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2023 ReportOpening the door to property, mortgage and franchise expertise Belvoir Group PLC Annual report and accounts 2021 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 1 Introduction Belvoir Group is a leading UK property, mortgage and franchise group operating through two divisions: a network of property franchisees and a network of mortgage advisers, combining to support customers throughout their property journey. Our purpose Our purpose is to help people realise their property, mortgage and franchise aspirations. Our vision Our vision is to be the agency of choice for our colleagues and our customers, providing the best property, mortgage and franchise expertise in our industry. In this report Strategic report 01 At a glance 02 Our year in review 04 Our commitment to ESG 06 Chairman’s statement 08 Our markets 12 Our business model 14 Our stakeholders 22 Environmental, social and governance 28 Financial review 31 Risk management Corporate governance 34 Board of Directors 36 Introduction to corporate governance Financial statements 46 Independent auditor’s report 51 Group statement of comprehensive income 52 Statements of financial position 53 Statements of changes in equity 54 Statements of cash flows 55 Notes to the financial statements 16 Chief Executive Officer’s statement 18 Our strategy 20 Our key performance indicators (KPIs) 37 Statement of corporate governance Shareholder information 41 Audit Committee report 42 Directors’ remuneration report 44 Directors’ report 78 Notice of Annual General Meeting 80 Corporate information 80 Corporate calendar Read about our ESG strategy from page 24 Read about our stakeholder engagement from page 14 Read about our approach to governance from page 36 At a glance Since opening our first lettings office in 1995, to operating two divisions, property franchise and financial services with 463 offices nationwide in 2021, Belvoir has been helping people to realise their property aspirations for over 26 years. Opening the door to property expertise Established in 1995 Historically a lettings franchise, Belvoir now offers both sales and lettings services across the UK. 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. Acquired in 2016 Northwood also started as a specialist lettings franchise and now has nationwide coverage offering both sales and lettings. 158 offices 39 offices 93 offices Acquired in 2020 Based in North Lincolnshire and the Humber, Lovelle is a strong regional, predominantly sales network. Acquired in 2021 Nicholas Humphreys specialises in student lettings in university towns across the UK. Partnered since 2020 Dual-branded branches offering estate agency services to members of the Nottingham Building Society ("The Nottingham" or "NBS"). 16 offices 20 offices 37 offices Opening the door to mortgage expertise 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 243 mortgage, protection and financial services advisers (advisers) operating through 100 businesses. 100 businesses For more information visit our new website: www.belvoirgroup.com Strategic report Our year in review Our highlights Revenue (£m) MSF (£m) Profit before tax (£m) EPS (p) £29.6m +37% 29.6 21.7 19.3 13.4 11.3 £10.7m +18% 7.9 10.7 8.5 8.8 9.1 £9.3m +39% 9.3 20.4p +35% 20.4 6.7 5.51 5.6 15.1 12.91 13.3 3.9 8.6 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 Operational highlights • Achieved growth across all three markets: lettings, sales and financial services • Acquired Nicholas Humphreys, a network of 20 offices specialising in student lettings, in March 2021 • Acquired Nottingham Mortgage Services, the mortgage advisory arm of the Nottingham Building Society, in July 2021 and dual-branded a further 26 NBS branches • Expanded Belvoir’s mortgage adviser network by 20% to 243 (2020: 202) • Greater reach with the number of offices up 11% to 463 (2020: 418) • Managed portfolio up 12% to 72,900 (2020: 65,065) properties • Number of written mortgages up 37% to 16,585 (2020: 12,094) • Number of house sales up 54% to 12,320 (2020: 8,003) Financial highlights • Group revenue increased by 37% to £29.6m (2020: £21.7m) with 12% attributable to acquired businesses and 25% to like-for-like growth • Management service fees (MSF) grew by 18% to £10.7m (2020: £9.1m) • 39% increase in profit before tax to £9.3m (2020: £6.7m), marking 25 years of consecutive profit growth • Continued strong lettings bias reflected in gross profit ratio of 56% lettings:19% sales:20% financial services: 5% other (2020: 60%:17%:19%:4%) • Year-end cash of £7.4m (2020: £5.9m) • Net debt significantly reduced by 65% to £1.3m (2020: £3.7m) despite deploying £4.4m on two corporate acquisitions • Total dividend per share for the year up 18% to 8.5p (2020: 7.2p) 1. 2018 includes net exceptional credit of £0.6m. 02 Belvoir Group PLC Annual report and accounts 2021 Covid-19 update Impact on trading The national lockdown in the first half of 2021 and the “work from home” advice at the end of 2021 did not close the property sector so our estate and letting agency branches were able to operate whilst observing the prevailing Covid-19 guidelines. Our advisers serviced their clients remotely, and our central teams supported all parts of the business from home. Engaging with colleagues The Board remained mindful of the wellbeing of our franchisees, our advisers and all staff across the Group. Whilst working from home, our central teams met daily online to ensure regular engagement with all staff. After 19 July 2021, the Board adopted a phased return to the office reflecting both the needs of the business and our staff. Our franchisees and advisers were fully apprised of any changes to the Government’s Covid-19 guidelines that would affect their business to ensure that they operated a safe environment for their staff and customers. Looking forward The successful roll out of the Government’s vaccination programme has enabled the UK to release most Covid restrictions, enabling all parts of our business to operate as normal. Going forward, our interactions will be a blend of physical and virtual meetings so as to retain some of the efficiencies gained during the pandemic. Values in action: Collaboration Learn more about our response to Covid-19 from page 7 Strategic report Statement of corporate governance Our investment case Belvoir has a proven track record in delivering growth, even during the 2007 financial crash and the 2020 Covid-19 pandemic, built around a resilient 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 6 brands 25 years Harnessing entrepreneurial self-motivated franchisees and advisers coupled with specialist central support Unbroken profit growth with EPS up 137% in four years Learn more about our brands from page 1 Learn more about our performance from page 28 High degree of recurring revenue Diversification 56% gross profit from lettings/19% sales/ 20% financial services/5% other £3.8m gross profit contribution from financial services in 2021 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 31 Learn more about our business model from page 12 Long-serving, experienced leadership team Successful acquisition strategy 13 years average length of service 8 acquisitions since 2015 Stable management team with 29 years average industry experience Five franchise brands and three financial services businesses fully assimilated into the Group Learn more about our leadership from page 34 Learn more about our acquisitions from page 16 Annual report and accounts 2021 Belvoir Group PLC 03 Strategic report Our commitment to ESG Committing to our ESG strategy As a people focused business, we are committed to having a positive impact on our stakeholders. What we do affects people’s lives across the UK, whether that be our franchisees, advisers, landlords, buyers and sellers or the thousands of tenants who live in properties managed by us. A thorough and relevant ESG strategy is vital in ensuring that we uphold our responsibilities to those stakeholders and their communities and make our impact on them as positive as possible. A sustainable direction of travel Multiple environmental, social and governance (ESG) trends impact on us, the way we do business and our stakeholder expectations. The transition to using low carbon energy is a key environmental trend and we intend to tackle this by improving the green credentials of our business operations. This also goes as far as influencing and supporting our landlords and tenants where possible to make greener choices for themselves. The Government is due to increase minimum energy efficiency standards (EPC) for rental properties to a grade C by 2025 for new tenancies which will further support this shift. Digital transformation and disruptive innovation in general are constantly affecting our industry. New PropTech is being brought to market all the time and some of it certainly has the ability to positively impact our business or the customer journey. Good governance is vitally important, with high ethical and professional standards, openness and transparency being integral to our success in this area so far. There are unfortunately low levels of trust in our sector for a variety of reasons, so open and honest dealings with our clients are key. Policy developments, including a regulatory framework for property agents in Scotland and Wales, with England to follow, increasing protection of tenants and minimum energy efficiency standards, should all help to support this. Housing is at the centre of many social trends with affordability, accessibility and quality of housing often being a concern as a result of structural issues in the sector. The pandemic has left many of us with a more emotional attachment to our homes, resulting in different buyer behaviours and a changing market. Social trends also impact on our own people. Attracting, developing and retaining a talented, diverse, happy and healthy team are paramount to our operations. Developing and retaining skilled entrepreneurs who maintain high professional standards are vital to our business’ success. As a business we understand that the principles of ESG are becoming increasingly important to people at all levels of our business as well as our clients, shareholders and society as a whole. Our newly created ESG strategy will act as a roadmap to ensure that the future direction of our business is completely aligned with the expectations of our stakeholders.” Dorian Gonsalves Chief Executive Officer 04 Strategic report Our ESG strategy Building trust Read more from page 25 Building local businesses Read more from page 27 Helping people to realise their property, mortgage and franchise aspirations Raising standards Read more from page 25 Harnessing technology Read more from page 26 Nurturing talent Read more from page 26 Read more on our materiality assessment and matrix from page 22 Read more detail on our ESG strategy from page 24 Progressing our approach Throughout 2021 we worked with sustainability consultants at Design Portfolio to undertake a detailed ESG materiality assessment as part of a full strategic review, and to develop a new ESG strategy for our business based on the findings. As part of this process, we identified the following five strategic pillars and devised ambition statements for each of them: Building trust A strong culture of integrity and professional ethics underpin what we do, and we develop trusted relationships with our stakeholders by being straightforward, honest and open in all our communications and transactions at every level of our business. Raising standards We maintain the highest professional standards across our network through guidance, support and training for our franchisees and advisers, so they can offer a quality service to customers, protect tenants and buyers, and support landlords in providing safe homes that meet energy efficient standards. Nurturing talent We attract and retain a talented team that offers unrivalled support to our network by investing in its development, supporting its wellbeing and reinforcing an inclusive and open Company culture. Harnessing technology We invest in integrated and fully supported IT solutions in partnership with sector-specialist software providers to build efficiency and effectiveness through our network, to reduce our environmental impacts and to meet changing customer needs. Building local businesses We find, support and develop skilled entrepreneurs to grow their own businesses, expanding our network and providing much-needed investment and employment opportunities in local communities across the UK. Annual report and accounts 2021 Belvoir Group PLC 05 Strategic report Chairman’s statement Strategic and trading growth 2021 was an exceptional year for the property sector. Despite Covid-19 restrictions, the Belvoir Group has continued to operate effectively and efficiently, ensuring that its property franchisees and financial services advisers were best placed to respond to the strong market conditions. Overview of performance I am delighted to report that in 2021 the Belvoir Group continued its record of uninterrupted profit growth, now running to 25 years, which is a remarkable achievement. The Group benefited from the strongest residential sales market since 2007, boosting the performance of both our estate agency and financial services businesses. Meanwhile, after a number of years of very low rental growth, the excess demand for properties within the residential lettings market gave rise to substantial increases in rent for new tenancies. Board and senior management The Senior Management Team remained focused on the principal aim of supporting our franchise and adviser networks to maximise the opportunities for all stakeholders available from a strong housing market. At the same time the Board continued to pursue its growth strategy by identifying suitable acquisition targets that would enlarge our existing footprint or expand our service offering. The longevity, experience and commitment of Belvoir’s Board and Senior Management Team undoubtedly underpin the continued success of the Group. All three of Belvoir’s main income streams performed exceptionally well, resulting in a 37% increase in Group revenues to £29.6m (2020: £21.7m). In addition to achieving strong growth in the underlying business, the Group expanded both its property and financial services networks during the year through the strategic acquisitions of Nicholas Humphreys and Nottingham Mortgage Services. Profit before tax increased to £9.3m (2020: £6.7m), up £2.6m. The Group now supports 363 franchised estate and lettings agencies operating through physical high street shops and 100 financial services businesses, comprising 243 (2020: 202) individual advisers. At the start of 2022, we announced three Board changes. Mark Newton retired from his executive role to become a Non-Executive Director, continuing to add value through his considerable expertise in estate agency. At the same time Michelle Brook joined the Board as Financial Services Director, underlining the increasing importance of the financial services division to the Group’s growth strategy. The Board was strengthened further through the appointment of an additional independent Non-Executive Director, Jon Di-Stefano, who brings a wealth of knowledge of the property sector, including areas very complementary to Belvoir’s existing business, and of strategic business growth. Learn more about our Board of Directors from page 34 Governance The Board promotes a culture of good governance and recognises how important our people are to the success of the Group. We continue to apply the 2018 Quoted Companies Alliance Corporate Governance Code (the “QCA Code”) as the basis of the Group’s governance framework. Learn more about our governance from page 36 06 Michael Stoop Non-Executive Chairman Strategic report The Board is committed to the promotion of strong environmental, social and governance principles.” Sustainability and ESG With sustainability and other environmental, social and governance (ESG) issues becoming of increasing importance to the Belvoir Group and its stakeholders, we undertook a detailed ESG materiality assessment in 2021 as part of a full strategic review, and, based on its findings, developed a new ESG strategy for the Group. As a result, we aim to set a net zero target and are working towards understanding our impacts in order to put a suitable timeline in place to achieve this goal. Learn more about our ESG strategy from page 24 Covid-19 The Group continued to operate effectively under the various Covid-19 restrictions during 2021, with the property sector remaining open throughout the year. During the third national lockdown in the first half of 2021, the Group was able to quickly revert to the practices adopted in 2020 as necessary to ensure that all our office and central support team staff operated safely and within Government guidelines. Dividends As a result of another outstanding year, the Board is pleased to announce an 18% increase in our total dividend up to 8.5p (2020: 7.2p) per share. There will be a final dividend for 2021 of 4.5p per share payable on 30 May 2022. Outlook Even before the invasion of the Ukraine, the property market entered 2022 amid greater economic uncertainty and inflationary pressures. The devastation wreaked by the war on the Ukrainian people is shocking and our thoughts are with those who have been affected; we hope for a peaceful resolution to the crisis. It is too early to predict the full economic impact of the war, but it has already resulted in further inflationary pressure on energy bills that will affect the UK economy. As has been demonstrated during other turbulent periods in recent years, the Group has a proven resilient business model and a successful growth strategy that enable it to outperform market conditions. I am confident that a combination of our dedicated staff and the entrepreneurial spirit of our franchisees and advisers will continue to support the further development of the Group to the benefit of all stakeholders. Finally, I would like to thank our exceptional Executive Team, staff, franchisees and advisers for their hard work in making 2021 another successful year for the Group. Despite the challenges presented by Covid-19 during the year, our people remained committed to delivering the very best service to all our customers throughout the Group. Michael Stoop Non-Executive Chairman Q A & with the Chairman What are your key highlights from the year? Our acquisition of Nottingham Mortgage Services has strengthened our strategic alliance with the Nottingham Building Society. This provides an opportunity to significantly open up access to savers, through The Nottingham’s Beehive Money savings product, who will in the near future be needing a mortgage to buy their first home. The acquisition of Nicholas Humphreys proved, yet again, how effective the Senior Management Team is at integrating another network into the Group, with each new business benefiting from our culture and good practices. Over the year, what actions have you taken to foster a positive culture? Our comprehensive review of the ESG issues affecting our business has highlighted how we nurture talent. As a result, we are carrying out a staff survey to understand how our staff feel about our business, how satisfied they are with their role and how valued they feel by management. What are your reflections on Belvoir’s commitment to managing ESG issues? I am encouraged by the significantly enhanced focus of the Board and Executive Team on our commitment to ESG matters and our use of Group-wide workshops to hone our related strategy. ESG is of concern to all our stakeholders but most importantly delivering our ESG strategy is the right thing to be doing. How does the Board stay abreast of the ESG priorities that are important to the Group’s stakeholders? ESG is a standing item on the Board agenda. Through engagement with our staff, franchisees, advisers, investors, community and regulators, our Board members are able to feed back any ESG matters raised by our key stakeholders. What are your strategic priorities for the year ahead? We will continue to drive organic growth whilst looking for acquisitions that will help to enlarge the Group’s existing networks further, as we have successfully done for several years now. Furthermore, we aim to identify a new strategic initiative that is complementary to our existing revenue streams and utilises our significant market know-how and infrastructure. Annual report and accounts 2021 Belvoir Group PLC 07 Strategic report Our markets Helping people to realise their property and mortgage aspirations 2021 was one of the most successful years for moving home since 2007, with almost 1.5 million people buying a new house and demand for rental properties up 43%. Market trends – property Residential property sales – strongest market since 2007 Annual housing transactions and house price inflation Residential lettings – shortage of rental properties driving up rents Excess demand prevails, impacting on the rents on new tenancies4 Affordability – key to both renters and owners r e b m u N 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 6 0 0 2 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 0 2 0 2 1 2 0 2 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% e