Mortgage Advice Bureau Regulatory News (MAB1)

MORTGAGE ADVICE BUREAU (HOLDINGS) PLC

28 March 2017

Final Results for the year ended 31 December 2016

Mortgage Advice Bureau (Holdings) PLC is pleased to announce its final results for the year ended 31 December 2016. 

This announcement contains inside information.

Financial highlights

· Revenue up 23% to £92.8m (2015: £75.5m)

· Gross margin broadly maintained at 23.9% (2015: 24.2%)

· Profit before exceptional gain1 and tax up 20% to £12.5m (2015: £10.4m)

· Profit margin before exceptional gain1 and tax of 13.5% (2015:13.8%)

· Eighth consecutive year of strong revenue and profit growth

· High operating profit to cash conversion2 of 128% (2015: 112%)

· EPS before exceptional gain1 of 20.3p up 18% (2015: 17.2p)

· Proposed final dividend of 10.5p making a total dividend (excluding special dividends) of 18.3p, up 27%, for 2016 (payout ratio of 90%)

· Paid special dividends of 5.35p following the sale of stake in Capital Private Finance Limited for £2.7m

· Strong financial position with significant surplus on regulatory capital

· Total cash balances of £18.7m (2015: £14.0m)

· Unrestricted cash balances of £10.8m (2015: £8.2m)

Operational highlights

· Adviser numbers up 20% to 950 at 31 December 2016 (2015: 790); with further growth since the year end of 26 to 976 at 24 March 2017

· Average number of Advisers in 2016 up 23% to 888 (2015: 720)

· Four strategic investments completed: Freedom 365, Vita, Clear and Australian joint venture

· Demonstrating continued operational leverage: overheads ratio reduced to 11.1% (2015: 11.6%)

1 £2.7m profit on disposal of 49% stake in Capital Private Finance Limited

2 Cash flow from operating activities adjusted for non-trading items including loans to Appointed Representative firms ("ARs"), loans to associates and other non-trade receivables as a % of operating profit. This is now calculated using cash flow before income taxes paid as a fairer representation of cash conversion as % of operating profit. Excluding increases in restricted cash balances of £2.1m, cash conversion for the year ended 31 December 2016 would have been 111% (2015: 95%).

Peter Brodnicki, Chief Executive commented: 

"I am delighted to report that MAB has yet again delivered an excellent set of results, with our eighth consecutive year of strong revenue and profit growth, despite the obvious headwinds in 2016. Revenue was up 23% to £92.8m with MAB's overall share of UK new mortgage lending increasing by 14% to 4.1%.

"We continue to enjoy a strong financial position following the four strategic investments we made in 2016, which are a key part of our strategy to maintain year on year market share growth and further strengthen MAB's overall market position."

Current Trading and Outlook

Adviser numbers have continued to grow since the year end with the Group reporting 976 Advisers at 24 March 2017, and we remain confident about our planned growth in adviser numbers in 2017 and 2018, both organically and from new ARs.

We believe continued specialisation, whether applied to lead generation, customer acquisition, the advice process or the expertise provided by the MAB team, will deliver better customer outcomes and enhanced business performance. The technology-focused businesses in which we have recently invested bring significant additional expertise in protection, telephone sales, lead generation and conveyancing. These investments extend our distribution and will be a key factor in increasing income opportunities for our AR partners, as we support them in adapting their business models to consumers' changing requirements.

The Council of Mortgage Lenders ("CML") recently published revised estimates for gross mortgage lending for 2016 and 2017 of £246bn and £248bn respectively, as well as publishing its first estimate for 2018 of £252bn. Regardless of the CML's prediction that gross mortgage lending growth will be relatively flat in 2017 and 2018, we are confident that with our strategy driven by our customer's future direction of travel, we can continue to grow our market share year on year and deliver attractive returns to investors.

For further information please contact:

Analyst presentation

There will be an analyst presentation to discuss the results at 08:30am today at the offices of Canaccord Genuity Limited, 88 Wood Street, London, EC2V 7QR.

