Mortgage Advice Bureau Regulatory News (MAB1)

MORTGAGE ADVICE BUREAU (HOLDINGS) PLC

22 March 2016 

Final Results for the year ended 31 December 2015 and sale of stake in Capital Private Finance Limited

Mortgage Advice Bureau (Holdings) PLC is pleased to announce its final results for the year ended 31 December 2015. 

Financial highlights

· Revenue up 33% to £75.5m (2014: £56.6m)

· Gross margin maintained at 24.2% (2014: 24.1%)

· Adjusted PBT up 31% to £10.4m (2014: £8.0m)

· Underlying PBT margin1,3 improved to 14.9% (2014:14.1%)

· High operating profit to cash conversion2 of 100% (2014: 100%)

· Adjusted EPS3,4 17.2p up 35% (2014: 12.7p)

· Proposed final dividend of 9.5p (H2 2015 payout ratio: 90%) making a total of 14.4p for 2015

· Strong financial position with significant surplus on regulatory capital

· Total cash balances of £14.0m (31 Dec 2014: £9.3m)

· Unrestricted cash balances of £8.2m (31 Dec 2014: £5.3m)

Operational highlights

· Adviser numbers up 25% to 790 at 31 December 2015 (2014: 634)

· Average number of Advisers in 2015 up 24% to 720 (2014: 581)

· Purchase of freehold of Head Office Building for £2.4m from cash resources

Post year end highlights

· Adviser numbers up 54 to 844 at 18 March 2016; front ended new Appointed Representative recruitment in 2016

· Sale of 49% stake in Capital Private Finance Limited confirmed for £2.7m;

· 100% of post-tax proceeds of £2.2m to be distributed to shareholders by special dividend of c. 4.25p in H2 2016

1 Before total additional costs of £0.8m in 2015, comprising £0.5m in costs associated with being listed and additional FSCS costs of £0.3m (not adjusted in 2015 as considered to be ongoing costs, but did not feature in 2014). Excluding these costs, the underlying PBT margin in 2015 would have been 14.9%, above the PBT margin in 2014 of 14.1%.

2 Cash flow from operating activities adjusted for non-trading items including loans to Appointed Representative firms ("ARs"), loans to associates and other non-trade receivables as a % of operating profit before exceptional costs

3  2014 profit before tax and profit after tax adjusted for non-recurring items (1) provision against loan in 2014 of £347,891 and (2) IPO-related costs. There are no non-recurring items in 2015.

4 Adjusted EPS is based on 50.5m shares being in issue throughout 2014 in order to allow comparability

Peter Brodnicki, Chief Executive commented: 

"I am delighted to report that in the first full year following our IPO, we have had another year of strong revenue and profit growth, resulting from our strategy focused on our core areas of specialism. 2015 marked our seventh consecutive year of significant profit growth, demonstrating both our understanding of the market in which we operate and our focus on building a high quality business with sustainable profitability.

"Our share of UK new mortgage lending grew by 18% to 3.6% in 2015. We are confident that our strategy is on track to continue to deliver strong revenue growth and attractive returns to investors."

Current Trading and Outlook

Adviser numbers have continued to grow since the year end with the Group reporting 844 Advisers at 18 March 2016 reflecting front ended recruitment of new Appointed Representatives for 2016. MAB expects to achieve a minimum of 15% compound annual growth in Adviser numbers over the next few years which the Board believe to be a very realistic and sustainable number.

UK gross mortgage lending grew by 8% in 2015, with the Council of Mortgage Lenders ("CML") projecting that gross mortgage lending growth will be sustained at 8% for 2016 and increase to 10% for 2017. MAB continues to see steady growth in mortgage lending with increased activity in the remortgage market as borrowers look to secure mortgage deals at the record low rates of interest which are currently available.

 MAB continues to seek targeted investment opportunities to build upon the Group's existing expertise and to enhance distribution, with technology and brand expected to be major influencing factors on the intermediary sector over the coming years. The Board believes the Group is ideally placed to capitalise on both of these, strengthening MAB's position as a leading UK consumer intermediary brand and specialist Appointed Representative Network, and continuing our track record of profitable growth into 2016.

For further information please contact:

 Analyst presentation

There will be an analyst presentation to discuss the results at 09:30am today at Canaccord Genuity Limited, 88 Wood Street, London, EC2V 7QR.

Those analysts wishing to attend are asked to contact Louis Supple at Instinctif on +44 (0) 20 7866 7904 or louis.supple@instinctif.com.

Copies of this final results announcement are available at investor.mortgageadvicebureau.com

Strategic report - Chief Executive's Review

Introduction

I am delighted to report that in the year following our IPO we have had another year of strong revenue and profit growth as we continue to focus our strategy on our core areas of specialism. This is our seventh consecutive year of strong profit growth, demonstrating both our understanding of the market in which we operate and our focus on building a high quality business with sustainable profitability.

Our strategy

Our specialist approach in targeted sectors of intermediary distribution continues to differentiate MAB, and helps us attract many of the UK's leading firms and Advisers. Those areas of specialisation have recently been extended to include on-line estate agency and buy-to-let ("BTL"). MAB plans to further increase market share by extending its reach in the intermediary sector and broadening its distribution model through selected JV partners.

The intermediary proposition is hugely compelling for the consumer, with advances in technology only likely to strengthen this position. Our focus on technology and our in-house platform MIDAS Pro has never been greater than it is today. We see technology playing an ever increasing part in our lead generation by taking control of and managing data, improving business and Adviser efficiency/capacity to deliver a continuously improving customer, Adviser and lender experience.

MAB will always seek to be an early adopter of new and emerging technologies. This will ensure that our AR firms and their Advisers are able to compete at the highest level by providing our customers with the technological solutions they expect today, making research and mortgage applications simpler, faster, and more convenient. By doing so, we expect MAB to become a natural choice for the more technology-led intermediary models entering the market.

We believe that trusted national brands are becoming increasingly more important to consumers who are seeking advice from an intermediary and, as with technology, MAB is ideally placed to fully leverage its strong consumer brand to further increase its market share.

MAB continues to be exceptionally well placed to attract ambitious and growth-focused AR firms, and attract new Advisers to those firms. The MAB Academy is now in its third year and we are delighted with the quality and increasing numbers of new industry recruits we are bringing through, which is a trend we expect to continue.

Our strategy is to continue to grow our market share and deliver strong revenue growth and attractive returns to investors year on year. Central to this is ensuring that MAB and its growing number of AR firms and Advisers continue to meet customers' changing needs and expectations. We believe MAB is ideally positioned to do that through the delivery of the quality of service and experience they expect, and providing the choice of how and when they receive advice.

