Interim Results & Purchase of Head Office Building

MORTGAGE ADVICE BUREAU (HOLDINGS) PLC

("MAB" or "the Group")

24 September 2015

Interim Results and Purchase of freehold of Head Office Building

Mortgage Advice Bureau (Holdings) PLC (AIM: MAB1.L) is pleased to announce its interim results for the six months ended 30 June 2015. Key highlights

·    Significant increase in revenue of 28% with gross margin broadly unchanged at 24.3% (H1 2014: 24.5%)

·    Adjusted PBT up 16% and underlying PBT margin¹ maintained at 13.9%

·    Cash conversion remains strong at 89%

·    Maiden interim dividend of 4.9p representing circa 75% of post-tax profits for the six months ended 30 June 2015

·    Strong financial position with significant surplus on regulatory capital

·    Cash balances of £11.5m (31 Dec 2014: £9.3m) of which unrestricted cash balances were £6.9m (31 Dec 2014: £5.3m)

·    Adviser numbers increased by 88 to 722 at 30 June 2015 (31 December 2014: 634), representing a 14% increase

·    Average number of Advisers in the 12 months to 30 June 2015 up 20% to 638,  (12 months to 30 June 2014: 529)

·    Purchase of freehold of Head Office Building for £2.4m from cash resources post period end

 

 

		H1 2015	H1 2014	Change
Revenue		£31.2m	£24.5m	+28%
Gross profit		£7.6m	£6.0m	+27%
Gross profit margin		24.3%	24.5%
Profit before tax		£3.9m	£3.0m	+28%
Adjusted PBT1, 2		£3.9m	£3.4m	+16%
Adjusted1,2 PBT margin		12.6%	13.9%
Adjusted EPS2,3		6.5p	5.3	+24%
Interim dividend per share		4.9p	n/a
Adjusted operating profit to cash conversion4		89%	92%

 

¹ During H1 2015 total additional costs of £0.42m, comprising costs associated with being listed of £0.26m and additional FSCS costs, over and above H1 2014, of £0.16m have been incurred (these are not adjusted in H1 2015 as the Directors consider them to be ongoing costs of the business, but did not feature in H1 2014).  Excluding these costs, the underlying PBT margin in H1 2015 would have been 13.9%, the same as the PBT margin in H1 2014.

² Adjusted for provision against loan in H1 2014 of £347,891.  There are no non-recurring items in H1 2015.

³ Adjusted EPS is based on 50.5m shares being in issue throughout H1 2014 in order to allow comparability

⁴ Cash flow from operating and investing activities adjusted for non-trading items as a % of adjusted operating profit²  

Peter Brodnicki, Chief Executive commented: 

"I am pleased to report another strong set of results reflecting the robust momentum in our business and this is reflected in our maiden interim dividend.

"The general election outcome has been viewed positively across the intermediary, housing and mortgage sectors, with planning for growth high on the agenda for many market participants.

"Intermediary market share has continued to rise and in the six months to 30 June 2015 stood at 69%.  New lenders continue to enter the market with highly intermediary-focussed business models. Recent speculation that a base rate rise may be on the horizon has triggered the first signs of increased activity in the remortgage market as borrowers look to secure mortgage deals at the record low rates of interest currently available."

Current Trading and Outlook

Current trading is in line with the Board's expectations.  The strong growth in Adviser numbers seen in the first half of the financial year has continued throughout the summer months, with Adviser numbers increasing to 779 as at 18 September 2015.

MAB continues to build its position as both a leading UK consumer focussed intermediary brand and a specialist Appointed Representative network and is well positioned to deliver further growth over the coming months. Furthermore, MAB continues to seek targeted investment opportunities to build on the Group's expertise and enhance distribution.

