Final Results

RNS Number : 1370U
MartinCo PLC
05 April 2016
 

MartinCo PLC ("MartinCo" or the "Group")

 

Final Results for the Year Ended 31 December 2015

 

Acquisition contributes significant increase in profits

 

MartinCo PLC is a property franchise group operating five brands across a network of 287 offices stretching from Falmouth to Inverness and including central London. The Directors believe that MartinCo is the fourth largest residential lettings and estate agency business in the UK by number of offices.

 

The Directors' vision is to create value for shareholders by leveraging its established franchise platform, strong local and national brands and over 20 years' experience as a franchisor to build a significant share of the UK residential lettings and estate agency market.  Through its multi-brand strategy, which allows more than one brand of franchise to operate in a given location, the Group is able to achieve maximum market penetration.

 

 

Financial Highlights

 

·      Group revenue increased 38% to £7.1m (2014: £5.2m)

 

·      Management Service Fees increased 53% to £6.2m (2014: £4.1m)

 

·      Operating Profit* increased 42% to £2.9m (2014: £2.0m), margin also strengthened by 2%

 

·      EBITDA* increased 50% to £3.2m (2014: £2.1m)

 

·      Profit before tax increased 42% to £2.7m (2014: £1.9m)

 

·      Net Assets increased 22% to £7.6m (2014: £6.3m)

 

·      Earnings per share 9.8 pence (2014: 6.9 pence)

 

·      Return on equity increased to 31% (2014: 27%)

 

·      Strong cash position of £4.3m at year end with £5m debt facility (£3.0m undrawn at the year-end)

 

·      Proposed final dividend of 4.1 pence, making a total for 2015 of 5.9 pence up 47.5% on 2014 of 4.0 pence

 

*Before exceptional costs

 

 

Operational Highlights

 

·      Xperience acquisition in October 2014 successfully integrated into the centralised franchisor head office infrastructure achieving targeted cost savings

 

·      Number of tenanted managed properties increased from 42,000 to 45,000 at the year end

 

·      Total of 12 new franchisees recruited, 13 new offices opened and three offices preparing to launch in the first quarter of 2016

 

·      32 offices with annual fee income in excess of £500,000 (2014: 23)

 

·      256 offices now offering an estate agency service in addition to core letting services

 

·      Group remains heavily weighted toward lettings, accounting for 76% of Management Services Fee revenue

 

·      Under the ten-year agreement with Legal & General, a financial services offering will be rolled out to all our offices during 2016

 

 

Ian Wilson, Chief Executive Officer of MartinCo, commented:

 

"2015 was our most successful year to date demonstrating the power of our multi-brand franchise strategy. It was a year of consolidation and growth for the Group which saw us open 13 new offices across our brand stable, leveraging our expertise in lettings and growing our estate agency services across our expanded network. Despite tax changes relating to buy-to-let investments, the fundamental drivers of the private rented sector remain in place.

 

 "Looking forward, we expect to launch a national financial services offering during 2016 with our partner Legal & General. We currently generate £1 from financial services for each £100 of revenue and we believe that this can be significantly improved.

 

"We have put additional resource and vigour into our acquisition programme at the franchisee level and we will continue to explore the acquisition of further master franchise rights having established an efficient and scalable operational model for running multiple property brands from a central hub."

 

For further information, please contact:

 

MartinCo Plc     

Ian Wilson, Chief Executive Officer

David Raggett, Chief Financial Officer

 01202 292829

 

 

Cenkos Securities plc

Max Hartley (Nomad), Alex Aylen (Sales)

 0207 397 8925

 

 

Bell Pottinger   

David Rydell, Henry Lerwill

 

 

020 3772 2500

 

 

 

 

Chairman's Statement

2015 was another strong year of growth on all fronts for the Group continuing the excellent momentum of recent years. 

 

Key strengths

 

·      Pure franchise business model

·      Truly national office footprint through five brands

·      Core market (residential lettings) experiencing steady growth

·      Cash generative with a strong balance sheet

·      Experienced management team

·      Acquisition opportunities in a sector ripe for further consolidation

 

 

Our performance has benefitted from a clear strategy to consolidate our market leading position as the private rented sector matures.  Having successfully integrated Legal & General's property franchise platform (Xperience), which we acquired in 2014, the Group has secured its position as a leading national player managing a portfolio of properties of over 45,000 units.  The Group now has an integrated, sustainable and scalable franchise platform encompassing five strong local and national brands from which to grow its franchisee network.

 

Many factors have influenced and continue to drive the growth of the buy-to-let market in the UK. A rapidly growing population, partly fuelled by record high net migration levels, continues to place growing pressure on housing stock with the volume of new builds failing to meet Government annual targets. Additional factors driving the buy-to-let market include: social mobility and employment instability, increased single occupancy households and the inability of first time buyers to raise mortgage finance.

 

As the appetite for income from asset purchase remains unrivalled by other sources, we envisage further growth as the private rented sector continues to offer compelling net total returns for investors.

 

While we continue to build our lettings business, we are delighted now to be able to provide more focus on residential sales and financial services with approximately 90% of our network now offering an estate agency service. Despite the emergence of online low cost estate agency platforms, we see little impact on our business which operates a success-only charging structure from a locally based agent. We strongly believe that the delivery of sales and lettings services has a local element which cannot adequately be addressed through call-centres and centralised service provision.

 

Regardless of regulatory or fiscal adjustments, the demand for property within the UK -regardless of tenure -has never been greater. I have great confidence in the future for MartinCo.

I would like to thank our management team, our franchisees and my fellow Board members for their outstanding efforts over the last year and continued dedication to the business.

 

I am delighted to announce that the Board has recommended a final dividend of 4.1 pence per ordinary share for 2015.

 

 

Richard Martin

Chairman

4 April 2016

 

 

 

Chief Executive's Statement

 

As a group, most of our income is derived from lettings and managing properties in the private rental sector. The sector has been resurgent over the last 30 years, and since income from a portfolio of managed properties is predictable, and seasonal fluctuations in letting transactions are modest and predictable, the private rented sector has proven to be the bedrock of our business.

Independent research which we commissioned and published in 2015 to coincide with the pension reforms launch in April 2015 proved that a wholly cash funded investment in a buy-to-let property over the last decade would have outperformed the same cash sum invested in stocks and shares by at least 13 times (max. 26 times).

According to recent research by Savills (Savills Research February 2016), the equity in mortgaged buy-to-let properties now exceeds the equity in mortgaged owner occupied properties. Debt is falling in the buy-to-let sector and more properties are owned mortgage-free. We believe that pressure on the UK housing stock and an appetite for income in retirement from an ageing population will continue to mean that buy-to-let investment remains an attractive proposition.

During 2015 we let more properties than ever before and ended the year managing over 45,000 tenanted homes, which means collecting and accounting for £34m in rents every month.

