MORTGAGE ADVICE BUREAU (HOLDINGS) PLC

("MAB" or "the Group")

28 March 2023

Final Results for the year ended 31 December 2022

Mortgage Advice Bureau (Holdings) plc (AIM: MAB1.L) is pleased to announce its final results for the year ended 31 December 2022.

Financial highlights

Operational highlights

Current trading

* In addition to statutory reporting, MAB reports alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("IFRS"). The Group uses these APMs to improve the comparability of information between reporting periods, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group's businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. A summary of APMs used and their closest equivalent statutory measures is given in the Glossary of Alternative Performance Measures.

Peter Brodnicki, Chief Executive, commented: 

"Despite a challenging year for mortgage intermediaries on numerous fronts, I am pleased with our 2022 performance and market share growth, with revenue up 22% and adjusted EBITDA up 15% on the prior year.

"Prior to the mini-budget in September, the Group was on track for 2023 to be a record year of growth, despite an expected softening in housing transactions due to inflationary pressures. Although mortgage transaction levels have improved since the collapse post mini-budget, they remain circa 35% down year to date compared to the same period in 2022.

"MAB is performing considerably better than wider transaction numbers reflect and our market share is continuing to grow strongly.  Current trading is in line with our expectations and we expect a second-half weighted financial performance. This is a strong performance considering the fall in gross mortgage approvals since October 2022 is of a similar scale to the fall seen during the Global Financial Crisis ("GFC"), rather than the normal and more easily managed peaks and troughs we see during fluctuating housing cycles.

"2022 was a milestone year for the business in terms of proposition delivery. Following the acquisition of Fluent, MAB is well-positioned as a leader in the three largest sectors for mortgage lead generation, comprising estate agency, new build, and price comparison websites. The acquisition also extends the Group's customer reach into other specialisms including secured loans, which alone offers significant mortgage re-financing opportunities.

"We also delivered the first stage of our centralised lead generation programme, which is part of our major strategy to drive new lead flow to our partner firms in all market conditions.  We also delivered meaningful time savings in the advice process, with excellent progress being made to deliver significant further time savings over the next 18 months. 2022 also saw the launch of MAB New Homes and a leading protection proposition for the Directly Authorised market through the acquisition of Auxilium. 

"We continue to invest in our employees, with the significant capital investment in our Derby head office providing an excellent working environment to support the accelerated growth expected in the medium term.

"We expect the housing and mortgage markets to recover as they always do, and in the meantime, MAB continues to strengthen its proposition and use the more challenging market to onboard more high-quality firms and grow market share."

Current Trading and Outlook

Although the volume of new mortgage approvals was down by more than 40% in the three months ended 31 January 2023 (and Buy to Let approvals were down by more than 60%), UK Finance forecasts increased re-finance activity in 2023 as 1.8 million borrowers reach the end of their existing deals and need to re-finance onto new ones.  

Current activity levels are better than in Q4 2022, however new mortgage volumes reported in the market remain low. There are early signs of increasing activity, for instance the volume of mortgage searches carried out by advisers on leading mortgage sourcing technology platform Twenty7tec is recovering rapidly, with 10 of their busiest days ever having occurred in February 2023. Mortgage searches in the first two months of the year are up 10% year-on-year. 

Once affordability and consumer confidence return, we expect the market to recover further as lenders reduce mortgage rates and gradually relax lending criteria. As expected, mortgage rates are already far cheaper than they were following the peak post the mini-budget but have now settled at levels that are very different to rates available a year ago.

Despite the current headwinds the Group is trading in line with expectations and continues to outperform the market, successfully growing its market share. Mortgage pipelines are also showing signs of completing more quickly, having been congested for the last few years, and we continue to expect a second-half weighted financial performance.

MAB's long term fundamentals remain strong. We anticipate a strong year ahead for re-financing, a slow but steady improvement in consumer confidence and housing transaction levels, combined with an increase in new appointed representative ("AR") recruitment and the incremental impact of new lead generation initiatives. We are confident that we will continue to grow market share in a tough market this year. MAB is in a very good position to deliver a far stronger financial performance in 2024.

For further information please contact:

Media Enquiries: investor.relations@mab.org.uk

Analyst presentation

There will be an analyst presentation to discuss the results at 9:30am on Tuesday 28 March 2023. 

Those analysts wishing to attend are asked to contact investor.relations@mab.org.uk

Copies of this interim results announcement are available at www.mortgageadvicebureau.com/investor-relations 

¹ Percentage points.

² Includes 182 Fluent advisers as at 31 December 2022 (105 advisers in the first charge mortgages division, 57 in the secured personal loans division, 14 in the later life division, and 6 in the bridging finance division). Includes a total of 180 advisers at 31 December 2022 who are later life advisers or advisers in directly authorised firms that use MAB's subsidiary, Auxilium, a specialist protection service provider, for protection. For both later life and directly authorised advisers the fees received by MAB represent the net income received by MAB as there are no commission payouts made by MAB.