For further information please contact:

Mortgage Advice Bureau (Holdings) Plc	Tel: +44 (0) 1332 525007
Peter Brodnicki  - Chief Executive
David Preece  - Chief Operating Officer
Lucy Tilley -  Finance Director
Canaccord Genuity Limited
Roger Lambert	Tel: +44 (0) 20 7523 8350
Sunil Duggal

Media enquiries:

Instinctif Partners
Mike Davies Nick Woods	Tel: +44 (0) 20 7866 7904

Analyst presentation

There will be an analyst presentation to discuss the results at 09:30am today at Canaccord Genuity Limited, 88 Wood Street, London, EC2V 7QR. 

Those analysts wishing to attend are asked to contact Mike Davies or Nick Woods at Instinctif on +44 (0) 20 7866 7904

 

Copies of interim report

Copies of the interim report are available at investor.mortgageadvicebureau.com 

 

Chief Executive's Review

Business Review of the half year

I am pleased to report strong growth in revenue of 28% to £31.2m, in profit before tax of 28% to £3.9m and in adjusted profit before tax and non-recurring items of 16% to £3.9m.  Mortgage lending activity slowed in the second half of last year following a pre-MMR spike in volumes, but we saw some encouraging signs of increased activity early this year despite an election looming. These have continued to build post election, with a strong end to the year expected despite overall lending volumes being only marginally above those of 2014 (£203bn). These positive trends give us confidence that the Council of Mortgage Lenders' revised estimates for gross mortgage lending in 2016 of £230bn are realistic, being an increase of approximately 10% on their latest £209bn forecast for 2015.

The customer experience is at the heart of MAB's strategy and delivering outstanding customer service is an integral part of this.  By giving our customers expert mortgage advice through our expanding network of intermediary businesses our goal is to deliver strong revenue growth and attractive returns to investors.

Organic growth continues to be a key focus for the business as we work closely with our Appointed Representative firms to help them increase Adviser numbers and market share. We maintain very high standards of recruitment both when growing Adviser numbers organically and when recruiting new Appointed Representative firms. The new Appointed Representative firms that we have been recruiting are typically forward thinking and ambitious; they too will contribute to MAB's organic growth in the years to come. We have broadened our geographic footprint this year by expanding into Northern Ireland where the mortgage market is starting to show good signs of recovery.

We are also pleased to announce today that MAB has exchanged contracts to acquire the freehold of our Head Office Building in Derby from Cedar House Investments Limited for £2.4m in cash, including the costs associated with the acquisition, and with completion scheduled for 30 September 2015.  This will secure additional space for expansion of our Head Office team, since we currently occupy two out of the three floors within the building.   We hold significant cash on our balance sheet and using some of that cash to fund the purchase of our Head Office Building will eliminate rental costs of circa £0.2m per annum for the whole building, thereby utilising that cash better and enhancing earnings.

We maintain a strong focus on specialisation in terms of estate agency (including on-line), new build, mortgage shops and telephone based advice, all of which continue to have considerable growth potential; we plan to extend that specialist approach to Buy-to-let.

The Mortgage Advice Bureau brand is a major differentiator for our business, our Appointed Representative firms and their Advisers.  In a post-MMR world we see brand becoming increasingly important as, more than ever before, consumers seek out mortgage intermediaries that provide high quality customer focussed expert independent mortgage advice.  Continuing to leverage the strength of our brand is an ongoing area of focus as we plan for 2016 and beyond.

Industry trends

Around 69% of UK mortgage transactions (excluding buy-to-let mortgages) were via an intermediary in H1 2015, up from around 60% in H1 2014 as shown in the graph below, with some industry commentators expecting further growth.

http://www.rns-pdf.londonstockexchange.com/rns/0284A_-2015-9-23.pdf

Source: Council of Mortgage Lenders' Regulated Mortgage Survey

Activity in the property and mortgage market, and particularly in the remortgage market, is increasing as demonstrated in the graphs below.

