Mortgage Advice Bureau Regulatory News (MAB1)

MORTGAGE ADVICE BUREAU (HOLDINGS) PLC

("MAB" or "the Group")

28 March 2023

Final Results for the year ended 31 December 2022

Mortgage Advice Bureau (Holdings) plc (AIM: MAB1.L) is pleased to announce its final results for the year ended 31 December 2022.

Financial highlights

Operational highlights

Current trading

* In addition to statutory reporting, MAB reports alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("IFRS"). The Group uses these APMs to improve the comparability of information between reporting periods, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group's businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. A summary of APMs used and their closest equivalent statutory measures is given in the Glossary of Alternative Performance Measures.

Peter Brodnicki, Chief Executive, commented: 

"Despite a challenging year for mortgage intermediaries on numerous fronts, I am pleased with our 2022 performance and market share growth, with revenue up 22% and adjusted EBITDA up 15% on the prior year.

"Prior to the mini-budget in September, the Group was on track for 2023 to be a record year of growth, despite an expected softening in housing transactions due to inflationary pressures. Although mortgage transaction levels have improved since the collapse post mini-budget, they remain circa 35% down year to date compared to the same period in 2022.

"MAB is performing considerably better than wider transaction numbers reflect and our market share is continuing to grow strongly. Current trading is in line with our expectations and we expect a second-half weighted financial performance. This is a strong performance considering the fall in gross mortgage approvals since October 2022 is of a similar scale to the fall seen during the Global Financial Crisis ("GFC"), rather than the normal and more easily managed peaks and troughs we see during fluctuating housing cycles.

"2022 was a milestone year for the business in terms of proposition delivery. Following the acquisition of Fluent, MAB is well-positioned as a leader in the three largest sectors for mortgage lead generation, comprising estate agency, new build, and price comparison websites. The acquisition also extends the Group's customer reach into other specialisms including secured loans, which alone offers significant mortgage re-financing opportunities.

"We also delivered the first stage of our centralised lead generation programme, which is part of our major strategy to drive new lead flow to our partner firms in all market conditions. We also delivered meaningful time savings in the advice process, with excellent progress being made to deliver significant further time savings over the next 18 months. 2022 also saw the launch of MAB New Homes and a leading protection proposition for the Directly Authorised market through the acquisition of Auxilium. 

"We continue to invest in our employees, with the significant capital investment in our Derby head office providing an excellent working environment to support the accelerated growth expected in the medium term.

"We expect the housing and mortgage markets to recover as they always do, and in the meantime, MAB continues to strengthen its proposition and use the more challenging market to onboard more high-quality firms and grow market share."

Current Trading and Outlook

Although the volume of new mortgage approvals was down by more than 40% in the three months ended 31 January 2023 (and Buy to Let approvals were down by more than 60%), UK Finance forecasts increased re-finance activity in 2023 as 1.8 million borrowers reach the end of their existing deals and need to re-finance onto new ones.

Current activity levels are better than in Q4 2022, however new mortgage volumes reported in the market remain low. There are early signs of increasing activity, for instance the volume of mortgage searches carried out by advisers on leading mortgage sourcing technology platform Twenty7tec is recovering rapidly, with 10 of their busiest days ever having occurred in February 2023. Mortgage searches in the first two months of the year are up 10% year-on-year. 

Once affordability and consumer confidence return, we expect the market to recover further as lenders reduce mortgage rates and gradually relax lending criteria. As expected, mortgage rates are already far cheaper than they were following the peak post the mini-budget but have now settled at levels that are very different to rates available a year ago.

Despite the current headwinds the Group is trading in line with expectations and continues to outperform the market, successfully growing its market share. Mortgage pipelines are also showing signs of completing more quickly, having been congested for the last few years, and we continue to expect a second-half weighted financial performance.

MAB's long term fundamentals remain strong. We anticipate a strong year ahead for re-financing, a slow but steady improvement in consumer confidence and housing transaction levels, combined with an increase in new appointed representative ("AR") recruitment and the incremental impact of new lead generation initiatives. We are confident that we will continue to grow market share in a tough market this year. MAB is in a very good position to deliver a far stronger financial performance in 2024.

For further information please contact:

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

Analyst presentation

There will be an analyst presentation to discuss the results at 9:30am on Tuesday 28 March 2023. 

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 Includes 182 Fluent advisers as at 31 December 2022 (105 advisers in the first charge mortgages division, 57 in the secured personal loans division, 14 in the later life division, and 6 in the bridging finance division). Includes a total of 180 advisers at 31 December 2022 who are later life advisers or advisers in directly authorised firms that use MAB's subsidiary, Auxilium, a specialist protection service provider, for protection. 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.

3 Excludes directly authorised advisers, MAB's later life advisers and advisers from associates in the process of being onboarded under MAB's AR arrangements. Includes Fluent's second charge, later life and bridging advisers who have a higher revenue per adviser than first charge advisers.

4 First charge mortgage completions, excluding secured personal loans (second charge mortgages), later life lending mortgages and bridging finance, and including completions from associates in the process of being onboarded under MAB's AR arrangements.

5 MAB previously reported a 6.3% market share in 2021, but this figure has slightly increased due to UK Finance updating its UK mortgage completions estimates.

6 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 to report the Group delivered another record performance in 2022, with revenue for the year up 22% to £230.8m (2021: £188.7m) and adjusted profit before tax ("PBT") up 13% to £27.2m (2021: £24.2m). 

The strong increase in revenue was driven by organic(1) growth of 11%, significantly outperforming the market, and the positive contribution of The Fluent Money Group ("Fluent") following its acquisition in July. The 20% increase in the Group's mortgage completions(2) is summarised as follows:

By comparison, UK gross new mortgage lending activity (excluding Product Transfers) in 2022 rose by just 2% to £313.9bn (2021: £308.1bn(3)). MAB increased its market share of UK new mortgage lending by 19% to 7.5% (2021: 6.4%(3)), with our market share in the second half increasing to 8.2% (H2 2021: 7.1%), and showing strong momentum carrying into 2023. 