³ Excludes directly authorised advisers, MAB's later life advisers and advisers from associates in the process of being onboarded under MAB's AR arrangements. Includes Fluent's second charge, later life and bridging advisers who have a higher revenue per adviser than first charge advisers.

⁴ First charge mortgage completions, excluding secured personal loans (second charge mortgages), later life lending mortgages and bridging finance, and including completions from associates in the process of being onboarded under MAB's AR arrangements.

⁵ MAB previously reported a 6.3% market share in 2021, but this figure has slightly increased due to UK Finance updating its UK mortgage completions estimates.

⁶ Acquisition of Project Finland Topco Limited, of which The Fluent Money Group Ltd is a wholly-owned subsidiary.

Chief Executive's Review

I am very pleased to report the Group delivered another record performance in 2022, with revenue for the year up 22% to £230.8m (2021: £188.7m) and adjusted profit before tax ("PBT") up 13% to £27.2m (2021: £24.2m). 

The strong increase in revenue was driven by organic⁽¹⁾ growth of 11%, significantly outperforming the market, and the positive contribution of The Fluent Money Group ("Fluent") following its acquisition in July. The 20% increase in the Group's mortgage completions⁽²⁾ is summarised as follows:

By comparison, UK gross new mortgage lending activity (excluding Product Transfers) in 2022 rose by just 2% to £313.9bn (2021: £308.1bn⁽³⁾). MAB increased its market share of UK new mortgage lending by 19% to 7.5% (2021: 6.4%⁽³⁾), with our market share in the second half increasing to 8.2% (H2 2021: 7.1%), and showing strong momentum carrying into 2023. 

The total number of advisers at the year-end was up 20% to 2,254⁽⁴⁾ (2021: 1,885), including 182 advisers at Fluent, with the average number of mainstream⁽⁵⁾ advisers during the year up 21% to 1,988 (2021: 1,649), representing organic growth of 15%.

¹ Organic means the Group before the impact of the acquisitions made in 2022 (Fluent, July 2022; Vita, July 2022; and Auxilium, November 2022).

² First charge mortgage completions, excluding secured personal loans (second charge mortgages), later life lending mortgages and bridging finance, and including completions from associates in the process of being onboarded under MAB's AR arrangements.

³ In 2021 we reported £313.2bn of UK mortgage completions based on UK Finance's latest estimates at the time. UK Finance revised that estimate downwards since then, implying MAB's 2021 market share increased slightly from the previously reported 6.3% to 6.4%.

⁴ Includes 182 Fluent advisers as at 31 December 2022 (105 advisers in the first charge mortgages division, 57 in the secured personal loans division, 14 in the later life division, and 6 in the bridging finance division). Includes a total of 180 advisers at 31 December 2022 who are later life advisers or advisers in directly authorised firms that use MAB's subsidiary, Auxilium, a specialist protection service provider, for protection. For both later life and directly authorised advisers the fees received by MAB represent the net income received by MAB as there are no commission payouts made by MAB.

⁵ Excludes directly authorised advisers, MAB's later life advisers and advisers from associates in the process of being onboarded under MAB's AR arrangements. Includes Fluent's second charge, later life and bridging advisers who have a higher revenue per adviser than first charge advisers.

Delivering our growth strategy

2022 was a year of significantly delayed transactions and product withdrawals and repricing. The mini-budget in September resulted in an immediate and significant knock to economic and consumer confidence, with the associated leap in mortgage interest rates having a severe impact on housing transactions, whilst also delaying existing customers re-fixing their rates when re-financing.

At the half year we highlighted that an expected softening in housing transactions would result in some ARs taking a more cautious view of growth. However, many others that had remained growth focused, including Fluent, immediately cut their expectations and adviser base following the mini-budget due to the negative short-term outlook.

Although the unexpected and extreme market conditions adversely impacted our short-term growth objectives, MAB made major strides in further strengthening its customer, adviser, and AR propositions. Our focus on improving operational efficiency, realising synergies and reducing costs has ensured that MAB is well-positioned to build on the significant market share gains made in 2022 and achieve its growth objectives over the medium to long term.

Acquisition of Fluent

With MAB already holding a strong market position in estate agency and new build, we identified that price comparison websites were attracting an increasing number of customers researching and seeking mortgage advice. Our acquisition of Fluent has enabled MAB to enter this sector as a leader, significantly increasing our customer reach and ability to help more customers at all stages of their research process. 

Fluent also provides access to the large retention market outside of MAB's existing customer base, whilst adding secured loans and bridging finance to the services MAB can offer. The Group's existing equity release expertise and resources have also been enhanced as a result of the acquisition, with Fluent now fully, and successfully, integrated into MAB.

Delivering on lead generation strategy

Our strategy is about investing in our future customers as much as those we are currently advising, supporting our plans to contribute significantly to the lead flow of our AR firms.  

We recognise that securing long-term business success comes from gaining an in-depth understanding of current and prospective clients. During the year we launched tools that empower our future customers to gain a better understanding of financial products and solutions through our Homebuying and MyMAB apps and website, simultaneously equipping ourselves with detailed customer insights to inform future proposition development. 