Business Review of 2015

I am pleased to report strong growth in revenue of 33% to £75.5m with adjusted profit before tax and exceptional items rising by 31% to £10.4m. Mortgage lending activity slowed in the second half of 2014 following a pre-MMR spike in volumes, but we saw some encouraging signs of increased activity early in 2015 despite an election looming. Volumes continued to build following the general election and we saw a stronger second half of 2015 with overall lending volumes for 2015 being estimated by the CML at £220bn, circa 8% above those of 2014 (£203bn). MAB's gross mortgage lending increased by 31% to £7.8bn in 2015, with MAB's overall share of UK new mortgage lending increasing by 18% to 3.6%.

The Group generates revenue from three core areas, as follows:

http://www.rns-pdf.londonstockexchange.com/rns/8213S_1-2016-3-21.pdf

All income sources continued to grow strongly with the average number of Advisers increasing by 24%, whilst average revenue per Adviser increased by 8%.

Understanding our customers' needs and providing them with the right advice is at the heart of MAB's strategy and delivering outstanding customer service is an integral part of this. By giving our customers expert mortgage and protection advice through our expanding network of intermediary businesses, we will continue to deliver strong revenue growth and attractive returns to investors.

Organic growth continues to be a key focus for MAB, as we work closely with our ARs to help them increase Adviser numbers and market share. This is supported by our recently increased recruitment team and our in-house academy for training new Advisers to the industry which is now well established in its third year. We maintain very high standards of recruitment both in growing Adviser numbers organically and in recruiting new ARs. Our new ARs are typically forward thinking and ambitious; they too will contribute to MAB's organic growth in the years to come.

Technology is transforming everything we do and this is led by our customers who are using technology every day to make life simpler, faster and more convenient. MAB intends to continue to compete at the highest level and, by embracing technology in the same way as an increasing number of our customers do, this will make our ARs more efficient and profitable, whilst also delivering an improved customer, Adviser and lender experience. We also believe technological advances will make the intermediary proposition even more compelling. We are already seeing new lenders and on-line estate agents challenging existing models with technology being the driver, and that has started to trigger a response from the more traditional models which helps to drive continued innovation across the whole sector.

At MAB we made the decision 15 years ago to develop technology in-house rather than being held back by often inflexible 'one size fits all' third party systems. That investment has never been greater than it is today, and we are making significant inroads in using this technology to generate a greater number of leads for Advisers, simplifying and streamlining the mortgage application process, whilst enabling the customer to be far more engaged and in control.

The lender and intermediary sectors have been behind the pace in terms of meeting customers' technology expectations, but we expect this to change, with organisations such as MAB driving this change with new thinking and without being constrained by legacy issues to hold them back, and with technology at their core.

The Mortgage Advice Bureau consumer brand is a major differentiator for our business, our ARs and their Advisers. We see our brand becoming increasingly important as, more than ever before, consumers seek out mortgage intermediaries that provide high quality customer-focused and expert advice. Fully leveraging the strength of our brand is an area of focus for 2016 and beyond.

During 2015 we have continued to significantly strengthen our senior team with the addition of our new Finance Director, Compliance Director and Head of Brand and Marketing.

Sale of 49% stake in Capital Private Finance Limited ("CPF")

In 2011 MAB and Countrywide plc ("Countrywide") entered into a five year joint venture agreement. CPF is an AR of the Group and provides mortgage and protection advice to customers of Countrywide's premium real estate brands, including Hamptons International, John D Wood & Co., Faron Sutaria and UK Sotheby's International Realty. MAB holds 49% of the issued share capital of CPF with Countrywide holding the remaining 51%. The joint venture agreement included a put and call option for MAB's 49% shareholding, exercisable any time after five years from the date of commencement. Countrywide has now exercised its call option with the price for MAB's 49% stake agreed at £2.7m. This associate investment has a carrying cost in MAB's balance sheet of £4,900. Completion is anticipated in early H2 2016. After completion, MAB will cease to receive its share of profit from CPF, but will also save c. £0.1m of overhead cost per annum. The net effect on profit before tax on an annual basis is a reduction of c. £0.25m. MAB intends to declare a special dividend equivalent to the post-tax sale proceeds shortly after completion. This special dividend will equate to c. 4.25p per ordinary share.

We anticipated that Countrywide may exercise this option and our expected minimum 15% compound annual growth in Adviser numbers allows for the removal of the CPF Advisers from the Group.

Regulatory changes

On 21 March 2016 the EU Mortgage Credit Directive ("EU MCD") came into effect. EU MCD applies to all first and second charge brokers and lenders, who will all follow the same regulatory regime from that date. MAB has adapted its procedures to ensure it is fully compliant with EU MCD.

Industry data and trends

Housing purchase transactions by volume in the UK for the whole of 2015 were broadly flat compared with 2014, as demonstrated in the graph below, with property inflation being the primary factor that accounted for the increase of 8% in UK mortgage lending overall. By contrast, in H2 2015 housing purchase transactions by volume were up 6% compared to H2 2014, and this has translated to a higher run rate at the beginning of 2016.

http://www.rns-pdf.londonstockexchange.com/rns/8213S_4-2016-3-21.pdf

The increases in gross mortgage lending, and particularly in the remortgage market, are illustrated in the graph below.

http://www.rns-pdf.londonstockexchange.com/rns/8213S_3-2016-3-21.pdf

UK gross mortgage lending in 2015 for home-owner and BTL purchases grew by 5% and 26% respectively. UK gross mortgage lending in 2015 for home-owner and BTL remortgages increased by 20% and 51% respectively.

Approximately 70% of UK mortgage transactions (excluding BTL mortgages) were via an intermediary in 2015, up from less than 50% in 2012 as shown in the graph below. MAB expects this market share to remain broadly stable going forwards.

http://www.rns-pdf.londonstockexchange.com/rns/8213S_2-2016-3-21.pdf

We measure the development, performance and position of our business against a number of key indicators.

http://www.rns-pdf.londonstockexchange.com/rns/8213S_-2016-3-21.pdf

Financial performance

Revenues

Revenues were up 33% to £75.5m (2014: £56.6m). A key driver of revenue is the average number of Advisers in each financial year. Our business model attracts forward thinking ARs who are seeking to expand and grow their market share. Average Adviser numbers increased by 24% to 720 (2014: 581) during the period from a combination of the recruitment of new ARs, and the expansion of existing ARs.

MAB's total revenue can be analysed as follows:

Mortgage procuration fees and client fees have increased and this has had the effect of reducing the proportion of total income attributable to insurance commission.

