Propty Franchis Regulatory News (TPFG)

MARTINCO PLC

("Martin & Co", the "Company" or the "Group")

Final Results for the year ended 31 December 2013

Record financial performance with revenue up 16% to £5.0m and operating profit up 28% to £1.8m

Well positioned for strong growth with an acquisition programme supplementing organic growth on lettings and roll-out of estate agency service

MartinCo Plc, one of the UK's largest property franchises, today announces its maiden full year results for the year ended 31 December 2013.

FINANCIAL HIGHLIGHTS*

§ Revenue increased by 16% to £5.0m (2012: £4.3m)

§ Operating profit before exceptional items increased by 28% to £1.8m (2012: £1.4m)

§ Management Service Fees increased by 13% to £3.5m (2012: £3.1m)

§ Operating margin improved to 36% (2012: 33%)

§ Strong balance sheet with a net cash position of £4.8m at 31 December 2013 (31 December 2012: £0.6m)

*Includes discontinued operations

OPERATIONAL HIGHLIGHTS

§ Successful IPO and listing on AIM raising £3.1m (net) of new funds in December 2013

§ Achieved 30,000 tenanted properties under management milestone

§ Roll out of estate agency service to 97 offices

§ The Group sells or lets a property throughout the UK every 7 minutes during office hours

§ Continued strong franchisee retention with 59% of the network trading under the brand for five years or more

§ Cloud-based operating software rolled out to 79% of the network and a central contact database created

Ian Wilson, CEO commented:

"2013 was a milestone year for MartinCo which culminated in achieving record revenues and profit. Our successful listing on AIM opens up new growth opportunities for the Group as it seeks to make strategic acquisitions to complement its organic growth.

"We take confidence that the improving conditions of the UK residential housing market will support our established lettings service offering as well as our growing sales service which has exceeded our expectations at this early stage."

The Annual Report and Accounts for the financial year ended 31 December 2013 and notice of the Annual General Meeting ("AGM") of the Company will be posted to shareholders on 7th April and will be available on the Company's website at www.martinco.com .

-Ends-

For further information, please contact:

Chairman's Statement

I am delighted to report on a landmark year for the Group and its maiden financial results as a PLC, following admission to AIM. Our residential property franchise model has continued to achieve robust growth and, by the year-end, the Group was managing over 30,000 properties across its 189 offices.

The Group has achieved a record financial performance with revenue including discontinued operations increasing 16% to £5.0m (2012: £4.3m). Operating profit including discontinued operations before exceptional items increased by 28% to £1.8m (2012: £1.4m) and profit before taxation including discontinued operations and before flotation costs increased by 28% to £1.8m (2012: £1.4m). The Group has a strong balance sheet with a net cash position of £4.8m as at 31 December 2013 (31 December 2012: £0.6m).

In December 2013, the Group successfully completed its admission to AIM. MartinCo PLC enjoyed strong investor appetite in the initial public offering and support for the proven franchise business model. The long term outlook for the lettings market is very encouraging and the Group's broad UK footprint makes it an attractive investment proposition.

MartinCo PLC has 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 business. 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.

By the end of 2013, 97 of our franchise offices were offering an estate agency service and I can report that early stage progress in property sales volumes has surpassed our expectations and the Group will continue to roll the service out across the remaining offices.

As well as continuing to grow organically by attracting new franchisees, the Group is seeking to acquire lettings portfolios which make strategic sense to the business using some of the funds raised during the IPO process.

In conclusion I would like to thank the whole team and our franchisees for their commitment to driving forward the Group's business. With the support of its new shareholders MartinCo PLC has begun an exciting new chapter and as the UK's economic recovery begins to gather momentum, we look to the future with confidence.

Richard Martin, Chairman

Chief Executive's Statement

I am delighted to report on the significant progress made during 2013. In preparation for the Group's listing on AIM we reviewed our strategy, focused on the completion of critical projects and finalised an appropriate management and Board structure.

Until 2012 the Martin & Co brand concentrated exclusively on the residential lettings market. However:

1. We identified a cyclical resurgence in the UK property sales market which could deprive the Group of a proportion of its managed property portfolio should landlords decide to sell.

2. We discovered that people do not always distinguish between "letting agent" and "estate agent" when searching for letting services on-line.

