Propty Franchis Regulatory News (TPFG)

MartinCo PLC ("MartinCo or the "Group")

Final Results for the Year Ended 31 December 2014

Step-change in Group size as a result of major acquisition

MartinCo PLC is the holding group for three master property franchises operating a network of 282 offices stretching from Falmouth to Inverness. The Directors believe that MartinCo PLC is now the 4th largest (by office numbers) lettings and estate agency business in the UK.

The vision is to continue to use its successful franchise model to build a significant share of the UK lettings and estate agency market using multiple brands, some of which are strong within regional catchments.

Operational Highlights

· Xperience acquisition increases footprint significantly - office numbers increased 49% from 189 to 282 in 49 new locations

· Number of tenanted managed properties increased from 30,623 to 32,210 at Martin & Co. Total across the Group was more than 42,000 at year end

· Total of 14 new Martin & Co franchisees recruited, six new offices opened (Inverness, Guisborough, Sunderland, Fitzrovia, Wilmslow & Sheffield) and two offices preparing to launch (Plymouth & Edinburgh)

· 23 offices with annual fee income over £500k of which 11 are Martin & Co and 12 are Xperience brands

· Group remains heavily weighted toward lettings market, accounting for 78% of Management Services Fees revenue

· Strong cash position of £3.4m at year end with £5m (£2.5m undrawn) debt facility agreed during the period

Financial Highlights

· Revenue* increased 25% to £5.2m (2013: £4.1m)

· Management Service Fees increased 16% to £4.1m (2013: £3.5m)

· Operating Profit** increased 26% to £2.0m (2013: £1.6m)

· Profit before tax increased 115% to £1.9m (2013: £0.9m)

· Net Assets increased 26% to £6.3m (2013: £5.0m)

· Proposed final dividend of 2.7p per share, making total for 2014 of 4.0p per share

*Excluding discontinued operations

** Before acquisition costs

Chairman's Statement

Our maiden year as a public company has seen strong delivery on the acquisition strategy which was a cornerstone of our IPO proposition to investors.

Key strengths

· Pure franchise business model

· Truly national office footprint

· Core market (residential lettings) enjoying steady growth

· Cash generative with a strong balance sheet

· Experienced management

· Further acquisition opportunities

I am delighted to report strong progress on a number of fronts. Following the fund raise of £4m at IPO our investors' expectations were that we would execute a "buy and build" strategy targeting competitor lettings businesses. Our stated goal was to build our portfolio and reach 40,000 tenanted managed properties within two years of the listing.

At our first Board meeting of 2014 we approved an approach to Legal & General PLC to acquire its entire property franchise business ("Xperience"). The Board could see merit in acquiring not only a substantial portfolio of tenanted managed properties (circa 10,000) but additionally 89 franchised offices across four well-respected brands with real depth to their appeal within specific regional markets. We concluded the Xperience acquisition in late October and in the final two months of the financial year it contributed circa £150,000 to our pre-tax profits.

When I founded Martin & Co in Yeovil in 1986 it began life as an estate agency. Later I realised that the strong demand for rented properties could provide the business with a recurring and accretive monthly income. When the franchise launched in 1995 we focused primarily on lettings because the rental market was expanding rapidly and serviced by relatively few professional letting specialist companies and none with a national brand profile.

Martin & Co has since demonstrated that the residential lettings industry has remained stable through economic cycles. This, combined with the strength of our brand, makes Martin & Co attractive to people who wish to become franchisees and build their own lettings businesses. The Group's strong support network has been essential to the continued development of our franchisees and helping them build a successful franchise business.

In 2012, the Group introduced an estate agency service to enhance the Martin & Co brand. With the property market cycle turning in our favour the management team felt the timing was right to accelerate the roll out of the service. I'm delighted to say that by the close of 2014 we had 155 Martin & Co offices offering an estate agency service, now joined by 88 offices from the Xperience brands. The Martin & Co estate agency business achieved a 138% year-on-year increase in Management Service Fee revenue and the Directors believe that there is significant potential for further development of this income stream.

