BLV.L Regulatory News (BLV)

5 September 2022

BELVOIR GROUP PLC

(the "Company", "Group" or "Belvoir")

Interim Results for the six months ended 30 June 2022

Growth strategy remains on track

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 2022.

Financial Highlights

· 12% increase in revenue to £15.4m (H1 2021: £13.8m), of which 1% relates to the growth in the underlying business and 11% to corporate acquisitions in 2021 and 2022

· 1% increase in Management Service Fees (MSF) to £5.3m (H1 2021: £5.2m)

· 20% increase in Financial Services revenue to £7.7m (H1 2021: £6.4m)

· Gross profit split of 60% lettings: 17% sales: 19% financial services: 4% other (H1 2021: 56%, 21%, 18%, 5%) reverting to the pre-2021 ratio with a strong contribution from recurring lettings income

· Administrative costs up 29% to £5.4m (H1 2021: £4.2m) reflecting the enlarged group and a return to a more normal cost base post-Covid

· Profit before tax of £4.0m (H1 2021: £4.8m)

· Basic earnings per share of 8.7p (2021: 9.9p)

· Unchanged interim dividend of 4.0p per share (H1 2021: 4.0p) payable on 28 October 2022

· H1 results in line with management's expectations

Operational Highlights

· Acquisition of The TIME Group, a network of 63 highly motivated financial services advisers, for £3.8m net cash on 23 May 2022, funded from existing cash reserves

· Acquisition of Mr and Mrs Clarke, a specialist concierge-style personal estate agency business operating through 10 partners, for £0.05m on 11 March 2022, funded from existing cash reserves

· Nine (H1 2021: five) franchisee assisted acquisitions completed in the year to date contributing £2.2m (H1 2021: £1.3m) of acquired franchisee turnover

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

"I am delighted to report that our strong lettings base, investment in further franchise networks and diversification into financial services have all helped to mitigate the correction in the level of property sales transactions after the exceptional year for the housing market in 2021.

"During the first half of 2022 the Board continued to pursue its growth strategy to strengthen the Group's service offering. The acquisition of Mr and Mrs Clarke provided the Group with a platform from which to develop its personal agency model, and the acquisition of The TIME Group added a further 63 advisers to our already established and successful financial services network.

"The Group's investment in businesses to expand both the property and the financial services divisions, and the strong pipelines of house sales and related mortgages at the start of H2, underpin the Board's confidence of achieving managements' expectations for the full financial year."

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 473 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 73,300 properties and reported record revenues of £29.6m in 2021 marking Belvoir's 25th 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 2022.

Performance

Given the stamp duty holiday and the post-lockdown pent-up demand last year, 2021 was always going to be a hard act to follow for the UK property sector. Despite the correction in the housing market, H1 revenue was up 12% to £15,403,000 (H1 2021: £13,810,000). Growth in underlying lettings and financial services revenue streams more than mitigated the lower level of house sales as the housing market returned to more normal transaction levels to give organic growth of 1%. Meanwhile, the Group's acquisition strategy added a further 11% revenue growth.

Profit before tax was 16% lower at £3,995,000 (H1 2021: £4,767,000) with administrative costs up 29% to £5,368,000 (H1 2021: 4,167,000) as a result of the enlarged Group; the cost base returning to normal by comparison with H1 2021 when Belvoir's teams were almost entirely working from home; and inflationary increases.

Property division

Revenue from the property division increased by 4% to £7,666,000 (H1 2021: £7,389,000). The Group has continued to expand its franchise property network and service offering through the strategic acquisition of Mr and Mrs Clarke, a specialist concierge-style personal estate agency business operating through 10 partners and associates, predominantly in Warwickshire, South Wales, the Midlands and North London. This will provide the Group with a platform from which to develop its personal agency model. 

The assisted acquisition growth strategy is getting back on track following two years during which there was a lack of good opportunities. In the year to date our franchisees have completed on nine (H1 2021: five) assisted acquisitions adding 1,817 (H1 2021: 790) properties under management. The Group grew its footprint by opening in six new territories, three of which are operated by personal agents within the Mr and Mrs Clarke network, and three are a result of our assisted acquisitions strategy. There have also been nine resales of existing franchises, two of which have been acquired by new franchise owners and seven by existing franchise owners.

The property division totals 373 offices, including 36 dual-branded Nottingham Building Society branches and ten partners and associates operating as personal agents under the Mr and Mrs Clarke brand, and has a portfolio of 73,300 (H1 2021: 71,600) managed properties.

