BLV.L Regulatory News (BLV)

For Immediate Release 15 April 2015

BELVOIR! BELVOIR LETTINGS PLC

(the "Company" or "Belvoir")

Preliminary Results for the year ended 31 December 2014

Belvoir Lettings plc (AIM: BLV), one of the UK's largest lettings franchises, is pleased to announce its preliminary results for the year ended 31 December 2014.

Financial Highlights

· Revenue up 11% to £6.5m (2013: £5.8m)

· Revenue growth underpinned by an 11% increase in Management Service Fees (MSF) to £3.2m (2013: £2.9m)

· Profit before tax up 10% to £1.8m (2013: £1.6m)

· Franchisee joining fees and resales commission up 55% to £421,000 (2013: £272,000)

· Contribution of £651,000 from the franchising of two corporate outlets

· Growing revenue stream from property sales of £834,000 (2013: £604,000), an increase of 38%

· Administrative costs of £4.9m (2013: £4.3m) include one-off expenses of £0.3m

· Final dividend of 3.4p (2013: 3.4p) giving total dividend for the year of 6.8p

Operational Highlights

· Underlying like-for-like growth in lettings business of 5.4% exceeds sector performance

· Six franchisee-led acquisitions secured with £2.0m of Belvoir funding delivering 19% return

· Total outlets of 162 (2013: 160) with the opening of 8 new territories and resale of 14 existing territories bringing15 new franchise owners to the network

· Belvoir brand refresh to strengthen market presence

· Successful launch of BriefYourMarket marketing portal to the Belvoir network

· Market demand for private rental sector housing remains positive

Current Trading

· Three new franchise owners introduced covering one new outlet and two resales

· Belvoir training course now BTEC level 2 accredited

· Continuing take-up of property sales by franchisees

Mike Goddard, Chief Executive Officer of Belvoir Lettings, commenting on the results, said:

"2014 was another successful year for Belvoir. Our strategic goal to grow organically and to accelerate this growth by seeking out bolt-on acquisitions has enabled the network to increase its presence throughout the UK. Furthermore, the addition of a property sales service to our offering is proving to be very popular, and we are delighted to report the positive impact this is already having on our turnover and profitability.

Looking ahead to the coming years Belvoir is set to continue its growth strategy, strengthen its presence in the UK, and constantly seek out acquisition opportunities to accelerate this growth."

For further details:

The preliminary results will be available on the Company's website: www.belvoirlettingsplc.com

About Belvoir Lettings PLC

Belvoir was founded in February 1995 by Mike and Stephanie Goddard. Its Central Office is in Grantham, Lincolnshire.

Belvoir is recognised as one of the largest specialist lettings agency franchises in the UK, with 162 outlets nationwide and aims to have 200 franchises in the next three years. Belvoir was officially awarded the Best Lettings Agency Franchise Gold Award at the 2014, 2013, 2012 and 2010 Lettings Agency of the Year Awards in association with The Sunday Times & The Times. Belvoir also won the Silver Award in 2011. 

Belvoir was voted Best Large Lettings Chain at the Estate & Letting Agent Awards (ESTAs) 2013, and won Silver in 2014. Belvoir has won Brand Builder of the Year at the bfa Franchisor of the Year Awards 2011 and Best Marketing Campaign of the Year at the Franchise Marketing Association (FMA) Awards 2011. Belvoir is a founder member of the SAFE Agent Kitemark scheme, which is fully supported by NALS. SAFE Agent promotes client money protection (CMP) and provides consumers with a clear message on those agents they should do business with. 

Belvoir successfully listed on the AIM market of the London Stock Exchange on 21st February, 2012.

CHAIRMAN'S AND CEO'S STATEMENT

2014 was another year of continued successful growth for Belvoir marking our 18th year of uninterrupted profit growth since Belvoir was incorporated in December 1995. By any standards this is impressive and the fact that it has spanned two economic recessions makes it all the more significant. This success has been achieved by the consistent application of ethical business format franchising principles and the constant development of "Brand Belvoir" standing for professionalism, customer care and specialisation.