At MAB, innovation is not all about technology. It's also about human behavioural change and business process change. Our strategy has been focused on lead generation, business quality, customer and broker experience, and consumer education. We have focused on early lead capture to widen the funnel of opportunities for our brokers in all market conditions, increasing the number of potential buyers and using educational coaching to get customers mortgage ready. Data insights captured during this process can significantly improve the quality of the customer experience, and ultimately their conversion at point of advice.

We are also releasing a series of post-completion retention solutions to ensure we always remain at the front of existing customers' minds. This includes regular mortgage reviews as well as early re-financing lead generation opportunities for advisers.

Shortening the advice process

Our aim is to reduce the 10-hour average for an adviser to take a mortgage from enquiry to completion to less than five hours by eliminating duplication and allowing data to move more freely across our digital ecosystem. In addition to driving new adviser growth and increased productivity, the integration of new technology with our key business partners will enable customers to auto-disclose and verify their identity, self-serve their eligibility and affordability, and share data and documents in a secure environment, with the new technology solutions launched during the last year already resulting in a time saving of more than one hour.

Launch of MAB New Homes to builder partners

Following our recent investment in New Homes specialists Evolve and Heron, we have launched a market-leading panel of specialist new build firms to meet the future requirements of our major new build partners nationally. This includes a new technology-led approach to early capture and nurture, and the financial qualification process for the MAB New Homes proposition that allows self-service customer data capture, document capture, and extraction, which we expect to underpin continued year on year market share growth.

Immediate benefits of new working environment

We are committed to fostering an inclusive environment where all our staff can contribute to the innovation and digital transformation of the business. In October we stripped our existing head office building in Derby back to its shell, paving the way for the creation of a new collaborative working environment that caters for hybrid working and delivers a range of work settings for up to 300 employees.

We understand all our employees and teams have different needs in terms of their wellbeing and how they work, which is why we have provided an office space that caters to those needs, levels of accessibility, and unique work styles. These bespoke working environments will offer flexibility in how we work and caters to our diverse colleagues, enabling them to thrive and perform at their very best. In line with our ESG objectives, one of our key aims in the refurbishment was to reduce the environmental impact of the office and provide an outstanding experience for our staff, customers and ARs. We have successfully delivered this.

The positive impact of the new working environment on staff performance and collaboration has been immediate, underpinning our plans for strong market share and profit growth over the medium and long term.

Optimising our addressable market

Following the acquisition of Fluent, in November MAB acquired a 75% shareholding in Auxilium, a specialist protection service provider servicing Directly Authorised ("DA") firms. In addition, the Group increased its stake in leading protection and general insurance advice firm Vita, from 49% to 75%.

Access to the protection expertise MAB has developed over the last two decades will greatly benefit the forward-thinking and ambitious DA firms that the Auxilium proposition is aimed at.

Additionally, to enhance the provision of pension and investment advice to our mortgage customers that have those requirements, we have partnered with St James's Place who will provide a highly complementary support structure for these products and services, to that offered by MAB to its AR firms for mortgages and protection.

In Australia, the technology integration with our joint venture partner, Australian Finance Group Ltd, is expected to complete in the second half of this year, allowing us to progress our growth plans there.

Summary

Despite the market downturn, 2022 was a very important year for MAB. We have continued to invest in our customer and adviser experience, our environmental agenda, and our people, by creating an optimal working environment influenced by them. We also continue to futureproof our business by entering new growth sectors and investing in prospective customers at the early stages of their research. We believe this will have a significant medium to long-term impact on adviser productivity, organic adviser growth, and AR recruitment, further driving MAB's market share growth and profitability.

We have taken a proactive and rigorous approach to costs, whilst progressing with the planned investment in our proposition to ensure the strongest possible recovery and continued market share growth. We are recruiting well from a wide range of networks and increasingly from the DA sector and are using a subdued housing market to embed new technology solutions and processes, whilst ensuring all cost efficiencies, synergies and best practices are implemented at Fluent to deliver optimal performance.

The executive team has been strengthened in marketing and in risk and compliance to reflect our market share ambitions, and our invested-in businesses continue to perform strongly in terms of adviser productivity and will increasingly contribute to market share and profitability growth.

Despite a slower than expected start to the year for the housing market, we anticipate an increasingly strong year ahead for re-financing, with a slow but steady improvement in housing transaction levels and an increase in new AR recruitment. We expect organic growth to resume in the second half when we also expect to see the incremental impact of our new lead generation initiatives. We will continue to grow our market share strongly this year, whilst ensuring that MAB will be in an even better position to deliver a far stronger financial performance in 2024.

Market review 2022

The year started positively after the market had returned to steadier levels of activity towards the end of 2021. Consumer demand remained quite strong and fewer properties for sale kept house price momentum high. Pipelines continued to be highly congested, with transactions taking more than 140 days to complete, frustrating the pace of completions.

The Russian invasion of Ukraine in February resulted in a degree of consumer caution. However, despite the uncertain macroeconomic outlook and rising inflation, housing demand and activity remained quite strong.

