Propty Franchis Regulatory News (TPFG)

MARTINCO PLC

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

Interim Results for the six months ended 30 June 2014

Record revenue performance, up 16% year-on-year to £2.3m, with roll-out of estate agency service supplementing organic growth of lettings and a targeted acquisition programme

MartinCo Plc, one of the UK's largest property franchises, today announces its maiden interim results for the period ended 30 June 2014.

FINANCIAL HIGHLIGHTS

§ Revenue increased by 16% to £2.3m (H1 2013: £2.0m)

§ Management Service Fees ("royalties") increased by 10% to £1.8m (H1 2013: £1.6m)

§ Gross profit increased by 11% to £2.1m (H1 2013: £1.9m)

§ Operating profit fell marginally to £0.77m (H1 2013: £0.83m) following investment in Group and franchisee network

§ Trading operating margin of 40% (H1 2013: 42%)

§ Strong balance sheet with a net cash position of £5.5m at 30 June 2014 (H1 2013: £0.2m)

§ Interim dividend of 1.3p per share

OPERATIONAL HIGHLIGHTS

§ 145 offices now offering estate agency service (FY 2013: 97)

§ 12 new franchisees recruited

§ Office network grown to 193 (FY 2013: 189)

§ 30,902 , tenanted properties under management (H1 2013: 29,704)

§ First Plc funded acquisition completed in June

§ Completed roll-out of cloud-based operating software 

§ Launched online estate agency service at the start of September

Ian Wilson, CEO commented:

"The Group achieved record revenue in the first half of the year and saw a significant uplift in the rate of recruiting new franchisees. The roll-out of our estate agency business is now making a modest but growing contribution to Group revenue. In lettings, we have continued to drive growth with a welcome increase in our managed property portfolio..

"I am also pleased to announce that the Group's major project to implement new IT software across the network, which begun in 2012, has completed successfully. The new platform enhances our capability to collect data from our franchisees and deliver more effective e-marketing initiatives, such as the Group's weekly e-newsletter, which is distributed to over 36,000 current and potential landlord clients.

"The business has traditionally performed more strongly in the second half of the year, with an influx of franchise enquiries in September and October leading to new lettings. We also expect that our new estate agency operation will continue to make good progress in spite of a market where very strong recent growth rates have slowed somewhat."

-Ends-

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Chief Executives' Review

I am delighted to report that the Group achieved record revenue for the period while at the same time implementing significant operational changes, including the further roll out of our estate agency service and fully implementing new IT software for the entire Martin & Co network. The Board believes the important progress made during the period positions the Group strongly for the traditionally busier second half of the year.

Franchise sales

The Group added to its UK footprint with new franchised office openings in Inverness, Guisborough and Sunderland. Further new franchised offices are scheduled to launch later this year in Fitzrovia, in London's West End, Wilmslow, in Cheshire, and Kingston-upon-Thames, in Surrey.

In total 12 new franchisees have been recruited in the period, which is a pleasing turnaround from the 3 we saw in H1 2013. Six of the new franchisees purchased existing Martin & Co franchises and, as with previous such sales to new franchisees, the Group expects these businesses to experience a significant uplift in revenue in the first twelve months under new ownership. In addition, three Martin & Co franchises (Macclesfield, Dundee and Wirral Bebbington) changed hands due to adjacent and well-established franchisees being in a position to purchase their neighbouring franchisee's business.

As at 30 June 2014, the Group has 193 offices of which 192 are franchised and one company owned (Worthing).

Estate Agency

The Group's diversification into estate agency, together with improving UK housing market conditions, resulted in total income earned by franchisees from this activity rising from £400,741 (H1 2013) to £1,013,221 (H1 2014). The roll-out of estate agency services continued during the period, with the number of offices offering the service growing to 145 by the period end (FY2013: 97).

Since the period end, Martin & Co launched its online estate agency service at the start of September. Martin & Co is now the only single brand operator offering prospective vendors a choice between the traditional, commission-based high street service, and an upfront flat fee online agency service. The Group looks forward to updating on the progress of this service when it reports its full year results.

IT projects

A significant milestone was reached with the completed roll-out of proprietary "cloud" based letting and estate agency operating software to all of the Group's offices, creating a national contact database for e-marketing purposes. Using the database, the Group has launched a weekly e-newsletter which is distributed to over 36,000 current and potential landlord clients.

Lettings

A record number of tenants vacated, and the properties re-let to new tenants, generated re-letting fees and commission income for franchisees. This is a function of the improving sales market, and the fact that the properties were re-let is evidence that tenant demand remains strong. This demand offset a 13% reduction in the number of new properties being instructed to Martin & Co and allowed the Group's managed property portfolio to continue growing and pass 31,000 for the first time.

Acquisition strategy

The Group has been pursuing a targeted acquisition programme and at the half year there were discussions ongoing in relation to several potential acquisitions. Whilst progress here has been slower than expected, during the period the acquisition of Village Estates in Saltaire, West Yorkshire, was completed with Martin & Co purchasing the right to manage 375 tenanted properties. The Group has seen evidence of recent inflation in seller's price expectations, but it remains disciplined and will only purchase portfolios or businesses which meet its strict investment criteria.

Outlook

The UK housing market remains strong and the Group believes it is better positioned to capitalise on growing activity now that it offers both lettings and estate agency services.

