Mortgage Advice Bureau Regulatory News (MAB1)

19 March 2019

MORTGAGE ADVICE BUREAU (HOLDINGS) PLC

("MAB" or "the Group")

Final results for the year ended 31 December 2018

Mortgage Advice Bureau (Holdings) PLC (AIM: MAB1.L) is pleased to announce its final results for the year ended 31 December 2018.

Financial highlights

· Tenth consecutive year of strong revenue and profit growth

· Revenue up 13% to £123.3m (2017: £108.8m)

· Gross profit up 10% to £28.4m (2017: £25.9m)

· Gross margin of 23.1% (2017: 23.8%)

· Overheads ratio of 10.7% (2017: 10.9%)

· Profit before tax up 8% to £15.7m (2017: £14.5m)

· Profit before tax margin of 12.7% (2017: 13.4%)

· Basic EPS up 9% to 25.9p (2017: 23.8p)

· Continued high operating profit to adjusted cash conversion1 of 113% (2017: 109%)

· Proposed final dividend of 12.7p making proposed total ordinary dividends for the year of 23.3p (2017: 21.4p), up 9% (payout ratio of 90%)

Operational highlights

· Average number of Advisers in 2018 up 12% to 1,130 (2017: 1,008)

· Adviser numbers up 13% to 1,213 at 31 December 2018 (2017: 1,078)

· Revenue per Adviser up 1%2

· Gross mortgage lending arranged (including product transfers) up 18% to £14.0bn (2017: £11.9bn)

· Gross mortgage lending arranged with new lenders3 up 14% to £12.7bn (2017: £11.2bn4)

· Market share of new mortgage lending up 10% to 4.7% (2017: 4.3%5)

Post period end

· Adviser numbers have increased to 1,234 at 15 March 2019

Peter Brodnicki, Chief Executive commented:

 "I am delighted to report another set of strong results. Despite continued political uncertainty we have achieved robust growth in revenue, up 13% to £123m, which has translated into strong growth in EPS up 9% to 25.9p. Accordingly, the Board is pleased to propose the payment of an increased final dividend of 12.7p per share, making total proposed ordinary dividends for the year of 23.3p, up 9% on the prior year.

"MAB continues to deliver on its strategy to grow market share in all market conditions whilst maintaining a strong financial position. Our mortgage completions increased by 18% and our market share by 10%. We are pleased to have now completed the first development phase of our new platform, which we are commencing testing with a number of our business partners, before rolling out to the remainder of our firms over the course of this year.

"We are focused on delivering sustainable long-term growth and providing the best possible solutions and outcomes for our customers. We plan to continue growing our market share and mortgage completions, whilst leading the evolution of intermediary distribution that we expect to see over the coming years."

1 Adjusted cash conversion is headline cash conversion adjusted for increases in restricted cash balances of £2.3m in 2018 (2017: £1.5m) as a percentage of operating profit.

2 Based on Average number of Advisers

3'Gross mortgage lending arranged with new lenders' means either a new mortgage in connection with a house purchase or a re-mortgage with a different lender to the customer's existing lender

4 2017 figure re-stated to exclude Product Transfers of £0.7bn.

5 Headline cash conversion is cash generated from operating activities adjusted for movements in non-trading items including loans to Appointed Representative firms ("ARs") and loans to associates totalling £2.2m in 2018 (2017: £0.7m) as a percentage of operating profit.

Current Trading and Outlook

UK Finance predicts that new gross mortgage lending will rise to £278bn for 2019, indicating that the market is likely to be broadly similar in the near term. These figures exclude Product Transfers, and it has only been over the last year or so that the large lenders have engaged intermediaries to help them to retain their existing mortgage borrowers. The latest UK Finance statistics indicate that the product transfer market is likely to continue to increase from the c. £160bn for 2018.

Due to the uncertainty resulting from the extended Brexit negotiations current trading for our estate agency based ARs continues to be muted and similar to our experience towards the end of 2018. As a result we expect revenue per adviser to be broadly flat in 2019. Adviser numbers have continued to grow since the period end with the Group having 1,234 Advisers at 15 March 2019. We have good visibility that supports our anticipated growth in Adviser numbers from new ARs. The majority of our existing ARs have strong growth plans for 2019 and 2020, however those that operate primarily in the estate agency sector are tending to pause their expansion plans and delay filling vacancies. This will impact marginally upon our average Adviser figures for 2019. Due to the many initiatives that MAB has in place, we expect the growth in revenue per adviser and adviser growth to return to normal levels in 2020. These assumptions are based on no noticeable improvement in the housing market in 2019 and 2020.

When the political climate becomes clearer, we expect to see overall confidence return. At this point we should see the start of some pent-up demand in the housing market being released and our estate agency focused AR's responding in terms of delivering adviser growth. We are confident that our strategy, driven by our customers and their changing expectations, will continue to drive growth in MAB's market share year on year and deliver attractive returns to investors.

For further information please contact:

Analyst presentation

There will be an analyst presentation to discuss the results at 9:00am today at Numis Securities Limited, 10 Paternoster Square, London, EC4M 7LT.

Those analysts wishing to attend are asked to contact investorrelations@mab.org.uk

Copies of this final results announcement are available at www.mortgageadvicebureau.com/investor-relations

Chief Executive's Review

This has been a strong performance from MAB given the current confidence level in the UK economy. Revenue and profits have continued to increase, building on our consistent track record of delivering growth.