Gross profit margin

Gross profit margin was maintained at 24.2% (2014: 24.1%). The Group receives a slightly reduced margin as our existing ARs grow their revenue organically through increasing their Advisers. In 2015, MAB continued to attract some larger ARs, which has driven strong growth in Adviser numbers and revenue. These larger new ARs, however, typically join the Group on lower than average margins due to their existing scale. In 2016 we expect to see the gross margin impact of the larger businesses brought on in 2015. Going forwards we expect to see some erosion of our gross profit margin due to both the continued growth of our existing ARs and the acquisition of new larger ARs.

Overheads

Overheads as a percentage of revenue were 11.6% (2014: 11.1%). During 2015, total additional costs of £0.8m, comprising £0.5m in costs associated with being listed and additional FSCS costs of £0.3m (not adjusted in 2015 as considered to be ongoing costs, but did not feature in 2014) were incurred. Excluding these costs, overheads as a percentage of revenue would have improved to 10.5% (2014: 11.1%), demonstrating the scalable nature of the cost base and, in part, countering the expected erosion on gross margin as the business continues to grow. Going forward, we expect to continue to see a reduction in overheads as a proportion of revenue. Certain costs, primarily those relating to compliance, which represent approximately one third of our cost base, are closely correlated to the growth in the number of Advisers, due to the high standards we demand and the requirement to maintain regulatory spans of control. The remainder of our costs typically rise at a slower rate than revenue.

Adjusted profit before tax and margin thereon

Adjusted profit before tax rose by 31% to £10.4m (2014: £8.0m). To facilitate a like-for-like comparison with prior years, the costs associated with the Company's admission to AIM in November 2014 and a one-off provision made during 2014 against a loan advanced in 2011 have been treated as exceptional costs when calculating adjusted profit before tax. There are no non-recurring items in 2015. The adjusted profit before tax margin was 13.8% (2014: 14.1%). Excluding the £0.8m of additional costs noted above, the underlying PBT margin in 2015 is 14.9% (2014: 14.1%). Unadjusted reported profit before tax increased to £10.4m (2014: £6.9m), an increase of 51%.

Net finance revenue 

Net finance revenues of £0.14m (2014: £0.12m) reflect continued low interest rates. The loan of £1m to HBB Bridging Loans has now been repaid.

Taxation

The effective rate of tax fell to 16.9% (2014: 21.6%) principally due to MAB's research and development claim for development on MIDAS Pro during 2014 and 2015 both being credited against the 2015 tax charge and also reductions in the UK corporation tax rate, with a higher effective rate in 2014, due to the costs of the AIM listing being disallowed for tax purposes. Going forwards we would expect our effective tax rate to be marginally below the prevailing UK corporation tax rate subject to the tax legislation behind MAB's research and development claim still being in existence and available to MAB in respect of continued development on MIDAS Pro.

Earnings per share and dividend

Adjusted EPS1 amounted to 17.2 pence. Comparison with 2014 is difficult as the share structure was significantly changed in preparation for the IPO in November 2014. Had there been a similar number of ordinary shares in issue throughout 2014, adjusted EPS1 would have been 12.7 pence per share.

The Board is pleased to propose a final dividend for the year ended 31 December 2015 of 9.5p per share, amounting to a total of £4.8m. Following payment of the dividend, the Group will continue to maintain significant surplus regulatory reserves. This final dividend represents circa 90% of the Group's post-tax profits for H2 2015 and reflects our intention to distribute excess capital going forward. MAB requires c. 10% of profit after tax to fund increased regulatory capital and other capital expenditure.

Furthermore, in respect of the sale of its stake in CPF, MAB intends to declare a special dividend equivalent to the post-tax sale proceeds shortly after completion. This special dividend will equate to c. 4.25p per ordinary share.

The record date for the final dividend is 6 May 2016 and the payment date is 1 June 2016. The ex-dividend date will be 5 May 2016.

Cash flow

The Group's operations produce positive cash flow. This is reflected in the net cash inflow from operating activities of £11.0m (2014: £8.4m).

Adjusted net cash flow2 from operating activities as a % of adjusted operating profit3

2015 100%

2014 100%

Using the same basis on which cash conversion was calculated in MAB's results for the year ended 31 December 2014 would not give a meaningful result in the year ended 31 December 2015 as the figure would be distorted by the Group's purchase of Capital House; hence a new methodology has been applied which excludes net cash flow from investing activities.

The Group's operations are capital light with our most significant ongoing capital investment being in computer equipment. Only £0.14m of capital expenditure was required during the year (2014: £0.14m). Group policy is not to provide company cars, and no significant capital expenditure is foreseen in the coming year. All development work on MIDAS Pro is treated as revenue expenditure.

The Group had no bank borrowings at 31 December 2015 (2014: £nil) with unrestricted bank balances of £8.2m (2014: £5.3m).

The Group has a regulatory capital requirement amounting to 2.5% of regulated revenue. At the end of 2015 this regulatory capital requirement was £1.7m (2014: £1.3m).

The following demonstrates how cash generated from operations was applied:

The Group's emphasis is to reduce risk by spreading deposits over a number of institutions rather than to seek marginal improvements in returns.

1 Adjusted EPS is based on 50.5m shares being in issue throughout 2014 in order to allow comparability

2 Cash flow from operating activities adjusted for non-trading items including loans to ARs, loans to associates and other non-trade receivables

32014 operating profit and profit before tax has been adjusted for non-recurring items (1) provision against loan in 2014 of £347,891 and (2) IPO-related costs. There are no non-recurring items in 2015.

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MORTGAGE ADVICE BUREAU (HOLDINGS) PLC

We have audited the financial statements of Mortgage Advice Bureau (Holdings) Plc for the year ended 31 December 2015 which comprise the primary statements such as the group statement of financial position and company balance sheet, the group statement of comprehensive income, the group statement of cash flows, the group statement of changes in equity and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council's (FRC's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the FRC's website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the group's and the parent company's affairs as at 31 December 2015 and of the group's profit for the year then ended;

• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

• the parent company's financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion the information given in the strategic report and directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Leigh Wormald (senior statutory auditor)

For and on behalf of BDO LLP, statutory auditor

London

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Consolidated statement of comprehensive incomefor the year ended 31 December 2015

Consolidated statement of financial positionas at 31 December 2015

The financial statements were approved by the Board of Directors on 21 March 2016

P Brodnicki L TilleyDirector Director

Consolidated statement of changes in equityfor the year ended 31 December 2015

Consolidated statement of cash flowsfor the year ended 31 December 2015

Notes to the consolidated financial statementsfor the year ended 31 December 2015

1 Accounting policies

Basis of preparation

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented.