The Group is experiencing the benefits of being a Plc, such as increased recognition of the Martin & Co brand and interest from potential franchisees. During the first half of the year franchisee recruitment activity increased and our strategic decision to offer an estate agency service started to deliver positive results. We have geared up our acquisition programme and, whilst progress so far has been disappointing, there are an increasing number of opportunities which the Group is assessing. The Group has always been weighted to the second half of the year with peak months for lettings activity, portfolio growth and lettings fee income still to be reported. Our estate agency business has gained momentum in respect of offices trading, new instructions and sales agreed. With several acquisition targets in our sights and high visibility towards the end of the year we are confident in our ability to deliver substantial value to our shareholders over the next year.

Ian Wilson, Chief Executive

Financial Review

Revenue

Revenue from continuing activities for the six months ended 30 June 2014 was £2.3m (H1 2013: £2.0m), an increase of £0.3m (16%) over the comparative period. This was driven by strong growth in Management Service Fees (royalties) of £0.2m (10%) over the comparative period and ancillary services to support MSF generation. Almost all of this increase was attributed to organic growth from the existing office network.

On 3 June 2014, Martin & Co acquired its first portfolio of managed letting property contracts and certain other assets. The consideration paid totalled £296,000 of which £29,600 was deferred and remains unpaid. The Company immediately resold the other (non-core) assets for £25,000 to its local franchisee in Saltaire. The portfolio is managed by Martin & Co Saltaire under a service agreement entered into between the parties.

Operating profit

Operating profit from continuing activities was £0.77m for the six months ended 30 June 2014 (H1 2013: £0.83m) following investment in the Group and franchise network. While turnover increased by £0.3m, costs of these sales increased by £0.1m as did the costs of the regional franchise team, recruited to drive revenue, (up £0.1m) and the staff costs of the ancillary support services (up £0.1m). There were savings of administrative costs in other areas of £0.1m which offset the costs associated with the parent company.

Earnings per share

Earnings per share for the six months ended 30 June 2014 was 2.9p (H1 2013: 3.5p). The income attributable to the owners was £0.6m (H1 2013: £0.6m).

Dividends

As we stated at the time of our admission to AIM, it is expected that dividends will be declared twice a year at the time of the Company's interim and final results, with any interim dividend representing approximately one-third of the total dividend for the year as a whole. The Board intends to pursue a progressive dividend policy providing an attractive yield to shareholders with the intention that the dividend should be covered approximately twice by underlying earnings. The Group intends to make its first interim dividend payment of 1.3p per share on 30 September 2014 to shareholders on the register on 19 September 2014.

Cash flow

The net cash inflow from operating activities in the first six months of 2014 was £0.9m (H1 2013: £0.4m) as the Group continued to generate strong cash inflows.

As a result of the purchase of its first portfolio of managed letting contracts, the Group had net cash outflows from investing activities of £0.3m (H1 2013: £0.1m).

Overall cash increased in the first six months of 2014 by £0.6m (H1 2013: £0.4m outflow).

Liquidity

The Group had cash balances of £5.5m at 30 June 2014 compared to £0.2m at 30 June 2013.

Financial position

The Group is strongly cash generative which, combined with our robust balance sheet, puts it in a strong position to fulfil the acquisition element of our strategic plan.

David Raggett, Chief Financial Officer

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2014

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2014

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2014

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

NOTES TO THE CONSOLIDATED STATEMENT OF CASHFLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

NOTES TO THE INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

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. GOING CONCERN

The interim financial information has been prepared on the basis that the Group is a going concern.

When assessing the foreseeable future the directors have looked at a period of 12 months from the date of approval of the interim financial information. The directors have a reasonable expectation that the Group has adequate resources to continue to trade for the foreseeable future and, therefore, consider it appropriate to prepare the Group's interim financial information on a going concern basis.

3. BASIS OF PREPARATION

The consolidated interim financial information for the six months ended 30 June 2014 was approved by the Board and authorised for issue on 8th September 2014. The results for 30 June 2014 and 30 June 2013 are unaudited and have not been reviewed by our auditors. The disclosed figures are not statutory accounts in terms of Section 435 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2013 on which the auditors gave an audit report which was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006, have been filed with the Registrar of Companies. The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

This interim report has been prepared on a basis consistent with the accounting policies expected to be applied for the year ended 31 December 2014, and uses the same accounting policies and methods of computation applied for the year ended 31 December 2013.

4. BASIS OF CONSOLIDATION

The Group's interim financial information includes those of the parent company and its subsidiary, drawn up to 30 June 2014. 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.

NOTES TO THE INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 201

5. 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.

6. 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 the periods reported.

Other revenue represents the income earned in providing services to the franchise network to support them in generating fees and, thereby, management services fees for the Group. These include helpdesk support for the cloud based operating software, the recruitment of new employees and training.

7. 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.

8. TAXATION

The underlying tax charge is based on the expected effective tax rate for the full year to December 2014.

NOTES TO THE INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

9. EARNINGS PER SHARE

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

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 six months ended 30 June 2013 there were no share options with a dilutive effect on earnings per share and therefore no figures are shown below for this period.

NOTES TO THE INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

.

10. 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. The Directors do not consider goodwill to be impaired.

Additions in the period to 30th June 2014 include the acquisition by the Group of its first portfolio of managed letting property contracts and certain other assets together with the costs borne in bringing an independent agent and its existing portfolio into Martin & Co.

The consideration paid for the portfolio of managed letting property contracts totalled £296,000 of which £29,600 was deferred and remains unpaid. The Company immediately resold the other (non-core) assets for £25,000 to its local franchisee in Saltaire giving a net addition at cost of £271,000.The portfolio is managed by Martin & Co Saltaire under a service agreement entered into between the parties.

NOTES TO THE INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

11. TRADE AND OTHER RECEIVABLES

12. 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.

13.   SHARE PREMIUM ACCOUNT

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.

NOTES TO THE INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

14. OTHER RESERVES