Our growth in mortgage lending arranged is set out below:

Total gross mortgage lending arranged (including Product Transfers) increased by 18% to £14.0bn (2017: £11.9bn). Gross mortgage lending arranged through new lenders1 increased by 14% to £12.7bn (2017: £11.2bn). This growth in purchase and re-mortgage lending takes our overall share of UK new mortgage lending up 10% to 4.7%, from 4.3% 2.

This growth was achieved in a weaker house purchase market during 2018. Although one or two segments of mortgage lending have risen during the year, overall housing transactions have reduced by 2.5%, hence our full year 2018 results represent a clear outperformance against the housing market.

Our fintech developments have progressed well. We are pleased to have completed the first development phase of our new platform, which we are commencing testing with a number of our business partners, before rolling out to the remainder of our firms over the course of this year. This new agile technology platform will provide our advisers with increased and improved interaction with mortgage customers, and, most importantly, ensure that those customers receive an even better mortgage and home-moving or re-mortgaging experience. As a result, in time we expect our new technology platform to ultimately deliver improvements in adviser productivity, as well as streamline processes within MAB, thereby delivering cost efficiencies and hence increased profitability.

We believe that our innovation and investment in technology will further differentiate us from our competitors, supporting adviser growth and improved profitability.

1 'Gross mortgage lending arranged with new lenders' means either a new mortgage in connection with a house purchase or a re-mortgage with a different lender to the customer's existing lender

2 2017 figure re-stated to exclude Product Transfers of £0.7bn.

Market environment

Housing transactions by volume overall for 2018 were 2.5% below 2017, having been 5% below in the prior comparative period to H1 2018. Overall house moves continue to be low versus historical averages and they remain in a flat, yet relatively stable, environment. The current house purchase market remains predominantly comprised of those moving home due to non-discretionary lifestyle factors, first time buyers and serious investors. There are multiple factors that contribute to this, including constrained affordability, increased levels of stamp duty for some, lack of available property to move to and, of course, an overall air of uncertainty caused by the current political environment. 

The national picture for mortgages shows that First Time Buyer activity was slightly up over the year and home-movers slightly down, effectively cancelling each other out overall. Buy to Let purchase has continued to slow, reflecting the taxation and other changes applied to landlords over the last few years. This slowdown is mirrored in a recent UK Residential Market Survey by the Royal Institute of Chartered Surveyors (January 2019), which shows an eleventh consecutive quarter of reductions in new instructions in the lettings sector.

We expect this prolonged period of lower housing transactions to contribute to the pent-up demand that at some point will need to be released, perhaps when consumer confidence returns.

Mortgage rates remain at or near record lows, meaning that although housing has become more expensive, servicing mortgage debt is cheap compared to previous decades. The low cost of borrowing, in conjunction with incentives for First Time Buyers such as the Help to Buy Scheme and lenders offering a wider range of products to First Time Buyers, mean that the mortgage market should continue broadly at its current run rate, regardless of the impact of the factors above.

Consumer awareness and increased competition amongst lenders have been the catalysts for a higher level of re-mortgaging, with both residential and buy to let re-mortgaging showing 13% and 12% increases respectively on 2017, as well as the emergence of more Product Transfers as customers lock in to new deals.

The UK Finance industry data on gross new mortgage lending excludes product transfers. As intermediaries start to build their share in the growing Product Transfer market, the latest UK Finance statistics indicate that the product transfer market is likely to continue to increase from the c. £160bn for 2018. As anticipated, Product Transfers typically deliver lower overall income per transaction compared to re-mortgages, with the impact of this partially offset by Product Transfers having a much lower dropout to completion and delivering banked income in a shorter timeframe. Product transfers present our Advisers with new opportunities for incremental customer interaction especially as MAB has historically been predominantly a house purchase focused model. We expect activity in this area to remain strong, and MAB is well positioned to capitalise on this development and grow its market share.

In terms of the national housing outlook, it is expected that in the near term transactions will remain suppressed across almost all parts of the UK, with some of the near term pessimism linked to the lack of clarity around the timing of the departure of the UK from the EU. Housing stock for sale is set to remain at or close to record lows. The twelve month outlook for house prices on a national level remains broadly flat. With the exception of London and the South East, prices are anticipated to at least hold steady across the other UK regions over this time horizon.

UK Finance predicts a broadly similar market for gross new mortgage lending (which excludes Product Transfers) for 2019. Intermediary market share1 has increased slightly to 74% for 2018. MAB and its non-estate agency based ARs' growth is not directly reliant on increasing housing transactions, property prices, or intermediary market share as our continued year on year growth demonstrates.

Looking ahead, we expect client fees to become increasingly dependent upon the type and complexity of the mortgage transaction, as well as the delivery channel. This will lead to a broader spread of client fees on mortgage transactions, which, by their nature, are our lowest margin revenue stream.

1 Excluding Buy To Let, where intermediaries have a higher market share, and Product Transfers, where intermediaries have a lower market share

Delivering on our strategy

Technology developments

Technology is integral to our business. Importantly, we are building our new technology platform to enhance the advice process and enable more choice for our customers in terms of how they research, receive advice and transact. Our platform is designed to improve the customer and adviser experience. We are designing this technology to create efficiencies for our ARs and MAB, to engage more customers earlier in the transaction process and to optimise management of national lead sources, as opposed to trying to build technology to replace advice.

We believe that full advice should and will remain of paramount importance to customers who are looking to make significant life decisions, like buying a home or protecting their home and family for example. We feel that technology should play a key role in helping customers to move home and re-mortgage more expediently.