These financial statements have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRSs") and with those parts of the Companies Act 2006 that are applicable to companies that prepare financial statements in accordance with IFRSs.

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 2.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report as set out earlier in this announcement. The financial position of the Group, its cash flows and liquidity position are described in these financial statements.

The Group made an operating profit of £10.3m during 2015 (2014: £6.8m) and had net current assets of £6.4m at 31 December 2015 (31 December 2014: £3.8m) and equity attributable to owners of the Group of £12.9m (31 December 2014: £7.6m).

After making enquiries, the Directors have a reasonable expectation that the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

Changes in the presentation of the financial statements

For 2015 the classification of certain amounts included in trade and other receivables and trade and other payables were changed to more accurately reflect the nature of the items. Accordingly the 2014 comparatives have been restated such that the classification is consistent with the 2015 presentation. The change has had no impact on the reported results of the group for either year.

Changes in accounting policies

New standards, interpretations and amendments effective year ended 31 December 2015

The following new standards, interpretations and amendments are effective for annual periods beginning on or after 1 January 2015 and have been applied in preparing these financial statements. None of these new standards or interpretations have a significant impact on the annual consolidated financial statements of the Group.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

1 Accounting policies (continued)

New standards, interpretations and amendments effective year ended 31 December 2015 (continued)

Annual Improvements 2010-2012 Cycle

These improvements are effective from 1 July 2014 and the Group has applied these amendments for the first time in these annual consolidated financial statements. They include:

IFRS 2 Share-based Payment

This improvement is applied prospectively and clarifies various issues relating to the definitions of performance and service conditions which are vesting conditions, including:

§ A performance condition must contain a service condition

§ A performance target must be met while the counterparty is rendering service

§ A performance target may relate to the operations or activities of an entity, or to those of another entity in the same group

§ A performance condition may be a market or non-market condition

§ If the counterparty, regardless of the reason, ceases to provide service during the vesting period, the service condition is not satisfied

The above definitions are consistent with how the Group has identified any performance and service conditions which are vesting conditions in previous periods, and thus these amendments do not impact the Group's accounting policies or financial statements.

IFRS 3 Business Combinations

The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IAS 39. This is consistent with the Group's current accounting policy and therefore did not impact the Group's accounting policy.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data by either adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying value and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value. In addition, the accumulated depreciation or amortisation is the difference between the gross and carrying amounts of the asset. The group did not record any revaluation adjustments during the year.

IAS 24 Related Party Disclosures

The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This amendment is not relevant for the Group as it does not receive any management services from other entities.

Notes to the consolidated financial statementsfor the year ended 31 December 2015

1 Accounting policies (continued)

New standards, interpretations and amendments not yet effective

The following new standards, interpretations and amendments which will or may have an effect on the Group are effective for annual periods beginning on or after 1 January 2015 and have not yet been applied in preparing these financial statements. None of these new standards or interpretations are expected to have a material impact on the financial statements of the Group.

· IFRS 9 will eventually replace IAS 39 in its entirety. However, the process has been divided into three main components (classification and measurement, impairment and hedge accounting). This standard becomes effective for accounting periods beginning on or after 1 January 2018. Its adoption may result in changes to the classification and measurements of the Group's financial instruments, including any impairment thereof.

· IFRS 15 'Revenue from Contracts with Customers' was issued by the IASB on 28 May 2014 and applies to an entity's first annual IFRS financial statements for a period beginning on or after 1 January 2018. It sets out the requirements for recognising revenue that apply to contracts with customers, except for those covered by standards on leases, insurance contracts and financial instruments

The above two standards have not yet been endorsed by the EU.

· Amendments to IFRS11 "Accounting for Acquisitions of Interests in Joint Operations" provides guidance on how to account for the acquisition of joint operations that constitute a business as defined in IFRS 3 Business Combinations. It is effective for accounting periods beginning on or after 1 January 2016.

· Amendments to IAS 16 and IAS 38 "Clarification of Acceptable Methods of Depreciation and Amortisation". The amendment to IAS 16 prohibits entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendment to IAS 38 introduces a rebuttable presumption that revenue is not an appropriate basis for amortisation of intangible assets. It is effective for accounting periods beginning on or after 1 January 2016. These amendments are not expected to have any impact to the Group given that the Group has not used a revenue-based method to depreciate its non-current assets.

· Amendments to IAS 27 "Equity Method in Separate Financial Statements". The amendment will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying IFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. These amendments are effective for annual periods beginning on or after 1 January 2016. These amendments will not have any impact on the Group's consolidated financial statements.

Annual Improvements 2012-2014 Cycle

These improvements are effective for annual periods beginning on or after 1 January 2016. They include:

IAS 19 Employee Benefits

The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment must be applied prospectively.

Notes to the consolidated financial statementsfor the year ended 31 December 2015

1 Accounting policies (continued)

New standards, interpretations and amendments not yet effective (continued)

IAS 34 Interim Financial Reporting

The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g. in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment must be applied retrospectively.

These amendments are not expected to have any impact on the Group.

Amendments to IAS 1 Disclosure Initiative

The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify:

· The materiality requirements in IAS 1

· That specific line items in the statement(s) of profit or loss and other comprehensive income and the statement of financial position may be disaggregated

· That entities have flexibility as to the order in which they present the notes to financial statements

· That the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to the statement of comprehensive income.

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and other comprehensive income. These amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact on the Group.

Notes to the consolidated financial statementsfor the year ended 31 December 2015

1 Accounting policies (continued)

Basis of consolidation

Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial statements present the results of the company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.Entities that are not subsidiaries but where the Group has significant influence (i.e. the power to participate in the financial and operating policy decisions) are accounted for as associates.

The results and assets and liabilities of the associates are included in the consolidated accounts using the equity method of accounting.

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs.

Depreciation is provided on all items of property, plant and equipment at rates calculated to write off the cost of each asset on a straight line basis over its expected useful lives, as follows:

Freehold land not depreciated

Freehold buildings 36 years

Fixtures and fittings 20%

Computer equipment 33%

Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognised in the income statement. The Directors reassess the useful economic life of the assets annually.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

1 Accounting policies (continued)

Goodwill

Goodwill represents the excess of the cost of a business combination over, in the case of business combinations completed prior to 1 January 2011, the Group's interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. For business combinations completed after 1 January 2011, the goodwill represents the excess of a cost of a business combination over the Group's interest in the fair value of identifiable assets under IFRS 3 Business Combinations.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

Other intangible assets

Intangible assets other than goodwill acquired by the Group comprise licences and are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the statement of comprehensive income within administrative expenses on a straight line basis over the period of the licence agreements. Assets are tested annually for impairment or more frequently if events or circumstances indicate potential impairment.