In conclusion I believe that the decision of our Board to undertake an IPO has been vindicated by the early results. We have recruited 14 new franchisees compared to 3 in 2013, we have already exceeded our target of 40,000 tenanted managed properties, and we enter 2015 with a business which is 49% greater in size judged by the number of trading offices, up from 189 to 282.

I would like to thank the whole team and our franchisees for their commitment to the Group's business. With the support of its new shareholders MartinCo PLC has completed its first year as a public company and as the UK's economic recovery begins to gather momentum, we look forward to the future with confidence.

Richard Martin

Chairman

31 March 2015

Chief Executive's Statement

The fund raising at IPO allowed us to execute cleanly the acquisition of Xperience, and this will have major long benefits for the Group.

The acquisition of Xperience has extended the Group's footprint and added 44 locations where we had not formerly traded. It strengthened the Group's management, with the appointment of the Xperience Managing Director, Michael Stoop, to the new position of Group Managing Director. Michael brings a lifetime of estate agency and franchise experience to his remit of driving lettings and estate agency revenue across all five brands.

The Group has assisted its franchisees operationally and in some cases financially with a number of smaller scale acquisitions throughout the year adding approx. 850 properties to the tenanted managed property portfolio. In addition, the Group purchased the right to manage a portfolio of 374 properties in Saltaire, Yorkshire and appointed its franchisee to carry out the trade.

In line with its declared IT strategy, the rollout of cloud-based operational software to all Martin & Co offices was completed.

The objective of discontinuing company owned offices was achieved with the last remaining company owned and operated office (Worthing) being sold to a franchisee in December.

The relatively young Martin & Co estate agency business made good progress with a 138% year-on-year increase in Management Services Fee revenue and the number of Martin & Co offices offering the estate agency service increased during the period from 97 to 155. The Xperience acquisition adds another 88 offices offering this estate agency service.

The £5m loan facility arranged with Santander (£2.5m utilised at year end) and announced in October means that together with the £3.4m cash at year end the Group enjoys a strong financial position and other acquisitions will be pursued where these represent good value for shareholders.

Whilst public uncertainty in the prelude to a General Election can dampen housing market activity, nevertheless there are strong drivers which point toward increased lettings activity. A raft of pension reforms come into force on 6 April 2015 and it is the Directors' belief that these reforms will release pension funds which will be invested into buy-to-let properties With net migration running consistently, despite Government policy intervention, at 300,000 per annum, and restrictions on mortgage lending particularly affecting the young, it is the cash-rich older generation who can afford the 25% deposits on buy-to-let properties and there will be no shortage of tenants to occupy them. The Group remains largely lettings-led with a national footprint, diluting the effect of more difficult trading conditions in the London market.

I am particularly pleased by the rapid growth of the Group in its IPO maiden year. My only frustration would be that the scale of the Xperience acquisition of necessity distracted us from other opportunities and the deal took 10 months to conclude and therefore had a very limited impact on 2014 profit.

I am very positive about the outlook for our enlarged Group. We now have multiple franchise brands each capable of further development, and one of which (CJ Hole) is already a market leader within its geographical catchment of Somerset, Bristol & Gloucestershire. Our core lettings business, where 78% of our franchise royalty income is derived, remains in good health and we will see steady organic growth supplemented by tactical acquisitions. We are now the UK's 4th largest lettings and estate agency business (judged by office numbers) and by lending our Martin & Co letting expertise into the newly acquired Xperience offices, and with our new Group Managing Director, Michael Stoop imparting his lifetime of estate agency expertise into Martin & Co, we occupy a position of strength from which we can leverage advantage for our investors during 2015.