In terms of our own technology progress, we are pleased to have completed the first development phase of our new platform, which we are commencing testing with a number of our business partners, before rolling out to the remainder of our firms over the course of this year.

Our new platform has been deliberately built to be agile, enabling us to continually evolve its overall shape, design and performance, driven by customer behaviour and expectations. We will continuously seek improvements and enhancements to the platform, thereby ensuring the adviser and customer experience can become the best it can potentially be. Our objective is to ensure we have a future proof business model that stays relevant to all customers regardless of how they want to research, receive advice and transact.

Through committing investment and focus towards this continuous project, we aim to have a platform that becomes best-of-breed in our market, enabling us to attract more firms and advisers into MAB, as well as helping customers to benefit from a more seamless and speedy home-buying and re-mortgage process.

This first phase of development is the beginning of our journey in achieving that. Some of the key benefits of this phase include supporting our lead generation and management strategy, introducing significant time saving efficiencies into the information gathering process and delivering live updates to our customers 24/7.

We expect our new technology platform to ultimately deliver improvements in adviser productivity, as well as streamline processes within MAB, thereby delivering cost efficiencies and hence increased profitability. Each phase of this new technology will further strengthen our unique business model.

Whilst we continue to prioritise, accentuate and support the value of advice from adviser to customer, we are also cognisant of wider technology changes, both in our market and in other sectors. We are alive to possible future changes in customer research and buying behaviour and need to be able to anticipate and react to change, as well as make the most of any associated new opportunities that might arise from change.

Looking to the future and new models that may emerge in the mortgage market, our technology is being built such that MAB will be agile in responding to all new models, driven by the way in which customers decide they want to research, receive advice and transact. We will be able to respond quickly and tailor solutions to their demands as well as apply these solutions cross border.

Through anticipating any potential market changes, we are positioning the business as well as we can do technologically, to capture increasing numbers of new customer-related opportunities. 

Driving income opportunities

In a market that remains challenged, with political and perhaps wider uncertainty, it is important for us to continue our emphasis on increasing our market share as well as focusing on wider Group success and profitability through new opportunities.

Broadening our addressable market

Currently MAB typically interacts with customers aged between 35 and 65 whilst they are buying their first homes and then moving and/or re-mortgaging. Many first time buyers have previously been renting properties between the ages of 20 and 35. Through our strong estate agency relationships we intend to nurture these customers at a younger age. We will provide protection solutions to tenants who rent pre home ownership, as well as to those renting on a permanent basis.

Additionally, we are looking to serve better our customers who are aged 60 and over. There is a new market segment that is emerging relating to lending into retirement, or, so-called 'Later Life Lending'. The most specialist part of this market is "Equity Release" where no repayments of capital or interest are made. Some lenders have already expanded their mortgage portfolios to also include interest only products that help customers to borrow money at older ages, and, also to borrow that money until they are much older. This relaxation or innovation is in response to demand from an ageing population, and those that want to provide intergenerational assistance to help family members to fund university or a first home for example.

It is estimated that Later Life Lending will represent c. £80bn of additional outstanding mortgage lending by 20271. It is also estimated that the housing wealth of the 'over-55s' is worth £2.5 trillion2. Again, the anticipated growth in this market presents MAB with incremental opportunities, as a direct result of a new and growing market segment which will be highly intermediated, with customers requiring full advice.

1 Centre for Economics and Business Research and more 2 life

2 Swiss Re Term and Health Watch 2017

Extending product portfolio

Currently MAB is typically involved in the 'middle part' of the home-moving process, whereas we aim ultimately to be involved from start to finish. MAB intends to become far more involved in the home moving experience as a whole. In the medium term, we intend to expand our involvement beyond the mortgage transaction, through vertical integration with the ultimate aim of using technology to assist in the whole home moving process for a customer, and increasing the footprint of our services for homeowners as well as home movers thereby adding further customer value. We will explore how best to integrate this into our mortgage and protection process.

We continue to nurture and grow our portfolio of investments, with a view to helping them become more meaningful to MAB, both from a financial perspective and in terms of where and how they fit into the MAB business model.

For example, new business levels through our conveyancing platform business Sort Refer have continued to rise, as they also have in our surveying business Pinnacle Surveyors. We see it as increasingly important to broaden our home-moving related presence and join all elements of the customer journey together, enhancing our overall proposition and customer experience, and our investments in these two businesses echo both our desire and success in that regard.

Protection

We take pride not just in helping customers with securing their new mortgage borrowing, but importantly we seek to provide customers with appropriate and adequate protection and insurance against both unforeseen and tragic circumstances.

The consistency of protection offerings in the mortgage market can vary widely. Over the course of the last year we have been embedding protection more deeply into our technology driven processes, and have built such processes to help ensure that protection opportunities are not missed. In addition to this, we have implemented centralised internal outsourcing solutions for our customers where their needs are best served by a different MAB adviser. 

Firstly, this is to ensure that all MAB customers receive a consistent experience regardless of which adviser they meet with, and secondly through making this more integral to the mortgage process, we ensure that all customers with a genuine protection need are offered the chance to take out adequate cover, thereby protecting their most important assets, namely their homes and families.

This change has helped us to maintain healthy margins over a period in time when there has been downward pressure arising from a slowdown in housing transactions and more of a move towards Product Transfer business.