Amortisation, which is reviewed annually, is provided on licences at 16.7% per annum, calculated to write off the cost of the asset on a straight line basis over its expected useful life. 

Impairment of non-financial assets

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of the asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows, its cash generating units ('CGUs'). Goodwill is allocated on initial recognition to each of the group's CGUs that are expected to benefit from the synergies of the combination giving rise to the goodwill.

Unquoted investments

Unquoted investments are shown at cost less provision for impairment.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

1 Accounting policies (continued)

Financial assets

In the consolidated statement of financial position, the Group classifies its financial assets as loans, trade receivables and cash and cash equivalents. The classification depends on the purpose for which the financial assets were acquired. Loans and trade receivables are non-derivative financial assets with fixed or determinable payments which arise principally through the Group's trading activities. These are recognised at original fair value less appropriate provision for impairment and subsequently measured at amortised cost.

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, 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 cost of sales in the consolidated 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.

Cash and cash equivalents include cash in hand and deposits held at call with banks with an original maturity of three months or less.

Trade and other payables

Trade and other payables are recognised initially at fair value and subsequently carried at amortised cost.

Retirement benefits: Defined contribution schemes

Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

Provisions

A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.

Share capital

Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Company's ordinary shares are classified as equity instruments. Incremental costs directly attributable to the issue of new shares are shown in share premium as a deduction from the proceeds.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

1 Accounting policies (continued)

Revenue

Revenue comprises commissions, client fees and other income. Commissions are included at the gross amounts receivable by the Group in respect of all services provided. Commissions payable to trading partners in respect of their share of the commissions earned are included in cost of sales.

Commissions and client fees earned are accounted for when received or guaranteed to be received, as until received it is not possible to be certain that the transaction will be completed. In the case of life commissions there is a possibility for a period after the inception of the policy that part of the commission earned may have to be repaid if the policy is cancelled during this period. A provision is made for the expected level of commissions repayable.

Other income comprises income from ancillary services such as survey and conveyancing fees and is credited to the statement of comprehensive income partly on an accruals basis.

Leased assets

Rentals under operating leases are charged on a straight line basis over the lease term, even if the payments are not made on such a basis. Benefits received and receivable as an incentive to sign an operating lease are similarly spread on a straight line basis over the lease term.

Finance income

Finance income comprises interest receivable on cash at bank. Interest income is recognised in the statement of comprehensive income as it accrues.

Exceptional items

As permitted by IAS 1 'Presentation and disclosure' - certain items are presented separately in the income statement as exceptional where, in the judgement of the Directors, they need to be disclosed by virtue of their nature, size or incidence in order to obtain a clear and consistent presentation of the Group's underlying business performance. Examples of material and non-recurring costs which may give rise to disclosure as exceptional items include asset impairments and costs associated with acquiring new businesses.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

1 Accounting policies (continued)

Taxation

Income tax comprises current and deferred tax. Income tax is recognised in profit or loss other than if it relates to items recognised in other comprehensive income in which case it is recognised in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted by the statement of financial position date and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the deferred tax liabilities or assets are settled or recovered. Deferred tax balances are not discounted.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

· the same taxable group company, or

· different company entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets and liabilities are expected to be settled or recovered.

Segment Reporting

An operating segment is a distinguishable segment of an entity that engages in business activities from which it may earn revenues and incur expenses and whose operating results are reviewed regularly by the entity's chief operating decision maker (CODM) The Board reviews the Group's operations and financial position as a whole and therefore considers that it has only one operating segment, being the provision of financial services operating solely within the UK. The information presented to the CODM directly reflects that presented in the financial statements and they review the performance of the Group by reference to the results of the operating segment against budget.

Operating profit is the profit measure, as disclosed on the face of the combined income statement that is reviewed by the CODM.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

1 Accounting policies (continued)

Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when they are paid. In the case of final dividends, this is when they are approved by the shareholders.

Share based payments

Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining vesting period.

Where options are granted to persons other than employees, the statement of comprehensive income is charged with the fair value of the options at the date of the grant over the vesting period.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

2 Critical Accounting Estimates and Judgements

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 Directors consider that the following estimates and judgements that have the most significant effect on the carrying amounts of assets and liabilities within the financial statements are discussed below.

(a) Impairment of goodwill

The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Actual outcomes may vary. More information including carrying values is included in note 13.

(b) Impairment of trade and other receivables

Judgement is required when determining if there is any impairment to the trade and other receivable balances. Trade receivables are reviewed for impairment if they are past due and are not repaid within the terms of the contracts. Other receivables, which include loans, are reviewed for impairment when there are any indications that they may not be recoverable and that security held against the balance may be inadequate to fully cover the amount outstanding. A provision for impairment will be made if following review of the balances, the Group considers it unlikely that any balance will be recovered. More information is included in note 16.

(c) Clawback Provision

The provision relates to the estimated cost of repaying commission received on life assurance policies that may lapse in a period of up to four years following inception. The provision is calculated using a model that has been developed over several years. The model uses a number of factors including the total unearned commission at the point of calculation, the age profile of the commission received, the Group's proportion of any clawback, likely future lapse rates, and the success of the Group's team that focuses on preventing lapses and/or generating new income at the point of a lapse. More information is included in note 20.

(d) Freehold building

The freehold building is depreciated over its useful life. The useful life is based on management's estimate of the period that the asset will generate revenue and will be reviewed annually for continued appropriateness. The carrying value will be tested for impairment when there is an indication that the value of the asset might be impaired. When carrying out an impairment test this would be based on future cash flow forecasts and these forecasts would be based on management judgement. No such indication of impairment has been noted.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

3 Revenue

The Group operates in one segment being that of the provision of financial services in the UK. Revenue is derived as follows:

4 Cost of sales

 Costs of sales are as follows:

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

5 Profit from operations

Profit from operations is stated after charging the following:

Other administrative expenses are incurred in the ordinary course of the business and do not include any non-recurring items.

Profits from associates are disclosed as part of the operating profit as this is the operational nature of the Group.

6 Staff costs

Staff costs, including directors' remuneration, were as follows:

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

6 Staff costs (continued)

Key management compensation

Key management are those persons having authority and responsibility for planning, directing and controlling the activities of the Group. These are the directors of Mortgage Advice Bureau (Holdings) Plc.

During the year retirement benefits were accruing to 1 director (2014 ‑ 1) in respect of defined contribution pension schemes.

The total amount payable to the highest paid director in respect of emoluments was £653,217 (2014: £537,764). The value of the Group's contributions paid to a defined contribution pension scheme in respect of the highest paid director amounted to £nil (2014: £2,800).