We are delighted with the four property brands we acquired in October 2014. The brands of Parkers, CJ Hole, Whitegates and Ellis & Co all have great heritage and already enjoy a strong reputation with the public for both estate agency and lettings services.

Our focus in the first part of 2015 was on the successful integration of Xperience into our Group. Head office headcount rose slightly by the end of 2015 to 39 staff, but this is in the context of managing a network of 287 offices; when at the time of the IPO in December 2013 we had 190 offices and a headcount of 31. We operate our national network out of a single head office in Bournemouth and I am delighted to report that all of the costs of re-organisation and assimilation of Xperience into our Group have been absorbed in 2015 and we enter 2016 with a lower cost base than in the corresponding period for 2015.

The vast majority of our franchisees have been active for five years or more. This means that typically their start-up bank loans will have been cleared and their businesses profitable, with experienced owners well placed to raise new funds to acquire competitors. A main focus of 2016 will be to support their efforts to grow their businesses at a local level.

We will also be rolling out a new financial services offering to all our offices during 2016 under our ten-year agreement with Legal & General. The benefits of this strategy will be increased income from financial services (currently just 1% of franchisee revenue and management services fees) and greater understanding of our customers through the data gathered.

In 2015, we achieved our highest number of new franchise recruits in three years and we opened 13 new offices. Furthermore, enquiries from potential franchisees have been on a steep rise during the final quarter of 2015, up 174% year-on-year.

Despite changes to the tax treatment of buy-to-let investors we remain very positive about prospects for the private rentend sector as the fundamental drivers all remain in place. We have a strong balance sheet, five great property brands and an experienced management team leaving us well placed to exceed our strong performance in 2015.

 

Ian Wilson

Chief Executive

4 April 2016

 

 

Chief Financial Officer's Review

 

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

 

In what turned out to be a flat housing market in 2015 with 1.2m transactions* (2014: 1.2m transactions) our focus has been on the integration of the acquired brands, realising economies of scale and developing our offerings across five brands.

 

* HMRC UK Property Transaction Statistics 23 February 2016

 

 

 

2015

 

 

 

2014

 

Continuing

Discontinued

Total

 

Continuing

Discontinued

Total

   £m

£m

£m

 

    £m

  £m

£m

Group revenue

7.1

-

7.1

 

5.2

0.2

5.4

Admin expenses

3.9

-

3.9

 

2.8

0.2

3.0

Operating profit**

2.9

-

2.9

 

2.0

 --

2.0

 

Operating profit

2.7

-

2.7

 

1.9

 --

1.9

 

Profit before tax**

2.9

 

-

2.9

 

2.1

 --

2.1

Profit before tax

2.7

-

2.7

 

1.9

 --

1.9

 

EBITDA**

3.2

-

3.2

 

2.1

 --

2.1

 

 
** before exceptional costs 
Revenue

Group revenue for the financial year ended 31 December 2015 was £7.1m (2014: £5.2m), an increase of £1.9m (38%) over the prior year. The incorporation of a full year's revenue from the Xperience acquisition in October 2014 contributed £1.7m of this increase.

 

Management Service Fees represented 87% of Group revenue with the remainder being franchise sales and ancillary services to support Management Service Fees generation.

 

Management Service Fees from the Martin & Co offices increased by £0.4m (11%) in the year. However, franchise sales activities, whilst on a par with 2014, delivered lower revenues in 2015 of £0.1m and we sold our Saltaire portfolio in January 2015 which had delivered £0.1m of revenue in 2014. Thus, the increase in total revenue from Martin & Co was £0.2m.

 

Operating Profit

Operating profit before exceptional costs increased from £2.0m to £2.9m (42%) and the margin increased from 39% to 41%.

 

Administration expenses, including the first full year of the Xperience acquisition, increased by £1.1m (£0.2m of the increase was attributable to amortisation). Cost savings of £0.4m were realised. 

 

EBITDA

EBITDA before exceptional costs for 2015 was £3.2m (2014: £2.1m) an increase of £1.1m (50%) over the prior year.

Exceptional items

The exceptional costs for 2015 are £0.2m (2014: £0.2m) and all relate to redundancy payments following the Group's re-organisation (2014: Xperience acquisition costs).

Profit before tax

The profit before tax was £2.7m for 2015, an increase of £0.8m (42%) over the prior year.

Taxation

The effective rate of corporation tax for the year was 20.25% (2014: 21.5%). The total tax charge for 2015 is £539,000 (2014: £416,000).

Earnings per share

Earnings per share for the year was 9.8 pence (2014: 6.9 pence), an increase of 42%. The profit attributable to owners increased to £2.2m (2014: £1.5m).

Dividends

The Board is proposing a final dividend of 4.1 pence per share for 2015 which, together with the interim dividend of 1.8 pence per share paid to shareholders on 30 September 2015, equates to a total dividend for the financial year of 5.9 pence (2014: 4.0 pence), an increase of 47.5%.

Cash flow

The net cash inflow from operating activities in 2015 was £2.4m (2014: £1.5m) before exceptional costs of £0.2m (2014: £0.2m) as the newly expanded Group continues to generate strong operating cash inflows.

 

The net cash inflow from investing activities was £0.3m (2014: outflow £5.0m) due principally to the disposal of the Saltaire portfolio in this year and the Xperience acquisition in 2014.

 

Loan repayments totaling £0.5m plus interest payments of £0.1m were made on the Santander UK plc loan during 2015. Dividend payments were £1m in 2015.

Liquidity

The Group had cash balances of £4.3m at 31 December 2015 (2014: £3.4m).

Financial position

The Group is strongly cash generative which, together with the undrawn facility from Santander UK plc of £3.0m at 31 December 2015, puts it in a strong position with regard to the acquisition element of its strategic plan.

 

 

David Raggett

Chief Financial Officer

4 April 2016

 

 

 

The Group's franchise model

 

Key strengths

 

·      Five-year franchise, exclusive postcode territory

·      New franchise territories cumulatively profitable by year three

·      Franchise renewal subject to qualifying conditions

·      Group control over branding, records and standards

·      Very high levels of franchisee retention

 

Proposition

All franchisees receive initial training and mentoring, followed by ongoing access to regional training programmes, business development advice, legal and IT systems support, marketing campaigns and use of the brand website, assistance with recruiting specialist staff, obtaining start-up and expansion funding and business acquisitions. In return, the Group charges a management service fee of 9% levied on all fee income, in the case of Martin & Co franchisees, and 7.5% (currently) for franchisees of Xperience.

 

New franchisees at Martin & Co come from a wide variety of backgrounds; Xperience franchisees are typically career estate agents and letting agents who converted to franchisees having formerly run a Legal & General owned estate agency office. Typically a new franchisee launches in branded high street office premises with a member of staff and a branded vehicle.

