Mortgage Advice Bureau Regulatory News (MAB1)

MORTGAGE ADVICE BUREAU (HOLDINGS) PLC

("MAB" or "the Group")

28 March 2022

Final Results for the year ended 31 December 2021

Mortgage Advice Bureau (Holdings) PLC (AIM: MAB1.L) is pleased to announce its final results for the year ended 31 December 2021.

Financial highlights

Operational highlights

Post period end

Peter Brodnicki, Chief Executive, commented:

"I am delighted to report another strong year where we achieved revenue growth of 27% to £188.7m, and adjusted EPS growth of 30% to 37.1p. Our mortgage completions increased by 33%, with growth fuelled by strong consumer demand for housing and mortgage products as well as the stamp duty holiday. Accordingly, the Board is pleased to propose the payment of an increased final dividend of 14.7p per share, making a total proposed dividend for the year of 28.1p, up 46% on the prior year(6).

"We believe the investments made during 2021 are of exceptional quality and together with those that have been maturing in recent years, will contribute strongly and significantly enhance MAB's ability to achieve our accelerated growth plans.

"The addition of Fluent will be transformational for MAB's national lead generation strategy. Fluent is a market leader in centralised telephony advice and we are confident that the competitive advantage from leveraging the reputation of both businesses, together with combined resources to service rapidly increasing lead generation, will enable the Enlarged Group to grow this new market share opportunity quickly and effectively.

"We have started 2022 with a pronounced increase in adviser numbers and a strong and growing pipeline of new business, ARs, advisers and customer lead sources supporting our plans to secure further profitable growth."

Current Trading and Outlook

The Group has started 2022 with a strong pipeline of written business and adviser recruitment. Refinancing activity remains positive and demand for housing continues to be very strong, with an increasing number of property instruction driving greater activity levels.

Gross new mortgage lending in 2021 increased to £313bn (2020: £283bn), driven by a very strong purchase market. UK Finance currently estimates gross new mortgage lending in 2022 will be £281bn, increasing to £313bn in 2023.

Current trading is in line with the Board's expectations, which were revised upwards in March 2021. The acquisition of Fluent is expected to be significantly earnings enhancing in the first full year following completion, and together with MAB's maturing and new growth drivers will position the enlarged Group to further accelerate its pace of growth.

For further information please contact:

Numis Securities Limited Tel: +44 (0)20 7260 1000

Stephen Westgate / Giles Rolls

Media Enquiries: investor.relations@mab.org.uk

Analyst presentation

There will be an analyst presentation to discuss the results at 9:30am on Tuesday 29 March 2022.

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

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

1 Percentage points.

2 MAB uses adjusted results as key performance indicators as the Directors believe that these provide a more consistent measure of operating performance by adjusting for acquisition related charges and significant one-off or non-cash items. The overheads ratio in 2020 and 2021 is adjusted for £0.4m amortisation of acquired intangibles (2019: £0.2m). In 2021, the overheads ratio is also adjusted for £1.0m of additional non-cash operating expenses relating to the put and call option agreement to acquire the remaining 20% of First Mortgage (2020: £0.9m, 2019: £0.4m). In 2019, adjusted overheads ratio is also stated before £0.4m of costs associated with the acquisition of First Mortgage.

3 Adjusted profit before tax is stated before the items in (2) above, £0.3m of non-cash fair value gains on financial instruments in 2021 and the loan write off and loan provision totalling £1.7m in 2020. Adjusted earnings per share is stated on the same basis, net of any associated tax effects.

4Net revenue is revenue less commissions paid. MAB acquired First Mortgage on 2 July 2019. As the Group retains 100% of revenue for First Mortgage, this calculation is rebased thereafter.

5 Adjusted cash conversion is cash generated from operating activities adjusted for movements in non-trading items, including loans to AR firms and associates totalling £(0.7)m in 2021 (2020: £(1.5)m; 2019: £0.9m), and increases in restricted cash balances of £2.4m in 2021 (2020: £0.6m; 2019: £2.2m), as a percentage of adjusted operating profit.

6 For 2021, proposed final dividend per share of 14.7p. The 2021 interim dividend per share was 13.4p. The 2020 final dividend included a 6.4 pence per share "catch up" dividend from 2019, which has been adjusted out of 2020 and in to 2019 to show more appropriate comparisons. The dividend payout in 2021, 2020 and H2 2019 was circa 75% of profit after tax and minorities adjusting for the non-cash items set out in (2) and (3) above ; H1 2019 was 90%.

7 Includes a total of 47 advisers at 31 December 2021 who are either directly authorised or later life advisers. The directly authorised advisers are employees of a firm previously authorised under an Appointed Representative agreement with MAB until 7 December 2020. MAB continues to provide services to this firm, which is now directly authorised by the FCA. For both later life and directly authorised advisers the fees received by MAB represent the net income received by MAB as there are no commission payouts made by MAB. Also includes 64 advisers from associates, who are in the process of being onboarded under MAB's AR arrangements. These advisers will shortly become mainstream advisers. Until these 64 advisers become onboarded fully as mainstream advisers, MAB currently only recognises its share of profit after tax from these associates.

8 Excludes directly authorised advisers, later life advisers, and advisers from associates in the process of being onboarded under MAB's AR arrangements. In 2020 advisers on furlough were not included.

9 Based on average number of mainstream advisers.

10 2021 mortgage completions include completions from associates in the process of being onboarded under MAB's AR arrangements. 2020 market share and gross mortgage completions re-stated to exclude completions from a firm previously authorised under an Appointed Representative agreement with MAB and that became directly authorised in December 2020.