Product Transfers and Re-mortgages

Our success with Product Transfers lags the market average for intermediaries due to MAB historically being primarily a purchased focused model. Our technology developments this year will start to impact positively on our penetration rate of these opportunities and we expect to steadily increase our share of this market segment.

Overseas expansion

We continue to test and learn overseas, through our business in Australia. Currently, we do not use MAB's bespoke technology in this market, and we expect to launch our new technology platform in Australia in 2020. A clear strategy to escalate growth has been agreed and the delivery of MAB's new technology platform will allow market share growth to escalate at a far faster rate in 2020 and beyond, as well as allow MAB to explore other potential cross border opportunities in the medium term.

Summary

This has been another strong performance from MAB given the current confidence level in the UK economy. We have a lot of positive initiatives and new processes designed to ensure that we continue to grow our market share and profitability at a time when wider market conditions remain somewhat muted and in some ways uncertain. Our investment in new technology will enable us to continue our growth through the recruitment of new partner firms and advisers. Our aim is to attract more firms, through the provision of best-of-breed technology, services and business support. We want to work with firms that want to work and grow with MAB, and provide customers with the best possible advice and experience.

We continue to invest and focus our efforts in keeping MAB at the forefront of change, especially technological change. We intend to have the best proposition for our advisers and we will continue to help them to provide the best possible experience to their customers. We will also continue investing in building our MAB brand, and provide support in lead generation to help our AR firms and advisers to grow their businesses and market share further.

This virtuous circle is the model we back and support, in order to continue our track record of success, with technology very much leading the way. We intend to balance investing in new technology and driving new income opportunities, whilst continuing to deliver strong financial results.

MAB has made (and continues to develop) several key strategic investments and considers new opportunities that arise, as and when they are deemed to clearly support, enhance and accelerate our agenda of increasing our market share and profitability. Whilst our investments to date have been relatively modest in size, we will consider making larger investments to help accelerate the development of our customer and adviser proposition, lead generation and distribution.

Business Review of the Year

I am pleased to report further strong growth in revenue of 13% to £123.3m with profit before tax rising by 8% to £15.7m. MAB's gross mortgage lending (including product transfers) increased by 18% to £14.0bn in 2018 (2017: £11.9bn) with the average number of Advisers increasing by 12%. MAB's overall share of UK new mortgage lending increased by 10% to 4.7% (2017: 4.3%1).

1 2017 figure re-stated to exclude Product Transfers of £0.7bn.

Industry data and trends

Gross new mortgage lending activity in 2018 grew by 4% to £268bn (2017: £258bn). UK Finance estimates new mortgage lending of £278bn in 2019; indicating the market is likely to be broadly similar in the near term. The UK Finance industry data on gross new mortgage lending excludes Product Transfers. As intermediaries start to build their share in the growing Product Transfer market, the product transfer market is likely to continue to increase from the c. £160bn for 2018 indicated by the latest UK Finance statistics.

UK property transactions by volume for 2018 were c. 2.5% lower than in 2017, with transactions in H1 2018 being 5% lower than H1 2017, and transactions in H2 2018 being 1% lower than H2 2017, as shown in the graph below.

http://www.rns-pdf.londonstockexchange.com/rns/2209T_1-2019-3-18.pdf 

Source: HM Revenue and Customs

11% increases in both residential and buy to let re-mortgage volumes combined with property inflation of 3%1 offset the slight fall in property transactions and led to an increase in UK gross new mortgage lending for the year of 4%, as illustrated in the graph below.

 1 Land Registry House Price Index

http://www.rns-pdf.londonstockexchange.com/rns/2209T_2-2019-3-18.pdf

Source: UK Finance Regulated Mortgage Survey (excludes product transfers with the same lender), Bank of England, UK Finance BTL data (used for further analysis)

UK gross mortgage lending in 2018 for home-owner purchases (including first time buyers) and remortgages grew by 2% and 13% respectively. UK gross mortgage lending in 2018 for BTL remortgages increased by 12%, with BTL purchases reducing by 15%.

Approximately 74% of UK mortgage transactions (excluding buy to let, where intermediaries have a higher market share, and Product Transfers where intermediaries have a lower market share) were via an intermediary in 2018 which is materially the same as 2017. MAB expects this position to remain broadly stable going forward.

Financial review

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

http://www.rns-pdf.londonstockexchange.com/rns/2209T_3-2019-3-18.pdf

Revenue

Revenue increased by 13% to £123.3m (2017: £108.8m). A key driver of revenue is the average number of Advisers during the period. Our business model continues to attract forward thinking ARs who are seeking to expand and grow their own market share. Average adviser numbers increased by 12% to 1,130 (2017: 1,008) due to a combination of expansion by existing ARs and the recruitment of new ARs.

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

MAB's revenue, in terms of proportion, is split as follows:

All income sources continued to grow with the average number of Advisers in the period increasing by 12% on last year, with a 1% increase in average revenue per adviser.

With gross mortgage lending arranged (including Product Transfers) increasing by 18% for the year, mortgage procuration fees increased by 20%. The increase of 10% in protection and general insurance commission reflects a reduction in the proportion of our residential purchase business, resulting from reduced house purchase transactions, and an increase in re-mortgaging and Product Transfers which have lower protection attachment rates. Client fees rose by 5% in the year, reflecting the increase in re-mortgaging and Product Transfers over the comparative period, where a client fee is less likely to be charged.

The effect of increased re-mortgaging and Product Transfers translates into the revenue mix which has skewed more in favour of procuration fees in 2018.