 

A franchisee can only exit via a controlled sale to another franchisee approved by the Group (a 'resale') and a resale typically improves fee income at the business by 30% within 12 months of the change of franchisee.

 

We have built a stable footprint of experienced franchisees with the financial capacity and managerial capability for further business development.

 

Strategy and progress

Our mission is to be the dominant property franchise group in the UK by expanding our brand stable, range of services, network footprint and client base.

 

The Group expects to continue to grow its share of the UK private rental market. The Board believes that 55% of UK private rented sector (households) is now contained within territories occupied by the Group's franchisees. The Group now trades from 287 offices and it will continue to recruit new franchisees, convert competitors to join its franchise brands, and make selective acquisitions to move toward its goal of 500 offices.

 

The Group will continue to develop a supportive environment in which motivated individuals can secure their financial future using a franchise model.

 

 

MartinCo PLC - background

The Group operates as a pure franchise model primarily focused on UK residential lettings and property management services offered to private clients. We also have a developing income stream from estate agency services.

 

Traditionally, Martin & Co recruits new franchisees from a wide pool (83% do not come from a property background) and provide intensive training and "hands-on" support. The focus on lettings emanated from growth in this sector and the attraction of a recurring commission income stream from a portfolio of tenanted managed properties. After the financial crisis of 2008, the business recorded its peak flow of new franchisees and retail banks continued to lend support to its start-ups because of the strength of its franchise model.

 

The business added a sales-based estate agency service in 2012 principally to service investment property trades by its existing clients. More recently the service has been promoted to the general house buying public with an innovative "online" advertising service as a defensive play against the virtual estate agents who operate without high street premises.

 

A listing on the Alternative Investment Market in December 2013 raised £4m of fresh capital to invest in a lettings business acquisition programme to supplement organic growth. In October 2014 MartinCo purchased the entire property franchise business of Legal & General, which operated as four franchise brands.

 

Based on the 2011 census the Group now contains 55% of total UK private rental households within its occupied franchisee territories, and of these it manages 1.58%.

 

The Group competes for rental instructions against Countrywide, LSL and Foxtons.

 

The CJ Hole brand is ranked the No.1 agent based on independent customer satisfaction surveys in Bristol (allagents.co.uk) and No. 16 in the whole of the UK.

 

An independent survey has revealed that 94% of Martin & Co landlord clients would recommend its service.

 

Key Group operational metrics

45,000+

Properties under management

31,500+

7,600+

287

Properties let (not all under management)

Properties sold

Offices

256

Offices offering estate agency service

240

12

Franchisees

New franchisees recruited

 

 

 

 

Our brand stable

 

Martin & Co

Martin & Co was established in 1986 and began franchising in 1995. It is a national brand with 195 offices widely distributed across the UK. Martin & Co is predominantly a specialist lettings and property management business with a truly national client base. The first franchise was sold in 1995 and the franchise has grown every year since. The business mix is 90% lettings and 10% estate agency by management services fees revenue. Estate agency revenue grew by 76% year-on-year in 2015.

 

Xperience

Legal & General established Legal & General Franchising Ltd in 1992 in order to facilitate the transition from a model of directly owned and managed estate agency operations to a franchise model. Thirteen years later the brand "Xperience" was adopted to describe the whole of the property franchise business of Legal & General and selected to communicate the many years' of accumulated experience within its four established regional brands; Ellis & Co, Parkers, CJ Hole and Whitegates.

 

Ellis & Co

Ellis & Co opened its first office in Swiss Cottage, north-west London in 1850. The business expanded substantially in the 1960's and 70's before a period of retrenchment. It now has 21 offices within the M25 and 1 office in Tonbridge, Kent.

 

CJ Hole

CJ Hole was founded in Clifton, Bristol by Charles Joseph Hole in 1867 as a rent collection business.

 

Over the years, the focus of the business changed towards selling property as the company began to expand. Today, CJ Hole is a major force within the estate agency market in the South West with 22 offices throughout Bristol, Somerset and Gloucestershire.

 

Parkers

Established in Gloucester in 1948, today Parkers is a dominant force in the South of England with a network of 14 offices along the M4 corridor.

 

Whitegates

Established in 1978, Whitegates is an estate agency with 34 offices across the North of England, including Yorkshire, Midlands, the North East, North West and Wrexham in north Wales. Whitegates derives approximately half of its income from lettings activity.

 

 

 

 Consolidated statement of comprehensive income

for the year ended 31 December 2015

 

 

 

 

 

Notes

2015

£

2014

£

CONTINUING OPERATIONS

Revenue

 

7

 

7,130,967

 

5,176,174

Cost of sales

 

(356,844)

(354,145)

GROSS PROFIT

 

6,774,123

4,822,029

Administrative expenses

   8

(3,880,629)

(2,789,131)

OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS

 

2,893,494

2,032,898

Exceptional items

10

(166,069)

(158,741)

OPERATING PROFIT

11        

2,727,425

    1,874,157

Finance income

12

50,914

51,140

Finance costs

12

(85,572)

(22,295)

PROFIT BEFORE INCOME TAX EXPENSE

 

2,692,767

    1,903,002

Income tax expense

13

(538,667)

(411,541)

PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR FROM CONTINUING OPERATIONS

 

 

2,154,100

 

     1,491,461

DISCONTINUED OPERATIONS

Profit and total comprehensive income for the year from discontinued operations

 

29

 

        -

 

         18,565

PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO OWNERS

 

 

2,154,100

 

     1,510,026

Earnings per share - Continuing

14

9.8p

6.9p

Earnings per share - Discontinued

14

0.0p

0.0p

Total Earnings per share

14

9.8p

6.9p

Diluted Earnings per share - Continuing

14

9.4p

6.6p

Diluted Earnings per share - Discontinued

14

0.0p

0.0p

Total Diluted Earnings per share

14

9.4p

6.6p

Consolidated statement of financial position

31 December 2015

 

 

 

 

Notes

 

 

2015

£

 

 

2014

£

ASSETS

NON-CURRENT ASSETS

Intangible assets

 

 

17

 

 

6,014,336

 

 

   6,270,173

Property, plant and equipment

18

        140,241

92,158

 

 

6,154,577

   6,362,331

CURRENT ASSETS

Trade and other receivables

 

20

 

912,183

 

965,319

Cash and cash equivalents

 

4,346,054

3,367,259

 

 

5,258,237

4,332,578

Assets of a disposal group classified as held for sale

29

          -

254,846

 

 

5,258,237

4,587,424

TOTAL ASSETS

 

11,412,814

  10,949,755

EQUITY

SHAREHOLDERS' EQUITY

Called up share capital

 

 

21

 

 

220,000

 

 

220,000

Share premium

22

3,790,000

3,790,000

Other reserves

23

        134,560

  (61,406)

Retained earnings

 