3. We commissioned a focus group of property investors who told us that in 70% of cases they would give the letting instruction to the agent who sold them a property.

We concluded that the Group should leverage its established brand name and offer an estate agency service. At the end of 2013, 97 of our franchise offices were providing such a service and we will continue to roll the service out across the remaining offices.

Acquisition strategy

To date, the Group has developed almost entirely through organic growth. New franchisees typically raise finance at the start of their franchise and pay down this debt over the first five year term of their franchise. As a result, franchisees reaching years four and five of their franchise might expect to be able to raise new finance for expansion.

However, raising expansion finance through retail banks has not proven easy for franchisees in recent years. As an alternative, the Group could purchase the right to manage property portfolios and appoint its franchisees to manage these portfolios and share revenue. Organic growth had been adding 10,000 properties to the managed portfolio every three years. With the new strategy supplementing organic growth, the Group plans to accelerate its growth rate.

Owned offices

Starting in late 2011 we created a small group of owned offices by buying back franchises. With the appointment of David Raggett, the Group's Chief Financial Officer, in February 2013, a review of this strategy was undertaken and concluded with the decision to sell the owned offices.

By December 2013 four out of the five owned offices had been returned to franchisee ownership. In future the Group will concentrate on its franchise model.

Management structure

The private rented sector continues to expand but the number of competitors has also increased. To assist our franchisees in this environment we decided to increase franchisee support and our team of field based, experienced business development staff was expanded to five in late 2013.

Critical Projects

2013 saw a substantial investment by the Group in its Digital/IT strategy. The Digital team increased by four staff and www.martinco.com has been entirely re-coded by the in-house team to create a platform for future digital developments entirely under the Group's direct control.

We added impetus to a project to convert all our offices to cloud-based operating software. The strategic value of this project is in the creation of a central contact database, and a platform to allow the complete integration of the Group's operating systems over the next few years. The conversion project began in 2012 and will complete in 2014.

Outlook

The Group believes that the UK residential property market is fundamentally robust and offers long term growth opportunities for the Group. Latest available market research suggests that the number of letting instructions available to agents reduced by 9% in 2013, but the Group grew its letting revenue by 10.6% during 2013. The improving sales market may further erode the number of letting instructions but our Group now offers both letting and estate agency services which means that the Group is well placed to generate strong revenue growth and to invest in business acquisitions to further enhance shareholder value.

Ian Wilson, Chief Executive

Financial Review

Revenue

Group revenue, including discontinued operations, for the financial year to 31 December 2013 was £5.0m (2012:£4.3m), an increase of £0.7m (16%) over the prior year. This was driven by strong growth in Management Service Fees (royalties) of £0.4m (13%) over the prior year. Almost all of this increase was as a result of organic growth from the existing office network.

* before exceptional costs

Management Service Fees represent the Group's main source of income and accounted for 70% of revenue from continuing operations with the remainder being ancillary services to support MSF generation.

In April 2013, following a review of the returns being made from owned offices in Worthing, Bournemouth, and Birmingham Kings Heath, it was decided to discontinue with this activity. At the time the Group had just purchased the Coventry office and was committed to buying the Portsmouth office. All bar Worthing had been sold to existing franchisees at the year-end. During the year these owned offices contributed £0.8m (2012: £0.6m) to revenue.

Operating profit, including discontinued operations, before tax and exceptional items was £1.8m for the year ended 31 December 2013, an increase of £0.4m (28%) over the prior year. Administration expenses, including discontinued operations, were £3.0m, an increase of £0.3m (12%) over the prior year. The costs of continuing activities contributed £0.2m of this increase through the employment of a CFO at the start of the year and the legal costs of enforcing the terms of the franchise agreement against a former franchisee in Scotland. The remainder of the cost increase, £0.1m, resulted from the purchase of two additional offices in 2013, Coventry and Portsmouth, which form part of the discontinued operations.

Exceptional items

The exceptional costs reported in the Consolidated Statement of Comprehensive Income are £743k and all relate to the placing and listing on AIM. These costs were fully stated in the Admission Document.