The total number of advisers at the year-end was up 20% to 2,254(4) (2021: 1,885), including 182 advisers at Fluent, with the average number of mainstream(5) advisers during the year up 21% to 1,988 (2021: 1,649), representing organic growth of 15%.

1 Organic means the Group before the impact of the acquisitions made in 2022 (Fluent, July 2022; Vita, July 2022; and Auxilium, November 2022).

2 First charge mortgage completions, excluding secured personal loans (second charge mortgages), later life lending mortgages and bridging finance, and including completions from associates in the process of being onboarded under MAB's AR arrangements.

3 In 2021 we reported £313.2bn of UK mortgage completions based on UK Finance's latest estimates at the time. UK Finance revised that estimate downwards since then, implying MAB's 2021 market share increased slightly from the previously reported 6.3% to 6.4%.

4 Includes 182 Fluent advisers as at 31 December 2022 (105 advisers in the first charge mortgages division, 57 in the secured personal loans division, 14 in the later life division, and 6 in the bridging finance division). Includes a total of 180 advisers at 31 December 2022 who are later life advisers or advisers in directly authorised firms that use MAB's subsidiary, Auxilium, a specialist protection service provider, for protection. 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.

5 Excludes directly authorised advisers, MAB's later life advisers and advisers from associates in the process of being onboarded under MAB's AR arrangements. Includes Fluent's second charge, later life and bridging advisers who have a higher revenue per adviser than first charge advisers.

Delivering our growth strategy

2022 was a year of significantly delayed transactions and product withdrawals and repricing. The mini-budget in September resulted in an immediate and significant knock to economic and consumer confidence, with the associated leap in mortgage interest rates having a severe impact on housing transactions, whilst also delaying existing customers re-fixing their rates when re-financing.

At the half year we highlighted that an expected softening in housing transactions would result in some ARs taking a more cautious view of growth. However, many others that had remained growth focused, including Fluent, immediately cut their expectations and adviser base following the mini-budget due to the negative short-term outlook.

Although the unexpected and extreme market conditions adversely impacted our short-term growth objectives, MAB made major strides in further strengthening its customer, adviser, and AR propositions. Our focus on improving operational efficiency, realising synergies and reducing costs has ensured that MAB is well-positioned to build on the significant market share gains made in 2022 and achieve its growth objectives over the medium to long term.

Acquisition of Fluent

With MAB already holding a strong market position in estate agency and new build, we identified that price comparison websites were attracting an increasing number of customers researching and seeking mortgage advice. Our acquisition of Fluent has enabled MAB to enter this sector as a leader, significantly increasing our customer reach and ability to help more customers at all stages of their research process. 

Fluent also provides access to the large retention market outside of MAB's existing customer base, whilst adding secured loans and bridging finance to the services MAB can offer. The Group's existing equity release expertise and resources have also been enhanced as a result of the acquisition, with Fluent now fully, and successfully, integrated into MAB.

Delivering on lead generation strategy

Our strategy is about investing in our future customers as much as those we are currently advising, supporting our plans to contribute significantly to the lead flow of our AR firms.

We recognise that securing long-term business success comes from gaining an in-depth understanding of current and prospective clients. During the year we launched tools that empower our future customers to gain a better understanding of financial products and solutions through our Homebuying and MyMAB apps and website, simultaneously equipping ourselves with detailed customer insights to inform future proposition development. 

At MAB, innovation is not all about technology. It's also about human behavioural change and business process change. Our strategy has been focused on lead generation, business quality, customer and broker experience, and consumer education. We have focused on early lead capture to widen the funnel of opportunities for our brokers in all market conditions, increasing the number of potential buyers and using educational coaching to get customers mortgage ready. Data insights captured during this process can significantly improve the quality of the customer experience, and ultimately their conversion at point of advice.

We are also releasing a series of post-completion retention solutions to ensure we always remain at the front of existing customers' minds. This includes regular mortgage reviews as well as early re-financing lead generation opportunities for advisers.

Shortening the advice process

Our aim is to reduce the 10-hour average for an adviser to take a mortgage from enquiry to completion to less than five hours by eliminating duplication and allowing data to move more freely across our digital ecosystem. In addition to driving new adviser growth and increased productivity, the integration of new technology with our key business partners will enable customers to auto-disclose and verify their identity, self-serve their eligibility and affordability, and share data and documents in a secure environment, with the new technology solutions launched during the last year already resulting in a time saving of more than one hour.

Launch of MAB New Homes to builder partners

Following our recent investment in New Homes specialists Evolve and Heron, we have launched a market-leading panel of specialist new build firms to meet the future requirements of our major new build partners nationally. This includes a new technology-led approach to early capture and nurture, and the financial qualification process for the MAB New Homes proposition that allows self-service customer data capture, document capture, and extraction, which we expect to underpin continued year on year market share growth.

Immediate benefits of new working environment

We are committed to fostering an inclusive environment where all our staff can contribute to the innovation and digital transformation of the business. In October we stripped our existing head office building in Derby back to its shell, paving the way for the creation of a new collaborative working environment that caters for hybrid working and delivers a range of work settings for up to 300 employees.

We understand all our employees and teams have different needs in terms of their wellbeing and how they work, which is why we have provided an office space that caters to those needs, levels of accessibility, and unique work styles. These bespoke working environments will offer flexibility in how we work and caters to our diverse colleagues, enabling them to thrive and perform at their very best. In line with our ESG objectives, one of our key aims in the refurbishment was to reduce the environmental impact of the office and provide an outstanding experience for our staff, customers and ARs. We have successfully delivered this.

The positive impact of the new working environment on staff performance and collaboration has been immediate, underpinning our plans for strong market share and profit growth over the medium and long term.

Optimising our addressable market

Following the acquisition of Fluent, in November MAB acquired a 75% shareholding in Auxilium, a specialist protection service provider servicing Directly Authorised ("DA") firms. In addition, the Group increased its stake in leading protection and general insurance advice firm Vita, from 49% to 75%.