3,492,253

2,328,153

TOTAL EQUITY ATTRIBUTABLE TO THE OWNERS LIABILITIES

NON-CURRENT LIABILITIES

Borrowings

 

 

 

24

7,636,813

 

 

1,500,000

    6,276,747

 

 

2,000,000

Deferred tax

27

558,001

791,136

 

CURRENT LIABILITIES

 

2,058,001

2,791,136

Borrowings

24

500,000

      500,000

Trade and other payables

25

   916,924

    1,046,530

Tax payable

 

301,076

       335,342

 

 

1,718,000

    1,881,872

TOTAL LIABILITIES

 

3,776,001

 4,673,008

TOTAL EQUITY AND LIABILITIES

 

11,412,814

   10,949,755

 

The financial statements were approved and authorised for issue by the Board of Directors on 4 April 2016 and were signed on its behalf by:

 

 

 

David Raggett

Chief Financial Officer

Consolidated statement of changes in equity

for the year ended 31 December 2015

 

 

 

 

Called up share

capital

£

Retained earnings

£

Share premium

£

Other reserves

£

Total equity

£

Balance at 1 January 2014

220,000

1,104,127

3,790,000

(138,926)

4,975,201

Profit and total comprehensive income

     -

1,510,026

       -

        -

1,510,026

Dividends

     -

  (286,000)

       -

       -

  (286,000)

Deferred tax on share based payments

     -

         -

       -

   77,520

     77,520

Balance at 31 December 2014

220,000

 2,328,153

3,790,000

  (61,406)

6,276,747

Profit and total comprehensive income

    -

 2,154,100

       -

        -

2,154,100

Dividends

    -

   (990,000)

       -

        -

  (990,000)

 

Deferred tax on share based payments

    -

               -

       -

  195,966

  195,966

Total transactions with owners

                                   -

   (990,000)

             --

  195,966

 (794,034)

Balance at 31 December 2015

220,000

 3,492,253

3,790,000

  134,560

7,636,813

Consolidated statement of cash flows

for the year ended 31 December 2015

 

 

 

 

Notes

 

 

2015

£

 

 

2014

£

Cash flows from operating activities

Cash generated from operations

 

1

 

2,871,051

 

   1,937,611

Interest paid

 

        (94,064)

  (203)

Tax paid

 

      (616,402)

    (609,292)

Net cash from operating activities

 

2,160,585

   1,328,116

Cash flows from investing activities

Purchase of subsidiary undertakings net of cash acquired

 

2

 

              -

 

(5,065,902) (5,065,902)

Purchase of intangible assets

 

           -

    (326,317)

Purchase of tangible assets

 

       (67,199)

      (17,520)

Proceeds from sale of intangible assets

 

       324,495

341,576

Proceeds from sale of tangible assets

 

                  -

24,646

Interest received

 

         50,914

        51,140

Net cash generated from/(used in) investing activities

 

    308,210

 (4,992,377)

Cash flows from financing activities

 

 

                

 

   

Repayment of bank loan

Drawdown of bank loan

 

(500,000)

-

--

   2,500,000 

Equity dividends paid

 

     (990,000)

   (286,000)

Net cash (used in) / generated from financing activities

 

   (1,490,000)

   2,214,000

Increase/(Decrease) in cash and cash equivalents

 

    978,795

 (1,450,261)

Cash and cash equivalents at beginning of year

 

3,367,259

   4,817,520

Cash and cash equivalents at end of year

 

4,346,054

   3,367,259

Notes to the consolidated statement of cash flows

for the year ended 31 December 2015

 

 

 

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

 

 

2015

£

2014

£

Cash flows from operating activities

 

 

Profit before income tax

2,692,767

   1,926,502

Depreciation and amortisation charges

259,607

           74,087

Loss/(Profit) on disposal of intangible assets

                                           14,194

         (4,007)

Finance costs

85,572 

          22,295

Finance income

                                         (50,914)

        (51,140)

Operating cash flow before changes in working capital

3,001,226

      1,967,737

Increase in trade and other receivables

                                         (15,363)

      (107,279)

(Decrease)/Increase in trade and other payables

(114,812)

   77,153

Cash generated from operations

2,871,051

1,937,611

 

 

 

2015

 

        2014

 

£

£

Continuing operations

 

 

Profit before tax

2,692,767

1,903,002

Adjustments for:

 

 

Depreciation of property, plant and equipment

19,116

13,283

Loss on disposal of intangible assets

14,194

-

Amortisation

240,491

60,804

Finance costs

85,572

22,295

Finance income

(50,914)

(51,140)

Changes in working capital

 

 

Increase in trade and other receivables

(15,363)

(117,941)

(Decrease)/Increase in trade and other payables

(114,812)

125,261

Cash inflow from continuing operations

2,871,051

1,955,564

Discontinued operations

Profit before tax

 

-

 

 23,500

Adjustments for:

Profit on disposal of intangible assets

 

                                                              -

 

 (4,007)

Changes in working capital:

Decrease in trade and other receivables

 

-

 

      10,662

Decrease in trade and other payables

                                                              -

    (48,108)

Cash outflow from discontinued operations

                               -

    (17,953)

Cash generated from operations

                                                2,871,051

  1,937,611

 

2. Purchase of Subsidiary undertakings net of cash acquired

In the prior year the Group obtained control of Xperience Franchising Limited and Whitegates Estate Agency Limited.

 

XFL

£

 

WEAL

£

 

Total

£

Consideration

5,118,973

991,311

6,110,284

Less: Cash acquired

(995,088)

(49,294)

(1,044,382)

Purchase of Subsidiary undertakings net of cash acquired

4,123,885

942,017

5,065,902

Notes to the consolidated financial statements

for the year ended 31 December 2015

 

 

 

1. General information

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

 

2. Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and IFRS Interpretations Committee (IFRS IC) as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention. As set out in note 23, the acquisition of Martin & Co (UK) Limited in 2013 was accounted for as if it had been owned for the whole period.

 

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

 

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

 

Going Concern

The Group has produced detailed budgets, projections and cash flow forecasts. The Directors have concluded after reviewing these budgets, projections and forecasts, making appropriate enquiries of the business and having considered uncertainties under the current economic environment, that there is a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. Accordingly, they have adopted the going concern basis in preparing the Financial Statements.

 

New standards, amendments and interpretations issued

 

The following relevant new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning on 1 January 2015, as adopted by the European Union, and have not been early adopted:

 

Standard

Key requirements

Effective date as adopted by the EU

 

Amendments to IAS 16 and IAS 38

 

 

Clarifies acceptable methods of depreciation and amortisation.