The headline figures for 2014 illustrate this continued growth: revenue up by 11% underpinned by an 11% growth in the management service fee ("MSF") income and profit before tax up 10% to £1.8m, even after one-off costs of £325,000 reported upon in more detail in the Financial Review. The total dividend for the year is 6.8p per share.

This growth was achieved through a number of major income-generating streams, all of which contributed to Group profits. The network of 162 outlets continues to provide like-for-like organic growth in excess of the underlying growth in the rental market, clearly benefitting from a well-received refresh of the Belvoir brand during 2014. In addition, during the year Belvoir facilitated and financially supported six acquisitions by franchise owners, which accelerated further their turnover and in turn increased Belvoir's recurring MSF. Recruitment of new franchise owners to take up new territories or to take on the resale of an existing territory is a key growth determinant. Bringing fresh blood into the network is vital for its long-term future and in 2014, Belvoir saw a resurgence of applicants through the franchise recruiting department.

Finally, following a successful pilot trial, the roll out of a property sales service to our clients is proving to be successful and this will gradually become an increasing proportion of Belvoir's income stream as franchise owners are trained to take on this additional service over the next three years.

I continue to be thankful to my Board of Directors which steered Belvoir through a year of change and development. During the year we welcomed Andrew Borkowski who, as a second Non-Executive Director (NED), provides us with legal and business experience and Louise George who joined us as our new Finance Director. Together with Dorian Gonsalves at the helm of our operations and Nick Leeming as our NED with property experience, the Board is in a strong position to drive Belvoir forward into 2015 with a strategy of accelerating organic network growth, a continuing acquisition programme for franchise owners and a brand that is increasingly well known in the property and franchising industries.

Michael GoddardExecutive Chairman and Chief Executive Officer

OPERATING REVIEW

MSF growth

Our MSF of 12% is chargeable on all elements of income generated by a franchised office. In 2014 MSF increased by 11% demonstrating strong and predictable growth from within our franchised outlets. As demand for rental properties continues to outstrip supply, the network's combined fee income increased from £26,710,853 in 2013 to £29,956,320 in 2014.

Lettings

Revenue from lettings represented over 95% of all income generated by the network in 2014 and remains the core service within our business. Underlying organic growth in lettings revenue is healthy across our network of 162 outlets, reflecting a general increase in rental values, landlords acquiring additional properties and private landlords opting to use the services of a lettings agent to assist with the burden of regulation as the sector increases in complexity. The success of our franchisees also stems from using tried and tested methods for securing new landlord business as well as developing a strong local profile as the local lettings expert with a deep understanding of buy-to-let.

The launch of the Belvoir brand refresh in 2014, which included a complete overhaul of all existing marketing materials and the launch of a new web-based marketing platform has ensured that our franchisees are well positioned to increase further their market share at a local level and to capitalise on a growing private rented sector and an improving property sales market.

Property sales

Whilst property sales as a revenue stream is very much in its infancy for the Belvoir network, this is seen as a potentially significant area for future growth. We already have the underlying nationwide infrastructure, marketing channels and know-how and a mature base of franchise owners, all very committed to growing their respective businesses. Most landlords will sell their investment properties at some point and we are positioning ourselves to offer the full service proposition to our landlord clients. Not only will we help a landlord research an area for potential investment, secure an investment property, find a suitable tenant and manage the complete cycle of a tenancy, we now also facilitate the landlord's exit from their investment by introducing a suitable buyer who may also be an investment landlord.

Acquisitions

There are some 18,000 branches offering a lettings service in the UK and most of these branches are single-office operators or independent agencies with a small network of local branches, thereby offering scope for consolidation within the sector. Our strategy of providing financial support to our franchisees who want to accelerate growth through acquisition resulted in the successful completion of six franchisee-led acquisitions in 2014 with Edinburgh being the largest single-unit acquisition. This acquisition alone, will generate over £1.0m of lettings income and contribute £120,000 of additional MSF revenue per annum.

Corporate outlets

During the year we operated from Company-owned outlets in Pimlico, Lichfield, Burton upon Trent, Cumbria, Basingstoke, Tadley, Basildon and Grantham. Some of these units were targeted acquisitions such as Pimlico in Central London. Others, such as Basildon, were being operated temporarily by Central Office until such a time as a suitable franchisee is found. The Grantham and Basildon outlets were transferred to franchisees during the year.