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

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

Strategic report - Chief Executive's Review

Introduction

I am delighted to report that 2016 was our eighth consecutive year of strong revenue and profit growth despite the uncertainty that the EU referendum brought to the housing and mortgage markets last summer. We continue to focus our strategy on growth through specialisation, increasing our market share in all conditions and delivering strong returns for our investors.

Market environment

Housing transaction volumes overall have been relatively flat over the last three years, with a slight increase in mortgage transaction volumes. Both are predicted to be flat as we look ahead through 2017 and 2018 as the UK Government manages the exit of the UK from the EU. Intermediary market share has continued to rise and in the year ended 31 December 2016 reached 72% (excluding Buy-To-Let, where intermediaries have a higher market share, and product switches with the same lender).

Intermediaries previously had limited access to the product switching market in which customers change products with their existing lender. However, more lenders have started providing intermediaries with full access to this market which is estimated to be equal in size to the remortgage market which was c. £90bn in 2016. The CML industry data excludes product switches with the same lender.

In the most recent RICS housing forecast for 2017, house prices in the UK are predicted to see an average increase of 3% over the course of 2017 as the number of transactions stabilises.

Delivering on our strategy

Technology

MAB will always seek to be an early adopter of new and emerging technologies which is fast becoming a major differentiator within the intermediary sector. The strong position that MAB has built as a result of its proprietary MIDAS Pro platform and its in-house development team enables MAB to prioritise technology developments and will enable it to roll out robo-advice style initiatives throughout 2017/18.

As a result we expect MAB's distribution to be able to compete at the highest level with new robo-advice led entrants, whilst retaining the clear advantage of offering our customers the choice of how they want to research, receive advice and transact. Ease, speed and convenience are highly valued by customers and, by delivering such a service, MAB will be in a strong position to further grow its market share.

MAB also sees technology playing an ever increasing part in lead generation through highly effective data management and customer profiling, both of which are major areas of focus for the business.

Brand and distribution

Digital, brand and specialisation are major focuses for MAB as we continue to grow our market share and seek to attract potential new customers earlier in the research and decision making process. Within the next few years we expect to start to leverage our brand to support direct to consumer lead generation.

Developments in digital complement our strategy of providing consumers with a choice of how they want to research, receive advice and transact, which is at the heart of the MAB proposition. Telephone advice is likely to increase, complementing face to face advice which remains highly valued by consumers, and will continue to be supported by increasingly streamlined digital processes. MAB Regional Network Partners and carefully positioned and professionally branded mortgage shops further support this strategy.

Strategic investments and joint ventures

MAB only invests in companies that support our market share growth strategy and that are intended to deliver longer term solutions and income streams for MAB and its partner firms and advisers.

MAB's first strategic investment following IPO was in Sort Group Limited(1) ("Sort") in December 2015. Four further strategic investments have been made in 2016.

In March 2016, MAB acquired a 25% interest in Clear Mortgage Solutions Limited ("Clear"), to establish a Regional Network Partner in Scotland.

In June 2016, MAB acquired a 20% interest in protection specialists Vita Financial Limited ("Vita"), further enhancing MAB's protection service proposition. Having researched the market for the best specialists in protection, Vita stood out as the ideal partner for MAB. MAB is helping the business scale whilst maintaining Vita's extremely high quality customer service and performance levels. Although MAB advisers perform strongly overall in terms of protection, MAB's partnership with Vita is helping the Group deliver even higher levels and consistency of protection advice across the Group, and we expect to see a positive impact on adviser productivity over the next few years.

In September 2016, MAB acquired a 35% interest in Freedom 365 Mortgage Solutions Limited ("Freedom 365"), a newly formed entity, which started trading in that month. Leveraging the Freedom group's existing telephony expertise, Freedom 365 is building a highly scalable data management and telephony model for national lead sources, including on-line estate agency business partners, which should further increase MAB's market share.

In considering opportunities for extending MAB's distribution outside the UK, we saw many similarities between the UK and Australian mortgage markets. In December 2016, MAB entered into a new joint venture, MAB Broker Services Pty Ltd ("MAB Broker Services"), with Mortgageport Management Pty Limited, a mortgage manager and mortgage broker based in Sydney. MAB Broker Services started trading in that month under the Mortgage Advice Bureau brand. The joint venture will embrace many of the proven systems and processes adopted by MAB in the UK, with centralised lead generation, and telephone and regionally based advisers combining to deliver a comprehensive service to the Australian public.