Ian Wilson

Chief Executive

31 March 2015

The Group's franchise model

Key strengths

· Five-year franchise, exclusive postcode territory

· New franchise territories cumulatively profitable by Year 3

· Franchise renewal subject to qualifying conditions

· Group control over branding, records and standards

· Very high levels of franchisee retention

Proposition

All franchisees receive initial training and mentoring, followed by ongoing access to regional training programmes, business development advice, legal and IT systems support, marketing campaigns and use of the brand website, assistance with recruiting specialist staff, obtaining start-up and expansion funding and business acquisitions. In return, the Group charges a management service fee of 9% levied on all fee income, in the case of Martin & Co franchisees, and 7.5% (currently) for franchisees of Xperience.

New franchisees at Martin & Co come from a wide variety of backgrounds; Xperience franchisees are typically career estate agents and letting agents who converted to franchisees having formerly run a Legal & General owned estate agency office. Typically a new franchisee launches in branded high street office premises with a member of staff and a branded vehicle.

A franchisee can only exit via a controlled sale to another franchisee approved by the Group (a 'resale') and a resale typically improves fee income at the business by 30% within 12 months of the change of franchisee.

We have built a stable footprint of experienced franchisees with the financial capacity and managerial capability for further business development.

Strategy and progress

Our mission is to be the dominant property franchise group in the UK by expanding our brand stable, range of services, network footprint and client base.

The Group expects to continue to grow its share of the UK private rental market. The Board believes that 55% of UK private rented sector (households) is now contained within territories occupied by the Group's franchisees. Mainly as a result of the Xperience acquisition the Group now trades in 49 new territories and it will continue to recruit new franchisees, convert competitors to join its franchise brands, and make selective acquisitions to move toward its goal of 500 occupied territories.

The Group will continue to develop a supportive environment in which motivated individuals can secure their financial future using a franchise model.

Chief Financial Officer's Review

The Group's successful acquisition of Xperience increases its earnings potential through an enlarged managed lettings portfolio and estate agency footprint.

*before exceptional costs

Revenue

Group revenue for the financial year to 31 December 2014 was £5.2m (2013:£4.1m), an increase of £1.1m (25%) over the prior year. This was driven by strong growth in Management Service Fees (royalties) of £0.6m (16%) and franchise sales of £0.2m (140%) over the prior year.

Management Service Fees increased £0.3m through organic growth and the acquisition of Xperience (Xperience Franchising Limited and Whitegates Estate Agency Limited) added a further £0.3m. The sale of franchises contributed an increase in revenue of £0.2m through the induction of 14 new Martin & Co franchisees, 5 of which were new offices (2013: 4 new Martin & Co franchisees, 2 of which were new offices). Management Service Fees represent the Group's main source of income and accounted for 78% (2013: 84%) of revenue from continuing operations with the remainder being franchise sales and ancillary services to support MSF generation.

In June 2014, the Group acquired its first portfolio of 374 managed lettings properties in Saltaire for £0.3m. This has been managed for the Group by Martin & Co Saltaire under a management services agreement and achieved its budgeted returns. However, portfolios that meet the Group's criteria have been difficult to find either because of the sales price or issues with the quality of the portfolio. On 21 November 2014 T G Fisheries Ltd, the franchisee operating Martin & Co Saltaire, notified the Group of its intention to purchase the portfolio of properties it was managing on behalf of the Group in accordance with the services agreement signed between the parties. At the year-end this asset is classified as held for resale. The sale was completed on 30 January 2015 resulting in the portfolio being disposed of for its net book value of £0.3m. This element of our acquisition strategy will play a minor role for the foreseeable future.

At the end of October 2014, the Group acquired Xperience, consisting of two companies - Xperience Franchising Limited and Whitegates Estate Agency Limited from Legal and General Estate Agencies Limited for consideration of £6.1m. Xperience had net assets of £1.1m on acquisition including £1.0m of cash. It was acquired debt free and with no intercompany loans. Xperience is a franchise lettings and estate agency business comprising four highly regarded high street brands CJ Hole, Parkers, Ellis & Co and Whitegates operating in specific regions of the UK from 89 offices. It has increased the number of territories in which the Group is represented by 44. Moreover, it has brought with it a management team of considerable experience in this sector and its Managing Director is now our Group Managing Director. For more information see note 29.