7 Finance income

8 Exceptional costs

The following items have been included in arriving at profit before tax:

In November 2014, the Group was listed on the Alternative Investment Market ("AIM"). The costs charged to the income statement relate to costs incurred as a result of the listing. These costs include such items as legal and professional fees relating to work performed for the listing and marketing expenditure.

During the year the loan outstanding to Client Data Systems Group Limited of £347,891 (2014: £347,891), a company in which Mortgage Advice Bureau Limited has a 7% shareholding, was written off as it is not considered recoverable in the short term but recovery of the loan will continue to be pursued. The loan was fully provided for in the year to 31 December 2014 and therefore the write off has had no impact on the accounts for the year ended 31 December 2015.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

9 Income Tax

Changes in the taxation rate

The standard rate of corporation tax in the United Kingdom changed from 21% to 20% with effect from 1 April 2015. In addition legislation to reduce the main rate of corporation tax to 19% from 1 April 2017 and to 18% from 1 April 2020 had been enacted and so the deferred tax balance has been calculated at 18%. In the budget of 16 March 2016 it was announced that the rate is now to be reduced to 17% from 1 April 2020.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

10 Earnings Per Share

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

11 Dividends

The record date for the final dividend is 6 May 2016 and the payment date is 1 June 2016. The ex-dividend date will be 5 May 2016.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

12 Property, Plant and Equipment

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

13 Intangible Assets

The goodwill relates to the acquisition of Talk Limited in 2012, and in particular its main operating subsidiary Mortgage Talk Limited. The goodwill is deemed to have an indefinite useful life. It is currently carried at cost and is reviewed annually for impairment.

Under IAS 36, "Impairment of assets", the Group is required to review and test its goodwill annually each year or in the event of a significant change in circumstances. The impairment review conducted at the end of 2015 concluded that there had been no impairment of goodwill.

The Board considers that it now has only one operating segment so accordingly it is necessary to assess the impact of the acquisition of Mortgage Talk Limited to the Group. The value in use of Mortgage Talk Limited has therefore been estimated based on the improvements in net profits which that unit continues to bring to the Group. The forecast on-going profits generated by the acquisition of Mortgage Talk Limited significantly exceed the value of goodwill and therefore no impairment of the goodwill is required. A discount rate of 10% has been applied to these calculations. Management has considered forecast profits over a three year period in determining the value in use. Management believes that any possible changes to any of the key assumptions applied in determining the value in use would not cause the carrying amount of goodwill to exceed the forecast ongoing profits.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

14 Investments

Investment in Associates

The Group holds investments in associates, all of which are accounted for under the equity method, as follows:

The Group is entitled to 49% of the results for Capital Private Finance Limited, CO2 Commercial Limited, and MAB Wealth Management Limited by virtue of its 49% equity stakes. CO2 Commercial Limited is a dormant holding company, and trades through its wholly owned subsidiary, Pinnacle Surveyors (England & Wales) Limited. The Group is entitled to 25% of the results of Buildstore Limited by virtue of its 25% equity stake. The Group acquired a 23% interest stake in Sort Limited on 10 December 2015. The Group is entitled to 23% of the results of Sort Limited by virtue of its 23% equity stake. Details of changes to the holding in Sort Limited subsequent to the year end are given in note 30.

The investment in associates at the reporting date is as follows:

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

14 Investments (continued)

As the associates are private companies published share prices are not available. The aggregate amounts of certain financial information of the associates is summarised as follows:

Pinnacle Surveyors (England & Wales) Limited, Capital Private Finance Limited and Buildstore Limited prepare their financial statements using FRS 102 and the other associates prepare their financial statements using UK GAAP. There would be no material difference to the accounts of any of the associates if these were prepared using IFRS.

* These dividends are received from CO2 Commercial Limited, the parent undertaking of Pinnacle Surveyors (England & Wales) Limited. All other information disclosed above relates to Pinnacle Surveyors (England & Wales) Limited. 

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

14 Investments (continued)

Other investments

Unlisted investment

The unlisted investment represents a 0.05% shareholding in Twenty7tec Limited, a company that licenses certain mortgage sourcing software. The investment was acquired during the year ended 31 December 2014 for £150 and the net book value at 31 December 2015 was £150 (2014: £150).

15 Subsidiaries

The subsidiaries of Mortgage Advice Bureau (Holdings) Plc at the reporting date have been included in the consolidated financial statements. The subsidiaries are as follows: 

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

15 Subsidiaries (continued)

Mortgage Advice Bureau (Holdings) Plc holds 100% of the ordinary share capital of Mortgage Advice Bureau Limited and Talk Limited.

Mortgage Advice Bureau Limited holds 100% of the ordinary share capital of Mortgage Advice Bureau (Derby) Limited, Capital Protect Limited and MABWM Limited.

Talk Limited holds 100% of the ordinary share capital of Mortgage Talk Limited, L&P 137 Limited, Mortgage Talk (Partnership) Limited, Financial Talk Limited and Survey Talk Limited.

Mortgage Talk Limited holds 100% of the ordinary share capital of Loan Talk Limited.

L&P 137 Limited holds 100% of the ordinary share capital of L&P 134 Limited.

There are no restrictions regarding the utilisation of cash or other resources held by any subsidiary.

16 Trade and Other Receivables

Trade and other receivables are all current and the book value is the same as their fair value. Trade receivables are reviewed for impairment if they are past due and are not repaid within the terms of the contracts.

Trade receivables include advances granted to Appointed Representatives, which have contractual repayment terms. These advances are considered to be past due when there is a delinquency in interest or principal payments.

Also included in trade receivables are amounts due from Appointed Representatives relating to commissions that are refundable to the Group when policy lapses or other reclaims exceed new business. As these balances have no credit terms, the Board of Directors consider these to be past due if they are not received within seven days. In the management of these balances, the Directors can recover them from subsequent new business entered into with the Appointed Representative or utilise payables that are owed to the same counterparties and included within payables as the Group has the legally enforceable right of set off in such circumstances. These payables are considered sufficient by the Directors to recover receivable balances should they default, and, accordingly, credit risk in this respect is minimal.

In light of the above, the Directors do not consider that disclosure of an aging analysis of past due but not impaired receivables would provide useful additional information. The Group has not recognised a provision for impairment of these balances because there is no objective evidence that they are impaired. Further information on the credit quality of financial assets is set out in note 19.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

16 Trade and Other Receivables (continued)

A summary of the movement in the provision for the impairment of receivables is as follows:

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above less collateral held as security. Details of security held are given in note 19.