Looking ahead, we expect client fees to become increasingly dependent upon the type and complexity of the mortgage transaction, as well as the delivery channel. This will lead to a broader spread of client fees on mortgage transactions, which, by their nature, are our lowest margin revenue stream.

Gross profit margin

Gross profit margin for the year was 23.1% (2017: 23.8%) partly due to the revenue mix being less in favour of protection resulting from a reduction in house purchase mortgages and an increase in re-mortgages and Product Transfers. The Group typically receives a slightly reduced margin as its existing ARs grow their revenue organically through increasing their Adviser numbers. In addition, larger new ARs typically join the Group on lower than average margins due to their existing scale, which therefore impacts upon the Group's gross margin.

Going forward, we expect to see some further erosion of gross profit margin due to the continued growth of our existing ARs and the addition of new larger ARs.

Overheads

Overheads as a percentage of revenue were 10.7% (2017: 10.9%). This reduction in overheads as a percentage of revenue results from the scalable nature of the majority of the cost base as well as our regulatory costs being broadly consistent with the prior year due to a change in FSCS charging periods this year to realign with the FCA financial year, offset by increased IT costs as indicated.

Certain costs, primarily those relating to compliance personnel, which represent approximately 20% 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 balance of our compliance costs mainly relate to FCA and FSCS regulatory fees and charges. The FCA have now confirmed that pure protection intermediation has moved from the Life and Pensions Intermediation funding class of FSCS to the General Insurance Distribution funding class to ensure a fairer distribution of levies. Due to these changes we believe there won't be more than a modest increase in our FCA and FSCS fees in 2019. The majority of the remainder of MAB's costs typically rise at a slower rate than revenue which will, in part, counter the expected erosion of gross margin as the business continues to grow.

As a result of MAB's IT plans, and as previously indicated, we expect our amortisation on IT capital expenditure and IT costs to increase by a modest amount. All development work on MIDAS Pro is treated as revenue expenditure.

Profit before tax and margin thereon

Profit before tax rose by 8% to £15.7m (2017: £14.5m) with the margin thereon being 12.7% (2017: 13.4%).

Net finance revenue 

Net finance revenues of £0.08m (2017: £0.04m) reflect continued low interest rates. 

Taxation

The effective rate of tax fell to 15.9% (2017: 17.2%), principally due to the tax deduction arising following the exercise of the second tranche of employee share options since IPO. Going forward we expect our effective tax rate to be marginally below the prevailing UK corporation tax rate subject to tax credits for MAB's research and development expenditure on our continued development of MIDAS Pro, MAB's proprietary software, still being available and further tax deductions arising from the exercise of share options.

Earnings per share and dividend

Earnings per share rose by 9% to 25.9 pence (2017: 23.8 pence).

The Board is pleased to propose a final dividend for the year ended 31 December 2018 of 12.7 pence per share (2017: 11.9 pence per share), amounting to a cash cost of £6.5m. Following payment of the dividend, the Group will continue to maintain significant surplus regulatory reserves. This proposed final dividend represents circa 90% of the Group's post-tax profits for H2 2018 and reflects our ongoing intention to distribute excess capital. MAB requires circa 10% of its profit after tax to fund increased regulatory capital and other regular capital expenditure.

The record date for the final dividend is 26 April 2019 and the payment date is 24 May 2019. The ex-dividend date will be 25 April 2019.

Cash flow and cash conversion

The Group's operations produce positive cash flow. This is reflected in the net cash generated from operating activities of £14.9m (2017: £14.5m).

Headline cash conversion (1) was:

The Group's operations are capital light with our most significant ongoing capital investment being in computer equipment. Only £0.8m of capital expenditure on office and computer equipment and software licences was required during the period (2017: £0.2m). Group policy is not to provide company cars, and no other 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 2018 (2017: £nil) with unrestricted bank balances of £13.9m (31 December 2017: £13.2m).

The Group has a regulatory capital requirement amounting to 2.5% of regulated revenue. At 31 December 2018 this regulatory capital requirement was £2.8m (31 December 2017: £2.5m), with the Group having a surplus of £12.0m.

The following table demonstrates how cash generated from operations was applied:

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

1 Headline cash conversion is cash generated from operating activities adjusted for movements in non-trading items including loans to Appointed Representative firms ("ARs") and loans to associates totalling £2.2m in 2018 (2017: £0.7m) as a percentage of operating profit.

2Adjusted cash conversion is headline cash conversion adjusted for increases in restricted cash balances of £2.3m in 2018 (2017: £1.5m) as a percentage of operating profit.

Current Trading and Outlook

UK Finance predicts that new gross mortgage lending will rise to £278bn for 2019, indicating that the market is likely to be broadly similar in the near term. These figures exclude Product Transfers, and it has only been over the last year or so that the large lenders have engaged intermediaries to help them to retain their existing mortgage borrowers. The latest UK Finance statistics indicate that the product transfer market is likely to continue to increase from the c. £160bn for 2018.

Due to the uncertainty resulting from the extended Brexit negotiations current trading continues to be muted for our estate agency based ARs and similar to our experience towards the end of 2018. As a result we expect revenue per adviser to be broadly flat in 2019. Adviser numbers have continued to grow since the period end with the Group having 1,234 Advisers at 15 March 2019. We have good visibility that supports our anticipated growth in Adviser numbers from new ARs. The majority of our existing ARs have strong growth plans for 2019 and 2020, however those that operate primarily in the estate agency sector are tending to pause their expansion plans and delay filling vacancies. This will impact marginally upon our average Adviser figures for 2019. Due to the many initiatives that MAB has in place, we expect the growth in revenue per adviser and adviser growth to return to normal levels in 2020. These assumptions are based on no noticeable improvement in the housing market in 2019 and 2020.