Overall, UK gross new mortgage lending⁽¹⁾ was up 2% to £313.9bn (2021: £308.1bn⁽²⁾). The purchase segment decreased by 11% as the overall number of housing transactions decreased by 15%, as illustrated below:

http://www.rns-pdf.londonstockexchange.com/rns/3879U_3-2023-3-27.pdf

Source: UK Finance

In September 2022, the mini-budget triggered significant market uncertainty, an immediate spike in the cost of borrowing, the withdrawal of many mortgage products by lenders, and a rapid tightening in underwriting criteria. After a short flurry of activity where customers rushed to secure low mortgage rates before they were withdrawn, housing-related activity slowed significantly throughout Q4. The rate of approvals for new mortgages in the last two months of the year and in January 2023 was down by more than 40% year-on-year, which will impact completions in the first half of this new financial year, as illustrated below:

http://www.rns-pdf.londonstockexchange.com/rns/3879U_4-2023-3-27.pdf

Source: UK Finance

In terms of mortgage completions⁽¹⁾, the re-financing segment was relatively strong throughout 2022. Re-mortgage completions were up 29% year-on-year, partly because the 2021 mortgage market was skewed towards purchase. Product transfer completions increased by 3%, with a stronger second half (9% increase year-on-year in H2 2022). Buy-to-let completions were up 18% compared to 2021, although the buy-to-let segment has been particularly adversely impacted since the mini-budget.

The trends in gross new mortgage⁽¹⁾ lending completions are illustrated in the graph below.

http://www.rns-pdf.londonstockexchange.com/rns/3879U_2-2023-3-27.pdf

Source: UK Finance

Average house prices increased by 10% in 2022, although the increase slowed in the second half, with the average house price starting to fall by the end of the year.  This negative trend has continued in early 2023 but we expect house prices will start to settle once affordability and consumer confidence improve.

As we look further into 2023, a large number of mortgage products that were withdrawn following the mini-budget have been recently re-introduced, as illustrated on the graph below. We expect product availability to continue to catch up throughout 2023, and underwriting criteria should also continue to slowly ease.

http://www.rns-pdf.londonstockexchange.com/rns/3879U_7-2023-3-27.pdf

Source: Twenty7tec

New mortgage rates are looking more attractive than they were at the end of 2022, albeit mortgage pricing may have found its floor, certainly for now. With a 2%+ gap between the price of many new mortgage deals and the typical Standard Variable Rates, borrowers are increasingly looking to re-finance in 2023, whereas many chose to sit on their hands at the end of last year.

Pipelines are now completing more quickly than in 2022. This reflects the heightened capacity conveyancers now have due to the market slowdown, and to a lesser degree, a greater level of property stock available for sale. Re-financing also banks quickly, and very few of these cases fail to progress to completion.

The volume of mortgage searches carried out by advisers on leading mortgage sourcing technology platform Twenty7tec is also recovering rapidly, with ten of their busiest days ever having occurred in February 2023. Mortgage searches in the first two months of the year are up 10% year-on-year. This is illustrated in the graph below.

http://www.rns-pdf.londonstockexchange.com/rns/3879U_1-2023-3-27.pdf

2022 saw intermediaries' share of UK residential mortgage⁽¹⁾ transactions increase from 80% to 84% (excluding Buy to Let, where intermediaries have a higher market share, and Product Transfers where intermediaries have a lower market share), and the Intermediary Mortgage Lenders Association ("IMLA") expects this trend to continue in 2023 and 2024.

UK Finance predicts a 12% fall in gross new mortgage⁽¹⁾ lending in 2023, to £275bn, caused by affordability pressures. IMLA's estimate for 2023 is £265bn. For 2024, UK Finance and IMLA currently forecast further reductions to £253bn and £250bn respectively. These estimates were published in December 2022.

For the past 20 years, UK mortgage approval levels have followed a similar pattern as the proportion of UK housing owned, as illustrated in the graph below. Both are below long-term averages, with home ownership having reduced to circa 64% from 70% in the early 2000's. There is currently considerable political focus on increasing home ownership across all political parties, which further supports MAB's long-term fundamentals.

http://www.rns-pdf.londonstockexchange.com/rns/3879U_6-2023-3-27.pdf

Source: UK Finance, Statista

Despite the inflationary environment and continued geopolitical uncertainty, consumer demand for housing and mortgages remains at a steady, albeit reduced level. This, combined with the increased number of mortgage products we have seen re-introduced, means we remain confident that heightened activity will return to the housing and mortgage market once affordability improves and consumer confidence starts to rise.

¹ First charge mortgage completions, excluding secured personal loans (second charge mortgages), later life lending mortgages and bridging finance.

² We reported £313.2bn in 2021, based on UK Finance's latest estimates at the time.

Progress with regulatory change 

Consumer Duty 

The Financial Conduct Authority ("FCA") has set out rules that require all regulated firms to consider the needs, characteristics, and objectives of their customers, to ensure they are always acting to consider and deliver optimal customer outcomes. These rules include the need to show consideration, flexibility, and attention to customers with characteristics of vulnerability. This new Consumer Duty sets higher and clearer standards of consumer protection across financial services and requires firms to put the needs of their customers first and comes into effect on 31 July 2023. 