Xperience was the first corporate acquisition for the Group generating profit before tax of £0.15m on sales of £0.3m in the two months to 31st December 2014.

In December 2014 the final company owned office, Worthing, was sold to an existing franchisee for £0.2m marking the end of the Group's strategy of running company owned offices (of which there were five in 2013). During the year this owned office generated £0.2m (2013: £0.8m) of revenue and profit before tax of nil (2013: £0.2m).This has been classified as discontinued operations in the Consolidated Financial Statements. For more information see note 30.

Operating profit before exceptional items

Operating profit, before exceptional items was £2.0m for the year ended 31 December 2014, an increase of £0.4m (26%) over the prior year.

Total administrative expenses were £2.8m an increase of £0.5m (20%) over the prior year. The costs of being a plc contributed £0.3m to the increase and the costs attributable to Xperience, another £0.1m. There were administrative cost savings in Martin & Co but these were offset by a larger franchisee support team adding £0.1m.

Exceptional items

The exceptional costs reported in the Consolidated Statement of Comprehensive Income are £0.2m (2013: £0.7m) and all relate to the Xperience acquisition on 31 October 2014 whereas in 2013 they all relate to the placing and listing on AIM.

Profit before tax

The profit before tax was £1.9m for the year ended 31 December 2014 and increase of £1.0m (115%) over the prior year.

Taxation

The effective rate of corporation tax for the year was 21.6% (2013:39%) due to the exceptional costs not being allowable as a deduction from profits. The total tax charge for 2014 is £416k (2013: £411k) of which £411k relates to continuing activities and £5k to discontinued activities.

Earnings per share

Earnings per share for the year were 6.9p (2013: 3.5p). The profit attributable to owners was £1.5m (2013: £0.6m).

Dividends

The Board is proposing a final dividend of 2.7p per share for 2014 which, together with the interim dividend of 1.3p per share paid to shareholders on 30 September 2014, equates to a total dividend for the financial year of 4.0p. Subject to shareholder approval at the AGM, the final dividend will be paid on 11 May 2015 to all shareholders on the register at the close of business on 24 April 2015.

Cash flow

The net cash inflow from operating activities in 2014 was £1.5m (2013: £1.3m) before exceptional costs of £0.2m (2013: £0.7m) as the Group continued to generate strong operating cash inflows.

The net cash used in investing activities was £5.0m (2013:£0.1m inflow):-

· On 3 June 2014, the Group purchased a portfolio of 374 managed lettings properties in Saltaire for £0.3m. 

· On 31 October 2014 the Group bought all the shares in Xperience Franchising Limited and Whitegates Estate Agency Limited for consideration of £6.1m. The companies had net assets of £1.1m on acquisition including cash of £1.0m (the net assets acquired are not shown separately in the Consolidated Statement of Cash Flows instead being included under their respective constituent headings). Net cash outflow of £5.1m

· The Worthing office was sold on 30 December 2014 and together with the collection of deferred consideration from three offices sold in 2013, generated a cash inflow of £0.4m (2013: £0.3m).

The total consideration for Worthing was £0.2m (2013: £0.7m). The Group agreed to defer consideration on the sale of Worthing as it had for three of the office disposals in 2013 so that £0.3m (2013: £0.4m) of deferred consideration existed at 31st December 2014.

The cash inflow resulting from the new facilities agreed with Santander UK plc in October 2014 of £2.5m and the interim dividend payment on 30th September 2014 of £0.3m resulted in net cash inflows from financing activities of £2.2m.

Liquidity

The Group had cash balances of £3.4m at the 31st December 2014 compared to £4.8m for the prior year.

