contribution pension costs	1,454	1,199
Other employee benefits	542	537
	26,734	21,376

 

Staff costs are included in the consolidated statement of comprehensive income as follows:

		2021	2020
		£'000	£'000
Cost of sales (see note 4)		8,063	6,565
Administrative expenses		18,671	14,811
		26,734	21,376

 

The average number of people employed by the Group during the year was:	2021 Number	2020 Number
Executive Directors	3	3
Advisers	103	89
Compliance	76	74
Sales and marketing	92	71
Operations	171	154
Total	445	391

 

Key management compensation

Key management are those persons having authority and responsibility for planning, directing and controlling the activities of the Group. These are the Directors of Mortgage Advice Bureau (Holdings) plc.

	2021 £'000	2020 £'000
Wages and salaries	2,424	1,380
Share based payments	428	101
Social security costs	373	633
Defined contribution pension costs	9	6
Other employment benefits	7	9
	3,241	2,129

During the year retirement benefits were accruing to 2 Directors (2020: 2) in respect of defined contribution pension schemes.

 

The total amount payable to the highest paid Director in respect of emoluments was £830,796 (2020: £393,112). The value of the Group's contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to £nil (2020: £nil).

 

8      Finance income and expense

Finance income	2021 £'000	2020 £'000
Interest income	23	105
Interest income accrued on loans to associates	22	15
	45	120

 

 

Finance expense	2021 £'000	2020 £'000
Interest expense	102	171
Interest expense on lease liabilities	58	63
	160	234

During the year, interest accrued in previous years of £23,602 was paid (2020: £34,039).

The Group has had an agreement with NatWest in respect of a revolving credit facility for £12m. The Group did not drawn down on this facility in the year and no liabilities are owed as at 31 December 2021. In respect of the Group's revolving credit facility for £12m, the Group has given security to NatWest in the form of fixed and floating charges over the assets of Mortgage Advice Bureau Limited, Mortgage Advice Bureau (Derby) Limited and Mortgage Advice Bureau (Holdings) Plc. In connection with the acquisition of Project Finland Topco Limited which indirectly owns 100% of The Fluent Money Group Limited ("Fluent") the Group has entered into new debt facilities with NatWest as set out in note 32.

 

Loan covenants

Under the terms of the revolving credit facility, the Group is required to comply with the following financial covenants:

·      Interest cover shall not be less than 5:1

·      Debt to EBITDA ratio shall not exceed 2:1

The Group has complied with these covenants throughout the year.

 

9      Income tax

	2021 £'000		2020 £'000
Current tax expense
UK corporation tax charge on profit for the year	4,196		2,068
Adjustment to charge in respect of prior periods	-		-
Total current tax	4,196		2,068
Deferred tax expense
Origination and reversal of timing differences	(33)		(23)
Temporary difference on share based payments	(342)		(9)
Adjustment due to change in tax rates	89		45
Adjustment to deferred tax charge in respect of prior periods	-		-
Total deferred tax (see note 23)	(286)		13
Total tax expense	3,910		2,081

 

The reasons for the difference between the actual charge for the year and the standard rate of corporation tax in the United Kingdom of 19% (2020: 19%) applied to profit for the year is as follows:
	2021 £'000		2020 £'000
Profit for the year before tax	23,182		14,859
Expected tax charge based on corporation tax rate	4,405		2,823
Expenses not deductible for tax purposes amortisation and impairment	160		120
Research & Development allowances	(439)		(230)
Tax on share options exercised	(119)		(760)
Adjustment to deferred tax charge in respect of prior periods	-		-
Adjustment to corporation tax charge in respect of prior periods	-		-
Adjustment to deferred tax charge due to change in tax rate	89		45
Fair value gain on derivative financial instruments	(62)		-
Profits from associates	(192)		(7)
Amounts written off investments	78		90
Capital allowance super deductions	(9)		-
Utilisation of brought forward tax losses	(1)		-
Total tax expense	3,910		2,081

For the year ended 31 December 2021 the deferred tax charge relating to unexercised share options, recognised in equity was £558,869 (2020: -£674,337). An additional £89,639 (2020: £nil) deferred tax charge was recognised in equity as a result of changes to tax rates.

10    Earnings per share

Basic earnings per share are calculated by dividing net profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.

	2021		2020
Basic earnings per share	£'000		£'000
Profit for the year attributable to the owners of the parent	18,722		12,379
Weighted average number of shares in issue	53,184,872		52,134,684
Basic earnings per share (in pence per share)	35.2p		23.7p
For diluted earnings per share, the weighted average number of ordinary shares in existence is adjusted to include potential ordinary shares arising from share options.
	2021		2020
Diluted earnings per share	£'000		£'000
Profit for the year attributable to the owners of the parent	18,722		12,379
Weighted average number of shares in issue	53,552,928		52,478,416
Diluted earnings per share (in pence per share)	35.0p		23.6p

The share data used in the basic and diluted earnings per share computations are as follows:

Weighted average number of ordinary shares		2021		2020
Issued ordinary shares at start of year	53,153,187			51,612,207
Effect of shares issued during year		31,685		522,477
Basic weighted average number of shares		53,184,872		52,134,684
Potential ordinary shares arising from options		368,056		343,732
Diluted weighted average number of shares		53,552,928		52,478,416

 

The reconciliation between the basic and adjusted figures is as follows:

	2021 £'000	2020 £'000	2021 Basic earnings per share pence	2020 Basic earnings per share pence	2021 Diluted earnings per share pence	2020 Diluted earnings per share pence
Profit for the year	18,722	12,379	35.2	23.7	35.0	23.6
Adjustments:
Amortisation of acquired intangibles	367	367	0.7	0.7	0.7	0.7
Costs relating to the First Mortgage Direct option	967	857	1.8	1.6	1.8	1.6
Gain on derivative financial instruments	(328)	-	(0.6)	-	(0.6)	-
Impairment of loans to related parties	16	1,680	-	3.2	-	3.2
Tax effect of adjustments	(3)	(319)	-	(0.6)	-	(0.6)
Adjusted earnings	19,741	14,964	37.1	28.6	36.9	28.5

The Group uses adjusted results as key performance indicators, as the Directors believe that these provide a more consistent measure of operating performance. Adjusted profit is therefore stated before one-off acquisition costs, ongoing non-cash items relating to the acquisition of First Mortgage Direct Limited, fair value gains on financial instruments relating to options to increase shareholding in Associate businesses and impairment of loans to related parties, net of tax.

 

11    Dividends

		2021		2020
		£'000		£'000
Dividends paid and declared during the year:
Final dividend for 2020: 19.2p per share (2019: 6.4p)			10,210	3,311
Interim dividend for 2021: 13.4p per share (2020: 6.4p)			7,129	3,401
			17,339	6,712

 

Equity dividends on ordinary shares:
Proposed for approval by shareholders at the AGM:
Final dividend for 2021: 14.7p per share (2020: 19.2p)		7,821	10,205
		7,821	10,205

The record date for the final dividend is 29 April 2022 and the payment date is 30 May 2022. The ex-dividend date will be 28 April 2022. The company statement of changes in equity shows that the Company has positive reserves as at 31 December 2021 of £1,406,000. There are sufficient distributable reserves in subsidiary companies to pass up to Mortgage Advice Bureau (Holdings) plc in order to pay the proposed final dividend. The proposed final dividend for 2021 has not been provided for in these financial statements, as it has not yet been approved for payment by shareholders.