Taxation

The effective rate of corporation tax for the year was 39% (2012:24.5%) due to the exceptional costs not being allowable as a deduction from profits. The total tax change for 2013 is £411k (2012: £342k) of which £372k relates to continuing activities and £39k to discontinued activities.

Earnings per share

Earnings per share for the year was 3.5p (2012: 5.9p) due to the exceptional costs. The income attributable to the owners was £0.6m (2012: £1.1m).

Dividends

The Group intends to make its first interim dividend payment in September 2014, followed by a final payment for the year after the approval at the AGM in 2015.

Cash flow

The net cash inflow from operating activities in 2013 was £1.3m (2012: £1.5m) before flotation costs of £743k as the Group continued to generate strong cash inflows. As a result of the sale of four owned offices, the Group generated net cash inflows from investing activities of £58k (2012: £478k outflow). The total consideration for the offices was £697k. However, the Group agreed to defer consideration on three of the office disposals so that £408k of deferred consideration existed at 31st December 2013. Since the year end Bournemouth has fully paid the £222k outstanding.

The cash inflow from the issue of new shares was £4m before associated costs of £170k and was the major contributor to cash inflows from financing activities of £3.6m.

Liquidity

The Group had cash balances of £4.8m at the 31st December 2013 compared to £0.6m for the prior year.

Financial position

The Group is strongly cash generative which, combined with the funds raised through the issue of new shares at flotation and the funds yet to be received on the sale of owned offices, puts it in a strong position to fulfil the acquisition element of its strategic plan.

Basis of consolidation

The acquisition has been accounted for in accordance with the principles of merger accounting as set out in Financial Reporting Standard 6 - Acquisitions and Mergers. Further disclosure exists in note 3 to the Financial Statements.

IFRS

These consolidated financial statements are the first published consolidated financial statements of MartinCo PLC prepared in accordance with International Financial Reporting Standard as adopted by the European Union. Further disclosure exists in note 2 to the Financial Statements.

David Raggett, Chief Financial Officer

MARTINCO PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 31 DECEMBER 2013

COMPANY STATEMENT OF FINANCIAL POSITION 31 DECEMBER 2013 (Company No:08721720)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2013

COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD 7 OCTOBER 2013 TO 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013

NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013

1. RECONCILIATION OF PROFIT BEFORE INCOME TAX TO CASH GENERATED FROM OPERATIONS

COMPANY STATEMENT OF CASH FLOWS FOR THE PERIOD 7 OCTOBER 2013 TO 31 DECEMBER 2013

NOTES TO THE STATEMENT OF CASH FLOWS FOR THE PERIOD 7 OCTOBER 2013 TO 31 DECEMBER 2013

1. RECONCILIATION OF LOSS BEFORE INCOME TAX TO CASH GENERATED FROM OPERATIONS

2. NON CASH FLOW TRANSACTIONS

During the year MartinCo Plc acquired 100% of Martin & Co (UK) Limited in a non-cash transaction by issuing ordinary shares.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013

1. GENERAL INFORMATION

The principal activity of MartinCo PLC and its subsidiary 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 are the first published consolidated financial statements of MartinCo plc prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). As disclosed under 'Basis of Consolidation', the financial statements are presented as if Martin & Co (UK) Limited has been owned by the Company throughout the current and preceding periods. Martin & Co (UK) Limited previously prepared its financial statements in accordance with UK GAAP. Comparative figures have been restated to reflect the adjustments made.

The only difference arising on transition to IFRS was the recognition and measurement of goodwill. Under UK GAAP, goodwill is amortised over its useful economic life.

Additionally, certain intangible assets subsumed in goodwill under UK GAAP are recognised separately under IFRS. The company has elected not to apply IFRS 3 'Business Combinations' retrospectively to business combinations that arose before 1 January 2012 (the date of transition to IFRS). Goodwill arising on business combinations before the date of transition to IFRS has therefore, been recognised at its net book value as previously reported under UK GAAP at the date of transition and has not been restated for any separable intangible assets, other than those that would fall to be recognised in separate entity financial statements.

IFRS does not permit amortisation of goodwill and requires goodwill to be reviewed at least annually for impairment. 

The following charges arose as a result of the transition to IFRS:

There has been no change to reported cash flows.

Going Concern

Having considered uncertainties under the current economic environment, and after making enquiries, the Directors have 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 but not effective

The following principal 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).