11 Acquisition of Project Finland Topco Limited, of which The Fluent Money Group Ltd is a wholly-owned subsidiary.

Chief Executive's Review

I am very pleased with MAB's record performance in 2021. The Group achieved revenue of £188.7m for the period, a 27% increase on 2020 (£148.3m), which was impacted by the Covid-19 pandemic, and a 31% increase compared to 2019 (£143.7m). The Group's adjusted PBT rose 36% to £24.2m compared to 2020 (£17.8m) and 30% compared to 2019 (£18.7m).

The Group's mortgage completions also increased to record levels, as set out below:

UK gross new mortgage lending activity (excluding product transfers) in 2021 rose by 27% to £313.2bn compared to 2020, which was affected by the closure of the housing market in Q2 2020, and by 17% compared to 2019. The increase in home-mover activity was particularly pronounced, largely driven by changing working and living patterns and the stamp duty holiday.

The Group's gross mortgage completions (including Product Transfers) rose to £22.8bn, a 33% increase compared to 2020, and a 42% increase compared to 2019. Our market share of UK new mortgage lending increased by 3% to 6.3% (2020: 6.1%(1)), with our H2 2021 market share exceeding 7.0%.

Recruitment activity was strong during the period, with adviser numbers up 19% to 1,885, despite the regulatory approval of new AR firms taking longer than in previous years and hence delaying our growth in Adviser numbers.

1 2021 mortgage completions include completions from associates in the process of being onboarded under MAB's AR arrangements. 2020 mortgage completions re-stated to exclude completions from a firm previously authorised under an Appointed Representative agreement with MAB that became directly authorised in December 2020.

Delivering our growth strategy

Investment strategy

Our investments play a key part in our plans for accelerated growth and are an integral part of our lead generation strategy. First Mortgage Direct and Fluent, are two exceptional businesses that provide MAB with specialist expertise, which alongside our key AR partners, will place MAB in a market leading position to handle national lead sources of scale.

Our investment in Meridian Holdings Group Limited ("Meridian") in 2020, followed by investments in Evolve FS Ltd ("Evolve Financial Solutions") and Heron Financial Limited in 2021 plus the acquisition of Metro Finance Brokers Ltd by Meridian, have put MAB in an equally strong position in terms of new build, with these firms rapidly growing market share. Combined with our existing specialist firms, MAB now has a standout national new build proposition, supported by technology that has been built to the requirements of developers and brokers in this sector.

The average adviser productivity of our invested businesses in 2021 was over 25% higher than our other ARs, and we expect this to increase further as a result of the high quality investments completed during the year. Productivity improvements benefit MAB's overall overheads ratio, and importantly also impact more significantly the profitability of our AR firms, including those that MAB has invested in. Strong, guaranteed customer lead flow supports productivity, profitability and scalability, and our recent investments have significantly enhanced the Group's ability to achieve our accelerated growth plans, and further strengthen MAB's market position.

Fluent is a leader in centralised telephone mortgage advice, with MAB having also targeted this fast-growing sector, by using technology to seamlessly link MAB's key AR partners and invested firms, to deliver a best-in-class telephone advice service able to scale significantly. Combined, Fluent and MAB can grow this new market share opportunity quickly and effectively, complementing the local/regional strategy delivered by the rest of the Group's growing distribution.

Although the contribution from some of our smaller historic investments, including our joint venture in Australia, has taken time to build, these investments are starting to mature. Our investment strategy in the last few years has focused on further strengthening our new build proposition and market share, and ensuring we have the expertise and scale to establish a market leading position in the national lead source sector, which is a major new market share opportunity for MAB.

We expect the additional lead flow MAB can generate for its invested-in business, combined with its existing growth trajectory, strong protection success, and growing productivity per adviser, will result in a significant contribution to profit growth over the next five years.

Customer lead generation

MAB continues to grow in its core markets of estate agency and new build, with technology developments, such as our Homebuyer App, enabling MAB to generate additional customer lead opportunities from data when a referral is not actually made by a builder or an estate agent.

There is a significant opportunity to generate lead flow digitally, and really leverage the extensive estate agency and new build firm partnerships that we have. In addition, our new technology initiatives will allow us to access new and untapped opportunities from landlords and tenants.

We have completed our initial pilot studies, and expect this incremental lead flow from existing lead sources to start being realised in 2023. We also expect MAB's retention rate of existing customers to be positively impacted by the launch of our new platform functionality.

In 2021 MAB secured its first national lead sources, Money Supermarket, Boomin, and Lifetime ISA provider, Beehive. Technology integrations and pilot studies have been completed with these exceptional businesses, and lead flow will start to build this year, with more high-quality partnerships currently onboarding. Combined with the rapid growth of Fluent in this sector, we expect to see this new lead flow for MAB start to come through in H2 2022 and build strongly in 2023.

As part of MAB's wider protection strategy, we intend to extend Vita Financial Limited's proposition into a wider addressable market, to fully leverage its expertise which is currently focused on supporting MAB's ARs.

MAB's policy is not to authorise advisers in Secured Personal Loans, Commercial, or Bridging Finance, with ARs currently referring this business to a number third party providers. We plan to open up these sectors to specialist advisers by the year end, generating more focus and opportunity on lead flow. This will be further strengthened by Fluent, which already provides advice and delivers strong margins in these specialist areas.

New lead initiatives are also being tested in the existing specialist sectors of Equity Release and Wealth (pension and investments). We expect these initiatives to increase productivity and adviser growth in these areas in H2 2022 and into 2023

Adviser growth

Adviser growth will continue to be a major focus, boosted by the need to service new lead flow, whilst using technology to help maximise opportunities from existing customers and lead sources. The addition of new customer lead flow into the ARs we have invested in, plus our other key AR firms, will further help organic growth and adviser retention.

Further investments and acquisitions will continue to add to adviser numbers alongside organic growth and new firm recruitment, with some of our existing firms making their own strategic acquisitions to achieve their respective growth ambitions.