The final dividends paid and declared can differ from the proposed total dividends for approval due to (1) additional shares issued after the publication of these accounts in connection with share options exercised and/or the placing of new shares in connection with the acquisition of Fluent but before the record date and (2) the number of unallocated shares within the Group's Share Incentive Plan that do not receive a dividend.

12    Property, plant and equipment

	Freehold land and   building £'000	Fixtures & fittings £'000	Computer equipment £'000	Total £'000
Cost
As at 1 January 2021	2,536	1,015	1,247	4,798
Additions	-	35	170	205
As at 31 December 2021	2,536	1,050	1,417	5,003
Depreciation
As at 1 January 2021	292	672	987	1,951
Charge for the year	57	151	177	385
As at 31 December 2021	349	823	1,164	2,336
Net Book Value
As at 31 December 2021	2,187	227	253	2,667

 

	Freehold land and building £'000	Fixtures & fittings £'000		Computer equipment £'000		Total £'000
Cost
As at 1 January 2020	2,536	919		1,037		4,492
Additions	-	96		210		306
Aa at 31 December 2020	2,536	1,015		1,247		4,798
Depreciation
As at 1 January 2020	234	503		831		1,568
Charge for the year	58	169		156		383
As at 31 December 2020	292	672		987		1,951
Net Book Value
As at 31 December 2020	2,244	343		260		2,847

13    Right of use assets

Leases

This note provides information for leases where the Group is a lessee.

The consolidated statement of financial position shows the following amounts on leases:

 

Right of use assets		Land and Buildings £'000		Total £'000
As at 1 January 2021		2,590		2,590
Additions		250		250
Depreciation		(383)		(383)
As at 31 December 2021		2,457		2,457
Lease liabilities		Land and Buildings £'000		Total £'000
As at 1 January 2021		2,695		2,695
Additions		250		250
Interest expense		58		58
Lease payments		(407)		(407)
As at 31 December 2021		2,596		2,596

 

Right of use assets		Land and Buildings £'000		Total £'000
As at 1 January 2020		2,907		2,907
Additions		64		64
Depreciation		(381)		(381)
As at 31 December 2020		2,590		2,590
Lease liabilities		Land and Buildings £'000		Total £'000
As at 1 January 2020		2,979		2,979
Additions		64		64
Interest expense		63		63
Lease payments		(411)		(411)
As at 31 December 2020		2,695		2,695

 

 

The present value of the lease liabilities is as follows:

 

31 December 2021		Within 1 year	1 - 2 years	2 -5 years	After 5 years	Total
Lease payments (undiscounted)		449	454	1,228	665	2,796
Finance charges		(55)	(46)	(83)	(16)	(200)
Net present values		394	408	1,145	649	2,596

 

31 December 2020		Within 1 year	1 - 2 years	2 -5 years	After 5 years	Total
Lease payments (undiscounted)		401	390	1,142	1,006	2,939
Finance charges		(58)	(50)	(101)	(35)	(244)
Net present values		343	340	1,041	971	2,695

Leases

The consolidated statement of comprehensive income shows the following amounts relating to leases:

		2021 £'000	2020 £'000
Depreciation charge of right of use assets		383	381
Interest expense		58	63
Short term lease expense		5	-
Low value lease expense		2	3

 

 

14    Intangible assets

Goodwill			2021 £'000	2020 £'000
Cost
As at 1 January			15,308	15,308
Additions			-	-
As at 31 December			15,308	15,308
Accumulated impairment
As at 1 January and 31 December			(153)	(153)
Net book value
As at 31 December			15,155	15,155

 

The goodwill relates to the acquisition of Talk Limited in 2012, and in particular its main operating subsidiary Mortgage Talk Limited, and the acquisition of First Mortgage Direct Limited ("FMD") in 2019.  The goodwill is deemed to have an indefinite useful life. It is currently carried at cost and is reviewed annually for impairment.

 

Under IAS 36, "Impairment of assets", the Group is required to review and test its goodwill annually or in the event of a significant change in circumstances. The impairment reviews conducted at the end of 2021 concluded that there had been no impairment of goodwill.

 

The Board considers that it has only one operating segment and following the acquisition of FMD, now has two cash-generating units (CGUs). Goodwill arose on the acquisition of Mortgage Talk Limited and has since been allocated to the CGU of the Group excluding FMD. Impairment testing for this CGU is carried out by determining recoverable amount on the basis of a value in use, which is then compared to the carrying value of the assets of the CGU including goodwill. The value in use that has been determined exceeds the £4.1m (2020: £4.1m) carrying value of this CGU and therefore no impairment of goodwill is required. Management has estimated future cash flows over a five year period and applied a discount rate of 11% and then applied a terminal value calculation, which assumes a growth rate of 5% in future cashflows, in order to estimate the present value of those cash flows in determining the value in use. Management believes that any possible changes to any of the key assumptions applied in determining the value in use would not cause the carrying amount of goodwill to exceed the present value of the estimated future cashflows.

Goodwill arose on the acquisition of FMD and has since been allocated to this CGU of the Group. Impairment testing for this CGU is carried out by determining recoverable amount on the basis of a value in use, which is then compared to the carrying value of the assets of the CGU including goodwill. The value in use that has been determined exceeds the £11.0m (2020: £11.0m) carrying value of this CGU and therefore no impairment of goodwill is required. Management has estimated future cash flows over a five year period and applied a discount rate of 21% and then applied a terminal value calculation, which assumes a growth rate of 5% in future cashflows, in order to estimate the present value of those cash flows in determining the value in use. Management believes that any possible changes to any of the key assumptions applied in determining the value in use would not cause the carrying amount of goodwill to exceed the present value of the estimated future cashflows.

 

 

 

Other intangible assets	Licences £'000		Website £'000		Software £'000	Customer contracts £'000	Trademarks £'000		Total £'000
Cost
As at 1 January 2021		108		140	571	1,980	1,470	4,269
Additions		-		-	-	-	-	-
As at 31 December 2021		108		140	571	1,980	1,470	4,269
Accumulated Amortisation
As at 1 January 2021		108		140	208	330	221	1,007
Charge for the year		-		-	191	220	147	558
As at 31 December 2021		108		140	399	550	368	1,565
Net book value
As at 31 December 2021		-		-	172	1,430	1,102	2,704

 

Other intangible assets	Licences £'000		Website £'000		Software £'000	Customer contracts £'000	Trademarks £'000		Total £'000
Cost
As at 1 January 2020		108		140	570	1,980	1,470	4,268
Additions		-		-	1	-	-	1
As at 31 December 2020		108		140	571	1,980	1,470	4,269
Accumulated Amortisation
As at 1 January 2020		108		96	18	110	74	406
Charge for the year		-		44	190	220	147	601
As at 31 December 2020		108		140	208	330	221	1,007
Net book value
As at 31 December 2020		-		-	363	1,650	1,249	3,262

 

 

15    Investments in associates and joint venture

The Group holds investments in associates and a joint venture, all of which are accounted for under the equity method, as follows:

Company name	Registered office	Percentage of ordinary shares held	Description
CO2 Commercial Limited	Profile House, Stores Road, Derby DE21 4BD	49	Property surveyors
Lifetime FS Limited	Capital House, Pride Place, Derby DE24 8QR	49	Provision of financial services
Freedom 365 Mortgage Solutions Limited(1)	Gresley House, Ten Pound Walk, Doncaster DN4 5HX	35	Provision of financial services
Sort Group Limited	Burdsall House, London Road, Derby DE24 8UX	43.25	Conveyancing services
Buildstore Limited	Nsb & Rc Lydiard Fields, Great Western Way, Swindon SN5 8UB	25	Provision of financial services
Clear Mortgage Solutions Limited	114 Centrum House, Dundas Street, Edinburgh EH3 5DQ	49	Provision of financial services
Vita Financial Limited	1st Floor Tudor House, 16 Cathedral Road, Cardiff CF11 9LJ	49	Provision of financial services
MAB Broker Services PTY Limited	Level 7, 68 Alfred Street, Milsons Point, NSW 2061	48.05	Provision of financial services
Eagle and Lion Limited(2)	22 West Mall, Clifton, Bristol, BS8 4BQ	49	Provision of financial services
The Mortgage Broker Group Limited	The Granary, Crowhill Farm, Ravensden Road, MK44 2QS	25	Provision of financial services
Meridian Holdings Group Limited	68 Pullman Road, Wigston, Leicester, LE18 2DB	40	Provision of financial services
Evolve FS Ltd	Unit 26-28 Brightwell Barns, Waldringfield Road, Brightwell, Ipswich, Suffolk, IP10 0BJ	49	Provision of financial services
Heron Financial Limited	Moor Park Golf Club, Moor Park, Rickmansworth, Hertfordshire, England, WD3 1QN	49	Insurance agent and broker
M & R FM Ltd(3)	14 Kensington Terrace, Gateshead, NE11 9SL	25	Provision of financial services

 

⁽¹⁾ On 13 January 2021 the Group ceased to have an investment in this entity, having entered into a deed of termination.

⁽²⁾ On 29 September 2021, Eagle and Lion Limited passed a special resolution to enter into voluntary liquidation.

⁽³⁾ 25% of the ordinary share capital of M & R FM Ltd is held by First Mortgage Direct Ltd.

The reporting date for the Group's associates, as listed in the table above, other than Clear Mortgage Solutions Limited, is 31 December and their country of incorporation is England and Wales. The reporting date for Clear Mortgage Solutions Limited is 30 December and its country of incorporation is England and Wales. The reporting date for the Group's joint venture, MAB Broker Services PTY Limited, is 30 June and its country of incorporation is Australia.

 

 

 

The investment in associates and the joint venture at the reporting date is as follows:

	2021 £'000	2020 £'000
As at 1 January	4,883	3,133
Additions	7,222	2,345
Credit/(charge) to the statement of comprehensive income:
Share of profit	1,011	36
Impairment and amount written off	(408)	(473)
	603	(437)
Dividends received	(275)	(158)
As at 31 December	12,433	4,883

 

The Group is entitled to 49% of the results of CO2 Commercial Limited and Lifetime FS Limited by virtue of its 49% equity stakes. CO2 Commercial Limited is a dormant holding company, and trades through its wholly owned subsidiary, Pinnacle Surveyors (England & Wales) Limited. The Group is entitled to 49% of the results of Clear Mortgage Solutions Limited, Vita Financial Limited, Heron Financial Limited, Evolve FS Ltd and Eagle and Lion Limited by virtue of its 49% equity stakes. The Group is entitled to 48.05% of the results of MAB Broker Services PTY Limited by virtue of its 48.05% equity stake, 43.25% of the results of Sort Group Limited by virtue of its 43.25% equity stake, 40% of the results of Meridian Holdings Group Limited by virtue of its 40% equity stake, and 25% of the results of Buildstore Limited and The Mortgage Broker Group Limited by virtue of its 25% equity stakes.

The carrying value of the Group's joint venture, MAB Broker Services PTY Limited, as at 31 December 2021 is £nil (2020: £nil). In the year ended 30 June 2021, MAB Broker Services PTY Limited reported a profit of AUD0.04m (2020: Loss of AUD0.9m).

First Mortgage Direct Ltd is entitled to 25% of the results of M & R FM Ltd by virtue of its 25% equity stake.

Additions during the year include £5.0m of initial cash consideration (2020: £2.3m) and £2.2m of estimated deferred consideration (2020: £nil)

 

Acquisitions and disposals

2021

On 12 January 2021, First Mortgage Direct Limited, an 80% owned subsidiary of the Group acquired a 25% stake in M & R FM Ltd, for an initial cash consideration of £663,400, estimated deferred consideration of £0.2m is payable following finalisation of M&R FM Ltd's audit for the year ended 31 December 2021.

On 13 January 2021, the Group ceased to have an investment in Freedom 365 Mortgage Solutions Limited, having entered into a deed of termination.

The Group acquired a further 29% interest in Vita Financial Limited ("Vita") on 28 May 2021 at an initial cash consideration of £159,081, estimated deferred consideration of £0.2m and £0.2m is payable following the finalisation of Vita's audits for the year ended 31 December 2021 and 31 December 2022 respectively.

The Group acquired a 49% stake in Evolve FS Ltd ("Evolve") plus an option over a further 31% of the ordinary share capital of Evolve on 20 July 2021 at an initial cash consideration of £2,316,290, estimated consideration of £0.7m is payable following finalisation of Evolve's audit for the year ended 31 December 2021.

The Group acquired a 49% stake in Heron Financial Limited ("Heron") plus an option over the remaining ordinary share capital of Heron on 30 November 2021 at an initial cash consideration of £1,600,000. Estimated deferred consideration of £0.4m is payable following finalisation of Heron's audit for the year ended 31 December 2021 with further estimated deferred consideration of £0.5m payable following finalisation of Heron's audit for the year ending 31 December 2022.

In accordance with IAS28 the Group impaired further the value of the investment in The Mortgage Broker Group Limited by £400,000 (2020: £472,850) due to its performance. The investment in The Mortgage Broker Group Limited is classified as Level 3 for the purposes of disclosure in the fair value hierarchy. The recoverable amount of the asset is its fair value less costs of disposal and the market approach has been determined as the most appropriate method of estimating the fair value of this investment.

On 30 September 2021, the Group paid a further £271,183 in deferred consideration in respect of its acquisition of a further 24% interest in Clear Mortgage Solutions Limited in December 2020.

On 16 July 2021, as part of a shareholding restructure in Sort Group Limited, in which Sort Group Limited increased its stake in Sort Limited to 100% (previously 75.68%), the Group disposed of its 10.52% shareholding in Sort Limited for £nil cash consideration. The Group now holds 43.25% of Sort Group Limited which is equal to the previous effective interest prior to the shareholding restructure held through separate investments in Sort Group Limited, Sort Limited and Sort Technology Limited. With no change in effective interest, the carrying value of the investment in Sort Limited has been transferred to Sort Group Ltd.

2020

The Group acquired a 40% interest in Meridian Holdings Group Limited on 12 October 2020 at a cost of £1,340,000.

The Group acquired a further 24% interest in Clear Mortgage Solutions Limited on 17 December 2020 at an initial consideration of £461,593.

In connection with Australian Finance Group Ltd becoming the Group's new joint venture partner for MAB Broker Services PTY Ltd, the Group increased its investment in MAB Broker Services PTY Limited by 3.05% on 30 October 2020 at a cost of £543,095 (AUD1,000,000).

In accordance with IAS28 the Group reduced the value of the investment in The Mortgage Broker Group Limited by £472,850 due to its performance, reflecting the fair value carrying amount of the investment.

As the associates are private companies, published share prices are not available.