Access to the protection expertise MAB has developed over the last two decades will greatly benefit the forward-thinking and ambitious DA firms that the Auxilium proposition is aimed at.

Additionally, to enhance the provision of pension and investment advice to our mortgage customers that have those requirements, we have partnered with St James's Place who will provide a highly complementary support structure for these products and services, to that offered by MAB to its AR firms for mortgages and protection.

In Australia, the technology integration with our joint venture partner, Australian Finance Group Ltd, is expected to complete in the second half of this year, allowing us to progress our growth plans there.

Summary

Despite the market downturn, 2022 was a very important year for MAB. We have continued to invest in our customer and adviser experience, our environmental agenda, and our people, by creating an optimal working environment influenced by them. We also continue to futureproof our business by entering new growth sectors and investing in prospective customers at the early stages of their research. We believe this will have a significant medium to long-term impact on adviser productivity, organic adviser growth, and AR recruitment, further driving MAB's market share growth and profitability.

We have taken a proactive and rigorous approach to costs, whilst progressing with the planned investment in our proposition to ensure the strongest possible recovery and continued market share growth. We are recruiting well from a wide range of networks and increasingly from the DA sector and are using a subdued housing market to embed new technology solutions and processes, whilst ensuring all cost efficiencies, synergies and best practices are implemented at Fluent to deliver optimal performance.

The executive team has been strengthened in marketing and in risk and compliance to reflect our market share ambitions, and our invested-in businesses continue to perform strongly in terms of adviser productivity and will increasingly contribute to market share and profitability growth.

Despite a slower than expected start to the year for the housing market, we anticipate an increasingly strong year ahead for re-financing, with a slow but steady improvement in housing transaction levels and an increase in new AR recruitment. We expect organic growth to resume in the second half when we also expect to see the incremental impact of our new lead generation initiatives. We will continue to grow our market share strongly this year, whilst ensuring that MAB will be in an even better position to deliver a far stronger financial performance in 2024.

Market review 2022

The year started positively after the market had returned to steadier levels of activity towards the end of 2021. Consumer demand remained quite strong and fewer properties for sale kept house price momentum high. Pipelines continued to be highly congested, with transactions taking more than 140 days to complete, frustrating the pace of completions.

The Russian invasion of Ukraine in February resulted in a degree of consumer caution. However, despite the uncertain macroeconomic outlook and rising inflation, housing demand and activity remained quite strong.

Overall, UK gross new mortgage lending(1) was up 2% to £313.9bn (2021: £308.1bn(2)). The purchase segment decreased by 11% as the overall number of housing transactions decreased by 15%, as illustrated below:

http://www.rns-pdf.londonstockexchange.com/rns/3879U_3-2023-3-27.pdf

Source: UK Finance

In September 2022, the mini-budget triggered significant market uncertainty, an immediate spike in the cost of borrowing, the withdrawal of many mortgage products by lenders, and a rapid tightening in underwriting criteria. After a short flurry of activity where customers rushed to secure low mortgage rates before they were withdrawn, housing-related activity slowed significantly throughout Q4. The rate of approvals for new mortgages in the last two months of the year and in January 2023 was down by more than 40% year-on-year, which will impact completions in the first half of this new financial year, as illustrated below:

http://www.rns-pdf.londonstockexchange.com/rns/3879U_4-2023-3-27.pdf

Source: UK Finance

In terms of mortgage completions(1), the re-financing segment was relatively strong throughout 2022. Re-mortgage completions were up 29% year-on-year, partly because the 2021 mortgage market was skewed towards purchase. Product transfer completions increased by 3%, with a stronger second half (9% increase year-on-year in H2 2022). Buy-to-let completions were up 18% compared to 2021, although the buy-to-let segment has been particularly adversely impacted since the mini-budget.

The trends in gross new mortgage(1) lending completions are illustrated in the graph below.

http://www.rns-pdf.londonstockexchange.com/rns/3879U_2-2023-3-27.pdf

Source: UK Finance

Average house prices increased by 10% in 2022, although the increase slowed in the second half, with the average house price starting to fall by the end of the year. This negative trend has continued in early 2023 but we expect house prices will start to settle once affordability and consumer confidence improve.

As we look further into 2023, a large number of mortgage products that were withdrawn following the mini-budget have been recently re-introduced, as illustrated on the graph below. We expect product availability to continue to catch up throughout 2023, and underwriting criteria should also continue to slowly ease.

http://www.rns-pdf.londonstockexchange.com/rns/3879U_7-2023-3-27.pdf

Source: Twenty7tec

New mortgage rates are looking more attractive than they were at the end of 2022, albeit mortgage pricing may have found its floor, certainly for now. With a 2%+ gap between the price of many new mortgage deals and the typical Standard Variable Rates, borrowers are increasingly looking to re-finance in 2023, whereas many chose to sit on their hands at the end of last year.

Pipelines are now completing more quickly than in 2022. This reflects the heightened capacity conveyancers now have due to the market slowdown, and to a lesser degree, a greater level of property stock available for sale. Re-financing also banks quickly, and very few of these cases fail to progress to completion.

The volume of mortgage searches carried out by advisers on leading mortgage sourcing technology platform Twenty7tec is also recovering rapidly, with ten of their busiest days ever having occurred in February 2023. Mortgage searches in the first two months of the year are up 10% year-on-year. This is illustrated in the graph below.

http://www.rns-pdf.londonstockexchange.com/rns/3879U_1-2023-3-27.pdf

2022 saw intermediaries' share of UK residential mortgage(1) transactions increase from 80% to 84% (excluding Buy to Let, where intermediaries have a higher market share, and Product Transfers where intermediaries have a lower market share), and the Intermediary Mortgage Lenders Association ("IMLA") expects this trend to continue in 2023 and 2024.

UK Finance predicts a 12% fall in gross new mortgage(1) lending in 2023, to £275bn, caused by affordability pressures. IMLA's estimate for 2023 is £265bn. For 2024, UK Finance and IMLA currently forecast further reductions to £253bn and £250bn respectively. These estimates were published in December 2022.