With increasing expectations from the regulator, more directly authorised firms are seeking greater support from a strategic partner like MAB. We expect the recruitment of growth driven firms to remain strong, supported by the continued development of our technology platform.

Summary

With technology now a serious enabler for MAB, the management team further strengthened, and some strategically important investments made, the Board expects MAB to build a market leading position over the next five years, with an uplift in profits that reflects this.

Our technology and the exceptionally high calibre investments we have made, are major drivers of our lead generation strategy. Combined, they support adviser performance and market share growth, enabling MAB to benefit fully from productivity gains.

Although consumer demand for property and refinancing remains very high, MAB has historically delivered growth in all market conditions. The strategy we are now delivering, underpins our ability to achieve accelerated growth and a market leading position.

Market review

In 2021, strong consumer demand, coupled with the stamp duty holiday, generated high levels of purchase activity in the housing market and stimulated the overall demand for mortgages.

With the stamp duty holiday originally set to end on 31 March 2021, and then extended to 30 June 2021, the housing market saw particularly high levels of activity in the run up to those dates. In H1 2021, housing transactions increased by 104% compared to H1 2020, which was affected by the closure of the housing market during Q2 2020, and 52% compared to H1 2019.

As anticipated, housing market activity softened in H2 2021 following the tapering down of the stamp duty holiday until 30 September 2021 and its removal thereafter. Overall, housing transactions in 2021 increased by 43% and 26% compared to 2020 and 2019 respectively. This is illustrated in the graph below.

http://www.rns-pdf.londonstockexchange.com/rns/2931G_3-2022-3-28.pdf

Source: HM Revenue and Customs

Gross new mortgage lending activity saw a similar trend in 2021. In the first half of the year, gross new mortgage lending (excluding product transfers) increased by 60% and 37% compared to H1 2020 and H1 2019 respectively. Home-mover lending values grew by 132% and 70% compared to H1 2020 and H1 2019 respectively, largely driven by changing working and living patterns. Buy-to-let purchase lending values also saw significant growth of 121% and 81% compared to H1 2020 and H1 2019 respectively, with the stamp duty holiday providing a compelling stimulus in that segment. The demand from first time buyers was also strong, with mortgage lending increasing by 75% and 29% compared to H1 2020 and H1 2019 respectively in that segment.

The gross new mortgage lending market softened in H2 2021. Residential and buy-to-let purchase values decreased by 4% compared to H2 2020 (increase of 5% compared to H2 2019). External re-mortgage lending values increased by 16% compared to H2 2020 and decreased by 13% compared to H2 2019. 

Overall, gross new mortgage lending activity (excluding Product Transfers) in 2021 rose by 27% to £313.2bn compared to 2020 and 17% compared to 2019. This was driven by a strong purchase market, with residential and buy-to-let purchase lending values increasing by 47% and 40% compared to 2020 and 2019 respectively.

Re-financing activity remained steady, driven by Product Transfers. Product Transfer lending values increased by 10% and 11% compared to 2020 and 2019 respectively. External Re-mortgage lending values decreased by 1% and 17% compared to 2020 and 2019, as lenders and intermediaries applied maximum focus towards the exceptionally busy housing market. New refinancing activity increased in H2 as expected, but much of this activity won't complete until 2022.

The trends in gross new mortgage lending are illustrated in the graph below.

http://www.rns-pdf.londonstockexchange.com/rns/2931G_2-2022-3-28.pdf

Source: UK Finance

The increase in average house prices in 2021 was 10% compared to 2020 and 13% compared to 2019, but these house price increases did not fully feed through to higher average new mortgage values due to the lack of availability of high loan to value mortgages through much of the year.

Approximately 80% of UK residential 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 intermediaries in 2021 (2020: 79%). MAB expects this position to remain broadly stable in the near term.

UK Finance's current estimate of gross new mortgage lending in 2022 is £281bn, representing a 10% reduction versus 2021 and with higher levels of refinancing forecast. For 2023, UK Finance currently estimates that gross new mortgage lending will increase back to £313bn.

Despite an increasing inflation environment and geopolitical uncertainty, consumer demand for housing and mortgages remains strong. We are confident that this, coupled with lenders' high liquidity levels and a return of higher loan to value products to near pre-pandemic levels, will continue to drive sustained transaction activity in the mortgage market in the short and medium term.

1 Land Registry House Price Index

Financial review

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

http://www.rns-pdf.londonstockexchange.com/rns/2931G_1-2022-3-28.pdf

Revenue

The Group achieved revenue of £188.7m for the year ended 31 December 2021. This represents a 27% increase on 2020 (£148.3m), and a 31% increase compared to 2019. The increase in revenue since 2020, which was impacted by the pandemic, is driven by the combination of a 13% increase in the average number of active mainstream advisers(1) to 1,649 (2020: 1,455) and a 12% increase in revenue per active mainstream adviser.

The increase in revenue since 2019 is driven by the combination of a 23% increase in the average number of mainstream advisers(1) to 1,649 over the two-year period (2019: 1,341) and a 7% increase in revenue per mainstream adviser.

The Group continued to generate revenue from three core areas, with all key income sources continuing to grow strongly. These are summarised as follows:

In the first half of the year, MAB's banked mortgage mix saw a higher proportion of purchase business compared to the prior year, and versus H1 2019. Strong underlying demand, combined with the various stamp duty incentives, were in marked contrast to the prior year, when the first national lockdown severely restricted the completion of purchase transactions.

In the second half of the year, and with the final element of stamp duty relief coming to an end on 30 September 2021, MAB's banked mortgage mix saw an increased proportion of re-financing transactions compared to the first half of the year, in part driven by a high level of fixed interest rates on consumers' current mortgages coming to an end and also by the prospect of rising interest rates. Banking for purchase related mortgages was again slower than historical averages, as lenders operated with reduced and stretched operations, and significantly increased new business volumes. Additionally, an overall lack of property stock for sale meant that housing chains took longer to complete.