g a r e v a r a e y - e v i f s v 1 2 / 1 1 / 7 g n d n e k e e w – e g n a h c % i 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% 43% -17% -13% 10% 8% 6% 4% 2% 0% Demand Lets agreed Flow of new supply Stock of homes to let -43% -2% 6 1 0 2 n a J 6 1 0 2 r p A 6 1 0 2 l u J 6 1 0 2 t c O 7 1 0 2 n a J 7 1 0 2 r p A 7 1 0 2 l u J 7 1 0 2 t c O 8 1 0 2 n a J 8 1 0 2 r p A 8 1 0 2 l u J 8 1 0 2 t c O 9 1 0 2 n a J 9 1 0 2 r p A 9 1 0 2 l u J 9 1 0 2 t c O 0 2 0 2 n a J 0 2 0 2 r p A 0 2 0 2 l u J 0 2 0 2 t c O 1 2 0 2 n a J 1 2 0 2 r p A 1 2 0 2 l u J 1 2 0 2 t c O Transactions Price inflation Source: Zoopla Research Rental growth Earnings growth • Residential sales transactions were 41% up on 2020 and 22% ahead of the six-year average to 2019.1 • Fears of a collapse in the sales market at the end of the stamp duty land tax (SDLT) holiday proved unfounded. • Property prices increased by 10.8% year on year and were 17.8% up on 2019, with ongoing excess demand expected to continue driving up prices in 2022.2 • The increase in rent arrears was not significant with Government funding available to tenants who had built arrears due to the pandemic. • Stock is at one of the lowest levels recorded since starting the Belvoir Index in 2008 with renters looking for more space. Demand might shift back towards cities as workers return to the office. • The UK rental index, which reflects all tenancies, was up 1.8%3 in 2021, an increase not seen since 2017. Meanwhile, rents on new tenancies have risen sharply by 8.5%.4 • The ten-year average number of new builds of less than 150,0008 is half the Government’s annual target of 300,000. • With rent as a percentage of household income at 31%, down from 32% in 2019/20 and from 35% in 2010/119, the affordability ratio remains below historical levels. • Whilst the price to earnings ratio for first-time buyers (FTBs) has hit a record 5.510, historically low interest rates have kept the cost of servicing a mortgage below that seen pre-2007. Our response The residential sales market thrived throughout 2021, with transactions just under 1.5 million1, the highest level since 2007. Early signs in 2022 suggest that demand and house prices continue to be fuelled by the “race for space”, relatively low interest rates and availability of favourable mortgage deals. Transaction numbers are expected to revert to around the pre-pandemic annual average of 1.2 million. Our Belvoir and Northwood networks, traditionally lettings agents, benefited from having encompassed residential sales in recent years, seeing a 62% increase in revenue from property sales in 2021. According to the English Housing Survey 2020/21, rental properties remain at 19%5 of the overall housing stock with no change since 2019/20 and just 1% down on 2015/16. Giving the forecast rise in the population from 67.16 million in 2020 to 69.2 million by 2030, excess demand for rental properties is likely to prevail. With 212,1777 build-to-rent homes in the UK at the end of 2021 and completed developments up 26% in Q4 2021 compared to Q4 2020, build to rent is seen as one part of the solution to stock shortage. It is too early to judge whether the cost of living squeeze will constrain demand in the housing market, but whilst FTB mortgage payments as a share of income have increased to 31.5% in Q4 2021, the highest level since 201411, they remain on average below previous highs. During 2021, the majority of our franchisees reported demand for all types of properties at a high level. With many renters seeing wages rise in 2021, this has allowed rents to be bid up accordingly. 08 Belvoir Group PLC Annual report and accounts 2021 Strategic report Market trends – property Our response Sales, lettings and financial services all continued to thrive in 2021, despite the national lockdown in most of the first half of the year. The main challenge currently faced by our industry is a shortage of stock, both to buy and to rent, to meet the ongoing demand from people wanting to move home. Revenue from lettings Revenue from sales Revenue from financial services 21% 49% 49% Buy to let (BTL) Quarterly BTL mortgage advances (£m) 2014–202112 Technology and online models PropTech advances Our sector has a key role to play in the transition to net zero. A major change for 2022 is the aim to make the UK carbon neutral through improving the efficiency of our homes, with the Government aiming to bring all homes up to a “C” EPC rating by 2035. Belvoir is adopting its own sustainability strategy to encourage greener choices throughout the Group.” Dorian Gonsalves Chief Executive Officer 16,000 14,000 12,000 10,000 8,000 m £ 6,000 4,000 2,000 0 4 1 0 2 1 Q 4 1 0 2 3 Q 5 1 0 2 1 Q 5 1 0 2 3 Q 6 1 0 2 1 Q 6 1 0 2 3 Q 7 1 0 2 1 Q 7 1 0 2 3 Q 8 1 0 2 1 Q 8 1 0 2 3 Q 9 1 0 2 1 Q 9 1 0 2 3 Q 0 2 0 2 1 Q 0 2 0 2 3 Q 1 2 0 2 1 Q 1 2 0 2 3 Q • 110,000 properties were acquired by BTL landlords in the year to September 2021 with the SDLT holiday boosting demand from BTL investors, which, at 7.3% of all property transactions, was at least 1% higher than pre-pandemic. • The outstanding BTL mortgage debt at the end of 2021 was up 3%13 compared to December 2020. • The fundamentals for BTL landlords are good with rents increasing and a higher level of equity in their existing portfolio available to fund future purchasing. • The “PropTech” industry continues to provide the solutions to improving efficiencies in the home moving process with increased adoption of technology across the property sector. • Initial virtual viewings are the norm, and remote identity checks and digital signatures are saving a significant amount of time and cost. • Online agents’ market share has fallen from 8.0% in 2020 to 6.7%14 with no lasting shift during the pandemic. The SDTL holiday also marked the strongest period for BTL landlords since 2016 when the 3% stamp duty surcharge was introduced. Although some landlords “cashed in” their investments throughout 2021, the strong performance of the housing market has confirmed that property is still a good investment, combining a reliable recurring income stream and capital growth returns. Gross BTL lending is forecast to be £38bn in 2022 and £37bn in 2023.12 We have invested in technology to improve efficiencies in the sales and lettings process for both home movers and our franchisees. This has eroded the technology edge previously enjoyed by the online agency model, with sellers preferring the personal and reassuring approach by highly skilled local agents. In March 2022 we invested in a home-based local personal agent franchise model, Mr and Mrs Clarke, that offers the same first-class customer experience as our local offices. Annual report and accounts 2021 Belvoir Group PLC 09 Strategic report 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 Levelling Up White Paper – England Mission ten • In 2022 the Government announced the requirement for all rental properties to have a minimum EPC rating of “C”, up from “E”, applicable to newly rented properties by 2025 and to existing tenancies by 2028. • The new Fire Safety Act 2021, due shortly, will strengthen the fire safety regime for multi-occupancy residential buildings. • On 15 July 2022, the Renting Homes (Wales) Act 2016 introduces changes to the nature of tenancies from assured shorthold to occupation contracts. Our response A major change for 2022 is the Government’s aim to make the UK carbon neutral through improving the efficiency of our homes, with the requirement to bring all homes up to a “C” EPC rating by 2035. This might involve both homeowners and landlords investing in insulation and other “fabric first” features to improve heating and lighting efficiency in their property. Belvoir has thorough systems in place to ensure all franchisees, landlords and tenants are aware of the latest legislation, such that all involved have time to prepare and act on new regulations. The Levelling Up White Paper centres on twelve bold national missions, given status in law, with the aim to shift Government focus and resources to Britain’s forgotten communities. Mission ten relates to housing: “By 2030, renters will have a secure path to ownership with the number of first-time buyers increasing in all areas; and the Government’s ambition is for the number of non-decent rented homes to have fallen by 50%, with the biggest improvements in the lowest performing areas.” The Government is focusing on two fronts to deliver this: • part one – building more houses including affordable homes; and • part two – a new drive on housing quality. Part one initiatives include: • FTB Help to Buy schemes; • maximising low deposit mortgages; • improving the home selling and buying process by ensuring key information is available digitally; and • more focus on funding for the North and the Midlands after the abolition of the 80/20 funding rule for Greater London. Part two initiatives include: • new regulation for quality and standards in social housing; • new Decent Homes Standard in the PRS; • exploring a national landlord register; • abolition of Section 21; and • devising plans to crackdown on rogue landlords. The Levelling Up White Paper is very much in line with reforms expected from the delayed Renters’ Reform Bill, which is expected to include: • a landlord register; • a compulsory regulator; • abolition of Section 21 and amended Section 8 grounds for notice; • lifetime deposits; • mandatory qualification for agents; and • improving standards of accommodation in the PRS. 1. https://www.gov.uk/government/statistics/monthly-property-transactions-completed-in-the-uk-with-value-40000-or-above. 2. https://www.gov.uk/government/statistics/uk-house-price-index-for-december-2021/uk-house-price-index-summary-december-2021. 3. https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/indexofprivatehousingrentalprices/december2021#uk-private-rental-prices. 4. https://homelet-letting-agents.co.uk/wp-content/uploads/2022/02/HomeLet-Rental-Index-January-2022.pdf. 5. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1039214/2020-21_EHS_Headline_Report.pdf. 6. https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/2020. 7. https://bpf.org.uk/about-real-estate/build-to-rent. 8. https://www.ons.gov.uk/peoplepopulationandcommunity/housing/datasets/ukhousebuildingpermanentdwellingsstartedandcompleted. 9. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/945013/2019-20_EHS_Headline_Report.pdf. 10 Belvoir Group PLC Annual report and accounts 2021 Strategic report Market trends – financial services Mortgage lending Forecasts for gross and net lending (£m)13 Remortgages Mortgage approvals – house purchases and remortgages13 First-time buyers Borrowers as a percentage of gross advances17 400,000 350,000 300,000 250,000 200,000 m £ 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 0 2 0 2 e 1 2 0 2 f 2 2 0 2 f 3 2 0 2 100,000 90,000 80,000 70,000 r e b m u N 60,000 50,000 40,000 30,000 20,000 10,000 0 1 2 0 2 n a J 1 2 0 2 b e F 1 2 0 2 r a M 1 2 0 2 r p A 1 2 0 2 y a M 1 2 0 2 n u J 1 2 0 2 l u J 1 2 0 2 g u A 1 2 0 2 p e S 1 2 0 2 t c O 1 2 0 2 v o N 1 2 0 2 c e D 100 n b £ 90 80 70 60 50 40 30 20 10 0 9 1 0 2 4 Q 0 2 0 2 1 Q 0 2 0 2 2 Q 0 2 0 2 3 Q 0 2 0 2 4 Q 1 2 0 2 1 Q 1 2 0 2 2 Q 1 2 0 2 3 Q 50 45 40 35 30 25 20 15 10 5 0 s e c n a v d a s s o r g f o % Gross lending Net lending House purchase Remortgages • The mortgage market had its • Both lenders and mortgage advisers strongest year since 2007, with estimated gross mortgage lending up 24.6% to £304bn, mostly fuelled by demand from house buyers.13 • House purchase mortgages are forecast to fall as the residential sales market returns to normal, whilst a stronger remortgage market is expected in 2022. • Having been static since March 2020, interest rates increased from 0.1% to 0.25% in December 2021 and again to 0.5% in February 2022 but remain historically low.15 were focused on meeting the demand for house purchase mortgages for much of 2021. • The prospect of a base rate increase in H2 2021 prompted remortgage activity with the number of homeowners refinancing their properties hitting its highest level for nearly two years by the end of the year.16 • Given anticipated interest rate rises in 2022, transfers and remortgages are forecast to increase by 5.4% in both 2022 and 2023.13 Buy to let (RHS) Remortgage (RHS) Total (LHS) First-time buyers (RHS) Home movers (RHS) • The SDLT holiday had little impact on FTBs, who do not pay stamp duty on properties up to £300,000 (in England), which covers most FTB transactions. • Over 800 95% LTV mortgages were completed in Q2 202118 through the Government-backed mortgage guarantee scheme, launched in April 2021. • The Bank of England’s Financial Policy Committee decision to consult on easing affordability stress tests could help to boost the market, especially for FTBs, while ensuring lending remains prudent. Our response House purchase mortgage approvals remained strong throughout 2021 and beyond the end of the SDLT holiday with house purchase approvals in November 2021 of 70,00013, above the monthly average for 2019. Mortgage intermediaries, such as Brook, remained the dominant distribution channel serving a record of nearly 80% of the market.13 Low and stable interest rates in the first half of 2021 did not encourage borrowers to revisit their mortgage deals. However, interest rates are now rising, and many borrowers, who fixed amid robust property markets in 2017 and at the start of 2020, are coming to end of their two and five-year deals. As a result, our financial services division will benefit from having a substantial client bank to service, and this will mitigate some of the fall in the house purchase mortgage activity. The Government’s mortgage guarantee scheme is helping FTBs to buy a home costing up to £600,000 with a deposit of 5% and is available until December 2022. This scheme and the return of lenders to the 90% and 95% mortgage markets in 2021 have given FTBs more funding options in buying their own home. House price rises have made the difficulties of getting on the housing ladder more acute, so the Bank of England’s decision to consult on removing the stress requirement in the affordability calculation is welcome news for FTBs. 10. https://www.nationwidehousepriceindex.co.uk/reports/affordability-special-report-raising-a-deposit-still-the-biggest-hurdle-for-first-time-buyers-despite- affordability-becoming-more-stretched. 11. https://www.nationwidehousepriceindex.co.uk/charts. 12. https://www.fca.org.uk/data/mortgage-lending-statistics. 13. http://www.imla.org.uk/resources/publications/the-new-normal-prospects-for-2022-and-2023.pdf. 14. https://www.twentyci.co.uk/phmr/twentyci-property-homemover-report-year-end-2021/. 15. https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp. 16. https://www.thisismoney.co.uk/money/mortgageshome/article-10367583/End-2021-saw-remortgaging-flurry-Bank-England-data-shows.html. 17. https://www.bankofengland.co.uk/statistics/mortgage-lenders-and-administrators/2021/2021-q3. 18. https://www.yourmortgage.co.uk/first-time-buyers/more-than-800-government-backed-95-per-cent-mortgages-completed-in-q2/. Annual report and accounts 2021 Belvoir Group PLC 11 Strategic report Our business model Focused on achieving growth Our business model is built on 26 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 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 services 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. Belvoir sits at the centre of our two networks Belvoir operates a network of property franchisees and a network of financial services advisers supported by our Central Office team. Franchisee network Belvoir Adviser network These two networks overlap with our franchisees providing a lead source to our advisers who are well placed to provide mortgage and other property-related financial services advice to our landlords and our homeowners. Our advisers benefit from the reliable lead source and our property franchisees benefit from an additional revenue stream. Learn more about our strategy from page 18 12 Belvoir Group PLC Annual report and accounts 2021 Strategic report Our process Supporting both networks Both networks are supported centrally to ensure that the individual franchise owners and 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. 131 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. 4.6 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 20.4p +35% (2020: 15.1p) Annual report and accounts 2021 Belvoir Group PLC 13 Strategic report Our stakeholders Building strong partnerships We set out 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 18 and 19. 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. 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 2006 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 2021. Our key decisions in 2021 are set out on page 39. 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 advisers. The Board considers its key stakeholders to be its franchisees and advisers, employees, the communities in which the Group operates, 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 opposite, the impact on the environment and the communities in which the Group operates is considered when making decisions. Franchisees and advisers Employees Why are they important? Our local franchisees and advisers are ultimately those who deliver the Group services to our customers Why are they important? People lie at the heart of everything that we do, so attracting and retaining talented people is an important success factor Why are they important? Why are they important? Why are they important? The vibrance of our local communities As owners of the Belvoir Group, our The regulators are responsible for is critical to the success of our independent business networks shareholders need to understand and setting industry standards that give have confidence the business strategy customers confidence in our sector Our priorities opportunities • Encouraging an ethos of charitable giving • Promoting investment in local businesses • Providing youth employment • Transparency of our business • Adhering to industry standards Our priorities Our priorities operations with investors as a minimum • Aligning Group strategy with the • Educating franchisees and advisers interests of shareholders on new regulations • Making Belvoir an attractive and • Meaningful engagement reliable investment proposition with the regulator and other Government bodies Our engagement Our engagement Our engagement • Apprenticeship opportunities • Regular virtual investor presentations • Belvoir attends quarterly for young people from our local community • Kickstart placements for young people at risk of long-term unemployment providing institutional and private meetings of The Lettings Industry investors direct access to our Council, which engages with the CEO and CFO Department for Levelling Up, Housing • All recorded CEO interviews and Communities uploaded to the PLC website, • Our Chairman, Michael Stoop, is a www.belvoirgroup.com non-executive director of The Property • Participation in fundraising events across the Group • Clear guidance to shareholders Ombudsman (TPO) • Belvoir participates in discussions on key industry legislation and regulatory changes, including those proposed in the RoPA report Our priorities • Excellent training and professional development • High satisfaction level from our franchisees and advisers • Embedding the best customer service experience into our business model Our priorities • Recruitment and retention • Staff training and wellbeing to develop effective teams • Incentivising and rewarding staff Our engagement • Dedicated Business Development Manager to provide business support through a hybrid of virtual and physical meetings • Regional networking groups and an annual conference enabling franchisees and advisers to share ideas • Ongoing training and development programme Our engagement • Annual personal development review and regular one-to-one meetings between staff and their line manager • Twice-yearly team briefings held by the CEO and CFO to give update on Company performance and gather employee feedback • Senior and long-serving staff are incentivised through Company share option schemes Outcomes • Increasing average revenue per • 65% of staff have length of service franchise office of over two years • Increased average written mortgage business per adviser • Eleven of our long-serving staff exercised share options in 2021 • High level of success across our networks • Our recent staff survey reported that 80% of staff were proud to work for the Company and would recommend it as a good place to work Links to KPIs Links to risks Links to KPIs Links to risks 1 6 2 7 3 8 4 9 5 10 A D B E C F 1 6 2 7 3 8 4 9 5 10 A D B E C F 14 Belvoir Group PLC Annual report and accounts 2021 Strategic report Learn more about our key decisions from page 39 Learn more about our KPIs from page 20 Learn more about how we manage risk from page 31 Communities Shareholders Regulators Why are they important? Why are they important? Our local franchisees and advisers are People lie at the heart of everything that ultimately those who deliver the Group we do, so attracting and retaining talented services to our customers people is an important success factor Why are they important? The vibrance of our local communities is