· 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)

· IFRS 13 'Fair Value Measurement' (effective for annual periods beginning on or after 1 January 2013)

· IAS 19 (revised) Employee Benefits - (effective for annual periods beginning on or after 1 January 2013). Endorsed June 2012

· IAS 32 Financial Instruments - Presentation - Amendment; Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after 1 January 2014)

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 subsidiary, drawn up to 31 December 2013. Subsidiaries are entities over which the Group obtains and exercises control though voting rights. Income, expenditure, unrealised gains and intra-group balances arising from transactions within the Group are eliminated.

On 10 December 2013 the Company acquired the shares of Martin & Co (UK) Limited in exchange for its own shares. The Company issued 17,990,000 1p shares in exchange for the entire share capital of Martin & Co (UK) Limited. The acquisition of its principal subsidiary by the Group did not meet the definition of a business combination and therefore falls outside the scope of IFRS3. As IFRS does not provide specific guidance in relation to group reorganisations it defers to the next appropriate GAAP being UK GAAP.

The acquisition has therefore been accounted for in accordance with the principles of merger accounting as set out in Financial Reporting Standard 6 - Acquisitions and Mergers. Accordingly the financial information for the Group has been presented as if Martin & Co (UK) Limited has been owned by the Company throughout the current and preceding periods.

The corresponding figures of the previous year includes the results of the merged entity, the assets and liabilities at the previous balance sheet date and the shares issued by the Company as consideration as if they had always been in issue.

The difference between the capital and reserves of Martin & Co (UK) Limited and the nominal value of shares and share premium issued by the Company to acquire the merged entity were taken to reserves.

Following a decision to discontinue operations related to the ownership of offices, these offices have been classified as discontinued operations and the comparative statement of comprehensive income has been restated accordingly.

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 Martin & Co. 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, the 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 result from continuing operations for all periods presented. Non-current assets that ceases 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.

Goodwill is the difference between the fair value of the consideration and the fair value of identifiable assets acquired. Goodwill arising on acquisitions is capitalised and subject to an impairment review, both annually and when there is an indication that the carrying value may not be recoverable.

Intangible assets - customer lists

Intangible assets with a finite life are carried at cost less amortisation and any impairment losses. Intangible assets represent items which meet the recognition criteria of IAS 38, in that it is probable that future economic benefits attributable to the assets will flow to the entity and the cost can be measured reliably.

Amortisation of intangible assets is charged to discontinued operations and is calculated over the following periods:

Customer lists - 7 years straight line

Customer lists are those of the franchise offices that Martin & Co have purchased and run in-house (a discontinued operation, note 26). The rate of attrition on a customer list i.e. the rate at which landlords will dis-instruct a letting agent, was determined from the experience of the executive team to be circa one seventh per annum.

Investment in subsidiaries

Investments in subsidiaries are stated in the parent company's balance sheet at cost less any provisions for impairments.

Property, plant and equipment

Items of property, plant and equipment are stated at cost of acquisition less accumulated depreciation and impairment losses.

Depreciation is charged so as to write off the cost of assets over their estimated useful lives on the following bases:

Income taxes

Current tax is the tax currently payable based on the taxable profit for the year.

Deferred tax

Deferred income taxes are calculated using the liability method on temporary differences, at the tax rate that is substantively enacted at the balance sheet date. Deferred tax is generally provided on the difference between the carrying amount of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the profit/loss.

Operating lease commitments

Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged to profit/loss on a straight line basis over the period of the lease.

Cash and cash equivalents

Cash and cash equivalents are defined as cash balances in hand and in the bank (including short term cash deposits).

Financial assets

The Group only has financial assets classified as loans and receivables. The loans and receivables comprise trade and other receivables and cash and cash equivalents in the statement of financial position. Cash and cash equivalents (which exclude any client account monies) include cash in hand and deposits held at call with banks.

Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of services to franchisees (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions 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 due under the terms receivable, 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 administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Financial liabilities

Financial liabilities are comprised of trade payables and other short-term monetary liabilities, which are recognised at amortised cost.

Trade payables and other short-term monetary liabilities, are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Share options

The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, together with a corresponding increase in equity, based upon the Company's estimate of the shares that will eventually vest. 