Mortgage procuration fees increased by 27% with gross mortgage completions increasing by 29%(2), with an increased proportion of product transfers. MAB's average mortgage size increased by 4% compared to prior year, driven by the increase in house prices in the period. The average mortgage size in the year however did not rise at an equivalent level to house price growth due to the lack of availability of high loan to value mortgages throughout much of the year.

With mortgage completions increasing by 29%(2), protection and general insurance commission increased by 28% and client fees increased by 22% for the year.

MAB's overall revenue from refinancing (including both Re-mortgages and Product Transfers) represented circa 25% (2020: 32%, 2019: 31%) of total revenue for the year with a particularly high level of purchase transactions during the year.

The proportion of revenue derived from each of the Group's core revenue streams has remained relatively stable, despite the short-term impact of the stamp duty changes during the year, as summarised below.

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 are our lowest margin revenue stream.

Gross profit margin

Gross profit margin remained stable at 27.0% (2020: 26.9%). The Group typically receives a slightly reduced margin (revenue share) 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 and hence we expect to see a slight degree of erosion of our underlying gross profit margin due to the continued growth of our existing ARs and the addition of new larger ARs. MAB expects the slight erosion in its underlying gross margin to be countered by the reduction in its overheads ratio.

MAB continues to provide services to a firm previously authorised under an Appointed Representative agreement until 7 December 2020 but now directly authorised by the FCA. As a result, going forward, the fees received by MAB represent the total income in respect of this arrangement. No commission will be paid out by MAB to this firm as it receives its income direct. The effect of this is to slightly increase the gross profit margin.

Overheads

Overheads increased by £6.4m to £29.2m, reflecting MAB's continued investment in growth, and specifically in its technology platform and its marketing team through a mix of employee and third party costs, which drives lead generation opportunities. Head office costs, including those of First Mortgage, also increased to support the Group's continued growth. All development work on MAB's MIDAS Pro platform is expensed. Adjusted(3) overheads as a percentage of revenue were 14.8% (2020: 14.5%).

Our FCA and FSCS regulatory fees and charges are usually closely correlated to growth in revenue. MAB had expected its FSCS levy cost for the period from 1 April 2021 to 31 March 2022 to be significantly higher than in the prior year, due to increased business failures caused by the pandemic, an increase in complex pension advice claims and further failures of SIPP operators. The reaction of other mortgage intermediaries to this unfair allocation of levies was widely reported in trade media and MAB supported the challenge made by the Association of Mortgage Intermediaries (AMI), the trade association that represents the views and interests of UK mortgage brokers, so that future levies could become better signposted and fairer. In November 2021, FSCS confirmed that the levy costs that firms in the Home Finance category would bear would not be significantly higher than in the prior year.

MAB continues to benefit from the scalable nature of most of its cost base, where those costs typically rise at a slower rate than revenue, which will, in part, counter the expected slight erosion of MAB's underlying gross margin as the business continues to grow.

Associates and Investments

MAB's share of profits from Associates was £1.0m (2020: £0.04m) with the majority of the Group's Associates performing strongly during the year. In addition, we realised our minority investment in the sales progression platform Yourkeys Technology Ltd, making a profit of £0.3m, and further impaired the value of the investment in The Mortgage Broker Group Limited by £0.4m.

MAB made a number of key investments during the year with £5.0m invested in Associates and £2.5m in a minority interest in Boomin, and has also accounted for £2.2m in deferred consideration in respect of the investments made in Associates during the year.

MAB considers that the value of a number of these investments exceeds their balance sheet value as accounted for using the equity accounting method under IAS 28.

Profit before tax and margin thereon

Adjusted(3) profit before tax rose by 36% to £24.2m (2020: £17.8m), with the margin thereon increasing to 12.8% (2020: 12.0%). Statutory profit before tax rose by 56% to £23.2m (2020: £14.9m) with the margin thereon increasing to 12.3% (2020: 10.0%).

Adjusted(3) profit before tax as a percentage of net revenue(4) was 40.5% (2020: 37.9%).

Finance revenue 

Finance income of £0.05m (2020: £0.1m) reflects continued low interest rates and interest income accrued on loans to associates. Finance expense of £0.2m (2020: £0.2m) reflects the interest expense on lease liabilities and the non-utilisation fee payable on MAB's previous Revolving Credit Facility of £12m. MAB did not draw down its £12m Revolving Credit Facility during the year having repaid it in full on 23 December 2020.

Taxation

The effective rate of tax increased to 16.9% (2020: 14.0%), principally due to the deduction arising from the exercise of employee and Appointed Representative share options being greater in the prior year. We expect our effective tax rate to continue to be marginally below the prevailing UK corporation tax rate, subject to tax credits for MAB's research and development expenditure on the continued development of the MIDAS Platform, MAB's proprietary software, still being available and further tax deductions arising from the exercise of employee share options.

Earnings per share and dividend

Adjusted(4) earnings per share increased by 30% to 37.1 pence (2020: 28.6 pence). Basic earnings per share increased by 49% to 35.2 pence (2020: 23.7 pence).

The Board is pleased to propose a final dividend of 14.7 per share (2020: 19.2 pence), which represents a cash outlay of £7.8m on the existing issued share capital prior to the placing. Following payment of the dividend, the Group will retain significant surplus regulatory reserves. The proposed final dividend represents circa 75% of the Group's adjusted(5) post-tax and minority interest profits for H2 2021 and reflects our ongoing intention to distribute excess capital in line with our previously announced dividend policy. The final dividend for 2020 represented circa 75% of the Group's adjusted(5) post-tax and minority interest profits for the whole of 2020 as no interim dividend was paid in respect of the post-tax and minority interest profits generated in H1 2020. 

