HUNT.L Regulatory News (HUNT)

Hunters Property Plc

Interim Financial Statements

For the period ended 30 June 2016

Hunters Property Plc ("Hunters" or the "Company" or the "Group"), one of the UK's largest national sales and lettings estate agency and franchise businesses, is pleased to announce its interim results for the six months ended 30 June 2016.

Financial Highlights:

· Network Income up 42% to £16.9m (6 months to June 2015: £12.0m);

· Revenue up 26% to £6.6m (2015: £5.2m);

· Adjusted operating profit (operating profit before depreciation, interest, amortisation and acquisition costs and share based payments) increased by 107% to £923,000 (2015: £445,000);

· Adjusted profit before tax (excluding amortisation and acquisition costs, share based payments, investment income and notional financial costs) up 134% to £807,000 (6 months to June 2015: £345,000);

· Adjusted earnings per share up 61% to 2.52p (2015: 1.57p);

· Interim dividend up 20% to 0.6p per share (2015: 0.5p per share).

Operational Highlights:

· Opened 17 new branches, including the conversions of 10 existing businesses expanding the branch network to 180 (June 2015: 161);

· Grown lettings income across the network by 18%;

· Expanded the marketing campaign and increased web visits by 40% over the last two years;

· Further investment has been made in the Company's proprietary software, facilitating an enhancement to the customer experience including the launch of booking valuation appointments online;

· Acquired two further lettings books in the Manchester area and integrated those into our owned offices.

Trading update

· The second half of 2016 has started strongly;

· Robust pipeline and the continuance of a strong level of enquiries from potential franchisees looking to join Hunters in H2 and into 2017;

· Post the EU referendum, potential uncertainty is mitigated by the franchise strategy of the business;

· Enhanced the Group's existing facilities with a new five year, £5m, credit facility;

· The Board is confident the Company is well positioned, with a strong net asset position and facilities available to continue our growth.

Glynis Frew, Managing Director of Hunters Property Plc, commented:

"We have delivered strong results in the six months to June 2016 bolstered by growth in the franchise network and we are encouraged by the robust pipeline of future franchisees interested in joining the network. 

The EU referendum has reduced some activity levels in the market, particularly in London and the South East. However in the wider UK market, which mirrors our national structure, activity is more encouraging and there has been less or little evidence of a downturn. Branch performance has improved on average and in lettings in particular. 

The first half included a full contribution from Country Properties. The second half of 2016 has started strongly. We are delighted that our lenders, HSBC, see the exciting potential and growth in our business and have made a new line of credit available to the Group to deliver on its growth strategy and we are confident of our growth prospects and meeting our expectations for the full year.

The work and support that has been displayed by the staff and the franchise network is a credit to the Group. I offer, on behalf of the Board, our thanks and gratitude to everyone that has been involved."

For further details:

Hunters Property Plc Tel: 01904 756 197

Kevin Hollinrake, Chairman

Harry Hill, Chief Executive Officer

Glynis Frew, Managing Director

Ed Jones, Chief Financial Officer

Smithfield Consultants Limited Tel: 020 7360 4900

Alex Simmons

Numis Securities Limited Tel: 020 7260 1000

Stuart Skinner, Paul Gillam (Nomad)

Tom Ballard (Corporate Broker)

Chairman's Statement

Overview

On behalf of the board I am delighted to comment on Hunters' half year results for 2016. The first six months have seen the Group build successfully on the track record built up over the last 24 years; Network Income grew by 42% to £16.9m in the six months to June (6 months to June 2015: £12.0m), 17 new branches joined the network, and revenue per branch increased by 26%.

The first half of 2016 for Hunters has seen the Group deliver profit, network and revenue growth, all substantially ahead of last year. Turnover increased in the first six months by 26% to £6.6m (2015: £5.2m) culminating in EBITDA increasing by 107% to £923,000 (2015: £445,000).

The Group's strategy is to grow a predominantly franchise network and during the first half of 2016 added a further 17 branches (2015: 19), all franchised, of which 10 were existing businesses converting to Hunters. As at the end of June, the network stood at 180 (June 2015: 161) branches of which 169 (2015: 150) are franchised.

This first half included a full contribution from the 23 branches of Country Properties, acquired by Hunters in 2015, and which I am pleased to report, outperformed the same period last year by +34%.

We expanded, this half year, our TV and marketing campaigns based on Here to Get You There. In the last two years we have increased web visits by 40%. The TV campaign started again this August and runs also during September.

Our Customer Service Rating to June stood at 95% (2015: 96%) both hitting our target of 95%, and being significantly ahead of the 2015 Property Academy Survey putting the national average at 73%.

Outlook

The business is well placed for the remainder of the year, with a good pipeline. 