critical to the success of our independent business networks Why are they important? As owners of the Belvoir Group, our shareholders need to understand and have confidence the business strategy Why are they important? The regulators are responsible for setting industry standards that give customers confidence in our sector Our priorities • Providing youth employment opportunities Our priorities • Transparency of our business operations with investors Our priorities • Adhering to industry standards as a minimum • Encouraging an ethos of charitable giving • Promoting investment in local businesses • Aligning Group strategy with the • Educating franchisees and advisers interests of shareholders on new regulations • Making Belvoir an attractive and reliable investment proposition Our engagement • Apprenticeship opportunities for young people from our local community • Kickstart placements for young people at risk of long-term unemployment • Participation in fundraising events Our engagement • Regular virtual investor presentations providing institutional and private investors direct access to our CEO and CFO • All recorded CEO interviews uploaded to the PLC website, www.belvoirgroup.com across the Group • Clear guidance to shareholders • Meaningful engagement with the regulator and other Government bodies Our engagement • Belvoir attends quarterly meetings of The Lettings Industry Council, which engages with the Department for Levelling Up, Housing and Communities • Our Chairman, Michael Stoop, is a non-executive director of The Property Ombudsman (TPO) • Belvoir participates in discussions on key industry legislation and regulatory changes, including those proposed in the RoPA report • Three apprentices were recruited to our Central Office team and 23 Kickstart placements were created across the Group in 2021 • Our Central Office team raised £6,000 for MIND, the mental health charity • Five new franchise offices opened in 2021, providing local employment opportunities • 50% of our shares are now in the hands of retail investors • Our two largest institutional investors at flotation are still substantial shareholders • Encourages use of accredited, trained and fully insured property professionals • Ensures all customers are treated fairly • Positive investor feedback • Improves standards across the sector on engagement, accessibility and transparency 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 9 5 10 A D B E C F 1 6 2 7 3 8 4 9 5 10 A D B E C F 1 6 2 7 3 8 4 9 5 10 A D B E C F Annual report and accounts 2021 Belvoir Group PLC 15 Our priorities • Excellent training and professional development • High satisfaction level from our franchisees and advisers • Embedding the best customer service experience into our business model Our priorities • Recruitment and retention • Staff training and wellbeing to develop effective teams • Incentivising and rewarding staff Our engagement Our engagement • Dedicated Business Development • Annual personal development review Manager to provide business support and regular one-to-one meetings through a hybrid of virtual and between staff and their line manager physical meetings • Regional networking groups and an annual conference enabling franchisees and advisers to share ideas • Ongoing training and development programme • Twice-yearly team briefings held by the CEO and CFO to give update on Company performance and gather employee feedback • Senior and long-serving staff are incentivised through Company share option schemes Outcomes Strategic report Chief Executive Officer’s statement Demonstrating our growth strategy The Group was quick to capitalise on strategic growth opportunities by investing both in the specialist student lettings market and in strengthening our access to future mortgage clients. Overview of performance Group revenue increased by 37% to £29.6m (2020: £21.7m), a record level. 2021 was one of the busiest years in recent times for estate agents, with UK residential property sales transactions up 41% on 2020 and 22% ahead of the six-year average to 2019. The Group worked closely with its franchisees and advisers to ensure that they were best placed to respond to the strong market conditions, which gave rise to organic growth of 25% in the underlying business. The Group added a further 12% to revenue from the expansion of both its property and financial services networks through two strategic acquisitions. The financial services division achieved revenue growth of 49% to £14.4m (2020: £9.7m), 44% of which arose from the underlying business. The acquisition of Nottingham Mortgage Services, the mortgage advisory arm of the Nottingham Building Society (“The Nottingham”), increased revenue by 5%. Our network of advisers has grown by 41 advisers to 243 (2020: 202), 17 of whom are dedicated to servicing The Nottingham’s members. Financial services clearly benefited from the buoyancy in the residential property sales market throughout most of 2021, and towards the end of the year was sustained by a busy period for remortgages and associated insurance products. Revenue from the property division was up 27% to £15.2m (2020: £12.0m) with like-for-like growth at 16%. The acquisition of Nicholas Humphreys, a national specialist student lettings franchise network, accounted for 18% of growth in the property division from its 17 franchised and three corporate-owned offices. Meanwhile, the planned franchising of five of the Lovelle corporate-owned offices, in line with our franchising strategy, reduced revenue by 7%. Management service fees (MSF), the key underlying return from franchisees, were up 18% for the year to £10.7m (2020: £9.1m) and revenue from corporate-owned offices was up 61% to £3.6m (2020: £2.3m). The exceptionally strong residential property sales market in 2021 temporarily shifted the lettings to sales ratio from its more traditional 80:20 split to 74:26. Revenue from property sales, both MSF and corporate, increased by 49% to £3.7m (2020: £2.5m) with the extension of the stamp duty holiday ensuring that the residential sales market remained highly active until September, and thereafter returned to more normal transaction levels with unfulfilled demand continuing to fuel house price inflation. Like-for-like sales growth was 46%. Lettings revenue increased by 21% to £10.7m (2020: £8.8m), benefiting from the acquisition of the predominantly student lettings-focused Nicholas Humphreys network. The underlying lettings increase of 7% reflected a strong lettings market in which the demand for more space and a return of young people to UK cities as offices reopened post lockdown resulted in an insufficient supply of available properties to rent. As a result, rents on new tenancies were seen to rise by around 8%. All three markets continued to grow throughout 2021 with revenue from lettings up 21%, sales up 49% and financial services up 49%, combining to deliver an excellent year for the Group. Belvoir now has a portfolio of 72,900 (2020: 65,065) managed properties, and in 2021 Group house sales were up 54% to 12,320 (2020: 8,003) and the number of mortgages arranged by Belvoir’s advisers was up 37% to 16,585 (2020: 12,094). The Group’s network revenue, being the total revenue across all our Group companies, our franchisees and our advisers, totalled £112m (2020: £96m). 16 Dorian Gonsalves Chief Executive Officer Strategic report Our strategic priorities The majority of our mortgage business is currently being introduced from non-Group sources, i.e. national contracts serviced in partnership with MAB and independent estate agency businesses, and leads generated by our online marketing activities or from our extensive client database. A key focus for 2022 is to drive further collaboration between our property and our financial services networks, so that we can maximise the earnings potential for our franchisees and advisers from offering financial services through all Group offices. Our two corporate acquisitions in 2021 are further evidence of our successful growth strategy of investing in similar businesses that expand the footprint of both our franchise and financial services networks, and where there is scope for greater future growth as part of the Belvoir Group. The acquisition of Nicholas Humphreys in March 2021 opened up the specialist student lettings market for the Group and provides a platform for extending the network into other university towns. Having partnered with the Nottingham Building Society in 2020 to undertake all estate agency and lettings services through its branch network, Belvoir strengthened this strategic alliance further through the acquisition of Nottingham Mortgage Services in July 2021. In addition to providing mortgage advice to The Nottingham’s branch members, this partnership provides access to its lifetime ISA members who will be saving for their first home through the Beehive Money app, a new digital savings platform launched at the end of 2021. With the Government adding 25% to savings up to a maximum of £1,000 per year, this will be a popular savings product for many first-time buyers. Creating value The Group is highly cash generative and the Board aims to deploy its cash reserves by acquiring businesses that meet its strategic investment criteria, as demonstrated by its investment in corporate acquisitions every year since 2015, including a further corporate transaction completed post year end. The acquisition of the Nicholas Humphreys franchise network has enabled us to extend our professional lettings service to encompass the specialist student lettings market. We anticipate strong growth potential for this network as part of the Belvoir Group.” 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 138% in profit before tax to £9.3m (2017: £3.9m) and 137% in EPS to 20.4p (2017: 8.6p) over the last four years. Our marketplace The property sector had its busiest year for transactions since 2007, with almost 1.5 million properties passing onto new homeowners in 2021, compared with a yearly average of 1.2 million since 2010. The requirement to work from home during the pandemic and the subsequent hybrid home and office arrangements for many have caused many homeowners and tenants to reassess their lifestyle and housing needs. With many seeking larger suburban homes with gardens, there has been a ‘race for space’ which has impacted both the sales and the lettings market. At the same time the stamp duty holiday stimulated demand further, enabling those with properties of a higher value to move with little or no stamp duty payment. The market returned to more traditional transaction levels towards the end of 2021 and the challenge at the start of 2022 is a lack of stock in both the lettings and sales markets. This is anticipated to ease as we move into spring, which is traditionally the most active time of the year for homeowners starting to look to move. The financial services sector anticipates increased remortgage activity by both homeowners and buy-to-let (BTL) landlords whose mortgages, fixed amid robust property markets in 2017 and at the start of 2020, are coming to an end of their two and five-year deals. With further stimulus stemming from predicted interest rate rises in 2022, transfers and remortgages are forecast to increase. As a result, our financial services division will benefit from having a substantial client bank to service, and this will mitigate some of the fall in the house purchase mortgage activity. Outlook Our significant recurring and reliable lettings revenue stream, our substantial financial services client base and the diversity and resilience of our business model are expected to insulate the Group from what could be a more uncertain market in 2022, especially given economic pressures and geo-political turmoil. We remain confident that we will continue to perform well relative to the market as a whole, and that our business model and growth strategy will continue to deliver enhanced value for all our stakeholders. Dorian Gonsalves Chief Executive Officer Annual report and accounts 2021 Belvoir Group PLC 17 Strategic report 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 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 advisers 10 Number of mortgages arranged Learn more about our KPIs from page 20 Links to risks A B C D E F Ability to generate planned revenue and profit growth Ability to recruit and retain skilled franchisees and advisers Reputational risk Ability to execute our assisted acquisitions strategy Legislative and regulation changes Online threat Learn more about how we manage risk from page 31 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 Milestones of 2021 • Acquisition of Nicholas Humphreys, specialist in student lettings with offices in 20 university towns nationwide • Strengthening of the strategic alliance with The Nottingham through the acquisition of its mortgage advisory arm, Nottingham Mortgage Services • Fully assimilated Nicholas Humphreys into the Belvoir Group Focus for the future • Identify other franchise property or financial services networks to bring into the Group • Position Belvoir to take advantage of further strategic consolidation and alliances within the property sector • Identify alternative property- related income streams complementary to the Group Increasing the market penetration of existing franchise territories through a proactive approach to finding them a local portfolio acquisition Milestones of 2021 • Seven (2020: eleven) transactions completed by franchisees under the assisted acquisitions programme • Added £1.2m (2020: £2.1m) of acquired franchisee revenue to the network and £130,000 (2020: £153,000) p.a. in MSF • 122 (2020: 90) 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 Links to KPIs Links to risks Links to KPIs Links to risks 1 6 2 7 3 8 4 9 5 10 A D B E C F 1 6 2 7 3 8 4 9 5 10 A D B E C F Increasing UK coverage of both our Expanding our offering of property franchise and financial services networks property-related services and ways of engaging with clients Continuous drive to increase brand awareness across all Group brands Milestones of 2021 Milestones of 2021 Milestones of 2021 • Eight new franchise owners • Under our collaboration with • New Belvoir brand website joined the Group • Four new franchise offices opened • 17 existing offices were resold either to a new or an existing franchise owner • 84 new advisers joined Belvoir’s financial services network The Nottingham, there are 37 dual-branded Nottingham Building Society branches • 121 estate agency offices offer financial services through a Brook financial adviser franchise networks, Belvoir and Northwood, were active in selling houses in 2021, reporting revenue from sales up 62% launched to take advantage of the improved Group platform • Market appraisals generated by Group websites up by over 120% • Launched an automated and integrated email marketing • Refreshed the recently acquired Nicholas Humphreys brand to make more contemporary • 147 (59%) of our traditional lettings platform for all Group brands Focus for the future Focus for the future Focus for the future • Continue to attract new franchise • Encourage collaboration • Launch new managed marketing owners to the Group • Open offices in new territories • Facilitate the resale of existing property franchise offices • Extend our financial services network of advisers across the UK between franchisees and initiative to help franchisees advisers to maximise conversion generate more leads from more of mortgage leads effective local marketing • Build on the collaboration with The Nottingham to offer mortgage advice to its Beehive Money online savers • Extend the range of property- • Launch live chat mortgage lead generation across the brand websites • Build a Group cross-referral system to improve inter-office related services offered through out-of-area vendor and landlord our franchise networks lead referrals 18 Belvoir Group PLC Annual report and accounts 2021 Strategic report Group acquisitions strategy Assisted acquisitions Recruitment Diversification Marketing and PR programme Accelerating business growth through the acquisition of additional franchised property networks and property-related services companies Increasing the market penetration of existing franchise territories through a proactive approach to finding them a local portfolio acquisition Milestones of 2021 • Acquisition of Nicholas Milestones of 2021 • Seven (2020: eleven) Humphreys, specialist in student transactions completed by lettings with offices in 20 university towns nationwide • Strengthening of the strategic alliance with The Nottingham through the acquisition of its mortgage advisory arm, Nottingham Mortgage Services • Fully assimilated Nicholas franchisees under the assisted acquisitions programme • Added £1.2m (2020: £2.1m) of acquired franchisee revenue to the network and £130,000 (2020: £153,000) p.a. in MSF • 122 (2020: 90) franchisees enrolled on the acquisition Humphreys into the Belvoir Group research programme Focus for the future Focus for the future • Identify other franchise property • Target to add around £5.0m p.a. consolidation and alliances within • Provide a model to convert larger or financial services networks to bring into the Group • Position Belvoir to take advantage of further strategic the property sector • Identify alternative property- related income streams complementary to the Group of additional network revenue under the assisted acquisitions programme, dependent on market conditions 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 across all Group brands Milestones of 2021 • Eight new franchise owners joined the Group • Four new franchise offices opened • 17 existing offices were resold either to a new or an existing franchise owner • 84 new advisers joined Belvoir’s financial services network Focus for the future • Continue to attract new franchise owners to the Group • Open offices in new territories • Facilitate the resale of existing property franchise offices • Extend our financial services network of advisers across the UK Milestones of 2021 • Under our collaboration with The Nottingham, there are 37 dual-branded Nottingham Building Society branches • 121 estate agency offices offer financial services through a Brook financial adviser • 147 (59%) of our traditional lettings franchise networks, Belvoir and Northwood, were active in selling houses in 2021, reporting revenue from sales up 62% Focus for the future • Encourage collaboration between franchisees and advisers to maximise conversion of mortgage leads • Build on the collaboration with The Nottingham to offer mortgage advice to its Beehive Money online savers • Extend the range of property- related services offered through our franchise networks Milestones of 2021 • New Belvoir brand website launched to take advantage of the improved Group platform • Market appraisals generated by Group websites up by over 120% • Launched an automated and integrated email marketing platform for all Group brands • Refreshed the recently acquired Nicholas Humphreys brand to make more contemporary Focus for the future • Launch new managed marketing initiative to help franchisees generate more leads from more effective local marketing • Launch live chat mortgage lead generation across the brand websites • Build a Group cross-referral system to improve inter-office out-of-area vendor and landlord lead referrals 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 9 5 10 A D B E C F 1 6 2 7 3 8 4 9 5 10 A D B E C F 1 6 2 7 3 8 4 9 5 10 A D B E C F Annual report and accounts 2021 Belvoir Group PLC 19 Strategic report 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 MSF (£m) Net financial services commission (£m) £10.7m +18% 10.7 8.5 8.8 9.1 7.9 Assisted acquisitions programme Recruitment Diversification Marketing and PR Learn more about our strategy from page 18 £3.8m +37% 3.8 2.8 2.5 1.2 0.7 17 18 19 20 21 17 18 19 20 21 Definition Fees to the franchisor based on a percentage of franchisee revenue Comment 18% growth with lettings up 10% and sales up 56%, with lettings benefiting from the acquisition of the Nicholas Humphreys network Definition Commission receivable on financial services less commission payable to advisers Comment Reflects 41 net increase in advisers Links to strategy: 1 2 3 4 5 Links to strategy: 1 2 3 4 5 Profit before tax (£m) £9.3m +39% 9.3 EPS (p) 20.4p +35% 20.4 6.7 5.51 5.6 12.91 13.3 15.1 3.9 8.6 17 18 19 20 21 17 18 19 20 21 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 two corporate acquisitions in 2021 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 1. 2018 included net exceptional credit of £0.6m. 2. Excludes NBS branches. 20 Belvoir Group PLC Annual report and accounts 2021 Strategic report Non-financial KPIs Number of property franchise offices (#) Average MSF per franchised office (£) Number of managed properties (#) 363 +14% £33,360 +13% 33.4k2 72,900 +12% 72.9k 363 300 300 313 318 28.3k 26.3k 29.5k 29.5k2 62.8k 64.0k 65.1k 58.0k 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 Definition In 2021 all our franchised estate and lettings agencies had a physical high street presence Comment Office numbers extended to include the Nicholas Humphreys network and additional dual-branded Nottingham Building Society branches Definition Total MSF divided by the number of franchise offices Definition Total number of properties managed on behalf of landlords within the Group Comment Focus on growth through diversification and acquisition has increased the average size of our offices Comment Growth relates to the additional Nicholas Humphreys 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 MSF p.a. from assisted acquisitions (£) Number of advisers (#) Number of mortgages arranged (#) £130,000 -15% 643k 580k 351k 153k 130k 243 +20% 123 37 243 202 166 16,585 +37% 16.6k 12.1k 9.3k 2.7k 1.4k 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 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 The strong property market has reduced vendors’ appetite for selling Comment Brook extended its footprint of advisers and is working with 121 Group offices Comment Strong property market and increased adviser numbers 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 2021 Belvoir Group PLC 21 Strategic report Environmental, social and governance Our ESG journey Our aim was to create an ESG strategy that was relevant and meaningful to our stakeholders and worked to resolve issues for which we could have a significant impact. This marks the beginning of an ongoing commitment to our ESG strategy and to working closely with franchisees to help them to do the same. Developing our strategy We developed the new five pillar strategy through collaboration with internal stakeholders, interviews with external stakeholders, research and a comprehensive review of our material ESG issues. The pillars are based on a materiality assessment process, which enabled us to understand our highest priority ESG issues, their significance to stakeholders and their impact on the business. This is shown in the form of a materiality matrix diagram below. To get to the matrix, we worked with external consultants on a detailed analytical process, including industry intelligence gathering and macro trends analysis to develop a long-list of 28 material topics across the environmental, social and governance agenda. We then conducted risk and opportunity analysis against each topic to establish its potential to impact the business (plotted on the x-axis, “Impact”), and significance based on stakeholder views and prevalence in the market, policy and media (plotted on the y-axis, “Significance”). Our materiality matrix e c n a c fi n g S i i Energy use and emissions Diversity and equal opportunity Trust and transparency Waste management and resource use Professional integrity and standards Talent attraction/retention Tax and economic contribution Climate change Employee wellbeing Greener homes Affordability and accessibility Technology Bribery and corruption Tenants’ and landlords’ rights / Board diversity Air quality / Executive compensation Culture and values Fleet impacts Customer privacy Biodiversity Community development Forced labour Sustainable procurement Social mobility Access to green spaces Homelessness Supporting entrepreneurship/SMEs Impact Environment Social Governance 22 Belvoir Group PLC Annual report and accounts 2021 Strategic report How we use the materiality findings We use the outcomes and insights from the assessment to help us understand which areas we should prioritise and how to manage a broad range of different issues. All the issues on this matrix are important but we want to focus our efforts on the areas that will deliver most value to our stakeholders and best support our business aims. Our most material issues are largely social and governance focused, highlighting the importance of our culture and human capital management, our role in maintaining and enhancing professional standards, and how we harness technology responsibly and build trust through open and transparent practices. These form the basis of our ESG strategy. There are a number of highly significant environmental issues such as climate change, energy use and emissions, waste and resource use and greener homes that are important to stakeholders, but due to the nature and structure of our business have less potential to impact us. These are areas that we must manage closely or where we will aim to use our influence, network and partnerships to have a positive impact. The matrix highlights a number of emerging topics that may be increasing in importance such as biodiversity, air quality and social mobility, for example. Whilst these are not critical areas in this assessment, we will need to continually monitor for changes to the level of importance to our stakeholders and the business. Because we evaluate topics over a two to three-year time horizon, the growing importance of some topics may not be captured by this matrix. Materiality also helps us to understand where we need to focus our reporting so we’re presenting information on areas that are important to our stakeholders. Whilst we already report against some of the issues that rated highly on our matrix, we will be developing our reporting and targets to align with our new strategy and the findings from our materiality assessment. Our material issues and strategic focus areas Building trust • Culture and values • Trust and transparency • Affordability and accessibility Read more detail on building trust on page 25 Raising standards • Professional integrity and standards • Tenants’ and landlords’ rights • Greener homes Read more detail on raising standards on page 25 Nurturing talent • Talent attraction and retention • Diversity and inclusion • Employee wellbeing Read more detail on nurturing talent on page 26 Harnessing technology • Technology and digital transition • Energy use and emissions Read more detail on harnessing technology on page 26 Building local businesses • Supporting entrepreneurship and SMEs • Socioeconomic development Read more detail on building local businesses on page 27 23 Strategic reportStrategic report Environmental, social and governance continued Our Group ESG strategy We are excited to share and introduce our new ESG strategy for the first time. The strategy addresses our most material ESG issues and has been developed to help us achieve our purpose by supporting sustainable business growth. We aim to achieve this by keeping ahead of market trends, addressing key business risks and opportunities, and leveraging Belvoir’s business strengths, all of which should deliver value to all our stakeholders. Building trust A strong culture of integrity and professional ethics underpin what we do Helping people to realise their property, mortgage and franchise aspirations Building local businesses We find, support and develop skilled entrepreneurs Raising standards We maintain the highest professional standards Harnessing technology We invest in integrated and fully supported IT solutions Nurturing talent We attract and retain a talented team that offers unrivalled support to our network 24 Belvoir Group PLC Annual report and accounts 2021 Strategic report Building trust Raising standards We build trusted relationships with our stakeholders by being straightforward, honest and open in all our communications and transactions at every level of our business. Why is this important? There are low levels of trust in the sector: Ipsos MORI’s annual Veracity Index shows a net negative trust rating for estate agents at just 27%. Transparency is important at all levels of the organisation in increasing trust levels which will result in a more efficient business operation. How are we doing? A culture of professionalism runs throughout the entire business. It is embedded at the initial training and reinforced at every touch point with staff, franchisees and advisers to ensure a consistent approach for the benefit of our clients. Supporting our franchisees and advisers is one of our most important jobs, with a number of the central workforce dedicated to this task alone. Our comprehensive training programme helps to support this. Our relationship with the franchisees and advisers is based on trust and transparency with clear contracts and fee structures. Rents to tenants and all fees to landlords, sellers and borrowers are fair and transparent and in line with market norms. We have open and regular engagement with shareholders and a proven track record in achieving results in line with reliable forecasts. Regular briefings are held to update staff on the Group’s performance and frequent Senior Management Team meetings encourage collaboration between all departments. We have developed a business model that enables franchisees and advisers to set up their own business whilst benefiting from the economies of scale of being part of a large group. How we measure our progress • Star rating from independent review platforms • BFA survey Belvoir risks • Public opinion of the sector easily influenced by political agendas • Reputational risk Belvoir difference • Service excellence Trust score Belvoir Northwood Newton Fallowell 70%* 58%* 82%* * Independent survey of our franchisees conducted by the British Franchise Association (BFA). We maintain the highest professional standards across our network through guidance, support and training for our franchisees and advisers, so they can offer a quality service to customers, protect tenants and buyers, and support landlords in providing safe homes that meet energy efficient standards. Why is this important? There is a clear link between professional standards and trust. The Government is expected to introduce legislation around the Regulation of Property Agents (RoPA), designed to raise standards, and there are further policy shifts on the horizon through the Levelling Up initiative and the Renters’ Reform Bill. High standards are a general benefit of the network model, where guidance and training can be consistently and effectively applied. How are we doing? We audit all franchisees annually to ensure standards are being upheld. Franchisees are given a report and score based on the audit so they understand how to improve. Franchisees and advisers must either be fully qualified or complete our comprehensive induction course before starting to operate. Ongoing professional development ensures that our high standards are maintained. Our franchisees are all members of an independent redress scheme such as The Property Ombudsman. We also play an active role in The Lettings Industry Council (TLIC), which aims to influence Government policy to improve standards within the PRS. Our franchisees ensure that rental properties comply with minimum EPC standards. We have an objective to take this further and provide advice to landlords as to how they can make their houses more energy efficient. How we measure our progress • Results from annual audit of franchisees Belvoir risks • Reputational risk • Breaching current regulations Belvoir difference • Service excellence Average score for annual audit 85% Annual report and accounts 2021 Belvoir Group PLC 25 Strategic report Environmental, social and governance continued Nurturing talent Harnessing technology We attract and retain a talented team that offers unrivalled support to our network by investing in its development and wellbeing and reinforcing an inclusive and open culture. Why is this important? Diversity, wellbeing and training are crucial to attracting and retaining talent. These are also the most widely addressed ESG issues amongst peers with increasingly sophisticated approaches being employed to drive business value. How are we doing? Each member of staff has an annual personal development review where performance and objectives are discussed and agreed. All members of the Senior Management Team have recently completed a bespoke mini-MBA training course. We also have a well-developed apprenticeship programme offering career opportunities to local young people with six currently employed centrally. We have many long-standing members of staff with 29% with more than five years’ and 10% with over ten years’ service. Our overall gender split is currently 64% women and 36% men, with the women to men ratio at 29%:71% at Board level, 36%:64% at senior management level and 69%:31% for all other levels. A training session on “Discrimination, Diversity and Inclusion in the Workplace” was conducted for our franchisees and more are planned to support franchisees to employ a diverse and representative workforce. Six Central Office staff have undertaken Mental Health First Aider training to offer better support to colleagues, franchisees and advisers. Team building charity events such as our recent charity walk help people to make personal connections that improve their support network within the business. How we measure our progress • Number of apprentices • Gender diversity stats across different levels of the business • Length of service stats Belvoir risks • Ability to recruit and retain skilled employees • Reputational risk Belvoir difference • Service excellence Number of apprentices currently employed centrally 6 26 Belvoir Group PLC Annual report and accounts 2021 We invest in IT solutions in partnership with sector-specialist software providers to build efficiency and effectiveness through our network, to reduce our environmental impacts and to meet changing customer needs. Why is this important? Accelerated by the pandemic, technology is continuing to disrupt the sector. There is an opportunity to employ technologies and platforms that drive efficiencies, improve transparency and accessibility for clients and reduce environmental impacts. How are we doing? Our offices are currently moving to one property management system, SME Professional, which will streamline processes and provide more accurate management data. This cloud-based system enables offices to retire their server-based systems, giving them greater security and flexibility. The brand websites have been moved onto one core platform, so that we can better test and analyse customer journeys to maximise conversion rate. Group deals with suppliers give franchisees more affordable access to technology to enhance interaction with clients. In order to increase our cyber security across the Group we are introducing anti-spoofing measures, phishing simulations and user awareness training. We will also be embracing Microsoft’s Modern Workplace for our Central Office. We aim to make changes to reduce our environmental impact and our ambition is to set a net zero target. We are beginning to understand our impacts to allow us to put a timeline in place to achieve this. A working group of franchisees will be set up to develop a framework for offices to use to reduce their energy usage and emissions. How we measure our progress • Number of offices with their own ESG strategy in place • Percentage of offices using SME Professional Belvoir risks • Online threat • Digital security Belvoir difference • Network model Percentage of offices migrated to SME Professional 77% Strategic report Case study – building local businesses Gary Pemberton of Belvoir Warrington is a keen advocate of ESG and a member of Belvoir’s ESG Working Group. “My wife, Amanda, and I started Belvoir Warrington as a cold start 13 years ago, and it’s very much a local business,” says Gary. “A lettings and estate agency business really needs to be community focused. We started during the 2007/08 recession, and, having survived that, we began thinking how we could support the local community each year with fundraising events and sponsorship. As an example, this Christmas we held three fun days and presented a cheque for £500 to the Children’s Adventure Farm Trust, a charity that looks after disadvantaged local children. “My team all live locally, and our contractors, some of whom have been with us for years, are very much an extension of our team. By looking after our contractors and developing a good relationship with them we know we can rely on them to go the extra mile for our clients. This paid dividends during the pandemic when people really needed to feel supported. “We are also launching a new Acts of Kindness initiative. Every month we will encourage our team, including contractors, to let us know of any acts of kindness they have been involved with in the community, and will share their story on social media in recognition of their efforts. “The small things can make a big difference; for example, we recently set up a recycling station for batteries, we order recycled paper, and we use an app to wirelessly operate our air-conditioning system so that we don’t heat or cool the office when it is closed. We are very much at the beginning of our ESG journey, but we recognise its importance and know how much it will influence people’s decisions in the future.” A lettings and estate agency business really needs to be community focused.” Gary Pemberton Franchise owner Learn more about our local businesses from page 5 Annual report and accounts 2021 Belvoir Group PLC 27 Building local businesses We find, support and develop skilled entrepreneurs to grow their own businesses, expanding our network and providing much-needed investment and employment in local communities across the UK. Why is this important? Belvoir’s business model depends on finding and retaining skilled entrepreneurs and supporting them to grow their businesses. SMEs are widely recognised as key to a strong economy given their importance to local employment and economic development. How are we doing? Our business model is entirely geared to attracting talented entrepreneurs and enabling them to set up and operate their own business, whether as a property franchisee or a financial services adviser. Potential franchisees are identified and matched with an independent business whose owner wishes to sell. We coordinate the process to enable a brand-new franchisee to begin a new business under one of our brand names with an existing portfolio from which to build. Our intensive training course gives new franchisees the skills they need to operate their business successfully. Ongoing support through our Business Development Managers and subsequent training help franchisees grow and maximise that business’ potential. Our Group offices, our franchisees and our advisers offer good quality opportunities within their local communities. We have 463 offices in our franchise property and financial services networks with an average of around four staff so, in addition to our Group staff of 225, our business has a combined staff of over 2,000. The Belvoir Group operates the Kickstart scheme with 23 people given placements, enabling unemployed young people to access work experience across our network. How we measure our progress • No. of offices in network • No. of people employed across the network (not incl. Belvoir employees) Belvoir risks • Ability to recruit and retain skilled franchisees and advisers Belvoir difference • Network model • Proactive growth Number of offices 463 Strategic report Financial review Delivering strong results Creating shareholder value underpins our growth strategy. Revenue Group revenue in 2021 increased by £7.9m to £29.6m (2020: £21.7m). Corporate acquisitions and disposals during the year added net £1.8m, whilst revenue on a like-for-like basis increased by £6.1m. Revenue from our financial services division was up £4.7m to £14.4m (2020: £9.7m) resulting from growth generated both organically and by acquisition. On 29 July 2021 the Group acquired Nottingham Mortgage Services Limited, renamed Brook Mortgage Services Limited (BMS), which added 17 advisers and £0.5m of revenue in the last five months of 2021. Revenue growth of £4.2m from the underlying financial services business was generated from an additional 24 advisers and a strong mortgage market. Revenue from the property division was up £3.2m to £15.2m (2020: £12.0m). The acquisition of White Kite Group 2021 Limited, which trades as Nicholas Humphreys through 17 franchised and three corporate-owned offices, added £2.1m to revenue. Meanwhile, the planned franchising of five Lovelle corporate- owned offices between August 2020 and January 2021 reduced revenue by £0.8m. On a like-for-like basis, the property division achieved growth of £1.9m. Income streams in the property division comprise: management services fees (MSF), these being our key underlying revenue stream from franchisees; revenue generated by corporate-owned offices; franchise sales, which include fees charged to franchisees joining the Group and renewal fees from existing franchisees; and other fees. MSF increased by £1.6m to £10.7m (2020: £9.1m) with £0.3m arising from the 17 Nicholas Humphreys franchise offices and the five newly franchised Lovelle offices. Lettings MSF were up £0.7m, of which £0.4m arose from the underlying network. MSF from property sales were up £0.9m to £2.5m (2020: £1.6m), which arose predominantly from the pre-existing business. Income from corporate-owned offices was up £1.4m. The three Nicholas Humphreys corporate-owned offices added revenue of £1.9m. Meanwhile, the franchising of five Lovelle corporate-owned offices reduced revenue from corporate-owned offices by £0.9m, against which there was a compensatory impact from an increase of £0.1m in MSF and a £0.8m reduction in overheads. The Group continues to operate two corporate-owned offices in Grantham, which contributed additional revenue of £0.4m in 2021, up 18% on 2020. With the exception of these two offices, the Group will generally look to identify a franchise solution in line with its franchise business model at an appropriate time. Revenue from franchise sales in 2021 was £0.3m (2020: £0.2m). Five (2020: seven) new offices opened in 2021, all of which resulted from an existing franchise owner opening an additional office. A further 16 (2020: three) existing franchise offices were resold, seven of which were to a new franchise owner joining the Group and nine to an existing franchise owner taking on an additional territory. Other income was unchanged at £0.4m (2020: £0.4m). Gross profit Gross profit increased by 29% to £19.0m (2020: £14.8m) with the gross profit ratio by business activity being lettings 56%, sales 19%, financial services 20% and other 5% (2020: 60%:17%:19%:4%), reflecting the significant bias towards our recurring lettings income stream. The lower gross profit margin from financial services of 27% (2020: 29%) resulted in the Group gross margin of 64% (2020: 68%). These shifts reflect the greater proportion of independent Business Partners operating within the financial services network, some of whom join together in ‘hubs’, and who earn a higher rate. This operating model does not require a comparable increase in overheads, and as such has contributed to the improvement in the Group operating profit margin to 32% (2020: 31%). 28 Louise George Chief Financial Officer Strategic report Administrative expenses Administrative expenses increased by £1.5m to £9.7m (2020: £8.2m). This comprised: • Increase of £1.7m from operating Nicholas Humphreys. • Increase of £0.1m from operating Brook Mortgage Services. • Increase of £0.2m resulting from professional fees associated with corporate acquisitions. • Reduction of £0.8m from franchising of five Lovelle corporate-owned offices. • Reduction of £0.2m in share-based payments (full disclosure is detailed in note 27 to the accounts). • Increase of £0.5m in underlying overheads associated with increased headcount and other operating costs. Operating profit Operating profit was up £2.7m to £9.3m (2020: £6.6m), an increase of 41% 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 2020 and a gain of £0.1m was recognised in other income within the prior year. Profit before taxation Profit before taxation of £9.3m (2020: £6.7m) is after interest receivable on franchisee loans of £0.2m (2020: £0.2m), which is regarded by the Group as part of its ongoing operations to extend the network reach. Taxation The effective rate of corporation tax for the year was 20.6% (2020: 20.3%). The March 2021 Budget commitment to increase corporation tax to 25% with effect from April 2023 was substantially enacted in May 2021. As a result, deferred tax balances expected to reverse after April 2023 have been remeasured at 25% and £0.5m is reflected in the 2021 tax charge. This was mitigated by a credit of £0.5m arising from the difference between the deferred tax asset release and the corporation tax deduction on share options exercised during the year. The difference reflected a stronger share price at the time of exercise compared to the price at the end of 2020, on which the deferred tax asset was based. Earnings per share Basic earnings per share was up 35% to 20.4p (2020: 15.1p) based on an average number of shares in issue in the year of 36,142,000 (2020: 35,101,000). When the dilutive effect of share options is incorporated, the earnings per share was 20.3p (2020: 14.6p). Profit attributable to owners was £7.4m (2020: £5.3m). Dividends The Board is proposing a final dividend for 2021 of 4.5p per share (2020: 5.1p, which included a catch-up of 1.3p on the final 2019 dividend). Subject to shareholders’ approval at the AGM on 26 May 2022, this dividend will be paid on 30 May 2022, based upon the register on 19 April 2022. The ex-dividend date is 14 April 2022. In total, the 2021 dividend for the year will be 8.5p (2020: 10.5p including the catch-up on the final 2019 dividend of 3.3p) with dividend cover at 2.3x. 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 activities with 100% (2020: 110%) of EBITDA converting into cash of £10.3m (2020: £8.2m). The net cash inflow from operations was £8.5m (2020: £6.8m) reflecting the enlarged Group. The net cash used in investing activities was £3.5m (2020: £1.4m): • On 15 January 2021 the sale of the Lovelle Grimsby Lettings corporate office held for resale generated proceeds of £0.6m. • On 31 March 2021 the Company acquired the entire share capital of White Kite Holdings 2021 Limited for £4.0m cash consideration, net of cash acquired. • On 29 July 2021 Brook Financial Services Ltd acquired the entire share capital of Nottingham Mortgage Services Limited for £0.4m cash consideration, net of cash acquired. • The cash outflow of franchisee loans granted was £0.8m (2020: £0.7m) with the level of assisted acquisitions activity remaining low compared to the period pre-pandemic. • The cash inflow from repayments to the franchise loan book was £1.0m (2020: £0.8m) with a Covid-19-related capital repayment holiday reducing cash inflow in 2020 by £0.4m. • Interest received on the franchise loan book was £0.2m (2020: £0.2m). During 2021 £0.9m (2020: £0.9m) was repaid against the HSBC loan and associated finance costs were £0.2m (2020: £0.3m). Dividend payments totalled £3.3m (2020: £1.9m), of which £0.5m was a catch-up of the suspended final 2019 dividend payment. As a result, net cash outflow from financing activities totalled £3.6m (2020: £3.1m). Annual report and accounts 2021 Belvoir Group PLC 29 Strategic report Financial review continued Liquidity and capital resources At the year end the Group had cash balances of £7.4m (2020: £5.9m) and a term loan of £8.7m (2020: £9.6m). 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 net effect of which is £0.7m (2020: £0.5m): • 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 £1.6m (2020: £1.3m). • 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 £1.5m (2020: £1.3m). • Also, on a weekly basis the estimated clawback of commission recoverable from our advisers is accounted for within other debtors. At the year end this balance was £0.6m (2020: £0.5m). Post-year-end acquisition On 10 March 2022 the Group acquired Mr and Mrs Clarke Limited, a personal agent network offering estate agency services nationwide. Consideration comprised an initial payment of £23,000 satisfied in cash from existing cash reserves, and a three-year earnout at 6x EBITDA. A further £177,000 was applied to the settlement of certain liabilities at completion. In the year to 31 August 2021 Mr and Mrs Clarke Limited recorded revenue of £600,000 and operating profit of £13,000 and at that date had net assets of approximately £61,000. Financial position The Group continues to operate from a sound financial platform with net assets of £33.6m (2020: £28.3m), with the main change being the additional intangible assets arising from the acquisitions of White Kite Holdings 2021 Limited and Nottingham Mortgage Services Limited, which were funded from existing cash reserves. 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 20 and 21. Louise George Chief Financial Officer 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.” 30 Belvoir Group PLC Annual report and accounts 2021 Strategic report 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 on pages 32 and 33 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 Group continues to operate from a sound financial platform and is strongly cash generative. The bank balance as at the date of this report is £8.3m. Whilst the Group continues to generate profit and cash, demonstrating excellent resilience despite the ongoing impact of the pandemic, the Board has nonetheless revisited its forecasts against a range of possible downside outcomes for the period to 31 December 2023. These include the possible impact on the economy of post-pandemic easing of restrictions; higher energy prices; increased tax and interest rates; and geo-political uncertainty both home and abroad on trading. Sensitivities have been applied to the base case model to reflect 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 reasonably foreseeable circumstances, the Board has concluded that the Group has adequate resources to continue in operational existence and to meet its financial obligations as they fall due, whilst operating within its bank covenants, in the period to 28 March 2023. The final bank loan repayment of £7,868,000 is due on 28 March 2023. The base case forecasts indicate the cash to repay the loan will be available and other mitigating actions remain available to ensure cash is maximised in any reasonably foreseeable downside scenarios. However, the Group’s growth ambitions, both organically and though acquisition, will require additional facilities if growth is not to be constrained. Negotiations to secure a new facility are expected to commence during 2022 and initial indications from the Group’s bankers suggest they are supportive, both in relation to extending the existing facilities or providing a new, larger facility. In conclusion, the Board are satisfied that it remains appropriate to prepare these financial statements on a going concern basis and that no material uncertainties exist. Our risk management framework • 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 Board of Directors Audit Committee • 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 Executive Directors • 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 Operations Board • 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 Annual report and accounts 2021 Belvoir Group PLC 31 Strategic report Risk management continued 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.” Potential impact Mitigating activities Change in risk Ability to generate planned revenue and profit growth The economic instability post Covid-19 in terms of higher energy prices and increases to both tax and interest rates, and the political uncertainty in Eastern Europe are likely to affect both consumers and businesses. This could have a negative impact on our ability to grow as planned, organically, through corporate acquisitions and under our assisted acquisitions programme. Both the economic and political landscape are regularly reviewed by the Board and mitigating action is taken wherever possible. Given the extraneous factors involved, there may be limits to the level of direct action that can be taken. However, the Board will be prioritising work that puts our franchisees and advisers in the strongest position to weather any storms caused by wider economic and political pressures. Increase in risk Our franchise business model proved to be resilient throughout both the 2007 crash and the current Covid-19 pandemic. We will continue to help our franchisees and advisers to take advantage of all growth opportunities as the market conditions evolve post pandemic. Links to strategy: 1 2 3 4 5 Ability to recruit and retain skilled franchisees and 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 is aimed at attracting the widest possible range of people irrespective of age, gender and race. Increase in risk The unprecedented market conditions have created an environment where people are looking for alternative employment models and lifestyles which has increased interest from potential new franchisees and advisers. Links to strategy: 1 2 3 4 5 Reputational risk The Group’s reputation, in terms of the way in which it and its franchisees/ advisers conduct their business and the financial results which they achieve, is 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. Links to strategy 1 Group acquisitions strategy 2 Assisted acquisitions programme Learn more about our strategy from page 18 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 3 Recruitment 4 Diversification 5 Marketing and PR 32 Belvoir Group PLC Annual report and accounts 2021 Strategic report Potential impact Cyber risk Mitigating activities Change in risk As the sector becomes more technology led, and given the recent roll out of a new Group-wide property platform, our operations become more vulnerable to cyber-attack, ransomware and data breaches. Such an attack could affect the Group’s ability to function as normal. We cannot make the business bulletproof, but are committed to adopting best practice across the Group, including anti-email spoofing measures, centralised email signature management and performing regular simulated phishing attacks on our users, coupled with continuous user awareness training. Increase in risk The roll out of new cyber security measures is mandatory across the Group giving improved business protection at all levels Links to strategy: 1 2 3 4 5 Legislative and regulation changes Professionalising the sector, as originally set out in the RoPA report, was referred to again in the recent Levelling Up White Paper. These recommendations include the re-introduction of Home Information Packs, the introduction of qualifications for property agents with no “get out” clause for experienced agents, licensing of agents and a new code of practice for the sector. Online threat 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 advisers. We also have a comprehensive system of audit and compliance to ensure best practice. No change in risk The recommendations of the RoPA report and the Levelling Up White Paper might deter new entrants to the sector but might also provide opportunities for professionally run reputable businesses. Links to strategy: 1 2 3 4 5 The market share for online agencies offering a low-cost solution fell to less than 7% in 2021. 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 the use of technology by both agents and the public. The Group has adopted a new technology platform aimed at improving the customer journey. The Group has also recently acquired a personal agent network so as to extend the way in which we deliver our services. Decrease in risk There was no significant consumer shift to the online agencies during the pandemic. The long-term viability of online agencies is yet to be proved, with several failures resulting in much less willingness to continue funding unproven models. Links to strategy: 1 2 3 4 5 The Strategic report is contained on pages 1 to 33. It was approved by the Board on 1 April 2022. Annual report and accounts 2021 Belvoir Group PLC 33 Strategic report 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 Non-Executive Chairman Dorian Gonsalves Chief Executive Officer Louise George Chief Financial Officer Michelle Brook Executive Director Appointment March 2018 Appointment October 2011 Appointment June 2014 Appointment January 2022 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 20 years’ board-level experience with AIM-listed companies overseeing a wide range of corporate transactions. Over the past seven years Louise has undertaken eight 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/ investor relations Experience Michelle has 33 years’ experience within the financial services sector. Having previously worked for Mortgage Advice Bureau, Michelle set up her own business in 2010, building it to a network of 32 advisers before selling to the Belvoir Group in 2017. As Managing Director of the financial services division since 2017, Michelle has overseen the financial services network increase to 243 advisers. Key skills Financial services/people management Experience Michael has over 46 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 34 Belvoir Group PLC Annual report and accounts 2021 Corporate governance Learn more about our governance from page 36 Learn more about our Audit Committee from page 41 Learn more about our Remuneration Committee from page 42 Learn more about our stakeholder engagement from page 14 Paul George Non-Executive Director Mark Newton Non-Executive Director Jon Di-Stefano Non-Executive Director Appointment June 2018 Appointment March 2016 Appointment April 2022 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, and a non- executive director of Strip Tinning Holdings plc. Key skills Corporate reporting/ corporate governance Committee membership Audit Committee Chairman Remuneration Committee member Experience Mark, a Chartered Surveyor, has 46 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 franchise offices before selling to Belvoir in July 2015. Initially joining the Board as an Executive Director, Mark changed role to become a Non-Executive Director with effect from 1 January 2022. Key skills Estate agency/ financial services Committee membership Audit Committee member Experience Jon has a deep understanding of the housebuilding and construction sector from his 19-year tenure at AIM-listed Telford Homes Plc. After nine years as CFO, Jon was appointed as CEO in 2011, overseeing an increase in profits from £3m in 2011 to over £40m when the business was sold to CBRE in 2019. Key skills Strategic growth/ stakeholder relations Committee membership Audit Committee member Remuneration Committee Chairman Annual report and accounts 2021 Belvoir Group PLC 35 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. 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 2021. Michael Stoop Non-Executive Chairman 36 Belvoir Group PLC Annual report and accounts 2021 Corporate governance 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 2021 and for the year then ended, the Company was applying the key requirements of the Code. 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 of Directors Throughout 2021 the Board comprised a Non-Executive Chairman, three Executive Directors and one Non-Executive Director. During the first quarter of 2022, Michelle Brook was appointed as Financial Services Director, Jon Di-Stefano was appointed as a Non-Executive Director, and Mark Newton retired from his executive role to become a Non-Executive Director. As from the date of this report, the Board comprises a Non-Executive Chairman, three Executive Directors and three Non-Executive Directors. Due to his substantial shareholding and his prior role as an Executive Director, Mark Newton is not considered to be independent. Notwithstanding their small shareholdings, both Michael Stoop and Paul George are considered to be independent, as is Jon Di-Stefano. At every AGM one-third of the Directors must retire by rotation. 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. 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. During the year 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 42 and 43. Audit Committee The Audit Committee has three scheduled meetings a year. During the 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 41. 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 41. 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. Board effectiveness The Board continually assesses the appropriateness of its 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 Q1 2021, the Board has undertaken a further survey to assess progress against the actions agreed in the 2021 review and to identify any emerging issues. Results of the survey confirmed that the Board considered that good progress had been made against all previously agreed actions. 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 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. Annual report and accounts 2021 Belvoir Group PLC 37 Corporate governance Statement of corporate governance continued 2021 key shareholder engagements January • Pre-close trading update RNS/CEO video interview April • Acquisition of Nicholas Humphreys RNS/CEO video interview • Preliminary results Online meetings/RNS/ CEO video interview • Investor Meet Company CEO and CFO online presentation to retail investors with Q&A session • Annual report published Report • Mello results round-up CEO and CFO online presentation to retail investors with Q&A session May • AGM trading update RNS/CEO video interview • AGM Meeting under Covid-19 conditions June • Strengthening of alliance with the Nottingham Building Society RNS/CEO video interview • Proactive Investors Forum CEO and CFO online presentation • Exercise and sale of management’s share options RNS July • Yellowstone investor webinar CEO online presentation with CEO and CFO Q&A session • Pre-close trading update RNS September • Interim results Meetings/RNS/CEO video interview • Investor Meet Company online presentation CEO and CFO presentation with Q&A session • Shares investor event CEO online presentation with CEO and CFO Q&A session • Exercise and sale of management’s share options RNS • Mello results round-up CEO and CFO online presentation to retail investors with Q&A session October • CEO interview finnCap Ambition Nation Listed 50 interview with CEO November • CEO interview CEO delivers Proactive Investors investment elevator pitch December • Trading update RNS 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 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 reports, 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. In September 2021, Brendan Gulston, of the fund group Gresham House, reported in The Telegraph that “his favourite AIM stock was the estate agency Belvoir.” Belvoir ended up exceeding expectations for the year, despite its market being shut for two months. It operates a franchise model which makes its profits reliable – franchises pay their fees irrespective of what is happening in the market.” Brendan Gulston Gresham House 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. Values in action: Collaboration 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. 38 Belvoir Group PLC Annual report and accounts 2021 Corporate governance Board experience Board composition, diversity and experience 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. Diversity 43+ 28+ 49+ Sector experience 3 Executive 3 Non-Executive 1 Non-Executive Chairman 2 Female 5 Male 49% Property 24% Franchising 27% Finance Main Board Remuneration Committee Audit Committee 6 n o t w e N k r a M 47 n o t w e N k r a M 0 o n a f e t S - D n o J i 19 o n a f e t S - D n o J i As of the date of this report. Length of tenure (years) 11 l s e v a s n o G n a i r o D 8 e g r o e G e s u o L i 4 p o o t S l e a h c M i 4 e g r o e G u a P l 0 k o o r B e l l e h c M i Industry experience (years) 46 p o o t S l e a h c M i 23 l s e v a s n o G n a i r o D 8 e g r o e G e s u o L i 33 k o o r B e l l e h c M i 4 e g r o e G u a P l Attendance 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 Two key decisions in 2021 Acquisition of Nicholas Humphreys This enabled the Group to extend the reach of its franchise business model into the specialist student lettings market providing valuable operational and business development support to the franchisees within the Nicholas Humphreys network and enhancing the quality of services available to the local communities in meeting their property aspirations. Acquisition of Nottingham Mortgage Services This enabled the Group to strengthen its strategic alliance with the Nottingham Building Society by providing enhanced mortgage advice to local branch members of The Nottingham, whilst generating longer-term growth potential from access to online savers looking to buy their first home. Both acquisitions provide future incremental return to investors. Learn more about our acquisitions from page 16 Annual report and accounts 2021 Belvoir Group PLC 39 Corporate governance43 + 14 + J 72 + J 24 + 27 + J 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 CEO and CFO 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 member of our senior team is a capable manager with considerable sector experience averaging 28 years and length of service averaging twelve years. The Operations Board meets monthly and is responsible for executing the strategy as set out by the Board.” Group operations structure Belvoir Group PLC Board Operations Board • Phil Gee Northwood, Managing Director • Dorian Gonsalves Belvoir Group PLC, Chief Executive Officer • Michelle Brook Belvoir Group PLC, Financial Services Director • Ian Maclean Belvoir, Franchise Director • Louise George Belvoir Group PLC, Chief Financial Officer • Tim Wood Brook, Financial Services Director • David Spackman Newton Fallowell, Managing Director Property franchise division (comprising Belvoir, Northwood, Newton Fallowell, Lovelle, Nicholas Humphreys and Mr and Mrs Clarke) 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 2021. Gender diversity Length of service (years) Industry experience (years) 25+ 2 Female 6 Male 4 2 0 1 – 6 1 1 5 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 40 Belvoir Group PLC Annual report and accounts 2021 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 to ensure 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 Chief Financial Officer, 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 focusing on the key judgement matters in preparing the results and in particular the recoverability of loans to franchisees and the underlying financial resilience of the Group. In December 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 auditor’s application of materiality, its independence and the proposed audit fee for 2021. 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 auditor as significant risks. In addition 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, accounting for share options, the unearned indemnity commission provision and going concern. 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. The Board receives regular reports from the Group’s audit and compliance team on its programme of visits and testing of controls operated by franchisees. 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, particularly given the work of the 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 1 April 2022 Paul George Non-Executive Director 41 Corporate governance Directors’ remuneration report Setting the overall policy on remuneration The Directors present the Directors’ remuneration report for the year ended 31 December 2021. 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 June 2021 the Remuneration Committee awarded a tranche of share options under the LTIP scheme that incorporated new longer-term objectives designed to ensure that the Executive Directors and Senior Management Team continue 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 2021, a total bonus of £253,000 (2020: £290,000) was awarded to the Directors. Pension During the year pension contributions of £42,000 (2020: £42,000) 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 Louise George Michelle Brook Michael Stoop Paul George Mark Newton Jon Di-Stefano Notice period Twelve months’ notice Twelve months’ notice Six months’ notice Six months’ notice Three months’ notice Three 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. 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) Scheme and Company Share Option Plan (CSOP) 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. 42 Michael Stoop Non-Executive Chairman Corporate governance The share options exercised by the Directors during the year are tabled below: Dorian Gonsalves Louise George Mark Newton Dorian Gonsalves Louise George Date exercised Option plan 10/06/2021 10/06/2021 10/06/2021 07/09/2021 07/09/2021 EMI LTIP LTIP LTIP EMI Options Number 200,000 515,782 171,927 644,727 175,000 Gain £ 221,000 1,245,614 415,204 1,676,290 225,750 1,707,436 3,783,858 On 10 June 2021 Directors exercised 887,709 options, 200,000 under the EMI and 687,709 under the LTIP share option plans. The associated gain was £1,881,817. On 7 September 2021 the Directors exercised a further 819,727 options, 175,000 under the EMI and 644,727 under the LTIP share option plans. The associated gain was £1,902,040. Options outstanding as at 31 December 2021 are tabled below: Directors’ share options Executive Directors Dorian Gonsalves Louise George Michelle Brook Share option scheme LTIP LTIP LTIP Number 247,347 207,122 9,527 Exercise price Date of grant Vesting period Expiry date £0.01 £0.01 £0.01 30/06/2021 30/06/2021 30/06/2021 33 months 33 months 33 months 30/06/2031 30/06/2031 30/06/2031 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 Non-Executive Directors Michael Stoop Paul George Total remuneration Salary and fees £’000 Bonus £’000 Pension £’000 Benefits £’000 Total 2021 £’000 Total 2020 £’000 202 169 106 477 51 37 88 565 121 102 301 253 — — — 253 20 17 5 42 — — — 42 1 3 9 13 — — — 13 344 291 150 785 51 37 88 873 354 299 175 828 51 36 87 915 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 2021 31 December 2020 Shares Options Shares Options 646,322 409,114 435,507 20,000 20,000 247,347 207,122 — — — 483,595 56,607 435,507 20,000 20,000 844,727 690,782 171,927 — — Michelle Brook, who was appointed to the Board on 5 January 2022, holds 476,162 shares and 9,527 share options. Jon Di-Stefano, who was appointed to the Board on 1 April 2022, has no interest in the shares of the Company. 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 1 April 2022 Annual report and accounts 2021 Belvoir Group PLC 43 Corporate governance 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 2021. 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 34 and 35. Capital and equity structure Details of the ordinary shares of the Company are shown in note 21 of these financial statements. Dividends The Company paid its interim dividend for the financial year ended 31 December 2021 of 4.0p per ordinary share on 29 October 2021. 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. The Board recommends a final dividend for the financial year ended 31 December 2021 of 4.5p (2020: 5.1p, which included a catch-up of 1.3p on the final 2019 dividend) per share to be paid on 30 May 2022 to all shareholders on the register at the close of business on 19 April 2022 subject to shareholders’ approval on 26 May 2022. The ex-dividend date will be 14 April 2022. 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 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. 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 14. 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.” 44 Louise George Chief Financial Officer 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. 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 UK-adopted international accounting standards. 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 for that period. In preparing the financial statements, the Directors are required to: 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 UK-adopted 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 they face. 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 1 April 2022 • select suitable accounting policies and then apply them consistently; • state whether applicable UK-adopted international accounting standards 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 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. 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 are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website are the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. 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. Annual report and accounts 2021 Belvoir Group PLC 45 Corporate governance 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 2021 and of the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; • the parent company financial statements have been properly prepared in accordance with UK-adopted international accounting standards 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 and its subsidiaries for the year ended 31 December 2021 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 UK-adopted international accounting standards 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 assessed the Group’s trading and cash flow budgets and forecasts, which cover the period to 31 December 2023, including forecast compliance with banking covenants, the impact of the bullet repayment due under the current banking facilities in March 2023 and the post-year-end acquisition. • Our work included assessing the key assumptions by reference to past performance, specifically considering the impact of the continued evolution of the Covid-19 pandemic, the wider geo-political and economic factors currently affecting the UK and how these may impact the future trading and prospects. • We reviewed the alternative scenarios modelled by management, together with their reverse stress test, to assess the impact of the sensitivities on going concern, checking that the alternative scenarios took into consideration all reasonably foreseeable events and circumstances of which we were aware. • We assessed the budgets, forecasts and sensitivities undertaken against the level of headroom in the banking covenants along with available cash and undrawn facilities. • We discussed with the Directors their plans regarding the renewal of the existing banking facilities in March 2023, together with the feasibility of contingency plans and mitigation available should they be unable to agree revised/alternative facilities. • We also reviewed the disclosures in the financial statements to ensure they are adequate and consistent with the Board’s assessment and reflect 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 Coverage Key audit matters 95% (2020: 100%) of Group profit before tax 100% (2020: 100%) of Group revenue 95% (2020: 100%) of Group total assets Recoverability of franchisee loan debtors Carrying value of Group intangible assets, including goodwill and parent company investments Materiality Group financial statements as a whole £465,000 (2020: £346,000) based on 5% (2020: 5%) of profit before tax 2021 2020 ∙ ∙ ∙ ∙ 46 Belvoir Group PLC Annual report and accounts 2021 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, six trading subsidiaries (all of which operate within the UK) and a number of dormant subsidiaries. The Group engagement team has carried out full scope audits on the parent company and five trading subsidiaries. We focused on these entities as they were significant components relevant to the Group’s financial position and performance. For the remaining trading subsidiary, we performed specific procedures on revenue and cash and a desktop review on the remaining financial information. 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, significant judgements and key sources of estimation uncertainty are described in note 1. Details of the impairment provision are included in note 15. How the scope of our audit addressed the key audit matter We reviewed the supporting documentation for the Group’s loans to franchisees and examined management’s assessment of their recoverability. We tested the inputs into the Group’s model, including the estimates used to assess the probability of cash shortfalls, and compared this with recent evidence, including recent defaults and the actual outcomes achieved. 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, or where appropriate, reflecting any forbearance granted. We compared the key inputs used in the assessment of the values that could be achieved through repossession and sale, being multiples of revenue achieved in historical sales of franchisees’ businesses, with recent empirical evidence. Key observations Based on the procedures performed we consider the judgements and estimates made by management in its assessment of the recoverability of franchisee loan debtors to be appropriate. The Group provides loans to franchisees which are held as a financial asset measured at amortised cost. Management applies an expected credit loss model in determining the recoverability of the franchisee loans which requires judgement and includes estimation uncertainty. The Group’s model considers both the expected performance of the loan and the ability of the Group to recover loans through repossession and sale of the franchisee’s business. The repossession and sale values are based on the average of the multiples paid by the Group and franchisees acquiring portfolios during the year under the assisted acquisitions programme. There is a risk that the impairment provision against franchisee loans may be understated or overstated due to the significant judgements and estimates involved. Annual report and accounts 2021 Belvoir Group PLC 47 Financial statements 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 Group intangible assets, including goodwill, and the parent company’s investments The Group’s accounting policy, 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 are 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 other intangible assets are allocated, based on a value in use calculation, to its carrying value. Furthermore, the cost of investments in subsidiaries at the parent company level is 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 the parent company’s investments in subsidiaries. The risk that Group’s intangible assets including goodwill and the parent company’s investments are 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 the financial performance of the CGUs to which the Group’s intangible assets relate, considering any relevant external information, to assess whether there were indicators of impairment in the associated fixed assets at the Group level and the investments in subsidiaries at the parent company level. We also tested 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 check compliance with the requirements of the applicable accounting standard; • the integrity of the value in use models and appropriateness of the discount rate used, using our internal valuation experts, and the assumptions of forecast future trading and cash generation. This included challenging the robustness of the key assumptions, such as the growth rate. • This was done by comparing the forecasts to recent financial performance, budgets approved by the Board and external market data and checking consistency with the going concern forecasts. 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 Based on the procedures performed, we found the judgements made by management in its impairment review to be appropriate. 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: 48 Belvoir Group PLC Annual report and accounts 2021 Financial statements Our application of materiality continued Materiality Basis for determining materiality Rationale for the benchmark applied Group financial statements Parent company financial statements 2021 £ 465,000 2020 £ 346,000 2021 £ 441,000 2020 £ 329,000 5% of profit before tax 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. Capped at 95% of Group materiality given the assessment of the components’ aggregation risk. Performance materiality 348,000 260,000 330,000 247,000 Basis for determining performance materiality Performance materiality for the Group and parent company has been based upon 75% (2020: 75%) of materiality. We have maintained the same level of performance materiality in 2021 as there have been no significant changes in the Group’s operations, and there is a low expectation of known and likely misstatements and no history of internal control deficiencies. Component materiality We set materiality for each component of the Group based on a percentage of between 34% and 95% of Group materiality dependent on the size and our assessment of the risk of material misstatement in that component. In the audit of each component, we 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 it all individual audit differences in excess of £23,000 (2020: £17,000). 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 Matters on which we are required to report by exception 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 light of the knowledge and understanding of the Group and parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the Strategic report or the Directors’ report. We have nothing to report in respect of the following matters 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. Annual report and accounts 2021 Belvoir Group PLC 49 Financial statements Independent auditor’s report continued To the members of Belvoir Group PLC 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. Extent to which the audit was capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below: • 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; • obtaining 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 laws and regulations for the Group are UK-adopted 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 related legislation impacting the conduct of business with landlords and tenants; and • discussing amongst the engagement team 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 controls; and – revenue recognition, specifically the manipulation of revenue using fraudulent journals. 50 Belvoir Group PLC Annual report and accounts 2021 Our procedures in response to the above included: • enquiries of management and those charged with governance, and reviewing correspondence with the relevant authorities to identify any irregularities, including fraud or instances of non-compliance with laws and regulations. We corroborated our enquiries through our review of Board meeting minutes; • testing 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 any which we considered were indicative of management override. We also tested the manual journals posted for the recognition of the revenue. Testing over these journals was performed by agreeing to the relevant supporting documentation; • reviewing the Group’s accounting policies for non-compliance with the relevant accounting framework and testing disclosures to supporting documentation. 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; and • assessing the appropriateness of the revenue recognition policies against the requirements of the applicable accounting standards and testing the application of the policies for a sample of transactions. 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 or 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 1 April 2022 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Financial statements Group statement of comprehensive income For the financial year ended 31 December 2021 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 The accompanying notes form an integral part of these consolidated financial statements. Notes 2 3 3 5 5 6 7 9 9 2021 £’000 29,647 (10,602) 19,045 (9,705) 9,340 (211) 167 — 9,296 (1,912) 7,384 7,384 20.4p 20.3p 2020 £’000 21,692 (6,896) 14,796 (8,169) 6,627 (261) 181 123 6,670 (1,353) 5,317 5,317 15.1p 14.6p Annual report and accounts 2021 Belvoir Group PLC 51 Financial statements Statements of financial position As at 31 December 2021 Group 2021 £’000 Notes Company 2020 £’000 2021 £’000 2020 £’000 Assets Non-current assets Intangible assets Investments 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 10 11 13 14 15 15 16 17 14 19 24 18 14 19 21 21 32,878 44,677 40,391 34,761 29,942 — 501 699 1,788 37,749 5,605 — 7,413 13,018 50,767 522 7,867 2,872 11,261 — 511 455 1,970 5,063 591 5,934 11,588 44,466 289 8,728 1,446 10,463 4,526 3,849 191 861 281 5,859 17,120 33,647 373 13,159 238 162 (5,774) 25,489 33,647 175 861 821 5,706 16,169 28,297 351 12,150 968 162 (5,774) 20,440 28,297 — 44,656 21 — — — 40,354 37 — — 6,830 — 5,144 11,974 56,651 — 7,867 5 7,872 565 — 861 — 1,426 9,298 47,353 373 13,159 238 (50) 8,101 25,532 47,353 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 The Company made a profit after tax in the year of £7,418,000 (2020: £5,904,000). The financial statements on pages 51 to 77 were approved and authorised for issue by the Board on 1 April 2022 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. 52 Belvoir Group PLC Annual report and accounts 2021 Financial statements Statements of changes in equity For the financial year ended 31 December 2021 Group Balance at 1 January 2020 Changes in equity Issue of equity share capital Share-based payments Dividends Transactions with owners Profit and total comprehensive income for the financial year Balance at 31 December 2020 Issue of equity share capital Share-based payments Transfer upon exercise or cancellation of share options Dividends Transactions with owners Profit and total comprehensive income for the financial year Balance at 31 December 2021 Company Balance at 1 January 2020 Changes in equity Issue of equity share capital Share-based payments Dividends Transactions with owners Profit and total comprehensive income for the financial year Balance at 31 December 2020 Issue of equity share capital Share-based payments Transfer upon exercise or cancellation of share options Dividends Transactions with owners Profit and total comprehensive income for the financial year Balance at 31 December 2021 Share capital £’000 Share premium £’000 Share-based payments reserve £’000 Notes 21 27 8 21 27 8 349 12,006 2 — — 2 — 351 22 — — — 22 — 144 — — 144 — 12,150 1,009 — — — 1,009 — 373 13,159 524 — 444 — 444 — 968 — 223 (953) — (730) — 238 Share capital £’000 Share premium £’000 Share-based payments reserve £’000 Notes 21 27 8 21 27 8 349 12,006 2 — — 2 — 351 22 — — — 22 — 144 — — 144 — 12,150 1,009 — — — 1,009 — 373 13,159 524 — 444 — 444 — 968 — 223 (953) — (730) — 238 Revaluation reserve £’000 Merger reserve £’000 Retained earnings £’000 Total equity £’000 162 (5,774) 17,020 24,287 — — — — — 162 — — — — — — — — — — — — — (1,897) (1,897) 146 444 (1,897) (1,307) 5,317 5,317 (5,774) 20,440 — — — — — — — — 953 (3,288) (2,335) 28,297 1,031 223 — (3,288) (2,034) 7,384 7,384 162 (5,774) 25,489 33,647 Revaluation reserve £’000 Merger reserve £’000 Retained earnings £’000 Total equity £’000 (50) 8,101 16,442 37,372 — — — — — — — — — — — — (1,897) (1,897) 146 444 (1,897) (1,307) 5,904 5,904 (50) 8,101 20,449 41,969 — — — — — — — — — — — — — — 953 (3,288) (2,335) 1,031 223 — (3,288) (2,034) 7,418 7,418 (50) 8,101 25,532 47,353 The accompanying notes form an integral part of these consolidated financial statements. Annual report and accounts 2021 Belvoir Group PLC 53 Financial statements Statements of cash flows For the financial year ended 31 December 2021 Group Company Operating activities Cash generated from/(used in) operating activities 22 Notes 2021 £’000 2020 £’000 10,338 (1,782) 8,198 (1,379) 2021 £’000 (851) — 2020 £’000 (1,259) — 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 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 25 16 13 5 12 22 21 8 14 8,556 6,819 (851) (1,259) (4,374) (2,039) (4,078) 591 — (101) — (796) 1,015 167 — — 176 (37) (46) 25 (653) 758 181 271 — — — — — — — — — 9,000 — — — (9) — — — 2 — 7,150 (3,498) (1,364) 4,922 7,143 1,031 (890) (3,288) (221) (211) (3,579) 1,479 146 (890) (1,897) (205) (261) (3,107) 2,348 1,031 (890) (3,288) — (191) (3,338) 733 146 (890) (1,897) — (244) (2,885) 2,999 5,934 3,586 4,411 1,412 17 7,413 5,934 5,144 4,411 The accompanying notes form an integral part of these consolidated financial statements. 54 Belvoir Group PLC Annual report and accounts 2021 Financial statements Notes to the financial statements For the financial year ended 31 December 2021 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 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 certain 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 UK-adopted international accounting standards 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 Group continues to operate from a sound financial platform and is strongly cash generative. The bank balance as at the date of this report is £8.3m. Whilst the Group continues to generate profit and cash, demonstrating excellent resilience despite the ongoing impact of the pandemic, the Board has nonetheless revisited its forecasts against a range of possible downside outcomes for the period to 31 December 2023. These include the possible impact on the economy of post-pandemic easing of restrictions; higher energy prices; increased tax and interest rates; and geo-political uncertainty both home and abroad on trading. Sensitivities have been applied to the base case model to reflect 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 reasonably foreseeable circumstances, the Board has concluded that the Group has adequate resources to continue in operational existence and to meet its financial obligations as they fall due, whilst operating within its bank covenants, in the period to 28 March 2023. The final bank loan repayment of £7,868,000 is due on 28 March 2023. The base case forecasts indicate the cash to repay the loan will be available and other mitigating actions remain available to ensure cash is maximised in any reasonably foreseeable downside scenarios. However, the Group’s growth ambitions, both organically and though acquisition, will require additional facilities if growth is not to be constrained. Negotiations to secure a new facility are expected to commence during 2022 and initial indications from the Group’s bankers suggest that they are supportive, both in relation to extending the existing facilities or providing a new, larger facility. In conclusion, the Board are satisfied that it remains appropriate to prepare these financial statements on a going concern basis and that no material uncertainties exist. Standards adopted for the first time One amendment to accounting standards impacting the Group that has been adopted in the annual financial statements for the year ended 31 December 2021 is the Interest Rate Benchmark Reform – IBOR “Phase 2” (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16). This amendment is mandatorily effective for reporting periods beginning on or after 1 January 2021. The amendments provide relief to the Group in respect of certain loans (note 28) whose contractual terms are affected by interest rate benchmark reform. See the applicable notes for further details on how the amendments affected the Group. Standards, amendments and interpretations to existing standards that are not yet effective There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early. The following amendments are effective for the period beginning 1 January 2022: • Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37); • Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16); • Annual Improvements to IFRS Standards 2018–2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and • References to the Conceptual Framework (Amendments to IFRS 3). The following amendments are effective for the period beginning 1 January 2023: • Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2); • Definition of Accounting Estimates (Amendments to IAS 8); and • Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). Annual report and accounts 2021 Belvoir Group PLC 55 Financial statements 1 Accounting policies continued Standards, amendments and interpretations to existing standards that are not yet effective continued In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that “settlement” includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments were originally effective for annual reporting periods beginning on or after 1 January 2022. However, in May 2020, the effective date was deferred to annual reporting periods beginning on or after 1 January 2023. In response to feedback and enquiries from stakeholders, in December 2020, the IFRS Interpretations Committee (IFRIC) issued a tentative agenda decision, analysing the applicability of the amendments to three scenarios. However, given the comments received and concerns raised on some aspects of the amendments, in April 2021, IFRIC decided not to finalise the agenda decision and referred the matter to the IASB. In its June 2021 meeting, the IASB tentatively decided to amend the requirements of IAS 1 with respect to the classification of liabilities subject to conditions and disclosure of information about such conditions and to defer the effective date of the 2020 amendment by at least one year. The Group is currently assessing the impact of these new accounting standards and amendments. The Group will assess the impact of the final amendments to IAS 1 on classification of its liabilities once they are issued by the IASB. The Group does not believe that the amendments to IAS 1, in their present form, will have a significant impact on the classification of its liabilities, as the conversion feature in its convertible debt instruments is classified as an equity instrument, and therefore, does not affect the classification of its convertible debt as a non-current liability. Basis of consolidation The Group financial statements include those of the parent company and its subsidiaries, drawn up to 31 December 2021. 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. 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 franchise 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. 56 Belvoir Group PLC Annual report and accounts 2021 Notes to the financial statements continuedFor the financial year ended 31 December 2021Financial statements 1 Accounting policies continued Revenue recognition continued 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 Ltd. 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. 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. 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. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the reporting date. 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. Annual report and accounts 2021 Belvoir Group PLC 57 Financial statements 1 Accounting policies continued Leases continued 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. 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 be 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. 58 Belvoir Group PLC Annual report and accounts 2021 Notes to the financial statements continuedFor the financial year ended 31 December 2021Financial statements 1 Accounting policies continued Financial assets continued 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. 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 are low. As such no provision for impairment is made. On a weekly basis the estimated clawback of commission recoverable from our 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. 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. 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. Annual report and accounts 2021 Belvoir Group PLC 59 Financial statements 1 Accounting policies continued Share-based employee remuneration continued 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. 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 separable intangibles acquired and the fair value to be recognised on consolidation. The fair value of customer relationships, brands and Master Franchise Agreements 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’s knowledge of the sector and of the operating characteristics of the business acquired. Key sources of estimation uncertainty Carrying value of intangible assets The carrying value of intangibles is subject to impairment review. In the current year intangible assets 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 derive 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 in subsidiaries requires the exercise of management judgement in each case. This is assessed 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. Useful lives Customer relationships, master franchise agreements and brands 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. Recoverability of franchise debtors The recoverability of loans to franchisees is assessed by management by assessing the credit risk of each 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. 60 Belvoir Group PLC Annual report and accounts 2021 Notes to the financial statements continuedFor the financial year ended 31 December 2021Financial statements 1 Accounting policies continued Key sources of estimation uncertainty continued 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. 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 business. In the year ended 31 December 2021 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 segments are consistent with the Group’s internal reporting for performance measurement and resource 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 Property franchise division Financial services division Total revenue 2021 £’000 8,227 2,431 10,658 2020 £’000 7,467 1,360 8,827 2021 £’000 2,483 1,200 3,683 2020 £’000 1,589 890 2,479 2021 £’000 10,710 3,631 14,341 314 555 15,210 14,437 29,647 2020 £’000 9,056 2,250 11,306 242 449 11,997 9,695 21,692 Revenue from corporate-owned offices of £3,631,000 (2020: £2,250,000) includes £14,000 (2020: £933,000) relating to one Lovelle corporate-owned office (2020: five Lovelle corporate-owned offices and the Northwood Glossop portfolio) that was held as an asset for sale pending being franchised out. This comprises £14,000 (2020: £578,000) of lettings revenue and £nil (2020: £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 2021 £’000 15,210 3,835 19,045 2020 £’000 11,997 2,799 14,796 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 £7,418,000 (2020: £5,904,000). Annual report and accounts 2021 Belvoir Group PLC 61 Financial statements 3 Cost of sales and administrative expenses Group Cost of sales and administrative expenses (non-exceptional) by nature: Staff costs Depreciation of property, plant and equipment and right-of-use assets Amortisation of intangible assets 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 4 Directors and employees Group Staff costs (including Directors) Wages and salaries Social security costs Pension costs Share-based payment charge 2021 £’000 7,361 341 626 336 79 15 11,549 20,307 2021 £’000 6,131 840 167 223 7,361 2020 £’000 6,191 318 525 298 66 12 7,655 15,065 2020 £’000 4,768 750 229 444 6,191 The average monthly number of employees during the year was as follows: Management and administration 178 137 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 The highest paid Director received remuneration of £344,000 (2020: £354,000). 2021 £’000 818 107 183 42 1,150 1,052 98 1,150 2020 £’000 873 112 419 42 1,446 1,350 96 1,446 62 Belvoir Group PLC Annual report and accounts 2021 Notes to the financial statements continuedFor the financial year ended 31 December 2021Financial statements 5 Finance income and costs Group Finance costs Bank interest Interest on right-of-use assets Finance income Deposit account interest Interest on franchisee loans 6 Other income Group Financial asset Share options in Mortgage Advice Bureau (Holdings) plc 2021 £’000 191 20 211 2021 £’000 — 167 167 2021 £’000 — In 2020 other income relates to the gain on the sale of shares in Mortgage Advice Bureau (Holdings) plc (MAB) sold on 7 September 2020. This is reported on further in note 12. 7 Taxation Group UK corporation tax at 19% (2020: 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% (2020: 19%) Tax effects of: – Expenses not deductible for tax purposes – Adjustment in respect of prior years – Remeasurement of deferred tax liability – Net difference between the deferred tax asset release and the corporation tax deduction on exercise of share options – Capital gains chargeable to corporation tax Total tax charge in the statement of comprehensive income 2021 £’000 1,138 11 305 458 1,912 2021 £’000 9,296 1,766 184 11 458 (507) — 1,912 2020 £’000 244 17 261 2020 £’000 5 176 181 2020 £’000 123 2020 £’000 1,499 (3) (284) 141 1,353 2020 £’000 6,670 1,267 68 (3) 141 (171) 51 1,353 The March 2021 Budget commitment to increase corporation tax to 25% with effect from April 2023 was substantially enacted in May 2021. As a result, deferred tax balances expected to reverse after April 2023 have been remeasured at 25%. Annual report and accounts 2021 Belvoir Group PLC 63 Financial statements 8 Dividends Group Final dividend for 2020 5.1p per share paid 16 June 2021 (2020: £nil) Interim dividend for 2021 4.0p per share paid 29 October 2021 (2020: 5.4p per share paid 30 October 2020) Total dividend paid 2021 £’000 1,796 1,492 3,288 2020 £’000 — 1,897 1,897 The Directors propose a final dividend of 4.5p per share totalling £1,678,000 for 2021, payable 30 May 2022, to shareholders on the register on 19 April 2021. As this remains conditional on shareholders’ approval, provision has not been made in these financial statements. 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 2020 Additions (note 25) Disposals At 31 December 2020 Additions (note 25) At 31 December 2021 Amortisation and impairment At 1 January 2020 Amortisation for the year Disposals At 31 December 2020 Amortisation for the year At 31 December 2021 Net book value At 31 December 2021 At 31 December 2020 64 Belvoir Group PLC Annual report and accounts 2021 2021 £’000 7,384 2020 £’000 5,317 Number Number 36,142 36,434 Pence 20.4p 20.3p Brand £’000 Goodwill £’000 Master franchise agreements £’000 Customer relationships £’000 551 32 — 583 211 794 108 31 — 139 41 180 614 444 19,600 589 — 20,189 2,937 23,126 — — — — — — 23,126 20,189 9,832 763 — 10,595 373 10,968 1,519 447 — 1,966 440 2,406 8,562 8,629 1,233 39 (40) 1,232 1,924 3,156 520 47 (15) 552 145 697 35,101 36,314 Pence 15.1p 14.6p Total £’000 31,216 1,423 (40) 32,599 5,445 38,044 2,147 525 (15) 2,657 626 3,283 2,459 680 34,761 29,942 Notes to the financial statements continuedFor the financial year ended 31 December 2021Financial statements 10 Intangible assets continued Group continued On 31 March 2021 Belvoir Group PLC acquired White Kite Holdings 2021 Limited, a network of 17 franchised estate agencies and three corporate-owned estate and lettings agencies, which trades as Nicholas Humphreys. This transaction gave rise to additional goodwill of £2,302,000. The fair values determined on acquisition of the customer relationships, master franchise agreement and brand arising from the Nicholas Humphreys network are based on actual cash flows to 31 December 2021. Thereafter, projected revenue growth was assumed to be 2% over the valuation period. The cash flows arising were adjusted for attrition rates ranging between 5% and 25% and discounted by the Group’s weighted average cost of capital. On 29 July 2021 Brook Financial Services Ltd, a wholly owned subsidiary, acquired Nottingham Mortgages Services Limited, the mortgage advisory business operated by the Nottingham Building Society. Renamed Brook Mortgage Services Limited (BMS) on completion, the mortgage business acquired operated a team of 27 advisers and administrators servicing The Nottingham’s branch members. This transaction gave rise to additional goodwill of £537,000. On 31 December 2021 the assets and trade of BMS were hived up into Brook Financial Services Ltd, leaving BMS dormant. Four London-based Belvoir territories came under corporate ownership with effect from 22 October 2021 giving rise to £98,000 of goodwill. 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, Lovelle, Brook (incorporating BMS), Nicholas Humphreys 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 Lovelle Northwood Brook (incorporating BMS) Nicholas Humphreys Corporate-owned Belvoir offices Total At 31 December 2020 £’000 At 31 December 2021 £’000 Additions £’000 5,869 589 8,373 5,210 — 148 20,189 — — — 537 2,302 98 2,937 5,869 589 8,373 5,747 2,302 246 23,126 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, using Board approved budgets for the period to 31 December 2022, followed by an annual growth rate of 2% followed by a terminal growth rate of 2% (2020: 2%), discounted at a pre-tax discount rate of 16.6% (2020: 12%) equivalent to the Group’s weighted average cost of capital. 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. Annual report and accounts 2021 Belvoir Group PLC 65 Financial statements 11 Investments Investments in subsidiaries Cost At 1 January 2020 Additions At 31 December 2020 Additions At 31 December 2021 Provision for impairment At 1 January 2020, 31 December 2020 and 31 December 2021 Net book value At 31 December 2021 At 31 December 2020 Company £’000 39,910 444 40,354 4,302 44,656 — 44,656 40,354 On 31 March 2021 the Company acquired 100% of the share capital of White Kite Holdings 2021 Limited for £4,078,000. The remaining addition of £223,000 (2020: £444,000) related to the obligation to settle the share-based remuneration awarded to employees of Belvoir Property Management (UK) Limited. On 31 December 2021 the assets and trade of Brook Mortgage Services Ltd were transferred to Brook Financial Services Ltd, at which point Brook Mortgage Services Limited became dormant. As at 31 December 2021 the Company owned 100% of the ordinary share capital and voting rights of the following companies: Subsidiary Country of incorporation England and Wales England and Wales England and Wales England and Wales England and Wales Belvoir Property Management (UK) Limited5 Newton Fallowell Limited5 Northwood GB Limited5 Brook Financial Services Ltd5 Brook Mortgage Services Limited1,5 White Kite Holdings 2021 Limited5 White Kite Ltd4,5 Nicholas Humphreys Franchise Limited4 MAB (Gloucester) Limited1 Purely Mortgage Consultants Limited1 Goodchilds Estate Agents & Lettings Limited England and Wales Claygold Property Limited2 Redwoods Estate Agents Limited2 Uplong Ltd3 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 Company number 3141281 5372232 3570861 7311674 Principal activity Property sales and lettings franchising Property sales and lettings franchising Property sales and lettings franchising Financial services 03089887 Financial services 13208817 4545088 04582891 09668913 6521922 05249161 02649237 03416122 05816728 3695733 Holding company Property sales and lettings franchising Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant 1. Subsidiary of Brook Financial Services Ltd. 2. Subsidiary of Belvoir Property Management (UK) Limited. 3. Subsidiary of Newton Fallowell Limited. 4. Subsidiary of White Kite Holdings 2021 Limited. 5. 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. 66 Belvoir Group PLC Annual report and accounts 2021 Notes to the financial statements continuedFor the financial year ended 31 December 2021Financial statements 12 Financial assets Financial assets at fair value through profit or loss Cost At 1 January 2020 Disposal – share options in Mortgage Advice Bureau (Holdings) plc At 31 December 2020 and 31 December 2021 Provision for impairment At 1 January 2020, 31 December 2020 and 31 December 2021 Net book value At 1 January 2020 Disposal – share options in Mortgage Advice Bureau (Holdings) plc At 31 December 2020 and 31 December 2021 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 was recognised in 2020 as other income. 13 Property, plant and equipment Cost At 1 January 2020 Additions At 31 December 2020 Additions At 31 December 2021 Accumulated depreciation At 1 January 2020 Charge for the year At 31 December 2020 Charge for the year At 31 December 2021 Net book value At 31 December 2021 At 31 December 2020 Group Freehold land £’000 Freehold property £’000 Fixtures and fittings £’000 150 — 150 — 150 — — — — — 150 150 235 — 235 — 235 54 5 59 5 64 171 176 1,179 46 1,225 101 1,326 917 123 1,040 106 1,146 180 185 Company Fixtures and fittings £’000 81 9 90 — 90 37 16 53 16 69 21 37 Total £’000 1,564 46 1,610 101 1,711 971 128 1,099 111 1,210 501 511 Annual report and accounts 2021 Belvoir Group PLC 67 Financial statements 14 Leases Right-of-use assets At 1 January 2020 Additions Amortisation At 31 December 2020 Additions Disposals Amortisation At 31 December 2021 Lease liabilities At 1 January 2020 Additions Interest expense Lease payments At 31 December 2020 Additions Disposals Interest expense Lease payments At 31 December 2021 Maturity of lease liabilities At 31 December 2021 At 31 December 2020 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 Property £’000 Motor vehicles £’000 Office equipment £’000 475 — (110) 365 423 — (152) 636 140 27 (81) 86 65 (14) (77) 60 1 5 (2) 4 — — (1) 3 Group Property £’000 Motor vehicles £’000 Office equipment £’000 482 — 13 (120) 375 423 — 17 (164) 651 137 27 4 (83) 85 65 (18) 3 (75) 60 1 5 — (2) 4 — — — (2) 2 Group Up to 6 months £’000 6–12 months £’000 1–5 years £’000 Over 5 years £’000 101 91 90 84 436 289 86 — Total £’000 616 32 (193) 455 488 (14) (230) 699 Total £’000 620 32 17 (205) 464 488 (18) 20 (241) 713 Total £’000 713 464 Group Company 2021 £’000 1,616 805 2,300 405 479 — 5,605 2020 £’000 1,601 1,020 1,856 202 384 — 5,063 2021 £’000 2020 £’000 — — — 59 — 6,771 6,830 — — — 44 — 6,795 6,839 1,788 1,970 — — 68 Belvoir Group PLC Annual report and accounts 2021 Notes to the financial statements continuedFor the financial year ended 31 December 2021Financial statements 15 Trade and other receivables continued As at 31 December 2021 trade receivables of £1,460,000 (2020: £1,438,000) 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 2021 the Group has recognised a lifetime expected credit loss of £32,000 (2020: £36,000). At the year end £26,000 (2020: £45,000) 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 Board 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 £119,000 (2020: £68,000). 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 Group 2021 £’000 2,315 — 2,315 291 (252) 358 (119) (13) 278 2020 £’000 2,511 — 2,511 731 (418) 234 (68) (252) 479 2,593 2,990 Included within other debtors is £576,000 (2020: £461,000) due from 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. Annual report and accounts 2021 Belvoir Group PLC 69 Financial statements 16 Assets held for sale Group At 1 January 2020 Additions Disposals At 31 December 2020 Disposals At 31 December 2021 Total £’000 — 767 (176) 591 (591) — The acquisition of Lovelle in January 2020 included five corporate-owned offices that have been held for resale. During 2020 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 in 2020 were reported separately from continuing operations on the face of the Group statement of comprehensive income. Given the insignificant amount represented by the Grimsby Lettings office trading results for the first two weeks of 2021, these have not been reported separately. 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 Amounts owed to Group undertakings 19 Borrowings Current Bank loans – term loan Long term Bank loans – term loan Group Company 2021 £’000 7,413 2020 £’000 5,934 2021 £’000 5,144 2020 £’000 4,411 Group Company 2021 £’000 808 1,548 664 957 123 426 — 2020 £’000 632 1,293 766 924 18 216 — 4,526 3,849 2021 £’000 2020 £’000 4 — 24 74 — 7 456 565 9 — — 68 — — 1 78 Group 2021 £’000 Company 2020 £’000 2021 £’000 2020 £’000 861 861 861 861 7,867 8,728 8,728 9,589 7,867 8,728 8,728 9,589 All current amounts are short term and their carrying values are considered reasonable approximations of fair value. 70 Belvoir Group PLC Annual report and accounts 2021 Notes to the financial statements continuedFor the financial year ended 31 December 2021Financial statements 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 2021 £’000 519 514 1,033 7,906 8,939 (211) 8,728 (7,413) 1,315 2020 £’000 528 523 1,051 8,939 9,990 (401) 9,589 (5,934) 3,655 Borrowings comprise a term loan of £8,764,000 (2020: £9,654,000) secured by a fixed and floating charge over the Group assets which is repayable in half yearly instalments of £445,000 from June 2022 with a final payment of £7,868,000 in March 2023 and bears interest at 1.95% over the Bank of England base 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 (2020: £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 2020 Issue of shares during the year: 23 January 2020 – share price 75p 10 September 2020 – share price 116p At 31 December 2020 Issue of shares during the year: 8 January 2021 – share price 98p 15 January 2021 – share price 98p 11 March 2021 – share price 98p 10 June 2021 – share price 1p 10 June 2021 – share price 132p 10 June 2021 – share price 98p 13 July 2021 – share price 132p 13 July 2021 – share price 116p 13 July 2021 – share price 98p 15 July 2021 – share price 98p 11 August 2021 – share price 98p 9 September 2021 – share price 132p 9 September 2021 – share price 116p 9 September 2021 – share price 98p 9 September 2021 – share price 1p At 31 December 2021 2021 2020 Number £’000 Number £’000 37,292,113 373 35,122,005 351 Group and Company Number Nominal share capital £’000 Share premium £’000 34,938,606 349 12,006 163,399 20,000 183,339 35,122,005 30,612 61,224 12,000 687,709 260,000 57,612 60,000 20,000 10,000 30,612 10,000 235,000 20,000 30,612 644,727 2,170,108 37,292,113 2 — 2 351 — 1 — 7 3 1 1 — — — — 2 — — 7 22 373 121 23 144 12,150 30 59 12 — 341 56 79 23 9 30 10 307 23 30 — 1,009 13,159 Annual report and accounts 2021 Belvoir Group PLC 71 Financial statements 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 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 Decrease/(increase) in trade and other receivables Increase/(decrease) in trade and other payables Cash used in operations 2021 £’000 9,296 967 223 85 29 191 20 (167) — 10,644 (186) (120) 10,338 2021 £’000 7,418 (9,000) 29 — 191 16 (1,346) 9 486 (851) 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) (1,259) 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 32 and 33. 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. 72 Belvoir Group PLC Annual report and accounts 2021 Notes to the financial statements continuedFor the financial year ended 31 December 2021Financial statements 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 Maturity analysis of financial liabilities: In less than one year Trade payables Refund liability Loans and borrowings Other creditors Lease liabilities In more than one year Lease liabilities Long-term borrowings Group Company 2021 £’000 1,616 3,989 805 7,413 2020 £’000 1,601 2,240 1,020 5,934 2021 £’000 — 6,771 — 5,144 2020 £’000 — 6,795 — 4,411 13,823 10,795 11,915 11,206 Group Company 2021 £’000 808 1,548 8,728 426 713 2020 £’000 632 1,293 9,589 216 464 2021 £’000 4 — 2020 £’000 9 — 8,728 9,589 — — — — 12,223 12,194 8,732 9,598 808 1,548 861 426 191 3,834 522 7,867 8,389 632 1,293 861 216 175 3,177 289 8,728 9,017 4 — 861 — — 865 — 7,867 7,867 9 — 861 — — 870 — 8,728 8,728 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. 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. Annual report and accounts 2021 Belvoir Group PLC 73 Financial statements 23 Financial instruments continued 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 Charged/(credited) 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 2021 £’000 1,446 631 795 2,872 2,862 120 (110) 2,872 2020 £’000 1,440 151 (145) 1,446 1,836 46 (436) 1,446 2021 £’000 2020 £’000 5 — — 5 — 5 — 5 7 — (2) 5 — 5 — 5 The March 2021 Budget commitment to increase corporation tax to 25% with effect from April 2023 was substantially enacted in May 2021. As a result, deferred tax balances expected to reverse after April 2023 have been remeasured at 25%. There are no temporary differences for which deferred tax balances are unrecognised. 25 Acquisitions Belvoir Group PLC acquired White Kite Holdings 2021 Limited on 31 March 2021, for cash consideration of £4,078,000. White Kite trades as Nicholas Humphreys, a network of 17 franchised estate agencies and three corporate-owned estate and lettings agencies. Brook Financial Services Ltd acquired Nottingham Mortgages Services Limited, the mortgage business operated by the Nottingham Building Society (“The Nottingham” or “NBS”) for cash consideration of £730,000. Renamed Brook Mortgage Services on completion, the mortgage business acquired operated a team of 27 advisers and administrators servicing The Nottingham’s branch members. For both acquisitions, the goodwill represents the value attributable to the new businesses and the assembled and trained workforce. Deferred tax at 25% has been provided on the value of the separable intangible assets. In respect of White Kite, initial deferred tax liability has been recognised on the customer relationships, brand and 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. In October 2021 Belvoir Property (UK) Limited took back four London franchises which are now being managed by our Central Office in Grantham until a new franchise owner is appointed. 74 Belvoir Group PLC Annual report and accounts 2021 Notes to the financial statements continuedFor the financial year ended 31 December 2021Financial statements 25 Acquisitions continued 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 – customer relationships Intangible assets – master franchise agreement Intangible assets – trade names Trade and receivables Cash Trade and other payables Deferred tax liabilities Identifiable net assets acquired Goodwill on acquisition Consideration Consideration settled in cash Post-acquisition financial results Revenue Profit and loss Belvoir London £’000 White Kite £’000 NMS £’000 161 — — — — — (44) 117 98 215 — 1,763 373 211 535 56 (575) (587) 1,776 2,302 4,078 4,078 — — — 36 378 (221) — 193 537 730 730 Nicholas Humphreys £’000 2,147 579 Brook Mortgage Services £’000 520 61 Total £’000 1,924 373 211 571 434 (796) (631) 2,086 2,937 5,023 4,808 Total £’000 2,667 640 If the acquisitions had completed on the first day of the financial year, Group revenues would have been £31.1m and Group profit before tax would have been £9.6m. 26 Related party disclosures During the year the Group paid fees of £55,000 (2020: £40,000) to The Property Ombudsman Limited, a company of which Michael Stoop is a director. The balance outstanding as at 31 December 2021 was £nil (2020: £nil). During 2021, emoluments were paid to a person related to a Director of £950 (2020: £nil). 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: Dorian Gonsalves Louise George Mark Newton Michael Stoop Paul George Total dividends During the year the Directors exercised the following share options: Dorian Gonsalves Louise George Mark Newton Dorian Gonsalves Louise George Total options exercised 29 October 2021 16 June 2021 30 October 2020 2021 interim £’000 2020 final £’000 2020 interim £’000 26 16 17 1 1 61 25 3 22 1 1 52 Option plan Date exercised EMI LTIP LTIP LTIP EMI 10/06/2021 10/06/2021 10/06/2021 07/09/2021 07/09/2021 26 3 24 1 1 55 Options Number 200,000 515,782 171,927 644,727 175,000 1,707,436 Annual report and accounts 2021 Belvoir Group PLC 75 Financial statements 26 Related party disclosures continued During the year Belvoir Group PLC received a dividend of £9.0m (2020: £7.2m) 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 Ltd Goodchilds Estate Agents & Lettings Limited White Kite Ltd 2021 £’000 5 1,370 20 5,376 (1) (456) 2020 £’000 484 1,444 348 4,518 (1) — 27 Share-based employee remuneration The following share options issued were outstanding as at 31 December 2021: Share option scheme Date of issue Quantity Long-term incentive plan Company Share Option Plan 30/06/2021 28/01/2020 532,142 253,365 785,507 The movement in the number of share options was as follows: Exercise price £ 0.01 1.48 Vesting period Expiry date 2 years and 9 months 30/06/2031 3 years 27/01/2030 Share option movement At 1 January Options granted in the year Recognition of dividend equivalents upon options vested 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) 2021 Number 2020 Number 2,443,473 2,149,071 635,183 — (2,170,108) (123,041) 285,689 216,436 (183,399) (24,324) 785,507 2,443,473 Nil 595,000 CSOP 40% LTIP 30% 3 years 3 years 0.5% 4.60% 0.5% 3.75% 2021 £’000 223 2020 £’000 444 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 2021 the outstanding contingent liability under this agreement amounted to £8,764,000 (2020: £9,654,000). 76 Belvoir Group PLC Annual report and accounts 2021 Notes to the financial statements continuedFor the financial year ended 31 December 2021Financial statements 29 Post-balance sheet events Acquisition of Mr and Mrs Clarke On 10 March 2022, Belvoir Group PLC acquired the entire share capital of Mr and Mrs Clarke Limited, which operates a national network of ten partners and associates operating a personal estate agency model. This transaction meets the definition of a business combination and will be accounted for using the acquisition method under IFRS 3. The initial consideration of £0.023m was settled in cash from existing reserves post year end, and comprised substantially intangible assets and goodwill. A further £0.177m of cash was applied to the settlement of certain liabilities at completion. 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 2021 Belvoir Group PLC 77 Financial statements 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 26 May 2022 for the purpose of considering and, if thought fit, passing the following resolutions. Resolutions 1–7 will be proposed as ordinary resolutions and resolutions 8–10 will be proposed as special resolutions. Ordinary resolutions 1. Report and accounts To receive the Company’s financial statements for the financial year ended 31 December 2021, together with the Directors’ and the auditor’s reports thereon. 2. Declaration of dividend To declare a final dividend for the financial year ended 31 December 2021 of 4.5p per ordinary share payable on 30 May 2022. 3. Re-appointment of auditor 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. 4. Auditor’s remuneration To authorise the Directors of the Company (the “Directors”) to determine the auditor’s remuneration. 5. Re-election of Paul George To re-appoint Paul George, who retires by rotation and offers himself for re-election under Article 71 of the Company’s Articles of Association, as Director. 6. Appointment of Michelle Brook To appoint Michelle Brook, who having been appointed by the Board since the last Annual General Meeting is required under Article 71 of the Company’s Articles of Association to be re-elected, as Director. 7. Appointment of Jon Di-Stefano To appoint Jon Di-Stefano, who having been appointed by the Board since the last Annual General Meeting is required under Article 71 of the Company’s Articles of Association to be re-elected, as Director. Special resolutions 8. Directors’ authority to allot shares That 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 £124,307, 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. 9. Directors’ powers to issue shares for cash That 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 8 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 £37,292 (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 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 8 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. 78 Belvoir Group PLC Annual report and accounts 2021 Shareholder information Special resolutions continued 9. Directors’ powers to issue shares for cash continued 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. 10. Authority to purchase shares (market purchases) That the Company be and is hereby unconditionally and generally authorised for the purposes of Section 701 of the Act to make market purchases (within the meaning of Section 693(4) of the Act) of its ordinary shares of 1p each (“Ordinary Shares”) provided that: (i) the maximum number of Ordinary Shares authorised to be purchased is 3,729,211; (ii) the minimum price which may be paid for any such Ordinary Share is 1p; (iii) the maximum price which may be paid for an Ordinary Share shall be the higher of: a. an amount equal to 105% of the average middle market quotations for an Ordinary Share as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the Ordinary Share is contracted to be purchased; and b. the higher of the price of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out; and (iv) this authority shall, unless previously renewed, revoked or varied, expire on the earlier of the date falling 15 months after the date of the passing of this resolution and the conclusion of the next AGM, but the Company may enter into a contract for the purchase of Ordinary Shares before the expiry of this authority which would or might be completed (wholly or partly) after its expiry. The Directors have no present intention to make such market purchases but consider it desirable for the proposed general authority from shareholders to be available providing the flexibility to do so. 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 24 May 2022. 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 24 May 2022 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. Annual report and accounts 2021 Belvoir Group PLC 79 Shareholder information Corporate information Board of Directors Michael Stoop Non-Executive Chairman Dorian Gonsalves Chief Executive Officer Louise George Chief Financial Officer Michelle Brook Financial Services Director Jon Di-Stefano Non-Executive Director Paul George Non-Executive Director Mark Newton 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 Principal banker HSBC UK plc Donington Court Pegasus Business Park Herald Way East Midlands DE74 2UZ Nominated adviser and broker finnCap Limited 1 Bartholomew Close London EC1A 7BL Registrar and transfer office Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Independent auditor BDO LLP Chartered Accountants and Statutory Auditor 2 Snowhill Birmingham B4 6GA Lawyers Browne Jacobson Mowbray House Castle Meadow Road Nottingham NG2 1BJ Hamilton Pratt Franchise House 3a Tournament Court Tournament Fields Warwick CV34 6LG Corporate calendar Preliminary announcement of full year results: 4 April 2022 Annual General Meeting: 26 May 2022 Half year results: On or around 5 September 2022 80 Belvoir Group PLC Annual report and accounts 2021 Shareholder information We are Number 17 Find us on social media @Belvoir-Group @BelvoirFranch @BelvoirUK @BelvoirUK 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 1 Belvoir Group PLC 07848163 The Old Courthouse 60A London Road Grantham Lincolnshire NG31 6HR www.belvoirgroup.com
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