Financial position

The Group is strongly cash generative which, together with the funds yet to be received on the sale of owned offices and its new facilities with Santander UK plc, puts it in a strong position to assist its franchisees in acquiring managed lettings portfolios and to fulfil the acquisition element of its strategic plan.

David Raggett

Chief Financial Officer

31 March 2015

MartinCo PLC - background

The Group operates as a pure franchise model primarily focused on UK residential lettings and property management services offered to private clients. We also have a developing income stream from estate agency services.

Traditionally, Martin & Co recruits new franchisees from a wide pool (83% do not come from a property background) and provide intensive training and "hands-on" support. The focus on lettings emanated from growth in this sector and the attraction of a recurring commission income stream from a portfolio of tenanted managed properties. After the financial crisis of 2008, the business recorded its peak flow of new franchisees and retail banks continued to lend support to its start-ups because of the strength of its franchise model.

The business added a sales-based estate agency service in 2012 principally to service investment property trades by its existing clients. More recently the service has been promoted to the general house buying public with an innovative "online" advertising service as a defensive play against the virtual estate agents who operate without high street premises.

A listing on AIM in December 2013 raised £4m of fresh capital to invest in a lettings business acquisition programme to supplement organic growth. In October 2014 MartinCo purchased the entire property franchise business of Legal & General, which operated as four franchise brands.

Based on the 2011 census the Group now contains 55% of total UK private rental households within its occupied franchisee territories, and of these it manages 1.58%.

The Group competes for rental instructions against Countrywide, LSL and Foxtons.

The newly acquired CJ Hole brand is ranked the No.1 agent based on independent customer satisfaction surveys in Bristol (allagents.co.uk) and No. 16 in the whole of the UK

An independent survey has revealed that 94% of Martin & Co landlord clients would recommend its service.

Key Group operational metrics

Our brand stable

Martin & Co

Martin & Co was established in 1986 and began franchising in 1995. It is a national brand with 193 offices widely distributed across the UK. Martin & Co is predominantly a specialist lettings and property management business with a truly national client base. The first franchise was sold in 1995 and the franchise has grown every year since The business mix is 94% lettings and 6% estate agency by management services fees revenue, and estate agency revenue grew by 138% year-on-year in 2014.

The most significant change in the past year is that the Martin & Co brand is no longer the sole trading brand of MartinCo PLC. As a result of the acquisition of Xperience, MartinCo PLC now operates five brands in parallel through three master franchises. Out of 282 franchise territories only 45 contain two brands from within our brand stable.

Xperience

Legal & General established Legal & General Franchising Ltd in 1992 in order to facilitate the transition from a model of directly owned and managed estate agency operations to a franchise model. Thirteen years later the brand "Xperience" was adopted to describe the whole of the property franchise business of Legal & General and selected to communicate the many years' of accumulated experience within its four established regional brands; Ellis and Co, Parkers, CJ Hole and Whitegates.

Ellis & Co

Ellis and Co opened its first office in Swiss Cottage, north-west London in 1850. The business expanded substantially in the 1960's and 70's before a period of retrenchment. It now has 20 offices within the M25 and 1 office in Tonbridge, Kent.

CJ Hole

CJ Hole was founded in Clifton, Bristol by Charles Joseph Hole in 1867 as a rent collection business.

Over the years, the focus of the business changed towards selling property as the company began to expand. Today, CJ Hole is a major force within the estate agency market in the South West with 19 offices throughout Bristol, Somerset and Gloucestershire, 2 of which were additions in 2015.

Parkers

Established in Gloucester in 1948, today Parkers is a dominant force in the South of England with a network of 15 offices along the M4 corridor.

Whitegates

Established in 1978, Whitegates is an estate agency with 36 offices across the North of England, including Yorkshire, Midlands, the North East, North West and Wrexham in north Wales. Whitegates derives approximately half of its income from lettings activity.

Awards

The Group provides lettings, estate agency and property management services to its clients through its network of franchised offices.