A growing business

The network grew to 162 outlets having franchised eight new territories of which five were sold to new franchisees and three were taken as additional outlets by existing franchisees. Furthermore, 14 existing Belvoir outlets were resold bringing in ten new franchise owners looking to invest and build upon the success of the previous franchise owner. In three cases multiple outlets were acquired by one franchisee. We also acquired six independent lettings agencies and incorporated them into our existing network. Our successful strategy of growing our network organically and by acquisition continues.

Market conditions

In recent years there has been a rapid growth in the residential lettings market and this is set to continue. There are an estimated 22 million households in England. Overall, 65% are owner occupied, 18% are in the private rented sector with the remaining 17% in social housing. Of the four million households in the private rented sector, around 50% of private landlords use the services of a letting agent. Belvoir currently manages over 30,000 residential properties across the UK, which represents less than 1% of a rapidly increasing target market.

All of our predictions show that in 2015 the number of people choosing to rent will continue to drive up demand. Rents will continue to rise at a modest rate. There are real indications of a recovery in the housing market with property prices predicted to rise and we expect to see the continued re-emergence of more and more investment-minded landlords looking to capitalise on this trend.

Trends in rental values across the UK

For all Belvoir outlets which have been trading consistently over the last six years, there was a year-on-year increase of 3% in the Q4 2014 average rent of £706 per month, versus the Q4 2013 average of £686. Over the last twelve months, rents in England have shown fairly steady growth. Comparing the Q4 2014 average rent of £706 with the Q3 2014 rent of £693, there has been a small increase of just under 2%. Rents in England have now reached the heights last seen in Q3 2008 and exceed this level by £4.

Current trading and outlook

The network grew to 162 outlets having franchised eight new territories of which five were sold to new franchisees and three were taken as additional outlets by existing franchisees. Furthermore, 14 existing Belvoir outlets were resold bringing in ten new franchise owners looking to invest and build upon the success of the previous franchise owner. In three cases multiple offices were acquired by one franchisee. We also acquired six independent lettings agencies and incorporated them into our existing network. Our successful strategy of growing our network organically and by acquisition continues.

Dorian GonsalvesCommercial & Franchising Director

FINANCIAL REVIEW

Revenue

Group revenue for the financial year ended 31 December 2014 increased by 11% to £6.5m (2013: £5.8m) driven by:

· MSF increase of 11% to £3.2m, partly the result of a 5.4% like-for-like growth of our lettings business which exceeded the sector average growth of 3-5%, and partly from the impact of the Belvoir-assisted acquisitions programme increasing our market reach;

· franchise joining fees and resales commissions totalled £421,000, an increase of 55% stimulated by a re-energised franchise recruitment team; and

· £651,000 from the franchising of two previously corporate-owned outlets.

Operating profit

Administrative expenses for the year were £4.9m (2013: £4.3m). The increase of 14% can be attributed to:

· Central Office salary costs increasing by 25%, reflecting the investment in a stronger senior management team;

· the increased costs of operating nine corporate outlets during 2014;

· increase of £139,000 in relation to outsourced professional fees. Since June 2014, these services have been brought back in-house; and

· one-off costs of £325,000, which include £120,000 payment to a departing Director for loss of office and £205,000 write-off following a review of the recoverability of certain assets.

During the second half of the year, the Group issued options over 735,000 shares to Directors and certain senior managers. There was an associated charge within administrative costs of £33,000 (2013: £nil). Full disclosure is in note 24 to the accounts.

Profit before taxation

Profit before taxation of £1.8m (2013: £1.6m) is after interest receivable on franchisee loans of £256,000 (2013: £134,000), which is regarded by the Group as part of its ongoing operations to extend the network reach.

Earnings per share

Basic earnings per share was 5.6p (2013: 5.9p) based on an average number of shares in issue in the period of 24,010,417 (2013: 21,023,944), an increase of 2,986,473 arising from the share issue in November 2013.

Dividends

The Board is proposing a final dividend for 2014 of 3.4p per share (2013: 3.4p), payable to shareholders on 1 June 2015 based upon the register on 24 April 2015. The ex-dividend date will be 23 April 2015. Taking the interim dividend of 3.4p paid to shareholders on 19 October 2014 into account, the total dividend payments for the year are 6.8p and are consistent with the prior year.