For the past 20 years, UK mortgage approval levels have followed a similar pattern as the proportion of UK housing owned, as illustrated in the graph below. Both are below long-term averages, with home ownership having reduced to circa 64% from 70% in the early 2000's. There is currently considerable political focus on increasing home ownership across all political parties, which further supports MAB's long-term fundamentals.

http://www.rns-pdf.londonstockexchange.com/rns/3879U_6-2023-3-27.pdf

Source: UK Finance, Statista

Despite the inflationary environment and continued geopolitical uncertainty, consumer demand for housing and mortgages remains at a steady, albeit reduced level. This, combined with the increased number of mortgage products we have seen re-introduced, means we remain confident that heightened activity will return to the housing and mortgage market once affordability improves and consumer confidence starts to rise.

1 First charge mortgage completions, excluding secured personal loans (second charge mortgages), later life lending mortgages and bridging finance.

2 We reported £313.2bn in 2021, based on UK Finance's latest estimates at the time.

Progress with regulatory change 

Consumer Duty 

The Financial Conduct Authority ("FCA") has set out rules that require all regulated firms to consider the needs, characteristics, and objectives of their customers, to ensure they are always acting to consider and deliver optimal customer outcomes. These rules include the need to show consideration, flexibility, and attention to customers with characteristics of vulnerability. This new Consumer Duty sets higher and clearer standards of consumer protection across financial services and requires firms to put the needs of their customers first and comes into effect on 31 July 2023. 

Good customer outcomes have always been central to MAB's strategy. In line with the requirements and timeline set out by the FCA, MAB submitted its 'Consumer Duty Plan' for approval by the Board prior to the 31 October 2022 deadline. Since then, work has continued to ensure the requirements of the FCA's new Consumer Duty are understood and where changes are required, that these are implemented across the business ahead of the 31 July 2023 implementation date.

ESG (Environmental, Social, Governance)

At MAB, we believe in the need to make a positive contribution to all our stakeholders. This in turn will help us become a better company with a more engaged workforce and strengthen our competitive advantage. In 2022 we accelerated our investment in this area and made good progress on all our ESG initiatives.

Minimising our impact on the environment

We completed our major office refurbishment project in 2022, with all colleagues moving back into head office in early January this year. Minimising our environmental impact was a central consideration for this project, as was sourcing products from local suppliers where practical, repurposing furniture and so on. The building has been fitted with high efficiency new heating, ventilation and lighting equipment, and we are pleased that its EPC rating has dramatically improved as a result.

MAB is at the forefront of Green Mortgages. In 2022, we launched our Green Hub for consumers and continued to improve our MIDAS platform to best promote Green Mortgages to our advisers. Our ARs submitted over £1 billion in Green Mortgages to our lending partners, which was a very substantial increase versus 2021. We also organised the first industry event exclusively focussed on Green Mortgages.

The narrative around Green Mortgages is rightly becoming more prominent and important, with momentum and interest gathering from advisers, consumers and from lenders. Clear targets have been set for landlords firstly to make various energy efficiency improvements to their properties, and then homeowners the same, over the next decade or so. Our intention is to become a leader in Green Mortgages. With housing representing circa 20% of carbon emissions in the UK, we will increase our involvement in this area, thereby directly contributing to the UK's overall Net Zero targets, whilst significantly helping many thousands of customers too.

MAB already serves a great social purpose, in-so-much as it helps customers to buy and re-finance their homes and protects them as well. With an increasingly environmental focus layered onto this, MAB can make a significant contribution towards the UK Government's climate commitments.

Community engagement and charitable activities

2022 also saw the launch of the Mortgage Advice Bureau Foundation ("Foundation"). The Foundation is a grant-giving charity that supports community-based projects chosen by our staff, our customers, and our business partners. It was created to promote awareness among our stakeholders of the growing need of the communities they live in or are choosing to move to. The Foundation supports projects in the following areas:

· Environment and Conservation - practical and educational projects to help communities make green choices and reduce their carbon footprints;

· Health and Wellbeing - projects to help communities address health and wellbeing issues so that everybody's quality of life can be improved; and

· Preventing and Relieving Poverty - projects to support communities through financial hardship and social exclusion. 

The Foundation launched in September 2022 and to date has pledged £17,000 of funding which has helped charitable projects raise over £30,000 in total. We are delighted with the buy-in and support the Foundation has received from our business partners and colleagues.

Employee wellbeing, and diversity, equality and inclusivity

The newly refurbished head office in Derby includes many new features that foster colleague wellbeing and increase inclusivity among our employees. In 2022 we launched a number of new training initiatives, some of which have been specifically designed to develop women across the business.

We ran an employee wellbeing calendar covering the financial, emotional and physical aspects, offering support to employees across a variety of topics through webinars or in person. We now promote staff volunteering days and have expanded our benefits to all employees.

In response to the cost-of-living crisis that persisted throughout 2022, the Board awarded an additional £1,000 pay rise as well as a £250 one-off cash bonus to all eligible non-bonused head office employees. We continued to build our own in-house ESG team and also appointed a specialist ESG consultancy firm. Consequently, we now have a very clear plan and timelines under which we will make further progress on what we have achieved over the last year. We are excited about the central role we can play in helping homeowners and landlords to achieve good outcomes with regards to making their homes more energy efficient.

Financial review

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

http://www.rns-pdf.londonstockexchange.com/rns/3879U_5-2023-3-27.pdf

Revenue

Revenue increased by 22% to £230.8m (2021: £188.7m), with organic(1) revenue growth of 11% driven by a 15% increase in the average number of organic(1) mainstream advisers(2), resulting from a combination of existing ARs' expansion, the recruitment of new ARs, and a 4% reduction in revenue per organic mainstream adviser. As previously reported, both completions and adviser recruitment in Q4 were adversely impacted following the mini-budget, with a reduction in the number of organic mainstream advisers in Q4 as our AR firms began to reduce their headcount in line with lower expected H1 2023 purchase activity.