 

1 January 2016

Amendments to IAS 1

 

Disclosure amendments

1 January 2016

Amendments to IFRS 5

Non-current assets held for sale and discontinued operations

1 January 2016

 

 

 

Amendments to IFRS 7

Disclosure amendments

1 January 2016

 

 

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group when the relevant standards and interpretations come into effect. The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

 

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

 

Standard

Key requirements

Effective date as adopted by the EU

 

IFRS 9

Financial Instruments

1 January 2018

 

 

 

IFRS 15

Revenue from contracts with customers

1 January 2018

 

 

 

IFRS 16

Leases

1 January 2018

 

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

 

 

3. Basis of consolidation

The Group financial statements include those of the parent company and its subsidiaries, drawn up to 31 December 2015. Subsidiaries are all (including Structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

 

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred.

 

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

 

4. Significant accounting policies

 

Revenue recognition

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

 

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

 

Operating profit

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

 

Intangible assets - goodwill

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

 

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

 

Discontinued operations

Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for sale in its immediate condition. Management must be committed to the sale, which should be expected within one year from the date of classification as held for sale.

 

Immediately before classification as held for sale, the assets are re-measured and recognised at the lower of their carrying amount and their fair value less costs to sell if their carrying amount essentially derives from their sale rather than their continued use. Assets classified as held for sale are not depreciated. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement are included in the income statement. Gains are not recognised in excess of any cumulative impairment loss.

 

Profit after tax from operations qualifying as discontinued operations are presented separately as a single amount on the income statement. The assets held for resale and the liabilities held for resale are shown separately on the balance sheet. Results from operations qualifying as discontinued operations as of the balance sheet date for the latest period presented, that have previously been presented as results from continuing operations, are represented as results from discontinued operations for all periods presented.

 

In conditions where the classification of non-current assets as held for sale are no longer met, classification as held for sale ceases. Accordingly, results of operations, previously presented in discontinued operations, are reclassified and included in continuing operations for all periods presented. Non-current assets that cease to be classified as held for sale are re-measured at the lower of their carrying amount before classification as held for sale, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset not been classified as held for sale, and its recoverable amount at the date of the subsequent decision to sell.

 

Business combinations

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

 

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

 

Intangible assets

Intangible assets with a finite life are carried at cost less amortisation and any impairment losses. Intangible assets represent items which

meet the recognition criteria of IAS 38, in that it is probable that future economic benefits attributable to the assets will flow to the entity and the cost can be measured reliably.

 

In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to

the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group.

 

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

 

Brands

Indefinite life

Customer lists

5 - 25 years

Master franchise agreements

25 years

 

Acquired customer relationships are identified as a separate intangible asset as they are separable and can be reliably measured by valuation of future cash flows. This valuation also assesses the life of the particular relationship. The life of the relationship is assessed annually. Customer relationship assets are being written off over a remaining life of 5 to 25 years.

 

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

 

Acquired trade names are identified as separate intangible assets where they can be reliably measured by valuation of future cash flows. The trade names which have been identified separately are assessed as having indefinite lives due to their long trading histories.

 

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

 

Investment in subsidiaries

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

 

Property, plant and equipment

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

Fixtures, fittings and office equipment balance Short leasehold improvements

15% reducing

over the lease term

 

Income taxes

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

 

Deferred tax

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

 

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

 

Operating lease commitments

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

 

Cash and cash equivalents

Cash and cash equivalents are defined as cash balances in hand and in the bank (including short-term cash deposits).

 

Financial assets

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

 

Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of services to franchisees (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

 

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms of the receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future

expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

 

  Financial liabilities

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

 

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

 

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

 

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

 

Share options

The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, together with a corresponding increase in equity, based upon the Company's estimate of the shares that will eventually vest.

 

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

·   the exercise price of the option;

·   the life of the option;

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

·   the expected volatility of the share price;

·   the dividends expected on the shares; and

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

 

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

 

 

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

 

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

 

Impairment of intangibles

The Group is required to test, where indicators of impairment exist, whether intangibles assets have suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Key assumptions for the value in use calculation are described in note 17.

 

Valuation of separable intangibles on acquisition

When valuing the intangibles acquired in a business combination, management estimate the expected future cash flows from the asset and choose a suitable discount rate in order to calculate the present value of those cash flows. Separable intangibles valued on acquisitions made in the prior year were £4.6m as detailed further in note 17.

 

Non-current assets (or disposal groups) held for sale

Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.  At 31 December 2015 the balance of assets held for sale was £nil (2014: £254,846).

 

 

6. Segmental reporting

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

 

7. Revenue

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

as follows:

 

2015

 

 

2014

 

£

£

Management Service Fee

6,190,911

4,048,575

Franchise sales

316,847

423,779

Other

623,209

703,820

 

7,130,967

5,176,174

 

All revenue is earned in the UK and no customer represents greater than 10 per cent of total revenue in either of the years reported.

 

Other revenue relates to training and ongoing support to franchisees.

 

 

8.  Administrative expenses

Administrative expenses relate to those expenses that are not directly attributable to any specific sales activity.

 

Administrative expenses for the year were as follows:

 

2015

£

2014

£

Continuing operations:

 

 

Employee costs (see note 9)

2,353,365

1,852,466

Property costs

179,845

  67,773

General administrative costs

1,106,928

808,088

Amortisation

240,491

  60,804

             

3,880,629

2,789,131

 

 

9.  Employees and Directors

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

 

 

2015

2014

Continuing operations:

 

 

 

Administration

30

29

Management

9

7

 

39

36

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

 

 

2015

£

2014

£

Continuing operations Wages and salaries

and salaries

 

2,107,274

 

1,676,377

Social security costs

246,091

176,089

 

2,353,365

1,852,466

Exceptional costs arising through redundancy

166,069

-

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

 

 

2015

£

2014

£

Wages and salaries

1,014,249

694,911

Social security costs

126,817

69,937

 

1,141,066

764,848

 

Details of the Directors' emoluments are disclosed in the Directors' Remuneration Report on pages 22 to 23. The share based payments charge for the current year and the prior year was nil.

 

10.  Exceptional items

The exceptional items represent redundancy costs relating to the acquisition of Xperience Franchising Limited and Whitegates Estate Agency Limited. In the prior year, exceptional items represented the acquisition costs for Xperience Franchising Limited and Whitegates Estate Agency Limited.