Cash flow

The net cash inflow from operations was £701,000 (2013: £1,153,000). Loans repaid to the bank in the period were £790,000 (2013: £1,455,000).

Liquidity and capital resources

At the year end the Group had cash balances of £1.5m (2013: £5.0m).

During the year the Group has utilised £3m of the funds raised from the issue of shares in November 2013 to support six acquisitions on behalf of existing franchisees and to facilitate the franchise of two corporate-owned outlets. Having previously provided loans to franchisees of up to 100% of the acquisition price the Board has, since June 2014, refined the criteria for the Belvoir-assisted acquisitions programme to provide between 30% and 50% of financial support. This has improved the target return on investment from around 18% to between 25% and 35%, and will enable the Group to support a greater number of growth opportunities within the network.

Since the year end the Group has replaced its £1.5m revolving credit facility, repayable in full in May 2016, for a term loan of £1.5m repayable in quarterly instalments by December 2017.

Financial position

The Group continues to operate from a sound financial platform generating a reliable stream of positive cash flows from operations. There remains sufficient funds from the 2013 share issue and from the recycling of existing franchisee loans to provide further financial support for franchisee-led acquisitions, which in turn both further grow the network and provide a good rate of return on investment for the Group.

Key performance indicators

The Group uses a number of key financial and non-financial performance indicators to measure performance.

The key financial indicators are as follows:

· Management service fees;

· Profitability of corporate owned outlets;

· Operating profit; and

· Earnings per share.

The key non-financial indicators are as follows:

· Recruitment of new franchise owners;

· Compliance of franchised outlets;

· Level of Belvoir-assisted franchisee acquisitions;

· Take-up of property sales; and

· Lettings awards.

Louise GeorgeFinance Director

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the Financial Year ended31 December 2014

STATEMENTS OF FINANCIAL POSITION

As at 31 December 2014

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

The financial statements were approved and authorised for issue by the Boardon 15 April 2015 and signed on its behalf by:

Michael Goddard, Executive Chairman and Chief Executive Officer Registered number 07848163

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the financial year ended 31 December 2014

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

STATEMENTS OF CASH FLOWS

For the Financial Year ended 31 December 2014

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

NOTES TO THE FINANCIAL STATEMENTS

1. Accounting policies

General information

Belvoir Lettings plc is the ultimate parent company of the Group, whose principal activity during the year under review was that of selling, supporting and training residential lettings franchises.

Registered office

The address of the registered office and principal place of business of Belvoir Lettings plc is The Old Courthouse, 60A London Road, Grantham, Lincolnshire NG31 6HR.

Basis of preparation

The Group and Company 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 Financial Reporting Standards (IFRS) as adopted by the European Union. Accordingly, these financial statements have been prepared in accordance with the accounting policies set out below which are based on the IFRS in issue as adopted by the European Union (EU) and in effect at 31 December 2014.

Going concern

After consideration of forecasts and making appropriate enquiries, the Directors have a reasonable expectation that the company has adequate resources to continue in operational existence, and execute its plan for acquisition growth, for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. There are no material uncertainties, of which Directors are aware, that may cast doubt on the entity's ability to continue as a going concern by reference to the guidance issued by the Financial Reporting Council on going concern assessment.

Standards adopted for the first time

A number of new and revised standards are effective for annual periods beginning on or after 1 January 2014 including IFRS 10. Adoption of these standards has not had an impact on the Group's financial statements.

Standards, amendments and interpretations to existing standards that are not yet effective

At the date of authorisation of these consolidated financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group.

Management anticipates that all of the pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. None of these new standards, amendments and interpretations are expected to have a significant impact on the Group's financial statements.

IFRS 9 (EU effective date 1 January 2018)

IFRS 15 'Revenues from Contracts with Customers' (EU effective date 1 January 2017)

Basis of consolidation

The Group financial statements include those of the parent company and its subsidiaries, drawn up to 31 December 2014. Subsidiaries are entities over which the Group obtains and exercises control through voting rights. Income, expenditure, unrealised gains and intra-group balances arising from transactions within the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

The acquisition of its principal subsidiaries by the Group in prior years was a common control business combination, which falls outside the scope of IFRS 3, and the Group therefore developed an accounting policy based on the pooling of interests method. Under this method, the financial statements of the parties to the combination are aggregated and presented as though the combining entities had always been part of the same Group.