The record date for the final dividend will be 29 April 2022 and the payment date 30 May 2022. The ex-dividend date will be 28 April 2022.

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 £26.9m (2020: £17.8m).

The Group's operations are capital-light, with the most significant ongoing capital investment being in computer equipment. Only £0.2m of capital expenditure on office and computer equipment was required during the year (2020: £0.3m). Group policy is not to provide company cars, and no other significant capital expenditure is foreseen in the coming year other than with regards to MAB's head office facilities in Derby. 

The Group had no bank borrowings on 31 December 2021 (2020: £nil). The Group had unrestricted bank balances of £17.5m on 31 December 2021 (31 December 2020: £18.6m).

The Group has a regulatory capital requirement amounting to 2.5% of regulated revenue. On 31 December 2021 this regulatory capital requirement was £4.3m (31 December 2020: £3.4m), with the Group having a surplus of £18.9m (31 December 2020: £17.1m).

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

1 Excludes directly authorised advisers, later life advisers, and advisers from associates in the process of being onboarded under MAB's AR arrangements. In 2020 advisers on furlough were not included.

2 Stated before completions from associates in the process of being onboarded under MAB's AR arrangements to produce more appropriate comparisons against revenue metrics.

3 In 2021 and 2020 adjusted for £0.4m amortisation of acquired intangibles. In 2021, adjusted for £1.0m of additional non-cash operating expenses relating to the put and call option agreement to acquire the remaining 20% of First Mortgage (2020: £0.9m), £0.3m of non-cash fair value gains on financial instruments in 2021 and the loan write off and loan provision totalling £1.7m in 2020.

4 Net revenue is revenue less commissions paid. MAB acquired First Mortgage on 2 July 2019. As the Group retains 100% of revenue for First Mortgage, this calculation is rebased thereafter.

5Adjusted for the items in (2), net of any associated tax effects.

6 Headline cash conversion is cash generated from operating activities adjusted for movements in non-trading items, including loans to AR firms and associates totalling £(0.7)m in 2021 (2020: £(1.5)m), as a percentage of adjusted operating profit. 

7 Adjusted cash conversion is headline cash conversion adjusted for increases in restricted cash balances of £2.4m in 2021 (2020: £0.6m) as a percentage of adjusted operating profit.

Independent auditor's report to the members of Mortgage Advice Bureau (Holdings) PLC

Opinion on the financial statements

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 2021 and of the Group's profit for the year then ended;

• the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards;

• 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.

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 2021 which comprise the consolidated statement of comprehensive income, consolidated and company statement of financial position, consolidated and company statement of changes in equity, consolidated 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 UK adopted international accounting standards. 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).

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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to the audit committee.

Independence

Following the recommendation of the Audit Committee we were appointed by the Board to audit the financial statements for the year ended 31 December 2014 and subsequent financial periods. In respect of the year ended we were appointed at the Annual General Meeting on 25 May 2021 to audit the financial statements for the year ended 31 December 2021. The period of total uninterrupted engagement is 8 years, covering the years ended 31 December 2014 to 31 December 2021.

We remain 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 public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by that standard were not provided to the Group or the Parent Company.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors' assessment of the Group's and the Parent Company's ability to continue to adopt the going concern basis of accounting included:

· In evaluating whether the Group is a going-concern, we have assessed the reasonableness of the assumptions within the Directors' forecast for liquidity and profitability for a period of 12 months from the signing of these accounts, agreeing back to supporting evidence. This involved considering the base and stress scenarios testing undertaken by management to support the Going concern assessment which included assumptions about the potential impact this could have on revenue (mainly from purchase mortgages) and possible cost saving measures. We focused on the cash and capital position during this period.

· We have also searched publicly available information on the housing market and house price index to assess any impact on the Group's business.

· We assessed how the Directors have factored in inflationary pressures and the potential impact of the Ukraine/Russia conflict on the business, checking these had been appropriately considered as part of the Directors' going concern assessment.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's and the Parent Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.

Overview

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group's system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.

The Group is made up of the parent company and its wholly owned subsidiaries. The significant components are the parent company, MAB Limited and MAB Derby Limited. These three components were subject to full scope audits performed by the Group audit team. In respect of the non-significant components the Group audit team carried out specific procedures on balances that we identified as material to the Group.

Key audit matters

Key audit matters are those matters that, in our professional judgement, 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) that 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.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:

Component materiality

We set materiality for each component of the Group based on a percentage of 75% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality is set at £689,000 (2020: £603,000).

Reporting threshold

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £18,000 (2020: £16,000) for the Group and £4,000 (2020: £4,000) for the parent company. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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.

Other Companies Act 2006 reporting

Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.

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.

Extent to which the audit was capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates and considered the risk of acts by the Group which would be contrary to applicable laws and regulations, including fraud. These included but were not limited to compliance with the Financial Conduct Authority ("FCA") regulations, FCA Mortgage Advice and Selling Standards and tax legislation.

We assessed the susceptibility of the financial statements to material misstatement, including fraud and considered the fraud risk areas to be management override of controls and in relation to accounting estimates such as revenue recognition and the clawback provision. See Key Audit Matters above.

We focused on laws and regulations that could give rise to a material misstatement in the company financial statements. Our tests included, but were not limited to:

· reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and regulations discussed above;

· enquiring of management and the audit committee;

· performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;

· reading minutes of meetings of those charged with governance and correspondence with the Financial Conduct Authority;

· in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments;

· assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and

· evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.

A further description of our responsibilities is available 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.

Ariel Grosberg (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

London, UK

Consolidated statement of comprehensive incomefor the year ended 31 December 2021

All amounts shown relate to continuing activities.

The notes that follow form part of these financial statements.

Consolidated statement of financial positionas at 31 December 2021

The notes that follow form part of these financial statements.

The financial statements were approved by the Board of Directors on 28 March 2022.