When the political climate becomes clearer, we expect to see overall confidence return. At this point we should see the start of some pent-up demand in the housing market being released, and our estate agency focused AR's responding in terms of delivering adviser growth. We are confident that our strategy, driven by our customers and their changing expectations, will continue to drive growth in MAB's market share year on year and deliver attractive returns to investors.

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

Opinion

We have audited the financial statements of Mortgage Advice Bureau (Holdings) plc (the "parent company") and its subsidiaries (the 'group') for the year ended 31 December 2018 which comprise the consolidated statement of comprehensive income, the consolidated and company statement of financial position, the consolidated and company statement of changes in equity, the consolidated and company statement of cash flows and notes to the financial statements, including a summary of significant accounting policies.

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 the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard in the United Kingdom and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion:

• the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 31 December 2018 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 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.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's or the parent company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements.

We determined materiality for the parent company to be £218,000 (2017: £192,000) which represents 5% of net assets. We have used net assets as the parent company acts as a holding company only. We have then set the performance materiality at 75% (2017:75%) due no identified misstatements in the past.

We agreed with the audit committee that we would report to the committee all individual audit differences identified during the course of our audit in excess of £15,000 (2017: £14,000) for the group and £4,000 (2017: £4,000) for the parent company. We also agreed to report differences below these thresholds that, in our view warranted reporting on qualitative grounds.

An overview of the scope of our audit

Our audit approach was scoped by obtaining an understanding of the Group's activities, the key functions undertaken by the Board and the overall control environment. Based on this understanding we assessed those aspects of the Group's transactions and balances which were most likely to give rise to a material misstatement at a Group level.

The audit of the Group was conducted by BDO LLP directly at Group level as the Group's accounting system records all transactions as a Group with each transaction marked with a company code to enable financial statements to be produced for each subsidiary when required. The audit of the parent company was conducted by BDO LLP after its financial statements were deconsolidated from the Group accounting system.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

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

• adequate accounting records have not been kept, 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.

Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

This report is made solely to the parent 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 parent 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 parent company and the parent company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Leigh Treacy (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

London

18 March 2019

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 2018

The notes that follow form part of these financial statements.

Consolidated statement of financial positionas at 31 December 2018

The notes that follow form part of these financial statements.

The financial statements were approved by the Board of Directors on

P Brodnicki L TilleyDirector Director

Consolidated statement of changes in equityfor the year ended 31 December 2018

The notes that follow form part of these financial statements

Consolidated statement of cash flowsfor the year ended 31 December 2018

The notes that follow form part of these financial statements

Notes to the consolidated financial statementsfor the year ended 31 December 2018

1 Accounting policies

Basis of preparation

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

The consolidated financial statements are presented in Great British Pounds, which is also the Group's functional currency. All amounts are rounded to the relevant thousands, unless otherwise stated.

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 (EU) (EU "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 EU 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 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 £15.6m during 2018 (2017: £14.5 million) and had net current assets of £10.3m at 31 December 2018 (31 December 2017: £9.3m) and equity attributable to owners of the Group of £20.7m (31 December 2017: £18.2m).

After making enquiries, the Directors have a reasonable expectation that the Group has 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 accounting policies

New standards, interpretations and amendments effective for the year ended 31 December 2018

The Group applied IFRS 9 for the first time. The nature and the effect of the changes as a result of adoption of this new accounting standard are described below.

Several other standards and interpretations apply for the first time in 2018 but do not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

· IFRS 9 Financial Instruments.  

The adoption of IFRS 9, which replaces IAS 39 Financial Instruments: Recognition and Measurement from 1 January 2018 has impacted its consolidated financial statements in one key area:

The Group has applied an expected credit loss model when calculating impairment losses on its trade and other receivables and its cash and cash equivalents. This resulted in increased impairment provisions and greater judgement due to the need to factor in forward looking information when estimating the appropriate amount of provisions. In applying IFRS 9, the Group has considered the probability of a default occurring over the contractual life of its trade and other receivables on initial recognition of those assets. Under the new model applied to all trade and other receivables, the amount of impairment losses as at 1 January 2018 was not material. In accordance with the provisions of IFRS 9, an impairment provision of £0.3m as at 31 December 2018 has been recognised in the consolidated financial statements in respect of loans to associated companies.

The Group has chosen not to restate comparatives on adoption of IFRS 9 and, therefore, this change has been processed at the date of initial application (i.e. 1 January 2018), and presented in the statement of changes in equity for the year to 31 December 2018.

· IFRS 15 Revenue from Contracts with Customers. This 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. This standard did not have any impact on the Group.

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services.

Due to the nature of the revenue of the Group there is no impact on the Group.

· IFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2. This standard addresses three main areas: the effects of vesting conditions on the measurement of cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash-settled to equity-settled. These amendments did not have any impact on the Group.

New standards, interpretations and amendments not yet effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

· IFRIC Interpretation 23 - Uncertainty over income tax treatments. The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 (Income taxes) and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The interpretation specifically addresses the following:

§ Whether an entity considers uncertain tax treatments separately

§ The assumptions an entity makes about the examination of tax treatments by taxation authorities

§ How an entity determines taxable profit (tax loss), tax basis, unused tax losses, unused tax credits and tax rates

§ How an entity considers changes in facts and circumstances.

