BLV.L Regulatory News (BLV)

4 September 2023

BELVOIR GROUP PLC

(the "Company", "Group" or "Belvoir")

Interim Results for the six months ended 30 June 2023

Successful growth strategy underpins strong results

Belvoir Group PLC (AIM: BLV), a leading UK property franchise and financial services Group, is pleased to announce its Interim Results for the six months ended 30 June 2023.

Financial Highlights

· 3% increase in revenue to £15.9m (H1 2022: £15.4m)

· 4% increase in Management Service Fees (MSF), the main revenue stream from franchisees, to £5.5m (H1 2022: £5.3m) with lettings up 8% and sales down 9%

· 11% increase in Financial Services revenue to £8.6m (H1 2022: £7.7m)

· Gross profit split of 58% lettings: 15% sales: 21% financial services: 6% other (H1 2022: 60%, 17%, 19%, 4%) continuing to demonstrate a strong contribution from recurring lettings income

· Administrative costs down 7% to £5.0m (H1 2022: £5.4m) mainly resulting from the net impact of changes in the number of corporate-owned offices and acquisitions

· 10% increase in profit before tax to £4.4m (H1 2022: £4.0m)

· Basic earnings per share up 3% to 9.0p (2022: 8.7p)

· 25% increase in interim dividend to 5.0p per share (H1 2022: 4.0p) payable on 27 October 2023

· H1 results comfortably in line with management's expectations

Operational Highlights

· A strong performance achieved from Belvoir's successful franchise model, despite continuing challenging market conditions

· Acquisition of BMA Bristol Ltd, a financial services business comprising 21 self-employed advisers and a lead-generating website, for £1.0m net cash on 6 June 2023, funded from existing cash reserves

· Successful franchising out of Nicholas Humphreys Derby on 1 March 2023 to the branch manager

· 13 (H1 2022: 9) franchisee assisted acquisitions completed adding £3.5m (H1 2022: £2.2m) of acquired franchisee turnover

· Portfolio of managed properties increased 2% to 75,000 (H1 2022: 73,300)

Post Period End Events

· Acquisition of MAB (South West) Ltd, a financial services business comprising 20 self-employed advisers for £1.0m net cash on 25 August 2023, funded from existing cash reserves

Dorian Gonsalves, Chief Executive Officer of Belvoir Group, commenting on the performance and outlook, said:

"The outperformance of our business model continues to reflect the entrepreneurial nature of our franchisees and self-employed financial services advisers, who remain entirely focused on maximising the opportunities presented in all market conditions. With 58% of their revenue derived from a strong recurring lettings market, our property franchisees have been able to offset the impact of the reduction in UK housing transactions. Meanwhile our financial advisers are mitigating the lower level of new purchase mortgages by servicing demand for remortgages and other related products from their substantial client banks.

"Our resilient business model and our proven growth strategy underpin the ongoing success of the Group's performance and consequently, the Board confirms that the Group is trading comfortably in line with management's expectations for the year ending 31 December 2023."

Retail investor presentation

Dorian Gonsalves, CEO, and Louise George, CFO, will present live to retail investors reporting on the Group's Interim Results via the Investor Meet Company platform today at 4.30pm. Investors can sign up for free and register to participate via: https://www.investormeetcompany.com/belvoir-group-plc/register-investor

For further details:

Notes:

About Belvoir Group PLC

Founded in 1995 and listed on AIM in 2012 (BLV.L), Belvoir operates a nationwide property franchise group with 487 offices across seven brands specialising in residential lettings, property management, residential sales and property-related financial services. With its Central Office in Grantham, Lincolnshire, the Group manages 75,000 properties and reported record revenue of £33.7m in 2022 marking Belvoir's 26th year of unbroken profit growth.

Chief Executive's Report

It gives me great pleasure to report on the Group's Interim Results for the six months ended 30 June 2023.

Performance

There was a significant degree of uncertainty around the property sector at the start of 2023 with the impact of interest rate increases on housing transactions still to be felt. Despite the challenging economic conditions, Belvoir outperformed the market in all three areas of its operations: lettings, sales and financial services.

Group revenue increased by 3% to £15,921,000 (H1 2022: £15,403,000) and profit before tax was up 10% to £4,396,000 (H1 2022: £3,995,000), largely thanks to Belvoir's successful acquisition strategy and the strength of its core lettings business.