(1) The Group invested in Sort Limited on 10th December 2015, on 11 January 2016 a new holding company, Sort Group Limited, was put in place.

Summary

Our market share strategy is clear and consistent and it is our customer's future direction of travel that drives our strategic priorities for 2017 and beyond. At MAB, specialisation is a major driver of strategy, whether applied to lead generation, customer acquisition, the advice process or the expertise provided by the MAB team, as we believe this delivers better customer outcomes as well as enhanced business performance.

Businesses in which we have recently invested bring significant additional expertise in protection, telephone sales, lead generation, and conveyancing with each being very much consumer and technology-focused. These investments extend our distribution and will be a key factor in delivering an exceptional customer experience, whilst further increasing income opportunities for our AR partners, as we support them in adapting their business models to consumers' changing requirements. This, along with our increasing investment in the MAB brand and additional key appointments, will enable us to lead from the front and drive the forthcoming changes in our industry.

Business Review of 2016

I am pleased to report strong growth in revenue of 23% to £92.8m with profit before exceptional gain and tax rising by 20% to £12.5m. MAB's gross mortgage lending increased by 28% to £10.0bn in 2016, with MAB's overall share of UK new mortgage lending increasing by 14% to 4.1%.

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

In August 2016 MAB announced that it had completed the sale of its 49% stake in CPF for consideration in cash of £2.7m. Following confirmation that the Substantial Shareholding Exemption applied to the capital gain arising on MAB's sale of its stake in CPF, so that no corporation tax was payable on the capital gain, MAB has now distributed the post-tax profit on disposal of £2.7m to shareholders in full by way of special dividends. MAB's exposure to the London market reduced to c.6% in terms of revenue as a result of the disposal.

Regulatory changes

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

Industry data and trends

Housing purchase transactions by volume in the UK for the whole of 2016 were broadly flat compared with 2015, as demonstrated in the graph below, with property inflation of 7.5% (1) being the primary factor that accounted for the increase of 12% in UK mortgage lending overall. The spike in March 2016 ahead of stamp duty changes in April 2016 is evident from the graph below.

http://www.rns-pdf.londonstockexchange.com/rns/6798A_1-2017-3-27.pdf

(1) Land Registry House Price Index

The increases in gross mortgage lending are illustrated in the graph below. UK gross mortgage lending in 2016 for home-owner purchases and remortgages grew by 7% and 19% respectively. UK gross mortgage lending in 2016 for BTL purchases reduced by 4% whereas UK gross mortgage lending for BTL remortgages increased by 15%.

http://www.rns-pdf.londonstockexchange.com/rns/6798A_-2017-3-27.pdf

Approximately 72% of UK mortgage transactions (excluding Buy-To-Let, where intermediaries have a higher market share, and product switches with the same lender) were via an intermediary in 2016, up from less than 50% in 2012. MAB expects this intermediary market share to remain broadly stable going forwards.

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

http://www.rns-pdf.londonstockexchange.com/rns/6798A_2-2017-3-27.pdf

Financial performance

Revenues

Revenues were up 23% to £92.8m (2015: £75.5m). A key driver of revenue is the average number of Advisers in each financial year. Our business model continues to attract forward thinking ARs who are seeking to expand and grow their market share. Average Adviser numbers increased by 23% to 888 (2015: 720) during the period from a combination of the recruitment of new ARs and the expansion of existing ARs.

The Group generates revenue from three core areas which can be summarised as follows:

MAB's revenue mix is as follows:

All income sources continued to grow strongly, although average revenue per adviser was flat due to the impact of a lull in activity in the housing and mortgage market driven by uncertainty surrounding the EU referendum. The spike in BTL applications as a result of the stamp duty changes in April 2016 and increased remortgaging affected growth in protection revenue in H1 2016 owing to lower penetration of protection products for BTL mortgages and remortgages, but this has rebalanced for the year as a whole.