 

11. Operating profit

 

 

 

2015

 

 

2014

 

£

£

The operating profit from continuing operations is stated after charging: Depreciation

 

19,166

 

13,283

Amortisation

                            240,491

60,804

Loss on disposal of intangible assets

                             14,194 

             

--

Auditor's remuneration (see below)

  49,250

123,863

Staff costs (note 9)

2,519,434

1,852,466

Operating lease expenditure

65,634

47,311

Audit services

- Audit of the Company and consolidated accounts

 

21,000

 

          18,500

 - Audit the Subsidiaries pursuant to legislation

24,000

          45,000 

 - Audit related assurance services

Tax services

 - advisory compliance services

4,250

 

  --

                  --

 

    2,500

- advisory services

         --

          10,363

Other non-audit services - advisory services

                          --

              47,500

 

  49,250

 123,863

Comprising: Audit services

 

49,250

 

63,500

Non-audit services:

        --

  60,363

 

  49,250

123,863

 

12. Finance income and costs

 

 

 

2015

£

2014

£

Finance income: Bank interest

 

33,742

 

         38,781

Other similar income

                            17,172

            12,359

 

50,914

  51,140

 

 

2015

£

 

2014

£

Finance costs: Bank interest

 

85,572

 

22,295

 

85,572

22,295

 

13. Taxation

 

 

 

2015

£

2014

£

Current tax

575,836

411,541

Deferred tax credit

(37,169)

        -

Total tax charge in statement of comprehensive income

538,667

411,541

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

 

 

2015

£

2014

£

Profit on ordinary activities before tax

2,692,767

1,903,002

Profit on ordinary activities multiplied by the effective standard rate of corporation tax in the UK of 20.25%

 

 

(2014: 21.5%)

545,285

409,145

Effects of:

 

 

Expenses not deductible for tax purposes

18,201

  19,325

Depreciation in excess of capital allowances

(26,693)

       (18,803)

Losses carried forward

1,874

1,874

Total tax charge in respect of continuing activities

538,667

411,541

 

14. Earnings per share

 

Earnings per share is calculated by dividing the profit for the financial year by the weighted average number of shares during the year.

 

 

2015

£

2014

£

Earnings per ordinary share

Profit from continuing operations

 

2,154,100

 

   1,491,461

Profit from discontinued operations

                                                                   -

  18,565

 

2,154,100

  1,510,026

 

Diluted earnings per ordinary share

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

 

 

2015

Number

2014

Number

Weighted average number of shares

Number used in basic earnings per share

 

22,000,000

 

22,000,000

Dilutive effect of share options on ordinary shares

848,442

832,818

Number used in diluted earnings per share

22,848,442

22,832,818

 

15. Profit of Parent Company

As permitted by Section 408 of the Companies Act 2006, the income statement of the parent company is not presented as part of these financial statements. The Parent Company's profit for the financial year was £955,645 (2014: £1,072,042).

 

16. Dividends

 

 

2015

£

 

2014

£

 

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

990,000

286,000

Dividend  per share

4.5p

1.3p

 

The dividend per share is calculated using the number of shares in issue at the year end.

17. Intangible assets

 

 

Master Franchise

 

 

Agreement

Brands

Customer Lists

     Goodwill

Total

 

£

£

£

£

£

Cost

 

 

 

 

 

Brought forward 1 January 2014

-

-

-

           75,000

  75,000

Additions - acquired separately

-

-

326,317

                  -

326,317

Additions - acquired business combinations

4,075,085

571,000

225,204

      1,313,217

      6,184,506

Transferred to assets held for sale

-

-

(271,000)

                  -

      (271,000)

Carried forward 31 Dec 2014

4,075,085

571,000

       280,521

      1,388,217

     6,314,823

Disposals

-

-

(19,267)

                 -

        (19,267)

Carried forward 31 Dec 2015

4,075,085

571,000

261,254

  1,388,217

 6,295,556

Amortisation

 

 

 

 

 

Brought forward 1 Jan 2014

-

-

         -

-

           -

Charge for year

27,167

-

33,637

-

60,804

Transferred to assets held for sale

-

-

 (16,154)

-

 (16,154)

Carried forward 31 Dec 2014

27,167

-

17,483

-

        44,650

 

Charge for year

 

                       163,003

 

-

 

77,488

 

                -

 

       240,491

Eliminated on disposals

                                 --

                --

          (3,921)

 --

         (3,921)

Carried forward 31 Dec 2015

                       190,170

-

         91,050

-

       281,220

Net book value

 

 

 

 

 

At 31 December 2015

3,884,915

571,000

170,204

 1,388,217

6,014,336

At 31 December 2014

4,047,918

571,000

263,038

    1,388,217

    6,270,173

 

The carrying amount of goodwill relates to three cash generating units, and reflects the difference between the fair value of consideration transferred and the fair value of assets and liabilities purchased.

 

Goodwill is assessed for impairment by comparing the carrying value to the value in use calculations. The carrying value of the goodwill arising on the acquisitions of Xperience Franchising Limited ("XFL") and Whitegates Estate Agency Limited ("WEAL") is based on revenue and operating margin projections through to 31 December 2017. Thereafter projected revenue growth was assumed to decline linearly to a long-term growth rate of 2.25%.

 

The cash flows arising were discounted by the weighted average cost of capital plus an additional risk premium for the increased risk profile of franchise rights when compared to the risk of each company. These discount rates were 16.8% for XFL and 17.8% for WEAL, the latter higher rate reflecting WEAL's smaller size and more volatile earnings. This resulted in a total value for each company of the identifiable intangibles assets.

 

The total consideration paid for the two companies of £6,110,284 was allocated to each company by management based on their respective EBITDAs.

 

The Directors do not consider goodwill to be impaired. The Directors believe that no reasonably possible change in assumptions will cause the value in use to fall below the carrying value and hence impair the goodwill.

 

The master franchise agreements are being amortised over 25 years. The period of amortisation remaining at 31 December 2015 was 23 years 10 months. 

 

The brand names under which XFL trades of C J Hole, Parkers and Ellis & Co have been in existence for between 68 years and 161 years. Management see them as strong brands with significant future value and has deemed them to have indefinite useful lives as there is no foreseeable limit to the period over which the assets are expected to generate net cash inflows for the Group.

 

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

 

The after tax royalty rates were then applied to the projected cash flows of each brand up until December 2029. The projected cash flows being the forecast growth in current revenues using market data through to 31 December 2017. Thereafter projected revenue growth was assumed to decline linearly to a long-term growth rate of 2.25%. The after tax cash flows determined through this process was then discounted at 13.5% to determine a value for each brand name. This discount rate approximated the company's WACC as the risk profile of the brand names was seen as commensurate with that of the overall company.

 

The Directors believe that no reasonably possible change in assumptions will cause the value in use of the brands names CJ Hole, Parkers and Ellis & Co to fall below their carrying values and hence impair their intangible values.

 

The Whitegates brand was valued in a similar manner and deemed to have an immaterial value when the acquisition was made principally due to its lack of profitability over preceding years. It is therefore not recognised separately.

 

Goodwill and indefinite life intangible assets have been allocated for impairment testing purposes to the following cash-generating units.

 

The carrying values are as follows:

 

 

Goodwill

Brands

2015

£

2014

£

2015

£

2014

£

Xperience Franchising Limited

 

912,716

  912,716

571,000

571,000

Whitegates Estate Agency Limited

 

400,501

  400,501

-

-

Martin & Co (UK) Ltd

 

75,000

 75,000

-

-

 

 

1,388,217

1,388,217

571,000

571,000

 

Company

No goodwill or customer lists exist in the parent company.