The Board expects the strong growth of the network in the first half of 2016 to continue in the second half as a consequence of the new network branches, stronger enquiries from other existing businesses and our recently extended facilities. Availability of capital should mitigate against the short-term impact of any uncertainty created by the EU Referendum. In this economic environment independent businesses benefit even more from joining the Hunters network. We continue to look for strategic acquisitions should they become available and we are delighted to have secured additional funding in this regard.

The Company has a strong net asset position and relatively low levels of debt, combined with extended facilities to draw which means the Board is confident the Company is well positioned for further growth.

The Board aims to pay a progressive dividend, whilst maintaining dividend cover of at least two times. In this regard we announce a 20% increase in the interim dividend to 0.6p (2015: 0.5p) per share, payable on 19 October 2016 to shareholders on the Register on 23 September 2016.

I look forward to updating you further in due course.

Kevin Hollinrake

Chairman

Financial Report

Revenue

Network income, from sales and lettings across the network, rose by 42% to £16.9m, compared to £12.0m for the first half of 2015. The source of this revenue was split 54% South, 46% North; during the last full year the split was 50:50.

The Company's turnover increased by 26% to £6.6m (2015: £5.2m), driven by growth of the network, including the addition of Country Properties to the Group part-way through 2015.

In the six month period to June 2016 the Group opened 17 (2015: 19) new franchise branches. Average Revenue per Branch increased by 26% in the six months to June 2016, compared to the same period last year.

Profit before tax, adjusted to exclude amortisation, amortised finance costs, acquisition costs, share-based payments and other finance income

Adjusted profit before tax for the six months ended June 2016 was £807,000, an increase of 134% on the equivalent period last year (2015: £345,000).

Adj. EBITDA, earnings before interest, tax and depreciation/amortisation

Adj. EBITDA provides a key measure of progress made. Adj. EBITDA for the six months to June 2015 was £923,000, an increase of 107% on the same period last year (2015: £445,000).

Earnings per share

Basic earnings per share for the six months ended 30 June 2016 was 1.04p (2015: £0.70p). Adjusted earnings per share, excluding amortisation and acquisition costs, finance timing, investment income and share-based payment expenses for the six months to June 2016 was 2.52p (2015: 1.57p) an increase of 61%.

Dividend

The Board declares an interim dividend of 0.60p (Interim 2015: 0.5p) per share, an increase of 20%, payable on 19 October 2016 to shareholders on the Register on 23 September 2016.

Cash flow

The Company generated net cash from operations of £411,000 during the six months to June 2016, of which £325,000 was used to fund the acquisition of two new lettings books. There were further debt drawdowns in the six months to June 2016 totalling £570,000, which was used to fund the franchised branches opened towards the end of 2015 and new branches opened during the first six months of 2016.

Liquidity and capital reserves

As at 30 June 2016, the Group's cash balance was £896,000 (December 2015: £1,211,000) with net debt of £1.75m (December 2015: £1.11m) including vendor Loan Notes, repayable by July 2017, £0.64m (December 2015: £0.62m).

Risks

The primary risk to the business continues to be the health of the UK property market. Uncertainty has crept into the marketplace since the EU referendum result, as individuals and businesses take stock and assess the impact. Our balance between franchising, sales and lettings and geographical mix allows us to mitigate against this risk.

Ed Jones

Chief Financial Officer

8 September 2016

Consolidated Statement of Comprehensive Income

For the period ended 30 June 2016

Consolidated Statement of Financial Position

As at 30 June 2016

Consolidated Statement of Changes in Equity

For the period ended 30 June 2016

Consolidated Statement of Cashflows

For the period ended 30 June 2016

Notes to the Interim Financial Statements

For the period ended 30 June 2016

1. Corporate information

Hunters Property Plc is a Company incorporated in the United Kingdom. The registered address of the Company is Apollo House, Eboracum Way, York, YO31 7RE. The consolidated financial statements (or "financial statements") incorporate the financial statements of the Company and entities (its subsidiaries) controlled by the Company (collectively comprising the "Group").

The principal activity of the Group is the provision of property services to consumers and businesses which include sales, lettings, franchising and related services.

2. Accounting policies

2.1. Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

Basis of measurement

The financial statements have been prepared on the historical cost basis, modified to include the revaluation of certain financial instruments at fair value.

Functional and presentational currency

The financial statements are presented in sterling, which is the functional currency of the Parent Company. Monetary amounts in these financial statements are rounded to the nearest £1,000.

Use of estimates and judgments

The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Basis of preparation

The financial information set out in these condensed consolidated financial statements for the six months ended 30 June 2016 and the comparative income statement and statement of cashflow figures are unaudited. The financial information presented are not statutory accounts prepared in accordance with the Companies Act 2006, and are prepared only to comply with AIM requirements for interim reporting.

Basis of consolidation

The Group financial information consolidates those of the Parent Company and the subsidiaries that the Parent has control of. Control is established when the Parent is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

Where a subsidiary is acquired/disposed of during the period, the consolidated profits or losses are recognised from/until the effective date of the acquisition/disposal.