No other balances are past due or impaired.

17 Cash and cash equivalents

Bank balances held in relation to retained commissions are held to cover potential future lapses in Appointed Representatives commissions. Operationally the Group does not treat these balances as available funds. An equal and opposite liability is shown within Trade Payables (note 18).

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

18 Trade and Other Payables

Should a life policy be cancelled within four years of inception, a proportion of the original commission will be clawed back by the insurance provider. The majority of any such repayment is payable by the Appointed Representative. It is the Group's policy to retain a proportion of commission payable to the Appointed Representative to cover such potential future lapses; these sums remain a liability of the Group. This commission is held in a separate ring fenced bank account as described in note 17.

As at 31 December 2015 and 31 December 2014, the book value of trade and other payables approximates their fair value given that they are short term in nature.

Appointed Representatives retained commission is expected to be payable after more than one year. Other trade payables normally fall due within 30 to 60 days.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

19 Financial Instruments - risk management

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

· Credit risk

· Liquidity risk

· Interest rate 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.

Principal financial instruments

The Group does not issue or use financial instruments of a speculative nature. A summary of financial instruments held by category is provided below:

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

19 Financial Instruments - risk management (continued)

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group's risk management objectives and policies and designs and operates processes that ensure the effective implementation of the objectives and policies to the Group's finance function. The Board sets guidelines to the finance team and monitors adherence to its guidelines on a monthly basis.

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 competiveness and flexibility. Further details regarding these policies are set out below.

Credit risk

Credit risk is the risk of financial loss to the Group if a trading partner or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from loans to its trading partners. It is Group policy to assess the credit risk of trading partners before advancing loans or other credit facilities. Assessment of credit risk utilises external credit rating agencies. Personal guarantees are generally obtained from the directors of its trading partners.

Quantitative disclosures of the credit risk exposure in relation to financial assets are set out below. Further disclosures regarding trade and other receivables are given in note 16.

The carrying amounts stated above represent the Group's maximum exposure to credit risk for trade and other receivables. An element of this risk is mitigated by collateral held by the Group for amounts due to them.

Trade receivables consist of a large number of unrelated trading partners and therefore credit risk is limited. Due to the large volume of trading partners the Group does not consider that there is any significant credit risk as a result of the impact of external market factors on their trading partners. Additionally, within trade payables are amounts due to the same trading partners that are included in trade receivables; this collateral of £398,480 (2014: £258,753) significantly reduces the credit risk.

The Group's credit risk on cash and cash equivalents is limited because the Group places funds on deposit with several UK banks all of whom are A rated.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

19 Financial Instruments (continued)

Credit risk (continued)

During the year ended 31 December 2015 the loan outstanding to Client Data Systems Group Limited of £347,891 (2014: £347,891), a company in which Mortgage Advice Bureau Limited has a 7% shareholding was written off as it is not considered recoverable in the short term but recovery of the loan will continue to be pursued. The Group holds security against this balance but due to changes in market conditions the value of the security may be inadequate to cover the amount due and therefore the loan was fully provided for in the year to 31 December 2014.

Interest rate risks

The Group's interest rate risk arises from cash on deposit. The Group aims to maximise its return on cash on deposit whilst ensuring that cash is available to meet liabilities as they fall due. Current market deposit interest rates are minimal and therefore any fall in these rates is unlikely to have a significant impact on the results of the Group.

Foreign exchange risk

As the Group does not operate outside of the United Kingdom, it is not exposed to any foreign exchange risk.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and finance charges. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The Group's trade and other payables are repayable within one year from the reporting date.

The Board receives annual 12-month cash flow projections based on working capital modelling as well as information regarding cash balances monthly. At the end of the financial year, these projections indicated that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances. Additionally the Group has financial resource requirements set by its regulator, the Financial Conduct Authority. The Board has set a policy to ensure that adequate capital is maintained to ensure that these externally set financial resource requirements are exceeded at all times. Quarterly reports are made to the Financial Conduct Authority and submission is authorised by the Finance Director, at which time capital adequacy is re-assessed.

Capital management

The Group monitors its capital which consists of all components of equity (i.e. share capital, share premium, capital redemption reserve, share option reserve and retained earnings).

The Group's objectives when maintaining capital are

· To safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders.

· To ensure that capital is maintained at all times to ensure that financial resource requirements set by its regulator, the Financial Conduct Authority, are exceeded at all times.

· To ensure the Group has the cash available to develop the services provided by the Group to provide an adequate return to shareholders.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

20 Provisions

The provision relates to the estimated cost of repaying commission income received on life assurance policies that may lapse in the four years following issue. Provisions are held in the financial statements of three of the group's subsidiaries: Mortgage Advice Bureau Limited, Mortgage Advice Bureau (Derby) Limited and Mortgage Talk Limited. The exact timing of any clawbacks is uncertain and the provision was based on the directors' best estimate, using industry data where available, of the probability of clawbacks to be made.

21 Deferred Tax Liability

Deferred tax liability is calculated in full on temporary differences using a tax rate of 18% (2014: 20%). The reduction in the main rate of corporation tax as set out in note 9 has been applied to deferred tax balances which are expected to reverse in the future.

The movement in deferred tax is shown below:

The deferred tax balance is made up as follows:

Deferred tax liabilities have arisen due to capital allowances which have been received ahead of the depreciation charged in the accounts.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

22 Share Capital

On 6 May 2015, 48,000 ordinary shares of 0.1p each were purchased by the Company and cancelled for a consideration of £37,847.

23 Reserves

The following describes the nature and purpose of each reserve within equity:

There is no restriction on the distribution of retained earnings.

24 Leases

The total future value of minimum lease payments due under operating leases are as follows:

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

25 Retirement Benefits

The Group operates a defined contribution pension scheme for the benefit of its employees and also makes contributions to a self-invested personal pension ("SIPP"). The assets of the scheme and the SIPP are held separately from those of the Group in independently administered funds. The pension cost charge represents contributions payable by the Group to the fund and the SIPP and amounted to £112,658 (2014 - £112,123). Contributions totalling £20,023 (2014 ‑£15,717) were payable to the fund at the statement of financial position date and are included in other payables.

26 Related Party Transactions

At 31 December 2014 there was an amount of £1,000,000 due to the Group from HBB Bridging Loans Limited, a company in which S Blunt and D Preece are directors and shareholders and this amount was repaid in full during the year ended 31 December 2015. This loan was included in other receivables and was secured, by a fixed and floating charge over the assets of the company and personal guarantees from certain directors of HBB Bridging Loans Limited. The loan accrued interest at a rate of 9.5% per annum above RBS bank base rate.