As a result of the pooling of interests method, a number of accounting adjustments arose. The parent company statement of financial position shows a merger reserve of £8,101,000 and an investment of £12,450,000. On a Group basis, the investment by Belvoir Lettings plc in Belvoir Property Solutions Limited and the investment by Belvoir Property Solutions Limited in Belvoir Property Management (UK) Limited were restated at the nominal value of shares issued and cash paid rather than at fair value. This results in a merger reserve with a debit balance of £5,774,000 in the Group statement of financial position.

Subsequent acquisitions of subsidiaries are dealt with by the acquisition method. The acquisition method involves recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition.

Acquisitions which include an element of deferred consideration which is dependent on events after the acquisition date are recognised at the date of acquisition based on all information available at that date. Any subsequent changes to these amounts are recognised through the income statement.

Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of fair value of consideration transferred over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Acquisition-related transaction costs are recorded as an expense in the Group statement of comprehensive income.

Goodwill is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Negative goodwill (where the fair value of the assets acquired exceeds the purchase price) is recognised immediately after the acquisition in the Group statement of comprehensive income.

Revenue recognition

Revenue represents income from management service fees, the sale of franchise licences (initial franchise fees), provision of training, and ongoing support of the franchisees.

MSF are invoiced to individual franchisees on a monthly basis in relation to a percentage of their turnover for any given month. They are recognised at the point of invoice.

Initial franchise fees are recognised upon signing of the contract as it is at this point that the new franchisee has a legal obligation to make good the terms of the contract. The initial fees are for the use of the brand along with initial training and support and promotion during the opening phase of the new office. As such the Group regards this as a separate initial transaction for which it has fulfilled its obligations.

Revenue also includes fees generated by outlets operated by the Group. These corporate outlets invoice landlords on a monthly basis and so recognise the income during the period in which the work is carried out. Corporate revenue also arises from fees on property sales which are recognised by reference to the legal exchange date of the housing transaction as all obligations have been fulfilled at that point. National Promotional Fund is invoiced to franchise owners on a monthly basis and is calculated based on a percentage of the turnover of individual franchises. The fund is held internally in the statement of financial position (as agent for the franchise) for the purposes of promoting the brand to the benefit of all franchises. 20% of the National Promotional Fund is recognised as income each month (under the terms of the franchise agreements) in respect of management fees for promoting the brand. No other element of receipt is recognised as revenue.

Intangible assets

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 as adjusting items in operating costs in the statement of comprehensive income. Amortisation is charged on intangibles with a finite life. 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:

Customer relationships - Between 10 and 25 years

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

Property, plant and equipment

Property, plant and equipment is stated at cost, less accumulated depreciation and any provision for impairment.

Depreciation is calculated so as to write off the cost or revaluation of an asset, less its estimated residualvalue, over the useful economic life of thatasset as follows:

Freehold land - not depreciated

Freehold property - 2% straight-line on cost

Fixtures and fittings - 20% on diminishing value

Material residual value estimates and expecteduseful lives are updated as requiredbut at least annually.

Impairment testing of goodwill, other intangible assets, and property, plant and equipment

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash flows (cash generating units). As a result, some assets are tested individually for impairment and some are tested at cash generating unit level. Goodwill is allocated to those cash generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which the management monitors goodwill.

Cash generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash generating units are tested whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's or cash generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell, reflecting market conditions, and the value in use based on estimated future cash flows from each cash generating unit, discounted at a suitable rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures is directly linked to the Group's latest approved budgets, adjusted as necessary to exclude any future restructuring to which the Group is not yet committed.

Impairment losses for cash generating units reduce first the carrying value of any goodwill allocated to that cash generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Impairment charges are included in operating costs in the statement of comprehensive income.

Investments

Investments in subsidiaries are stated at cost less provision for impairment.