Martin & Co won 'Gold' for 'Best Large Letting Chain' at the ESTAS (Estate & Letting Agency Awards) in both 2009 and 2012 as well as 'Silver' in 2013 and 'Bronze' in the 2014. In 2013 Martin & Co won 'Silver' in the Sunday Times 'Lettings Agency of the Year' and again in 2014.

CJ Hole won 'Gold' in the Sunday Times South West 'Lettings Agency of the Year' in 2012 and 2014.

Ellis & Co won 'Gold' in the Sunday Times 'London Estate Agency of the Year' in 2013.

Market overview

In 2012-13, the private rented sector overtook the social rented sector to become the second largest tenure in England. Of the estimated 22.0 million households in England 18% (4.0 million) were private renters. This translates into a doubling in size of the private rented sector since 1999.

Underlying tenant demand remains strong and the number of households renting in England is expected to increase by 232,000 per year until 2033 according to DCLG Housing Projections.

The profile of renters remains skewed towards the relatively young, with 16 per cent of all private renters aged 16-24, and a further 36 per cent aged 25-34 in 2010-11. This is also the group that is finding it harder to raise the finance necessary to purchase a home.

In 2012-13, the average length of residence for owner occupiers was 17.3 years, for social renters it was 11.3 years, while for private renters the average length of residence was just 3.8 years. This means that the number of property letting transactions is approximately 1.0m annually in England of which it is believed 66% are handled by letting agents, a proportion which has been rising in recent years and reflects the fact that the majority of landlords are private individuals (89%), the regulatory environment has become more onerous and only agents can advertise pn the major property portal websites.

The UK private rental market is in a strong growth phase and growth has been strongest in the territories which the Group has occupied.

Consolidated statement of comprehensive income for the year ended 31 December 2014

Consolidated statement of financial position 31 December 2014

Consolidated statement of changes in equity forthe year ended 31 December 2014

Consolidated statement of cash flows for the year ended 31 December 2014

Notes to the consolidated statement of cash flows for the year ended 31 December 2014

1. Reconciliation of profit before income tax to cash generated from operations

2. Purchase of Subsidiary undertakings net of cash acquired

During the year the Group obtained control of Xperience Franchising Limited and Whitegates Estate Agency Limited.

 Notes to the consolidated financial statements for the year ended 31 December 2014

1. General information

The principal activity of MartinCo PLC and its Subsidiaries is that of a UK residential property franchise business. The Group operates in the UK. The Company is a public limited company incorporated and domiciled in the UK. The address of its head office and registered office is 2 St Stephen's Court, St Stephen's Road, Bournemouth, Dorset, UK.

2. Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and IFRS Interpretations Committee (IFRS IC) as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention. As set out in note 23, the acquisition of Martin & Co (UK) Ltd in 2013 was accounted for as if it had been owned for the whole period.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 5.

The presentational currency of the financial statements is in British pounds and amounts are rounded to the nearest pound.

Going Concern

The Group has produced detailed budgets, projections and cash flow forecasts. The Directors have concluded after reviewing these budgets, projections and forecasts, making appropriate enquiries of the business and having considered uncertainties under the current economic environment, that there is a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. Accordingly, they have adopted the going concern basis in preparing the Financial Statements.

New standards, amendments and interpretations issued

Principal standards, amendments and interpretations that became effective in 2014 but have no effect on the Group's operations:

' IFRS 10 'Consolidated Financial Statements' (effective for annual periods beginning on or after 1 January 2014)

' IFRS 11 'Joint arrangements' (effective for annual periods beginning on or after 1 January 2014)

' IFRS 12 'Disclosure of interests in other entities' (effective for annual periods beginning on or after 1 January 2014)

' IAS 27 'Consolidated and Separate Financial Statements' (effective for annual periods beginning on or after 1 January 2014)

The following standards and interpretations, that may be relevant to the Group operations that have not been applied in the Financial Statements, were in issue:

· IFRS 9 'Financial Instruments' (effective for annual periods beginning on or after 1 January 2015, not yet endorsed).