 

 

 

 

 

 

18. Property, plant and equipment

 

 

 

 

 

Group

 

 

 

Leased   Assets

 

Office Equipment

 

Fixtures & Fittings

 

 

Total

 

 

£

£

£

£

Cost

Brought forward 1 Jan 2014

 

 

 

   37,034

 

32,184

 

   118,603

 

 187,821

Acquisitions

 

                   -

     4,961

       -

4,961

Additions

 

                   - 

   15,724

   270

15,994

Carried forward 31 Dec 2014

 

            37,034

52,869

118,873

208,776

Additions

 

                   --

35,798

       31,401

67,199

Carried forward 31 Dec 2015

 

           37,034

88,667

150,274

275,975

Depreciation

Brought forward 1 Jan 2014

 

 

 

  7,059

 

11,469

 

84,807

 

103,335

Charge for year

 

  3,703

  4,479

5,101

         13,283

Carried forward 31 Dec 2014

       

            10,762 

15,948

89,908

116,618

Charge for year

 

              3,704

  8,897

6,515

19,116

Carried forward 31 Dec 2015

 

            14,466

  24,845

96,423

135,734

Net book value

At 31 December 2015

 

 

 

            22,568

 

  63,822

 

53,851

 

        140,241

At 31 December 2014

 

            26,272

  36,921

28,965

 

 

 

 

 

 

 

             

19. Investments

 

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

 

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

 

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

 

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

 

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

The Company's investments at the balance sheet date in the share capital of companies include the following: Subsidiaries

 

 

Share class

% ownership and voting rights

Country of incorporation

Martin & Co (UK) Limited

Ordinary

100

England

Xperience Franchising Limited

Ordinary

100

England

Whitegates Estate Agency Limited

Ordinary

100

England

         

 

20. Trade and other receivables

 

 

2015

£

2014

£

Trade receivables

  91,856

      55,536

Loans to franchisees

174,848

190,333

Other receivables

52,945

167,263

Amounts due from group undertakings

-

-

Prepayments and accrued income

592,534

552,187

Tax receivable

-

-

             

912,183

965,319

 

Trade receivables are stated net of bad debt provisions of £37,678 (2014: £nil).

 

 

Ageing of trade receivables

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

 

2015

£

2014

£

Group

 

 

Not more than 3 months

77,606

54,620

More than 3 months but not more than 6 months

13,666

--

More than 6 months but not more than 1 year

584

916

             

91,856

      55,356

 

 

An allowance has been made against the overdue receivables based on historic default experience. The Directors consider that the carrying value of trade and other receivables represents their fair value.

 

The Group does not hold any collateral as security for its trade and other receivables. A loan to a franchisee for £147,000 is secured by way of a fixed and floating charge over their assets.

 

21. Called up share capital

 

 

 

 

2015

 

 

2014

 

Number

£

Number

£

Group

Authorised, allotted issued and fully paid ordinary shares of 1p each

22,000,000

220,000

22,000,000

220,000

 

 

There has been no movement in shares during the year or preceding year.

 

 

22. Share premium

 

There have been no movements in share premium during the current and preceding year.

 

 

23. Other reserves

 

 

Merger Reserve

£

Share-based

Payment

Reserve

£

Total

£

Group

 

 

 

1 January 2014

(179,800)

40,874

(138,926) 

Deferred tax on share options

-

77,520 

77,520

1 January 2015

(179,800)

118,394 

(61,406)

Deferred tax on share options

-

195,966 

195,966 

31 December 2015

(179,800)

314,360

134,560

Merger reserve

The acquisition of Martin & Co (UK) Limited by Martinco PLC did not meet the definition of a business combination and therefore, falls outside of the scope of IFRS 3. This transaction was in 2013 and accounted for in accordance with the principles of merger accounting as set out in Financial Reporting Standard 6 - Acquisitions and Mergers.

 

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

 

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

 

Share-based payment reserve

 

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

 

 

24. Borrowings

 

 

 

 

2015

2014

 

£

£

Repayable within 1 year:

 

 

Bank loan (term loan)

500,000

   500,000

Repayable in more than 1 year:

 

 

Bank loan (term loan)

1,500,000

2,000,000

Bank loans due after more than 1 year are repayable as follows:

 

 

Between 1 and 2 years

500,000

   500,000

Between 2 and 5 years

1,000,000

1,500,000

 

The term loan of £2m (2014: £2.5m) is secured with a fixed and floating charge over the Group's assets and a cross guarantee across all companies in the Group. The loan commenced on 30 October 2014 and is repayable over 5 years in equal instalments. Interest is charged quarterly on the outstanding amount and the rate is fixed during the term at 4.08%. At 31 December 2015 the unutilised amount of the facility was £3m (2014: £2.5m).

 

 

25. Trade and other payables

 

 

 

 

 

2015

£

2014

£

Trade payables

  84,364

178,673

Other taxes and social security

391,889

340,534

Other payables

42,288

    23,571

Accruals and deferred income

398,383

503,752

Amounts owed to group undertakings

-

-

 

   916,924

1,046,530

 

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

 

26. Leasing agreements

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

 

 

 

Non-cancellable operating leases

 

2015

£

2014

£

Group

Within 1 year

 

54,400

 

44,820

Between 1 and 5 years

      190,200

17,000

 

        244,600

61,820

 

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

 

 

27. Deferred tax asset/(liability)

 

 

 

 

 

 

2015

£

2014

£

Balance at beginning of year

(791,136)

34,654

Movement during the year

 

 

Statement of changes in equity

195,966

 77,520

Statement of comprehensive income

  37,169 

           -- 

Acquisitions

--

(903,310)

Balance at end of year

(558,001)

(791,136)

 

Deferred taxation has been provided as follows:

 

 

 

 

 

 

2015

£

2014

£

Accelerated capital allowances

        (6,220)

(6,220)

Share-based payments

          314,360

   118,394

Acquired business combinations

  (866,141)

 (903,310)

 

  (558,001)

 (791,136)

 

 

 28. Financial instruments

Financial instruments - Risk Management

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

 

 

 

 

·   Credit risk

·   Liquidity risk

·   Interest rate risk

 

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

 

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

 

Principal financial instruments

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

·   Receivables

·   Loans to franchisees

·   Cash at bank

·   Trade and other payables

·   Borrowings

 

Financial assets

Financial assets measured at amortised cost:

 

 

 

 

 

2015

£

2014

£

Loans and receivables: Trade receivables

 

         91,856

 

55,536

Loans to franchisees

174,848

    190,333

Other receivables

  52,945

167,263

Cash and cash equivalents

 

 

 

Amounts owed by group undertakings

4,364,054

-

3,367,259

-

   543,526

   513,383

 

