HMLH.L Regulatory News (HMLH)

HML Holdings Plc

("HML", the "Company" or the "Group")

Final Results for the Year Ended 31 March 2018

HML Holdings plc (AIM: HMLH), the property management services group, is pleased to announce its final results for the year ended 31 March 2018.

Financial and Operational Highlights:

*before interest, share based payment charges, amortisation and tax (see note 1)

**before interest, share based payment charges, depreciation, amortisation and tax

Commenting on the results, Robert Plumb, Chief Executive of HML said:

"The results for the year reflect the successful implementation of several initiatives at the operational level, aimed at maximising synergies and efficiency arising from our recent acquisitions. Against a backdrop of consolidation and increased government regulation in the sector, we believe that HML is well positioned to continue delivering shareholder value from the provision of property management services across the UK."

For further information:

 REVIEW OF BUSINESS

The Board are pleased to report HML grew revenues by more than 24% to £26.0 million (2017: £20.9 million) for the year ending 31 March 2018. Revenues increased by 9% organically and the number of properties under management rose by 3,000 to 74,000. Earnings before interest, share based payments, amortisation and tax improved by 20% to £2.2 million (2017: £1.8 million).

The Group recorded an increase in the volume of new business with the South East of England, outside of central London, remaining the strongest regional contributor. New business comprised a consistent mix of existing and new build management instructions with housing estates contributing on a higher proportion of the new build instructions. We continue to grow our property developer client base, whose confidence in the demand for new residential properties remains high. The timing of completions and handovers remain somewhat unpredictable and typically occur later than originally anticipated. Levels of confirmed instructions in our new business pipeline, made up mostly of new build, remain at over 17,000 property units.

All divisions within the Group recorded growth with increased referrals from both our acquired and existing property management offices. Notably surveying fees grew 42%, boosted by the surveying division that we added through the acquisition of Faraday Property Management Limited. It was also pleasing to see a 7% organic growth in our Richmond-based professional surveying division. Alexander Bonhill increased our insurance broking revenues, not only because of acquisition referrals coming on line, but also through referrals from new organically generated management instructions. With the market's understandably heightened awareness of fire risk in communal buildings, our health and safety inspection fees increased by 27%. Also of note were increases in concierge management and company secretarial service fees, which grew 38% and 14% respectively.

In terms of those revenue streams typically more dependent on market confidence we can report that while uncertainty in the residential housing market has undoubtedly had an impact and our fees arising from pre-contract enquiries on property sales were lower than originally anticipated, the effect has been mitigated by the wide geographical distribution of properties that are under management. House and flat sales outside of central London have not been as seriously affected.

Despite acquisition integration related expenditure, staff and employment costs remained proportionate to revenues. Operating costs were however impacted by the cost of additional premises. During the early part of the year, we incurred a degree of premises cost duplication as our new back office in West Croydon was being fitted for occupation and other premises costs continued to be incurred for those employees whose offices were vacated. We were pleased to complete the consolidation of HML's Bristol office with Gordon and Company (Property Management) Limited and similarly the transfer of HML's Surrey and West Sussex management instructions to our new office in Reigate which arose from the Gordon and Company acquisition.

The Group also underwent a process of operational structural change following the appointment of Alec Guthrie to Chief Operating Officer in September 2017. On 1 April 2018, five of the Group's six separately branded property management companies merged to form one operating division. We have established a single operational management structure with regional leadership, which complements the changes we are making to centralise a number of non-client facing functions and services. We continue to undertake the centralisation processes, minimising wherever possible the impact to client service and cost.

The government continues to express its determination to eradicate bad practices within the leasehold sector. The abuse of ground rents in leases and the mismanagement of service charge costs by some landlords and their managing agents has attracted a considerable amount of publicity. HML welcomes the government's initiatives and remains confident that the professionalisation of our sector resulting from increased regulation, will reward those players who have invested in the processes that enable compliance with the law. The Law Commission is currently evaluating regulatory changes to freehold ground rents and the newly named Ministry of Housing, Communities and Local Government has reiterated its desire to introduce the regulation of managing agents.

In a time of some economic uncertainty and infrastructure change, HML has, we believe, demonstrated the resilience of our business model. We continue to address the organisational enhancements that logically flow both from technological and regulatory change. In a fragmented market made up largely of a mix of smaller players who are challenged by the significance of these changes and other players whose business models are dependent on the flow of freeholder-led instructions, we remain confident that we are well positioned to grow our share of a growing market.

On behalf of the Board, I wish to express our thanks to the Group's employees who have worked hard in challenging times to contribute to our on-going success.

HML HOLDINGS PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

HML HOLDINGS PLC

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE GROUP

HML HOLDINGS PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

HML HOLDINGS PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

HML HOLDINGS PLC

GENERAL INFORMATION

Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs) as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRSs.

The financial information is presented in pounds sterling, prepared on a historical cost basis, except for the revaluation of contingent considerations and rounded to the nearest thousand. The financial information set out in this announcement does not comprise the Group's statutory accounts for the years ended 31 March 2018 or 31 March  2017.

The financial information for the year ended 31 March 2017 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either Section 498 (2) or Section 498 (3) of the Companies Act 2006 and did not include references to any matters to which the auditor drew attention by way of emphasis.

The statutory accounts for the year ended 31 March 2018 have not yet been delivered to the Registrar of Companies, nor have the auditors yet reported on them. This preliminary announcement does not constitute statutory accounts under section 435 of the Companies Act 2006.

HML Holdings plc and its subsidiaries specifically focus on residential property management. The Group operates in the UK. The Company is a public limited company incorporated and domiciled in the United Kingdom. The address of its registered office is 9-11 The Quadrant, Richmond, Surrey, TW9 1BP. The Company is listed on the AIM market of the London Stock Exchange.

The preliminary results were authorised for issue by the board of directors on 25 June 2018.

1. PROFIT RECONCILIATION

The reconciliation set out below provides additional information to enable the reader to reconcile to the numbers discussed in the Review of Business.

Direct operating expenses and central operating overheads include depreciation and staff costs.

Set out below is an analysis of other operating expenses:

Amounts payable to the auditor and its related entities in respect of both audit and non-audit services are set out below:

The tax assessed for the period is lower than (2017: lower than) the standard rate of corporation tax in the UK of 19% (2017: 20%). The differences are explained below:

Future tax charges may be affected by the fact that no deferred tax asset is recognised in respect of losses. Deferred tax assets are not recognised until the utilisation of the losses is probable.

The Group has losses carried forward in its subsidiary, HML Hathaways Limited which can be recovered against future profits arising from the same trade. The total tax losses carried forward to future years are £1,243,000 (2017: £1,243,000). Consequently, the unprovided deferred tax asset in respect of these losses is £211,000 (2017: £211,000).

4. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following data

The diluted earnings per share are the basic earnings per share adjusted for the dilutive effect of the conversion into fully paid shares of the outstanding share options.

5. BUSINESS COMBINATIONS (ACQUISITIONS)

On 1 April 2017, HML Holdings Plc purchased 100% of the share capital of Faraday Property Management Limited, a business based in Holborn, London. The acquisition will not only strengthen the Group's position in Central London but also gives the Group critical mass that will assist in growing the Group's ancillary revenues.

The estimated fair value of net assets transferred is set out below:

The residual difference between the total consideration paid and the net value of the recognised assets acquired has been capitalised as goodwill. The goodwill recognised on the acquisition is mainly attributable to the skills and knowledge within the business.

Net cash flow arising on the acquisition was £1,975,000 which represents the consideration paid, less cash held by Faraday Property Management Limited. £2,122,000 was advanced to solicitors on 31 March 2017 resulting in a cash inflow of £147,000 in the current year.

Consideration shares consisted of 326,439 ordinary shares issued at fair value of 40.0p per share.

The contingent consideration of £1,044,000 is due within two years and is adjustable depending on the retention of clients and the arrival of contracted new clients. The range of potential payments of contingent consideration could vary from £0 to £1,044,000, however the more likely outcome would be to pay £1,044,000. Contingent consideration has not been discounted as the discounting is immaterial to the Group.

The business contributed £1,979,000 to the Group's revenue and increased the Group's profit by £274,000 from the date of the acquisition to the year-end date.

On 1 January 2018, HML Andertons Ltd purchased 100% of the share capital of CRC Management Ltd, a property management business based in Manchester. The acquisition will strengthen the Group's position in the Northwest. The trade and assets of CRC Management Ltd were transferred to HML PM Ltd on acquisition.

The estimated fair value of net assets transferred is set out below:

The residual difference between the total consideration paid and the net value of the recognised assets acquired has been capitalised as goodwill. The goodwill recognised on the acquisition is mainly attributable to the skills and knowledge within the business.

Net cash flow arising on the acquisition was £70,000 which represents the consideration and transaction costs.

The contingent consideration of £20,000 is due within one year and is adjustable depending on the retention of clients and the arrival of contracted new clients. The range of potential payments of contingent consideration could vary from £0 to £20,000, however the more likely outcome would be to pay £20,000. Contingent consideration has not been discounted as the discount would be immaterial to the Group.

The business contributed £17,000 to the Group's revenue and increased the Group's profit by £1,000, from the date of the acquisition to the year-end date.

If all business combinations arising in the year had occurred on 1 April 2017, the consolidated revenue and profit for the Group for the year ended 31 March 2018 would have increased to £26,019,000 and £1,165,000 respectively.

The Directors have proposed paying a dividend of 0.42p per share in relation to the current year (2017: 0.37p per share).

If approved, the final dividend will be paid on 19 October 2018 to shareholders on the register at 5 October 2018. The corresponding ex-dividend date is 4 October 2018.