Gross profit margin

Gross profit margin was broadly maintained at 23.9% (2015: 24.2%). The Group receives a slightly reduced margin as our existing ARs grow their revenue organically through increasing their Advisers. During the year MAB continued to attract some larger AR firms, which has driven strong growth in Adviser numbers and revenue. These larger new ARs, however, typically join the Group on lower than average margins due to their existing scale which therefore impacts upon gross margin.

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

Overheads

Following absorption of £0.4m of FSCS supplementary levies in the year ended 31 December 2016 (which the FSCS announced following the year end), overheads as a percentage of revenue were 11.1% (2015: 11.6%). This reduction in overheads as a percentage of revenue demonstrates the scalable nature of the cost base. Certain costs, primarily those relating to compliance, which represent approximately 40 per cent. of our cost base, are closely correlated to the growth in the number of Advisers, due to the high standards we demand and the requirement to maintain regulatory spans of control. The remainder of MAB's costs typically rise at a slower rate than revenue which will, in part, counter the expected erosion of gross margin as the business continues to grow. Going forward, we expect to see a further reduction in overheads as a proportion of revenue.

Profit before exceptional gain and tax and margin thereon

Profit before exceptional gain and tax rose by 20% to £12.5m (2015: £10.4m) with the margin thereon being 13.5% (2015: 13.8%). Reported profit before tax, which includes the exceptional gain of £2.7m arising on the disposal of MAB's 49% stake in Capital Private Finance Limited, increased by 46% to £15.2m (2015: £10.4m).

Net finance revenue 

Net finance revenues of £0.07m (2015: £0.14m) reflect continued low interest rates.

Taxation

The effective rate of tax increased to 18.4% (2015: 16.9%) principally due to MAB's research and development claim for development on MIDAS Pro during 2014 and 2015 both being credited against the 2015 tax charge. Going forwards we would expect our effective tax rate to be marginally below the prevailing UK corporation tax rate subject to the tax credits for MAB's research and development expenditure still being available in respect of our continued development on MIDAS Pro.

Earnings per share and dividend

EPS before exceptional gain1 rose by 18% to 20.3 pence (2015:17.2 pence).

The Board is pleased to propose a final dividend for the year ended 31 December 2016 of 10.5 pence per share (2015: 9.5 pence per share), amounting to a cash cost of £5.3m. Following payment of the dividend, the Group will continue to maintain significant surplus regulatory reserves. This final dividend represents circa 90% of the Group's post-tax profits for H2 2016 and reflects our ongoing intention to distribute excess capital. MAB requires circa 10% of its profit after tax to fund increased regulatory capital and other capital expenditure.

The record date for the final dividend is 5 May 2017 and the payment date is 31 May 2017. The ex-dividend date will be 4 May 2017.

Cash flow

The Group's operations produce positive cash flow with net cash inflow from operating activities of £13.4m (2015: £11.0m).

 Adjusted cash flow2 from operating activities as a % of operating profit

2016 128%

2015 112%

The Group's operations are capital light with its most significant ongoing capital investment being in computer equipment. Only £0.3m of capital expenditure was required during the year (2015: £0.1m). Group policy is not to provide company cars, and no significant capital expenditure is foreseen in the coming year. All development work on MIDAS Pro is treated as revenue expenditure.

The Group had no bank borrowings as at 31 December 2016 (2015: £nil) with unrestricted bank balances of £10.8m (2015: £8.2m).

The Group has a regulatory capital requirement amounting to 2.5% of regulated revenue. At the end of 2016 this regulatory capital requirement was £2.1m (2015: £1.7m).

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

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

1 £2.7m profit on disposal of 49% stake in Capital Private Finance Limited

2 Cash flow from operating activities adjusted for movements in non-trading items including loans to ARs, loans to associates and other non-trade receivables as a % of operating profit. This is now calculated using cash flow before income taxes paid as a fairer representation of cash conversion as % of operating profit. Excluding increases in restricted cash balances of £2.1m, cash conversion for the year ended 31 December 2016 would have been 111% (2015: 95%).