5,227,229

4,293,774

 Financial liabilities

Financial liabilities measured at amortised cost:

 

 

 

 

 

 

2015

£

2014

£

Other financial liabilities:

Bank loan

 

2,000,000

 

2,500,000

Trade payables

  84,364

178,673

Other payables

42,288

23,571

Accruals

355,983

493,752

Amounts owed to group undertakings

-

-

 

2,482,635

  3,195,996

 

Maturity analysis of financial liabilities:

 

 

 

 

 

2015

£

2014

£

In less than one year: Bank loan

 

570,938

 

  590,563

Trade payables

  84,364

  178,673

Other payables

42,288

      23,571

Accruals

355,983

  493,752

Amount owed to group undertakings

-

-

 

1,053,573

 1,286,559

In more than one year: Bank loan

 

1,588,964

 

2,159,902

 

1,588,964

2,159,902

 

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

 

General objectives, policies and processes

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

 

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

 

Capital management policy

Management considers capital to be the carrying amount of equity. The Group manages its capital to ensure its operations are adequately provided for, while maximising the return to shareholders through the effective management of its resources. The principal financial risks faced by the Group are liquidity risk and interest rate risk. The Directors review and agree policies for managing each of these risks. These policies remain unchanged from previous years.

 

The Group's objectives when managing capital are to safeguard its ability to continue as a going concern and so provide returns for shareholders. The Group meets its objectives by aiming to achieve growth which will generate regular and increasing returns to the shareholders.

 

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

 

Credit risk

Credit risk is the risk of financial loss to the Group if a franchisee or counterparty to a financial instrument fails to meet its contractual obligations. It is Group policy to assess the credit risk of new franchisees before entering contracts.

 

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

 

Liquidity risk

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

 

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

 

 

Interest rate risk

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

 

Fair values of financial instruments

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

 

29. Discontinued operations and held for sale assets and liabilities

Subsequent to the Board's decision to discontinue the activity of owning and managing its own offices, the office in Worthing was sold on 30 December 2014. This is classified as discontinued activities.

 

In June 2014, the Group acquired its first portfolio of 374 managed lettings properties in Saltaire for £0.3m. On 21 November 2014 Martin & Co Saltaire, the franchisee managing the portfolio on the Group's behalf, notified the Group of its intention to exercise its right to purchase the portfolio. At the end of 2014 this asset is classified as held for resale but not as a discontinued operation because the Group intends to continue to pursue and acquire portfolios of managed properties which meet its criteria. The sale was completed on 30 January 2015.

 

 

 

Non-current assets held for sale and discontinued operations

2015

£

2014

£

Operating cash flows

-

 

(17,953)

 

Investing cash flows

-

364,743

Financing cash flows

  -

  -

Increase in cash and cash equivalents

-

 346,790

Assets of disposal group classified as held for sale

 

 

Intangible assets

-

254,846

Property, plant and equipment

-

-

Other current assets

-

-

 

-

254,846

Liabilities of disposal group classified as held for sale

 

 

Trade and other payables

-

-

Analysis of the results of discontinued operations is as follows:

-

-

Revenue

-

204,249

Expenses

-

(180,749)

Profit before tax of discontinued operations

-

23,500

Made up of:

 

 

 

Trading operations

-

19,493

Sale of operations

-

4,007

 

Tax

-

(4,935)

Profit for the year from discontinued operations

-

18,565

 

 

 

As a result of the sale of the owned offices, the Group generated net cash inflows from investing activities of £nil (2014: £365k). The total consideration was £nil (2014: £210k). However, the Group agreed to defer consideration on Worthing as it had for three of the office disposals in 2013 so that £188k of deferred consideration existed at 31 December 2015 (2014: £252k).

 

 

30. Share based payments

 

Enterprise Management Incentive (EMI) Share Option Scheme

During the period ended 31 December 2013 the Company implemented an Enterprise Management Incentive scheme as part of the remuneration for senior management.

 

During the period ended 31 December 2013 the Company granted 1,566,000 options over ordinary shares to directors and executives of the Group. Following an independent expert valuation of scheme, the share based payments charge was deemed by the company to be immaterial in the current and prior year to the financial statements and therefore no charge has been recognised. The options were granted over a discretionary period and have varying vesting conditions.

 

The vesting conditions of 742,000 options include performance conditions including a profit before tax target in the year ending 31 December 2016. The remaining options vest in the year ending 31 December 2016.

 

The maximum term of the options granted is ten years from the grant date. Upon vesting, each of the 1,566,000 options allows the holder to purchase one ordinary share at an exercise price of £0.1764.

 

The estimated fair value of the 1,566,000 share option granted in the EMI plan in prior years is 0.97 pence. This was calculated by applying the Black-Scholes option pricing model which takes into account factors specific to share incentive plans, such as the vesting period.

 

During the year ended 31 December 2015 the Company granted 220,000 options to an executive of the Group. The estimated fair value of the 220,000 share options granted in the EMI plan in the year is £63,616. This was calculated by applying the Black-Scholes option pricing model which takes into account factors specific to share incentive plans, such as the vesting period. No charge has been included in the year as, in the opinion of the directors, these options are not expected to vest because vesting conditions are unlikely to be met.

The following principal assumptions were used in the valuation:

 

Expected term

4 years

Volatility

50%

Option life

January 2025

Risk free interest rate

2.08%

Exercise price

£0.985

Share price at date of grant

£0.985

Dividend yield

5%

 

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

 

 

2015

2015

2014

2014

 

£

£

£

£

 

 

Weighted Average Exercise price

 

Weighted Average Exercise

 price

Number of share options

 

 

 

 

Outstanding at the beginning of the year

1,566,000

£0.1764

1,566,000

£0.1764

Forfeited

(64,800)

£0.1764

--

--

Granted

220,000

£0.985

-

-

Outstanding at the end of the year

1,721,200

£0.2798

1,566,000

£0.1764

Exercisable at the end of the year

-

-

-

-

 

 

The weighted average remaining contractual life of options is 7.9 years (2014: 8.7 years).

31. Related party disclosures Transactions with Directors Dividends

 

During the year dividends were paid to the Directors and their spouses as follows:

 

2015

 

2014

 

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

526,273

152,034

 

 

Director emoluments

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

 

 

2015

£

2014

£

Wages and salaries

507,335

412,433

Social security costs

62,060

34,617

 

569,395

447,050

 

Transactions with Other Related Parties Transactions with The Landlord Hub Limited

 

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

 

The Group has supplied recruitment services during the year of £2,100 (2014: £18,540) and other services of £nil (2014: £801). It has also earned commission on references supplied by The Landlord Hub Limited to its franchise network of £53,770 (2014: £23,767). At the 31 December 2015, The Landlord Hub Ltd owed the Group £2,510 (2014: £26,282).

 

 

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR FZLLBQZFFBBZ
UK 100

Latest directors dealings