Fair value is measured using the Black-Scholes option pricing model taking into account the following inputs:

-the exercise price of the option;

-the life of the option;

-the market price on the date of the grant of the option;

-the expected volatility of the share price;

-the dividends expected on the shares; and

-the risk free interest rate for the life of the option.

The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

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 estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Impairment of goodwill

The Group is required to test, where indicators of impairment exist, 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. Key assumptions for the value in use calculation are described in note 16.

Revenue recognition

Initial franchise fees are recognised upon the earlier of receipt of funds or the signing of the contract. The initial fees are non-refundable and are for the use of the brand along with initial training and support and promotion of the new office. The Directors therefore believe that the benefits are transferred upon signing the contract and so revenue is recognised at this point. Future benefits from the contract are dealt with in the monthly MSF fee which is spread across the term of the franchise agreement.

Share options

Share options are granted over a discretionary period and have varying vesting conditions [see note 29]. The fair value of options is determined using the Black Scholes valuation model and requires a number of estimates and assumptions. The significant inputs to the model are the share price at the date of grant, the exercise price, the expected option life, volatilities and the risk-free rate.

Non-current assets (or disposal groups) held for sale

Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.

6. SEGMENTAL REPORTING

The board of Directors, as the chief operating decision-making body, review financial information for and make decisions about the Group's overall franchising business and have identified a single operating segment, that of property franchising.

7. REVENUE

The Directors believe there to be three material income streams relevant to property franchising which are split as follows:

All revenue is earned in the UK and no customer represents greater than 10 per cent of total revenue in either of the years reported.

8. ADMINISTRATIVE EXPENSES

Administration expenses relate to those expenses that are not directly attributable to any specific sales activity.

Administrative expenses for the year were as follows:

9. EMPLOYEES AND DIRECTORS

Average numbers of employees (including Directors), employed during the year:

Employee costs (including Directors) during the year amounted to:

Key management personnel are defined as Directors and executives of the Group. Details of the remuneration of the key management personnel are shown below:

Details of the Directors' emoluments are disclosed in the Directors Remuneration Report.. The share based payments charge for the year was nil.

10. EXCEPTIONAL ITEMS

The exceptional items represent flotation costs incurred in the listing of the Group on the Alternative Investment Market.

11. OPERATING PROFIT

12. TAXATION

The tax assessed for the period is higher than the standard rate of corporation tax in the UK. The difference is explained below:

13. EARNINGS PER SHARE

Earnings per share is calculated by dividing the profit for the financial year by the weighted average number of share during the year.

Diluted earnings per ordinary share

The charge relating to share based payments is immaterial and therefore the earnings used in the diluted earnings per ordinary share calculation are the same as that shown above.

In the prior year there were no share options with a dilutive effect on earnings per share and therefore no figures are shown above for 2012.

The shares shown in issue in 2012 arise from treating the acquisition of Martin & Co (UK) Limited in accordance with merger accounting principles and thus all the shares issued are treated as having existed throughout 2012.

14. LOSS OF PARENT COMPANY

As permitted by Section 408 of the Companies Act 2006, the income statement of the parent company is not presented as part of these financial statements. The parent company's loss for the financial year was £750,576.

15. DIVIDENDS

The dividend per share is calculated using the same weighted average number of shares as used in the calculation of earnings per share.

16. INTANGIBLE ASSETS

The carrying amount of goodwill relates entirely to one cash generating unit, and reflects the difference between the fair value of consideration transferred and the fair value of assets and liabilities purchased.

Goodwill is assessed for impairment by comparing the carrying value to value in use calculations. Values have been estimated using cash flow projections based on detailed budgets and forecasts over the period to 31 December 2015, with a discount rate of 10% applied, being the Directors' estimate of the Group's cost of capital. The budgets and forecasts are based on historical data and the past experience of the Directors in this sector as well as the future plans of the business.

The Directors do not consider goodwill to be impaired. The Directors believe that no reasonably possible change in assumptions will cause the value in use to fall below the carrying value and hence impair the goodwill.

Company

No goodwill or customer lists exists in the parent company.

17. PROPERTY, PLANT AND EQUIPMENT

Group

Company

The parent company has no property, plant and equipment.

18. INVESTMENTS

MartinCo PLC was incorporated on 7 October 2013. On the 10 December 2013 a share for share exchange acquisition took place with Martin & Co (UK) Limited; 17,990,000 ordinary shares in MartinCo PLC were exchanged for 100% of the issued share capital in Martin & Co (UK) Limited.

The carrying value of the investment has been considered for impairment per the accounting policy in note 4. As the market capitalisation of the Group is in excess of the cost of the investment and the trade of the Group is solely attributable to the trading subsidiary no impairment has been recognised in the year.

The Company's investments at the balance sheet date in the share capital of companies include the following:

Subsidiary

Martin & Co (UK) Limited

Nature of business: Franchisor of residential letting, sales, and property management services

19. TRADE AND OTHER RECEIVABLES

Trade receivables are stated net of bad debt provisions of £nil (2012 - £nil).

Ageing of trade receivables

The following is an analysis of trade receivables that are past due but not impaired. These relate to a number of customers for whom there is no recent history of defaults. The ageing analysis of these trade receivables is as follows:

No allowance has been made against the overdue receivables based on historic default experience. The Directors consider that the carrying value of trade and other receivables represents their fair value. The Group does not hold any collateral as security for its trade and other receivables.

20. CALLED UP SHARE CAPITAL

MartinCo PLC was incorporated on 7th October 2013 and 10,000 ordinary shares of 1p each were issued. On 10th December 2013 a share for share exchange took place whereby a further 17,990,000 shares of 1p each were exchanged for 100% of the issued share capital of Martin & Co (UK) Limited. On 17th December a further 4,000,000 shares were placed at £1 each.

21. SHARE PREMIUM

On 17th December 2013 the Company entered into a Placing Agreement whereby 4m new ordinary shares were placed with institutional investors at £1 per share. The share premium arising from the difference between the value of the shares placed and their nominal value was £3,960,000. The costs of this placing were £170,000 which includes the costs of obtaining HMRC approval that the placing was eligible for relief under the Enterprise Investment Scheme and for investment by Venture Capital Trusts.

22. OTHER RESERVES

Merger Reserve

The acquisition of its principal subsidiary by the Group does not meet the definition of a business combination and therefore, falls outside of the scope of IFRS 3. The Group has been accounted for in accordance with the principles of merger accounting as set out in Financial Reporting Standard 6 - Acquisitions and Mergers.

The consideration paid to the shareholders of the Subsidiary was £17,990,000 (the value of the investment). As these shares had a nominal value of £179,900, the merger reserve in the Company is £17,810,100.

On consolidation the investment value of £17,990,000 is eliminated so that the nominal value of the shares remains of £(179,900) and, as there is a difference between the Company value of the investment and the nominal value of the shares purchased in the Subsidiary of £100, this is also eliminated, to generate a merger reserve in the Group of £(179,800).

IAS 27, 'Consolidated and separate financial statements', requires a company to record its investments in its separate financial statements at cost.

Merger relief is an absolute relief from recognising share premium. However it is not available to the company due to the provisions of IAS 27. The excess premium over the nominal value of share capital issued has therefore been credited to a merger reserve.

Share based payment reserve

The share based payments reserve comprises charges made to the income statement in respect of share-based payments under the Group's equity compensation scheme.

23. TRADE AND OTHER PAYABLES

The Directors consider that the carrying value of trade and other payables approximates their fair value.

24. LEASING AGREEMENTS

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

Non-cancellable operating leases

The lease arrangements above consist of those relating to land and buildings and office equipment.

Company

No leases exist in the parent company.

25. DEFERRED TAX

ASSET/(LIABILITY)

Deferred taxation has been provided as follows:

26. FINANCIAL INSTRUMENTS

Financial instruments - Risk Management

The Group is exposed through its operations to the following financial risks:

· Credit risk

· Liquidity risk

· Interest rate risk

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes The Group's objectives, policies and processes for managing those risks and the methods used to measure them.

There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

Principal financial instruments

The principal financial instruments used by the Group and Company, from which financial instrument risk arises, are as follows:

· Receivables

· Loans to franchisees

· Cash at bank

· Trade and other payables

Financial assets

All of the financial assets and liabilities above are recorded in the statement of financial position at amortised cost. The above amounts reflect the contractual undiscounted cash flows, including future interest charges, which may differ from carrying values of the liabilities at the reporting date. All amounts are interest free.

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the finance function. The Board receives monthly reports from the finance function through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below:

Capital management policy

Management considers capital to be the carrying amount of equity. The Group manages its capital to ensure its operations are adequately provided for, while maximising the return to shareholders through the effective management of its resources. The principal financial risks faced by the Group are liquidity risk and interest rate risk. The Directors review and agree policies for managing each of these risks. These policies remain unchanged from previous years.

The Group's objectives when managing capital are to safeguard its ability to continue as a going concern and so provide returns for shareholders. The Group meets its objectives by aiming to achieve growth which will generate regular and increasing returns to the shareholders.

The Group manages the capital structure and makes changes in light of changes in economic conditions. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders.

Credit risk

Credit risk is the risk of financial loss to the Group if a franchisee or a counterparty to a financial instrument fails to meet its contractual obligations. It is Group policy to assess the credit risk of new franchisees before entering contracts.

The highest risk exposure is in relation to loans to franchises and their ability to service their debt. The Directors have established a credit policy under which each new franchisee is analysed individually for creditworthiness before a franchise is offered. The Group's review includes external ratings, when available, and in some cases bank references. The Group does not consider that it has significant concentration of credit risk.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

In order to maintain liquidity so as to ensure that sufficient funds are available for ongoing operations and future developments, the Group monitors forecast cash inflows and outflows on a monthly basis.

Interest rate risk

The Group's exposure to changes in interest rate risk relates primarily to interest earning financial assets and interest bearing financial liabilities. Interest rate risk is managed by the Group on an on-going basis with the primary objective of limiting the effect of an adverse movement in interest rates. The Directors monitor movements in interest rates and have not prepared sensitivity analysis in relation to interest rates as they do not believe that any reasonable variance would have a material impact on the Group.

Fair values of financial instruments

The fair value of financial assets and liabilities is considered the same as the carrying values.

27. ACQUSITIONS

During the period covered by the Consolidated Financial Statements the Group acquired the trade, being the benefit of all the contracts relating to the management of landlords' properties, and certain assets from three companies that operated Martin & Co franchises (in Worthing, Bournemouth and Birmingham Kings Heath) in pursuance of the Group's then strategic objective of running lettings offices itself. Two further acquisitions, of the trade and assets of the Coventry and Portsmouth franchises, were made after 31 December 2012. Following the Board's decision to discontinue the activity of owning and managing its own offices, these operations have been classified as discontinued and the related assets and liabilities have been presented as held for sale (note 28).

On 23 December 2011, the Group acquired the trade and certain assets of Appledean Limited which held the franchise for Worthing. The total consideration paid was £278,959, of which £40,000 was deferred and subsequently paid out in two instalments in March 2012 and July 2013.

On 13 February 2012, the Group acquired the trade and certain assets of Rebecca Martin (Bournemouth) Limited which held the franchise for Bournemouth. The consideration paid totalled £234,505 of which £10,000 was deferred and subsequently paid out in September 2012. The seller was required to fully repay a loan of £64,925 made to it by Martin & Co from the consideration.

On 9 May 2012, the Group acquired the trade and certain assets of Strategic Solutions Org Limited which held the franchise for Birmingham Kings Heath. The consideration paid totalled £148,700, of which £15,000 was deferred and remains unpaid.

On 19 April 2013, the Group acquired the trade and certain assets of Blackwell Property Services Limited which held the franchise for Coventry. The consideration paid totalled £122,699.

On 25 June 2013, the Group acquired the trade and certain assets of Ashwood Residential Lettings Limited which held the franchise for Portsmouth. The consideration paid totalled £28,540.

The following table summarises the consideration paid for the above mentioned businesses, the fair value of the assets acquired and liabilities assumed:

28. DISCONTINUED OPERATIONS AND HELD FOR SALE ASSETS AND LIABILITIES

Subsequent to the Board's decision to discontinue the activity of owning and managing its own offices, the offices in Birmingham Kings Heath and Bournemouth were sold on 30 August 2013, in Coventry on 1 October 2013 and in Portsmouth on 19 December 2013.