http://www.rns-pdf.londonstockexchange.com/rns/0284A_1-2015-9-23.pdf

Source: HM Revenue and Customs

http://www.rns-pdf.londonstockexchange.com/rns/0284A_2-2015-9-23.pdf

Source: Bank of England

Financial review

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

http://www.rns-pdf.londonstockexchange.com/rns/0284A_3-2015-9-23.pdf

Revenues

Revenues increased by 28% to £31.2m (2014: £24.5m). A key driver of revenue is the average number of Advisers during the period. Our business model continues to attract forward thinking mortgage intermediary firms seeking to expand and grow their market share thus increasing Adviser numbers. Average adviser numbers increased to 638 in the 12 months to 30 June 2015, an increase of 109 or 20% on the 12 months to 30 June 2014 of 529, from a combination of the recruitment of new Appointed Representatives, and the organic expansion of existing Appointed Representatives.

The Group generates revenue from three core areas which can be broken down as follows:

Proportion of Revenue				H1 2015	H1 2014
Insurance commission				40%	43%
Mortgage procuration fees				39%	39%
Client fees				19%	17%
Other income				2%	1%
Total				100%	100%

Mortgage procuration fees and client fees have increased since the implementation of the MMR in April 2014, and this has had the effect of reducing the proportion of total income attributable to insurance commission.

Gross profit margin

Gross profit margin reduced to 24.3% (2014: 24.5%) with the Group receiving a slightly reduced margin as our existing Appointed Representatives grow their revenue organically through increasing their Advisers.    In 2015, MAB has continued to attract some larger Appointed Representative firms, which has driven strong growth in Adviser numbers and revenue. These larger new Appointed Representatives, however, typically join the Group on lower than average margins due to their existing scale.   As a result we expect to see some erosion of our gross profit margin due to both the continued growth of our existing Appointed Representatives and the acquisition of new larger Appointed Representatives.  

Overheads

Overheads as a percentage of revenue were 13.0% (2014: 11.9%).  During H1 2015 total additional costs of £0.42m comprising costs associated with being listed of £0.26m and additional FSCS costs, over and above H1 2014, of £0.16m, have been incurred.  These costs are not treated as exceptional as the Directors consider them to be ongoing costs of the business.  Excluding these costs, overheads as a percentage of revenue would have slightly improved to 11.7%.  Going forward, we would expect to continue to see a reduction in overheads as a proportion of revenue.  Certain costs, primarily those relating to compliance, which represent approximately one third of our cost base, are closely correlated to the growth in the number of Advisers, due to the high standards we demand and the requirement to maintain regulatory spans of control.  The remainder of our costs typically rise at a slower rate than revenue.

Adjusted profit before tax and margin thereon

Adjusted profit before tax rose by 16% to £3.9m (2014: £3.4m).  The adjusted profit before tax margin was 12.6% (H1 2014: 13.9%).  Excluding the additional costs as noted above totaling £0.42m, the underlying PBT margin in H1 2015 would be 13.9%, the same as the PBT margin in H1 2014.  Going forward we would expect the effect of any erosion of our gross profit margin that derives from the growth we experience, and the scalable nature of our cost base, to broadly balance each other out.

Net finance revenue 

Net finance revenues of £77,919 (2014: £44,458) reflect continued low interest rates. Notice has now been served by HBB Bridging Loans to repay their loan of £1m and we anticipate this being repaid by the year end.

Taxation

The effective rate of taxation on adjusted¹ profit before tax fell to 16.1% (2014: 19.0%) principally due to an over provision at the year end and also due to reductions in the UK corporation tax rate.

Earnings per share and dividend

Adjusted EPS¹ amounted to 6.5 pence. Comparison with H1 2014 is difficult as the share structure was significantly changed in preparation for the IPO in November 2014. Had there been a similar number of ordinary shares in issue throughout 2014, adjusted EPS¹ would have been 5.3 pence per share.

The Board is pleased to confirm a maiden interim dividend for the six months to 30 June 2015 of 4.9p per share, amounting to a total of £2.5 million.  Following payment the Group will still maintain significant surplus regulatory reserves. This interim dividend represents circa 75% of the Group's post-tax profits for the period and reflects our intention with regards to distributing excess capital going forward.