An entity must determine whether to consider each uncertain tax treatment separately or together with one or more uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Group will apply this interpretation and it may affect its consolidated financial statements and the required disclosures.

In addition, the Group may need to establish processes and procedures to obtain information that is necessary to apply the Interpretation on a timely basis.

· Amendments to IFRS 10 and IAS 28: Sale or contribution of Assets between an Investor and its Associate or Joint Venture. The amendments address the conflict between IFRS 10, Consolidated Financial Statements and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors' interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. The Group will apply these amendments when they become effective.

· Amendments to IAS 28: Long-term interests in associates and joint ventures.The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in IFRS 9 applies to such long-term interests.

The amendments also clarified that, in applying IFRS 9, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on the net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from applying IAS 28 Investments in Associates and Joint Ventures.

The amendments should be applied retrospectively and are effective from 1 January 2019, with early application permitted. The Group will apply these amendments when they become effective.

Annual Improvements 2015-2017 Cycle (issued in December 2017)

· IFRS 3 Business Combinations. The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation.

An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. These amendments will apply on future business combinations of the Group.

· IFRS 11 Joint Arrangements. A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3. The amendments clarify that the previously held interests in that joint operation are not remeasured.

An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. These amendments are currently not applicable to the Group but may apply to future transactions.

· IAS 12 Income Taxes. The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events.

An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted. When an entity first applies those amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of the earliest comparative period. Since the Group's current practice is in line with these amendments, the Group does not expect any effect on its consolidated financial statements.

Current versus non-current classification

The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is:

· Expected to be realised or intended to be sold or consumed in the normal operating cycle

· Held primarily for the purpose of trading

· Expected to be realised within twelve months after the reporting date.

All other assets are classified as non-current.

Assets included in current assets which are expected to be realised within twelve months after the reporting date are measured at fair value which is their book value. Fair value for investments in unquoted equity shares is the net proceeds that would be received for the sale of the asset where this can be reasonably determined.

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.

Associates

Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated statement of financial position at cost. Subsequently associates are accounted for using the equity method, where the Group's share of post-acquisition profits and losses and other comprehensive income is recognised in the consolidated statement of profit and loss and other comprehensive income (except for losses in excess of the Group's investment in the associate unless there is an obligation to make good those losses).

Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the associate.

Any premium paid for an associate above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. Where there is objective evidence that the investment in an associate has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

Joint ventures

The Group accounts for its interests in joint ventures in the same manner as investments in Associates (i.e. using the equity method).

Any premium paid for an investment in a joint venture above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in joint venture. Where there is objective evidence that the investment in a joint venture has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

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 their 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.

Goodwill

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, the website and software 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 or expected useful life of the asset and is charged once the asset is in use. 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 and on the website and software at 33.3% 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.

Impairment charges are included in profit or loss except to the extent that they reverse gains previously recognised in other comprehensive income. An impairment loss for goodwill is not reversed.

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, and these assets arise principally to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision 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.

Impairment provisions for loans to associates are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

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

Financial liabilities

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.

Revenue

Revenue comprises commissions, client fees and other income. Commissions and client fees 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. 

Finance income

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

Foreign exchange

Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.

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.

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.

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 estimates and judgements that have the most significant effect on the carrying amounts of assets and liabilities within the financial statements are set out 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 12.

(b) Impairment of trade and other receivables

Judgement is required when determining if there is any impairment to the trade and other receivable balances, and the Group is using the simplified approach for trade receivables within IFRS 9 using the lifetime expected credit losses. During this process judgements about the probability of the non-payment of the trade receivables are made.

In considering impairment provisions for loans to associates the forward looking expected credit loss model used. In determining the lifetime expected credit losses for loans to associates, the Group has had to consider different scenarios for repayments of these loans and have also estimated percentage probabilities assigned to each scenario for each associate where applicable. More information is included in note 15.

(c) Clawback Provision

The provision relates to the estimated value of repaying commission received up front 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 19.

(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.

 (e) Deferred tax assets

Deferred tax assets include temporary differences related to the issue and exercise of share options. Recognition of the deferred tax assets assigns an estimate of proportion of options likely to vest and assumes share options will have a positive value at the date of vesting, which is greater than the exercise price. The carrying amount of deferred tax assets at 31 December 2018 was £0.8m (2017: £0.9m).

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:

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 executive and non-executive directors' remuneration, were as follows:

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 2 directors (2017: 1) in respect of defined contribution pension schemes.

The total amount payable to the highest paid director in respect of emoluments was £498,834 (2017: £598,738). The value of the Group's contributions paid to a defined contribution pension scheme in respect of the highest paid director amounted to £nil (2017: £nil).

7 Finance income

8 Income Tax

For the year ended 31 December 2018 the deferred tax charge relating to unexercised share options, recognised in equity was £184,671 (2017: credit £799,387).

Changes in the taxation rate

Legislation to reduce the main rate of corporation tax to 19% from 1 April 2017 and to 17% from 1 April 2020 has been enacted and so the deferred tax balance has been calculated at 17% (2017: 17%).  

9 Earnings Per Share

Basic earnings per share are calculated by dividing net profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.

The share data used in the basic and diluted earnings per share computations are as follows:

10 Dividends

The record date for the final dividend is 26 April 2019 and the payment date is 24 May 2019.The ex-dividend date will be 25 April 2019.