Taxation

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

Deferred income taxes are calculated using the liability method on temporary differences. 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 Company 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 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 reporting date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the statement of comprehensive income, except where they relate to items that are charged or credited directly to equity, in which case the related deferred tax is also charged or credited directly to equity.

Cash and cash equivalents

Cash and cash equivalents are defined as cash balancesin hand and in the bank including short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Operating lease commitments

Rentals applicableto operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. 

Financial assets

The Group has financial assets classified as loans and receivables. The Group's loans and receivables as stated in the statement of financial position comprise trade and other receivables and cash and cash equivalents.

Cash and cash equivalents 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) and from loans to franchisees to fully or part-fund the acquisition of a property-related agency, 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 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 operating expenses in the statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. From time to time, the Group elects to renegotiate the terms of trade receivables due from franchisees. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in consequence, where material the new expected cash flows are discounted at the original effective interest rate.

Financial liabilities

Financial liabilities comprise trade payables, borrowings and other short-term monetary liabilities, whichare initially recognised at fairvalue net of transaction costs and subsequently carried at amortised cost using the effectiveinterest method.

Share-based employee remuneration

The Group operates an enterprise management incentive scheme and issues equity-settled share-based payments to certain Executive Directors and employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value so determined is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. The level of vesting is reviewed annually, and the charge is adjusted to reflect actual and estimated levels of vesting.

The fair value of services received in return for share options granted is measured by reference to the fair value of share options. The estimate of the fair value of the services received is measured based on the Black-Scholes option pricing model. This model takes into account the following variables: exercise price, share price at date of grant, expected term, expected share price volatility, risk-free interest rate and expected dividend yield. Expected volatility is estimated by considering historic average share price volatility.

In addition to the EMI scheme there is an unapproved share option scheme which allows Dorian Gonsalves to take up 163,399 shares at the float price of 75p. No value attaches to this option for the purposes of the employee share-based remuneration rules.

Belvoir Lettings plc has the obligation to settle the share-based payment transaction and as such recognises the award to employees of Belvoir Property Management (U.K.) Limited as an equity-settled transaction. Belvoir Lettings plc does not have a direct investment in Belvoir Property Management (U.K.) Limited. However, to reflect the substance of the transaction, Belvoir Lettings plc has recognised an investment in Belvoir Property Management (U.K.) Limited with a corresponding equity reserve. This investment is tested for impairment annually.

Equity

Equity comprises the following:

- share capital represents the nominal value of equity share;

- share premium represents the excess over nominal value of the fair value of consideration received for shares,net of expenses of the share issue;

- share-based payments reserve represents the reserve arising from the fair value of the share options charge;

- other components of equity represents the revaluation reserve, being the accumulated net surplus on revaluationof property assets;

- merger reserve represents the reserve arising in the Group accounts following the application of merger accounting in the treatment of the reorganisation and flotation of the Group; and

- retained earnings represents retainedprofits and losses.

Significant judgements and key sources of estimation uncertainty

The Group 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. 

Initial recognition, useful lives and carrying value of intangible assets

The fair value of customer relationships is recognised on each individual acquisition and requires the exercise of management judgement in each case. Customer relationships are amortised over their useful lives. Useful lives are based on management's estimates of the period that the assets will generate revenue and are periodically reviewed for continued appropriateness. Potential impairment of carrying values or changes to estimates can result in significant variations in the carryingvalue and amounts charged to the statement of comprehensive income in specific periods. Further details of amortisation policies are given on page 29 and the movement on intangible assets is presented in note 9.

Revenue recognition

Initial franchise fees are recognised upon signing of the contract as it is at this point the new franchisee has a legal obligation to make good the terms of the contract. The initial fees are for the use of the brand along with initial training and support and promotion of the new office. The Directors therefore believe that the benefits are transferred upon signing the contract and so revenue is recognised at this point. Future benefits from the contract are dealt with in the continued monthly MSF which is charged throughout the term of the franchise agreement.

Revenue from fees in the estate agency business is recognised by reference to the legal exchange date of the housing transaction as the Group has fulfilled all obligations at that point.

Basis of consolidation

The acquisition of its principal subsidiaries by the Group was a common control business combination, which falls outside the scope of IFRS 3 and the Group have therefore developed an accounting policy based on the pooling of interest method. Under this method, the financial statements of the parties to the combination are aggregated and presented as though the combining entities had always been part of the same Group.

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 year to 31 December 2014 the Board identified a single operating segment, that of property lettings, estate agency and franchising.

The segmental information is, therefore, the same as that set out in the consolidated statement of comprehensive income. The Directors do not consider the presentation of gross profit within the Group statement of comprehensive income to reflect a true position of the Group's activities and core operations, which is that of a property letting and sales franchisor. Therefore, the Directors disclose operating profit as the key performance measure. The reported segment is 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 either of the periods reported. The directors believe there to be three material income streams which are split as follows:

3. Operating profit

Operating profit is stated after charging:

5. Finance income and costs

6. Taxation

7. Dividends

The Directors propose a final dividend of 3.4p per share totalling £816,000 payable on 1 June 2015. As this remains conditional on shareholders' approval, provision has not been made in these financial statements.

8. Earnings per share

Basic earnings per share is calculated by dividing the profit for the financial year by the weighted average number of ordinary shares in issue during the year. Options over ordinary shares and rights of conversion are described in note 24. The calculation of diluted earnings per share is derived from the basic earnings per share, adjusted to allow for the issue of shares under these instruments.

9. Intangible assets

The sale of the Claygold Property Limited Lettings division during the year gave rise to the disposal of £458,000 and £860,000 in relation to goodwill and customer relationships respectively.

The transfer between customer relationships and goodwill of £101,000 relates to the tax amortisation benefit in relation to Belvoir London Central Limited and Staffordshire Estates Lettings Limited.

The adjustment of £41,000 against customer relationships relates to a deferred consideration adjustment recognised in the year to 31 December 2013 in relation to Belvoir London Central Limited. This has been written off to the income statement during the year.

Goodwill is tested annually for impairment by reference to the value of the relevant cash generating units, which are the group's corporate owned outlets. This is calculated by comparing the estimated fair value less costs of disposal of each corporate owned outlet (based on a multiple of 1.4 times revenue) to the carrying value of goodwill. This multiple of revenue is based on previous transactions.

The carrying value of goodwill in relation to Belvoir London Central Limited, Staffordshire Estates Lettings Limited and Belvoir Lettings (Cumbria) Limited is £233,000 in comparison to a valuation of £1,044,000 and as such no impairment is noted in relation to these outlets.

The carrying value of goodwill in relation to Claygold Property Limited was in excess of the valuation. As a result in 2014 an impairment of £90,000 (2013: £nil) was made in relation to this outlet.

10. Investments

Investments in subsidiaries

The addition in the year relates to the obligation to settle the share based payment transaction awarded to employees of Belvoir Property Management (UK) Limited during the year ended 31 December 2014.

As at 31 December 2014 the Company owns 100% of the ordinary share capital and voting rights of the following companies:

** Subsidiary of Belvoir Property Solutions Limited.

*** Subsidiary of Belvoir Property Management (UK) Limited

The carrying value of the investment has been considered for impairment. As the market capitalisation of the Group is considerably in excess of the cost of investment, and the trade of the Group is solely attributable to the trading subsidiaries, no impairment has been recognised in the year.

11. Property, plant and equipment

As at 31 December 2014, the Group has no property, plant or equipment held under finance leases (2013: £62,000). All finance leases previously held were for the motor vehicles and were included in fixtures and fittings were settled in the period. 

12. Trade and other receivables

Trade receivables are stated net of bad debt provisions of £nil (2013: £nil).

Loans to franchisees are spread across varyingterms and the agreements do not include any collateral on behalf of the franchisees.

Ageing of trade receivables

Other debtors and loans to franchisees do not contain impaired assets.

There is no movement in the bad debt provision during the year in the Group or the Company.

13. Cash and cash equivalents

14. Trade and other payables

Included within accruals and deferred income is a balance of £112,000 (2013: £146,000) relating to the National Promotional Fund (NPF) for the promotion of the Belvoir brand. The business collects the funds on a monthly basis from the franchises based on a percentage of their turnover and takes the balance directly to the statement of financial position. Any subsequent expenditure in relation to promoting the company is offset against this pool of funds. Each month, a management charge of 20% of that month's total NPF is recognised as revenue in the Group.

15. Current portion of long-term borrowings

All amounts are short term and their carrying values are considered reasonable approximations of fair value.

16. Long-term borrowings

Borrowings comprise £1,521,000 (2013: £2,227,000) secured on assets of the Group. The repayment profile of borrowings is as set out in note 17.

17. Maturity of borrowings and net debt

Bank loans and overdrafts are secured by a fixed and floating charge over the Group assets.

The term loan of £721,000 outstanding as at 31 December 2013 was settled in full during the year.

The mortgage loan is repayable in monthly instalments over the period ending May 2015 and bears interest at 2.35% over bank base rate.

The revolving credit facility loan of £1,500,000 (2013: £ 1,439,000) was subject to interest only at 4.25% above LIBOR and is repayable in full on 20 May 2016. In 2013 the loan balance of £1,439,000 was included within current liabilities because, due to a breach of a covenant as at the balance sheet date, it was technically repayable on demand. At the end of 2014 there was also a breach of a covenant but because the bank had waived its rights to take any action as a result of this breach, the long-term element of the loan was disclosed under non-current liabilities. Subsequent to the year end, this has been replaced by a term loan of £1,500,000 repayable in quarterly instalments over three years to December 2017 and bears interest at 4.25% above base rate.

18. Called up share capital

19. Reconciliation of profit before taxation to cash generated from operations

20. Operating lease commitments

Land and property leases comprise sites in Pimlico, Cumbria, Lichfield, Burton upon Trent, Basingstoke, Tadley and Basildon. The earliest exits to these leases fall due during 2015.

21. Financial instruments

Capital management policy

The Group manages its capital to ensure its operations are adequately provided for as described below. The principal risks faced by the Group are detailed below. The Group's objective when managing capital is to safeguard its ability to continue as a going concern and so provide returns for shareholders; The Group is meeting its objective by aiming to achieve growth which will generate regular and increasing returns to the shareholder.

The capital structure of the Group consists of cash and cash equivalents and equity attributable to the shareholder comprising issued capital, reserves and retained earnings as disclosed in the statement of changes in equity.

During the year the Company cancelled the balance of £11,741,716 on the share premium account and this was confirmed by the court on 16 July 2014. 

Financial instruments - risk management

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

- Interest rate risk;

- Credit risk; and

- Liquidity 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. Further quantitative information in respect of these risks is presented throughout these financial statements. 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, from which financial instrument risk arises, are included in the summary below.

Summary of financial assets and financial liabilities by category:

All of the financial assets and liabilities above are carried in the statement of financial position at amortised cost. The above 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, policiesand 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 Group's finance function. The Board receives monthly reports 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.

Interest rate risk

Interest rate risk arises from the Group's management of interest-bearing assets and liabilities.

The Group does not use hedging products to manage interest rate risk but uses treasury products for deposits until such time as required for acquisitions as part of the Group's acquisition strategy.

Credit risk

Credit risk is the risk of financial loss to the Group if a franchisee or a counterpart 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 Company'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.

The credit risk for liquid funds and other short-term financial assets is considered small. The substantial majority of these assets are deposited with Investec and Natwest.

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 developments, the Group monitors forecast cash inflows and outflows on a monthly basis.

Fair values of financial instruments

The fair value of financial assets and liabilities are carried at amortised cost which equates to fair value.

22. Deferred taxation

Amounts provided in respect of deferred tax are computed at 20% (2013: 20%).

There are no temporary differences for which deferred tax balances are recognised.

23. Related party disclosures

During the year the Group paid sponsorship fees of £4,800 (2013: £4,800) to James Goddard, son of Michael Goddard, Company Director. At the year end an amount of £nil (2013: £nil) was outstanding.

During the year the Company paid £27,021 (2013: £23,499) to Leeming Investments Limited, a company controlled by Nick Leeming, a Director of the Group. At the year end £2,750 (2013: £nil) remained outstanding.

During the year the Company paid £15,360 (2013: £nil) to Geldards LLP, a company in which Andrew Borkowski is a partner. At the year end £22,770 (2013: £nil) remained outstanding.