Good customer outcomes have always been central to MAB's strategy. In line with the requirements and timeline set out by the FCA, MAB submitted its 'Consumer Duty Plan' for approval by the Board prior to the 31 October 2022 deadline. Since then, work has continued to ensure the requirements of the FCA's new Consumer Duty are understood and where changes are required, that these are implemented across the business ahead of the 31 July 2023 implementation date.

ESG (Environmental, Social, Governance)

At MAB, we believe in the need to make a positive contribution to all our stakeholders. This in turn will help us become a better company with a more engaged workforce and strengthen our competitive advantage. In 2022 we accelerated our investment in this area and made good progress on all our ESG initiatives.

Minimising our impact on the environment

We completed our major office refurbishment project in 2022, with all colleagues moving back into head office in early January this year. Minimising our environmental impact was a central consideration for this project, as was sourcing products from local suppliers where practical, repurposing furniture and so on. The building has been fitted with high efficiency new heating, ventilation and lighting equipment, and we are pleased that its EPC rating has dramatically improved as a result.

MAB is at the forefront of Green Mortgages. In 2022, we launched our Green Hub for consumers and continued to improve our MIDAS platform to best promote Green Mortgages to our advisers. Our ARs submitted over £1 billion in Green Mortgages to our lending partners, which was a very substantial increase versus 2021. We also organised the first industry event exclusively focussed on Green Mortgages.

The narrative around Green Mortgages is rightly becoming more prominent and important, with momentum and interest gathering from advisers, consumers and from lenders. Clear targets have been set for landlords firstly to make various energy efficiency improvements to their properties, and then homeowners the same, over the next decade or so. Our intention is to become a leader in Green Mortgages. With housing representing circa 20% of carbon emissions in the UK, we will increase our involvement in this area, thereby directly contributing to the UK's overall Net Zero targets, whilst significantly helping many thousands of customers too.

MAB already serves a great social purpose, in-so-much as it helps customers to buy and re-finance their homes and protects them as well. With an increasingly environmental focus layered onto this, MAB can make a significant contribution towards the UK Government's climate commitments.  

Community engagement and charitable activities

2022 also saw the launch of the Mortgage Advice Bureau Foundation ("Foundation"). The Foundation is a grant-giving charity that supports community-based projects chosen by our staff, our customers, and our business partners. It was created to promote awareness among our stakeholders of the growing need of the communities they live in or are choosing to move to.
 
The Foundation supports projects in the following areas:

·      Environment and Conservation - practical and educational projects to help communities make green choices and reduce their carbon footprints;

·      Health and Wellbeing - projects to help communities address health and wellbeing issues so that everybody's quality of life can be improved; and

·    Preventing and Relieving Poverty - projects to support communities through financial hardship and social exclusion. 

The Foundation launched in September 2022 and to date has pledged £17,000 of funding which has helped charitable projects raise over £30,000 in total. We are delighted with the buy-in and support the Foundation has received from our business partners and colleagues.

Employee wellbeing, and diversity, equality and inclusivity

The newly refurbished head office in Derby includes many new features that foster colleague wellbeing and increase inclusivity among our employees. In 2022 we launched a number of new training initiatives, some of which have been specifically designed to develop women across the business.

We ran an employee wellbeing calendar covering the financial, emotional and physical aspects, offering support to employees across a variety of topics through webinars or in person. We now promote staff volunteering days and have expanded our benefits to all employees.

In response to the cost-of-living crisis that persisted throughout 2022, the Board awarded an additional £1,000 pay rise as well as a £250 one-off cash bonus to all eligible non-bonused head office employees. We continued to build our own in-house ESG team and also appointed a specialist ESG consultancy firm. Consequently, we now have a very clear plan and timelines under which we will make further progress on what we have achieved over the last year. We are excited about the central role we can play in helping homeowners and landlords to achieve good outcomes with regards to making their homes more energy efficient.

Financial review

We measure the development, performance and position of our business against several key indicators.

http://www.rns-pdf.londonstockexchange.com/rns/3879U_5-2023-3-27.pdf

Revenue

Revenue increased by 22% to £230.8m (2021: £188.7m), with organic⁽¹⁾ revenue growth of 11% driven by a 15% increase in the average number of organic⁽¹⁾ mainstream advisers⁽²⁾, resulting from a combination of existing ARs' expansion, the recruitment of new ARs, and a 4% reduction in revenue per organic mainstream adviser. As previously reported, both completions and adviser recruitment in Q4 were adversely impacted following the mini-budget, with a reduction in the number of organic mainstream advisers in Q4 as our AR firms began to reduce their headcount in line with lower expected H1 2023 purchase activity.

Fluent, which was acquired on 12 July 2022, added another 182 mainstream advisers to the Group as at 31 December 2022, and contributed an additional £21.9m of revenue during the year. Auxilium, which was acquired on 3 November 2022, added another 161 directly authorised advisers to the Group as at 31 December 2022, and contributed an additional £0.2m of revenue. In addition, MAB increased its stake in Vita from 49% to 75% on 12 July 2022, with its adviser numbers and revenues already incorporated into the Group's figures due to it having been an AR of the Group since 2016.