The housing market continues to be characterised by limited supply and strong demand, so whilst the "race for space" has eased in 2022, there remains a shortage of available property both to buy and to rent that has continued to put pressure on house prices and rental costs. This resulted in annual UK house price inflation to June 2022 of 7.8% (June 2021: 13.2%) and UK annual rental growth to June 2022 of 3.0% (June 2021: 1.8%) with rents on new tenancies reportedly up by around 10% UK-wide. UK house transaction levels in H1 2022 were down 29% by comparison to H1 2021, but 8% up compared with H1 2019. Against this backdrop, H1 sales revenue from the underlying Belvoir business was down 21% and lettings revenue was up 3%. At the end of June, pipelines of agreed sales transactions remained high with the timescales between the sale subject to contract and completion increasing to 17 weeks or more but the lack of available properties ensuring that fall-through rates remain low. 

The normalisation in the number of house sales transactions resulted in the Group's ratio of lettings to sales returning to a more typical 78:22 in H1 2022 (H1 2021: 73:27) reflecting the strong recurring lettings business that underpins the Group's performance. 

Financial services division

Revenue from the financial services division increased by 20% to £7,737,000 (H1 2021: £6,421,000) with growth of 6% on a like-for-like basis and 14% from the acquisition of Nottingham Mortgage Services in July 2021 and The TIME Group on 23 May 2022. At the end of June, Belvoir's network of advisers had grown to 301 (H1 2021: 221), including 63 TIME mortgage advisers. The level of written mortgage business in H1 2022 is up 15% but the longer timescales to complete on house sales has delayed the conversion to banked income so, as with property sales, the pipeline of written mortgages remains high.

The mix of mortgage products arranged reflects the lower number of house sales transactions with the ratio of purchases to remortages reverting to a more normal 61:39 (H1 2021: 72:28) and the financial services division benefitting from having a substantial client base, along with continued client recommendations.

Board Changes

Michael Stoop, non-executive Chairman, will be stepping down from the Board with effect from 30 September 2022 in order to focus on his other business interests. Jon Di-Stefano, who was appointed as a non-executive to the Board in April 2022, will take over the role of non-executive Chairman. The Board would like to thank Michael for his strategic stewardship of the Group, especially through the pandemic, which drew heavily on his deep understanding of both franchising and the property sector.

Outlook

Current pipelines of house sales and mortgages, and the ongoing demand for property, both to buy and to rent, underpin the Board's confidence in Belvoir's performance for the second half of the year. Whilst there has been an expected correction in the first half of 2022, the housing market has remained resilient. However, households are now facing the headwinds of higher inflation, mortgage rates and rent, and there has been no obvious increase in the supply of houses to the market that would otherwise have eased this upward pressure.

The lettings market remains active with strong demand from tenants. Whilst affordability is a key issue for renters, the average proportion of gross income that households are spending on their rent for tenancies starting in July 2022 was 30.2%, largely unchanged for the last four years. The higher rents being achieved have encouraged landlords to invest in property resulting in buy-to-let house purchase mortgages running above their pre-pandemic levels, although there is a still comparatively weak supply of new rental properties.

The mortgage market has a strong pipeline of written business. The lower number of house purchase mortgages has been mitigated by an increase in the average value of these transactions due to house price inflation and an increase in remortgage activity. Rising mortgage rates have prompted many homeowners to opt for longer-term fixed-rate products to insulate themselves from expected further interest rate increases. At the same time there has been less product transfer activity as current product terms are less favourable than those already in place for most mortgage-holders. One significant change for the mortgage market is the Bank of England's decision to remove the "affordability test", such that lenders will no longer be required to assess affordability against a 3% interest rate rise stress test. 

The Group's business model benefits greatly from its diversification into financial services, the recurrent nature of its significant lettings revenue streams and its acquisition strategy of adding earnings enhancing businesses to the Group that extend its reach and breadth of services, funded from cash reserves. The Board remains committed to further acquisitions of businesses that meet its strategic investment criteria.

Having reported H1 profitability in line with our start of year expectations and given the strong pipelines of agreed house sales and mortgages at the end of H1, the Board is confident of achieving its expectations for the full year. 

Dorian Gonsalves

Chief Executive Officer

Financial Review

Revenue

Group revenue in the first six months of 2022 was up 12% to £15,403,000 (H1 2021: £13,810,000), an increment of £1,593,000 of which £111,000 represents like-for-like growth and £1,482,000 reflects the growth arising from the acquisition of the Nicholas Humphreys network and Nottingham Mortgage Services in 2021 and of Mr and Mrs Clarke and The TIME Group in 2022.