Property division

Revenue from the property division was 4% lower at £7,323,000 (H1 2022: £7,666,000) having successfully franchised out two of the Nicholas Humphreys corporate-owned offices as planned in line with the Group's franchise business model. Revenue growth in the underlying business was 2% with the impact of increasing rents helping to mitigate the lower level of sales transactions.

Activity under Belvoir's assisted acquisitions programme is continuing to rebuild post-Covid with 13 (H1 2022: 9) of our franchise owners having completed the acquisition of a local competitor adding 2,010 (H1 2022: 1,817) properties under management. The pipeline of assisted acquisitions currently exceeds £1.0m and there are a further £4.9m of opportunities under consideration with franchisees. Meanwhile, ten franchise offices changed hands under our resales programme, five of which were acquired by new franchise owners joining the Group, and five by existing, adjacent franchisees.

The property division totals 335 offices, including twelve partners and associates operating as personal agents under the Mr and Mrs Clarke brand. In H1 2023, the Group reported a total of 4,177 (H1 2022: 4,889) house sales and now has a portfolio of 75,000 (H1 2022: 73,300) managed properties.

Whilst the headlines continued to predict doom and gloom for the property sector, the market actually proved to be fairly resilient in the face of the dual headwinds of high inflation and rising interest rates. UK house sales transactions in H1 2023 were down 18% on H1 2022, broadly as anticipated, with 68% of all properties listed having been sold so far in 2023. Meanwhile, house prices have also remained fairly stable with the average price of a UK property being 1.7% up on June 2022 and only 2.3% down on December 2022.

The private rental sector continued to be impacted by a perfect storm of an undersupply of properties and strong demand from tenants, which has resulted in the ONS rental index to June 2023 being 5.2% (H1 2022: 3.3%), up from 1.4% pre-Covid.

Against this backdrop, MSF in the underlying business increased by 2% in H1 2023, with growth of 6% from lettings more than mitigating the 15% fall in sales MSF. The Group's ratio of lettings to sales reverted to 80:20 in H1 2023 (H1 2022: 78:22) reflecting the strong recurring lettings business that underpins the Group's performance. 

Financial services division

Revenue from the financial services division increased by 11% to £8,598,000 (H1 2022: £7,737,000) with performance stronger than forecast at the start of 2023. The financial services businesses acquired in 2022 and 2023 accounted for 19% revenue growth. Meanwhile revenue from the underlying financial services business was 8% lower against a reduction of 26% in UK gross new mortgage lending in H1 2023. The increase in the base rate slowed demand for new purchase mortgages but stimulated demand for remortgages and product transfers from clients seeking specialist advice on securing the best available mortgage deals, along with advising on other associated products. In H1 2023, the total number of mortgages written by Group advisers increased by 6% to 10,252 (H1 2022: 9,639) and the ratio of purchase mortgages to remortgages/product transfers was 47:53 (H1 2022: 61:39) with advisers able to service demand from Belvoir's extensive client bank.

At the end of June, Belvoir's network of advisers was 301 (H1 2022: 301). The number of advisers reduced to 284 by the end of 2022 and there was a further net reduction of 4 in H1 2023, most of which were advisers failing to meet the minimum performance criteria and reflected a drive to ensure adviser quality across the Group. The acquisition of BMA Bristol in June added 21 advisers to bring the total back up to 301 by June 2023. The recent acquisition of MAB (South West) brought on board a further 20 experienced advisers, such that our financial services network now stands at 321 advisers.

Dividend

The Board has reviewed the Group's dividend policy and intends to increase the proportion of earnings paid to shareholders in future. Accordingly, the interim dividend has been increased by 25% to 5p (H1 2022: 4.0p) per share. This reflects the Board's confidence in the business model and strong ongoing cash generation and does not diminish the Group's appetite for further corporate acquisitions.

Outlook

The high degree of uncertainty created in the property and mortgage markets following the mini budget in September 2022 and subsequent interest rate rises, resulted in a lower level of mortgage applications and house sales instructions towards the end of 2022. This flowed through into the lower levels of UK house transactions and gross mortgage lending in H1 2023, as reported. Meanwhile, the impact on house prices has been fairly modest, with further price falls forecast to be around only 2% from here.

It was anticipated that inflation would have fallen further and the increases in the base rate would have peaked by mid-year, creating greater stability for the mortgage market and by association, the housing market. There has been some recent softening in the outlook for interest rates with the bank rate now expected to peak at 5.5% compared to 6.5% back in July. This has led to lenders reducing their rates for 5-year mortgage deals from the recent highs. 

Within the private rented sector, there is little likelihood of tenant demand receding with higher mortgage rates deterring some would-be homeowners from buying and seeing some homeowners returning to the lettings market. At the same time the supply of rental properties has been tempered in recent years by increased taxation, higher interest rates for buy-to-let mortgages and the prospect of greater regulation, with this latter point being a factor in steering landlords towards using a professional lettings agent.

The great upside of Belvoir's business model is that it relies on highly motivated franchise owners and self-employed mortgage advisers who remain entirely focused on maximising the opportunities presented in all market conditions. The Group also benefits from its diversified revenue streams with the rental market remaining strong during a slump in property sales, and demand for remortgages from its substantial bank of mortgage customers countering the lower demand for new purchase mortgages.

Current pipelines of agreed sales, the level of written mortgage business, ongoing excess demand for rental properties and the incremental revenue from the two recent acquisitions underpin the Board's confidence in Belvoir's performance for the second half of the year.

Dorian Gonsalves

Chief Executive Officer

Financial Review

Revenue

Group revenue in the first six months of 2023 was up 3% to £15,921,000 (H1 2022: £15,403,000).

Revenue from our property franchise division was lower by 4% at £7,323,000 (H1 2022: £7,666,000), having franchised out the Nicholas Humphreys Burton and Derby offices in September 2022 and March 2023 respectively. This resulted in a net reduction in revenue of £530,000 as revenue from corporate-owned offices was converted to Management Services Fees (MSF) against which there was a corresponding reduction in overheads of £470,000.

Management Service Fees, our key underlying income stream from franchisees, increased by 4% to £5,508,000 (H1 2022: £5,289,000) with an increase from lettings of 8% to £4,529,000 (H1 2022: £4,212,000) offsetting 9% lower level of MSF from sales of £979,000 (H1 2022: £1,077,000). The two newly franchised Nicholas Humphreys offices and the impact of owning Mr and Mrs Clarke for the full period increased lettings MSF by £70,000 and sales MSF by £61,000. Lettings in the underlying franchise business increased by 6%, up £247,000, more than mitigating a 15% reduction in sales MSF, down £159,000.

Revenue from our corporate-owned offices decreased by £732,000 to £1,237,000 (H1 2022: £1,969,000) of which £613,000 related to the franchising out of the two Nicholas Humphreys offices. The Group now has three corporate-owned offices; Belvoir Grantham, Newton Fallowell Grantham and Nicholas Humphreys Leicester.

In the year to date, 13 (H1 2022: 9) existing franchise owners have completed an acquisition of a local competitor under our assisted acquisitions programme. The total deal value was £3,816,000 (H1 2022: £2,540,000) of which £887,000 (H1 2022: £510,000) was funded by a Central Office loan. Based on their historic results, these acquisitions should add approximately £3.5m p.a. (H1 2022: £2.2m p.a.) to our franchisee network revenue, which would increase Group revenue through annualised recurring MSF by around £360,000 with a contribution of around £230,000 to MSF expected in 2023. 

Franchise fees and other income, including insurance, conveyancing and other commissions, and fees for other services to franchisees, contributed £578,000 (H1 2022: £408,000) with the increase arising from additional services being offered to franchisees.

Revenue from our financial services division was up 11% to £8,598,000 (H1 2022: £7,737,000). The acquisitions of The TIME Group in May 2022 and BMA Bristol in June 2023 added £1,443,000 in revenue. The underlying business was down £582,000 being much less than expected at the start of the year based on lower levels of written business in Q4 2022.

Gross profit

Gross profit was 1% lower to £9,295,000 (H1 2021: £9,404,000). Whilst gross profit from the financial services division increased by £234,000, the property division's contribution was down £343,000, primarily due to having franchised two Nicholas Humphreys offices.

The franchising out of two corporate-owned offices and the recent financial service acquisitions have changed the sales mix of property to financial services to 46:54 (H1 2022: 50:50) resulting in a lower overall gross profit margin of 58% (H1 2022: 61%). Within the property division 100% of revenue falls through to gross profit whereas revenue from financial services is subject to commission payable to advisers. The gross profit margin from financial services was higher at 23% (H1 2021: 22%). 

With a gross profit split of 58% lettings: 15% sales: 21% financial services: 6% other (H1 2022: 60%, 17%, 19%, 4%), the Group remains underpinned by a strong recurring lettings revenue stream.

Administrative expenses

Administrative expenses decreased by £357,000 to £5,011,000 (H1 2022: £5,368,000). The main changes in administration costs were:

· Reduction of £470,000 from having franchised out two Nicholas Humphreys corporate-owned offices

· Reduction of £165,000 in professional fees associated with acquisitions

· Increase of £185,000 in operational costs arising from businesses acquired

· Increase of £94,000 in the share-based payment

The operating costs of the underlying business have remained broadly the same as in H1 2022.

Profit before taxation

Profit before taxation for the period was up £401,000 to £4,396,000 (H1 2022: £3,995,000). An increase of 10% in profitability against the backdrop of a challenging property market reflects the Group's resilient franchise business model, acquisition strategy at both a corporate and franchise level and the strong performance of the lettings market.

Taxation

The effective rate of corporation tax for the period was 24% (H1 2022: 19%) which primarily reflects the increase in the rate of corporation tax from 19% to 25% in April 2023.

Profit after taxation

Profit after taxation for the period was up 4% to £3,357,000 (H1 2022: £3,226,000).

Earnings per share

Basic earnings per share was up 3% to 9.0p (H1 2022: 8.7p) based on an average number of shares in issue in the period of 37,304,000 (H1 2022: 37,292,000).  Similarly, the diluted basic earnings per share was up 4% to 8.8p (H1 2022: 8.5p) based on an average number of shares in issue in the period of 38,323,000 (H1 2022: 37,922,000). See note 5 to the interim statements for detailed EPS calculations.

Dividend

Now that the Group is operating from a position of net cash and given the continuing increase in profitability, the Board is pleased to announce an increase of 25% in the interim dividend to 5.0p (H1 2022: 4.0p). This is payable to shareholders on 27 October 2023 based upon the register on 15 September 2023. The ex-dividend date will be 14 September 2023. 

Cash flow

The Group continues to achieve a high conversion of cash from operations with 91% (H1 2022: 97%) of EBITDA converting to cash of £4,351,000 (H1 2022: £4,379,000). Net cash inflow from operating activities after taxation was £2,900,000 (H1 2022: £3,988,000). The higher level of cash generated in H1 2022 was a result of corporation tax relief from a share scheme deduction relating to share options exercised in 2021.

On 6 June 2023 the Group completed on the acquisition of BMA Bristol Limited, a small financial services business comprising 21 self-employed advisers, for £1,023,000 net cash consideration.

During H1 2023, the Group extended loans to franchisees totalling £1,666,000 (H1 2022: £666,000) of which £513,000 was loaned to the branch manager of Nicholas Humphreys Derby to enable him to acquire the office as a franchisee. A further £887,000 was lent to franchisees under the assisted acquisitions programme. Loan repayments from franchisees totalled £551,000 (H1 2022: £362,000).

Liquidity and capital resources

The Group had cash balances of £387,000 (H1 2022: £5,748,000) and no outstanding loans (H1 2021: term loan of £8,297,000) leaving net cash of £387,000 (H1 2022: net debt of £2,549,000). The term loan, the balance of which was £2,000,000 at the end of 2022, was repaid in full in March 2023. An overdraft facility of £2,000,000 has been arranged with HSBC plc to meet any short-term cash requirements.

Post period end transaction

On 25 August 2023, the Group completed on the acquisition of a small financial services business, MAB South West Ltd, comprising a network of 20 self-employed advisers, for £1,000,000 net cash consideration paid out of existing cash reserves.

Financial position

As at the date of this report, the Group had net cash of £525,000. The Group continues to operate from a sound financial platform generating sufficient cash from the operations of the enlarged Group to both reward shareholders through an increased dividend and to fund its acquisition strategy.

The Group maintains a franchisee loan book, currently at £3,859,000 (H1 2022: £2,902,000), which provides financial assistance to franchisees under the assisted acquisitions programme to accelerate their growth and therein contribute towards increased Group revenue.

The Group's operational and diversified business model underpinned by a strong recurring lettings revenue stream has helped to deliver long term profit growth. The Group's capital allocation policy provides a reliable dividend with an attractive yield for investors, whilst retaining funding for the Group's growth strategy.