The Group made purchases of £50,214 (2014: £45,283) and sales of £2,785 (2014: £2,606) to BriefYourMarket Limited. At 31 December 2015 there was an amount of £4,556 (2014: £4,627) included in trade and other payables due from the Group and £nil (2014: £521) included in trade receivables due to the Group from BriefYourMarket Limited, a company in which R Palmer, P Robinson and P Brodnicki are or were directors and are shareholders.

During the year the loan outstanding to Client Data Systems Group Limited of £347,891 (2014: £347,891), a company in which Mortgage Advice Bureau Limited has a 7% shareholding was written off as it is not considered recoverable in the short term but recovery of the loan will continue to be pursued. The loan was fully provided for in the year to 31 December 2014 and therefore the write off has had no impact on the accounts for the year ended 31 December 2015.

During the year the Group made purchases of sundry insurance from Astute Insurance Solutions Limited of £19,585 (2014: £5,514), a company in which P Robinson is a shareholder and was a director. There is no balance outstanding with Astute Insurance Solutions Limited at 31 December 2015 (2014: £nil).

During the year the Group received introducer fees of £22,121 (2014: £34,038) from Capital Private Finance Limited, an associated company. At 31 December 2015 there was no balance due from Capital Private Finance Limited (2014: £3,566 included in trade and other receivables).

At 31 December 2015 there was a loan outstanding from Pinnacle Surveyors (England & Wales) Limited an associated company, of £16,000 (2014: £15,000) included in trade and other receivables.

At 31 December 2015 there was a loan outstanding from Buildstore Limited, an associated company, of £100,000 (2014: £114,000) included in trade and other receivables.

During the year the Group received introducer commission from MAB Wealth Management Limited, an associated company of £6,147 (2014: £nil). There is no balance outstanding with MAB Wealth Management Limited at 31 December 2015 (2014: £nil).

During the year the Group received introducer commission from Sort Limited, an associated company of £21,004 (2014: £nil). There is no balance outstanding with Sort Limited at 31 December 2015 (2014: £nil).

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

26 Related Party Transactions (continued)

During the year the Group made purchases of £26,400 from Twenty7tec Limited (2014: £Nil). There is no balance outstanding with Twenty7tec Limited at 31 December 2015 (2014: £Nil). Twenty7tec Limited is a company in which Mortgage Advice Bureau Limited has a 0.05% shareholding and Peter Brodnicki, David Preece, Paul Robinson and other senior team employees collectively have a 9.9% shareholding.

During the year the Group received dividends from associated companies as follow:

27 Ultimate Controlling Party

There is no ultimate controlling party.

28 Share based payments

Mortgage Advice Bureau Executive Share Option Plan

The Group operates two equity-settled share based remuneration schemes for Executive Directors and certain senior management, one being an approved scheme, the other unapproved, but with similar terms. Half of the options are subject to a total shareholder return (TSR) performance condition and the remaining half are subject to an earnings per share (EPS) performance condition. The options in both schemes vest as follows:

For options outstanding at 1 January 2015:

· 25% based on performance to 31 March 2017, exercisable between that date and 11 November 2022,

· 25% based on performance to 31 March 2018, exercisable between that date and 11 November 2022,

· 25% based on performance to 31 March 2018, exercisable between 31 March 2019 and 11 November 2022,

· 25% based on performance to 31 March 2018, exercisable between 31 March 2020 and 11 November 2022,

Notes to the consolidated financial statementsfor the year ended 31 December 2014 (continued)

28 Share based payments (continued)

For options granted during the year:

· 25% based on performance to 31 March 2017, exercisable between that date and 19 May 2023,

· 25% based on performance to 31 March 2018, exercisable between that date and 19 May 2023,

· 25% based on performance to 31 March 2018, exercisable between 31 March 2019 and 19 May 2023,

· 25% based on performance to 31 March 2018, exercisable between 31 March 2020 and 19 May 2023,

The number and weighted average exercise prices (WAEP) of, and movements in, share options during the year for the Mortgage Advice Bureau Executive Share Option Plan:

On 20 May 2015, 75,342 options over ordinary shares of 0.1 pence each in the Company were granted to Lucy Tilley, Finance Director, under the Mortgage Advice Bureau Executive Share Option Plan. The exercise price of the options of 219p is equal to the average of the last three business days' closing price for the ordinary shares of the Company at the date of grant. The options are subject to the achievement of the performance conditions as set out in the Company's Admission Document dated 11 November 2014.

For the share options outstanding under the Mortgage Advice Bureau Executive Share Option Plan as at 31 December 2015, the weighted average remaining contractual life is 2.75 years (2014: 3.75 years).

The following information is relevant in the determination of the fair value of options granted during the year under the equity-settled share based remuneration scheme operated by the Group.

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

28 Share based payments (continued)

Expected volatility is a measure of an amount by which the share price is expected to fluctuate during a period. As the Company only listed in November 2014 there is insufficient historical data. We have therefore used a proxy volatility figure based on the median volatilities of dividend paying FTSE AIM 100 companies over each of the expected terms.

Dividends paid on shares reduce the fair value of an award as a participant does not receive the dividend income on these shares. For the share options granted during the year the stub dividend in respect of the period from Admission to 31 December 2014 has been annualised and divided by the share price at date of grant to give a dividend yield of 7.2%.

The Options offer participants the opportunity to benefit from increasing per share value without risking the current per share price. The risk-free rate used is the rate of interest obtainable from UK government securities as at the date of grant over the expected terms

The options granted this year have vesting periods of 1.86, 2.86, 3.86 or 4.87 years from the date of grant and the calculation of the share based payment is based on these vesting periods.

MAB AR Option Plan

During the year, the Group also granted 255,000 options over ordinary shares of 0.1 pence each in the Company on 21 May 2015 to a number of its Appointed Representatives. The Options were granted under the MAB AR Option Plan, as set out in the Company's Admission Document dated 11 November 2014. The exercise price for the Options is 0.01 pence per ordinary share (or, for any individual AR, not less than £1 on each occasion of exercise). Of the total number of options outstanding at 31 December 2015, none had vested. There were no options exercised during the year.

The number and weighted average exercise prices (WAEP) of, and movements in, share options during the year for the MAB AR Option Plan:

For the share options outstanding under the MAB AR Option Plan as at 31 December 2015, the weighted average remaining contractual life is 4.4 years (2014: nil).

Notes to the consolidated financial statementsfor the year ended 31 December 2015 (continued)

28 Share based payments (continued)

The following information is relevant in the determination of the fair value of options granted during the year under the equity-settled share based MAB AR Option Plan operated by the Group.