Summarised financial information for associates

The tables below provide summarised financial information for those associates and joint ventures that are material to the Group. The information disclosed reflects the amounts presented in the financial statements of the relevant associates and joint ventures and not the Group's share of those amounts:

2021	Evolve FS Ltd £'000	Heron Financial Ltd £'000	Meridian Holdings Group ltd £'000	Sort Group Limited £'000	Pinnacle Surveyors (England & Wales) Limited £'000
Non-current assets	53	259	1,948	350	26
Cash balances	1,433	351	1,648	1,598	602
Current assets (excluding cash balances)	206	122	1,179	749	1,332
Current liabilities	(747)	(115)	(1,496)	(1,129)	(751)
Non-current liabilities and provisions	-	(268)	(878)	(236)	(300)
Revenue	5,395	2,822	7,957	10,487	5,723
Profit/(loss) before taxation	857	602	535	772	850
Total comprehensive income (PAT)	691	505	433	591	695
Profit attributable to Group	151	-	178	346	341
Dividends received	-	-	-	-	225*

 

 

2020	Buildstore Ltd £'000	Clear Mortgage Solutions Ltd £'000	Sort Group Limited £'000	Pinnacle Surveyors (England & Wales) Limited £'000
Non-current assets	188	94	386	25
Cash balances	764	1,067	1,409	575
Current assets (excluding cash balances)	612	158	453	1,101
Current liabilities	(856)	(419)	(1,327)	(789)
Non-current liabilities and provisions	(60)	(272)	(171)	(359)
Revenue	3,271	5,280	7,787	3,918
Profit/(loss) before taxation	201	781	790	459
Total comprehensive income (PAT)	163	470	557	375
Profit attributable to Group	34	131	213	184
Dividends received	-	-	-	108*

 

Individually immaterial associates and joint ventures

In addition to the interests in associates disclosed above, the Group also has interests in a number of individually immaterial associates and a joint venture that are accounted for using the equity method. The aggregate of the summarised financial information for these associates is shown below, along with the summarised financial information for the joint venture. The information disclosed reflects the amounts presented in the financial statements of the relevant associates and the joint venture and not the Group's share of those amounts:

	2021 Associates £'000	2020 Associates £'000	2021 Joint Venture £'000	2020 Joint Venture £'000
Non-current assets	439	351	38	41
Cash balances	2,832	2,275	715	1,537
Current assets (excluding cash balances)	1,718	1,067	1,934	502
Current liabilities	(1,489)	(1,441)	(444)	(338)
Non-current liabilities and provisions	(1,131)	(674)	-	-
Revenue	15,147	11,846	939	833
Profit/(loss) before taxation	711	1,199	(887)	(857)
Total comprehensive income (PAT)	513	761	40	(857)
Profit attributable to Group	(5)	20	-	(546)
Dividends received	50	50	-	-

 

* These dividends are received from CO2 Commercial Limited, the parent undertaking of Pinnacle Surveyors (England & Wales) Limited. All other information disclosed above relates to Pinnacle Surveyors (England & Wales) Limited.

All associates prepare their financial statements in accordance with FRS 102 other than MAB Broker Services PTY Limited who prepare their financial statements in accordance with the Australian Accounting Standards. There would be no material difference to the profit attributable to the Group if the accounts of any of the associates were prepared in accordance with IFRS.

Derivative financial instruments

The fair value of the call option at 31 December 2021 for Evolve is £124,055. The fair value of the call option and put option at 31 December 2021 for Heron is £95,455 and £34,235 respectively. The fair value of the call option and put option at 31 December 2021 for Meridian are £142,895 and £7 respectively

The fair values of the option contracts have been calculated using an option valuation model. The key assumptions used to value the options in the model are the value of shares in the associate, the anticipated growth of the business, the option exercise price, the expected life of the option, the expected share price volatility of similar businesses, forecast dividends and the risk-free interest rate. The gain relating to the derivative financial instruments is included within 'operating profit'. These financial instruments are categorised as Level 3 within the fair value hierarchy.

16    Investments in non-listed equity shares

	2021 £'000	2020 £'000
As at 1 January	75	75
Additions	2,500	-
Revaluation	283
Disposals	(75)	-
As at 31 December	2,783	75

 

The investment at the start of the year represented a 2.23% interest in Yourkeys Technology Ltd. This was sold on 23 April 2021 for initial consideration of £329,000 with estimated total proceeds (including deferred consideration) of £386,000.

On 9 April 2021, the Group acquired a 3.17% stake in PD Innovations Limited, trading as the property portal Boomin for a cash consideration of £2,500,000. This investment is classified as Level 3 for the purpose of disclosure in the fair value hierarchy, with any fair value movements taken to the consolidated statement of comprehensive income. The Group has determined that using the market approach is an appropriate method of estimating the fair value of this financial instrument.

At 31 December 2021, the Group had a shareholding of 2.92% in PD Innovations Limited, trading as Boomin, at a value of £2,783,000 with an increase in value of £283,000 recognised in the consolidated statement of comprehensive income during the year. In determining the fair value, the market approach was used with reference to recent transactions. This investment continues to be classified as Level 3 for the purpose of disclosure in the fair value hierarchy.

 

17    Subsidiaries

The subsidiaries of Mortgage Advice Bureau (Holdings) plc at the reporting date have been included in the consolidated financial statements. The subsidiaries are as follows:
 

Company name	Country of Incorporation	Percentage of ordinary shares held	Nature of business
Mortgage Advice Bureau Limited	England and Wales	100	Provision of financial services
Mortgage Advice Bureau (Derby) Limited	England and Wales	100	Provision of financial services
Capital Protect Limited	England and Wales	100	Provision of financial services
Mortgage Talk Limited	England and Wales	100	Provision of financial services
MABWM Limited	England and Wales	100	Provision of financial services
First Mortgage Direct Limited	Scotland	80	Provision of financial services
First Mortgage Limited	Scotland	80	Provision of financial services
Property Law Centre Limited	Scotland	80	Provision of financial services
Talk Limited	England and Wales	100	Intermediate holding company
Mortgage Advice Bureau Australia (Holdings) PTY Limited	Australia	100	Intermediate holding company
Mortgage Advice Bureau PTY Limited	Australia	100	Holding of intellectual property
Mortgage Advice Bureau (UK) Limited	England and Wales	100	Dormant
Mortgage Advice Bureau (Bristol) Limited	England and Wales	100	Dormant
MAB (Derby) Limited	England and Wales	100	Dormant
L&P 137 Limited	England and Wales	100	Dormant
Mortgage Talk (Partnership) Limited	England and Wales	100	Dormant
Financial Talk Limited	England and Wales	100	Dormant
Survey Talk Limited	England and Wales	100	Dormant
L&P 134 Limited	England and Wales	100	Dormant
Loan Talk Limited	England and Wales	100	Dormant
MAB1 Limited	England and Wales	100	Dormant
MAB Private Finance Limited	England and Wales	100	Dormant
MAB Financial Planning Limited	England and Wales	100	Dormant
First Mortgage Shop Limited	Scotland	80	Dormant
First Mortgages Limited	Scotland	80	Dormant
Fresh Start Finance Limited	Scotland	80	Dormant

 

The registered office for all of the subsidiaries of Mortgage Advice Bureau (Holdings) plc, as listed in the table above, is Capital House, Pride Place, Pride Park, Derby, DE24 8QR, United Kingdom, other than for the two subsidiaries incorporated in Australia for which the registered office is Norton Rose Fulbright, Level 18, 225 George Street, Sydney, NSW 2000, Australia and First Mortgage Direct Limited and its subsidiaries for which the registered office is 30 Walker Street, Edinburgh, EH3 7HR.