Our property franchise division increased revenue by £277,000 to £7,666,000 (H1 2021: £7,389,000). Additional revenue from the acquired networks was £589,000 more than mitigating the reduction of £312,000 in the underlying business. The anticipated reduction in sales activity following the stamp duty-fuelled frenzy of 2021 saw revenue from property sales in the underlying business fall by £382,000, whilst revenue from lettings increased by £151,000.

Management Service Fees, our key underlying income stream from franchisees, increased by 1% to £5,289,000 (H1 2021: £5,243,000) with an increase from lettings of 5% to £4,212,000 (H1 2021: £4,015,000) offsetting the 12% reduction from sales to £1,077,000 (H1 2021: £1,228,000). Overall H1 MSF growth of £47,000 was the net effect of acquired MSF of £132,000 and a reduction in the underlying MSF of £85,000.

Revenue from our corporate-owned offices increased by £314,000 to £1,969,000 (H1 2021: £1,655,000). An increase of £459,000 arose from the additional three months ownership of the three acquired Nicholas Humphreys corporate offices. Meanwhile, activity in the two pre-existing corporate offices fell by £145,000 also reflecting the reduced sales activity.

In the year to date, nine (H1 2021: five) existing franchise owners have completed on an acquisition of a local competitor under our assisted acquisitions programme. The total deal value was £2,540,000 (H1 2021: £1,308,000) of which £510,000 (H1 2021: £143,000) was funded by a Central Office loan. Based on their historic results, these acquisitions should add approximately £2.2m p.a. (H1 2021: £1.1m p.a.) to our franchisee network revenue, which would increase Group revenue through annualised recurring MSF by £260,000 with a contribution of around £130,000 to MSF expected in 2022. 

Franchise fees and other income, including insurance, conveyancing and other commissions, and fees for other services to franchisees, contributed £408,000 (H1 2021: £491,000). Nine franchise offices changed hands under our resales programme, two of which were acquired by new franchise owners joining the Group, and seven by existing, adjacent franchisees.

Revenue from our financial services division was up £1,316,000 to £7,737,000 (H1 2021: £6,421,000) with the acquired financial services businesses adding £894,000 and growth of £422,000 in the underlying business. The number of written mortgages was up 15% to 9,639 (H1 2021: 8,351) with, as expected, remortgages accounting for a larger proportion of the mortgages written as evidenced by the change in the ratio of house purchase to remortgages of 61:39 (H1 2021: 72:28). 

Gross profit

Gross profit increased by 5% to £9,403,000 (H1 2021: £8,947,000) which reflected 4% growth in the property division and 12% growth from financial services. Overall, acquisitions in 2021 and 2022 added 9% with gross profit from the underlying business decreasing by 4% as expected.

With revenue from financial services growing at a faster pace than from the property division, the sales mix of property to financial services has changed to 50:50 (H1 2021: 54:46) resulting in a lower overall gross profit margin of 61% (H1 2021: 65%). 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 lower at 22% (H1 2021: 24%) which continued to reflect the shift towards independent Business Partners within the financial services network, who are more self-sufficient but earn a higher rate. 

The gross profit split of 60% lettings: 17% sales: 19% financial services: 4% other (H1 2021: 56%, 21%, 18%, 5%) reflects a return to more normal trading levels.

Administrative expenses

Administrative expenses increased by £1,201,000 to £5,368,000 (H1 2021: £4,167,000). Incremental overheads of £712,000 resulted from operating the acquired businesses with a further increase of £49,000 in amortisation of acquired intangibles and £62,000 in one-off professional costs. The share-based payment cost increase of £109,000 reflected the awards made in June 2021. The remaining increase of £269,000 in the underlying overheads represents a 5% uplift in staff costs and a 14% increase in operating costs associated with being fully back in the office and able to engage with our various stakeholders on both a face-to-face and virtual basis.

Profit before taxation

Profit before taxation for the period was £3,995,000 (H1 2021: £4,767,000) as forecast given the lower volume of property sales transactions anticipated following the exceptionally strong market in 2021, and the increase in operating costs as the business returns to normal following the H1 2021 lockdown.

Taxation

The effective rate of corporation tax for the period was 19% (H1 2021: 27%). The higher effective rate of corporation tax in 2021 arose as a result of remeasuring deferred tax balances expected to reverse after April 2023 at 25%. This gave rise to an additional corporation tax charge of £345,000 being recognised in H1 2021.

Profit after taxation

For the reasons outlined above, profit after taxation for the period was down 7% to £3,226,000 (H1 2021: £3,486,000).