The Group continued to generate revenue from three core areas, with all key income sources growing strongly as set out below.

MAB's organic⁽¹⁾ revenue growth across the three core areas was as follows:

MAB's organic banked mortgage⁽³⁾ mix had a considerably lower proportion of house purchase business compared to the prior year. This was due to an increase in re-financing, especially the proportion of product transfer completions by volume, which have a lower average procuration fee and typically have lower protection, general insurance and client fee attachment rates than other mortgage types.

Product Transfers in the period increased to 21% of MAB's mortgages⁽³⁾ (2021: 13%). Consequently, while the Group's organic net mortgage⁽³⁾ completions by value increased by 17%⁽⁴⁾, mortgage procuration fees increased by 16%, protection and general insurance commissions increased by 7% and client fees increased by 2%. MAB's organic average mortgage size increased by 10% compared to the prior year, in line with average house prices increasing by 10% year-on-year.

MAB's total revenue from re-financing (including both re-mortgages and product transfers) represented circa 32% (31% on an organic basis) of total revenue (2021: 25%) due to the Group's organic banked mortgage mix having a higher proportion of re-financing and Fluent having a higher proportion of re-financing in its first charge mortgage mix and with the prior year reflecting a particularly high level of purchase transactions.

Fluent's revenue contribution across the Group's three core business areas in the period following completion of the acquisition was as follows:

Fluent generates revenue from a wider range of mortgage types than MAB, including first charge mortgages, secured personal loans (second charge mortgages), later life lending mortgages and bridging finance. Fluent earns revenue on first charge mortgages in the same way as MAB. In its other divisions, Fluent predominantly earns procuration and client fees, with a smaller proportion of protection and general insurance commission earned on loans arranged for its customers.

Auxilium, a specialist protection service provider, contributed revenue of £0.2m for the two months following its acquisition. Auxilium's revenues represent the total income received and accordingly are classified under Other Income, with there being no commission payouts to the directly authorised entities serviced by the business. 

The proportion of organic revenue derived from each of the Group's core revenue streams has remained relatively stable as summarised below, with small movements reflecting the change in banked mortgage mix during the period.

The proportion of total revenue derived from each of the Group's core revenue streams has changed slightly, with client fees as a proportion of total revenue increasing following the acquisition of Fluent, as summarised below.

In first charge mortgages we expect client fees to become increasingly dependent upon the type and complexity of the mortgage transaction, as well as the delivery channel, leading to a broader spread of client fees on mortgage transactions, which represent the Group's lowest margin revenue stream.

Gross profit margin

Gross profit margin for the year was 27.3% (2021: 27.0%) reflecting the anticipated increase following the acquisition of Fluent, which has a slightly higher gross profit margin than MAB. Excluding the impact of Fluent, Vita and Auxilium, MAB's gross profit margin was 26.5% (2021: 27.0%) reflecting the increased proportion of re-financing transactions in 2022, and the slightly reduced revenue share the Group receives as existing ARs grow organically by increasing their adviser numbers. In addition, larger new ARs typically join the Group on lower-than-average margins due to their existing scale, hence a degree of erosion is expected in MAB's underlying gross profit margin (prior to the impact of the Fluent acquisition) due to the continued growth of our existing ARs and the addition of new larger ARs.

Looking ahead, we expect any further erosion in underlying gross margin to be offset by economies of scale reducing the Group's overheads ratio.

Administrative expenses

Group administrative expenses increased by £8.2m (+29%) to £36.0m, mainly reflecting the impact of the acquisitions of Fluent and Vita. Organic adjusted administrative expenses increased by £2.3m (+8%) to £30.1m, reflecting MAB's continued investment in growth, and specifically in its technology platform and marketing team through a mix of employee and third-party costs, which will drive enhanced lead generation opportunities. Head office costs, including those of First Mortgage, and compliance costs also increased to support the Group's continued growth. All development work on MAB's MIDAS platform continues to be fully expensed. Organic adjusted administrative expenses as a percentage of revenue reduced slightly to 14.4% (2021: 14.8%).

MAB continues to benefit from the relatively fixed cost nature of much of its cost base, where those costs typically rise at a slower rate than revenue, which will, in part, counter the expected slight erosion of MAB's underlying gross margin as the business continues to grow. 

During the year MAB awarded mid-year pay rises as well as a cash bonus to a number of staff, in addition to their usual annual pay rise, to help with the increasing costs of living.

Associates and Investments

MAB's share of profits from Associates was £0.7m (2021: £1.0m) with the majority of the Group's Associates being adversely impacted by the fall-out from the mini-budget. 

In addition, the Group recognised a £2.8m non-cash write off on its investment in Boomin with the company being put into liquidation after failing to secure new investors in the challenging economic climate.

Management believes that the value of a number of its associate investments exceeds their carrying value recognised using the equity accounting method under IAS 28.