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

We have audited the financial statements of Mortgage Advice Bureau (Holdings) plc for the year ended 31 December 2016 which comprise the group statement of financial position and company balance sheet, the group statement of comprehensive income, the group statement of cash flows, the group statement of changes in equity and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

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

Respective responsibilities of directors and auditors

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

Scope of the audit of the financial statements

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

Opinion on financial statements

In our opinion:

· the financial statements give a true and fair view of the state of the group's and the parent company's affairs as at 31 December 2016 and of the group's profit for the year then ended;

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

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

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

Opinion on other matters prescribed by the Companies Act 2006

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

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

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

Matters on which we are required to report by exception

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

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

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

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

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

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

Leigh Treacy (senior statutory auditor)

For and on behalf of BDO LLP, statutory auditor

London

27 March 2017

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 2016

Consolidated statement of financial positionas at 31 December 2016

Consolidated statement of changes in equityfor the year ended 31 December 2016

Consolidated statement of cash flowsfor the year ended 31 December 2016

Notes to the consolidated financial statementsfor the year ended 31 December 2016

1 Accounting policies

Basis of preparation

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

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

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

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

The Group made an operating profit of £12.5m during 2016 (2015: £10.3 million) and had net current assets of £8.6m at 31 December 2016 (31 December 2015: £6.4m) and equity attributable to owners of the Group of £15.2m (31 December 2015: £12.9m).

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

Changes in accounting policies

New standards, interpretations and amendments effective year ended 31 December 2016

The following new standards, interpretations and amendments are effective for annual periods beginning on or after 1 January 2016 and have been applied in preparing these financial statements. None of these new standards or interpretations have a significant impact on the annual consolidated financial statements of the Group.

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

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

1 Accounting policies (continued)

New standards, interpretations and amendments effective year ended 31 December 2016 (continued)

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

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

§ The materiality requirements in IAS 1

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

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

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

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

· Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception. The amendments address issues that have arisen in applying the investment entities exception under IFRS 10 Consolidated Financial Statements. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value.

Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to tis interests in subsidiaries.

These amendments are applied retrospectively and do not have any impact on the Group as the Group does not apply the consolidation exception.

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

1 Accounting policies (continued)

New standards, interpretations and amendments effective year ended 31 December 2016 (continued)

Annual Improvements 2012-2014 Cycle

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

· IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Assets (or disposal groups) are generally disposed of either through sale or distribution to the owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment is applied prospectively.

· IFRS 7 Financial Instruments: Disclosures

(i) Servicing contracts

The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement set out in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be made retrospectively. However, the required disclosure need not be provided for any period beginning before the annual period in which the entity first applies the amendments.

(ii) Applicability of the amendments to IFRS 7 to condensed interim financial statements

The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amendment is applied retrospectively.

· IAS 19 Employee Benefits. The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment must be applied prospectively.

· IAS 34 Interim Financial Reporting. The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g. in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment must be applied retrospectively.

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016

1 Accounting policies (continued)

New standards, interpretations and amendments not yet effective

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

· IAS 7 Disclosure Initiative - Amendments to IAS 7. The amendments to IAS 7 Statement of Cash Flows are part of the IASB's Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of the amendments will result in additional disclosures provided by the Group.

· IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12. The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in the opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact. These amendments are effective for annual periods beginning on or after 1 January 2017 with early application permitted. If an entity applies the amendments for an earlier period, it must disclose that fact. These amendments are not expected to have any impact on the Group.

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

· IFRS 15 Revenue from Contracts with Customers. This was issued by the IASB on 28 May 2014 and applies to an entity's first annual IFRS financial statements for a period beginning on or after 1 January 2018. It sets out the requirements for recognising revenue that apply to contracts with customers, except for those covered by standards on leases, insurance contracts and financial instruments. This amendment is not expected to have any impact on the Group.

· IFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2. The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash-settled to equity-settled.

Notes to the consolidated financial statementsfor the year ended 31 December 2016

1 Accounting policies (continued)

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

On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. The Group is assessing the potential effect of the amendments on its consolidated financial statements.

· IFRS 16 Leases. IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expenses on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under IFRS 16 is substantially unchanged from today's accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transition provisions permit certain reliefs.

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016

1 Accounting policies (continued)

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

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

Basis of consolidation

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

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

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

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016

1 Accounting policies (continued)

Property, plant and equipment

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

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

Freehold land not depreciated

Freehold buildings 36 years

Fixtures and fittings 20%

Computer equipment 33%

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

Goodwill

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

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

Other intangible assets

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

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

1 Accounting policies (continued)

Impairment of non-financial assets

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

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

Unquoted investments

Unquoted investments are shown at cost less provision for impairment.

Financial assets

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

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within cost of sales in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

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

Trade and other payables

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

Retirement benefits: Defined contribution schemes

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

1 Accounting policies (continued)

Provisions

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

Share capital

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

Revenue

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

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

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

Leased assets

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

Finance income

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

Exceptional items

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

1 Accounting policies (continued)

Taxation

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

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

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

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

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

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

· the same taxable group company, or

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

Segment Reporting

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

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

1 Accounting policies (continued)

Dividends

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

Share-based payments

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

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

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

2 Critical Accounting Estimates and Judgements

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The Directors consider that the estimates and judgements that have the most significant effect on the carrying amounts of assets and liabilities within the financial statements are set out below.

(a) Impairment of goodwill

The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Actual outcomes may vary. More information including carrying values is included in note 12.

(b) Impairment of trade and other receivables

Judgement is required when determining if there is any impairment to the trade and other receivable balances. Trade receivables are reviewed for impairment if they are past due and are not repaid within the terms of the contracts. Other receivables, which include loans, are reviewed for impairment when there are any indications that they may not be recoverable and that security held against the balance may be inadequate to fully cover the amount outstanding. A provision for impairment will be made if following review of the balances, the Group considers it unlikely that any balance will be recovered. More information is included in note 15.

(c) Clawback Provision

The provision relates to the estimated value of repaying commission received up front on life assurance policies that may lapse in a period of up to four years following inception. The provision is calculated using a model that has been developed over several years. The model uses a number of factors including the total unearned commission at the point of calculation, the age profile of the commission received, the Group's proportion of any clawback, likely future lapse rates, and the success of the Group's team that focuses on preventing lapses and/or generating new income at the point of a lapse. More information is included in note 19.

(d) Freehold building

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

3 Revenue

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

4 Cost of sales

 Costs of sales are as follows:

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

5 Profit from operations

Profit from operations is stated after charging the following:

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

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

6 Staff costs

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

6 Staff costs (continued)

Key management compensation

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

During the year retirement benefits were accruing to 1 director (2015: 1) in respect of defined contribution pension schemes.

The total amount payable to the highest paid director in respect of emoluments was £619,873 (2015: £653,217). The value of the Group's contributions paid to a defined contribution pension scheme in respect of the highest paid director amounted to £nil (2015: £nil).

7 Finance income

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

8 Income Tax

Changes in the taxation rate

Legislation to reduce the main rate of corporation tax to 19% from 1 April 2017 and to 17% from 1 April 2020 had been enacted and so the deferred tax balance has been calculated at 17% (2015: 18%).

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

9 Earnings Per Share

a) Earnings per share

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

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

b) Adjusted earnings per share

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

10 Dividends

The record date for the final dividend is 5 May 2017 and the payment date is 31 May 2017.The ex-dividend date will be 4 May 2017.

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

11 Property, Plant and Equipment

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

12 Intangible Assets

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

Under IAS 36, "Impairment of assets", the Group is required to review and test its goodwill annually each year or in the event of a significant change in circumstances. The impairment review conducted at the end of 2016 concluded that there had been no impairment of goodwill and the recoverable amount is in excess of £16 million.

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

13 Investments

Investment in Associates

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

13 Investments (continued)

Investment in Associates (continued)

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

The Group was entitled to 49% of the results for Capital Private Finance Limited up to 30 June 2016. The Group is also entitled to 49% of the results of CO2 Commercial Limited, and MAB Wealth Management Limited by virtue of its 49% equity stakes. CO2 Commercial Limited is a dormant holding company, and trades through its wholly owned subsidiary, Pinnacle Surveyors (England & Wales) Limited. The Group is entitled to 45% of the results of MAB Broker Services PTY Limited by virtue of its 45% equity stake, 35% of the results of Freedom 365 Mortgage Solutions Limited by virtue of its 35% equity stake, 25% of the results of Buildstore Limited and Clear Mortgage Solutions Limited by virtue of its 25% equity stakes and 20% of the results of Vita Financial Limited by virtue of its 20% equity stake.

On 11 January 2016 a new holding company, Sort Group Limited, was put in place such that Mortgage Advice Bureau Limited now owns 33.25% of Sort Group Limited and Sort Group Limited in turn owns 69.18% of Sort Limited and also 69.18% of Sort Technology Limited. Mortgage Advice Bureau Limited's effective holding in Sort Limited did not change as a result of this and remains at 23%. Mortgage Advice Bureau Limited also has an effective holding of 23% in Sort Technology Limited. The Group is entitled to 33.25% of the results of Sort Group Limited by virtue of its 33.25% equity stake.

Acquisitions and disposals during the year

The Group acquired a 25% interest in Clear Mortgage Solutions Limited on 18 March 2016 at a cost of £50,000 plus contingent consideration of up to £50,000 payable in 2017 depending on the audited results of Clear Mortgage Solutions Limited for the financial year ended 31 December 2016. The full £50,000 contingent consideration has been provided for in these financial statements. Also during the year the Group acquired a 20% interest in Vita Financial Limited on 30 June 2016 at a cost of £150,000, a 35% interest in Freedom 365 Mortgage Solutions Limited on 22 September 2016 at a cost of £350 and a 45% interest in MAB Broker Services PTY Limited on 9 December 2016 at a cost of £2,666 (AUD4,500).

On 31 July 2016, the Group disposed of its 49% holding in Capital Private Finance Limited for sale proceeds of £2.7m which resulted in a net profit on sale of £2.69m.

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

13 Investments (continued)

Investment in Associates (continued)

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

13 Investments (continued)

Investment in Associates (continued)

The details of Capital Private Finance Limited for the period up to the date of disposal were as follows:

The amounts disclosed for revenue, profit before tax, total comprehensive income, profit attributable to Group and dividends received are included in the amounts disclosed in the figures for "Others" in the table for 2016 as set out above. The balance sheet details are not included in the table above.

All associates prepare their financial statements in accordance with FRS 102 other than Clear Mortgage Solutions Limited who prepare their financial statements in accordance with UK GAAP and MAB Broker Services PTY Limited who prepare their financial statements in accordance with the Australian Accounting Standards. There would be no material difference to the accounts of any of the associates other than Sort Group Limited if these were prepared in accordance with IFRS. For Sort Group Limited amortisation of £86,981 has been charged for the year on goodwill arising on consolidation, no amortisation would be charged under IFRS.

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

Unlisted investment

The unlisted investment represents a 0.05% shareholding in Twenty7tec Limited, a company that licenses certain mortgage sourcing software. The net book value of the investment at 31 December 2016 was £150 (2015: £150).

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

14 Subsidiaries

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

Acquisitions

On 8 December 2016 the Group acquired a 100% interest in Mortgage Advice Bureau Australia (Holdings) PTY Limited which was a newly incorporated entity. Mortgage Advice Bureau Australia (Holdings) PTY Limited has a 100% equity stake in Mortgage Advice Bureau PTY Limited and also a 45% equity stake in MAB Broker Services PTY Limited.Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

14 Subsidiaries (continued)

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

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

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

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

Mortgage Advice Bureau Australia (Holdings) PTY Limited holds 100% of the ordinary share capital of Mortgage Advice Bureau PTY Limited.

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

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

15 Trade and Other Receivables

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

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

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

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

15 Trade and Other Receivables (continued)

In light of the above, the Directors do not consider that disclosure of an aging analysis of past due but not impaired receivables would provide useful additional information. The Group has not recognised a provision for impairment of these balances because there is no objective evidence that they are impaired. Further information on the credit quality of financial assets is set out in note 18.

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

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above less collateral held as security. Details of security held are given in note 18.

No other balances are past due or impaired.

16 Cash and cash equivalents

Bank balances held in relation to retained commissions earned on an indemnity basis in relation to life policies are held to cover potential future lapses in Appointed Representatives commissions. Operationally the Group does not treat these balances as available funds. An equal and opposite liability is shown within Trade Payables (note 17).

Notes to the consolidated financial statementsfor the year ended 31 December 2016 (continued)

17 Trade and Other Payables