                                

Mortgage Advice Bureau Australia (Holdings) PTY Limited has a 100% equity stake in Mortgage Advice Bureau PTY Limited and also a 48.05% equity stake in MAB Broker Services PTY Limited.

 

Mortgage Advice Bureau (Holdings) plc holds 100% of the ordinary share capital of Mortgage Advice Bureau Limited and Talk Limited.

 

Mortgage Advice Bureau Limited holds 100% of the ordinary share capital of Mortgage Advice Bureau (Derby) Limited, Capital Protect Limited, MABWM Limited and Mortgage Advice Bureau Australia (Holdings) PTY Limited. On 2 July 2019, Mortgage Advice Bureau Limited acquired 80% of the ordinary share capital of First Mortgage Direct Limited.

 

First Mortgage Direct Limited holds 100% of the ordinary share capital of First Mortgage Limited, Property Law Centre Limited, First Mortgages Limited, First Mortgage Shop Limited and Fresh Start Finance Limited.

 

Talk Limited holds 100% of the ordinary share capital of Mortgage Talk Limited, L&P 137 Limited, Mortgage Talk (Partnership) Limited, Financial Talk Limited and Survey Talk Limited.

 

Mortgage Talk Limited holds 100% of the ordinary share capital of Loan Talk Limited.

 

L&P 137 Limited holds 100% of the ordinary share capital of L&P 134 Limited.

 

Two of the Group's subsidiaries, First Mortgage Limited (SC177681) and Property Law Centre Limited (SC348791) are exempt from the audit of individual accounts under section 479A of the Companies Act 2006.

 

There are no restrictions regarding the utilisation of cash or other resources held by any subsidiary.

 

18    Trade and other receivables

	2021		2020
	£'000		£'000
Trade receivables	1,741		1,460
Less provision for impairment of trade receivables	(374)		(379)
Trade receivables - net	1,367		1,081
Receivables from related parties	-		12
Other receivables	448		468
Loans to related parties	1,398		1,919
Less provision for impairment of loans to related parties	(2)		(614)
Less amounts written off loans to related parties	(628)		(1,069)
Total non derivative financial assets other than cash and cash equivalents classified at amortised costs	2,583		1,797
Prepayments and accrued income	4,856		4,113
Corporation tax	-		499
Total trade and other receivables	7,439		6,409
Less: non-current portion - Loans to related parties	(541)		(220)
Less: non-current - Trade receivables	(557)		(586)
Current portion	6,341		5,603

 

 

	2021		2020
Reconciliation of movement in trade and other receivables to cash flow	£'000		£'000
Movement per trade and other receivables	1,030		(1,880)
Corporation tax	499		(499)
Accrued interest movement	16		18
Accrued interest write off	(15)		-
Accrual of deferred consideration for Yourkeys disposal	(55)		-
Total movement per cash flow	1,475		(2,361)

 

 

The carrying value of trade and other receivables classified at amortised cost approximates fair value.

Included within trade receivables are operational business development loans to Appointed Representatives. The non-current trade receivables balance is comprised of loans to Appointed Representatives.

Also included in trade receivables are amounts due from Appointed Representatives relating to commissions that are refundable to the Group when policy lapses or other reclaims exceed new business. As these balances have no credit terms, the Board of Directors consider these to be past due if they are not received within seven days. In the management of these balances, the Directors can recover them from subsequent new business entered into with the Appointed Representative or utilise payables that are owed to the same counterparties and included within payables as the Group has the legally enforceable right of set off in such circumstances. These payables are considered sufficient by the Directors to recover receivable balances should they default, and, accordingly, credit risk in this respect is minimal.

In light of the above, the Directors do not consider that disclosure of an aging analysis of trade and other receivables would provide useful additional information. Further information on the credit quality of financial assets is set out in note 21.

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. As at 31 December 2021 the lifetime expected loss provision for trade receivables is £0.4m (2020: £0.4m) The movement in the impairment allowance for trade receivables has been included in cost of sales in the consolidated statement of comprehensive income.

Impairment provisions for loans to associates are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised. In determining the lifetime expected credit losses for loans to associates, the Directors have considered different scenarios for repayments of these loans and have applied percentage probabilities to each scenario for each associate where applicable.

 

A summary of the movement in the provision for the impairment of receivables is as follows:

	2021		2020
	£'000		£'000
As at 1 January	379		363
New provisions for impairment losses	4		81
Increases in existing provisions for impairment losses	5		5
Impairment provisions no longer required	(14)		(70)
As at 31 December	374		379

 

A summary of the movement in the provision for the impairment of loans to related parties is as follows:

	2021		2020
	£'000		£'000
As at 1 January	614		171
Increases in existing provisions for impairment losses	-		611
Impairment provisions no longer required	(612)		(168)
As at 31 December	2		614

 

During the year, a principal loan balance of £0.6m has been written off in respect of Eagle and Lion Limited which represents the principal loan balance write off and release of £0.6m of expected credit losses already recognised in the prior year. The movement in the impairment allowance for receivables for loans to associates has been included in impairment of loans to related parties in the consolidated statement of comprehensive income. As at 31 December 2021 the lifetime expected loss provision for loans to associates is £0.0m (2020: £0.6m), with 12 month expected credit losses recognised for remaining associates.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above less collateral held as security. Details of security held are given in note 21.

19    Cash and cash equivalents

			2021 £'000				2020 £'000
	Unrestricted cash and bank balances		17,548				18,550
	Bank balances held in relation to retained commissions		16,863				14,431
	Cash and cash equivalents		34,411				32,981

Bank balances held in relation to retained commissions earned on an indemnity basis from protection policies are held to cover potential future lapses in Appointed Representatives commissions. Operationally the Group does not treat these balances as available funds. An equal and opposite liability is shown within Trade and other payables (note 20).

20    Trade and other payables

		2021 £'000		2020 £'000
	Appointed Representatives retained commission	16,863		14,431
	Other trade payables	6,255		5,447
	Trade payables	23,118		19,878
	Social security and other taxes	1,305		1,289
	Other payables	70		154
	Deferred consideration (see note 15)	2,212		-
	Accruals	5,220		2,341
	Total trade and other payables	31,925		23,662

Should a protection policy be cancelled within four years of inception, a proportion of the original commission will be clawed back by the insurance provider. The majority of any such repayment is payable by the Appointed Representative. It is the Group's policy to retain a proportion of commission payable to the Appointed Representative to cover such potential future lapses; these sums remain a liability of the Group. This commission is held in a separate ring fenced bank account as described in note 19.

As at 31 December 2021 and 31 December 2020, the carrying value of trade and other payables classified as financial liabilities measured at amortised cost approximates fair value.

Appointed Representatives retained commission is expected to be payable after more than one year.  Other trade payables normally fall due within 30 to 60 days.

21    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. Further quantitative information in respect of these risks is presented throughout these financial statements.