Adjusted EBITDA, profit before tax and margin thereon

Adjusted EBITDA* was up 15% to £29.1m (2021: £25.3m), with the margin thereon of 12.6% (2021: 13.4%) mainly reflecting the impact of the Fluent acquisition with limited revenue synergies achieved in the year of acquisition (as expected). 

Adjusted profit before tax* was up 13% to £27.2m (2021: £24.2m), with the margin thereon of 11.8% (2021: 12.8%). Statutory profit before tax reduced to £17.4m (2021: £23.2m) purely due to acquisition-related costs, amortisation of acquired intangibles and non-cash operating expenses associated with the put and call option agreements on recent acquisitions. As a result, the margin on statutory profit before tax was 7.5% (2021: 12.3%). 

Fluent, Vita and Auxilium contributed profit before tax of £1.5m, £0.05m and £0.1m respectively in the periods since acquisition.  These figures exclude the impact of any non-cash charges associated with the put and call options for Fluent and Auxilium.

Adjusted profit before tax* as a percentage of net revenue^* was 34.0% (2021: 41.0%) primarily due to the effect of the Fluent acquisition and the change in banked mortgage mix.   

Finance revenue 

Finance income of £0.1m (2021: £0.05m) reflects the low interest rates that prevailed for most of the financial year and interest income accrued on loans to associates. 

On 28 March 2022 MAB entered into new four-year debt facilities with NatWest, comprising a £20m Term Loan (the "Term Loan") and a £15m revolving credit facility (the "RCF") to be used in connection with the acquisition of Fluent. The RCF is also available for general corporate purposes. There is an option to extend the RCF and the Term Loan for a further year.

Finance expenses of £1.2m (2021: £0.2m) include £0.6m of interest and non-utilisation fees payable on MAB's previous and new debt facilities and the interest expense on lease liabilities and a further £0.6m relating to the unwinding of the redemption liability relating to the Fluent Option

Taxation

The increase in the effective rate of tax on reported profit before tax to 26.4% (2021: 16.9%) was primarily due to acquisition-related costs, share-based payment costs relating to the First Mortgage, Fluent and Auxilium options and the write-off of the Boomin investment being disallowable for tax purposes, there being limited share option exercises during the year and a lower tax credit on research and development expenditure on the continued development of MAB's proprietary software platform, MIDAS. The effective tax rate on adjusted profit before tax* increased slightly to 16.8% (2021:16.2%).  We expect the effective tax rate on adjusted PBT in future years to be in line with the prevailing UK corporation tax rate.

Earnings per share and dividend

Adjusted earnings per share* increased by 2% to 37.8p (2021: 37.1p). Basic earnings per share fell to 21.8p (2021: 35.2p) due to acquisition-related costs, amortisation of acquired intangibles and non-cash operating expenses associated with the put and call option agreements on recent acquisitions.

The Board is pleased to propose a final dividend of 14.7p per share (2021: 14.7p). This brings the total proposed dividend for the year to 28.1p per share (2021: 28.1p), reflecting the Group's policy to pay dividends reflecting a minimum pay-out ratio of 75% of the Group's annual adjusted post-tax and minority interest profits. This represents a cash outlay of £8.4m (2021: £7.8m). Following payment of the dividend, the Group will continue to maintain significant surplus regulatory reserves.

The record date for the final dividend will be 28 April 2023 and the payment date 31 May 2023. The ex-dividend date will be 27 April 2023.

Balance sheet

In connection with the acquisitions of Fluent, Vita and Auxilium, the Group recognised separately identifiable intangible assets with a fair value of £55.4m and goodwill totalling £38.7m. In addition, redemption liabilities of £7.0m and £0.2m in respect of the put and call options relating to the Fluent and Auxilium acquisitions respectively, are included in other payables as at 31 December 2022.

In connection with the acquisition of Fluent, the Group entered into an agreement on 28 March 2022 with NatWest, in respect of a new term loan for £20m and a revolving credit facility for £15m (the "Facilities Agreement"), in order to part fund the cash consideration payable in relation to the acquisition.  As at 31 December 2022, the Group had drawn down £3.2m on the revolving credit facility, in addition to the £20m term loan, and had £0.2m of accrued interest net of prepaid loan arrangement fees.  Net debt (adjusting only for unrestricted cash balances of £7.2m) was £16.2m.

Cash flow and cash conversion

The Group's operations produce positive cash flow, which is reflected in the net cash generated from operating activities of £24.1m (2021: £26.9m). 

Other than the £2.8m refurbishment of the Group's head office in Derby during the year, the Group's operations are typically capital-light, with the most significant ongoing capital investment being in computer equipment. Only £0.4m of general capital expenditure on office and computer equipment was required during the year (2021: £0.2m).  Group policy is not to provide company cars and no other significant capital expenditure is foreseen.

The Group's regulatory capital requirement represents 2.5% of regulated revenue and totalled £5.5m at 31 December 2022 (2021: £4.3m), with the Group reporting a surplus of £26.8m (2021: £18.9m).

The following table demonstrates how cash generated from operations was applied:

* In addition to statutory reporting, MAB reports alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("IFRS"). The Group uses these APMs to improve the comparability of information between reporting periods, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group's businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. A summary of APMs used and their closest equivalent statutory measures is given in the Glossary of Alternative Performance Measures.