Louise George

Chief Financial Officer

Condensed Group Statement of Comprehensive Income

For the six months ended 30 June 2023

BELVOIR GROUP PLC  Interim Accounts 2023

The accompanying notes form an integral part of these consolidated interim financial statements

Consolidated Statement of Financial Position

As at 30 June 2023

BELVOIR GROUP PLC  Interim Accounts 2023

The accompanying notes form an integral part of these consolidated interim financial statements

Consolidated Statement of Changes in Shareholders' Equity For the six months ended 30 June 2023

BELVOIR GROUP PLC  Interim Accounts 2023

The accompanying notes form an integral part of these consolidated interim financial statements

Consolidated Statement of Cash Flows For the six months ended 30 June 2023

BELVOIR GROUP PLC  Interim Accounts 2023

The accompanying notes form an integral part of these consolidated interim financial statements

Notes to the Interim Financial Statements

1 General information and basis of preparation

The financial information set out in these condensed consolidated interim financial statements for the six months ended 30 June 2023 and the comparative figures are unaudited.

They have been prepared taking into account the requirements of relevant accounting standards and the AIM rules. They do not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and do not contain all the information required for full annual financial statements.

The statutory audited accounts for the year ended 31 December 2022 have been delivered to the Registrar of Companies in England and Wales. The Auditor's report on these accounts was unqualified and did not contain statements under Section 498 of the Companies Act 2006.

The condensed consolidated interim financial statements are presented in sterling, which is also the functional currency of the parent company.

Belvoir Group PLC is the group's ultimate parent company. The Company is a Public Limited Company incorporated and domiciled in the United Kingdom.

The Group's registered office and principal place of business is The Old Courthouse, 60a London Road, Grantham, Lincolnshire, NG31 6HR. Its shares are listed on the AIM market of the London Stock Exchange.

The condensed interim financial statements for Belvoir Group PLC have been approved for issue by the Board of Directors on 1 September 2023.

Significant accounting policies

The condensed consolidated interim financial statements have been prepared under the historical cost convention. Being listed on AIM, the Company is required to present its consolidated financial statements in accordance with UK-adopted International Accounting Standards and with those parts of the Companies Act 2006 applicable to companies reporting under International Financial Reporting Standards (IFRS).

In preparing these interim financial statements, the Board have considered the impact of new standards which will be applied in the 2023 Annual Report and Accounts and there are not expected to be any changes in the accounting policies compared to those applied at 31 December 2022.

2 Segmental information

The Executive Committee of the Board, as the chief operating decision maker, reviews financial information for and makes decisions about the Group's overall franchising business. In the six months ended 30 June 2023 the Board identified two operating segments, that of franchisor of property agents, comprising income from lettings and property sales, and property-related financial services.

The Directors consider gross profit as the key performance measure. The reported segments are consistent with the Group's internal reporting for performance measurement and resources allocation.

Management does not report on a geographical basis and no customer represents greater than 10% of total revenue in any of the periods reported. The Directors believe there to be three material property franchise income streams, which are management service fees, revenue from corporate-owned offices and fees on the sale or resale of franchise territory fees; and one material financial services income stream, which is commission receivable on financial services. These revenue streams are split as follows:

Gross profit for the two divisions is split as follows:

3 Dividends

The Company will pay an interim dividend of 5.0 pence per share (H1 2022: 4.0p), a cost of £1,865,000 (H1 2022: £1,449,000), on 27 October 2023 to the shareholders on the register on 15 September 2023. The ex-dividend date is 14 September 2023.

4 Taxation

The March 2021 Budget commitment to increase corporation tax to 25% with effect from April 2023 was substantially enacted in May 2021. As a result, deferred tax balances expected to reverse after April 2023 were remeasured at 25% in 2021. There are no temporary differences for which deferred tax balances are unrecognised.

5 Earnings per share

Basic earnings per share is calculated by dividing the profit after tax for the financial period by the weighted average number of ordinary shares deemed to be in issue in the period. The calculation of diluted earnings per share is derived from the basic earnings per share, adjusted to allow for the issue of shares under share option plans.

6 Reconciliation of profit before taxation to cash generated from operations

7 Acquisitions

BMA Bristol Limited Acquisition

On 6 June 2023 Belvoir Group PLC acquired BMA Bristol Limited ("BMA"), a network of 21 mortgage advisers. 

Professional fees associated with the above acquisitions of £27,000 have been expensed in H1 2023.

These transactions met the definition of a business combination and has been accounted for using the acquisition method under IFRS 3. The assets and liabilities below are shown at their provisional fair values at acquisition. 

The goodwill represents the value attributable to the new businesses and the assembled and trained workforce. 

8 Borrowings