Earnings per share

Basic earnings per share was down 12% to 8.7p (H1 2021: 9.9p) based on an average number of shares in issue in the period of 37,292,000 (H1 2021: 35,326,000).  Similarly, the diluted basic earnings per share was down 9% to 8.5p (H1 2021: 9.3p) based on an average number of shares in issue in the period of 37,922,000 (H1 2021: 37,285,000). See note 5 to the interim statements for detailed EPS calculations.

Dividend

The Board is pleased to announce an interim dividend of 4.0p (H1 2021: 4.0p) payable to shareholders on 28 October 2022 based upon the register on 16 September 2022. The ex-dividend date will be 15 September 2022. 

Cash flow

The Group continues to achieve a high conversion of cash from operation with 97% (H1 2021: 109%) of EBITDA converting to cash of £4,379,000 (H1 2021: £5,671,000). Net cash inflow from operating activities after taxation was £3,988,000 (H1 2021: £4,843,000).

On 11 March 2022 the Group completed on the acquisition of Mr and Mrs Clarke Limited, a personal agent-style estate agency network, for £47,000 cash consideration. A further £176,000 of funds was used to settle outstanding loans. 

On 23 May 2022. The Group completed on the acquisition of The TIME Group Ltd, a network of 63 mortgage advisers, for £3,815,000 initial cash consideration. Further consideration of up to £700,000 is payable contingent on results for the year to 31 July 2022.

Liquidity and capital resources

The Group had cash balances of £5,748,000 (H1 2021: £5,183,000) and a term loan of £8,297,000 (H1 2021: £9,158,000) leaving net debt of £2,549,000 (H1 2021: £3,975,000). The term loan bears interest at 1.95% over the LIBOR rate and is repayable in a payment of £445,000 on 31 December 2022 and a final repayment of £7,868,000 in March 2023.  It is anticipated that, given the cash generative nature of the business, the final repayment can be made from forecast cash reserves. However, HSBC are supportive of providing further loan facilities should management deem this necessary.

Financial position

The Group continues to operate from a sound financial platform generating sufficient cash from the operations of the enlarged Group to meet the interest and capital payable on the loan facility and dividends to shareholders. At the end of June 2022, the Group was comfortably inside its bank covenants with the debt service cover at 6.9x times (H1 2021: 6.6x). Recent acquisitions have added to the Groups operational cash inflow whilst having been funded from existing cash reserves, rather than debt. The Group maintains a franchisee loan book, currently at £2,902,000 (H1 2021: £3,423,000), 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 2022

Consolidated Statement of Financial Position

As at 30 June 2022

Consolidated Statement of Changes in Shareholders' Equity For the six months ended 30 June 2022

Consolidated Statement of Cash Flows For the six months ended 30 June 2022

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 2022 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 2021 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 2 September 2022.

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 International Accounting Standards in conformity with the requirements of the Companies Act 2006 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 2022 Annual Report and Accounts and there are not expected to be any changes in the accounting policies compared to those applied at 31 December 2021.

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 2022 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 4.0 pence per share (H1 2021: 4.0p), a cost of £1,492,000 (H1 2021: £1,449,000), on 28 October 2022 to the shareholders on the register on 16 September 2022. The ex-dividend date is 15 September 2022.

4 Taxation

Taxation has been calculated by applying the forecast full year effective rate of tax to the results for the period. As a result of the March 2021 Budget commitment to increase corporation tax to 25% with effect from April 2023, deferred tax balances expected to reverse after April 2023 have been remeasured at 25%. This gave rise to additional corporation tax charge of £345,000 being recognised in H1 2021.

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

The movement in trade and other receivables included £1,391,000 and the movement in trade and other payables included £910,000 in relation to acquisitions in the period.

7 Acquisitions

Mr and Mrs Clarke Acquisition

On 11 March 2022 Belvoir Group PLC acquired Mr and Mrs Clarke Ltd ("MMC"), a network of personal estate agents operating through 10 partners and associates. The acquisition provides a platform from which to build the Group's personal agency model.

The TIME Group Acquisition

On 23 May 2022 Belvoir Group PLC acquired The TIME Group Ltd ("TIME"), a network of 63 mortgage advisers. 

Professional fees associated with the above acquisitions of £192,000 have been expensed in H1 2022.

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. Further consideration of up to £700,000 is payable contingent on results for the year to 31 July 2022.

8 Borrowings

Borrowings comprise a term loan of £8,297,000 (H1 2021: £9,158,000) secured by a fixed and floating charge over the Group assets which bears interest at 1.95% over the Bank of England base rate and is repayable £445,000 on 31 December 2022 and a final payment of £7,868,000 in March 2023. It is anticipated that, given the cash generative nature of the business, the final repayment can be made from forecast cash reserves. However, HSBC are supportive of providing further loan facilities should management deem this necessary.