¹ Organic means the Group before the impact of the acquisitions made in 2022 (Fluent, July 2022; Vita, July 2022; and Auxilium, November 2022).

² Excludes directly authorised advisers, MAB's later life advisers and advisers from associates in the process of being onboarded under MAB's AR arrangements. Includes Fluent's second charge, later life and bridging advisers who have a higher revenue per adviser than first charge advisers.

³ First charge mortgage completions, excluding secured personal loans (second charge mortgages), later life lending mortgages and bridging finance.

⁴ Stated before completions from associates in the process of being onboarded under MAB's AR arrangements to produce more appropriate comparisons against revenue metrics.

Independent auditor's report to the members of Mortgage Advice Bureau (Holdings) PLC

Opinion on the financial statements

In our opinion:

•     the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 December 2022 and of the Group's profit for the year then ended;

•     the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards;

•     the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of Mortgage Advice Bureau (Holdings) PLC (the 'Parent Company') and its subsidiaries (the 'Group') for the year ended 31 December 2022 which comprise the consolidated statement of comprehensive income, consolidated and company statement of financial position, consolidated and company statement of changes in equity, consolidated statement of cash flows, and notes to the financial statements, including a summary of significant accounting policies  

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard in the United Kingdom and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs

(UK)) and applicable law. Our responsibilities under those standards are further described in the

Auditor's responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors' assessment of the Group and the Parent Company's ability to continue to adopt the going concern basis of accounting included:

·      We have assessed the reasonableness of the assumptions within the Directors' forecast for liquidity and profitability for a period of 12 months from the signing of these accounts corroborating the inputs to supporting documentary evidence. This involved considering the base and stress scenarios testing undertaken by the Directors to support the Going concern assessment which included assumptions about the potential impact this could have on revenue (mainly from purchase mortgages) and possible cost saving measures. We assessed whether the capital and cash positions are adequate and whether the Group complies with its covenant requirements in both the base and stress scenarios.

·      We have reviewed publicly available information on the house market and house price index to assess any impact on going concern.

·      We assessed how the directors have factored in ongoing economic pressures such as high inflation, cost of living crisis and increasing interest rates on the business, checking these had been appropriately considered as part of the Directors' going concern assessment.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's and the Parent Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.

Overview

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group's system of internal control, and assessing the risks of material misstatement in the financial statements.  We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.

The Group is made up of the Parent Company and its wholly owned subsidiaries. The significant components were determined to be MAB Limited, MAB Derby Limited and Project Finland Topco Limited and its subsidiaries. These three components were subject to full scope audits performed by the Group audit team. In respect of the non-significant components the Group audit team carried out specific procedures on balances that were identified as material to the Group.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.  We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:

Component materiality

We set materiality for each significant component of the Group, including the parent company, based on a percentage of between 43% and 79% (2021: 78% and 99%) of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from £436,515 to £792,000 (2021: £712,000 to £905,000). In the audit of each significant component, we further applied performance materiality levels ranging from  65% to 75% (2021: 75%) of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.

Reporting threshold 

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £20,000 (2021: £18,000).  We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

Other information

The directors are responsible for the other information. The other information comprises the information included in the Report and Financial Statements other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Other Companies Act 2006 reporting

Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. 

Responsibilities of Directors

As explained more fully in the Directors' responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Extent to which the audit was capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

We gained an understanding of the legal and regulatory framework applicable to the Group and Parent Company and the industry in which it operates and considered the risk of acts by the Group and Parent Company which would be contrary to applicable laws and regulations, including fraud. These included but were not limited to compliance with the Financial Conduct Authority ("FCA") regulations, FCA Mortgage Advice and Selling Standards, the applicable accounting standards and tax legislation.

We assessed the susceptibility of the financial statements to material misstatement, including fraud and considered the fraud risk areas to be management override of controls, the risk of fraud in revenue recognition and in relation to accounting estimates such as the clawback provision and intangible assets recognition and measurement.

Our procedures in response to the above included:

·      reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and regulations discussed above;

·      enquiring of management and the audit committee for any instances of non- compliance with laws and regulation and any known or suspected instances of fraud;

·      performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;

·      reading minutes of meetings of those charged with governance and correspondence with the Financial Conduct Authority to check for any instances of non-compliance with applicable laws and regulations; 

·      in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments on a sample basis to supporting documentation;

·      in respect of the risk of fraud in relation to revenue recognitions and in accounting estimates such as the clawback provision and intangible assets recognition and measurement, performing the procedures as set out in the Key Audit Matters section of our report; and

·      evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.

A further description of our responsibilities is available on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities.  This description forms part of our auditor's report.

Use of our report

This report is made solely to the Parent Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.  Our audit work has been undertaken so that we might state to the Parent Company's members those matters we are required to state to them in an auditor's report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Ariel Grosberg (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

London, UK

27 March 2023

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Consolidated statement of comprehensive income
for the year ended 31 December 2022

All amounts shown relate to continuing activities.

The notes that follow form part of these financial statements.