11 Property, Plant and Equipment

12 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 2018 concluded that there had been no impairment of goodwill.

The Board considers that it has only one operating segment and one cash-generating unit (CGU). Goodwill arose on the acquisition of Mortgage Talk Limited and has since been allocated to the single CGU of the group. Impairment testing for the CGU is carried out by determining recoverable amount on the basis of a value in use, which is then compared to the carrying value of the assets of the CGU including goodwill. The value in use that has been determined exceeds the carrying value of the CGU and therefore no impairment of 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.

13 Investments in Associates and Joint Venture

Investment in Associates and Joint Venture 

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

The reporting date for the Group's associates, as listed in the table above, is 31 December and their country of incorporation is England and Wales. The reporting date for the Group's joint venture, MAB Broker Services PTY Limited, is 30 June and its country of incorporation is Australia.

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

The Group is entitled to 49% of the results of 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 45% of the results of MAB Broker Services PTY Limited by virtue of its 45% equity stake, 35% of the results of Freedom 365 Mortgage Solutions Limited by virtue of its 35% equity stake, 25% of the results of Buildstore Limited and Clear Mortgage Solutions Limited by virtue of its 25% equity stakes, 20% of the results of Vita Financial Limited by virtue of its 20% equity stake, and 33.33% of the results of Eagle and Lion Limited by virtue of its 33.33% equity stake.

The Group is entitled to 43.25% of the results of Sort Group Limited by virtue of its 43.25% equity stake. Mortgage Advice Bureau Limited's effective holding in Sort Limited, Sort Legal Limited and Sort Technology Limited is now 32.5%, 36.8% and 41.1% respectively.

The carrying value of the Group's joint venture, MAB Broker Services PTY Limited, at 31 December 2018 is £nil (2017: £nil). In the period ended 30 June 2018, MAB Broker Services PTY reported a loss of AUD0.6m (2017: AUD0.5m).

Acquisitions and disposals

2018: The Group acquired a 33.33% interest in Eagle and Lion Limited on 15 October 2018 at a cost of £131,460. In accordance with IFRS 9 the Group increased the value of investments by £133,324 to reflect the present value adjustment to an interest free loan.

2017: The Group acquired a further 10% interest in Sort Group Limited on 20 November 2017 at a cost of £183,817.

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:

All associates prepare their financial statements in accordance with FRS 102 other than MAB Broker Services PTY Limited who prepare their financial statements in accordance with the Australian Accounting Standards. There would be no material difference to the accounts of any of the associates if these were prepared in accordance with 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.

14 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: 

The registered office for all of the subsidiaries of Mortgage Advice Bureau (Holdings) plc, as listed in the table above, is Capital House, Pride Place, Pride Park, Derby, DE24 8QR, United Kingdom, other than for the two subsidiaries incorporated in Australia for which the registered office is Norton Rose Fulbright, Level 18, 225 George Street, Sydney, NSW 2000, Australia.

Mortgage Advice Bureau Australia (Holdings) PTY Limited has a 100% equity stake in Mortgage Advice Bureau PTY Limited and also a 45% equity stake in MAB Broker Services PTY Limited.

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, MABWM Limited and Mortgage Advice Bureau Australia (Holdings) PTY 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.

15 Trade and Other Receivables

The carrying value of trade and other receivables classified at amortised cost approximates fair value.

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision 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. At 31 December 2018 the lifetime expected loss provision for trade receivables is £0.3m. The movement in the impairment allowance for trade receivables has been included in cost of sales in the consolidated statement of comprehensive income.

Impairment provisions for loans to associates are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised. In determining the lifetime expected credit losses for loans to associates, the Directors have considered different scenarios for repayments of these loans and have applied percentage probabilities to each scenario for each associate where applicable.

At 31 December 2018 the lifetime expected loss provision for loans to associates is £0.3m. One of these receivables has been subject to a significant increase in credit risk since initial recognition and, consequently, lifetime expected credit losses have been recognised. For the remainder, 12 month expected credit losses have been recognised. (There are no non-current receivable balances lifetime expected credit losses.)

The movement in the impairment allowance for receivables for loans to associates has been included in cost of sales in the consolidated statement of comprehensive income.

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 trade and other receivables would provide useful additional information. Further information on the credit quality of financial assets is set out in note 18.

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 18.

No other balances are past due or impaired.

16 Cash and cash equivalents

Bank balances held in relation to retained commissions earned on an indemnity basis in relation to life policies 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 and other payables (note 17).

17 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 16.

As at 31 December 2018 and 31 December 2017, the carrying value of trade and other payables classified as financial liabilities measured at amortised cost approximates fair value.

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.

18 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:

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 competitiveness 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 15.

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 not concentrated. 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 £825,357 (2017: £520,789) 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 or BBB+ rated where applicable.

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 and has only one investment outside the UK, it is not exposed to any material foreign exchange risk.

Liquidity risk

Liquidity risk arises from the Group's management of working capital. 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 and the contractual undiscounted cash flow analysis for the Group's trade and other payables is the same as their carrying value.

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.

19 Provisions

The provision relates to the estimated cost of repaying commission income received upfront on life assurance policies that may lapse in the four years following issue. Provisions are held in the financial statements of two of the group's subsidiaries: Mortgage Advice Bureau Limited and Mortgage Advice Bureau (Derby) 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.

20 Deferred Tax

Deferred tax is calculated in full on temporary differences using a tax rate of 17% (2017: 17%). The reduction in the main rate of corporation tax as set out in note 8 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: