Belvoir Group PLC
Annual Report 2020

Plain-text annual report

We make property personal B e l v o i r G r o u p P L C A n n u a l r e p o r t a n d a c c o u n t s 2 0 2 0 Belvoir Group PLC Annual report and accounts 2020 All text to be supplied Our vision We aim to extend our market share of the UK property sector through our model of operating multi-brand property franchise networks alongside other complementary property-related services. Our purpose Helping people to realise their property aspirations. 25 years 2020 saw Belvoir celebrate 25 years in operation growing from one office in Grantham to 418 property and financial services offices nationwide. At a glance One of the largest franchised property groups in the UK, supporting a network of 418 offices across five distinct brands, specialising in residential lettings, property sales and property-related financial services. We operate through two divisions: a network of property franchisees and a network of financial advisers, which combine to support our customers throughout their property journey. PROPERTY FRANCHISES Belvoir Established in 1995 Historically a lettings franchise, Belvoir now offers both sales and lettings services across the UK. Northwood Acquired in 2016 Northwood also started as a specialist lettings franchise and now has nationwide coverage offering both sales and lettings. 173 offices 89 offices Lovelle Acquired in 2020 Lovelle, a strong regional, predominantly sales network based in North Lincolnshire and the Humber, was acquired in January 2020. Newton Fallowell Acquired in 2015 Originally an East Midlands-based estate agent, this network is now a strong regional property brand covering both the East and West Midlands. 16 offices 40 offices FINANCIAL SERVICES Brook Acquired in 2017 Brook trades as the largest appointed representative of the Mortgage Advice Bureau (MAB), one of the UK’s leading networks for mortgage intermediaries. Brook manages a network of 202 mortgage and financial service advisers operating through 100 businesses. 100 businesses STRATEGIC REPORT 01 At a glance 02 Our year in review 04 Chairman’s statement 06 Chief Executive Officer’s statement 08 Our markets 12 Our business model 14 Our strategy 16 Our key performance indicators (KPIs) 18 Environmental, social and governance 22 Risk management 24 Financial review CORPORATE GOVERNANCE Introduction to corporate governance Statement of corporate governance 26 Board of Directors 27 28 33 Audit Committee report 34 Directors’ remuneration report 36 Directors’ report FINANCIAL STATEMENTS 38 43 Independent auditor’s report Group statement of comprehensive income 44 Statements of financial position Statements of changes in equity 45 46 Statements of cash flows 47 Notes to the financial statements SHAREHOLDER INFORMATION 68 Notice of Annual General Meeting 69 Corporate information 69 Corporate calendar Learn more about our ESG from page 18 Learn more about our stakeholder engagement from page 21 Stay up to date with the latest investor videos and presentations at belvoirgroup.com/investors Annual report and accounts 2020 01 Our year in review Our highlights Revenue (£m) £21.7m +13% 13.4 11.3 9.9 21.7 19.3 MSF (£m) £9.1m +3% 7.9 6.4 8.5 8.8 9.1 Profit before tax (£m) EPS (p) £6.7m +20% 6.7 5.51 5.6 3.9 2.4 15.1p +14% 8.6 5.7 15.1 12.91 13.3 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 OPERATIONAL HIGHLIGHTS » Achieved growth across all three markets: lettings, sales and financial services, despite Covid-19 disruption » Entered into strategic alliance with The Nottingham Building Society now with eleven branches dual-branded » Franchised out all of the Lovelle corporate-owned offices by January 2021 » Exceeded the 200 financial advisers milestone ending the year on 202 (2019: 166) » Number of offices up to 418 (2019: 396) FINANCIAL HIGHLIGHTS » Group revenue increased by 13% to £21.7m (2019: £19.3m) with 6% attributable to the acquisition of Lovelle » Management Service Fees (MSF) grew by 3% to £9.1m (2019: £8.8m) » 20% increase in profit before tax to £6.7m (2019: £5.6m), marking 24 years of consecutive profit growth » Strong lettings bias reflected in gross profit ratio of 60% lettings:17% sales:19% financial services:4% other (2019: 61%:16%:19%:4%) » Year-end cash of £5.9m (2019: £3.6m) » Net debt significantly reduced to £3.7m (2019: £6.9m) despite deploying £2.0m to acquire Lovelle » Progressive dividend policy reinstated with total dividend for the year of 7.2p (2019: 6.7p including the catch-up final dividend of 3.3p) and dividend cover of 2.1x » Repaid in full Government Covid-19 financial support of £260,000 received under the Coronavirus Job Retention Scheme and small business grants 1. 2018 includes net exceptional credit of £0.6m. 02 Belvoir Group PLC COVID-19 UPDATE Impact on trading The property sector was effectively shut down between 24 March and 13 May, with very few property-related activities permitted. During this period our lettings revenue was impacted by 10%, sales by 50% and financial services by 13%. The property sector has since remained open with a significant boost coming from the temporary reduction in stamp duty that has resulted in record levels of house sales and related mortgages from the last quarter of 2020 to date. As a result of the cost reduction exercise undertaken to mitigate any shortfall in income, profitability was in line with pre-Covid-19 expectations. Engaging with colleagues The Board took swift action to protect the wellbeing of our franchisees and financial advisers and their respective businesses, and of our staff across the Group. All central teams meet daily online to ensure regular engagement with all staff. Our Group Operations Director did an outstanding job in ensuring that our franchisees were fully apprised of new Covid-19 regulations and our franchisees benefitted from 86 free training webinars in 2020 providing the necessary support to enable them to operate safely and in turn support their landlords, tenants, buyers and sellers. Looking forward With the successful roll out of the vaccination, a return to some semblance of normality is expected later in 2021. Also, given the significant pent-up demand and the Government’s support through the extension of the stamp duty holiday to September and a guaranteed mortgage scheme for first-time buyers (FTB), we anticipate that the property market will remain buoyant for most of 2021. VALUES IN ACTION: Collaboration STRATEGIC REPORTWhy invest in Belvoir? Belvoir has a proven track record in delivering growth, even during the 2007 financial crash and the 2020 Covid-19 pandemic, built around a business model of supporting networks of entrepreneurial business owners. This is underpinned by a strong bias towards lettings, providing a reliable recurring revenue stream. PROVEN MULTI-BRAND FRANCHISE NETWORK MODEL HISTORY OF STRONG FINANCIAL GROWTH 5 brands Harnessing entrepreneurial self-motivated franchisees coupled with central support from franchisor 24 years Unbroken profit growth with EPS up 165% in four years Learn more about our brands from page 1 Learn more about our performance from page 24 HIGH DEGREE OF RECURRING REVENUE DIVERSIFICATION 60% gross profit from lettings/ 17% sales/19% financial services/4% other £2.8m gross profit contribution from financial services in 2020 Highly cash generative underpinned by recurring gross profit from core lettings business Up from £0.3m in 2016 Learn more about our risks from page 22 Learn more about our business model from page 12 LONG-SERVING, EXPERIENCED LEADERSHIP TEAM SUCCESSFUL ACQUISITION STRATEGY 12 years average length of service Stable management team with 28 years average industry experience 6 acquisitions since 2015 Four franchise brands and two financial services businesses fully assimilated into the Group Learn more about our leadership from page 26 Learn more about our acquisitions from page 6 Annual report and accounts 2020 03 Chairman’s statement Swift and decisive action In a year of managing the business through the unprecedented times of Covid-19, as a Board, we have had to act quickly and decisively, in adapting to Government guidelines, whilst ensuring our staff, and our franchisees, financial advisers and their staff, remained safe at all times. Performance In 2020 Belvoir achieved its 24th year of uninterrupted profit growth which, when considering the challenges of lockdowns and economic uncertainty, is a tremendous result. Revenue increased by an impressive 13%, with both our property franchise and our financial services divisions holding up remarkably well, achieving growth of 12% and 14% respectively. Profit before tax increased 20% to £6.7m (2019: £5.6m), up £1.1m. The Group now operates through 418 individual businesses comprising 318 (2019: 313) estate and lettings offices and 100 (2019: 83) financial services businesses. We continue to help franchisees with their strategic growth through our assisted acquisitions programme and by encouraging greater diversity into sales and financial services. Our network of financial advisers exceeded its milestone of 200 advisers, ending 2020 with 202 (2019: 166) advisers, up 22%. Board and senior management Belvoir continues to benefit from the loyalty, longevity and stability of its highly skilled Board and senior managers in 04 Belvoir Group PLC providing unrivalled knowledge and experience. Their measured approach prevailed throughout 2020, achieving an exceptional set of results in uncertain times. Learn more about our Board of Directors from page 26 Governance The Board applies the 2018 Quoted Companies Alliance Corporate Governance Code (the “QCA Code”) as the basis of the Group’s governance framework. We continue to promote a culture of good governance and we recognise how important our people are to the success of the Group. Learn more about our governance from page 27 Covid-19 At the start of the pandemic, the Board took the necessary steps to safeguard shareholder value by mitigating the potential shortfall in income through a thorough review of our cost base. Measures taken included the temporary furloughing of 22% of our workforce, all of whom have now returned to work, and an agreed senior staff temporary salary reduction. The Board was extremely grateful to employees for the sacrifices made during this period of uncertainty and to the Government for its Covid-19 financial support as these measures enabled the Group to retain staff during this very difficult period. Given the Group’s resilient trading during 2020, we ensured that all staff were fully reimbursed for the salaries which were sacrificed. Also, recognising our wider stakeholders, the Board took the socially responsible decision to repay in full to the Government the £260,000 received under the Coronavirus Job Retention Scheme and small business grants. Dividends Having suspended the 2019 final dividend due to uncertainty at the start of the Covid-19 lockdown, the Board subsequently reinstated its progressive dividend policy and paid a catch-up dividend of 2.0p together with the 2020 interim dividend of 3.4p (2019: 3.4p). I am pleased to confirm that the Board is proposing a further catch-up dividend of 1.3p per share to coincide with the final 2020 dividend of 3.8p. This represents a total dividend for the year of 7.2p (2019: 6.7p including the reinstated final dividend of 3.3p). Outlook Trading in the year to date has been encouraging and in line with management expectations. The lettings market remains resilient as demonstrated throughout the pandemic. The sales and financial services markets are expected to remain buoyant following the extension of the stamp duty holiday until 30 September, and will be boosted further by the recent Government’s announcement of a new 95% mortgage guarantee scheme. Whilst the successful roll out of the current vaccination programme provides “light at the end of the tunnel” in terms of Covid-19 restrictions, the Board is mindful of the uncertainty over the longer-term implications for the economy. However, having traded successfully through 2020 and given the Government’s initiatives to support the housing market, the Board has confidence in the resilience of the business model and the strength of the balance sheet. Finally, I would like to thank all our franchisees, advisers and staff for their contribution in achieving such a strong set of results in 2020 and for their support during the Covid-19 crisis. Our people have played a pivotal role in ensuring that they kept, as best they could, a “business as usual service” to all their vendors, borrowers, buyers, landlords and tenants alike. Michael Stoop Non-Executive Chairman STRATEGIC REPORTQ&A with the Chairman WOLLATON LEICESTER How has Belvoir operated safely and effectively during the Covid-19 pandemic? We followed Government guidelines to ensure proper protection for our staff, and advised our franchisees and advisers how they too should operate safely. Our Central Office team have been able to work effectively from home providing full support to our franchisees and advisers. There has been continual engagement with all staff through daily virtual team meetings, our usual mentoring and appraisal processes, and Group-wide presentations by our CEO and CFO. How has lockdown impacted the housing market? We were fortunate that the property sector was reopened on 13 May, enabling our offices to transact business in a more normal way. Our franchisees have embraced technology to enable them to deliver the same service whilst minimising physical contact; the main change being universal use of virtual viewings. How has Government policy affected Belvoir? The financial support from the Government through the Coronavirus Job Retention Scheme and small business grants was invaluable at the outset of the pandemic as it enabled us to furlough staff who might otherwise have lost their job. By the end of the year, the Group was able to repay in full the £260,000 received, which in part was due to a strong performance in H2 as trading benefitted from the Government policy of reducing stamp duty in order to stimulate the property market. The success of our franchisees and financial advisers remains our main priority as their performance lies at the heart of helping people to realise their property aspirations.” How did Belvoir progress with its strategic objectives in 2020? During 2020 Belvoir entered into a strategic alliance with The Nottingham Building Society, also known as “The Nottingham”. Under the agreement The Nottingham’s estate and lettings agency activity transferred to Belvoir Group franchisees and by the year end, eleven of our franchisees had extended their reach by taking a presence in a dual-branded Nottingham Building Society branch. We hope to develop further our relationship with The Nottingham in the coming year. What are your strategic priorities for the year ahead? We will continue to pursue strategic growth for the Group, as evidenced by the recent acquisition of the Nicholas Humphreys network of 18 franchised and three corporate-owned offices. Consideration of £4.0m was settled from existing cash reserves and is expected to be immediately earnings accretive, driving enhanced returns for our shareholders. Annual report and accounts 2020 05 Chief Executive Officer’s statement Responsive and resilient 2020 was a rollercoaster of a year with the Group being quick to respond to the changing circumstances and proving once again the resilience of the Belvoir business model, with a strong performance from the property franchise and financial services divisions alike. Performance The Group exceeded its pre-Covid-19 expectations with revenue increasing 13% to £21.7m (2019: £19.3m), of which 6% was attributable to the acquired Lovelle network comprising twelve franchised and five corporate-owned branches. Of the underlying business, our property division was up 2% and our financial services division was up 14%, demonstrating that both successfully overcame the challenges faced by the pandemic, particularly during the first lockdown when the sector was all but closed from 25 March to 13 May. Management Service Fees (MSF), the Company’s core income from franchisees, was up 3% to £9.1m (2019: £8.8m). The first national lockdown had minimal impact on lettings MSF, which increased by 2%, due to the strong recurring nature of this revenue stream. Meanwhile the more significant impact on sales MSF was partially mitigated by the exceptional recovery in house transactions in Q4 stimulated by the stamp duty holiday, which together with the acquisition of the Lovelle estate agency franchise network, helped sales MSF to achieve 9% growth. The Group’s diversification into financial services has continued to deliver growth with revenue from this division up £1.2m to £9.7m (2019: £8.5m) and gross profit up £0.3m to £2.8m (2019: £2.5m). As with estate agency, the financial services market was adversely impacted by the first national lockdown, but the shortfall in new mortgage products was partially mitigated by shifting the focus to remortgages and life protection products. The surge in house sales in H2 provided a significant boost to the mortgage market, resulting in record levels of commission from mortgages in Q4. Despite Covid-19, all three markets continued to grow in 2020 with lettings up 10%, sales up 21% and financial services up 14%, demonstrating the resilience of the Belvoir franchise business model. Belvoir now has a portfolio of 65,065 (2019: 63,975) managed properties, and in 2020 Group house sales were up 8% to 8,003 (2019: 7,433) and the number of mortgages arranged was up 29% to 12,094 (2019: 9,342). The Group’s network revenue, being the total revenue across all our Group companies, our franchisees and our financial advisers, totalled £96m (2019: £93m). Covid-19 During 2020 our focus was on the safety of our staff and other stakeholders as well as on safeguarding the business. We invested in Covid-19 safety measures and implemented a rota to reduce staff numbers in our offices at any one time. Staff who were able to carry out their jobs from home did so throughout most of 2020 and from 13 May our corporate-owned branches operated on a locked door basis, accessible to members of the public by appointment only. Our franchisees and financial advisers followed similar safety procedures and demonstrated that they were able to operate effectively having embraced digital practices that minimised face-to-face contact. In March 2020 we launched our franchisee financial support package which included a six-month capital repayment holiday to franchisees who had borrowed funds from Belvoir under our assisted acquisitions programme and the waiver of monthly minimum fees so that MSF payable by franchisees were wholly percentage based. These two measures reduced payments from franchisees by £0.5m between April and September 2020 giving those franchisees most severely affected by the pandemic some much needed financial flexibility. During the year we delivered 86 free training webinars, providing valuable advice on how our franchisees and advisers could operate safely within Government guidelines and how to maximise the opportunities from a buoyant sales market. 06 Belvoir Group PLC STRATEGIC REPORTOur strategic priorities Our growth strategy continues to focus on investing in successful businesses that either expand our franchise footprint or introduce additional revenue streams to our franchisees, and where there is scope for greater growth as part of the Belvoir Group. This has been demonstrated by the acquisition of five additional franchise networks to the Belvoir Group since 2015, the latest being the acquisition of Nicholas Humphreys in March 2021, and the acquisition of two financial services businesses to provide the platform for our growing financial services division. The Board will continue to identify suitable targets that meet its acquisition criteria, deliver healthy returns on investment and are earnings enhancing. Having launched the assisted acquisitions programme at the end of 2013, in 2020 the Belvoir Group reached the milestone of its 100th assisted acquisition having orchestrated eleven (2019: 24) such deals in 2020. Although temporarily disrupted by Covid-19 with less appetite from both buyers and sellers to transact, we have seen renewed interest from our franchisees and more opportunities coming back to the market in 2021. The Group has made progress in its strategic goal of pairing financial advisers and franchisees with 141 of the Group’s agencies, around 45%, now offering financial services through a Brook financial adviser, up from 95 at the end of 2019. Clearly, there is further opportunity to roll out to the remaining Group offices as the financial services network continues to grow towards its objective of achieving full coverage across the UK. A highlight of 2020 was entering into a strategic alliance with The Nottingham Building Society, which has seen Belvoir’s established network of franchisees, trading under the brands Belvoir, Northwood, Newton Fallowell and Lovelle, extending their estate agency and lettings services to eleven co-branded existing building society branches. We expect this relationship to present further opportunities in 2021. Creating value The Group’s continued success in acquiring and assimilating additional franchise and financial services businesses alongside organic growth in our networks has helped to deliver an increase of over 175% in profit before tax to £6.7m (2016: £2.4m) and 165% in EPS to 15.1p (2016: 5.7p) over four years. Our marketplace The property sector was one of the first to be “unlocked” and since reopening, pent-up demand, fuelled further in July by the temporary reduction in stamp duty, gave rise to a surge of activity that continued throughout the remainder of the year. As a result, and contrary to predictions at the outset of the pandemic of a property market collapse, the number of house transactions in 2020 fell by only 11% and the house price index increased by 8.5% in 2020 whilst the rental index was up 1.4%. 2021 started with unusually high pipelines of agreed sales and approved mortgages with a drive to get transactions completed before stamp duty bands returned to the normal levels, the timescales for which were extended to September in the UK Government’s recent Budget. Also announced in the Budget, the Government’s 95% mortgage guarantee scheme will do much to meet the pent-up demand from first-time buyers, who were locked out of the market by the withdrawal of high loan-to-value mortgage lending in 2020. Outlook Whilst we are confident that the business will continue to operate effectively given the Government’s policies to keep the housing sector moving, we are also hopeful that the successful roll out of the Covid-19 vaccine will see the return of some semblance of normality and stability in 2021, which will further benefit the Group and its markets. Dorian Gonsalves Chief Executive Officer Our financial services division, launched in 2017, has grown from 16 advisers to 202 in four years with a return in 2020 of 32% on the £5.6m investment in the two original businesses acquired.” MILESTONE OF 200 FINANCIAL ADVISERS EXCEEDED IN 2020 The financial services division was established in 2017 with the acquisition of Brook Financial Services Ltd, a team of 32 advisers. This was followed in 2018 by the acquisition of MAB (Gloucester) Limited, adding a further 88 advisers. By the end of 2018, the financial services division was successfully operating a network of 123 advisers, which over the past two years has grown organically and now operates 202 advisers, up 22% on 2019, in 100 locations across the UK. The combined revenue and EBITDA from the two businesses as at their respective dates of acquisition was £5.5m and £0.9m. In 2020, despite the challenges presented by Covid-19, revenue was 14% up on 2019 at £9.7m (2019: £8.5m), and 75% on the combined acquired revenue. VALUES IN ACTION: Collaboration Annual report and accounts 2020 07 Our markets Building our market share The first national lockdown all but closed the property sector delaying home moves for many home-buyers and tenants. When the sector reopened on 13 May, no one could have predicted the huge rebound. Currently both the sales and lettings markets are thriving, despite the uncertainty caused by Covid-19. The main challenge facing our business is meeting the massive increase in demand from people wanting to move home. High levels of uncertainty would normally result in people staying put, but the Covid-19 lockdowns have driven people to move.” 08 Belvoir Group PLC MARKET TRENDS – PROPERTY Demand – housing demand remains strong into 2021 Supply – remains constrained in most UK regions Growth rate for housing demand and new sales remains strong1 Regional rental growth strongest where supply constrained6 100% h t w o r g r a e y - n o - r a e Y 50% 0% -50% -100% Increase in demand pre and post the 2019 General Election English market reopens 80% 60% 40% 20% 0% -20% -40% -60% l y p p u s / d n a m e d n i h t w o r G Stamp duty holiday announced Second lockdown starts in England 9 1 - n u J 9 1 - p e S 9 1 - c e D 0 2 - r a M 0 2 - n u J 0 2 - p e S 0 2 - c e D 8% 6% 4% 2% 0% -2% h t w o r g l a t n e r % l a u n n A -4% -6% t s a E h t r o N t s e W h t u o S s d M i t s a E l s e a W H & Y t s a E t s e W h t r o N t s a E h t u o S d n a l t o c S s d M i t s e W n o d n o L Demand Sales agreed Demand growth Supply growth Annual rental growth (RHS) » Economic uncertainty has historically » The closure of the construction industry driven down house sales. 2020 saw the opposite happen with the UK house price index at 8.5%2 year on year. » Fears of a collapse in the housing market proved unwarranted with the number of UK homes sold in 2020 dropping by just 11% to 1,044,0503 (2019: 1,176,820). With sales agreed in 2020 up 10%4 on 2019, this shortfall is likely to be recovered in Q1 2021. » This resilience was mirrored in the rental market with the annual rental index at 1.4%5 (2019: 1.4%) and our Belvoir index currently showing rents remaining buoyant in most areas. Our response The current sales boom has definitely been fuelled by the Stamp Duty Land Tax (SDLT) holiday which was due to end on 31 March 2021 but was extended to 30 September 2021 in the recent budget. Whilst a slowdown is expected thereafter, this will possibly be mitigated by the anticipated return of high loan-to-value (LTV) mortgage lending in 2021 meeting the pent-up demand from first-time buyers, who were locked out of the market in 2020. We continue to encourage and train our Belvoir franchisees who traditionally have been more geared towards lettings to expand their services to encompass property sales and financial services so that they can benefit from trends across all three markets. for several months in 2020 is impacting on the current flow of new homes to the market. » The pandemic initially drove rents down in London, partly due to an increase in supply, as many landlords switched from providing short-term accommodation to long-term lets. This is now being absorbed by the market and the expected “exodus” from the capital has not yet materialised. » The third national lockdown has seen a reluctance by sellers to list their home7 which should soften after the lockdown ends. » Although the supply of properties to both rent and buy is likely to be restricted in most UK regions in 2021, any upward pressure on prices and rents is likely to be neutralised by economic and wage restraints with small rises and falls reflecting local supply and demand. Our response The historical lack of supply versus demand has been exacerbated further in 2020 by disruption to the construction industry coupled with the boost in demand fuelled by the lockdown and the SDLT holiday. Consequently, the ongoing upwards pressure on house prices and rents will prevail. The regions with the higher rental and house price indices are territories where the Belvoir Group has a strong presence. STRATEGIC REPORT E N UE FRO M V R E +10% E N UE FRO M V R E +21% LETTI N G S SAL E S E N UE FRO M V R E +14% V I C ES NCIAL S E R A F I N Affordability – is key to both renters and owners Buy-to-let – BTL mortgage market expected to expand Technology – delivering efficiencies Number of mortgage deferrals in place8 Quarterly BTL mortgage advances (£m) 2007–20209 PropTech brought forward by years 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 0 2 0 2 / 3 0 / 7 2 0 2 0 2 / 4 0 / 0 1 0 2 0 2 / 4 0 / 4 2 0 2 0 2 / 5 0 / 8 0 0 2 0 2 / 5 0 / 2 2 0 2 0 2 / 6 0 / 5 0 0 2 0 2 / 6 0 / 9 1 0 2 0 2 / 7 0 / 3 0 0 2 0 2 / 7 0 / 7 1 0 2 0 2 / 7 0 / 1 3 0 2 0 2 / 8 0 / 4 1 0 2 0 2 / 8 0 / 8 2 0 2 0 2 / 9 0 / 1 1 0 2 0 2 / 9 0 / 5 2 0 2 0 2 / 0 1 / 9 0 0 2 0 2 / 0 1 / 3 2 0 2 0 2 / 1 1 / 6 0 0 2 0 2 / 1 1 / 0 2 Owner-occupier Buy-to-let » At the peak, 17%8 of mortgage borrowers were taking advantage of a Covid-19-related mortgage payment holiday. By November 2020, this had fallen to less than 1.2%8, around 130,000 of mortgage borrowers. » The various Covid-19-related financial support packages available have helped to reduce the instances of tenants defaulting on their rent. » The withdrawal of high loan-to-value (LTV) mortgage products in 2020 impacted on FTB affordability. With those products returning in 2021, FTB will now more easily secure a mortgage for their new home. Our response The Government Covid-19 support has been invaluable to home owners and tenants who might have otherwise defaulted and slipped into arrears. The property market is not expected to be significantly affected when the temporary support packages end, as mortgage arrears levels remain near to the historically low levels of recent years and the anticipated rental arrears did not materialise. Our own research showed that our usual arrears rate of less than 2% did rise in 2020, but has remained less than 4%. 1 Q 7 0 0 2 1 Q 8 0 0 2 1 Q 9 0 0 2 1 Q 0 1 0 2 1 Q 1 1 0 2 1 Q 2 1 0 2 1 Q 3 1 0 2 1 Q 4 1 0 2 1 Q 5 1 0 2 1 Q 6 1 0 2 1 Q 7 1 0 2 1 Q 8 1 0 2 1 Q 9 1 0 2 1 Q 0 2 0 2 » The SDLT holiday has also reduced stamp duty for landlords boosting demand from BTL investors. » The underlying growth in outstanding BTL mortgage debt in 2020 was around 4%8, broadly consistent with 2019. » The IMLA estimates that BTL lending will continue to expand over the coming few years, forecasting growth of 5.3%8 in 2021. » Remortgaging remains a major opportunity in the BTL lending space. Our response The Government’s support of FTB through 95% LTV guaranteed fixed rate five-year mortgages is aimed at encouraging increased home-ownership. Whilst the recent budget did not introduce any changes to Capital Gains Tax (CGT) that might have impacted landlords, any future threat of increased CGT might encourage landlords to sell. However, there will always be a demand for good quality, well-managed rental properties, so we believe that there will continue to be a solid investment case for professional and committed landlords. » Virtual viewings are the norm in narrowing down to a shortlist of physical viewings. » Remote identity checks and digital signatures have been introduced and expanded, saving home movers and the industry huge amounts of time, cost and hassle. » The industry is moving closer to a system of property passports for the rental sector which will create a logbook pulling together all regulatory and other information under a Unique Property Reference Number system. Our response Covid-19 has been a catalyst for increased adoption of technology across the property sector, from agents to lenders through to removal companies, with advances accelerating by two to five years. The “prop tech” industry continues to challenge the current inefficiencies in the home moving process. The Belvoir Group is investing in technology to stay ahead of the competition. Our franchisees are migrating onto a new technology platform which will transform the sales and lettings process for home movers as well as improve efficiencies for our franchise network. This is aimed at giving a first-class online customer experience, whilst continuing to benefit from the advantage of offering a personal service delivered from fully staffed local offices. Annual report and accounts 2020 09 Our markets continued MARKET TRENDS – PROPERTY CONTINUED Legislation – aimed at professionalising the sector Laws and regulations that need to be followed to legally let a property in England and Wales Section 21 and evictions Safeguarding tenants S E C T I O N 21 » Keeping up with emergency legislation changes during Covid-19 has been extremely difficult for tenants, landlords and agents due to changes made at such short notice. » The ban on bailiff evictions, apart from in a set of specific serious circumstances, was extended until at least 31 May 2021 across the UK. » The requirement for landlords to provide six-month notice periods to tenants before they evict was also extended until at least 31 May. » The requirement to have an Electrical Installation Condition Report (EICR) for existing tenancies became effective from 1 April 2021. Our response Belvoir has well tried and tested systems in place to ensure all franchise owners, landlords and tenants are kept up to speed with the latest rules and regulations. However, in some cases we have been given less than 24 hours’ notice of changes and these have tested our processes to the limit. It is testament to the team at the Belvoir Group and the franchisees and their staff that we have been able to implement so many changes, on top of working from home, while maintaining our own high standards of conduct during this time. At Belvoir we track via our quarterly survey the percentage of offices carrying out an eviction. Over the last five years, our survey shows that in most quarters, from those that responded, 90% of offices carry out no evictions or only one per quarter. This is because of strong referencing and good tenant management. We have also supported our landlords with the continuation of rent guarantee insurance when many pulled out of the market due to a change in the law. During Covid-19 the rules and regulations to let a property changed dramatically, especially a landlord’s right to evict a tenant. At the start of lockdown a Section 21 notice (in England and Wales) could still be issued, but landlords had to give three, not two, months’ notice. By August 2020, the notice period was increased to six months (bringing England and Welsh notice periods in line with Scotland). Some exceptions applied, for example if there are issues such as anti-social behaviour and domestic abuse in England, if rent arrears have accumulated in excess of six months, tenants could be evicted more quickly. With the backlog of court cases from the first lockdown, it can now take up to twelve months to evict a tenant. It is likely that the Rent Reform Bill will eventually lead to Section 21 being scrapped post-Covid-19 and we will shortly know the effect this will have on the rental market. From our perspective, we do not believe this will be a problem for good landlords and agents as long as the Government delivers a new Housing Court and gives landlords more rights to secure their property back for cases of rent arrears, anti-social behaviour or the landlord needing to move back into the property or sell.” Dorian Gonsalves Chief Executive Officer 10 Belvoir Group PLC STRATEGIC REPORTMARKET TRENDS – FINANCIAL SERVICES Demand – recovered in the second half of 2020 Future of mortgage lending – looks bright First-time buyers – key to activity in 2021 Mortgage approvals: house purchases and remortgages8 100% 80% 60% 40% 20% 0% -20% -40% -60% -80% -100% n a J b e F r a M r p A y a M n u J l u J g u A p e S t c O v o N Forecasts for gross and net lending (£m)8 Turning “generation rent” into “generation buy” 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 e 0 2 0 2 f 1 2 0 2 f 2 2 0 2 House purchase Remortgage Gross lending Net lending » During lockdown house purchase lending fell to below 50% and remortgaging to 82% of 2019 levels in April and May8. » Gross and net lending are expected to increase in 2021 exceeding levels from as far back as 2008. » The Government’s 95% LTV full term fixed rate mortgage scheme is aimed at turning “generation rent” into “generation buy”. » The subsequent house sales rebound saw house purchase mortgage approvals up 72%8 on their 2019 level in November pointing to a strong lending for the start of 2021. » Remortgaging continued to be below the level seen in 2019 throughout H2. Our response During the first lockdown in April to May 2020, our financial services revenue dropped by just 13% with the loss of revenue from new mortgage products being mitigated by switching focus to remortgages and income protection products. However, the recovery in the property sales market in H2 provided a significant boost to the mortgage market, resulting in record levels of commission from mortgages in Q4. » 90% LTV products have returned to » Pent-up demand is likely to help drive the market in 2021 and the increased competition may cause rates to fall. » The Government’s announcement of a new mortgage guarantee scheme will boost the availability of 95% LTV mortgage products for FTB. » Mortgage lending rates remain low with most forecasters expecting base rates to remain at 0.1% for 2021. Our response The SDLT holiday and the pent-up demand from people wanting to get out of their lockdown homes is having a knock-on effect on our mortgage business with new mortgages written up 23% in January 2021. With the SDLT holiday now extended to September, even though at a reduced rate from July, we expect continued strong demand for new mortgages for much of the year. transactions from FTB with competitive 90% and 95% lending products being reintroduced. » FTB demand is relatively affected by the SDLT holiday as they are exempt stamp duty on house purchases up to £300,000 (in England). » New rules for Shared Ownership and Help to Buy should not impact on FTB activity. Our response FTBs are the life blood of the housing market. Many were locked out in 2020 because of the withdrawal of high LTV mortgage products reducing FTBs to 23%10 in December (December 2019: 29%). The return of lenders to the 90% market in Q1 2021 has helped to unlock some of the pent-up demand. The Government has committed to creating a “generation buy” through its 95% LTV guaranteed mortgage scheme which will do much to unlock home-ownership to FTB and will improve new, long-term business for the mortgage industry. 1. https://www.hometrack.com/media/650698/zoopla-uk-house-price-index-dec2020-hometrack-final.pdf 2. https://www.gov.uk/government/statistics/uk-house-price-index-summary-december-2020/uk-house-price-index-summary-december-2020 3. https://www.gov.uk/government/publications/monthly-property-transactions-completed-in-the-uk-with-value-40000-or-above/uk-monthly-property-transactions-commentary 4. https://www.twentyci.co.uk/phmr/twentyci-property-homemover-report-year-end-2020/ 5. https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/indexofprivatehousingrentalprices/december2020 6. https://www.hometrack.com/uk/insight/rental-market-report/q3-2020-rental-market-report/ 7. https://www.hometrack.com/uk/insight/uk-house-price-index/december-2020-house-price-index/ 8. http://www.imla.org.uk/resources/publications/the-new-%60normal-prospects-for-2021-and-2022.pdf 9. https://www.fca.org.uk/data/mortgage-lending-statistics 10. https://www.naea.co.uk/lobbying/housing-market-reports.aspx Annual report and accounts 2020 11 Our business model Focused on achieving growth Our business model is built on 25 years of experience of operating a Central Office team providing support and guidance to a network of entrepreneurial individuals with the drive and local knowledge to deliver success. OUR DIFFERENCE OUR PROCESS Belvoir sits at the centre of our networks Belvoir operates a network of property franchisees and a network of financial advisers supported by our Central Office team. Franchisee network Adviser network These two networks overlap with our property franchisees providing a lead source to our financial advisers who are well placed to provide mortgage and other property-related financial services advice to our landlords and our home owners. Our financial advisers benefit from the reliable lead source and our property franchisees benefit from an additional revenue stream. Learn more about our strategy from page 14 Service excellence Our experience and focus on customer service have enabled us to stand out from the crowd and are critical to the success of our Group. Our property franchisees and financial advisers undergo intensive training and regular audits to ensure that they are equipped to deliver our required high standard of service. Greater financial stability A strong lettings base providing a recurring revenue stream coupled with an increasing revenue stream from property sales and financial services provide the Group with greater financial stability. Our model also enables our property franchisees to build a capital asset which, unlike income-based franchise options, provides a financial return on exit. Network model Both our franchisees and advisers benefit from the backup and support of a Central Office team whilst operating their own business with the entrepreneurial drive of an owner-manager. Proactive growth We proactively identify suitable earnings enhancing businesses for our property franchisees to bolt onto their existing business, whilst also initiating the roll out of additional property services, such as financial services, to be offered by our franchisees, providing the opportunity for accelerated and sustained growth. 12 Belvoir Group PLC STRATEGIC REPORTSupporting both networks Both networks are supported centrally to ensure that the individual franchise owners and financial advisers achieve their growth potential. Selection We work closely with potential new franchisees and advisers to ensure that they are a good fit for our business model of high quality service delivery and sound business ethics. This process minimises the risk to both the Group and our business partners and assures our high success rate. Induction All new franchisees and advisers undertake an intensive induction programme on joining to ensure that they have the necessary skills and know-how to make their business a success. Brand equity Our brands are highly regarded and respected for their core values of professionalism and customer service. We invest continually in our brands to ensure that messaging remains fresh and relevant to our markets. Networking We facilitate a culture of learning from each other and sharing experiences through national and regional networking groups and at the annual conference held by each network. Support Each franchisee and adviser has a dedicated business mentor who helps them to develop their business. Advice and support are available from Central Office in specialist areas such as legal, IT, compliance and marketing. Training In addition to the induction training, a continual programme of professional training and development is conducted both centrally and via webinars. DELIVERING VALUE Franchisees and advisers We provide a proactive support system, bringing the best and most up-to-date tools, advice, training and services to our business partners. 129 courses offering specialist training Employees We recognise the need to attract, retain and develop the best talent to our Central Office team, offering opportunities for ongoing learning and professional development, to ensure that we deliver a professional service to our networks. 33 staff holding or training towards a professional qualification Customers Our professional service goes above and beyond legal requirements. Our franchisees’ key role is to deliver exceptional customer service to their clients. 4.5 online star rating (independently generated by trustist.com) Shareholders Our Board is committed to building a business capable of creating value for our shareholders based on sound business ethics. EPS increased to 15.1p +14% (2019: 13.3p) Annual report and accounts 2020 13 Our strategy Strategy for growth Our medium-term strategy is focused on leveraging our property and franchising expertise to meet our purpose of helping people to realise their property aspirations through a highly professional network of franchisees and financial advisers. LINKS TO KPIs 1 2 3 4 5 6 7 8 9 MSF Net financial services commission Profit before tax EPS Number of franchise offices Average MSF per office Number of managed properties MSF p.a. from assisted acquisitions Number of financial advisers 10 Number of mortgages arranged Learn more about our KPIs from page 16 LINKS TO RISKS A B C D E Ability to generate planned revenue and profit growth Ability to recruit and retain skilled franchisees and financial advisers Reputational risk Ability to execute our assisted acquisitions strategy Legislative and regulation changes GROUP ACQUISITIONS STRATEGY ASSISTED ACQUISITIONS PROGRAMME RECRUITMENT DIVERSIFICATION MARKETING AND PR Accelerating business growth through the acquisition of additional franchised property networks and property-related services companies to the Belvoir Group Milestones of 2020 » Completion of the acquisition of Lovelle Estate Agents, a strong regional, mainly sales network with 16 branches in North Lincolnshire and the Humber » Four of the five corporate-owned Lovelle offices were franchised out to the branch manager » Strategic alliance with The Nottingham to take on its estate and lettings agencies within dual-branded Nottingham Building Society branches Focus for the future » The assimilation of Nicholas Humphreys, acquired March 2021, into the Belvoir Group » Identify other property-related service companies to bring into the Group » Position Belvoir to take advantage of further strategic consolidation and strategic alliances within the property sector Increasing the market penetration of existing franchise territories through a proactive approach to finding them a local portfolio acquisition Milestones of 2020 » 11 (2019: 24) transactions completed by franchisees under the assisted acquisitions programme » Added £2.1m (2019: £6.6m) of acquired franchisee revenue to the network and £153,000 (2019: £580,000) p.a. in MSF » 90 (2019: 82) franchisees enrolled on the acquisition research programme Focus for the future » Target to add around £5.0m p.a. of additional network revenue under the assisted acquisitions programme, dependent on market conditions » Provide a model to convert larger acquisition opportunities for our franchisees » Position our franchisees to take advantage of consolidation within the sector Increasing UK coverage of both Expanding our offering of Continuous drive to increase our property franchise and financial services networks property-related services and ways of engaging with clients brand awareness Milestones of 2020 Milestones of 2020 Milestones of 2020 » Eight new franchise owners joined » Under our collaboration with The » New websites launched for the the Group » Seven new franchise offices opened » Seven existing offices were resold either to a new or an existing franchise owner » Exceeded 200 financial advisers with 65 new advisers joining Nottingham, there are now eleven dual-branded Nottingham Building Northwood, Newton Fallowell and Lovelle brands Society branches » 141 offices are now offering financial services through a Brook financial adviser » New marketing portal launched for the four franchise brands to give franchisees easier access to marketing campaigns » Under our collaboration with HML » 5,000 trees planted as part of the Group, five of our franchise offices Newton Fallowell climate change are offering block management and a further 13 are in the pipeline initiative and a commitment to plant a further 6,000 throughout 2021 Focus for the future Focus for the future Focus for the future » To continue to attract new franchise » Encourage collaboration between » Increasing national advertising owners to the Group » To open offices in new territories » To facilitate the resale of existing property franchise offices » To extend our financial services network of advisers across the UK property franchises and financial advisers to maximise conversion of mortgage leads spend with Google to maximise brand awareness and generate more market appraisals » Build on the collaboration with » Launch new website for the The Nottingham to offer financial Belvoir brand services to its members » Extend the range of property-related services offered through our franchise networks » Launch a sophisticated new email marketing platform allowing franchisees to produce agile content marketing campaigns F Online threat LINKS TO KPIs LINKS TO RISKS LINKS TO KPIs LINKS TO RISKS 1 6 2 7 3 8 4 5 9 10 A B C D E F 1 6 2 7 3 8 4 5 9 10 A D B C E F Learn more about how we manage risk from page 22 14 Belvoir Group PLC STRATEGIC REPORTGROUP ACQUISITIONS ASSISTED ACQUISITIONS RECRUITMENT DIVERSIFICATION MARKETING AND PR STRATEGY PROGRAMME Accelerating business growth Increasing the market through the acquisition of additional franchised property networks and property-related services companies to the Belvoir Group penetration of existing franchise territories through a proactive approach to finding them a local portfolio acquisition Milestones of 2020 » Completion of the acquisition of Lovelle Estate Agents, a strong regional, mainly sales network with 16 branches in North Lincolnshire and the Humber » Four of the five corporate-owned Lovelle offices were franchised out to the branch manager » Strategic alliance with The Nottingham to take on its estate and lettings agencies within dual-branded Nottingham Building Society branches Milestones of 2020 » 11 (2019: 24) transactions completed by franchisees under the assisted acquisitions programme » Added £2.1m (2019: £6.6m) of acquired franchisee revenue to the network and £153,000 (2019: £580,000) p.a. in MSF » 90 (2019: 82) franchisees enrolled on the acquisition research programme Focus for the future Focus for the future » The assimilation of Nicholas » Target to add around £5.0m p.a. of Humphreys, acquired March 2021, additional network revenue under into the Belvoir Group » Identify other property-related service companies to bring into the Group » Position Belvoir to take advantage of further strategic consolidation and strategic alliances within the property sector the assisted acquisitions programme, dependent on market conditions » Provide a model to convert larger acquisition opportunities for our franchisees » Position our franchisees to take advantage of consolidation within the sector Increasing UK coverage of both our property franchise and financial services networks Expanding our offering of property-related services and ways of engaging with clients Continuous drive to increase brand awareness Milestones of 2020 » Eight new franchise owners joined the Group » Seven new franchise offices opened » Seven existing offices were resold either to a new or an existing franchise owner » Exceeded 200 financial advisers with 65 new advisers joining Milestones of 2020 » Under our collaboration with The Nottingham, there are now eleven dual-branded Nottingham Building Society branches » 141 offices are now offering financial services through a Brook financial adviser » Under our collaboration with HML Group, five of our franchise offices are offering block management and a further 13 are in the pipeline Milestones of 2020 » New websites launched for the Northwood, Newton Fallowell and Lovelle brands » New marketing portal launched for the four franchise brands to give franchisees easier access to marketing campaigns » 5,000 trees planted as part of the Newton Fallowell climate change initiative and a commitment to plant a further 6,000 throughout 2021 Focus for the future » To continue to attract new franchise owners to the Group » To open offices in new territories » To facilitate the resale of existing property franchise offices » To extend our financial services network of advisers across the UK Focus for the future » Encourage collaboration between property franchises and financial advisers to maximise conversion of mortgage leads Focus for the future » Increasing national advertising spend with Google to maximise brand awareness and generate more market appraisals » Build on the collaboration with » Launch new website for the The Nottingham to offer financial services to its members » Extend the range of property-related services offered through our franchise networks Belvoir brand » Launch a sophisticated new email marketing platform allowing franchisees to produce agile content marketing campaigns LINKS TO KPIs LINKS TO RISKS LINKS TO KPIs LINKS TO RISKS LINKS TO KPIs LINKS TO RISKS 1 6 2 7 3 8 4 5 9 10 A B C D E F 1 6 2 7 3 8 4 5 9 10 A B C D E F 1 6 2 7 3 8 4 5 9 10 A B C D E F Annual report and accounts 2020 15 Our key performance indicators (KPIs) Measuring our performance The Group tracks a series of financial and non-financial metrics that demonstrate the progress we are making. These have been discussed in further detail throughout the Strategic report. LINKS TO STRATEGY FINANCIAL KPIs 1 2 3 4 5 Group acquisitions strategy Assisted acquisitions programme Recruitment Diversification Marketing and PR Learn more about our strategy from page 14 MSF (£m) £9.1m +3% 8.5 7.9 6.4 8.8 9.1 Net financial services commission (£m) £2.8m +12% 2.8 2.5 1.2 0.7 0.3 16 17 18 19 20 16 17 18 19 20 Definition Fees to the franchisor based on a percentage of franchisee revenue Definition Commission receivable on financial services less commission payable to advisers Comment 3% growth with lettings up 2% and sales up 9%, with sales benefitting from the acquisition of the Lovelle network Comment Reflects 36 net increase in financial advisers with 26 having joined in H2 LINKS TO STRATEGY 1 2 3 4 5 LINKS TO STRATEGY 1 2 3 4 5 Profit before tax (£m) £6.7m +20% 3.9 2.4 6.7 5.51 5.6 EPS (p) 15.1p +14% 8.6 5.7 15.1 12.91 13.3 16 17 18 19 20 16 17 18 19 20 Definition Profit before tax arising from ongoing operations Definition Earnings per share equates to retained profit divided by the number of shares Comment Organic growth and increased profitability associated with the acquisition of Lovelle Comment Increase in EPS reflecting enlarged Group and increased profitability LINKS TO STRATEGY 1 2 3 4 5 LINKS TO STRATEGY 1 2 3 4 5 16 Belvoir Group PLC 1. 2018 included net exceptional credit of £0.6m. STRATEGIC REPORTNON-FINANCIAL KPIs Number of franchise offices (#) Average MSF per office (£) Number of managed properties (#) 318 +2% 302 300 300 313 318 £29,500 0% 28.3k 26.3k 24.1k 29.5k 29.5k2 65,065 +2% 55.8k 58.0k 62.8k 64.0k3 65.1k 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 Definition All our franchised offices have a physical high street presence Definition Total MSF divided by the number of franchised offices Comment Increased high street presence reflects addition dual-branded The Nottingham Building Society branches Comment Focus on growth through diversification and acquisition has increased the average size of our offices Definition Total number of properties managed on behalf of landlords within the Group Comment Growth relates to the additional Lovelle portfolio of managed properties LINKS TO STRATEGY 1 2 3 4 5 LINKS TO STRATEGY 1 2 3 4 5 LINKS TO STRATEGY 1 2 3 4 5 2. Excludes NBS branches. 3. Amended following 2020 data cleansing. MSF p.a. from assisted acquisitions (£) Number of financial advisers (#) Number of mortgages arranged (#) £153,000 -74% 643k 580k 351k 243k 153k 16 17 18 19 20 202 +22% 13 16 202 166 123 37 12,094 +29% 12.1k 9.3k 2.7k 1.4k 0.5k 17 18 19 20 16 17 18 19 20 Definition Additional MSF p.a. arising from the assisted acquisitions programme Definition The number of advisers operating within Brook at the year end Definition The number of mortgages written for clients of Brook during the year Comment Covid-19 disrupted the flow of deals with uncertainty temporarily impacting on the appetite to transact Comment Brook extended its footprint of advisers and is now working with 141 Group offices Comment Increased adviser numbers and lead sources resulting in increased written mortgage business LINKS TO STRATEGY 1 2 3 4 5 LINKS TO STRATEGY 1 2 3 4 5 LINKS TO STRATEGY 1 2 3 4 5 Annual report and accounts 2020 17 Environmental, social and governance Understanding how Belvoir can contribute to a better future Belvoir is committed to embedding ESG initiatives into the core values of the Group creating a force for positive change. OUR ENVIRONMENT OUR VALUES In operating a franchise business model, the Belvoir Group does not have a significant environmental impact. However, the Board is mindful of good environmental practices and has taken the following steps to minimise our impact on the environment, and is reviewing what further initiatives could be introduced. Actions Green working group We have formed a working group to develop our sustainability strategy, to review good environmental practices, to consider how best to implement these internally and also to share and encourage similar behaviour with other stakeholders, including our franchisees and our landlords. Minimising waste We have instigated a recycling waste collection and have replaced single use plastic drinking cups with glasses where possible and recyclable cups otherwise. Promoting a zero carbon commute We operate a cycle to work scheme open to all employees to encourage good health as well as reducing emissions from a daily car commute. Reducing carbon pollution Through our “plant-a-tree” initiative for every Newton Fallowell house sale, we have planted over 5,000 trees in 2020. Initiatives under review Electric cars Where practicable we intend to switch to electric pool and company cars. This will involve installing an electric charging point at our Central Office for the pool cars parked there overnight. The barrier for switching to electric pool cars for our corporate-owned shops is the availability of charging points in the local public car parks where our cars are parked overnight. We anticipate such availability improving over time. Energy We will be reviewing the possibility of switching to energy-saving lighting and heating for our offices. Franchisees We aim to engage with our franchisees to identify and share good environmental practices. Landlords We intend to prepare a guide for landlords on how to make their properties more energy-efficient. We believe in embracing the highest business morals and ethics in dealing with all stakeholders: our investors, our franchisees, our staff and our clients. Our core values of delivering excellent customer care and a quality, professional service, and being open and transparent when dealing with our stakeholders have been key to our success throughout our 25-year history. Collaboration Our mutual success relies on our property and financial services networks collaborating, all supported by our Central Office team. Entrepreneurial Our model is underpinned by networks of highly motivated business owners. Agility Each office is in control of its own operations so is more able to react to local market and sector-wide conditions. Professional development We see the training and development of our staff, our franchisees and our advisers as critical to the success of our business. Integrity We recognise that homes are of paramount importance to our customers so trust and integrity are essential in supporting our customers on their property journey. 18 Belvoir Group PLC STRATEGIC REPORTOUR SOCIETY Our people comprise a highly skilled team of employees, property franchisees and financial services advisers who understand that trust, confidence and communication are of paramount importance when advising customers on their home and any associated mortgage. Our business would not thrive without exceptional people who exceed expectations. OUR EMPLOYEES Belvoir is committed to recruiting, developing, retaining and rewarding highly motivated people who are talented, creative and focused on delivering excellence. Belvoir believes that human capital management is critical in building a successful team and invests in a high degree of employee engagement in order to attract and retain professional staff with the requisite skills. In 2020 we invested in a mini-MBA course to enable 15 of our Senior Management Team to develop in their roles. Of particular concern as a result of the pandemic is the opportunities available to young people. During 2020 Belvoir recruited three new apprentices and was accepted as a Kickstart Scheme Gateway on behalf of the Group with a view to creating 40 jobs for young people at risk of long-term unemployment. OUR FRANCHISEES Our franchisees’ ability to develop relationships built on trust and quality service lies at the heart of our success. A key part of our training programme focuses on our franchisees better understanding themselves and how they interact with other people so that they can develop strategies for building strong and enduring relationships with their customers. Supporting the local communities in which we operate is important to our Group. In 2021 we knew that lots of families were having a tough time with many relying on their local food bank. The Belvoir Group joined in with the Agents Giving initiative to unite estate and lettings agents across the UK to help those who were struggling, with our offices acting as collection points for food donations from their staff, clients, contractors and passers-by. Our collection point at Belvoir Grantham donated 189kg of food plus £400 to its local food bank. BEING SOCIALLY RESPONSIBLE The Board was grateful to have received valuable Government Covid-19 support at the height of the pandemic under the Coronavirus Job Retention Scheme and through small business grants, that enabled the Group to retain staff during this very difficult period. However, given the Group’s resilient trading, which has benefitted from the Government’s strategy to support the property market during the pandemic, the Board took the socially responsible decision to repay in full the £260,000 Covid furlough monies and grants received. 4 staff sponsored under the Apprenticeship Scheme 92 meetings held by our regional networking groups 189kg of food donated Annual report and accounts 2020 19 Environmental, social and governance continued OUR VALUES IN ACTION David Spackman Managing Director, Newton Fallowell Ben and Daisy Davies Joint Franchisees, Belvoir Swansea Inderpal Dhillon Joint Franchisee, Northwood Newcastle My estate agency career began, aged 16, in the print room of Countrywide in Camberley Surrey 39 years ago. Within two years I was managing my first branch and subsequently went on to hold senior roles within independent, franchised and corporate firms, giving me an all-round experience. Having operated my own property and recruitment franchise for five years, I joined Belvoir in 2008 as Head of Franchise Recruitment. In 2011 I was enticed away to join Newton Fallowell, a highly respected regional franchise estate agency network, as Franchise Director with a shareholding in the company. Life went almost full circle when in 2015 the Belvoir Group acquired Newton Fallowell. Newton Fallowell has since flourished with our franchisees benefitting from incredible Group business support and the 2020 acquisition of Lovelle marking another exciting chapter in its history. Having been appointed Managing Director in 2019, I now have responsibility for the combined Newton Fallowell and Lovelle network of 54 branches. I am extremely proud of our franchisees, who excelled themselves in 2020, achieving record sales figures, and taking advantage of all opportunities for business growth. In 2020 we celebrated ten years as Belvoir Swansea by opening a third office in Sketty and expanding into financial services. Running a franchise as a couple has its challenges, especially in achieving a work/ life balance as it’s all too easy to find ourselves talking “Belvoir” at home. On the upside, running our own businesses has given us the flexibility needed to juggle work with a young family. Our complementary skill sets, with Daisy overseeing operations and Ben focusing on sales and financial services, have been key to how we have successfully grown our business. Having started as a lettings only agency, we launched sales in 2017 and within three years sales accounted for 25% of our revenue. This gave us the confidence to team up with Mortgage Advice Bureau, and take on an in-house mortgage adviser who covers all three offices in Swansea, Mumbles and Sketty. We look forward to developing financial services further in 2021. Although the pandemic was a difficult and fluid situation, we were really happy with the support Central Office provided – and being able to lean on other franchisees within the Belvoir family. My journey as a franchisee began three years ago when Aman Singh and I jointly acquired the Northwood Newcastle office. We are both very entrepreneurial so jumped at the chance to acquire Bowes Mitchell in 2020 adding 224 rental properties to our portfolio, With a total of over 500 properties, we became one of the largest agents in the area. This was our target for 2021, so to achieve this a year ahead of target was amazing. Bowes Mitchell has an excellent reputation for sales, so with the recovery of the sales market post the first lockdown, we have been extremely busy. We now have a team of 20 people working across both offices and we are in the process of rebranding and integrating the new business into the Northwood brand, as well as consolidating our position in the market. One of the great things about being part of a franchise is our ability to call on the support of Belvoir’s Central Office team, which was absolutely invaluable during lockdown. Buying Northwood Newcastle has been one of the best things we have ever done. Values in action: Values in action: Values in action: Collaboration Collaboration Entrepreneurial Integrity Professional development Agility Learn more about our business model from page 12 Learn more about our strategy from page 14 Learn more about our people from page 19 20 Belvoir Group PLC STRATEGIC REPORTHOW WE ENGAGE WITH OUR STAKEHOLDERS DIRECTORS’ SECTION 172 STATEMENT Businesses do not operate in isolation. Without a good understanding of who the key stakeholders are and their needs, a business will fail to deliver sustainable value to shareholders and other stakeholders. The Directors take their duties under Section 172(1) of the Companies Act 2016 seriously and consider that they have acted in the way they consider, in good faith, would promote the success of the Company for the benefit of its members as a whole, having regard to the stakeholders and matters set out in Section 172(1) (a–f) in the decisions taken during the year ended 31 December 2020. We set out on page 1 our aim to support customers throughout their property journey. We do this primarily through our franchisees and our network of financial advisers. The Board considers its key stakeholders to be its franchisees and financial advisers, employees, the communities in which we operate, shareholders and regulators. The Board takes seriously the views of these stakeholders in setting and implementing our strategy. To the extent that it is relevant, in addition to the stakeholders discussed below, the impact on the environment and the communities in which the Group operates is considered when making decisions. The two key decisions in 2020 were: Acquisition of Lovelle. This enabled the Group to extend its reach into North Lincolnshire and the Humber providing valuable operational and business development support to the franchisees within the Lovelle network and enhancing the quality of services available to the local community in meeting their property aspirations, whilst providing an incremental return to investors. Covid-19 response. The decisions taken by the Board were aimed at safeguarding the wellbeing of our franchisees, advisers, staff, customers and local communities, whilst securing the ongoing viability of our business and protecting shareholder value. We set out below how we have engaged with key stakeholders which provides valuable input into the Board’s decision making. This engagement sets the context for the strategy set out on pages 14 and 15. In particular our engagement with shareholders has influenced our acquisition, capital structure and dividend policy. Our engagement with our franchisees has influenced our assisted acquisitions programme, our diversification into financial services and the roll out of our new technology programme. Our employees are fundamental to the execution of our strategy. We aim to be a responsible employer providing a fair package of pay and benefits including opportunities for personal development and sharing in the financial success of the Group. OUR APPROACH Franchisees and advisers » Periodic meetings are held with their dedicated Business Development Manager to build relations and to provide business support. » Regional networking groups and an annual conference enabling franchisees to meet and share ideas. » In 2020 the above periodic and regional meetings were held on Zoom. These were well attended and proved to be very effective. » Prompt updates from our Operations Director on all legal, compliance and Covid-19 regulatory changes. Employees Communities » All staff have an annual personal development review and regular one-to-one meetings with their line manager to monitor performance against the agreed plan. » The CEO and CFO hold meetings once a year with each department and conduct twice-yearly Company-wide briefings, enabling sharing of information and gathering of employee feedback. » Senior and long-serving staff are incentivised through the Company Share Option Plan. In January 2020, options over 285,689 shares were issued to long-serving staff. » Since 2016 our Central Office has supported six young people from our local community through the Apprenticeship Scheme. A further three apprentices were recruited in 2020. » In 2020 Belvoir and Newton Fallowell sponsored two lanes in the Grantham Swimarathon, an event that raises around £30,000 for local charities and good causes. » Newton Fallowell planted 5,000 trees, one for every house sold by its network in 2020, and has committed to planting a further 6,000 in 2021. Shareholders » Virtual investor presentations at the time of our preliminary and interim results enabled our institutional and private investors direct access to our CEO and CFO. » All recorded CEO interviews are made available online through our PLC website, belvoirgroup.com. » Throughout the year, we provided clear guidance to shareholders. » We shared decisions with the relevant stakeholders regarding the dividend policy and repayment of Government Covid-19 support. Regulators » We attend quarterly meetings of The Lettings Industry Council, an industry group at the forefront of communicating with the Ministry of Housing Communities and Local Government. » Our Chairman, Michael Stoop, is a non-executive director of The Property Ombudsman and also chairman of its Industry Forum. » Belvoir participates in all discussions on key industry legislation and regulatory changes, the current focus concerning the new regulations proposed in the RoPA report. Annual report and accounts 2020 21 Risk management How we manage risk As with all businesses, we face a wide range of risks and uncertainties on a daily basis. Principal risks and uncertainties The Board has determined the most significant risks to achieving the business objectives, including those that would threaten its business model, future performance, solvency or liquidity. The table opposite summarises these principal risks and how they are managed or mitigated. The risks listed do not comprise all those associated with the Group and are not set out in any order of priority. There could be additional risks and uncertainties that are not presently known to management or currently deemed to be less material, which may also have an adverse effect on the business. Going concern statement The ongoing impact of the Covid-19 pandemic has been considered by the Directors in light of the operating resilience demonstrated by the business during 2020, the expectation that most UK Covid-19 restrictions will have been lifted later in 2021 and concerns over the possible long-term impact on the wider economy. The Directors have revised the forecasts for the Group taking into account the potential ongoing impact of Covid-19 on trading over the twelve months from the date of signing the financial statements. Sensitivities have been applied to the base case model to reflect the possibility of an ongoing lockdown scenario with minimal impact on lettings income and moderately lower levels of income from sales and mortgage activity but no reduction in headcount or other overheads and no change in terms of business with franchisees. Under all scenarios, which incorporate the acquisition of Nicholas Humphreys for cash, there is substantial headroom to continue operating within the banking facilities and in compliance with covenants. Furthermore, a reverse stress test has been carried out against the base case model which demonstrates that, even without changing other parameters such as overheads and dividend payments, it would require a very substantial reduction in revenue, inconsistent with the recurring revenue nature of the business model, for the bank covenants to be breached. After consideration of these forecasts and making appropriate enquiries, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due. LINKS TO STRATEGY 1 2 3 4 5 Group acquisitions strategy Assisted acquisitions programme Recruitment Diversification Marketing and PR Learn more about our strategy from page 14 OUR RISK MANAGEMENT FRAMEWORK BOARD OF DIRECTORS » Leadership of risk management, sets strategic objectives and risk appetite and monitors performance » Accountable for the effectiveness of the Group’s internal control and risk management processes AUDIT COMMIT TEE EXECUTIVE DIRECTORS OPERATIONS BOARD » Communicate and disseminate risk policies » Support and help operating companies to assess risk » Encourage open communication on risk matters » Assess materiality of risks in the context of the whole Group and monitor mitigation and controls » Defines risk management roles at operational and project level » Uses approach to risk as an explicit part of decision making and management of external relationships » Continuous identification of risk, assurance and self-assessment » Delegated responsibility from the Board to oversee risk management and internal controls » Oversees the effectiveness of the Group’s internal control and risk management processes » Monitors the independence and expertise of the external auditor 22 Belvoir Group PLC STRATEGIC REPORTPotential impact Mitigating activities Change in risk ABILITY TO GENERATE PLANNED REVENUE AND PROFIT GROWTH The medium-term impact of Covid-19 on the economy could have a negative impact on our ability to grow as planned. The risks associated with Covid-19 and its impact on the wider economy are regularly reviewed by the Board and mitigating action is taken wherever possible. Given the Covid-19 risks to our business arise due to extraneous factors, there may be limits to the level of direct action that can be taken. However, the Board will be prioritising the work of our Business Development Managers to support franchisees and advisers in adapting their businesses as necessary. No change in risk Our franchise business model has proved to be resilient to Covid-19 throughout 2020, and we will continue to support franchisees to help them overcome any contraction in the property market as we emerge from the pandemic. Links to strategy 1 2 3 4 5 ABILITY TO RECRUIT AND RETAIN SKILLED FRANCHISEES AND FINANCIAL ADVISERS The ability of the Group to attract new franchisees and advisers with the appropriate expertise and skills, in available and suitable locations, cannot be guaranteed. The Board continually monitors the performance of the recruitment team and is focused on identifying innovative ways of attracting successful new joiners. The recruitment marketing message has been refreshed to ensure that Belvoir attracts the widest possible range of people irrespective of age, gender and race. Decrease in risk The unprecedented market conditions have created an environment where people are looking for alternative employment models which has increased interest from potential new franchisees and financial advisers. Links to strategy 1 2 3 4 5 REPUTATIONAL RISK The Group’s reputation, in terms of the service it and its franchisees/advisers provide, the way in which it and its franchisees/ advisers conduct their business, and the financial results which they achieve are central to the Group’s future success. Failure by the franchisees/advisers to meet the expectations of their customers may have a material impact on the reputation of the brands within the Group. New joiners are subject to an intensive training programme and subsequent monitoring and support from a dedicated business development mentor. The Group also offers ongoing training courses to ensure continuing professional development. No change in risk Our franchisees and advisers are both subject to ongoing training and compliance which minimises reputational risk. Links to strategy 1 2 3 4 5 ABILITY TO EXECUTE OUR ASSISTED ACQUISITIONS STRATEGY The Group needs to continue to identify suitable acquisition targets for its franchisees and help to source the necessary funding through its assisted acquisitions programme. The downturn in the property market caused by Covid-19 did impact the appetite of: franchisees to make a portfolio acquisition; funders to support such transactions; and owners to sell their business during unstable trading conditions. The Board will continue to operate the assisted acquisitions programme so as to put our franchisees in the strongest position to capitalise on such opportunities once trading recovers. Increase in risk We anticipate that the appetite for acquisitions will remain lower than pre- Covid-19 until a normal level of trading resumes, as vendors are not confident of securing the best price for their business against 2020 trading. Links to strategy 1 2 3 4 5 LEGISLATIVE AND REGULATION CHANGES The Government has clearly signalled that it intends to professionalise the sector with recommendations made within the RoPA report. This will introduce qualifications for property agents with no “get out” clause for experienced agents, licensing of agents and a new code of practice for the sector. The Board welcomes the proposed changes aimed at professionalising the sector. Our support system already covers in-depth upfront and ongoing training of all our franchisees and financial advisers. We also have a comprehensive system of audit and compliance to ensure best practice. Decrease in risk The recommendations of the RoPA report might deter new entrants to the sector and provide opportunities for professionally run reputable businesses. Links to strategy 1 2 3 4 5 ONLINE THREAT The market share for online agencies offering a low-cost solution increased to around 10% in 2020 due to traditional agencies being closed for two months. The Group needs to ensure that it can meet the demands of a new generation of landlords, tenants, buyers and sellers for whom a technical platform is second nature, and for whom a physical office presence is less critical. The pandemic accelerated use of technology by both agents and the public. The Group is rolling out a better technology platform aimed at improving the customer journey by giving landlords, tenants, buyers and sellers greater online visibility and interaction. No change in risk The long-term viability of online agencies is yet to be proved with much less willingness to continue funding unproven models. The winning formula will combine excellent customer service with good use of technology. Links to strategy 1 2 3 4 5 Annual report and accounts 2020 23 Financial review Providing clear guidance In what was a difficult year to forecast, we aimed to give clear guidance throughout the year, ultimately delivering a strong set of financial results. Revenue Group revenue in 2020 increased by £2.4m to £21.7m (2019: £19.3m), of which £1.1m reflected the acquisition of Lovelle in January 2020 and £1.3m arose from growth in the underlying business. MSF, our key underlying revenue stream from franchisees, increased by 3% to £9.1m (2019: £8.8m) with lettings MSF up 2% to £7.5m (2019: £7.3m) and MSF from property sales up 9% to £1.6m (2019: £1.5m). Our Covid-19 financial support package for franchisees included the waiver of our monthly minimum fees to franchisees which reduced total MSF income in 2020 by £0.1m. Income from corporate-owned offices was up £0.9m, which resulted from the acquisition of the Lovelle network comprising five corporate-owned offices. As stated at the time of acquisition, it was the Board’s intention to find a franchise solution for these offices. All but one was franchised during the year with Lovelle Grimsby Lettings being franchised mid-January 2021. Of these, four were sold to the respective branch managers and one was rebranded to Newton Fallowell. Also, in 2020 we resold the Northwood Glossop portfolio, which had been brought back in-house in 2019, to an adjacent franchisee. As a result, revenue from these offices has been reported as £0.9m from 24 Belvoir Group PLC assets held for sale. Going forward, the contribution from these offices will be in the form of MSF and reported as part of our continuing operations. The Group continues to operate two corporate-owned offices, Belvoir Grantham and Newton Fallowell Grantham, both of which remain profitable and will be retained long term. Revenue from franchise sales in 2020 was £0.3m (2019: £0.2m). We opened seven (2019: six) new offices in 2020, of which five resulted from an existing franchise owner opening an additional office, one from a conversion by an independent agent and one from an assisted acquisition by a new franchise owner. We also saw three (2019: eight) existing franchisees sell their business to a new franchise owner and four Lovelle corporate-owned offices being acquired by an existing franchisee or the branch manager. Other income was relatively unchanged at £0.4m (2019: £0.5m). Overall, our property division achieved 12% revenue growth with the ratio of lettings to sales at 78:22 (2019: 80:20) with the slight shift towards sales reflecting the acquisition of Lovelle, a predominantly estate agency network. Revenue from our financial services division was up 14% to £9.7m (2019: £8.5m) resulting from the expansion of our network; this increased by 36 advisers to 202 (2019: 166) with over 70% of the recruitment achieved in the second half of the year. Gross profit Gross profit increased by 12% to £14.8m (2019: £13.2m) with the gross profit ratio by business activity, lettings 60%, sales 17%, financial services 19% and other 4% (2019: 61%:16%:19%:4%), reflecting the significant bias towards our recurring lettings income stream. Administrative expenses Administrative expenses increased by £0.6m to £8.2m (2019: £7.6m) including £0.9m of additional costs associated with the Lovelle acquisition. This comprised £0.8m incurred in operating five Lovelle corporate-owned estate and lettings agencies, and £0.06m amortisation charge in respect of the associated acquired intangibles. Within administrative expenses there is a charge of £0.4m (2019: £0.2m) associated with the share options issued to Directors and certain staff between 2014 and 2020. Full disclosure is detailed in note 27 to the accounts. The underlying Belvoir business reported overheads savings of £0.5m resulting from a reduction in headcount at the start of the pandemic to match foreseeable needs, home-based working, travel limited to essential only, negotiated discounts from suppliers on services during the lockdown that benefitted both the Group and our franchisees, and general tight cost control. In H1 overheads were reduced by £0.3m as a result of a voluntary lockdown salary reduction for senior personnel and Government Covid-19 financial support through the Coronavirus Job Retention Scheme and small business grants. All staff were reimbursed and all furlough monies and grants were repaid to the Government in H2. Operating profit Operating profit was £6.6m (2019: £5.7m), an increase of 17% over the prior year. Other income In May 2020, options over 40,000 shares in Mortgage Advice Bureau, an AIM-listed company, vested. These were sold during the year and a gain of £0.1m was recognised in other income. Profit before taxation Profit before taxation of £6.7m (2019: £5.6m) is after interest receivable on franchisee loans of £0.2m (2019: £0.2m), which is regarded by the Group as part of its ongoing operations to extend the network reach. STRATEGIC REPORTTaxation The effective rate of corporation tax for the year was 20.3% (2019: 16.6%). The higher rate of effective tax is in part due to the Government’s decision to maintain corporation tax at 19% rather than reduce to 17% as reflected in deferred tax calculations at the end of 2019. Earnings per share Basic earnings per share was up 14% to 15.1p (2019: 13.3p) based on an average number of shares in issue in the year of 35,100,979 (2019: 34,938,606). When the dilutive effect of share options is incorporated, the earnings per share was 14.6p (2019: 12.9p). Profit attributable to owners was £5.3m (2019: £4.7m). Dividends Following the Board’s prudent decision to suspend the 2019 final dividend at the start of the Covid-19 lockdown, the Board reinstated its progressive dividend policy at the time of the 2020 interim results. The interim dividend of 5.4p (2019: 3.4p), which was paid to shareholders on 30 October 2020, included 2.0p as a partial reinstatement of the final dividend for 2019. The Board is proposing a final dividend for 2020 of 5.1p per share (2019: nil) which includes a further catch-up dividend of 1.3p per share and brings the total reinstated 2019 final dividend to 3.3p per share. Subject to shareholders’ approval at the AGM on 27 May 2021, this dividend will be paid on 1 June 2021, based upon the register on 23 April 2021. The ex-dividend date is 22 April 2021. In total, the 2020 dividend for the year will be 7.2p (2019: 6.7p including the catch-up final dividend of 3.3p) with dividend cover at 2.1x. The Board aims to offer a reliable and growing income stream to investors whilst retaining sufficient funds for further investment to meet its strategic growth objectives. Cash flow The Group continues to achieve a high conversion of cash from operations with cash of £8.2m from operating activities at 110% of EBITDA (2019: 113%). The net cash inflow from operations was £6.8m (2019: £6.0m) reflecting the enlarged Group. The net cash used in investing activities was £1.4m (2019: £0.3m): » Newton Fallowell Limited acquired the trade and assets of the Lovelle network which comprised five corporate-owned offices and twelve franchised offices, for £2.0m cash consideration. » Proceeds from the sale of corporate offices held for resale was £0.2m. » The cash outflow of franchisee loans granted was £0.7m (2019: £1.2m) and reflects the lower level of assisted acquisitions activity in 2020. » The cash inflow from repayments to the franchise loan book was £0.8m (2019: £1.4m). Our financial support package for franchisees included a six-month capital repayment holiday to those franchisees who have borrowed funds from Belvoir to grow through our assisted acquisitions programme. This reduced cash inflow by £0.4m. » Interest received on the franchise loan book was £0.2m (2019: £0.2m). » Proceeds from the sale of shares in MAB was £0.3m. During 2020 £0.9m (2019: £0.9m) was repaid against the HSBC loan and associated finance costs were £0.3m (2019: £0.3m). Dividend payments totalled £1.9m (2019: £2.5m). As a result, net cash outflow from financing activities totalled £3.1m (2019: net cash outflow of £4.0m). Liquidity and capital resources At the year end the Group had cash balances of £5.9m (2019: £3.6m) and a term loan of £9.6m (2019: £10.5m). The HSBC facility is repayable at £0.9m per year in half yearly repayments until March 2023 followed by a final repayment of £7.9m. Bank covenants are set at dividend cover of greater than 4.0 and the debt service ratio at greater than 1.2, within which the business is forecast to operate with substantial headroom. Unearned indemnity commission Associated with our growing financial services division is the accounting treatment of unearned indemnity commission. This comprises three elements: » The Group accounts for amounts withheld by Mortgage Advice Bureau from weekly commission payments in respect of unearned indemnity commission within other debtors. At the year end this balance was £1.3m (2019: £1.2m). » Revenue is reduced to reflect the estimated clawback of commission by Mortgage Advice Bureau arising on the cancellation of life assurance policies within four years following inception and a refund liability is recognised for unearned indemnity commission. At the year end the refund liability was £1.3m (2019: £1.1m). » Also, on a weekly basis the estimated clawback of commission recoverable from our financial advisers is accounted for within other debtors. At the year end this balance was £0.5m (2019: £0.4m). Post-year-end acquisition In March 2021 the Group acquired White Kite Holdings 2021 Limited, the holding company of White Kite Limited and Nicholas Humphreys Franchise Limited, which together operate “Nicholas Humphreys”, a predominantly franchised lettings network of 18 franchised and three corporate-owned offices operating nationwide. The overall consideration for the acquisition was £4.0m which was satisfied in cash from existing cash reserves. In the year to 31 March 2020 Nicholas Humphreys, as acquired, recorded revenue of £2.8m and operating profit of £1.0m and at that date had net assets of approximately £0.1m. Going concern The Group continues to operate from a sound financial platform and is strongly cash generative. The opening cash balance of £5.9m enabled the Group to acquire the Humphreys network in March 2021 for cash. Whilst the Group has demonstrated excellent resilience during the Covid-19 pandemic, the Board has nonetheless revisited its forecasts against a range of possible downside outcomes and has concluded that the Group has adequate resources to continue in operational existence, to meet its financial obligations including the 2020 bank loan repayment of £0.9m and to operate within its bank covenants for the foreseeable future. Key performance indicators The Group uses a number of key financial and non-financial performance indicators to measure performance, which are regularly reviewed by the Board to ensure that they remain relevant to the Group’s operations. These have been discussed in detail throughout the Strategic report and are illustrated on pages 16 and 17. Louise George Chief Financial Officer The Strategic report is contained on pages 1 to 25. It was approved by the Board on 9 April 2021. Annual report and accounts 2020 25 Board of Directors An experienced Board Belvoir has a highly experienced Board of Directors with a commitment to driving profitability and long-term shareholder value. The Directors of the Company who were in office during the year up to the date of signing the financial statements were: MICHAEL STOOP DORIAN GONSALVES LOUISE GEORGE MARK NEWTON Non-Executive Chairman Chief Executive Officer Chief Financial Officer Executive Director Appointment March 2018 Appointment October 2011 Appointment June 2014 Appointment March 2016 Experience Dorian has extensive experience in the property industry having spent seven years with Countrywide before joining Belvoir in 2005 as Business Development Manager. Appointed Sales Director a year later and subsequently Chief Executive Officer, Dorian also spent five years as a director of The Property Ombudsman. Dorian has a deep understanding of franchising and the strategic vision to deliver a successful franchise operation. Key skills Strategic business planning/ franchising/people management Experience Louise is a Chartered Accountant having qualified with Ernst & Young in 1991. She has over 18 years’ board-level experience with AIM-listed companies overseeing a wide range of corporate transactions. Over the past six years Louise has undertaken the seven significant acquisitions for the Group. Louise, who is also a Chartered Secretary, serves as Company Secretary to the Group. Key skills Financial management/mergers and acquisitions Experience Mark, a Chartered Surveyor, has 45 years’ experience of estate agency. He joined Black Horse Agencies in 1984 and subsequently was appointed managing director of Legal & General Estate Agents. In 1999 Mark established Newton Fallowell, which he built into a network of 30 franchised offices before selling to Belvoir in July 2015. Mark has Board-level responsibility for the diversification into financial services. Key skills Estate agency/financial services Experience Michael has over 45 years’ experience of the franchise property market, initially with Winkworth as both a franchisee and as the group managing director. This was followed by 22 years as managing director of Legal and General’s estate agency network, Xperience, which he was instrumental in converting into a wholly franchised network of 95 offices. In 2014, this was sold to The Property Franchise Group plc, where Michael was group managing director until he stood down in 2016. Key skills Estate agency/franchising Committee membership Audit Committee member Remuneration Committee Chairman Learn more about our governance from page 27 Learn more about our Audit Committee from page 33 Learn more about our Remuneration Committee from page 34 Learn more about our stakeholder engagement from page 21 26 Belvoir Group PLC CORPORATE GOVERNANCEIntroduction to corporate governance Promoting a culture of good governance At Belvoir we recognise that high standards of corporate governance underpin our continuing success. PAUL GEORGE Non-Executive Director Appointment June 2018 Experience Paul has extensive experience in audit, reporting and governance having, until April 2020, spent 16 years as an executive director at the Financial Reporting Council (FRC), most recently responsible for corporate governance and reporting. Prior to the FRC, Paul was an executive director of MCG PLC and an audit partner at KPMG. Paul is also a partner of Board Excellence, a business providing Board advisory services. Key skills Corporate reporting/corporate governance Committee membership Audit Committee Chairman Remuneration Committee member The Directors confirm that: » so far as each Director is aware, there is no relevant audit information of which the Group and Company’s auditor is unaware; » the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information; and » the Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. High standards of corporate governance continue to be a key priority for the Belvoir Board. We continually review the framework within which we operate and the processes implemented to ensure that they reflect the complexities of our business and, whilst acknowledging our size, are also capable of adding value as the business grows. In 2018 the Board adopted the 2018 Quoted Companies Alliance Corporate Governance Code (the “QCA Code”) as the basis of the Group’s governance framework. The Board sets out the overall strategic direction for Belvoir, regularly reviews management performance and ensures that the Group has the right level of resources available to support our strategic goals. The Board is satisfied that the necessary controls and resources are in place such that these responsibilities can be properly addressed. Within Belvoir we promote a culture of good governance in dealing with all key stakeholders: our franchisees, our employees, our customers and our shareholders. This section of the annual report describes our corporate governance structures and processes and how they have been applied throughout the year ended 31 December 2020. Michael Stoop Non-Executive Chairman Annual report and accounts 2020 27 Statement of corporate governance An established Board with complementary skills The Board has adopted the QCA Code as the basis of the Group’s governance framework and set out below is a summary of how, at 31 December 2020 and for the year then ended, the Company was applying the key requirements of the Code. Board of Directors Throughout the year the Board comprised a Non-Executive Chairman, three Executive Directors and one Non-Executive Director. At every AGM one-third of the Directors must retire by rotation. Notwithstanding their small shareholdings, both Michael Stoop and Paul George are considered to be independent. The Board has ten scheduled meetings a year, but meets more frequently if required, and has full and timely access to all relevant information to enable it to carry out its duties. The Board reserves for itself a range of key decisions such as strategy, acquisitions, significant contracts and internal controls, to ensure it retains proper direction and control of the Group, whilst delegating authority to individual Directors who are responsible for the executive management of the business. There is a clear division of responsibilities at the head of the Company between the Chairman running the Board and the Chief Executive Officer running the Group’s operations. The role of the Chairman is to manage the Board in the best interests of its stakeholders, to ensure that shareholders’ views are communicated to the Board and to be responsible for ensuring the Board’s integrity and effectiveness. The role of the Chief Executive Officer is to manage the Group on a day-to-day basis, to ensure that Board decisions are implemented effectively and to develop and propose Group strategy to the Board. The Board considers the current Board structure appropriate for the Company. There are processes in place enabling Directors to take independent advice at the Company’s expense in the furtherance of their duties and to have access to the advice and services of the Company Secretary. The role of Company Secretary is undertaken by the Chief Financial Officer, Louise George, who is a qualified company secretary with the skills and capability to deliver this function effectively. Board Committees The Board has delegated specific responsibilities to the Audit and Remuneration Committees. Given its relatively small size, the Board as a whole fulfils the function of the Nominations Committee. The Board considers that collectively the members of each Committee have the appropriate experience and none of them have interests which conflict with their positions on the Committees. All Board Committees have their own terms of reference, which are available from the Company Secretary upon request. Remuneration Committee The Remuneration Committee has two scheduled meetings a year and is responsible for determining the contractual terms, remuneration and other benefits of the Executive Directors. The Remuneration Committee comprised Paul George and Michael Stoop, who acted as the Chairman. Details of the level and composition of the Directors’ remuneration are disclosed in the Directors’ remuneration report on pages 34 and 35. Audit Committee The Audit Committee has three scheduled meetings a year. The Audit Committee comprised Michael Stoop and Paul George, who acted as the Chairman and is considered to have recent and relevant financial and legal knowledge and experience. Paul George reports in further detail on the work and responsibilities of the Audit Committee on page 33. Internal control The Board is responsible for the Company’s system of internal control and has delegated the review of its effectiveness to the Audit Committee. This is reported on in detail within the Audit Committee report on page 33. Financial reporting There is a comprehensive planning system, including regular periodic forecasts which are presented to and approved by the Board. The performance of the Group is reported monthly and compared to the latest forecast and the prior period. 28 Belvoir Group PLC CORPORATE GOVERNANCEBOARD EXPERIENCE BOARD COMPOSITION, DIVERSITY AND EXPERIENCE As of the date of this report. Length of tenure (years) Composition and roles The QCA Code provides that the Board should be balanced between Executive and Non-Executive Directors and should have at least two independent Non-Executive Directors. 16 s e v l a s n o G n a i r o D 7 e g r o e G e s i u o L 5 n o t w e N k r a M 3 e g r o e G l u a P 3 p o o t S l e a h c M i Industry experience (years) 45 46 22 s e v l a s n o G n a i r o D 7 e g r o e G e s i u o L 3 e g r o e G l u a P n o t w e N k r a M p o o t S l e a h c M i Diversity 60+ 20+ 45+ Sector experience 3 Executive 1 Non-Executive 1 Non-Executive Chairman 1 Female 4 Male 45% Property 29% Franchising 26% Finance Main Board Remuneration Committee Audit Committee AT TENDANCE AT MEETINGS Meetings attended Total number of meetings Michael Stoop Dorian Gonsalves Louise George Mark Newton Paul George Meetings attended Meetings missed Not due to attend Annual report and accounts 2020 29 20 + 20 + J 80 + J 29 + 26 + J Statement of corporate governance continued 2020 KEY SHAREHOLDER ENGAGEMENTS January » Pre-close trading update RNS/CEO video interview March » Preliminary results Online meetings/RNS/CEO video interview April » Annual report published Report May » AGM trading update RNS/CEO video interview » AGM Meeting under Covid-19 conditions June » Proactive Investor Forum CEO and CFO online presentation July » Strategic alliance with The Nottingham Building Society RNS/CEO video interview » Mello Virtual Investor Show CEO online presentation CEO and CFO Q&A session » Pre-close trading update RNS September » Interim results Meetings/RNS/CEO video interview » Retail investor online presentation CEO and CFO presentation » Shares investor event CEO presentation » Placing to sell founder shares RNS October » 100th assisted acquisition RNS December » Trading update RNS/CEO video interview 30 Belvoir Group PLC Relations with shareholders Keeping investors informed is an essential part of the Company’s corporate communications strategy and is achieved by means of an active investor relations programme. The aim is to ensure that the Company’s business model, strategic goals and future prospects are clearly understood by the investment community. The Company operates a high level of transparency with regard to its operations by providing consistent information across all channels of communication. The Board places a high emphasis on shareholder engagement and, through an open and transparent dialogue with shareholders, aims to ensure that shareholders’ objectives and views on the Company’s performance are understood. The Chairman makes himself available to major shareholders on request and periodically attends meetings with and gives presentations to shareholders. The CEO conducts interviews covering key events during our corporate calendar which are published online and made available through our corporate website. The Group’s corporate website, www.belvoirgroup.com, aims to provide investors with the required information to fully understand the business, including the annual and interim report, and to potentially make an investment decision. The website is regularly reviewed and updated to reflect new information. All shareholders will receive at least 21 clear days’ notice of the Annual General Meeting, which is normally attended by all Directors. Shareholders are invited to ask questions during the meeting and to meet with Directors after the formal proceedings have ended. David Horner of Chelverton UK Dividend Trust reported in Share Magazine that Belvoir Group was its “most pleased with” stock of 2020. 2020 was a difficult year for dividends, with many companies choosing to retain cash during the height of the pandemic uncertainty. Property franchise group Belvoir (BLV:AIM) was not our best performing share price in 2020, but the Group managed the challenges of the pandemic well. Management provided clear guidance throughout the year and ultimately the strong trading performance showcased the underlying resilience of the Group’s franchise model. While the 2019 final dividend was cancelled in March, the Group reinstated its progressive dividend policy at the interims, and has paid two catch-up dividend payments.” David Horner Chelverton UK Dividend Trust CORPORATE GOVERNANCEBOARD EFFECTIVENESS Board effectiveness is a dynamic process Our small Board allows us to continually assess the appropriateness of our agendas, and the information needed to support the Board’s role in setting strategy, overseeing performance and decision making. Building on this ongoing process and the internally facilitated review conducted in 2019, the Board has undertaken a further survey to assess progress against the actions agreed during the 2019 review and to identify any emerging issues. Results of the survey confirmed that Board considered that good progress had been made against all previously agreed actions particular in light of the challenges presented by Covid-19 and their long-term nature. Looking forward and in light of the survey and discussion, the Board has agreed further actions to ensure that it remains focused on the strategic opportunities available, the identification and mitigation of risk and ultimately in meeting stakeholder needs. In addition to the assessment of the effectiveness of the Board as a whole, the Chairman discussed with each individual Director their own performance and how they can contribute to the continued success of the Group. OUR COMPANY CULTURE Belvoir has developed from a family-owned lettings agency to the multi-brand Group it is today based on the core principle of encouraging individual endeavour within a supportive network. This lies at the heart of franchising. Our ethos has always been that of encouraging and harnessing both the entrepreneurial spirit of our franchisees and advisers and the ambition of our employees to achieve their personal goals. We foster an environment where franchisees and advisers are encouraged to learn from others within their network whilst also testing out their own ideas in the knowledge that they have the wider safety net of the Group. We nurture our staff to develop in their role, balancing individual performance with working as part of a team. The continual growth of the Group has opened up new opportunities for our people to progress their career in a dynamic environment where going above and beyond is both recognised and rewarded. VALUES IN ACTION: Collaboration Annual report and accounts 2020 31 Statement of corporate governance continued Operations Board The Operations Board comprises the Executive Directors and the heads of each business unit. The Operations Board meets monthly and is responsible for executing the strategy as set out by the Board. This is conducted through two sub-boards: one for the property franchise division and one for the financial services division. The three Executive Directors attend the meetings for both divisions to ensure the effective roll out of the strategic integration of our property franchise and financial services networks. Each of our senior team is a capable manager with considerable sector experience averaging 28 years and length of service averaging twelve years. GROUP OPERATIONS STRUCTURE Belvoir Group PLC Board Operations Board » Phil Gee Northwood, Managing Director » Ian Maclean Belvoir, Franchise Director » David Spackman Newton Fallowell, Managing Director » Dorian Gonsalves Belvoir Group PLC, Chief Executive Officer » Louise George Belvoir Group PLC, Chief Financial Officer » Mark Newton Belvoir Group PLC, Executive Director » Michelle Brook Brook, Managing Director » Tim Wood Brook, Financial Services Director The Operations Board meets monthly and is responsible for executing the strategy as set out by the Board.” Property franchise division (comprising Belvoir, Northwood, Newton Fallowell and Lovelle) Financial services division (comprising Brook) Business development support Acquisitions, recruitment and property Compliance and audit Marketing IT and legal SENIOR TEAM DIVERSITY AND EXPERIENCE As of 31 December 2020. Gender diversity Length of service (years) Industry experience (years) 25+ 2 Female 6 Male 4 0 1 – 6 2 5 1 – 1 1 1 1 0 2 – 6 1 5 2 – 1 2 3 2 1 1 0 1 – 1 0 2 – 1 1 0 3 – 1 2 0 4 – 1 3 1 0 5 – 1 4 32 Belvoir Group PLC CORPORATE GOVERNANCE75 + J Audit Committee report Evaluating the effectiveness of the audit process As Audit Committee Chairman, I have great pleasure in reporting to you how we have discharged our responsibilities during the year. The Audit Committee’s responsibilities are for ensuring the integrity of the financial statements of the Group and the effectiveness of the Group’s underlying internal controls on behalf of the Board. I am a firm believer that to achieve these responsibilities the Committee needs an open and transparent culture, the required skills and expertise and excellent support. We are fortunate in this regard. The Audit Committee comprised Michael Stoop and me. We are both independent and combine extensive industry knowledge with a deep understanding of corporate reporting, governance and audit. The Committee receives great support from Louise George, our Finance Director, and Julie Wilson, our Group Financial Controller, and input from our auditor, which attended two meetings during the year. There is an excellent flow of information from the Executive Team, an open dialogue on the key judgements and respect for the challenge provided by the auditor. Since I wrote to you last March the Audit Committee has held three scheduled meetings. Ahead of the interim results we met to review the interim accounts and in particular focused on the key judgement matters in preparing the results and in particular the impact of Covid-19 including the recoverability of loans to franchisees and the underlying financial resilience of the Group. In November we met to consider the key risks faced by the Group, the controls to mitigate those risks and the audit plan in light of the risks and underlying controls. We also discussed the proposed audit fee for 2020. In line with best practice, in March I had a one-to-one discussion with the audit partner to discuss progress on the audit and any emerging issues. Later in March the Audit Committee discussed the report from the auditor on its work and the annual report and accounts. The key issues discussed were the matters identified by the auditors as significant risks. In additional to the presumed risks in respect of management override and revenue recognition, these related to the recoverability of franchise loans, the carrying value of intangibles and the accounting for the acquisition of Lovelle. Through discussion, the Committee satisfied itself on the approach to the key judgements and as a result recommended to the Board the approval of the annual report and accounts. So far as the Committee is aware there were no matters of disagreement between the auditor and management. During the year BDO provided non-audit services to the Group, including tax advice. The fees paid for these services are outlined in note 3. The use of BDO for non-audit work has been carefully evaluated by the Audit Committee and was not considered to have impaired its independence and objectivity. The Audit Committee is also responsible for reviewing the Company’s system of internal control, including financial, operational and compliance controls and risk management, and for considering its effectiveness on behalf of the Board. The procedures in place are designed to meet the particular needs of the Company in managing the risks to which it is exposed. As part of its audit work the auditor reported to the Committee on its assessment of the control environment and that it had not identified any significant deficiencies. In addition, the Committee considered the extent to which monthly management reporting was consistent with the audited financial statements and received confirmation from the Chief Financial Officer and Group Financial Controller that there had been no material breaches in the internal control framework during the year. As a result, the Committee is satisfied with the effectiveness of the Group’s system of internal controls but, by their very nature, these procedures can provide reasonable, but not absolute, assurance against material misstatement or loss. The Committee has again reviewed the need for an internal audit function. The Committee has decided that, given the nature of the Company’s business and assets and the overall size of the Company, the systems and procedures currently employed provide sufficient assurance that a sound system of internal control, which safeguards shareholders’ investment and the Company’s assets, is in place. A traditional internal audit function is therefore considered unnecessary. However, the Group does operate an audit and compliance team which carries out legal compliance checks and risk-based audits on all franchisees at least once a year. Finally, I would like to thank Michael and all attendees of the meetings during the year for the open and constructive way in which we met our responsibilities. Paul George Non-Executive Director 9 April 2021 Annual report and accounts 2020 33 Directors’ remuneration report Setting the overall policy on remuneration The Directors present the Directors’ remuneration report for the year ended 31 December 2020. The Remuneration Committee sets the overall policy on remuneration and other terms of employment of Directors. The Remuneration Committee aims to ensure that the remuneration packages offered are competitive and designed to attract, retain and motivate Directors of the right calibre. When assessing the pay and benefits of the Directors, the Remuneration Committee takes account of remuneration and benefits information in the marketplace and the pay and employment conditions elsewhere in the Group. In 2017 the Remuneration Committee put in place a remuneration plan for the Executive Team comprising a fixed salary, a variable annual bonus based on achieving certain budgeted short-term targets and a long-term share option element linked to performance targets over the period to 31 December 2020. The full entitlement under the 2017 long-term incentive plan (LTIP) was achieved and the share options vested with effect from 31 December 2020. During the four years to 31 December 2020, EPS increased by 165% from 5.7p to 15.1p per share and earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 142% from £3.1m to £7.5m demonstrating significant growth in the profitability of the Group. The Remuneration Committee will be putting in place a new LTIP scheme in 2021 that incorporates new longer-term objectives to ensure that the Executive Team continues to be incentivised to maximise profitability and shareholder return. Remuneration for Non-Executive Directors consists of fees for their services in connection with Board and Committee meetings. These fees are to be determined by the Committee without the involvement of the Non-Executive Director concerned. Non-Executive Directors do not participate in any Group pension or share option schemes. All Directors are subject to retirement by rotation. Basic salary or fees Basic salary or fees for each Director are reviewed annually by the Remuneration Committee, taking into account the performance of the individual and information from independent sources on the rates of salary for similar posts. Annual bonus The Company operates a bonus scheme to incentivise Executive Directors to meet the financial and strategic objectives of the Group. During the financial year ended 31 December 2020, a total bonus of £290,000 (2019: £249,000) was awarded to the Directors. Pension During the year pension contributions of £42,000 (2019: £40,000) were paid to Executive Directors. Taxable benefits The Directors’ taxable benefits are tabled opposite. Service contracts The Executive Directors of the Company do not have a notice period in excess of twelve months under the terms of their service contracts. Their service contracts contain no provisions for predetermined compensation on termination which exceed one year’s salary and benefits in kind. Non-Executive Directors do not have service contracts with the Company but have letters of appointment. Board members Dorian Gonsalves Notice period Twelve months’ notice Louise George Twelve months’ notice Mark Newton Michael Stoop Paul George Three months’ notice Six months’ notice Three months’ notice Company policy on external appointments The Company recognises that its Directors are likely to be invited to become non-executive directors of other companies and that exposure to such non-executive duties can broaden their experience and knowledge, which will benefit the Group. Executive and Non-Executive Directors are, therefore, subject to the approval of the Company’s Board, allowed to accept non-executive appointments, as long as these are not with competing companies and are not likely to lead to conflicts of interest. Executive and Non-Executive Directors are allowed to retain the fees paid. 34 Belvoir Group PLC CORPORATE GOVERNANCE Share options The Remuneration Committee is responsible for awarding options over ordinary shares to Executive Directors and certain senior managers under the Enterprise Management Incentive (EMI) and Company Share Option (CSOP) plans and the Belvoir Performance Share Plan, a long-term incentive plan (LTIP). These schemes are intended to offer long-term incentives to Directors and senior management. The Remuneration Committee believes that the potential for share ownership and participation in the growing value of the Company increases the commitment and loyalty of Directors and staff. On 17 January 2020 Dorian Gonsalves exercised 163,399 options, being the entire pool under an unapproved scheme. The associated gain was £114,000. Options outstanding as at 31 December 2020 are tabled below: Directors’ share options Executive Directors Dorian Gonsalves Dorian Gonsalves Louise George Louise George Mark Newton Share option scheme EMI scheme LTIP EMI scheme LTIP LTIP Number 200,000 644,727 175,000 515,782 171,927 Exercise price Date of grant Vesting period Expiry date £1.32 £0.01 £1.32 £0.01 £0.01 04/07/2014 31/07/2017 04/07/2014 31/07/2017 08/02/2018 Three years 41 months Three years 41 months 35 months 04/07/2024 30/07/2027 04/07/2024 30/07/2027 07/02/2028 Directors’ emoluments The figures below represent emoluments earned by Directors during the relevant financial year and relate to the period of each Director’s membership of the Board. Benefits incorporate all benefits assessable to tax arising from employment by the Group. Directors’ emoluments Executive Directors Dorian Gonsalves Louise George Mark Newton Mike Goddard (resigned 16 May 2019) Non-Executive Directors Michael Stoop Paul George Total remuneration Salary and fees £’000 198 166 118 — 482 50 36 86 568 Bonus £’000 Pension £’000 Benefits £’000 135 113 42 1 — 290 — — — 290 20 17 5 — 42 — — — 42 1 3 10 — 14 1 — 1 15 Total 2020 £’000 354 299 175 — 828 51 36 87 915 Total 2019 £’000 321 271 166 26 784 46 35 81 865 1. The bonus due to Mark Newton will be paid into his pension fund. Directors’ interests The interests of the Directors in the shares of the Company are tabled below: Directors’ interests Dorian Gonsalves Louise George Mark Newton Michael Stoop Paul George 31 December 2020 31 December 2019 Shares Options Shares Options 483,595 56,607 435,507 20,000 20,000 844,727 690,782 171,927 — — 463,595 56,607 435,507 20,000 20,000 903,399 607,000 144,000 — — Resolution A resolution to shareholders to approve the Directors’ remuneration report will be put forward at the Annual General Meeting. By order of the Board Michael Stoop Non-Executive Chairman 9 April 2021 Annual report and accounts 2020 35 Directors’ report Focusing on supporting our stakeholders and delivering value The Directors present their annual report and audited consolidated financial statements of the Group for the financial year ended 31 December 2020. The Directors of the Company who were in office during the year and up to the date of signing the financial statements are detailed on pages 26 and 27. financial services) operating under a similar business model, building on the Group’s strength as a highly regarded franchisor within the residential property sales and lettings sector. Dividends The Company paid its interim dividend for the financial year ended 31 December 2020 of 5.4p per ordinary share on 30 October 2020. The Board recommends a final dividend for the financial year ended 31 December 2020 of 5.1p (2019: nil) per share to be paid on 1 June 2021 to all shareholders on the register at the close of business on 22 April 2021 subject to shareholders’ approval on 27 May 2021. The ex-dividend date will be on 23 April 2020. In March 2020, the Board decided that it would be prudent not to recommend a final dividend for the financial year ended 31 December 2019 given the uncertainty caused by Covid-19. The 2020 interim dividend of 5.4p included a catch-up of 2.0p and the proposed final 2020 dividend of 5.1p includes a further catch-up of 1.3p, giving a total of 3.3p against the final 2019 dividend that was suspended last year due to Covid-19. Future developments The Board continues to deliver growth through the support of the Group’s franchise property networks to promote organic growth, expansion into new territories, the financial and commercial support of franchisee-led assisted acquisitions and diversification into financial services. Furthermore, the Board is pursuing strategic growth through the acquisition of other franchised property networks and complementary businesses (such as Capital and equity structure Details of the ordinary shares of the Company are shown in note 21 of these financial statements. Directors’ indemnity The Group maintains third-party Directors’ and officers’ liability insurance which gives appropriate cover against any legal action that may be brought against them. Employees The Group believes in a policy of equal opportunities. Recruitment and promotion are undertaken on the basis of merit regardless of gender, race, age, marital status, sexual orientation, religion, nationality, colour or disability. If an employee becomes disabled during the course of their employment, adjustments are made where possible to enable such employee to carry on working despite their disability. Financial and risk management policies Details of the Group’s financial and risk management policies are discussed in note 23 of these financial statements. Directors’ Section 172 statement The Directors’ Section 172 statement is set out on page 21. 36 Belvoir Group PLC CORPORATE GOVERNANCE Statement of Directors’ responsibilities The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and parent company’s performance, business model and strategy. Each of the Directors, whose names and functions are listed in the Governance section, confirm that, to the best of their knowledge: » both the Group and the parent company financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and » the Strategic report includes a fair review of the development and performance of the business and the position of the Group and parent company, together with a description of the principal risks and uncertainties that it faces. Exemption from audit by parent guarantee Belvoir Group PLC has agreed to guarantee the liabilities of its trading subsidiaries, thereby allowing them to take exemption from an audit under Section 479A of the Companies Act 2006. See note 11. Independent auditor BDO LLP has expressed its willingness to continue as auditor. In accordance with Section 489 of the Companies Act 2006 a resolution to re-appoint BDO LLP will be proposed at the forthcoming Annual General Meeting. By order of the Board Louise George Chief Financial Officer 9 April 2021 Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared both the Group and the parent company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of the profit or loss of the Group and parent company for that period. In preparing the financial statements, the Directors are required to: » select suitable accounting policies and then apply them consistently; » state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006 have been followed for both the Group and the parent company financial statements, subject to any material departures disclosed and explained in the financial statements; » make judgements and accounting estimates that are reasonable and prudent; and » prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and parent company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. The Directors are also responsible for safeguarding the assets of the Group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors of the ultimate parent company are responsible for the maintenance and integrity of the ultimate parent company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Annual report and accounts 2020 37 Independent auditor’s report To the members of Belvoir Group PLC Opinion on the financial statements In our opinion: » the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2020 and of the Group’s profit for the year then ended; » the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; » the Parent Company financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and as applied in accordance with the provisions of the Companies Act 2006; and » the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements of Belvoir Group PLC (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2020 which comprise the Group statement of comprehensive income, the Group and Company statements of financial position, the Group and Company statements of changes of equity, the Group and Company statements of cash flows and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting included: » We critically assessed the Group’s trading and cash flow budgets and forecasts, which cover the period to 31 December 2022, including forecast compliance with banking covenants. Our work included assessing the key assumptions by reference to past performance, specifically considering the impact of the Covid-19 pandemic and how this may impact the wider market, taking into account local and macro-economic trends. » We reviewed the alternative scenarios modelled, which included a reverse stress test, to assess potential sensitivities in the forecasts and check that these were appropriate and took into consideration all reasonably foreseeable events and circumstances. » We assessed the budgets and forecasts, and sensitivities undertaken, against the level of headroom in the banking covenants along with available cash and undrawn facilities. » We also reviewed the disclosures in the financial statements to ensure they fairly reflect the Director’s assessment and any relevant uncertainties inherent in forecasting future events. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and the Parent Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. Overview Coverage1 Key audit matters 100% (2019: 86%) of Group profit before tax. 100% (2019: 89%) of Group revenue. 100% (2019: 94%) of Group total assets. Recoverability of franchisee loan debtors Carrying value of intangible assets, including goodwill, in the Group (and investments in the Parent Company) The impact of Covid-19 on the financial statements ∞ ∞ ∞ ∞ ∞ The impact of Covid-19 on the financial statements is no longer considered to be a key audit matter as the Group has continued to demonstrate resilience through the pandemic despite various national lockdowns. 2020 2019 Materiality Group financial statements as a whole £346,000 (2019: £280,000) based on 5% (2019: 5%) of profit before tax. 1. These are areas which have been subject to a full scope audit by the group engagement team. 38 Belvoir Group PLC FINANCIAL STATEMENTSAn overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. The Group manages its operations from one single location in Grantham, UK. At the statement of financial position date, the Group consisted of the Parent Company, four trading subsidiaries (all of which operate within the UK) and a number of dormant subsidiaries. The Group engagement team have carried out full scope audit procedures on the Parent Company and the four trading subsidiaries. We focused on these entities as they were significant components relevant to the Group’s financial position and performance. This work together with the additional procedures performed at the Group level, including over the Group consolidation, provided the evidence required to form our opinion on the Group financial statements as a whole. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter Recoverability of franchisee loan debtors The Group’s accounting policy and significant judgements and key sources of estimation uncertainty are described in note 1. Details of the impairment provisions are included in note 15. The Group provide loans to franchisees which are held as a financial asset measured at amortised cost. Management apply an expected credit loss model in determining the recoverability of the franchisee loans that requires judgement and includes estimation uncertainty. There is a risk that the impairment provision against franchisee loans may be understated or overstated due to the significant judgements and estimates involved. How the scope of our audit addressed the key audit matter We evaluated the Group’s loans to franchisees and examined management’s assessment of their recoverability. We tested the estimates used in the expected credit loss calculations to assess the probability of cash shortfalls arising. This model, which assesses the expected credit loss through the ability of the Group to recover loans through repossession and sale of the franchisee’s business, is based on the average of the multiples paid by franchisees acquiring portfolios during the year under the assisted acquisitions programme. Our testing included assessing the impact of any payment holidays given and repayments received after the reporting date. We tested a sample of the loans to supporting evidence to confirm that post year end repayments have been received in line with the original loan agreements. We compared the key inputs used in the expected credit loss model, being multiple of revenue achieved in historic sales of franchisees’ businesses, against market data to support management’s assessment. Key observations We noted no exceptions through performing these procedures. Annual report and accounts 2020 39 Independent auditor’s report continued To the members of Belvoir Group PLC An overview of the scope of our audit continued Key audit matters continued Key audit matter Carrying value of intangibles assets, including goodwill, in the Group and investments in the Parent Company The Group’s accounting policy and significant judgements and key sources of estimation uncertainty are described in note 1. Details of the impairment considerations are included in note 10. A significant proportion of the Group’s net assets comprises goodwill and intangible assets. Goodwill is tested for impairment at least annually, with other intangible assets tested where indicators of impairment are identified. Testing is undertaken through comparing the recoverable amount of the cash-generating unit (CGU), to which the goodwill and intangible assets are allocated, based on a value in use calculation, to its carrying value. Furthermore, the cost of investments in subsidiaries are tested for impairment where an indicator of impairment arises. Management’s review found no evidence of impairment in any of the CGUs tested, nor in relation to investments in subsidiaries. The risk that goodwill, intangible assets and fixed assets investments may be impaired is considered significant due to the level of judgement involved in the impairment review and the opportunity for management bias within the impairment model assumptions. How the scope of our audit addressed the key audit matter We reviewed financial performance of the CGUs to which the Group’s intangible assets attach, considered the carrying value of the associated fixed asset investments, as well as external information, to assess whether there were indicators of impairment. We also reviewed the impairment models prepared by management and challenged the judgements adopted and estimates applied in the calculation of the value in use for each CGU including: » the identification of CGUs, and allocation of assets and cash flows to confirm consistency with the requirements of IAS 36 Impairment of assets; » using our valuation specialists, we confirmed the integrity of the value in use models and appropriateness of the discount rate used; and » the assumptions in the forecast of future trading performance and cash generation. This included challenging the robustness of the key assumptions such as the growth rate and sensitising this against past performance based on facts and circumstances at the balance sheet date. Our audit procedures for the evaluation of operating cash flows and forecast growth rates included, amongst others, comparing the forecasts to recent financial performance, budgets approved by the Board and external market data. We used external market data to independently verify the discount rate and also performed our own sensitivity analysis over the key valuation inputs. Key observations We noted no exceptions through performing these procedures. Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows: Materiality Basis for determining materiality Rationale for the benchmark applied Group financial statements Parent Company financial statements 2020 £ 346,000 2019 £ 280,000 2020 £ 329,000 2019 £ 266,000 5% of profit before tax. 1% of total assets, capped by reference to 95% of Group materiality. Profit before tax is considered an appropriate benchmark as it is the key performance measure used by stakeholders to assess the Group’s performance. Total assets is considered an appropriate benchmark as the main purpose of the Parent Company is to hold the investments in subsidiaries. Performance materiality 260,000 182,000 247,000 173,000 Basis for determining performance materiality Performance materiality for the Group and Parent Company has been based upon 75% (2019: 65%) of materiality. The increase in performance materiality from 2019 reflects the knowledge gained during the first year as auditors, and our assessment of there being no significant changes in the Group’s operations and no history of pervasive errors or weaknesses in internal control. 40 Belvoir Group PLC FINANCIAL STATEMENTSOur application of materiality continued Component materiality We set materiality for each component of the Group based on a percentage of between 24% and 86% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. In the audit of each component, we further applied performance materiality levels of 75% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. Reporting threshold We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £17,000 (2019: £14,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. Other information The Directors are responsible for the other information. The other information comprises the information included in the Annual Report and Accounts other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Other Companies Act 2006 reporting Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. Strategic report and Directors’ report In our opinion, based on the work undertaken in the course of the audit: » the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and » the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic report or the Directors’ report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: » adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or » the Parent Company financial statements are not in agreement with the accounting records and returns; or » certain disclosures of Directors’ remuneration specified by law are not made; or » we have not received all the information and explanations we require for our audit. Responsibilities of Directors As explained more fully in the Statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Annual report and accounts 2020 41  » We reviewed the Group’s accounting policies for non- compliance with relevant standards. Our work also included considering significant accounting estimates for evidence of misstatement or possible bias and testing any significant transactions that appeared to be outside the normal course of business. » We critically assessed the appropriateness and tested the application of the revenue and cost recognition policies. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Andrew Mair (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor Birmingham, UK 9 April 2021 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Independent auditor’s report continued To the members of Belvoir Group PLC Auditor’s responsibilities for the audit of the financial statements continued Extent to which the audit was capable of detecting irregularities, including fraud In identifying and assessing the risk of material misstatement in respect of Irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following: » enquiring of management and the Audit Committee, including obtaining and reviewing supporting documentation, concerning the Group’s policies and procedures relating to: – identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance; – detecting and responding to the risks of fraud and whether they had knowledge of any actual, suspected or alleged fraud; and – the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations; » we obtained an understanding of the legal and regulatory frameworks applicable to the Group based on our understanding of the Group, sector experience and discussions with management. The most significant considerations for the Group are International Accounting Standards, the Companies Act 2006, corporate taxes and VAT legislation, employment taxes, health and safety, the Bribery Act 2010, the Housing Act and the Tenant Fees Act 2019; and » discussing amongst the engagement team, who also undertook the audit testing on significant components, to assess how and where fraud might occur in the financial statements and any potential indicators of fraud. As part of this discussion, we identified potential for fraud in the following areas: – management override of control; and – revenue recognition, specifically the manipulation of revenue using fraudulent journals. We designed and executed procedures in line with our responsibilities to detect material misstatements in respect of irregularities, including fraud. These procedures, together with the extent to which they are capable of detecting irregularities, including fraud, are detailed below: » We made enquiries of management and reviewed correspondence with the relevant authorities to identify any irregularities or instances of non-compliance with laws and regulations. We corroborated our enquiries through our review of board minutes. » We tested the appropriateness of accounting journals, including those relating to the consolidation process, and other adjustments made in the preparation of the financial statements. We used data assurance techniques to identify and analyse the complete population of all journals in the year to identify and substantively test any which we considered were indicative of management override. 42 Belvoir Group PLC FINANCIAL STATEMENTSGroup statement of comprehensive income For the financial year ended 31 December 2020 Revenue Cost of sales Gross profit Administrative expenses Operating profit Finance costs Finance income Other income Profit before taxation Taxation Profit and total comprehensive income for the financial year Profit for the year attributable to the equity holders of the parent company Earnings per share attributable to equity holders of the parent company Basic Diluted 2020 £’000 Continuing operations 2020 £’000 Operations from assets held for sale Notes 20,759 (6,896) 13,863 (7,377) 6,486 (261) 181 123 6,529 (1,326) 5,203 5,203 933 — 933 (792) 141 — — — 141 (27) 114 114 2 3 3 5 5 6 7 9 9 2020 £’000 Total 21,692 (6,896) 14,796 (8,169) 6,627 (261) 181 123 6,670 (1,353) 5,317 2019 £’000 Continuing operations 19,252 (6,036) 13,216 (7,556) 5,660 (342) 230 32 5,580 (928) 4,652 5,317 4,652 15.1p 14.6p 13.3p 12.9p The accompanying notes form an integral part of these consolidated financial statements. Annual report and accounts 2020 43 Statements of financial position As at 31 December 2020 Assets Non-current assets Intangible assets Investments Financial assets Property, plant and equipment Right-of-use assets Trade and other receivables Current assets Trade and other receivables Assets held for sale Cash and cash equivalents Total assets Liabilities Non-current liabilities Lease liabilities Interest-bearing loans and borrowings Deferred tax liability Current liabilities Trade and other payables Lease liabilities Interest-bearing loans and borrowings Corporation tax liability Total liabilities Total net assets Equity Shareholders’ equity Share capital Share premium Share-based payments reserve Revaluation reserve Merger reserve Retained earnings Total equity Group 2020 £’000 Notes Company 2019 £’000 2020 £’000 2019 £’000 10 11 12 13 14 15 15 16 17 14 19 25 18 14 19 21 21 29,942 — — 511 455 1,970 32,878 5,063 591 5,934 11,588 44,466 289 8,728 1,446 29,069 — 159 593 616 2,053 32,490 4,575 — 3,586 8,161 40,651 442 9,591 1,440 10,463 11,473 3,849 175 861 821 5,706 16,169 28,297 351 12,150 968 162 (5,774) 20,440 28,297 3,141 178 861 711 4,891 16,364 24,287 349 12,006 524 162 (5,774) 17,020 24,287 — 40,354 — 37 — — 40,391 6,839 — 4,411 11,250 51,641 — 8,728 5 8,733 78 — 861 — 939 9,672 41,969 351 12,150 968 (50) 8,101 20,449 41,969 — 39,910 — 44 — — 39,954 6,729 — 1,412 8,141 48,095 — 9,591 7 9,598 264 — 861 — 1,125 10,723 37,372 349 12,006 524 (50) 8,101 16,442 37,372 The Company made a profit after tax in the year of £5,904,000 (2019: £5,792,000). The financial statements on pages 43 to 67 were approved and authorised for issue by the Board on 9 April 2021 and signed on its behalf by: Louise George Chief Financial Officer Registered number 07848163 The accompanying notes form an integral part of these consolidated financial statements. 44 Belvoir Group PLC FINANCIAL STATEMENTS Statements of changes in equity For the financial year ended 31 December 2020 Group Notes 27 8 21 27 8 Balance at 1 January 2019 Changes in equity Share-based payments Dividends Transactions with owners Profit and total comprehensive income for the financial year Balance at 31 December 2019 Issue of equity share capital Share-based payments Dividends Transactions with owners Profit and total comprehensive income for the financial year Share capital £’000 349 Share premium £’000 12,006 — — — — 349 2 — — 2 — — — — — 12,006 144 — — 144 — Balance at 31 December 2020 351 12,150 Company Balance at 1 January 2019 Changes in equity Share-based payments Dividends Transactions with owners Profit and total comprehensive income for the financial year Balance at 31 December 2019 Issue of equity share capital Share-based payments Dividends Transactions with owners Profit and total comprehensive income for the financial year Notes Share capital £’000 349 Share premium £’000 12,006 27 8 21 27 8 — — — — 349 2 — — 2 — — — — — 12,006 144 — — 144 — Balance at 31 December 2020 351 12,150 Share-based payments reserve £’000 Revaluation reserve £’000 Merger reserve £’000 Retained earnings £’000 As restated Total equity £’000 As restated 337 187 — 187 — 524 — 444 — 444 — 968 162 (5,774) 14,884 21,964 — — — — 162 — — — — — — — — — (5,774) — — — — — — (2,516) (2,516) 4,652 17,020 — — (1,897) (1,897) 187 (2,516) (2,329) 4,652 24,287 146 444 (1,897) (1,307) 5,317 5,317 162 (5,774) 20,440 28,297 Share-based payments reserve £’000 337 187 — 187 — 524 — 444 — 444 — 968 Revaluation reserve £’000 (50) — — — — (50) — — — — — Merger reserve £’000 8,101 — — — — 8,101 — — — — — Retained earnings £’000 Total equity £’000 13,166 33,909 — (2,516) (2,516) 5,792 16,442 — — (1,897) (1,897) 187 (2,516) (2,329) 5,792 37,372 146 444 (1,897) (1,307) 5,904 5,904 (50) 8,101 20,449 41,969 The accompanying notes form an integral part of these consolidated financial statements. Annual report and accounts 2020 45 Statements of cash flows For the financial year ended 31 December 2020 Group Company Notes 2020 £’000 2019 £’000 2020 £’000 2019 £’000 Operating activities Cash generated from/(used in) operating activities Tax paid Net cash flows generated from/(used in) operating activities Investing activities Acquisitions net of cash acquired Sale of assets held for sale Deferred and contingent consideration Capital expenditure on property, plant and equipment Disposal of corporate offices Franchisee loans granted Loans repaid by franchisees Finance income received Sale of MAB shares Dividends received Net cash flows (used in)/generated from investing activities Financing activities Proceeds from share issue Loan repayments Equity dividends paid Lease payments Finance costs 22 25 16 13 6 12 22 21 8 14 Net cash used in financing activities Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 17 8,198 (1,379) 6,819 (2,039) 176 (37) (46) 25 (653) 758 181 271 — (1,364) 146 (890) (1,897) (205) (261) (3,107) 2,348 3,586 5,934 7,285 (1,237) 6,048 (338) — (243) (99) 54 (1,242) 1,380 230 — — (258) — (938) (2,516) (212) (336) (4,002) 1,788 1,798 3,586 The accompanying notes form an integral part of these consolidated financial statements. (1,259) — (1,259) — — — (9) — — — 2 — 7,150 7,143 146 (890) (1,897) — (244) (2,885) 2,999 1,412 4,411 (2,090) — (2,090) — — — (24) — — — 2 — 7,100 7,078 — (938) (2,516) — (336) (3,790) 1,198 214 1,412 46 Belvoir Group PLC FINANCIAL STATEMENTS Notes to the financial statements For the financial year ended 31 December 2020 1 Accounting policies General information Belvoir Group PLC is the ultimate parent company of the Group, whose principal activity during the year under review was that of selling, supporting and training residential property franchises. The Group also operates a network of financial service advisers who, through our franchise property networks, provide advice to our residential property clients. Belvoir Group PLC, a public company limited by shares listed on AIM, is incorporated and domiciled in the United Kingdom. Registered office The address of the registered office and principal place of business of Belvoir Group PLC is The Old Courthouse, 60A London Road, Grantham, Lincolnshire NG31 6HR. Basis of preparation The Group and Company financial statements have been prepared under the historical cost convention with the exception of the freehold property which has been revalued and financial assets which are included at fair value through profit or loss. Being listed on AIM, the Company is required to present its consolidated financial statements in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and with those parts of the Companies Act 2006 applicable to companies reporting under International Financial Reporting Standards (IFRS). Going concern and Covid-19 The ongoing impact of the Covid-19 pandemic has been considered by the Directors in light of the operating resilience demonstrated by the business during 2020, the expectation that most UK Covid-19 restrictions will have been lifted later in 2021 and concerns over the possible long-term impact on the wider economy. The Directors have revised the forecasts for the Group taking into account the potential ongoing impact of Covid-19 on trading over the twelve months from the date of signing the financial statements. Sensitivities have been applied to the base case model to reflect the possibility of an ongoing lockdown scenario with minimal impact on lettings income and moderately lower levels of income from sales and mortgage activity but no reduction in headcount or other overheads and no change in terms of business with franchisees. Under all scenarios, which incorporate the acquisition of Nicholas Humphreys for cash, there is substantial headroom above that needed to continue operating within the banking facilities and in compliance with covenants. Furthermore, a reverse stress test has been carried out against the base case model which demonstrates that, even without changing other parameters such as overheads and dividend payments, it would require a very substantial reduction in revenue, inconsistent with the recurring revenue nature of the business model, for the bank covenants to be breached. After consideration of these forecasts and making appropriate enquiries, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due. Standards adopted for the first time There are no new or revised standards effective for annual periods beginning on or after 1 January 2020. Standards, amendments and interpretations to existing standards that are not yet effective There are no new standards, amendments to existing standards or interpretations that are effective as at 31 December 2020 relevant to the Group. After Brexit, the UK will continue to apply International Accounting Standards in conformity with the requirements of the Companies Act 2006. Basis of consolidation The Group financial statements include those of the parent company and its subsidiaries, drawn up to 31 December 2020. Subsidiaries are entities over which the Group obtains and exercises control through voting rights. Income, expenditure, unrealised gains and intra-Group balances arising from transactions within the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. At the time of the IPO, the acquisition of the trading subsidiaries was achieved principally by way of share for share exchange and the difference between the par value of the shares issued and the fair value of the cost of investment was recorded as an addition to the merger reserve. The parent company statement of financial position shows a merger reserve of £8,101,000 and an investment of £12,450,000. On a Group basis, an accounting policy was adopted based on the pooling of interests method. Under this method, the financial statements of the parties to the combination are aggregated and presented as though the combining entities had always been part of the same group. The investment by Belvoir Group PLC in Belvoir Property Management (UK) Limited was eliminated and the difference between the fair value and nominal value of the shares was adjusted through the merger reserve in the Group statement of financial position. Subsequent acquisitions of subsidiaries outside of common control business combinations are dealt with by the acquisition method. The acquisition method involves recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. Acquisitions which include an element of deferred consideration which is contingent on events after the acquisition date are recognised at the date of acquisition based on all information available at that date. Any subsequent changes to these amounts are recognised through the income statement. Annual report and accounts 2020 47 1 Accounting policies continued Basis of consolidation continued Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of fair value of consideration transferred over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Acquisition- related transaction costs are recorded as an exceptional administrative expense in the Group statement of comprehensive income. Goodwill is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Negative goodwill (where the fair value of the assets acquired exceeds the purchase price) is recognised immediately after the acquisition in the Group statement of comprehensive income. Revenue recognition Revenue represents income from management service fees (MSF), fees from the sale of franchise licences (initial franchise fees), commission on resales of franchised offices, fees generated from corporate-owned offices and commission receivable on financial services. MSF are invoiced to individual franchisees on a monthly basis in relation to a percentage of their turnover for any given month. They are recognised in the month in which the income is receivable. Initial franchise fees are recognised upon signing of the contract as it is at this point that the new franchisee has a legal obligation to make good the terms of the contract. The initial fees are for branding, training, support and promotion during the opening phase of the new office. As such the Group regards this as a separate initial transaction for which it has fulfilled its obligations. Corporate-owned offices are those that are operated directly by the Group and not by franchisees. These corporate offices invoice landlords on a monthly basis and so recognise the income during the period in which the work is carried out. Corporate revenue also arises from fees on property sales which are recognised by reference to the legal exchange date of the housing transaction as all obligations have been fulfilled at that point. Commission from financial services is recognised on amounts receivable on a weekly basis from the Mortgage Advice Bureau on policies written by Brook Financial Services Limited. There is a clawback of the commission on the cancellation of the life policy within four years of taking out the policy. The commission income is therefore considered to represent variable consideration and the transaction price of commission income is determined by using the expected value method, such that revenue is recognised only to the extent that it is highly probable that there will not be a significant reversal of revenue recognised in future periods. The sum of the range of probabilities of clawback in different scenarios based on historical trends is used to calculate the extent to which the variable consideration is reduced and a refund liability is recognised in current liabilities. Cost of sales Costs attributable to cost of sales comprise amounts paid to advisers and introducer commission paid to companies in relation to financial services. Dividend Dividend income is recognised in the Company from its subsidiary companies when the right to receive payment is established. Final dividends to the Company’s shareholders are recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. Interim dividends are recognised when paid. Intangible assets In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. Amortisation charges are included in administrative expenses in the statement of comprehensive income. Amortisation is charged on intangibles with a finite life. Amortisation begins when the intangible asset is first available for use and is provided at rates calculated to write off the cost of each intangible asset over its expected useful life, as follows: Trade names/brands Customer relationships Master franchise agreements – – – between 10 and 20 years 15 years 25 years Acquired trade names are identified as separate intangible assets where they can be reliably measured by valuation of future cash flows. The trade names which have been identified separately are assessed as having a life reflecting their respective trading histories. Acquired customer relationships are identified as a separate intangible asset as they are separable and can be reliably measured by valuation of future cash flows. This valuation also assesses the life of the particular relationship, which is reassessed annually. Customer relationship assets are being written off over a remaining life of 15 years. Acquired franchise master agreements are identified as a separate intangible asset as they are separable and can be reliably measured by valuation of future cash flows. The life of the relationship is assessed annually. Master franchise agreements are being written off over a remaining life of 25 years as historical analyses show that, on average, 4% of franchises will change ownership p.a. Subsequent to initial recognition, intangible assets are stated at deemed cost less accumulated amortisation and impairment charges. 48 Belvoir Group PLC FINANCIAL STATEMENTSNotes to the financial statements continuedFor the financial year ended 31 December 2020 1 Accounting policies continued Property, plant and equipment Freehold land and buildings held at the date of transition to IFRS were measured at fair value, which became their deemed cost, and, going forward, these assets are carried at amortised cost, less accumulated depreciation and any provision for impairment. Other property, plant and equipment is stated at historical cost, less accumulated depreciation and any provision for impairment. Depreciation is calculated so as to write off the cost or revaluation of an asset, less its estimated residual value, over the useful economic life of that asset, as follows: Freehold land Freehold property Fixtures and fittings – – – not depreciated 2% straight-line on cost 20% to 33% straight-line on cost Material residual value estimates and expected useful lives are updated as required. The revaluation reserve reflects a revaluation of the freehold property to market value. Leases Right-of-use assets are stated at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the Group’s incremental borrowing rate at commencement of the lease, less accumulated depreciation. Depreciation is calculated so as to write off the value of an asset over the lease term. The lease liabilities associated with right-of-use assets are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the Group’s incremental borrowing rate at commencement of the lease. Low value and short-term leases have not been capitalised as right-of-use assets or recognised in the lease liability. The lease payments are charged to administrative expenses. Impairment testing of goodwill, other intangible assets, and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash flows (cash generating units). Typically this will be at an acquired network or company level other than for certain corporate offices that have been brought back into the Group. Goodwill is allocated to those cash generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which the management monitors goodwill. Cash generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash generating units are tested whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell, reflecting market conditions, and the value in use based on estimated future cash flows from each cash generating unit, discounted at a suitable rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures is directly linked to the Group’s latest approved budgets, adjusted as necessary to exclude any future restructuring to which the Group is not yet committed. Impairment losses for cash generating units reduce first the carrying value of any goodwill allocated to that cash generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Impairment charges are included in operating costs in the statement of comprehensive income. Assets held for sale Assets are classified as held for sale as soon as they are made available for sale and completion is expected within twelve months from the date of classification. The assets are held at the lower of their carrying value immediately before being classified as held for sale and the fair value less costs of disposal. Investments Investments in subsidiaries are stated at cost less provision for impairment. Annual report and accounts 2020 49 1 Accounting policies continued Taxation Current tax is the tax currently payable based on the taxable profit for the year. 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 statement of comprehensive income, except where they relate to items that are charged or credited directly to equity, in which case the related deferred tax is also charged or credited directly to equity. Client money The Group holds client monies on behalf of landlords in separate bank accounts that do not form part of the financial statements. Financial assets The classification of financial assets is based on the way a financial asset is managed and its contractual cash flow characteristics. Financial assets are measured at amortised cost if both of the following conditions are met and the financial asset or liability is not designated as at fair value through profit and loss (FVTPL): » the financial asset is held with the objective of collecting or remitting contractual cash flows; and » its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Neither the Group nor Company has any financial assets measured as fair value through other comprehensive income (FVOCI); the treatment of financial instruments measured at FVTPL is set out below. The amortised cost of financial assets is reduced by impairment losses as described below. Interest income, impairments and gains or losses on derecognition are recognised through the statement of comprehensive income. Financial assets are initially measured at fair value; trade receivables are held at their original invoiced value, as the interest that would be recognised from discounting future cash flows over the short credit period is not considered to be material. Impairment losses against financial assets carried at amortised cost are recognised by reference to any expected credit losses against those assets. The simplified approach for calculating impairment of financial assets has been used for trade receivables. Lifetime expected credit losses are calculated by considering, on a discounted basis, the cash shortfalls that would be incurred in various default scenarios over the remaining lives of the assets and multiplying the shortfalls by the probability of each scenario occurring. The allowance is the sum of these probability weighted outcomes. The loans to franchisees policy below sets out the impairment rules applied to them. Cash and cash equivalents Cash and cash equivalents are defined as cash balances in hand and in the bank including short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Loans to franchisees Impairment provisions against loans to franchisees are recognised based on an expected credit loss model. The methodology used to determine the amount of provision is based on whether there has been a significant increase in credit risk since initial recognition of these financial assets and is calculated by considering the cash shortfalls that would be incurred and probability of these cash shortfalls using the Group’s model. Where a significant increase in credit risk is identified, lifetime expected credit losses are recognised; alternatively, if there has not been a significant increase in credit risk, a twelve-month expected credit loss is recognised. Such provisions are recorded in a separate allowance account with the loss being recognised within operating expenses in the statement of comprehensive income. On confirmation that the franchisee loan will not be collectable, the gross carrying value of the asset is written off against the associated provision. 50 Belvoir Group PLC FINANCIAL STATEMENTSNotes to the financial statements continuedFor the financial year ended 31 December 20201 Accounting policies continued Other debtors The Group recognises amounts withheld by Mortgage Advice Bureau from weekly commission payments in respect of unearned indemnity commission as a financial asset. This financial asset has no credit terms and management assesses that the credit risk and probability of default is low. As such no provision for impairment is made. On a weekly basis the estimated clawback of commission recoverable from our financial advisers arising on the cancellation of life assurance policies within four years of inception is accounted for within other debtors. An assessment is made on the recoverability of these amounts and the Board has determined the expected credit loss within twelve months to be insignificant. Financial assets held at fair value through profit and loss Financial assets at fair value through profit or loss currently comprise share options in an AIM-listed company. The fair value is derived from an assessment of the expected value at the point at which the share options vest taking into account the vesting conditions and share price volatility. Amounts owed by Group undertakings Amounts due from Group undertakings represent dividends due from the subsidiary at the year end and interest-free loans which are repayable on demand. In assessing the expected credit loss, the general approach has been applied. The subsidiary has resources to repay the amount outstanding at the year end on demand and as such the probability of default is considered to be very low and any expected credit loss is insignificant. There has been no change in credit risk since initial recognition. Financial liabilities Financial liabilities comprise trade payables, borrowings, lease liabilities and other short-term monetary liabilities, which are initially recognised at fair value net of transaction costs and subsequently carried at amortised cost using the effective interest method. Refund liability As there is a potential for clawback on financial services commissions, revenue is constrained such that it is recognised only to the extent that it is highly probable that it will not reverse in future periods. The refund liability is recognised for indemnity commission if the highly probable test for revenue recognition has not been met. The refund liability is made against new written policies on a weekly basis to reflect the estimated clawback by Mortgage Advice Bureau (Holdings) plc. These clawbacks arise on the cancellation of life assurance policies within four years following inception. Share-based employee remuneration The Group operates an Enterprise Management Incentive (EMI) scheme and a Company Share Option Plan (CSOP), and issues equity-settled share-based payments to certain Executive Directors and employees. The Group also operates the Belvoir Group Performance Share Plan 2017 to incentivise, retain and reward key Executive Directors and the Senior Management Team. In addition, there was an unapproved share option scheme which granted 163,399 share options to Dorian Gonsalves at the float price of 75p. These options were exercised on 17 January 2020. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value so determined is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. The level of vesting is reviewed annually, and the charge is adjusted to reflect actual and estimated levels of vesting. The fair value of services received in return for share options granted is measured by reference to the fair value of share options. The estimate of the fair value of the services received is measured based on the Black Scholes option pricing model. This model takes into account the following variables: exercise price, share price at date of grant, expected term, expected share price volatility, risk-free interest rate and expected dividend yield. Expected volatility is estimated by considering historical average share price volatility. Belvoir Group PLC has the obligation to settle the share-based payment transaction and as such recognises the award to employees of Belvoir Property Management (UK) Limited as an equity-settled transaction. Belvoir Group PLC does not have a direct investment in Belvoir Property Management (UK) Limited. However, to reflect the substance of the transaction, Belvoir Group PLC has recognised an investment in Belvoir Property Management (UK) Limited with a corresponding equity reserve. This investment is tested for impairment annually. Equity Equity comprises the following: » share capital represents the nominal value of equity shares; » share premium represents the excess over nominal value of the fair value of consideration received for shares, net of expenses of the share issue; » share-based payments reserve represents the reserve arising from the fair value of the share options charge; » revaluation reserve represents the accumulated net surplus on revaluation of freehold property; » merger reserve represents the reserve arising in the Group and Company accounts following the application of merger accounting in the treatment of the reorganisation and flotation of the Group and Company; and » retained earnings represent retained profits and losses. Annual report and accounts 2020 51 1 Accounting policies continued Significant 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. Significant judgements Acquisition accounting On acquisition the assets and liabilities acquired are assessed to determine the fair value to be recognised on consolidation into the Group. The fair value of customer relationships is recognised on each individual acquisition and requires the exercise of management judgement in each case to identify relevant assets. The assessment is based on management knowledge of the sector and of the operating characteristics of the business acquired. Customer relationships are amortised over their useful lives. Useful lives are based on management’s estimates of the period that the assets will generate revenue. Changes to the useful life would increase or decrease the level of amortisation charged to the income statement in the year. Any contingent consideration payable is subject to certain performance criteria and is determined by reference to recent and forecast performance. The exercise of management judgement is required to assess the level of contingent consideration payable and subsequently the total consideration payable and goodwill arising on the calculation. Recoverability of franchise debtors The recoverability of loans to franchisees is assessed by management by assessing credit risk of the loan. A Board approved model is used to determine if there has been a significant increase in credit risk by comparing the carrying value of the loan to the underlying valuation of the franchisee using a revenue multiple and an assessment of current trading performance. The multiple is determined by historical data. Key sources of estimation uncertainty Carrying value of intangible assets The carrying value of intangibles is subject to impairment review. In the current year the intangible assets recognised on acquisition have been tested for impairment based on the Board approved cash forecast for the next five years which includes a sales growth rate and gross margin estimates. The discount rate used to get the present value of the cash flow is based on a WACC analysis which takes into account estimates of the risk-free rate, equity risk premium and company size premium. Further detail is given in note 10, which includes sensitivity analysis performed on management’s estimates. Carrying value of investments The carrying value of investments is recognised against each subsidiary and requires the exercise of management judgement in each case. This is assessed annually for impairment against the discounted cash flow for each cash generating unit based on management’s estimates of growth and discount rates. Potential impairment of carrying values or changes to estimates can result in significant variations in the carrying value and amounts charged to the statement of comprehensive income in specific periods. Further details on the movement on investments are presented in note 11. Refund liability The liability relates to the estimated value of repaying commission received upfront on life assurance policies that may lapse in a period of up to four years following inception. The potential liability for unearned indemnity commission is assessed by management based on an estimation of the level of policy cancellation and the associated clawback of commission. The estimate is based on historical trends of cancellation in different scenarios and the liability is calculated as the sum of the range of probabilities of clawback in the different scenarios. 52 Belvoir Group PLC FINANCIAL STATEMENTSNotes to the financial statements continuedFor the financial year ended 31 December 20202 Segmental information The Executive Committee of the Board, as the chief operating decision maker, reviews financial information for and makes decisions about the Group’s overall franchising business. In the year ended 31 December 2020 the Board identified two operating segments, that of franchisor of property agents and property-related financial services. The Directors consider gross profit as the key performance measure. The reported segment is consistent with the Group’s internal reporting for performance measurement and resources allocation. Management does not report on a geographical basis and no customer represents greater than 10% of total revenue in either of the periods reported. The Directors believe there to be: three material property franchise income streams, which are management service fees, revenue from corporate-owned offices and fees on the sale or resale of franchise territory fees; and one material financial services income stream, which is commission receivable on financial services. These revenue streams are split as follows: Lettings Property sales Total revenue Management service fees Corporate-owned offices Initial franchise fees and other resale commissions Other income Franchise property division Commission receivable on financial services Financial services division Total revenue 2020 £’000 7,467 1,360 8,827 2019 £’000 7,292 725 8,017 2020 £’000 1,589 890 2,479 2019 £’000 1,464 586 2,050 2020 £’000 9,056 2,250 2019 £’000 8,756 1,311 11,306 10,067 242 449 176 476 11,997 10,719 9,695 9,695 21,692 8,533 8,533 19,252 Revenue from corporate-owned offices of £2,250,000 includes £933,000 relating to five Lovelle corporate-owned offices and the Northwood Glossop portfolio that were held as assets for sale pending being franchised out. This comprises £578,000 of lettings revenue and £355,000 of sales revenue. Gross profit for the two divisions is split as follows: Property franchise division Financial services division Total gross profit Gross profit 2020 £’000 11,997 2,799 14,796 2019 £’000 10,719 2,497 13,216 Profit for the financial year The parent company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own statement of comprehensive income in these financial statements. The profit on ordinary activities after taxation of the Company for the year was £5,904,000 (2019: £5,792,000). 3 Cost of sales and administrative expenses Group Cost of sales and administrative expenses (non-exceptional) by nature: Staff costs Depreciation Amortisation Marketing Auditor’s remuneration: – Fees payable to the Company’s auditor for the audit of the Company’s annual accounts – Tax compliance services Other cost of sales and administrative expenses 2020 £’000 6,191 318 525 298 66 12 7,655 2019 £’000 5,221 336 471 423 58 12 7,071 15,065 13,592 Annual report and accounts 2020 53 4 Directors and employees Group Staff costs (including Directors) Wages and salaries Social security costs Pension costs Share-based payment charge The average monthly number of employees during the year was as follows: Management and administration Key management personnel is defined as the Directors of the Group. The Company has no employees. Directors’ remuneration Directors’ emoluments Social security costs Share-based payment charge Other pension costs Executive Directors Non-Executive Directors 2020 £’000 4,768 750 229 444 6,191 2019 £’000 4,438 483 113 187 5,221 137 113 2020 £’000 873 112 419 42 1,446 1,350 96 1,446 2019 £’000 825 105 172 40 1,142 1,053 89 1,142 The highest paid Director received remuneration of £354,000 (2019: £321,000). During the year no options (2019: no options) over ordinary shares were granted to Directors under the Belvoir Group Performance Share Plan and none (2019: none) were exercised by Directors under the Company’s EMI scheme. On 17 January 2020 Dorian Gonsalves exercised 163,399 options, being the entire pool under the unapproved scheme. The associated gain was £114,000. 5 Finance income and costs Group Finance costs Bank interest Operating lease interest Finance income Deposit account interest Interest on franchisee loans 54 Belvoir Group PLC 2020 £’000 244 17 261 2020 £’000 5 176 181 2019 £’000 321 21 342 2019 £’000 14 216 230 FINANCIAL STATEMENTSNotes to the financial statements continuedFor the financial year ended 31 December 2020 6 Other income Group Financial asset Share options in Mortgage Advice Bureau (Holdings) plc 2020 £’000 123 2019 £’000 32 In 2019 other income relates to the release of the fair value of 40,000 share options in Mortgage Advice Bureau (Holdings) plc (“MAB options”) for the year to 31 December 2019. In 2020 other income relates to the gain on the sale of shares in MAB sold on 7 September 2020. This is reported on further in note 12. 7 Taxation Group UK corporation tax at 19% (2019: 19%) Current taxation on profits for the year Adjustments in respect of prior years Deferred taxation origination and reversal of temporary differences Impact of change in tax rate Total tax charge in the statement of comprehensive income Factors affecting the tax charge for the year: Profit before taxation Profit before taxation multiplied by the standard rate of corporation tax in the UK of 19% (2019: 19%) Effects of: – Expenses not deductible for tax purposes – Adjustment in respect of prior years – Remeasurement of deferred tax – Recognition of deferred tax asset – Capital gains chargeable to corporation tax Total tax charge in statement of comprehensive income 2020 £’000 1,499 (3) (284) 141 1,353 2020 £’000 6,670 1,267 68 (3) 141 (171) 51 1,353 2019 £’000 1,199 (17) (254) — 928 2019 £’000 5,580 1,060 43 (17) 2 (160) — 928 The proposed reduction in the corporation tax rate to 17% with effect from 6 September 2016 had been substantively enacted as at the end of 2019 and therefore the closing deferred tax balance for 2019 had been translated at 17%. The Government’s subsequent pledge to maintain the 19% tax rate following the general election was substantively enacted in 2020 and therefore all opening deferred tax balances have been remeasured at 19% with an adjustment recognised in the 2020 total tax charge. The closing deferred tax balance for 2020 had been translated at 19% the rate substantively enacted as at the balance sheet date. As a result of changes in the March 2021 budget, corporation tax will increase to 25% with effect from April 2023. 8 Dividends Group Final dividend for 2019 No final dividend was paid for 2019 (2018: 3.8p per share paid 26 May 2019) Interim dividend for 2020 5.4p per share paid 30 October 2020 (2019: 3.4p per share paid 24 October 2019) Total dividend paid 2020 £’000 2019 £’000 — 1,328 1,897 1,897 1,188 2,516 In March 2020, the Board decided that it would be prudent not to recommend a final dividend for the financial year ended 31 December 2019 given the uncertainty caused by Covid-19. The 2020 interim dividend of 5.4p included a catch-up of 2.0p against the suspended final 2019 dividend. The Directors propose a final dividend of 5.1p per share totalling £1,796,000 for 2020, payable 1 June 2021, to shareholders on the register on 23 April 2021. As this remains conditional on shareholders’ approval, provision has not been made in these financial statements. This includes a further catch-up of 1.3p, giving a total of 3.3p against the suspended final 2019 dividend. Annual report and accounts 2020 55 9 Earnings per share Group Earnings per share is calculated by dividing the profit for the financial year by the weighted average number of ordinary shares in issue during the year. Options over ordinary shares and rights of conversion are described in note 27. The calculation of diluted earnings per share is derived from earnings per share, adjusted to allow for the issue of shares under these instruments. Profit for the financial year Weighted average number of ordinary shares Basic Diluted Earnings per share Basic Diluted 10 Intangible assets Group Gross carrying amount At 1 January 2019 Additions (note 25) Disposals At 31 December 2019 Additions (note 25) Disposals At 31 December 2020 Amortisation and impairment At 1 January 2019 Amortisation for the year At 31 December 2019 Amortisation for the year Disposals At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 2020 £’000 5,317 Number 35,101 36,314 Pence 15.1p 14.6p Brand £’000 Goodwill £’000 Master franchise agreements £’000 Customer relationships £’000 551 — — 551 32 — 583 79 29 108 31 — 139 444 443 19,491 109 — 19,600 589 — 20,189 — — — — — — 20,189 19,600 9,832 — — 9,832 763 — 10,595 1,126 393 1,519 447 — 1,966 8,629 8,313 958 329 (54) 1,233 39 (40) 1,232 471 49 520 47 (15) 552 680 713 2019 £’000 4,652 Number 34,939 35,934 Pence 13.3p 12.9p Total £’000 30,832 438 (54) 31,216 1,423 (40) 32,599 1,676 471 2,147 525 (15) 2,657 29,942 29,069 Newton Fallowell Limited, a wholly owned subsidiary, acquired the trade and assets of the estate agency business operated by Lovelle Estate Agency Limited and Lovelle Bacons LLP (collectively referred to as “Lovelle”) on 6 and 20 January 2020 respectively, which included a network of twelve franchised estate agencies. This transaction gave rise to additional goodwill of £589,000. The fair values determined on acquisition of the master franchise agreement and brand arising from the Lovelle network are based on actual cash flows to 31 December 2020. Thereafter, projected revenue growth was assumed to be 2% over the valuation period. The cash flows arising were discounted by the Group’s weighted average cost of capital. On 21 September 2020 Northwood GB Limited sold the assets and trade of Belvoir Glossop to the Belvoir Ashton-under-Lyne franchisee for £25,000 which gave rise to a disposal against customer relationships. On 1 January 2020 the assets and trade of MAB (Gloucester) Limited were hived up into Brook Financial Services Limited leaving MAB (Gloucester) Limited dormant. 56 Belvoir Group PLC FINANCIAL STATEMENTSNotes to the financial statements continuedFor the financial year ended 31 December 2020 10 Intangible assets continued Group continued Goodwill is deemed to have an indefinite useful life. It is currently carried at cost and tested annually for impairment by reference to the value of the relevant cash generating units (CGUs) to their recoverable amount. The Group has defined its key CGUs as Northwood, Newton Fallowell (incorporating Goodchilds, Uplong and EBG), Lovelle, Brook (incorporating PMC and MAB Glos) and corporate-owned Belvoir offices. Where the recoverable amount is less than the carrying value, an impairment arises. During the year, goodwill was tested for impairment, with no impairment charge arising. Newton Fallowell (incorporating Goodchilds, Uplong and EBG) Lovelle Northwood Brook (incorporating PMC and MAB Glos) Corporate-owned Belvoir offices Total At 31 December 2019 £’000 5,869 — 8,373 5,210 148 19,600 Additions £’000 Disposals £’000 — 589 — — — 589 — — — — — — At 31 December 2020 £’000 5,869 589 8,373 5,210 148 20,189 The recoverable amount of all CGUs has been determined based on a value in use calculation. These calculations use pre-tax cash flow projections over a period of five years assuming an annual growth rate of 2% followed by a terminal growth rate of 2% (2019: 2%), discounted at a pre-tax discount rate of 12.0% (2019: 10.6%) equivalent to the Group’s weighted average cost of capital. Assumptions on sales growth are within those applied in the approved budgets for the upcoming year and strategic projections representing the best estimate of future performance. The Directors do not consider goodwill to be impaired. The Directors believe that no reasonable possible change in assumptions, based on facts and circumstances in place at the year-end date, will cause the value in use to fall below the carrying value and hence impair the goodwill. 11 Investments Investments in subsidiaries Cost At 1 January 2019 Additions At 31 December 2019 Additions At 31 December 2020 Provision for impairment At 1 January 2019, 31 December 2019 and 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 Company £’000 39,722 187 39,910 444 40,354 — 40,354 39,910 The Company addition of £444,000 (2019: £187,000) related to the obligation to settle the share-based remuneration awarded to employees of Belvoir Property Management (UK) Limited during the six years ended 31 December 2020. On 1 January 2020 the assets and trade of MAB (Gloucester) Limited were transferred to Brook Financial Services Limited at which point MAB (Gloucester) Limited became dormant. Annual report and accounts 2020 57 11 Investments continued Investments in subsidiaries continued As at 31 December 2020 the Company owned 100% of the ordinary share capital and voting rights of the following companies: Subsidiary Country of incorporation Company number Principal activity Belvoir Property Management (UK) Limited⁴ Newton Fallowell Limited⁴ Northwood GB Limited⁴ Brook Financial Services Limited⁴ MAB (Gloucester) Limited¹,⁴ Purely Mortgage Consultants Limited¹,⁴ Goodchilds Estate Agents & Lettings Limited Claygold Property Limited² Redwoods Estate Agents Limited² Uplong Limited³ Newton & Derry Limited³ England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales 3141281 5372232 3570861 7311674 09668913 6521922 05249161 02649237 03416122 05816728 3695733 Property sales and letting franchising Property sales and letting franchising Property sales and letting franchising Financial services Dormant Dormant Dormant Dormant Dormant Dormant Dormant 1. Subsidiary of Brook Financial Services Limited. 2. Subsidiary of Belvoir Property Management (UK) Limited. 3. Subsidiary of Newton Fallowell Limited. 4. The Company has agreed to guarantee the liabilities of its trading subsidiaries, thereby allowing them to take exemption from an audit under Section 479A of the Companies Act 2006. The registered office address for all subsidiary companies is the same as for the parent company (see note 1). The carrying value of the investments has been considered for impairment and the Directors believe that the carrying value is supportable. 12 Financial assets Financial assets at fair value through profit or loss Cost At 1 January 2019 and 31 December 2019 Disposal – share options in Mortgage Advice Bureau (Holdings) plc At 31 December 2020 Provision for impairment At 1 January 2019 and 31 December 2019 Net book value At 1 January 2019 and 31 December 2019 Disposal – share options in Mortgage Advice Bureau (Holdings) plc At 31 December 2020 Group £’000 159 (159) — — 159 (159) — Financial assets at fair value through profit or loss comprised 40,000 share options in Mortgage Advice Bureau (Holdings) plc (“MAB options”) which vested in May 2020 at 1p per share and were sold on 7 September 2020 at £6.80 per share. The net proceeds were £271,000 and the gain of £123,000 on disposal has been recognised as other income. 58 Belvoir Group PLC FINANCIAL STATEMENTSNotes to the financial statements continuedFor the financial year ended 31 December 2020 13 Property, plant and equipment Group Freehold land £’000 Freehold property £’000 Fixtures and fittings £’000 Cost At 1 January 2019 Additions Acquisitions Disposals At 31 December 2019 Additions At 31 December 2020 Accumulated depreciation At 1 January 2019 Charge for the year Acquisitions Disposals At 31 December 2019 Charge for the year At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 14 Leases Right-of-use assets At 1 January 2019 Additions Amortisation At 31 December 2019 Additions Amortisation At 31 December 2020 Lease liabilities At 1 January 2019 Additions Interest expense Lease payments At 31 December 2019 Additions Interest expense Lease payments At 31 December 2020 150 — — — 150 — 150 — — — — — — — 150 150 235 — — — 235 — 235 50 4 — — 54 5 59 176 181 Property £’000 587 — (112) 475 — (110) 365 Property £’000 587 — 16 (121) 482 — 13 (120) 375 Total £’000 1,662 99 4 (201) 1,564 46 1,610 1,016 142 2 (189) 971 128 1,277 99 4 (201) 1,179 46 1,225 966 138 2 (189) 917 123 1,040 1,099 185 262 511 593 Group Motor vehicles £’000 Office equipment £’000 48 173 (81) 140 27 (81) 86 3 — (2) 1 5 (2) 4 Group Motor vehicles £’000 Office equipment £’000 48 173 5 (89) 137 27 4 (83) 85 3 — — (2) 1 5 — (2) 4 Company Fixtures and fittings £’000 57 24 — — 81 9 90 22 15 — — 37 16 53 37 44 Total £’000 638 173 (195) 616 32 (193) 455 Total £’000 638 173 21 (212) 620 32 17 (205) 464 Annual report and accounts 2020 59 14 Leases continued Maturity of lease liabilities At 31 December 2020 At 31 December 2019 15 Trade and other receivables Current Trade receivables Loans to franchisees Other debtors Prepayments Accrued income Amounts owed by Group undertakings Non-current Loans to franchisees Group Up to 6 months £’000 6–12 months £’000 1–5 years £’000 Over 5 years £’000 91 91 84 87 289 437 — 5 Group Company 2020 £’000 1,601 1,020 1,856 202 384 — 5,063 2019 £’000 1,378 1,101 1,607 242 247 — 4,575 2020 £’000 — — — 44 — 6,795 6,839 Total £’000 464 620 2019 £’000 — — 19 40 — 6,670 6,729 1,970 2,053 — — As at 31 December 2020 trade receivables of £1,438,000 (2019: £1,248,000) were not due. The expected loss rates are based on the Group’s historical credit losses experienced over the three-year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macro-economic factors affecting the Group’s customers and isolated items not deemed to be indicative of future credit losses. Trade receivables are collected using direct debit and historical credit losses are immaterial. At 31 December 2020 the Group has recognised a lifetime expected credit loss of £36,000 (2019: £48,000). At the year end £45,000 (2019: £92,000) of the franchise loan repayments were past the due date. Loans to franchisees are spread across varying terms. In determining the lifetime expected credit losses, the Audit Committee primarily considers the recoverability of indebtedness from franchisees. There have been no changes to the estimation techniques or the significant assumptions made during the financial year. The recoverable amount is assessed by management as being the average of the multiples paid in acquiring portfolios during the year on behalf of our franchisees under our assisted acquisitions programme. Where relevant, forward-looking information has been incorporated into management’s assessment. The franchisee indebtedness risk profile has been assessed as follows: » lower risk: loans where recoverable amounts are higher than indebtedness and the probability of default is considered less than 1%, the impact of which would not be material; and » higher risk (significant increase in credit risk): loans where recoverable amounts are lower than indebtedness. During the year the lifetime expected credit loss on franchisee indebtedness was increased by £68,000 (2019: £144,000). Lower risk gross carrying value amount Loss provision Lower risk net carrying value amount Higher risk gross carrying value amount Loss provision: At 1 January Utilised during the year Increase in provision during the year At 31 December Higher risk net carrying value amount Total net carrying value amount 60 Belvoir Group PLC Group 2020 £’000 2,511 — 2,511 731 (418) 234 (68) (252) 479 2019 £’000 2,610 — 2,610 962 (274) — (144) (418) 544 2,990 3,154 FINANCIAL STATEMENTSNotes to the financial statements continuedFor the financial year ended 31 December 2020 15 Trade and other receivables continued Included within other debtors is £461,000 (2019: £379,000) due from financial advisers relating to commissions that are refundable to the Group when a life policy is cancelled within 48 months of the policy being written. As these balances have no credit terms, they can be recovered directly from subsequent new business entered into with the financial adviser. Amounts owed by Group undertakings are due on demand and interest free. In assessing the expected credit loss, the general approach has been applied. Based upon historical performance and forward-looking factors, the subsidiary has resources to repay the amount outstanding at the year end as such the probability of default is considered to be very low and any expected credit loss is insignificant. There has been no change in credit risk since initial recognition. 16 Assets held for sale Group Additions Disposals At 31 December 2020 Total £’000 767 (176) 591 The acquisition of Lovelle included five corporate-owned offices that have been held for resale. During the year the Horncastle office was franchised to the adjacent Newton Fallowell franchisee and Hessle, Skegness and Grimsby Sales were franchised to the respective branch managers. Total consideration was £176,000 in respect of these disposals. On 15 January 2021, the remaining Grimsby Lettings office was franchised to the branch manager for £591,000. The trading results from these offices have been reported separately from continuing operations on the face of the Group statement of comprehensive income. 17 Cash and cash equivalents Cash and cash equivalents 18 Trade and other payables Current Trade payables Refund liability Other taxes and social security Accruals Deferred income Other creditors Deferred and contingent consideration Amounts owed to Group undertakings 19 Borrowings Current Bank loans – term loan Long term Bank loans – term loan Group Company 2020 £’000 5,934 2019 £’000 3,586 2020 £’000 4,411 2019 £’000 1,412 Group Company 2020 £’000 632 1,293 766 924 18 216 — — 3,849 2019 £’000 612 1,110 628 566 25 163 37 — 3,141 2020 £’000 2019 £’000 9 — — 68 — — — 1 78 4 — — 60 — — — 200 264 Group 2020 £’000 Company 2019 £’000 2020 £’000 2019 £’000 861 861 861 861 8,728 9,589 9,591 10,452 8,728 9,589 9,591 10,452 All current amounts are short term and their carrying values are considered reasonable approximations of fair value. Annual report and accounts 2020 61 20 Maturity of borrowings Group and Company Repayable in less than six months Repayable in seven to twelve months Current portion of long-term borrowings Repayable in years one to five Total borrowings Less: interest included Total debt Less: cash and cash equivalents Net debt 2020 £’000 528 523 1,051 8,939 9,990 (401) 9,589 (5,934) 3,655 2019 £’000 587 581 1,168 10,181 11,349 (897) 10,452 (3,585) 6,867 Borrowings comprise a term loan of £9,654,000 (2019: £10,546,000) secured by a fixed and floating charge over the Group assets and it is repayable in half yearly instalments of £445,000 from June 2021 with a final payment of £7,868,000 in March 2023 and bears interest at 1.95% over the LIBOR rate. The arrangement fee of £144,000 is being amortised over the life of the loan, which gave rise to a charge to the profit and loss account of £29,000 (2019: £29,000). All bank covenants were complied with throughout the year. 21 Called up share capital Group and Company Allotted, issued and fully paid Ordinary shares of 1p each At 1 January 2019 and 31 December 2019 Issue of shares during the year: 23 January 2020 – share price 75p 10 September 2020 – share price 116p At 31 December 2020 2020 2019 Number £’000 Number £’000 35,122,005 351 34,938,606 349 Group and Company Number Nominal share capital £’000 34,938,606 349 163,399 20,000 2 — Share premium £’000 12,006 121 23 35,122,005 351 12,150 62 Belvoir Group PLC FINANCIAL STATEMENTSNotes to the financial statements continuedFor the financial year ended 31 December 2020 22 Reconciliation of profit before taxation to cash generated from operations Group Profit before taxation Depreciation and amortisation charges Share-based payment charge Impairment of franchisee loan book Profit on disposal of corporate offices Amortisation of debt costs Finance costs Interest paid on lease liabilities Finance income MAB share option recognition and related income Increase in trade and other receivables Increase in trade and other payables Cash generated from operations Company Profit before taxation Dividend received Amortisation of debt costs Finance income Finance costs Depreciation and amortisation charges Increase in trade and other receivables Decrease in trade and other payables Cash used in operations 2020 £’000 6,670 843 444 68 — 29 244 17 (181) (112) 8,022 (569) 745 8,198 2020 £’000 5,901 (7,150) 29 (2) 244 17 (961) (110) (188) 2019 £’000 5,580 819 187 158 (2) 29 321 21 (230) (32) 6,851 (145) 579 7,285 2019 £’000 5,792 (7,100) 29 (2) 321 14 (946) (239) (905) (1,259) (2,090) 23 Financial instruments Capital management policy The Group manages its capital to ensure its operations are adequately provided for as described below. The principal risks faced by the Group are detailed on pages 22 and 23. The Group’s objective when managing capital is to safeguard its ability to continue as a going concern and so provide increasing shareholder value. The Group is meeting this objective through a combination of underlying organic growth and targeted growth by acquisition, which will generate regular and increasing returns to shareholders. The capital structure of the Group consists of cash and cash equivalents and equity attributable to the shareholders comprising issued capital, reserves and retained earnings as disclosed in the statement of changes in equity. Financial instruments – risk management The Group is exposed through its operations to the following financial risks: » interest rate risk; » credit risk; and » liquidity 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. Further quantitative information in respect of these risks is presented throughout these financial statements. 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. Annual report and accounts 2020 63 23 Financial instruments continued Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are included in the summary below. Summary of financial assets and financial liabilities by category: Financial assets Trade receivables Other receivables Loans to franchisees Cash and cash equivalents Financial liabilities Trade payables Refund liability Loans and borrowings Other creditors Lease liabilities Contingent consideration Maturity analysis of financial liabilities: In less than one year Trade payables Refund liability Loans and borrowings Other creditors Lease liabilities Contingent consideration In more than one year Lease liabilities Long-term borrowings Group 2020 £’000 1,601 2,240 1,020 5,934 10,795 2019 £’000 1,378 1,854 3,154 3,586 9,972 Company 2020 £’000 — 6,795 — 4,411 11,206 Group Company 2020 £’000 632 1,293 9,589 216 464 — 2019 £’000 612 1,110 10,452 163 620 37 12,194 12,994 632 1,293 861 216 175 — 3,177 289 8,728 9,017 612 1,110 861 163 178 37 2,961 442 9,591 10,033 2020 £’000 9 — 9,589 — — — 9,598 9 — 861 — — — 870 — 8,728 8,728 2019 £’000 — 6,689 — 1,412 8,101 2019 £’000 4 — 10,452 200 — — 10,656 4 — 861 200 — — 1,065 — 9,591 9,591 All of the financial assets and liabilities above are carried 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. 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 Group’s finance function. The Board receives monthly reports 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. 64 Belvoir Group PLC FINANCIAL STATEMENTSNotes to the financial statements continuedFor the financial year ended 31 December 2020 23 Financial instruments continued Interest rate risk Interest rate risk arises from the Group’s management of interest-bearing assets and liabilities. The Group does not use hedging products to manage interest rate risk but uses treasury products for deposits until such time as required for acquisitions as part of the Group’s acquisition strategy. 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 Company’s review includes external ratings, when available, and in some cases bank references. The Group does not consider that it has a significant concentration of credit risk. The credit risk for liquid funds and other short-term financial assets is considered small. The substantial majority of these assets are deposited with HSBC. 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 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. Fair values of financial instruments Financial assets and liabilities are carried at amortised cost which equates to fair value. The Group’s management assessed that the fair values of cash, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. 24 Deferred taxation Balance at 1 January Acquisition in the year – attributable to intangible assets (Credited)/charged to the income statement Balance at 31 December Deferred taxation has been provided as follows: Attributable to intangible assets Accelerated capital allowances Recognition of deferred tax asset short-term timing differences Group Company 2020 £’000 1,440 151 (145) 1,446 1,836 46 (436) 1,446 2019 £’000 1,647 48 (255) 1,440 1,623 47 (230) 1,440 2020 £’000 2019 £’000 7 — (2) 5 — 5 — 5 6 — 1 7 — 7 — 7 Following the reversal of the Government’s decision to reduce corporation tax to 17%, the amounts provided in respect of deferred tax have been computed at 19% (2019: 17%). There are no temporary differences for which deferred tax balances are unrecognised. 25 Acquisitions Newton Fallowell Limited, a wholly owned subsidiary, acquired the trade and assets of the estate agency business operated by Lovelle Estate Agency Limited and Lovelle Bacons LLP (collectively referred to as “Lovelle”) on 6 and 20 January 2020 respectively, for cash consideration of £2,007,000. Lovelle comprised a network of twelve franchised estate agencies and five corporate-owned estate and lettings agencies. The corporate-owned offices were franchised out by 15 January 2021 as planned, and these have been recognised at their net realisable value of £767,000, which is not materially different to the consideration as at acquisition. The goodwill represents the value attributable to the new businesses and the assembled and trained workforce. Deferred tax at 19% has been provided on the value of the separable intangible assets. This initial deferred tax liability has been recognised on the brand and the master franchise agreement acquired which is reduced subsequently in line with the amortisation period. Whilst the initial book value of goodwill is higher than the tax base, no deferred liability is recognised on goodwill. During the year a further £8,000 was paid in respect of the Northwood Glossop portfolio. Annual report and accounts 2020 65 25 Acquisitions continued Under the strategic alliance entered into with The Nottingham Building Society (NBS), Belvoir Property Management (UK) Limited acquired a small portfolio of managed properties for total consideration of £24,000. The above transactions met the definition of a business combination and have been accounted for using the acquisition method under IFRS 3. The assets and liabilities below are shown at their provisional fair values as at acquisition. Intangible assets Assets held for sale Deferred tax liabilities Identifiable net assets acquired Goodwill on acquisition Consideration Consideration settled in cash NW Glossop £’000 NBS £’000 8 — — 8 — 8 8 24 — — 24 — 24 24 Lovelle £’000 802 767 (151) 1,418 589 2,007 2,007 Total £’000 834 767 (151) 1,450 589 2,039 2,039 Post-acquisition financial results The acquisition of Lovelle was sufficiently close to the start of the year such that had completion taken place on the first day of the financial year, Group revenues and Group profit before tax would have been unaffected. The five corporate-owned offices were categorised as assets held for sale and as such operations from these five offices have been reported separately from continuing operations. The acquisitions of the NW Glossop and NBS portfolios were immaterial to the Group results. 26 Related party disclosures During the year the Group paid fees of £40,000 (2019: £15,000) to The Property Ombudsman Limited, a company of which Michael Stoop is a director. The balance outstanding as at 31 December 2020 was £nil (2019: £nil). During 2020, emoluments were paid to a person related to a Director of £nil (2019: £139). The amount paid was commensurate with other employees performing a similar role with a similar level of qualification and experience. During the year the Directors received the following dividends from their shareholdings: 30 October 2020 2020 interim £’000 24 October 2019 2019 interim £’000 Dorian Gonsalves Louise George Mark Newton Michael Stoop Paul George Total dividends 26 3 24 1 1 55 During the year Belvoir Group PLC received a dividend of £7.2m (2019: £7.1m) from its subsidiary companies. At the year end the Company was owed/(owing) the following amounts by/(to) subsidiary companies, all of which are payable on demand: Belvoir Property Management (UK) Limited Newton Fallowell Limited Northwood GB Limited Brook Financial Services Limited Goodchilds Estate Agents & Lettings Limited 66 Belvoir Group PLC 2020 £’000 484 1,444 348 4,518 (1) 16 2 15 — — 33 2019 £’000 2,370 404 (199) 3,896 (1) FINANCIAL STATEMENTSNotes to the financial statements continuedFor the financial year ended 31 December 2020 27 Share-based employee remuneration The following share options issued were outstanding as at 31 December 2020: Share option scheme Date of issue Quantity Exercise price £ Vesting period Expiry date Enterprise Management Incentive Enterprise Management Incentive Enterprise Management Incentive Long-term incentive plan Long-term incentive plan Company Share Option Plan Company Share Option Plan 04/07/2014 24/09/2014 23/12/2015 31/07/2017 08/02/2018 02/01/2018 28/01/2020 495,000 60,000 40,000 1,160,509 171,927 242,672 273,365 2,443,473 3 years 1.32 3 years 1.32 3 years 1.16 0.01 3 years and 5 months 0.01 2 years and 11 months 3 years 0.98 3 years 1.48 04/07/2024 24/09/2024 23/12/2025 30/07/2027 07/02/2028 01/01/2028 27/01/2030 Movement in the number of share options was as follows: Share option movement At 1 January Options granted in the year Recognition of dividend equivalents under the long-term incentive plan Options exercised in the year Options lapsed in the year At 31 December Exercisable at the end of the year Options have been valued using the following inputs to the Black Scholes model: Expected volatility (based on closing prices in the year prior to issue) Expected life Risk-free rate Expected dividend yield The Group recognised the following expenses relating to equity-settled share-based transactions: Employee benefits (note 4) 2020 Number 2019 Number 2,149,071 285,689 216,436 (183,399) (24,324) 2,171,071 — — — (22,000) 2,443,473 2,149,071 595,000 778,399 45% 3.5 to 4 years 0.5% 6.9% 2020 £’000 444 2019 £’000 187 28 Contingent liabilities Belvoir Group PLC and its subsidiaries have a cross-company guarantee, which creates a fixed and floating charge on the assets of each company. As at 31 December 2020 the outstanding contingent liability under this agreement amounted to £9,654,000 (2019: £10,537,000). 29 Post-balance sheet events Acquisition of Nicholas Humphreys On 31 March 2021, Belvoir Group PLC acquired the entire share capital of White Kite Holdings 2021 Limited and its two subsidiaries, White Kite Limited and Nicholas Humphreys Franchise Limited, collectively referred to as Nicholas Humphreys. Nicholas Humphreys operates a national network of 18 franchised and three corporate-owned primarily lettings agencies. This transaction meets the definition of a business combination and will be accounted for using the acquisition method under IFRS 3. The combined consideration of £4.0m was settled in cash from existing reserves post-year end and comprises around £100,000 in tangible assets with the remainder being intangible assets and goodwill. At the time that the financial statements have been authorised for issue, the initial accounting for this business combination is incomplete. As such the full disclosure of this business combination cannot be made at this time. Annual report and accounts 2020 67 Notice of Annual General Meeting Belvoir Group PLC Notice is hereby given that the Annual General Meeting of Belvoir Group PLC (the “Company”) will be held at Belvoir’s Central Office, The Old Courthouse, 60A London Road, Grantham, Lincolnshire NG31 6HR, at 10 am on 27 May 2021 for the purpose of considering and, if thought fit, passing the following resolutions. Resolutions 1–5 will be proposed as ordinary resolutions and resolutions 6–8 will be proposed as special resolutions. Ordinary resolutions 1. To receive the Company’s financial statements for the financial year ended 31 December 2020, together with the Directors’ and the auditor’s reports thereon. 2. 3. 4. 5. To re-appoint BDO LLP as auditor of the Company to hold office from the conclusion of this meeting until the conclusion of the next general meeting of the Company at which the Company’s accounts are laid. To authorise the Directors of the Company (the “Directors”) to determine the auditor’s remuneration. To re-appoint Louise George, who retires by rotation and offers herself for re-election under Article 71 of the Company’s Articles of Association, as Director. To re-appoint Michael Stoop, who retires by rotation and offers himself for re-election under Article 71 of the Company’s Articles of Association, as Director. Special resolutions 6. The Directors of the Company be and are hereby generally and unconditionally authorised for the purposes of Section 551 of the Companies Act 2006 (as amended) (the “Act”) to exercise all the powers of the Company to allot shares in the Company, or to grant rights to subscribe for or to convert any security into shares in the Company (such shares and such rights to subscribe for or to convert any security into shares in the Company being “equity securities”) being on such terms and in such manner as they shall think fit, provided that this authority shall be limited to the allotment of equity securities up to a maximum aggregate nominal amount of £117,419, being one-third of the nominal value of the Company’s share capital, at any time (unless and to the extent previously renewed, revoked or varied by the Company in general meeting) during the period from the date hereof until the conclusion of the next Annual General Meeting of the Company or 15 months after the passing of this resolution (whichever is earlier), provided that the Directors of the Company may make an offer or enter into an agreement which would or might require equity securities to be allotted, offered or otherwise dealt with or disposed of after the expiry of such authority and the Directors of the Company may allot any equity securities after the expiry of such authority in pursuance of any such offer or agreement as if this authority had not expired. 7. The Directors of the Company be given power pursuant to Sections 570 and 573 of the Act to allot equity securities (as defined by Section 560 of the Act) of the Company for cash pursuant to the authority conferred by resolution 6 as if Section 561 of the Act did not apply to any such allotment. This power is limited to the allotment of equity securities up to a maximum aggregate nominal amount of £35,226 (being equal to 10% of the Company’s share capital) and otherwise to the allotment of equity securities for cash in connection with a rights issue or other pre-emptive offer to holders of ordinary shares where the equity securities respectively attributable to the interest of such holders are proportionate (as nearly as may be practicable) to 68 Belvoir Group PLC the respective numbers of ordinary shares held by them, but subject to such exclusions or other arrangements as the Directors of the Company may deem necessary or expedient to deal with any fractional entitlements or any legal or practical problems under the laws of, or the requirements of any regulatory body or any recognised stock exchange in, any territory, in each case at any time (unless the authority conferred by resolution 6 is previously renewed, revoked or varied) until the conclusion of the next Annual General Meeting of the Company or 15 months after the passing of this resolution (whichever is earlier), provided that before any such expiry the Directors of the Company may make an offer or enter into an agreement which would or might require equity securities to be allotted after the expiry of such power and the Directors of the Company may allot equity securities after such expiry under this power in pursuance of any such offer or agreement as if this power had not expired. The power granted by this resolution applies in relation to any sale or shares in an allotment of equity securities by virtue of Section 560(3) of the Act as if in the first paragraph of this resolution the words “pursuant to the authority conferred by paragraph 6 of this resolution” were omitted. The authority granted by this resolution shall replace all existing authorities to allot any shares in the Company and to grant rights to subscribe for or convert any security into shares in the Company previously granted to the Directors pursuant to Sections 551, 570 and 573 of the Companies Act 2006, save for any existing authorities in respect of options granted to employees. 8. This resolution authorises the Company to purchase up to approximately 14.99% of its issued ordinary share capital at any time from the date this resolution is passed up to the date of the next Annual General Meeting or 15 months from the date this resolution is passed, whichever is the earlier. The Directors consider it desirable for the proposed general authority to be available. The Directors have no present intention to make such market purchases but consider it desirable to be given the flexibility to do so by shareholders. By order of the Board Louise George Company Secretary Notes: 1. Please arrive 15 minutes prior to the start of the meeting. 2. A member entitled to attend and vote at this meeting is entitled to appoint one or more proxies to attend and vote on his or her behalf. A proxy need not be a member of the Company. 3. Completion and return of a form of proxy does not preclude a member from attending and voting at the meeting in person should he or she wish. 4. A form of proxy is available on the Company’s website, www.belvoirgroup.com, or by request from the Company Secretary. To be valid for use at the Annual General Meeting, the form of proxy must be completed, signed and returned in accordance with the instructions printed on it, to Belvoir Group PLC’s registrar, Computershare Investor Services PLC, at The Pavilions, Bridgwater Road, Bristol BS99 6ZY, so as to be received as soon as possible but in any event not later than 10 am on Tuesday 25 May 2021. 5. As permitted by Regulation 41 of the Uncertificated Securities Regulations 2001, members who hold shares in uncertificated form must be entered on the Company’s register of members by 6 pm on 25 May 2021 in order to be entitled to attend and/or vote at the meeting in respect of the number of shares registered in their name at such time. Changes to entries on the register of members after that time will be disregarded in determining the rights of any person to attend and/or vote at the meeting. 6. Copies of the Directors’ service contracts will be available for inspection at the registered office of the Company during normal business hours. SHAREHOLDER INFORMATION Corporate information Board of Directors Michael Stoop Non-Executive Chairman Dorian Gonsalves Chief Executive Officer Louise George Chief Financial Officer Mark Newton Executive Director Paul George Non-Executive Director Company Secretary Louise George, FCA, ACIS Registered office The Old Courthouse 60A London Road Grantham Lincolnshire NG31 6HR Registered number 07848163 Country of incorporation England and Wales Website www.belvoirgroup.com Nominated adviser and broker finnCap 60 New Broad Street London EC2M 1JJ Independent auditor BDO LLP Chartered Accountants and Statutory Auditor 2 Snowhill Birmingham B4 6GA Corporate calendar Half year results announced: 7 September 2020 Preliminary announcement of full year results: 12 April 2021 Annual General Meeting: 27 May 2021 Principal banker HSBC UK plc Donington Court Pegasus Business Park Herald Way East Midlands DE74 2UZ Registrar and transfer office Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Lawyers Browne Jacobson Mowbray House Castle Meadow Road Nottingham NG2 1BJ Hamilton Pratt Franchise House 3a Tournament Court Tournament Fields Warwick CV34 6LG Find us on social media @Belvoir-Group @BelvoirUK @BelvoirUK @BelvoirUK Annual report and accounts 2020 69 B e l v o i r G r o u p P L C A n n u a l r e p o r t a n d a c c o u n t s 2 0 2 0 Belvoir Group PLC 07848163 The Old Courthouse 60A London Road Grantham Lincolnshire NG31 6HR www.belvoirgroup.com B e l v o i r G r o u p P L C A n n u a l r e p o r t a n d a c c o u n t s 2 0 2 0 

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