Principal financial instruments

 

·      Trade and other receivables 

·      Investments in non-listed equity shares

·      Derivative financial instruments  

·      Cash and cash equivalents  

·      Trade and other payables

 

 

A summary of financial instruments held by category is provided below:

 

 

Financial assets	2021	2020
	£'000	£'000
Cash and cash equivalents	34,411	32,981
Investments in non-listed equity shares (FVTPL)	2,783	75
Trade and other receivables (Amortised cost)	2,583	1,797
Derivative financial instruments (FVTPL)	362	-
Total financial assets	40,139	34,853

 

Financial liabilities	2021	2020
	£'000	£'000
Trade and other payables	24,493	21,321
Deferred consideration	2,212	-
Accruals	5,220	2,341
Lease liabilities	2,596	2,695
Derivative financial instruments	34	-
Total financial liabilities	34,555	26,357

 

 

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group's risk management objectives and policies, and designs and operates processes that ensure the effective implementation of the objectives and policies to the Group's finance function. The Board sets guidelines to the finance team and monitors adherence to its guidelines on a monthly basis.

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.

Credit risk

Credit risk is the risk of financial loss to the Group if a trading partner or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from loans to its trading partners. It is Group policy to assess the credit risk of trading partners before advancing loans or other credit facilities. Assessment of credit risk utilises external credit rating agencies. Personal guarantees are generally obtained from the Directors of its trading partners.

Quantitative disclosures of the credit risk exposure in relation to financial assets are set out below. Further disclosures regarding trade and other receivables are given in note 18.

 

Financial assets - maximum exposure	2021		2020
	£'000		£'000
Cash and cash equivalents	34,411		32,981
Investments in non-listed equity shares (FVTPL)	2,783		75
Trade and other receivables (Amortised cost)	2,583		1,797
Derivative financial instruments (FVTPL)	362		-
Total financial assets	40,139		34,853

The carrying amounts stated above represent the Group's maximum exposure to credit risk for trade and other receivables. An element of this risk is mitigated by collateral held by the Group for amounts due to them.

Trade receivables consist of a large number of unrelated trading partners and therefore credit risk is not concentrated. Due to the large volume of trading partners the Group does not consider that there is any significant credit risk as a result of the impact of external market factors on their trading partners. Additionally, within trade payables are amounts due to the same trading partners that are included in trade receivables; this collateral of £822,382 (2020: £325,538) reduces the credit risk.

The Group's credit risk on cash and cash equivalents is limited because the Group places funds on deposit with National Westminster Bank Plc and Bank of Scotland Plc which are A/A+ and A+ rated respectively.

Interest rate risks

The Group's interest rate risk arises from cash on deposit. The Group aims to maximise its return on cash on deposit whilst ensuring that cash is available to meet liabilities as they fall due. Current market deposit interest rates are minimal and therefore any fall in these rates is unlikely to have a significant impact on the results of the Group.

Foreign exchange risk

As the Group does not operate outside of the United Kingdom and has only one investment outside the UK, it is not exposed to any material foreign exchange risk.

Liquidity risk

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The Group's trade and other payables are repayable within one year from the reporting date and the contractual undiscounted cash flow analysis for the Group's trade and other payables is the same as their carrying value. The contractual maturities of financial liabilities are as follows:

 

31 December 2021		Within 1 year	1 - 2 years	2 -5 years	After 5 years	Total
Trade and other payables		7,630	-	-	-	7,630
Deferred consideration		1,483	729	-	-	2,212
Accruals		3,942	183	1,095	-	5,220
Lease liabilities		449	454	1,228	665	2,796
Derivative financial instruments		-	34	-	-	34
Total		13,504	1,400	2,323	665	17,892

 

31 December 2020		Within 1 year	1 - 2 years	2 -5 years	After 5 years	Total
Trade and other payables		6,890	-	-	-	6,890
Accruals		1,620	67	654	-	2,341
Lease liabilities		401	390	1,142	1,006	2,939
Total		8,911	457	1,796	1,006	12,170

The appointed representatives retained commissions balance of £16.9m has been excluded from the maturity analysis due to there being an equal cash balance held within cash and cash equivalents. There is therefore no liquidity risk relating to this balance.

The Board receives annual 12 month cash flow projections based on working capital modelling as well as information regarding cash balances monthly. At the end of the financial year, these projections indicated that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances. Additionally, the Group has financial resource requirements set by its regulator, the Financial Conduct Authority. The Board has set a policy to ensure that adequate capital is maintained to ensure that these externally set financial resource requirements are exceeded at all times. Quarterly reports are made to the Financial Conduct Authority and submission is authorised by the Chief Financial Officer, at which time capital adequacy is re-assessed.

Capital management

The Group monitors its capital which consists of all components of equity (i.e. share capital, share premium, capital redemption reserve, share option reserve and retained earnings).

The Group's objectives when maintaining capital are:  

·           To safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders

·           To ensure that capital is maintained at all times to ensure that financial resource requirements set by its regulator, the Financial Conduct Authority, are exceeded at all times

·           To ensure the Group has the cash available to develop the services provided by the Group to provide an adequate return to shareholders.

 

22    Provisions

Clawback provision	2021 £'000	2020 £'000
As at 1 January	4,576	3,735
Charged to the consolidated statement of comprehensive income	1,140	841
As at 31 December	5,716	4,576

The provision relates to refund liabilities for the estimated cost of repaying commission income received upfront on protection policies that may lapse in the four years following issue. Under the Group's revenue contracts with protection providers, if the policy is cancelled by the customer within a four year period after the inception of the policy then a proportion of the commission received upfront has to be repaid to the protection provider. Provisions are held in the financial statements of four of the Group's subsidiaries: Mortgage Advice Bureau Limited, Mortgage Advice Bureau (Derby) Limited, First Mortgage Direct Limited and First Mortgage Limited. The exact timing of any future repayments (termed 'clawbacks') within the four year period is uncertain and the provision was based on the Directors' best estimate, using industry data where available, of the probability of clawbacks to be made.

 

23    Deferred tax

Deferred tax is calculated in full on temporary differences using tax rates of 19% and 25% depending on when the temporary differences are expected to unwind (2020: 19%).

The movement in deferred tax is shown below:

 

	2021 £'000	2020 £'000
Net deferred tax asset - opening balance	179	866
Recognised in the consolidated statement of comprehensive income	286	(13)
Deferred tax movement recognised in equity	649	(674)
Net deferred tax asset - closing balance	1,114	179

 

The deferred tax balance is made up as follows:

 

	2021 £'000		2020 £'000
Accelerated capital allowances	(686)		(643)
Other timing differences	108		91
Share-based payment	1,692		731
Net deferred tax asset	1,114		179

 

Reflected in the consolidated statement of financial position as follows:	2021 £'000		2020 £'000
Deferred tax liability	(757)		(643)
Deferred tax asset	1,871		822
Net deferred tax asset net	1,114		179

Deferred tax liabilities have arisen due to capital allowances which have been received ahead of the depreciation charged in the accounts and due to derivative financial assets.

A change to the corporation tax rate was substantively enacted on 24 May 2021 to increase to 25% with effect from 1 April 2023. The impact of this in the year has been to increase the tax charge by £88,750.

 

24    Share capital

Issued and fully paid	2021 £'000		2020 £'000
Ordinary shares of 0.1p each	53		53
Total share capital	53		53

 

During the year 51,433 ordinary shares of 0.1p each were issued following partial exercise of options issued in April 2018 at no premium. As at 31 December 2021, there were 53,204,620 ordinary shares of 0.1p in issue (2020: 53,153,187). See also note 29.

 

 

25    Reserves

The Group's policy is to maintain an appropriate capital base and comply with its externally imposed capital requirements whilst providing maximum shareholder value.