P Brodnicki L TilleyDirector Director

Consolidated statement of changes in equity

for the year ended 31 December 2021

Consolidated statement of cash flows

for the year ended 31 December 2021

The notes that follow form part of these financial statements

Notes to the consolidated financial statementsfor the year ended 31 December 2021

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 and all amounts are rounded to the relevant thousands, unless otherwise stated.

These financial statements have been prepared in accordance with UK adopted International Accounting Standards that are applicable to companies that prepare financial statements in accordance with IFRSs.

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

The financial statements have been prepared on a historical cost basis, except for investments in non-listed equities and derivative financial instruments relating to investments in associates that have been measured at fair value.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report as set out earlier in these financial statements. 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 £23.3m during 2021 (2020: £15.0m) and had net current assets of £8.3m as at 31 December 2021 (31 December 2020: £14.6m) and equity attributable to owners of the Group of £38.8m (31 December 2020: £35.6m).

Going concern

The Directors have assessed the Enlarged Group's prospects until 31 December 2023, taking into consideration the current operating environment, including the impact of recently increased geopolitical and macroeconomic uncertainty and inflationary pressures on property and lending markets. The Directors' financial modelling considers the Enlarged Group's profit, cash flows, regulatory capital requirements, borrowing covenants and other key financial metrics over the period.

These metrics are subject to sensitivity analysis, which involves flexing a number of key assumptions underlying the projections, including the effect of recently increased geopolitical and macroeconomic uncertainty and inflationary pressures and their impact on the UK property and lending markets and the Group's revenue mix, which the Directors consider to be severe but plausible stress tests on the Enlarged Group's cash position, banking covenants and regulatory capital adequacy. The Group's financial modelling shows that the Enlarged Group should continue to be cash generative, maintain a surplus on its regulatory capital requirements and be able to operate within its current financing arrangements.

Based on the results of the financial modelling, the Directors expect that the Enlarged Group will be able to continue in operation and meet its liabilities as they fall due over the 12 months from the approval of the financial statements. Accordingly, the Directors continue to adopt the going concern basis for the preparation of the financial statements.

Changes in accounting policies

New standards, interpretations and amendments effective for the year ended 31 December 2021

New standards, interpretations and amendments applied for the first time

The Group applied a number of standards and interpretations for the first time in 2021 but these did 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.

New standards with no impact on the Group

· Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform - Phase 2. Under the detailed rules of IFRS 9 Financial Instruments, modifying a financial contract can require recognition of a significant gain or loss in the consolidated statement of comprehensive income. However, the amendments introduce a practical expedient if a change results directly from IBOR reform and occurs on an 'economically equivalent' basis. In these cases, changes will be accounted for by updating the effective interest rate. The Group does not have any interest rate hedge relationships.

· Amendments to IFR16 - Covid 19 related rent concessions beyond 30 June 2021. In March 2021, the IASB amended IFRS 16 Leases, extending the practical expedient to permit lessees to apply it to rent concessions for which reductions in lease payments affect payments originally due on or before 30 June 2022. This amendment is applicable for annual reporting periods beginning on or after 1 April 2021, with early application permitted. The Group did not receive any rent concessions beyond 30 June 2021.

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.

Future new standards and interpretations

A number of new standards and amendments to standards and interpretations will be effective for future years and, therefore, have not been applied in preparing these consolidated financial statements. At the date of authorisation of these Financial Statements, the following standards and interpretations were in issue but have not been applied in these Financial Statements as they were not yet effective:

Other than to expand certain disclosures within the Financial Statements, the Directors do not expect the adoption of these standards and interpretations listed above to have a material impact on the Financial Statements of the Group in future periods.

Current versus non-current classification

The Group presents assets and liabilities in the consolidated 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 are expected to be realised within twelve months after the reporting date. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables approximates their fair value.

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 consolidated 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 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. More information on the impairment of associates is included in note 2.

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 the 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 5 years

Computer equipment 3 years

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 software, customer contracts and trademarks and are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the consolidated 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 intangible assets to write off the cost of each asset on a straight line basis over its expected useful life as follows:

Licences 6 years

Website and Software 3 years

Customer contracts 9 years

Trademarks 10 years

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 tested annually for impairment or 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 into one of the following categories dependent on the purpose for which the financial asset was acquired.

· Fair value through profit or loss

· Amortised cost

Loans and trade receivables

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 and other parties 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

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

Investments in non-listed equity shares

Investments in non-listed shares are non-derivative financial assets, and are carried at fair value, with gains and losses arising from changes in fair value taken directly to the consolidated statement of comprehensive income.

Derivative financial instruments

Derivative financial instruments comprise option contracts to acquire additional ordinary share capital of associates of the Group. Derivative financial instruments are carried at fair value, with gains and losses arising from changes in fair value taken directly to the consolidated statement of comprehensive income. Fair values of derivatives are determined using valuation techniques, including option pricing models.

Financial liabilities

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

Leases

The Group's leasing activities and how they are accounted for

The Group leases a number of properties from which it operates. Rental contracts are typically made for fixed periods of five to ten years, with break clauses negotiated for some of these.

Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices.

The Group adopted the modified transition approach and from 1 January 2019, all leases are accounted for by recognising a right of use asset and a corresponding liability at the date at which the leased asset is available for use by the Group, except for:

· leases of low value assets; and

· leases with a duration of 12 months or less

Payments associated with short-term leases and leases of low value assets will continue to be recognised on a straight line basis as an expense in the consolidated statement of comprehensive income. Low value assets within the Group comprise of IT equipment.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

· fixed payments (including in-substance fixed payments), less any lease incentives receivable;

· variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date; and

· payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the Group's incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right of use asset in a similar economic environment with similar terms, security and conditions.