All inter-company balances and transactions between group companies have been eliminated on consolidation.

Where necessary, adjustments are made to the financial information of subsidiaries to bring the accounting policies used into line with those used by the Group.

Non-controlling interests, presented as part of equity, represent the portion of a subsidiary's profit or loss and net assets that are not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interest based on their respective ownership interests.

2.2. Business combinations

The Group applies the acquisition method of accounting for business combinations enacted after the date of creation of the Group following incorporation of Hunters Property Plc, as detailed further below. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair value of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree, and the equity interest issued by the Group. Acquisition costs are expensed as incurred.

The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquired subsidiary's financial information prior to the acquisition. Assets acquired and liabilities assumed are measured at their acquisition-date fair values.

Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the fair value of consideration transferred, over the Group's share of the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

The Group has applied the principles of merger accounting in consolidating the results, as control was only acquired by Hunters Property Plc via a share-for-share exchange on 27 March 2015. Merger accounting requires that the results of the Group are presented as if the Group has always been in its present form, and does not require a re-evaluation of fair values as at the point of acquisition. Accordingly, for the Group's comparative statement of financial position as at 30 June 2015, a merger reserve has been created which represents the difference between the net assets of the Group as at that date, and the retained profits recognised by the Group as at that date.

2.3. Revenue

Revenue represents the amount receivable for the provision of services and the sale of goods during the period, excluding VAT and trade discounts. Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be measured reliably.

Revenue from residential, commercial, and land sales is recognised on the basis of exchange of contract. Financial services revenue is recognised at the later of the policy inception date or confirmation of entitlement to the commission.

Revenue from commission earned as letting agents is recognised in the month in which the income is received and when there is fulfilment of all but inconsequential or perfunctory actions.

At inception of a franchisee contract, revenue is recognised upfront which matches to the estimated cost of time and knowledge to create the franchiser-franchisee contractual arrangement. No amounts are deferred as the directors are of the opinion that virtually all inception costs are incurred at the outset, and hence although contracts run for several years this policy is considered to be the fairest presentation to comply with the matching and accruals concepts.

Revenue from franchisee management service fees are recognised monthly in arrears, calculated by reference to the terms of the contract and the value of sales attributable to each franchisee.

Deferred income arises where services are invoiced in advance of performance. The amount is released to the profit or loss in subsequent periods in reference to the stage of completion of the transaction at the reporting date.

2.4. Goodwill

Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identifiable and separately recognised. After initial recognition, goodwill is measured at cost less accumulated impairment losses.

2.5. Intangible fixed assets other than goodwill

Intangible assets are initially measured at cost. Where intangible assets are acquired as part of a business combination, cost is determined by reference to a fair value estimation technique. After initial recognition, intangible assets are recognised at cost less any accumulated amortisation and any accumulated impairment losses.

The depreciable amount of an intangible asset with a finite useful life is allocated on a systematic basis over its useful life. Amortisation begins when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

The amortisation period and the amortisation method for intangible assets with a finite useful life is reviewed each financial period-end. If the expected useful life of the asset is different from previous estimates, the amortisation period is changed accordingly.

Research expenditure is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised to the extent that the technical, commercial and financial feasibility can be demonstrated.

Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Software 3 years or over the life of the license

Franchise development costs Over the life of the franchise contract (typically 10-15 years)

Brands 10 years

Customer lists 2-12 years

2.6. Property plant and equipment

Property, plant and equipment are recognised as an asset only if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

An item of property, plant and equipment that qualifies for recognition as an asset is measured at its cost. Cost of an item of property, plant and equipment comprises the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

After recognition, all property, plant and equipment are carried at costs less any accumulated depreciation and any accumulated impairment losses.

Depreciation is provided at rates calculated to write down the cost of assets, less estimated residual value, over their expected useful lives on the following basis:

Leasehold land and buildings Straight line over the period of the lease

Plant and machinery 25% reducing balance

Computer equipment 33% straight line

Fixtures, fittings and equipment 25% reducing balance or 10-33% straight line

Motor vehicles 25% straight line

The residual value and the useful life of an asset are reviewed at least at each financial period-end and if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying value of the asset and are recognised in profit or loss.

2.7. Impairment of goodwill, other intangible assets and property, plant and equipment

For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash flows. 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 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 for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An asset or cash-generating unit is impaired when its carrying amount exceeds its recoverable amount. The recoverable amount is measured as the higher of fair value less cost of disposal and value in use. The value in use is calculated as being net projected cash flows based on financial forecasts discounted back to present value.

The impairment loss is allocated to reduce the carrying amount of the asset, first against the carrying amount of any goodwill allocated to the cash-generating unit, and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed if the asset's or cash-generating unit's recoverable amount exceeds its carrying amount.

2.8. Investments

Investments in equity instruments that have a quoted market price in an active market and whose fair value can be reliably measured are measured at fair value; otherwise investments in equity instruments are measured at cost.

2.9. Financial instruments

Financial assets

Financial assets are recognised in the statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the instrument.

All financial assets excluding investments are classified as loans and receivables; these comprise trade and other receivables and cash and cash equivalents. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

Financial assets are initially recognised at fair value plus directly attributable transaction costs.

After initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial.

If there is objective evidence that there is an impairment loss on loans and receivables, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account.

A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred.

Financial liabilities

Financial liabilities include borrowings and trade and other payables.

Financial liabilities are obligations to pay cash or other financial assets and are recognised in the statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the instrument.

Financial liabilities are initially recognised at fair value adjusted for any directly attributable transaction costs.

After initial recognition, financial liabilities are measured at amortised cost using the effective interest method, with the effective interest recognised as an expense in finance costs. Discounting is omitted where the effect of discounting is immaterial.

A financial liability is derecognised only when the contractual obligation is extinguished, that is, when the obligation is discharged, cancelled or expires.

2.10. Provisions

Provisions are recognised when the Group has a legal or constructive present obligation as a result of a past event, it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation.

Where the effect of the time value of money is material, the amount expected to be required to settle the obligation is recognised at present value. When a provision is measured at present value the unwinding of the discount is recognised as a finance cost in profit or loss in the period it arises.

2.11. Employee benefits

The cost of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or non-current assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee's services are received.

Termination benefits are recognised immediately as an expense when the Company is demonstrably committed to terminate the employment of an employee, or to provide termination benefits.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

2.12. Leased assets

Finance leases

The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards of ownership of the leased asset. Where the Group is a lessee in this type of arrangement, the related asset is recognised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any. A corresponding amount is recognised as a finance lease liability.

This liability is reduced by lease payments net of finance charges. The interest element of lease payments represents a constant proportion of the outstanding capital balance and is charged to profit or loss, as finance costs over the period of the lease.

Operating leases

All other leases are treated as operating leases. Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.

2.13. Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short term, highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value.

2.14. Income tax

Current income tax assets and/or liabilities comprise obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid/due at the reporting date. Current tax is payable on taxable profits, which may differ from profit or loss in the financial statements. Calculation of current tax is based on the tax rates and tax laws that have been enacted or substantively enacted at the reporting period.

Deferred taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases.

A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). However, for deductible temporary differences associated with investments in subsidiaries a deferred tax asset is recognised when the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.

2.15. Share-based payments

The fair value of equity settled share based payments to employees is determined at the date of grant and is expensed on a straight-line basis over the vesting period based on the Group's estimate of shares or options that will eventually vest.

2.16. Equity instruments

Share capital represents the nominal value of shares that have been issued. Share premium represents the excess consideration received over share capital upon the sale of shares, less any incidental costs of issue.

Retained earnings include all current and prior period retained profits.

The non-controlling interest reserve is the portion of equity ownership in subsidiaries which is not attributable to the owners of the Parent Company.

The merger reserve has arisen as described in note 2.2.

3. Business combinations

Acquisition of a Manchester lettings book:

In January 2016 the Group acquired a Manchester lettings book. The consideration paid totalled £190,000, being settled in cash.

As part of the acquisition, the Directors have identified an intangible asset, being the lettings book. This was determined to be equal to the amount paid for the book, after adjustment for deferred tax. Historical data and forecasts have been used, together with the 10% group discount rate and an assumption of a useful life of 12 years for the lettings book to estimate the fair value of this intangible.

Following acquisition the lettings book was merged into existing operations, and as such the Directors have been unable to accurately quantify the contribution made to the Group's results since acquisition.

In addition, there were costs of acquisition of £7,524 which have been included within the Income Statement.

Acquisition of a second Manchester lettings book:

In June 2016 the Group acquired a second Manchester lettings book. The consideration paid totalled £120,000, being settled in cash.

Given the timing of the acquisition, the impact of the revenues and profits have materially only been recognised from July 2016 onwards.

In addition, there were costs of acquisition of £7,811 which have been included within the Income Statement.

4. Intangible Fixed Assets

Franchise Development Grants (FDG's") and rebrand costs are externally incurred expenses at the inception of certain contracts with franchisees in order to assist with the transition to using the Hunters brand name. The amounts invested are amortised over the minimum life of the underlying franchise contract, typically 10 to 15 years.

5. Earnings per share

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

Earnings per share

The Directors use adjusted earnings before time-value interest, investment revenue, amortisation, share-based payments and costs of acquisition ("Adjusted Earnings") as a measure of ongoing profitability and performance. The calculated Adjusted Earnings for the current period of accounts is as follows:

Adjusted Earnings per share