The following describes the nature and purpose of each reserve within equity:

Reserve	Description and purpose
Share premium	Amount subscribed for share capital in excess of nominal value.
Capital redemption reserve       Share option reserve	The capital redemption reserve represents the cancellation of part of the original share capital premium of the company at par value of any shares repurchased.   The fair value of equity instruments granted by the Company in respect of share based payment transactions and deferred tax recognised in equity.
Retained earnings	All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

There is no restriction on the distribution of retained earnings.

26    Retirement benefits

The Group operates defined contribution pension schemes for the benefit of its employees and also makes contributions to a self-invested personal pension ("SIPP"). The assets of the schemes and the SIPP are held separately from those of the Group in independently administered funds. The pension cost charge represents contributions payable by the Group to the SIPP and amounted to £1,454,025 (2020: £1,199,044). There were contributions payable to the SIPP as at 31 December 2021 of £130,792 (2020: £36,128).

27    Related party transactions

The following details provide the total amount of transactions that have been entered into with related parties during the twelve months ended 31 December 2021 and 2020, as well as balances with related parties as at 31 December 2021 and 31 December 2020.

During the period the Group paid commission of £906,073 (2020: £960,289) to Buildstore Limited, an associated company. There was a balance of £10,443 (2020: £21,213) of retained commission to cover future lapses. As at 31 December 2021, there was no loan outstanding from Buildstore Limited (2020: £17,757).

During the period the Group received introducer commission from Sort Limited, a subsidiary of an associated company of £1,391,232 (2020: £988,674). As at 31 December 2021, there was a net loan of £218,369 outstanding with Sort Group Limited (2020: £218,369).

 

During the period the Group paid commission of £5,001,507 (2020: £4,960,645) to Clear Mortgage Solutions Limited, an associated company. There was a balance of £542,290 (2020: £414,563) of retained commission to cover future lapses.

During the period up to and including 13th January 2021 when the Group ceased to have an investment in Freedom 365 Mortgage Solutions Limited, the Group paid commissions of £2,069 (2020: £297,545) to Freedom 365 Mortgage Solutions Limited. There was a balance of £78,402 (2020: £78,402) of retained commission to cover future lapses. At the point of termination on 13th January 2021, there was no loan outstanding from Freedom 365 Mortgage Solutions Limited (2020: £nil).

During the period the Group paid commission of £1,830,584 (2020: £1,315,108) to Vita Financial Limited, an associated company. There was a balance of £253,948 (2020: £159,113) of retained commission to cover future lapses.

During the period the Group paid commission of £nil (2020: £222,730) to Eagle & Lion Limited, an associated company. There was a balance of £nil (2020: £nil) of retained commission to cover future lapses. As at 31 December 2021, there was no loan outstanding from Eagle & Lion Limited (2020: £611,385).

 

During the period the Group paid commission of £1,634,833 (2020: £1,572,282) to The Mortgage Broker Group Limited, an associated company. There was a balance of £66,785 (2020: £66,781) of retained commission to cover future lapses.

During the period the Group paid commission of £3,990,911 (2020: £954,995l) to Meridian Holdings Group Limited, an associated company. There was a balance of £545,605 (2020: £545,578) of retained commission to cover future lapses. As at 31 December 2021, there was a loan outstanding from Meridian Holdings Group Limited of £550,069 (2020: £nil).

During the period the Group paid commission of £1,352,455 (2020: £nil) to M&R FM Ltd, an associated company. There was a balance of £34,598 (2020: £nil) of retained commission to cover future lapses.

During the year the Group received dividends from associated companies as follow:

	2021 £'000	2020 £'000
CO2 Commercial Limited	225	108
Lifetime FS Limited	50	50
Total dividends received	275	158

 

 

28    Ultimate controlling party

 

There is no ultimate controlling party.

 

29    Share based payments

Mortgage Advice Bureau Executive Share Option Plan

The Group operates two equity-settled share based remuneration schemes for Executive Directors and certain senior management, one being an approved scheme, the other unapproved, but with similar terms. Half of the options are subject to a total shareholder return (TSR) performance condition and the remaining half are subject to an earnings per share (EPS) performance condition. The outstanding options in the unapproved scheme vest as follows:

For options granted during 2018 and outstanding as at 1 January 2021:

·   100% based on performance to 31 March 2021, exercisable between 11 April 2021 and 9 April 2026.

For options granted during 2019 and outstanding as at 1 January 2021:

·   100% based on performance to 31 March 2022, exercisable between 1 July 2022 and 1 July 2027.

For options granted during 2020 and outstanding as at 1 January 2021:

·   100% based on performance to 31 March 2023, exercisable between 22 April 2023 and 21 July 2028.

For options granted during the year:

·   100% based on performance to 31 March 2024, exercisable between 1 April 2024 and 31 March 2029.

The number and weighted average exercise prices (WAEP) of, and movements in, share options during the year for the Mortgage Advice Bureau Executive Share Option Plan:

 

	2021 WAEP £	2021 Number	2020 WAEP £	2020 Number
Outstanding as at 1 January	0.001	504,462	2.74	1,707,868
Granted during the year	0.001	115,502	0.001	203,668
Exercised	0.001	(51,433)	3.30	(1,310,220)
Lapsed *	-	(108,151)	-	(96,854)
Outstanding as at 31 December	0.001	460,380	0.001	504,462

 

*Due to not fully vesting, retirement or leaving the Group.

 

As at 31 December 2021, 460,380 options over ordinary shares of 0.1 pence each in the Company were exercisable with a weighted average exercise price of £0.001.

On 1 April 2021, 115,502 options over ordinary shares of 0.1 pence each in the Company were granted to the Executive Directors and senior executives of MAB under the equity-settled Mortgage Advice Bureau Executive Share Option Plan (the "Options") with a weighted average fair value of £8.14 per option. Exercise of the Options is subject to the service conditions and achievement of performance conditions based on total shareholder return and earnings per share criteria. Subject to achievement of the performance conditions, the Options will be exercisable 3 years from the date of grant. The exercise price for the Options is 0.1 pence, being the nominal cost of the Ordinary Shares.

Options exercised in April 2021 resulted in 21,802 ordinary shares being issued at an exercise price of 0.1p per share. The price of the ordinary shares at the time of exercise was £12.40 per share.

Options exercised in June 2021 resulted in 29,631 ordinary shares being issued at an exercise price of 0.1p per share. The price of the ordinary shares at the time of exercise was £12.05 per share.

For the share options outstanding under the Mortgage Advice Bureau Executive Share Option Plan as at 31 December 2021, the weighted average remaining contractual life is 1.2 years (2020: 1.5 years).

The following information is relevant in the determination of the fair value of options granted during the year under the equity-settled share based remuneration scheme operated by the Group.

	2021	2020
Equity-settled
Option pricing model - EPS	Black-Scholes	Black-Scholes
Option pricing model - TSR	Stochastic	Stochastic
Exercise price	£0.001	£0.001
Expected volatility	39.41%	39.53%
Expected dividend yield	2.23%	3.98%
Risk free interest rate	0.18%	0.00%

 

Expected volatility is a measure of an amount by which the share price is expected to fluctuate during a period. Dividends paid on shares reduce the fair value of an award as a participant does not receive the dividend income on these shares. For the share options granted during the year the historic dividend yield has been used, calculated as dividends announced in the 12 months prior to grant (excluding special dividends) calculated as a percentage of the share price on the date of grant to give a dividend yield of 2.23%.

The Options offer participants the opportunity to benefit from increasing per share value without risking the current per share price. The risk-free rate used is the rate of interest obtainable from UK government securities as at the date of grant over the expected terms.

The options granted this year have vesting periods of 3 years from the date of grant and the calculation of the share based payment is based on these vesting periods.

 

MAB AR Option Plan

The Group operates an equity-settled share plan, the AR Option Plan, to reward selected ARs of the Group. The AR Option Plan provides for options which have a nominal exercise price of 0.01 pence per share (or, for any individual AR, not less than £1 on each occasion of exercise) to acquire Ordinary Shares subject to performance conditions. Certain criteria must be met in order for ARs to be eligible, including using the Mortgage Advice Bureau brand and being party to an AR Agreement which provides for an initial contract term of at least five years at the date of grant. The AR Options will normally become exercisable following the fifth anniversary of grant subject to the satisfaction of performance conditions based on financial and other targets, including quality of consumer outcomes, compliance standards and continued use of the Mortgage Advice Bureau brand.

The number and weighted average exercise prices (WAEP) of, and movements in, share options during the year for the MAB AR Option Plan:

	2021 WAEP	2021 Number	2020 WAEP	2020 Number
Outstanding as at 1 January	-	-	0.01p	255,000
Granted during the year	-	-	-	-
Exercised during the year	-	-	0.01p	(230,760)
Lapsed during the year	-	-	0.01p	(24,240)
Outstanding as at 31 December	-	-	-	-

 

 

Share-based remuneration expense

The share-based remuneration expense of £1,932,375 (2020: £967,438) includes the charge for the equity-settled schemes of £667,261 (2020: £182,979) and related employer's National Insurance Contributions of £392,664 (2020: £185,815). In 2020, the charge for the equity-settled scheme included gross charges of £610,413 and the reversal of £427,434 of charges for the non-vesting proportions of the 2017 and 2018 grants of options subject to EPS performance criteria (with 2018 options vesting affected by the pandemic being the majority of this) and the non-vesting proportion of AR options. Also included are the matching element of the Group's Share Incentive Plan for all employees of £107,039 (2020: £85,465), costs for free shares awarded to employees of £222,567 (2020: £70,750) and £542,844 (2020: £442,428) in respect of the option relating to First Mortgage Direct Limited. IFRS 2 charges relating to the non-vesting of proportions of the 2017 and 2018 grants of options subject to EPS performance criteria have been reversed during the year.

Options exercised during the period resulted in a transfer from the Share option reserve to Retained earnings of £143,000 (2020: £943,000) reflected in the consolidated statement of changes in equity.

The Group did not enter into any share-based payment transactions with parties other than employees during the current or previous year.

30    Non-controlling interests (NCI)

Accounting policy choice for non-controlling interests

 

The Group recognises non-controlling interests in an acquired entity either at fair value or at the non-controlling interest's proportionate share of the acquired entity's net identifiable assets. This decision is made on an acquisition-by-acquisition basis. For the non-controlling interests in First Mortgage Direct Limited, the Group elected to recognise the non-controlling interests at its proportionate share of the acquired net identifiable assets. See note 1 for the Group's accounting policies for business combinations.

 

Set out below is summarised financial information for each subsidiary that has a non-controlling interest that is material to the Group. The amounts disclosed for each subsidiary are before inter-company eliminations.

 

 

Summarised balance sheet	First Mortgage Direct Limited 2021 £'000	First Mortgage Direct Limited 2020 £'000
Current assets	11,198	9,193
Current liabilities	(2,428)	(1,625)
Current net assets	8,770	7,568
Non-current assets	3,447	2,870
Non-current liabilities	(4,093)	(3,802)
Non-current net liabilities	(646)	(932)
Net assets	8,124	6,636
Accumulated NCI	2,205	1,908
Summarised statement of comprehensive income	£'000	£'000
Revenue	16,587	13,257
Profit for the period and total comprehensive income	2,752	1,996
Profit allocated to NCI	550	399
Dividends paid to NCI	253	86
Summarised cash flows	£'000's	£'000's
Cash flows from operating activities	6,200	2,490
Cash flows from investing activities	(730)	(80)
Cash flows from financing activities	(1,659)	(432)
Net increase in cash & cash equivalents	3,811	1,978

 

31    Contingent liabilities

The Group had no contingent liabilities as at 31 December 2021 or 31 December 2020.

32    Events after the reporting date

On 28 March 2022 Mortgage Advice Bureau (Holdings) plc announced that it had agreed to acquire 75.4% of Project Finland Topco Limited, which indirectly owns 100% of The Fluent Money Group Limited ("Fluent" or the "Business") from its current shareholders including Beech Tree Private Equity and founders for an enterprise value of £95 million on a debt free, cash free basis (the "Acquisition"). Fluent is a technology enabled telephony mortgage broking platform that has developed a leading end to end digital customer journey with approximately 420 employees including c.125 advisers across Mortgages (first charge mortgages), Secured Personal Loans (second charge mortgages), Later Life lending and Bridging Finance. The Acquisition will be funded from the Company's existing cash resources, new debt facilities up to £35m and the proceeds of a proposed placing of new ordinary shares in the Company, raising up to £40 million.

The founder shareholders will retain a 24.6% ownership stake at completion. Total consideration at completion will comprise c.£73 million paid in cash, subject to adjustment to reflect the daily cash generation of Fluent if completion takes place before or after 30 June 2022. MAB will have the right to acquire the outstanding 24.6% after six years at a valuation subject to certain performance criteria under a mutual put / call arrangement. Total consideration for the put/call arrangement will be capped at £120 million and MAB can, at its discretion, satisfy up to 50% of the consideration through the issue of new ordinary shares in MAB.

MAB and Fluent will be able to leverage their respective unique selling points and leading technology capabilities to be the leading player in the rapidly expanding national customer lead source market.

MAB also entered into an agreement on 28 March 2022 with NatWest, in respect of a new term loan for £20m and a new revolving credit facility for £15m, in order to part fund the cash consideration payable in relation to the Acquisition. It is MAB's intention to repay the drawn down proportion of this debt facility as soon as practicable. MAB's practice over recent years has been to pay out approximately 75% of its adjusted profit after tax and minority interests as dividends and MAB intends to keep that level of pay out.

The terrible atrocities currently unfolding in Ukraine increase the economic uncertainty, and the longer-term financial consequences are unknown. Energy prices are already impacted, as are businesses with trade both to and from Russia. MAB has no interests which are directly impacted by the conflict.

There were no other material events after the reporting period, which have a bearing on the understanding of these consolidated financial statements.

 

33    Notes supporting statement of cash flows

Cash and cash equivalents for purposes of the consolidated statement of cash flows comprises:

 

	2021		2020
	£'000		£'000
Cash at bank available on demand	17,548		18,550
Bank balances held in relation to retained commissions	16,863		14,431
Total cash and cash equivalents	34,411		32,981

 

Financing activities for the purposes of the consolidated statement of cash flows comprises:

 

	2021		2020
	£'000		£'000
Lease liabilities	2,596		2,695
Loans and borrowings	-		-
Total financing activities	2,596		2,695

 

A reconciliation of lease liabilities has been presented separately in note 13. In 2020, to give the Group additional flexibility to react quickly and capitalise on potential opportunities, the Group drew down its Revolving Credit Facility in full in March 2020. This was fully repaid in 2020 including accrued interest of £0.2m. No drawdown of the facility was made in 2021.