To determine the incremental borrowing rate, the Group:

· where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;

· where it does not have recent third party financing, the Group uses a build-up approach that

starts with a risk-free interest rate adjusted for credit risk for leases held by the Group; and

· makes adjustments specific to the lease, e.g. term, country and security.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right of use assets are measured at cost comprising the following:

· the amount of the initial measurement of lease liability,

· any lease payments made at or before the commencement date less any lease incentives

received, and

· any initial direct costs.

Right of use assets are depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. The Group does not revalue its land and buildings that are presented within property, plant and equipment, and has chosen not to do so for the right of use buildings held by the Group.

Variable lease payments

The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right of use asset.

Three property leases contain variable lease payments linked to current market rental from January 2023, August 2023 and December 2024. A 1% fluctuation in market rent would impact total annual lease payments by approximately £16,000.

Extension and termination options

Termination options are included in a number of the leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group's operations. The majority of termination options held are exercisable only by the Group and not by the respective lessor.

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

For leases of property, the following factors are normally the most relevant:

· If there are significant penalties to terminate, the Group is typically reasonably certain not to terminate.

· If any leasehold improvements are expected to have a significant remaining value, the Group is typically reasonably certain not to terminate.

· Otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset. Most extension options in offices have not been included in the lease liability, because the Group could replace the assets without significant cost or business disruption.

As at 31 December 2021, the carrying amounts of lease liabilities are not reduced by the amount of payments that would be avoided from exercising a break clause because it was considered reasonably certain that the Group would not exercise its right to break the lease. Total lease payments of £0.7m are potentially avoidable were the Group to exercise break clauses at the earliest opportunity.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with the changes in fair value recognised in the statement of profit or loss in accordance with IFRS 9. Other contingent consideration that is not within the scope of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognised in profit or loss.

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units).

Where goodwill has been allocated to the Group's cash-generating units (CGUs) and part of the operation within the unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash generating unit retained.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the subsequent acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss.

Where a business combination is for less than the entire issued share capital of the acquiree and there is an option for the acquirer to purchase the remainder of the issued share capital of the business and/or for the vendor to sell the rest of the entire issued share capital of the business to the acquirer, then the acquirer will assess whether a non-controlling interest exists and also whether the instrument(s) fall within the scope of IFRS 9 Financial Instruments and is/are measured at fair value with the changes in fair value recognised in the statement of profit or loss in accordance with IFRS 9.

Options that are not within the scope of IFRS 9 and are linked to service will be accounted for under IAS 19 Employee Benefits and/or IFRS 2 Share Based Payments as appropriate.

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 consolidated 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 (see note 2c).

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

The Group recognises revenue from the following main sources:

• Mortgage procuration fees paid to MAB by lenders via the L&G Mortgage Club.

• Insurance commissions from advised sales of protection and general insurance policies

• Client fees paid by the underlying customer for the provision of mortgage and protection advice

• Other Income comprising income from services provided to directly authorised entities, fees in relation to Later Life lending and Wealth and ancillary services such as conveyancing and surveying

Mortgage procuration fees, insurance commissions and client fees are included at the gross amounts receivable by the Group in respect of all services provided. The Group operates a revenue share model with its trading partners and therefore commissions are paid in line with the Group revenue recognition policy and are included in cost of sales.

Mortgage procuration fees, insurance 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. When mortgage procuration fees, insurance commissions and client fees are received this confirms that the performance obligation has been satisfied. In the case of life insurance commissions there is a possibility for a four year 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 clawback provision is made for the expected level of commissions repayable. More information on the clawback provision is included in note 2.

Other income is credited to the consolidated statement of comprehensive income when received or guaranteed to be received.

Finance income

Finance income comprises interest receivable on cash at bank and interest recognised on loans to associates and other Appointed Representative firms. 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 the consolidated statement of comprehensive income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).

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 consolidated statement of financial position date and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax assets and liabilities are recognised for all taxable temporary differences, except for when:

· The difference arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

• In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that enough taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognised in profit or loss.

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.

Sales taxes

Where sales tax is incurred on expenses and assets, expenses and assets are recognised net of the amount of sales tax, except:

• When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable.

• When receivables and payables are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statement of financial position.

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 consolidated statement of comprehensive income 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 consolidated 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 consolidated statement of comprehensive income over the remaining vesting period.

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

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 14.

(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 uses 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 is 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 18.

(c) Clawback provision

The provision relates to the estimated value of repaying commission received up front on protection 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 Appointed Representatives in preventing lapses and/or generating new income at the point of a lapse. A 0.5% change (absolute) in lapse rates causes a £0.3m change in the provision. A 2% change (absolute) in the recoveries rate causes a £0.1m change in the provision. More information is included in note 22.

(d) Investments in associates

The Group is required to test, on an annual basis, whether any investments in associates have suffered any impairment.

The Group uses two methods to test for impairment,

· Net Present Value of the next 5 years projected free cash flow and terminal value.

· Valuation of business on a multiple basis.

The use of both methods requires the estimation of future cash flows, future profit before tax and choice of discount rate. Actual outcomes may vary. Where the carrying amount in the consolidated statement of financial position is in excess of the estimated value, the Group will make an impairment charge against the investment value and charge this amount to the consolidated statement of comprehensive income under impairment and amount written off associates.

The Group continues to make investments in associates, with elements of deferred consideration in some cases, as well as enter into commitments or option agreements to increase its stake or fully acquire certain associates. In accounting for these, the Group has had to make certain estimates on the amounts of deferred consideration likely to be payable and also the future performance and value of these businesses in determining the fair value of the options.

(e) Share options, Employer's National Insurance Contributions and Deferred tax 

Under the Group's equity-settled share based remuneration schemes (see note 29), estimates are made in assessing the fair value of options granted. The fair value is spread over the vesting period in accordance with IFRS 2. The Group engages an external expert in assessing fair value, both Black-Scholes and Stochastic models are used, and estimates are made as to the Group's expected dividend yield and the expected volatility of the Group's share price.

In addition, the Group estimates the employer's National Insurance Contributions that will fall due on exercise of options, and provides for this over the vesting period. In doing so, estimates as to the share price at vesting and the proportion of options from each grant that will vest are made with reference to the Group's prospects.

Deferred tax assets include temporary timing differences related to the issue and exercise of share options. Recognition of the deferred tax assets assigns an estimate of the proportion of options likely to vest and an estimate of share price at vesting. The carrying amount of deferred tax assets relating to share options as at 31 December 2021 was £1.8m (2020: £0.8m).

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:

On 2 July 2019 Mortgage Advice Bureau (Holdings) plc acquired 80 per cent of the entire issued share capital of First Mortgage Direct Limited ("First Mortgage" or the "Business").

Costs relating to the amortisation of acquired intangibles amounted to £367,000 (2020: £367,000) in the year ended 31 December 2021. The option (comprising the put and the call option) over the remaining 20% of the issued share capital of First Mortgage has been accounted for under IAS 19 Employee Benefits and IFRS 2 Share Based Payments due to its link to the service of First Mortgage's Managing Director. In accordance with IAS 19, £424,606 (2020: £414,674) has been included within administrative expenses under staff costs, and in accordance with IFRS 2, a further £542,844 (2020: £442,428) has been included within administrative expenses under share based payments (see note 29).

Profit from operations is stated after charging the following:

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

Staff costs, including executive and non-executive Directors' remuneration, are as follows:

Staff costs are included in the consolidated statement of comprehensive income 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 (2020: 2) in respect of defined contribution pension schemes.

The total amount payable to the highest paid Director in respect of emoluments was £830,796 (2020: £393,112). The value of the Group's contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to £nil (2020: £nil).

During the year, interest accrued in previous years of £23,602 was paid (2020: £34,039).

The Group has had an agreement with NatWest in respect of a revolving credit facility for £12m. The Group did not drawn down on this facility in the year and no liabilities are owed as at 31 December 2021. In respect of the Group's revolving credit facility for £12m, the Group has given security to NatWest in the form of fixed and floating charges over the assets of Mortgage Advice Bureau Limited, Mortgage Advice Bureau (Derby) Limited and Mortgage Advice Bureau (Holdings) Plc. In connection with the acquisition of Project Finland Topco Limited which indirectly owns 100% of The Fluent Money Group Limited ("Fluent") the Group has entered into new debt facilities with NatWest as set out in note 32.

Loan covenants

Under the terms of the revolving credit facility, the Group is required to comply with the following financial covenants:

· Interest cover shall not be less than 5:1

· Debt to EBITDA ratio shall not exceed 2:1

The Group has complied with these covenants throughout the year.

For the year ended 31 December 2021 the deferred tax charge relating to unexercised share options, recognised in equity was £558,869 (2020: -£674,337). An additional £89,639 (2020: £nil) deferred tax charge was recognised in equity as a result of changes to tax rates.

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 reconciliation between the basic and adjusted figures is as follows:

The Group uses adjusted results as key performance indicators, as the Directors believe that these provide a more consistent measure of operating performance. Adjusted profit is therefore stated before one-off acquisition costs, ongoing non-cash items relating to the acquisition of First Mortgage Direct Limited, fair value gains on financial instruments relating to options to increase shareholding in Associate businesses and impairment of loans to related parties, net of tax.

The record date for the final dividend is 29 April 2022 and the payment date is 30 May 2022. The ex-dividend date will be 28 April 2022. The company statement of changes in equity shows that the Company has positive reserves as at 31 December 2021 of £1,406,000. There are sufficient distributable reserves in subsidiary companies to pass up to Mortgage Advice Bureau (Holdings) plc in order to pay the proposed final dividend. The proposed final dividend for 2021 has not been provided for in these financial statements, as it has not yet been approved for payment by shareholders.

The final dividends paid and declared can differ from the proposed total dividends for approval due to (1) additional shares issued after the publication of these accounts in connection with share options exercised and/or the placing of new shares in connection with the acquisition of Fluent but before the record date and (2) the number of unallocated shares within the Group's Share Incentive Plan that do not receive a dividend.

Leases

This note provides information for leases where the Group is a lessee.

The consolidated statement of financial position shows the following amounts on leases:

The present value of the lease liabilities is as follows:

Leases

The consolidated statement of comprehensive income shows the following amounts relating to leases:

The goodwill relates to the acquisition of Talk Limited in 2012, and in particular its main operating subsidiary Mortgage Talk Limited, and the acquisition of First Mortgage Direct Limited ("FMD") in 2019. 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 or in the event of a significant change in circumstances. The impairment reviews conducted at the end of 2021 concluded that there had been no impairment of goodwill.

The Board considers that it has only one operating segment and following the acquisition of FMD, now has two cash-generating units (CGUs). Goodwill arose on the acquisition of Mortgage Talk Limited and has since been allocated to the CGU of the Group excluding FMD. Impairment testing for this 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 £4.1m (2020: £4.1m) carrying value of this CGU and therefore no impairment of goodwill is required. Management has estimated future cash flows over a five year period and applied a discount rate of 11% and then applied a terminal value calculation, which assumes a growth rate of 5% in future cashflows, in order to estimate the present value of those cash flows 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 present value of the estimated future cashflows.

Goodwill arose on the acquisition of FMD and has since been allocated to this CGU of the Group. Impairment testing for this 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 £11.0m (2020: £11.0m) carrying value of this CGU and therefore no impairment of goodwill is required. Management has estimated future cash flows over a five year period and applied a discount rate of 21% and then applied a terminal value calculation, which assumes a growth rate of 5% in future cashflows, in order to estimate the present value of those cash flows 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 present value of the estimated future cashflows.