· IAS 19 (revised) Employee Benefits - (effective for annual periods beginning on or after 1 July 2014).

· IFRS 15 'Revenue from contracts with customers' (effective for annual periods beginning on or after 1 January 2017, not yet endorsed).

The Directors anticipate that the adoption of these standards and interpretations would not have a material impact on the Financial Statements of the Group.

3. Basis of consolidation

The Group financial statements include those of the parent company and its subsidiaries, drawn up to 31 December 2014. Subsidiaries are all (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

On 31 October 2014 the Company acquired the entire issued share capital of Xperience Franchising Limited and Whitegates Estate Agency Limited for a consideration of £6,110,284.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.Acquisition-related costs are expensed as incurred.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. When necessary amounts reported by subsidiaries have been adjusted to conform with the Group's accounting policies.

4. Significant accounting policies

Revenue recognition

Revenue represents income, net of VAT, from the sale of franchise agreements, management service fees, levied to franchisees monthly based on their turnover, and the provision of training and ongoing support to franchisees.

Fees from the sale of franchise agreements are not refundable and are recognised upon the earlier of the receipt of funds or the signing of the franchise agreement. These fees are for the use of the brand along with initial training and support and promotion during the opening phase of the new office. Management service fees are recognised on a monthly basis, with other fees recognised when the training and support is provided to the franchisee.

Revenue also includes fees generated by offices operated by the Group. These offices invoice landlords on a monthly basis and so recognise the income during the period in which the work is carried out.

Operating profit

Profit from operations is stated before investment income, finance costs and other gains and losses.

Intangible assets - goodwill

Goodwill (being the difference between the fair value of consideration paid and the fair value of the identifiable assets at the date of acquisition) is capitalised. Goodwill is not amortised, but subject to an annual review for impairment (or more frequently if necessary). Any impairment is charged to the profit or loss as it arises.

An impairment loss is recognised for the amount by which the carrying value of goodwill exceeds its recoverable amount, which the Directors assess on a 'value in use' basis. To determine the value in use, management estimates expected future cash flows from trading operations, each business being one cash generating unit, and determines a suitable growth rate in order to calculate the present value of those cash flows. The discount factor reflects management's assessment of the risk profile of the business.

Discontinued operations

Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for sale in its immediate condition. Management must be committed to the sale, which should be expected within one year from the date of classification as held for sale.

Immediately before classification as held for sale, the assets are remeasured and recognised at the lower of their carrying amount and their fair value less costs to sell if their carrying amount essentially derives from their sale rather than their continued use. Assets classified as held for sale are not depreciated. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are included in the income statement. Gains are not recognised in excess of any cumulative impairment loss.

Profit after tax from operations qualifying as discontinued operations are presented separately as a single amount on the income statement. The assets held for resale and the liabilities held for resale are shown separately on the balance sheet. Results from operations qualifying as discontinued operations as of the balance sheet date for the latest period presented, that have previously been presented as results from continuing operations, are represented as results from discontinued operations for all periods presented.

In conditions where the classification of non-current assets as held for sale are no longer met, classification as held for sale ceases. Accordingly, results of operations, previously presented in discontinued operations, are reclassified and included in continuing operations for all periods presented. Non-current assets that cease to be classified as held for sale are remeasured at the lower of their carrying amount before classification as held for sale, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset not been classified as held for sale, and its recoverable amount at the date of the subsequent decision to sell.

Business combinations

On the acquisition of a business, fair values are attributed to the identifiable assets and liabilities and contingent liabilities unless the fair value cannot be measured reliably in which case the value is subsumed into goodwill. Where the fair values of acquired contingent liabilities cannot be measured reliably, the assumed contingent liability is not recognised but is disclosed in the same manner as other contingent liabilities.