Cash flow

The Group's model is highly cash generative.  Our income is received before we pay our Appointed Representatives.  This is reflected in the net cash inflow from operating activities of £3.05m (H1 2014: £3.43m).

Net cash flow from operating and investing activities adjusted for non-trading items² as a % of operating profit was:

H1 2015                 89%

H1 2014                 92%

The Group's operations are capital light with our main investment being in computer equipment. The Group has a regulatory capital requirement amounting to 2.5% of regulated revenue for each regulated group entity. At 30 June 2015 this regulatory capital requirement was £1.4 million. Only £0.07m of capital expenditure was required during the period (H1 2014: £0.04m). Group policy is not to provide company cars, and no significant capital expenditure is foreseen in the coming year. All development costs on MIDAS, our proprietary operating platform, are expensed as incurred.

The Group had no bank borrowings at 30 June 2015 (31 December 2014: £nil) and had cash balances of £11.5m (31 Dec 2014: £9.3m) of which unrestricted cash balances were £6.9m (31 Dec 2014: £5.3m) providing significant surplus on regulatory capital.

The following demonstrates how cash generated from operations was applied:

Unrestricted bank balances at the beginning of the period	£5.3m
Cash generated from operating activities3	£2.8m
Interest received	£0.1m
Taxes paid	(£0.4m)
Capital expenditure	(£0.1m)
Redemption of shares	(£0.0m)
Dividends received from associates	£0.2m
Dividends paid	(£1.0m)
Unrestricted bank balances 30 June 2015	£6.9m

  

The Group's emphasis is to reduce risk by spreading deposits over a number of institutions rather than to seek marginal improvements in returns.

 

Current Trading and Outlook

Current trading is in line with the Board's expectations.  The strong growth in Adviser numbers seen in the first half of the financial year has continued throughout the summer months, with Adviser numbers increasing to 779 as at 18 September 2015.

MAB continues to build its position as both a leading UK consumer focussed intermediary brand and a specialist Appointed Representative network and is well positioned to deliver further growth over the coming months. Furthermore, MAB continues to seek targeted investment opportunities to build on the Group's expertise and enhance distribution.

 

 ¹ Before provision against loan in H1 2014 of £347,891.  There are no exceptional items in H1 2015.

² Movements in non-trading items including loans to ARs, loans to associates and other non-trade receivables.

 ³ The increase in restricted bank balances has been eliminated as it does not affect unrestricted bank balances.

 

 

INDEPENDENT REVIEW REPORT TO MORTGAGE ADVICE BUREAU (HOLDINGS) PLC

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 which comprises the interim condensed consolidated statement of financial position, interim condensed consolidated statement of comprehensive income, interim condensed consolidated statement of changes in equity and interim condensed consolidated stated of cash flows.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors.  The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose.  No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent.  Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015  is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

 

 

BDO LLP

Chartered Accountants and Registered Auditors

Location

United Kingdom

Date 23 September 2015

 

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

 

Interim condensed consolidated statement of comprehensive income for the six months ended 30 June

		Six months ended 30 June
	Note	2015 Unaudited £	2014 Unaudited £
Revenue	2	31,206,705	24,468,382
Cost of sales	2	(23,611,468)	(18,472,110)
Gross profit		7,595,237	5,996,272
Administrative expenses		(4,067,812)	(2,906,075)
Net movement in provision for impairment of receivables		14,660	(326,437)
Share of profit  from associate		315,422	236,435
Profit from operations		3,857,507	3,000,195
Finance income		77,919	44,458
Profit before tax		3,935,426	3,044,653
Tax expense	3	(632,342)	(645,890)
Profit for the period attributable to equity holders of parent company		3,303,084	2,398,763
Earnings per share attributable to the owners of the parent	4
Basic		6.541p	3.897p p
Diluted		6.366p	3.897p