Fluent, which was acquired on 12 July 2022, added another 182 mainstream advisers to the Group as at 31 December 2022, and contributed an additional £21.9m of revenue during the year. Auxilium, which was acquired on 3 November 2022, added another 161 directly authorised advisers to the Group as at 31 December 2022, and contributed an additional £0.2m of revenue. In addition, MAB increased its stake in Vita from 49% to 75% on 12 July 2022, with its adviser numbers and revenues already incorporated into the Group's figures due to it having been an AR of the Group since 2016.

The Group continued to generate revenue from three core areas, with all key income sources growing strongly as set out below.

MAB's organic(1) revenue growth across the three core areas was as follows:

MAB's organic banked mortgage(3) mix had a considerably lower proportion of house purchase business compared to the prior year. This was due to an increase in re-financing, especially the proportion of product transfer completions by volume, which have a lower average procuration fee and typically have lower protection, general insurance and client fee attachment rates than other mortgage types.

Product Transfers in the period increased to 21% of MAB's mortgages(3) (2021: 13%). Consequently, while the Group's organic net mortgage(3) completions by value increased by 17%(4), mortgage procuration fees increased by 16%, protection and general insurance commissions increased by 7% and client fees increased by 2%. MAB's organic average mortgage size increased by 10% compared to the prior year, in line with average house prices increasing by 10% year-on-year.

MAB's total revenue from re-financing (including both re-mortgages and product transfers) represented circa 32% (31% on an organic basis) of total revenue (2021: 25%) due to the Group's organic banked mortgage mix having a higher proportion of re-financing and Fluent having a higher proportion of re-financing in its first charge mortgage mix and with the prior year reflecting a particularly high level of purchase transactions.

Fluent's revenue contribution across the Group's three core business areas in the period following completion of the acquisition was as follows:

Fluent generates revenue from a wider range of mortgage types than MAB, including first charge mortgages, secured personal loans (second charge mortgages), later life lending mortgages and bridging finance. Fluent earns revenue on first charge mortgages in the same way as MAB. In its other divisions, Fluent predominantly earns procuration and client fees, with a smaller proportion of protection and general insurance commission earned on loans arranged for its customers.

Auxilium, a specialist protection service provider, contributed revenue of £0.2m for the two months following its acquisition. Auxilium's revenues represent the total income received and accordingly are classified under Other Income, with there being no commission payouts to the directly authorised entities serviced by the business. 

The proportion of organic revenue derived from each of the Group's core revenue streams has remained relatively stable as summarised below, with small movements reflecting the change in banked mortgage mix during the period.

The proportion of total revenue derived from each of the Group's core revenue streams has changed slightly, with client fees as a proportion of total revenue increasing following the acquisition of Fluent, as summarised below.

In first charge mortgages we expect client fees to become increasingly dependent upon the type and complexity of the mortgage transaction, as well as the delivery channel, leading to a broader spread of client fees on mortgage transactions, which represent the Group's lowest margin revenue stream.

Gross profit margin

Gross profit margin for the year was 27.3% (2021: 27.0%) reflecting the anticipated increase following the acquisition of Fluent, which has a slightly higher gross profit margin than MAB. Excluding the impact of Fluent, Vita and Auxilium, MAB's gross profit margin was 26.5% (2021: 27.0%) reflecting the increased proportion of re-financing transactions in 2022, and the slightly reduced revenue share the Group receives as existing ARs grow organically by increasing their adviser numbers. In addition, larger new ARs typically join the Group on lower-than-average margins due to their existing scale, hence a degree of erosion is expected in MAB's underlying gross profit margin (prior to the impact of the Fluent acquisition) due to the continued growth of our existing ARs and the addition of new larger ARs.

Looking ahead, we expect any further erosion in underlying gross margin to be offset by economies of scale reducing the Group's overheads ratio.

Administrative expenses

Group administrative expenses increased by £8.2m (+29%) to £36.0m, mainly reflecting the impact of the acquisitions of Fluent and Vita. Organic adjusted administrative expenses increased by £2.3m (+8%) to £30.1m, reflecting MAB's continued investment in growth, and specifically in its technology platform and marketing team through a mix of employee and third-party costs, which will drive enhanced lead generation opportunities. Head office costs, including those of First Mortgage, and compliance costs also increased to support the Group's continued growth. All development work on MAB's MIDAS platform continues to be fully expensed. Organic adjusted administrative expenses as a percentage of revenue reduced slightly to 14.4% (2021: 14.8%).

MAB continues to benefit from the relatively fixed cost nature of much 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. 

During the year MAB awarded mid-year pay rises as well as a cash bonus to a number of staff, in addition to their usual annual pay rise, to help with the increasing costs of living.

Associates and Investments

MAB's share of profits from Associates was £0.7m (2021: £1.0m) with the majority of the Group's Associates being adversely impacted by the fall-out from the mini-budget. 

In addition, the Group recognised a £2.8m non-cash write off on its investment in Boomin with the company being put into liquidation after failing to secure new investors in the challenging economic climate.

Management believes that the value of a number of its associate investments exceeds their carrying value recognised using the equity accounting method under IAS 28.

Adjusted EBITDA, profit before tax and margin thereon

Adjusted EBITDA* was up 15% to £29.1m (2021: £25.3m), with the margin thereon of 12.6% (2021: 13.4%) mainly reflecting the impact of the Fluent acquisition with limited revenue synergies achieved in the year of acquisition (as expected). 

Adjusted profit before tax* was up 13% to £27.2m (2021: £24.2m), with the margin thereon of 11.8% (2021: 12.8%). Statutory profit before tax reduced to £17.4m (2021: £23.2m) purely due to acquisition-related costs, amortisation of acquired intangibles and non-cash operating expenses associated with the put and call option agreements on recent acquisitions. As a result, the margin on statutory profit before tax was 7.5% (2021: 12.3%). 

Fluent, Vita and Auxilium contributed profit before tax of £1.5m, £0.05m and £0.1m respectively in the periods since acquisition. These figures exclude the impact of any non-cash charges associated with the put and call options for Fluent and Auxilium.

Adjusted profit before tax* as a percentage of net revenue* was 34.0% (2021: 41.0%) primarily due to the effect of the Fluent acquisition and the change in banked mortgage mix.

Finance revenue 

Finance income of £0.1m (2021: £0.05m) reflects the low interest rates that prevailed for most of the financial year and interest income accrued on loans to associates. 

On 28 March 2022 MAB entered into new four-year debt facilities with NatWest, comprising a £20m Term Loan (the "Term Loan") and a £15m revolving credit facility (the "RCF") to be used in connection with the acquisition of Fluent. The RCF is also available for general corporate purposes. There is an option to extend the RCF and the Term Loan for a further year.

Finance expenses of £1.2m (2021: £0.2m) include £0.6m of interest and non-utilisation fees payable on MAB's previous and new debt facilities and the interest expense on lease liabilities and a further £0.6m relating to the unwinding of the redemption liability relating to the Fluent Option

Taxation

The increase in the effective rate of tax on reported profit before tax to 26.4% (2021: 16.9%) was primarily due to acquisition-related costs, share-based payment costs relating to the First Mortgage, Fluent and Auxilium options and the write-off of the Boomin investment being disallowable for tax purposes, there being limited share option exercises during the year and a lower tax credit on research and development expenditure on the continued development of MAB's proprietary software platform, MIDAS. The effective tax rate on adjusted profit before tax* increased slightly to 16.8% (2021:16.2%). We expect the effective tax rate on adjusted PBT in future years to be in line with the prevailing UK corporation tax rate.

Earnings per share and dividend

Adjusted earnings per share* increased by 2% to 37.8p (2021: 37.1p). Basic earnings per share fell to 21.8p (2021: 35.2p) due to acquisition-related costs, amortisation of acquired intangibles and non-cash operating expenses associated with the put and call option agreements on recent acquisitions.

The Board is pleased to propose a final dividend of 14.7p per share (2021: 14.7p). This brings the total proposed dividend for the year to 28.1p per share (2021: 28.1p), reflecting the Group's policy to pay dividends reflecting a minimum pay-out ratio of 75% of the Group's annual adjusted post-tax and minority interest profits. This represents a cash outlay of £8.4m (2021: £7.8m). Following payment of the dividend, the Group will continue to maintain significant surplus regulatory reserves.

The record date for the final dividend will be 28 April 2023 and the payment date 31 May 2023. The ex-dividend date will be 27 April 2023.

Balance sheet

In connection with the acquisitions of Fluent, Vita and Auxilium, the Group recognised separately identifiable intangible assets with a fair value of £55.4m and goodwill totalling £38.7m. In addition, redemption liabilities of £7.0m and £0.2m in respect of the put and call options relating to the Fluent and Auxilium acquisitions respectively, are included in other payables as at 31 December 2022.

In connection with the acquisition of Fluent, the Group entered into an agreement on 28 March 2022 with NatWest, in respect of a new term loan for £20m and a revolving credit facility for £15m (the "Facilities Agreement"), in order to part fund the cash consideration payable in relation to the acquisition. As at 31 December 2022, the Group had drawn down £3.2m on the revolving credit facility, in addition to the £20m term loan, and had £0.2m of accrued interest net of prepaid loan arrangement fees. Net debt (adjusting only for unrestricted cash balances of £7.2m) was £16.2m.

Cash flow and cash conversion

The Group's operations produce positive cash flow, which is reflected in the net cash generated from operating activities of £24.1m (2021: £26.9m). 

Other than the £2.8m refurbishment of the Group's head office in Derby during the year, the Group's operations are typically capital-light, with the most significant ongoing capital investment being in computer equipment. Only £0.4m of general capital expenditure on office and computer equipment was required during the year (2021: £0.2m).  Group policy is not to provide company cars and no other significant capital expenditure is foreseen.

The Group's regulatory capital requirement represents 2.5% of regulated revenue and totalled £5.5m at 31 December 2022 (2021: £4.3m), with the Group reporting a surplus of £26.8m (2021: £18.9m).

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

* In addition to statutory reporting, MAB reports alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("IFRS"). The Group uses these APMs to improve the comparability of information between reporting periods, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group's businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. A summary of APMs used and their closest equivalent statutory measures is given in the Glossary of Alternative Performance Measures.

1 Organic means the Group before the impact of the acquisitions made in 2022 (Fluent, July 2022; Vita, July 2022; and Auxilium, November 2022).

2 Excludes directly authorised advisers, MAB's later life advisers and advisers from associates in the process of being onboarded under MAB's AR arrangements. Includes Fluent's second charge, later life and bridging advisers who have a higher revenue per adviser than first charge advisers.

3 First charge mortgage completions, excluding secured personal loans (second charge mortgages), later life lending mortgages and bridging finance.

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

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 2022 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 2022 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.

Independence

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 listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

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 and the Parent Company's ability to continue to adopt the going concern basis of accounting included:

· 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 corroborating the inputs to supporting documentary evidence. This involved considering the base and stress scenarios testing undertaken by the Directors 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 assessed whether the capital and cash positions are adequate and whether the Group complies with its covenant requirements in both the base and stress scenarios.

· We have reviewed publicly available information on the house market and house price index to assess any impact on going concern.

· We assessed how the directors have factored in ongoing economic pressures such as high inflation, cost of living crisis and increasing interest rates 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 were determined to be MAB Limited, MAB Derby Limited and Project Finland Topco Limited and its subsidiaries. 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 were 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 significant component of the Group, including the parent company, based on a percentage of between 43% and 79% (2021: 78% and 99%) of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from £436,515 to £792,000 (2021: £712,000 to £905,000). In the audit of each significant component, we further applied performance materiality levels ranging from 65% to 75% (2021: 75%) of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.

Reporting threshold 

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £20,000 (2021: £18,000). 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 Report and Financial Statements 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 Parent Company and the industry in which it operates and considered the risk of acts by the Group and Parent Company 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, the applicable accounting 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, the risk of fraud in revenue recognition and in relation to accounting estimates such as the clawback provision and intangible assets recognition and measurement.

Our procedures in response to the above included:

· 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 for any instances of non- compliance with laws and regulation and any known or suspected instances of fraud;

· 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 to check for any instances of non-compliance with applicable laws and regulations; 

· in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments on a sample basis to supporting documentation;

· in respect of the risk of fraud in relation to revenue recognitions and in accounting estimates such as the clawback provision and intangible assets recognition and measurement, performing the procedures as set out in the Key Audit Matters section of our report; 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 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

27 March 2023

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

Consolidated statement of comprehensive incomefor the year ended 31 December 2022

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 2022

The notes that follow form part of these financial statements.

The financial statements were approved by the Board of Directors on 27 March 2023.

P Brodnicki L TilleyDirector Director

Consolidated statement of cash flows

for the year ended 31 December 2022

The notes that follow form part of these financial statements.

Notes to the consolidated financial statementsfor the year ended 31 December 2022

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 in conformity with the requirements of the Companies Act 2006 that are applicable to companies that prepare financial statements in accordance with IFRSs.

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

The 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 £18.5m during 2022 (2021: £23.3m) and had net current liabilities of £6.8m as at 31 December 2022 (31 December 2021: £11.0m assets) and equity attributable to owners of the Group of £67.9m (31 December 2021: £38.8m).

Going concern

The Directors have assessed the Group's prospects until 31 December 2024, taking into consideration the current operating environment, including the impact of geopolitical and macroeconomic uncertainty and inflationary pressures on property and lending markets. The Directors' financial modelling considers the 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 geopolitical and macroeconomic uncertainty and inflationary pressures and their impact on the UK property and lending markets and the Group's business volumes and revenue mix, which the Directors consider to be severe but plausible stress tests on the Group's cash position, banking covenants and regulatory capital adequacy. The Group's financial modelling shows that the 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 Group will be able to continue in operation and meet its liabilities as they fall due over this period. 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 2022

New standards, interpretations and amendments applied for the first time

The Group applied a number of standards and interpretations for the first time in 2022 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

· Annual improvements to IFRS standards 2018 - 2020 (Effective 1 January 2022)The improvements impact IFRS 1, IFRS 9, IFRS 16 and IAS 41. The Group is not a first-time adopter of IFRS standards (IFRS 1) and does not engage in agricultural activities (IAS 41) so the improvements to those standards do not impact the Group. The improvement to IFRS 16 removed illustrations of accounting for lease incentives which are not relevant to the Group's leasing activities. Amendments to IFRS 9 clarified the 10% test for derecognition of financial liabilities when considering payment of net fees. The Group has not identified any material impact of the amendment on the derecognition of its financial liabilities.

· Amendments to IAS 37 Onerous contracts - Cost of fulfilling a contract (Effective 1 January 2022)

The amendments further clarify the costs of fulfilling a contract that are to be assessed in relation to the requirements of contracts being classified as onerous. The Group has not identified any material provisions required for onerous contracts after considering the clarified cost assessments.

· Amendments to IAS 16 Property, plant and equipment - Proceeds before intended use (Effective 1 January 2022)

Under the amendments, proceeds from selling items before the related item of PP&E is available for use should be recognised in profit or loss, together with the costs of producing those items. IAS 2 Inventories should be applied in identifying and measuring these production costs. The Group has not sold any items of PP&E before they became available for use and so this amendment has no impact on the Group's financial statements.

· Amendments to IFRS 3 - Reference to the conceptual framework (Effective 1 January 2022)The amendments change references from the 1989 framework to the 2018 conceptual framework. In addition to this, the amendment added clarified that IAS 37 provisions or IFRIC 21 are applicable for identify liabilities assumed in business combinations. The amendments also added disclosure requirements for not recognising contingent assets acquired on business combinations. The Group has updated its disclosure in respect of business combinations and there has not been any further impact on the Group's financial statements from these amendments.

New standards, interpretations, and amendments not yet 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:

IFRS 17 does not apply to the Group and therefore has no impact on the Financial Statements of the Group in future periods. Other than to expand certain disclosures within the Financial Statements, the Directors do not expect the adoption of the amendments to these other standards 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 consolidate 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, acquired technology, customer and member relationships, lender and introducer relationships, and trademarks and brands 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.

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 3 years

Software development 3 years

Acquired technology 10 years

Customer relationships 5 to 9 years

Trademarks and brands 3, 10 and 11 years

Lender and introducer relationships 14 years

Member relationships 3 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 or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Other intangible assets are tested for impairment whenever events or changes in circumstances indicate that the 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 assets are carried at fair value, with gains and losses arising from changes in fair value taken directly to the 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.

Loans and other borrowings

Loans and other borrowings comprise the Group's bank loans including any bank overdrafts. Loans and other borrowings are recognised initially at fair value net of any directly attributable transaction costs. After initial recognition, Loans and other borrowings are subsequently carried at amortised cost using the effective interest calculation method.

Leases

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

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

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 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.

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 to not 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.

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 a 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.

IFRS 3 prohibits the recognition of contingent assets acquired in a business combination. No contingent assets are recognised by the Group in business combinations even if it is virtually certain that they will become unconditional or non-contingent.

Retirement benefits: Defined contribution schemes

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

Provisions

A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation (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 the Group by lenders either via the L&G Mortgage Club or directly

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

• Client fees paid by the underlying customer for the provision of advice on mortgages, other loans and protection

• 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 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 profit or loss.

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

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

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

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) Acquisitions and business combinations

When an acquisition arises, the Group is required under UK-adopted International Accounting Standards to calculate the Purchase Price Allocation ("PPA"). The PPA requires companies to report the fair value of assets and liabilities acquired and it establishes useful lives for identified assets. The identification and the valuation of the assets and liabilities acquired involves estimation and judgement when determining whether the recognition criteria are met.

Subjectivity is also involved in the PPA with the estimation of the future value of relationships, technology, brand and goodwill. The fair value of separately identifiable intangible assets acquired during the year was £55.4m (2021: £nil), with the key assumptions used to calculate these fair values being those around the estimated useful lives of the acquired introducer relationships and technology, the estimated future cash flows expected to arise from these relationships and technology and the appropriate discount rate to be used to discount these cash flows to their present value. Residual goodwill totalling £38.7m (2021: £nil) has been accounted for during the year.

(b) Fair value of put and call options in connection with acquisitions

When the Group makes an acquisition of less than 100% of the entire issued share capital of an entity, in certain cases it has entered into a put and call option agreement to acquire the remaining share capital of that entity after a certain amount of time. The fair value of the put and call option will need to be determined in accounting for the instrument which involves certain estimates regarding the future financial performance of the entity, including EBITDA or profit before tax, as well as the use of an appropriate discount rate.

(c) Impairment of intangible assets

For the purposes of impairment testing, acquired relationships, technology, brands and goodwill are allocated to the group of cash-generating units ("CGUs") that are expected to benefit from the business combination.

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Other intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Value in use calculations are utilised to calculate recoverable amounts of a CGU. Value in use is calculated as the net present value of the projected pre-tax cash flows of the CGU in which the relationships, technology and brand is contained. The net present value of cash flows is calculated by applying a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset.

The key assumptions used in respect of value in use calculations are those regarding growth rates and anticipated changes to revenues and expenses during the period covered by the calculations. Changes to revenue and expenses are based upon management's expectation and actual outcomes may vary. Forecast cash flows are derived from the Group's forecast model, extrapolated for future years, and assume a terminal growth rate of 5.0% (2021: 5.0%), which management considers reasonable given the Group's historic growth rates and its market share growth model.

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.

(d) 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 19.

(e) 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, estimates of future lapse rates, and the success of the Appointed Representatives in preventing lapses and/or generating new income at the point of a lapse.

The key uncertainties in the calculation are driven by lapse rates and recovery rates. A 0.5% change (absolute) in lapse rates causes a £0.4m change in the provision. A 2% change (absolute) in the recoveries rate causes a £0.2m change in the provision. More information is included in note 24.

(f)  Investments in associates

The Group is required to consider 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 year's 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.

(g) Share options, employer's National Insurance Contributions and Deferred Tax

Under the Group's equity-settled share-based remuneration schemes (see note 31), 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 2022 was £1.0m (2021: £1.8m).

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:

First Mortgage Direct

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

Costs relating to the amortisation of acquired intangibles amounted to £367,000 (2021: £367,000) in the year ended 31 December 2022. 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, £435,871 (2021: £424,606) has been included within the consolidated statement of comprehensive income within costs relating to Acquisition Options and, in accordance with IFRS 2, a further £409,452 (2021: £542,844) has been included in the consolidated statement of comprehensive income within costs relating to Acquisition Options (see note 31).

Project Finland Topco

On 28 March 2022 Mortgage Advice Bureau (Holdings) plc acquired 75.4% of the entire issued share capital of Project Finland Topco Limited which indirectly owns 100% of the Fluent Money Group Limited ("Fluent").

Costs relating to the amortisation of acquired intangibles amounted to £2,127,643 in the year ended 31 December 2022. In addition to this, the Group incurred £2,610,156 of costs in the year ended 31 December 2022 which related to the acquisition of Project Finland Topco Limited.

There is a put and call option over the remaining 24.6% of the issued share capital of Fluent has been accounted for under IAS 32 and IFRS 2 Share-based Payments, as respectively a proportion is treated as consideration under IAS 32, with the balance treated as remuneration under IFRS 2, because the amount payable on exercise of the option consists of a non-contingent element, and an element that is contingent upon continued employment of the option holders within the Group. In accordance with IFRS 2, a further £798,413 has been included in the consolidated statement of comprehensive income (see note 31). The put and call option over certain growth shares that have been issued to Fluent's wider management team has been accounted for under IFRS 2 Share-based Payments as exercise is solely contingent upon continued employment. In accordance with IFRS 2, a further £347,903 has been included in the consolidated statement of comprehensive income (see note 31). 

Vita Financial Limited

On 12 July 2022 Mortgage Advice Bureau (Holdings) plc increased its stake in Vita Financial Limited ("Vita") from 49% to 75% of the entire issued share capital.

Costs relating to the amortisation of acquired intangibles amounted to £32,700 in the year ended 31 December 2022. In addition to this, the Group incurred £14,400 of costs in the year ended 31 December 2022 which related to the acquisition of Vita Financial Limited.

Aux Group Limited

On 3 November 2022 Mortgage Advice Bureau (Holdings) plc acquired 75% of the entire issued share capital of Aux Group Limited ("Auxilium").

Costs relating to the amortisation of acquired intangibles amounted to £54,846 in the year ended 31 December 2022. In addition to this, the Group incurred £130,063 of costs in the year ended 31 December 2022 which related to the acquisition of Aux Group Limited.

There is a put and call option over the remaining 25% of the issued share capital of Auxilium has been accounted for under IAS 32 and IFRS 2 Share-based Payments, as respectively a proportion is treated as consideration under IAS 32, with the balance treated as remuneration under IFRS- 2 because the amount payable on exercise of the option consists of a non-contingent element, and an element that is contingent upon continued employment of the option holder within the Group. In accordance with IFRS 2, a further £7,497 has been included in the consolidated statement of comprehensive income (see note 31).

Operating profit is stated after the following items:

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, which are the Directors of Mortgage Advice Bureau (Holdings) plc.

During the year retirement benefits were accruing to 2 Directors (2021: 2) in respect of defined contribution pension schemes.

The total amount payable to the highest paid Director in respect of emoluments was £858,176 (2021: £830,796). The value of the Group's contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to £nil (2021: £nil).

During the year, interest accrued in previous years of £nil was paid (2021: £23,602).

The interest expense during the year mainly relates to a new term loan and revolving credit facility entered into during the year (see note 22).

For the year ended 31 December 2022 the deferred tax credit relating to unexercised share options recognised in equity was £783,556 (2021: £558,869 - charge). A charge of £16,568 (2021: £89,639) was recognised in deferred tax in equity as a result of remeasurements arising from changes to UK corporation tax rates.

10 Earnings per share

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

The reconciliation between the basic and adjusted figures is as follows: