National footprint,
local expertise.
ANNUAL REPORT &
ACCOUNTS 2022
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We are the UK’s largest
multi-brand property
franchisor, with a network of
over 600 lettings and estate
agency businesses delivering
high quality services to
residential clients.
In a continually changing business environment,
our significant team of sector experts are
continually reassessing and innovating to keep
our franchise owners ahead of the competition.
Find out more at thepropertyfranchisegroup.co.uk
Contents
Strategic report
Highlights
At a glance
Chairman’s statement
Investment case
Chief Executive Officer’s statement
Our market
Business model
Our strategy
Financial review
Our key performance indicators (KPIs)
Stakeholder engagement
Responsible business
Risk management
Principal risks and uncertainties
01
02
04
06
08
10
12
16
18
20
22
24
27
28
Governance
Financial statements
Chairman’s introduction to governance
QCA code compliance
Corporate governance statement
Our Board of Directors
Audit and Risk Committee report
Remuneration Committee report
Directors’ report
30
31
32
34
36
38
41
43
48
49
50
51
52
53
Independent auditor's report
Consolidated statement
of comprehensive income
Consolidated statement of financial position
Company statement of financial position
Consolidated statement of changes in equity
Company statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated statement
54
of cash flows
Company statement of cash flows
55
Notes to the Company statement of cash flows 56
Notes to the consolidated and
company financial statements
Shareholder information
57
80
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Highlights
Financial highlights
Revenue
£27.2m
+13%
2022
2021
2020
2019
2018
Management Service Fees
£15.9m
+8%
£27.2m
£24.0m
£11.0m
£11.4m
£11.2m
2022
2021
2020
2019
2018
Adjusted EBITDA*
£11.8m
+14%
Dividends
13.0p
+12%
2022
2021
2020
2019
2018
Net cash / (debt)
£1.7m
2022
2021
2020
2019
2018
£11.8m
£10.4m
£5.7m
£5.3m
£5.1m
2022
2021
2020
2019
2018
Profit before tax
£8.8m
+38%
£1.7m
£(2.7)m
£8.8m
£4.0m
£2.3m
2022
2021
2020
2019
2018
*
Before exceptional items, share based payment charges and losses/gains on listed investment
Find out more at
thepropertyfranchisegroup.co.uk
Operational highlights
• The Group has a portfolio of 76,000
tenanted managed properties (2021:
74,000), providing a reliable, regular
income stream.
•
EweMove sold 44 new territories in
2022 (2021: 58) taking the total number
of territories under contract to 189.
• The Group’s sales agreed pipeline
remained strong at £22.2m at 31
December 2022 (2021: £26.5m).
• Hunters, the largest acquisition to date,
integrated and synergies achieved.
•
Installation of up-to-date CRM systems
in Hunters and EweMove.
Our strategic growth initiatives
1. Lettings growth
2. Develop sales activity in the high-street
led brands
3. Financial services growth
4. EweMove recruitment
5. Acquisitions
6. Digital marketing
Our vision
£15.9m
£14.7m
£9.4m
£9.7m
£9.4m
13.0p
11.6p
8.7p
2.6p
8.4p
£8.8m
£6.4m
£4.8m
£4.0m
£4.3m
To achieve an increasing UK market share
of lettings, estate agency and financial
service transactions using a proven
franchise model with multiple, and clearly
differentiated brands. The Property
Franchise Group PLC intends to develop
both the depth and breadth of its network,
supporting our franchise owners to grow
their local market shares.
The Property Franchise Group PLC
Annual Report and Accounts 2022
01
At a glance
02 The Property Franchise Group PLC
Annual Report and Accounts 2022
Providing responsive
local residential sales
and lettings expertise
across the nation
through our award-
winning brands.
Our network
We have representation stretching from Falmouth to Aberdeen with
a presence in most major towns and cities including 55 offices in
London. We achieve this both through traditional high street offices
and through virtual offices where the franchisee typically works from
home or a serviced office.
Our brands
Our brands are household names in their local communities, regions
and nationally. Whilst the majority of franchisees operate through high
street offices, a growing number of new franchisees choose to offer
a 24/7 hybrid service through EweMove and, from 2022, were able to
offer a hybrid service through Hunters.
Our success
Our brands have achieved many awards over the years demonstrating
their capabilities.
Notably, our youngest franchise brand, EweMove, has continued
to win awards and establish itself nationally. EweMove appeared
in the HSBC top 100 UK franchised businesses of 2022 at number
34. It celebrated becoming the first-ever winner of the ‘triple
crown’ at the UK’s biggest agency event, the EA Masters Awards
on the 21st September 2022, winning the ‘Best National Award’
in three categories: Lettings Agencies, Sales Agencies and Sales
& Lettings Agencies.
You can find out more about all our brands on our
website thepropertyfranchisegroup.co.uk
£163m
(2021: £157m)
Franchise Network
Turnover
3,500
(2021: 3,750)
Franchise Network
Employees
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
National property franchise brands
The national network of independently
owned property agents
Martin & Co was established in 1986 and has
mainly high street offices, serving England,
Wales and Scotland. It is one of the major
residential letting agents in the UK with over
42,000 properties under management.
Here to get you there
Hunters opened its first office in York in 1992.
It has grown to 178 offices, mainly on the
high street, serving England and Wales.
It operates 9 of the offices itself.
The UK’s trusted agent
The EweMove franchise model combines
local property experts through a centralised
24/7 technology platform with the traditional
features of a full estate agency service.
143 Territories
178 Territories
189 Territories
Regional property franchise brands
Unrivalled local knowledge, for all your
property needs
Whitegates has been trading in the Midlands
and North of England since 1978. Today its
activities are evenly split across sales and
lettings with 29 high street offices.
Property experts providing service and
value for London communities since 1850
Ellis & Co has 15 high street offices, 14 within
London. It shares complementary branding
with Martin & Co offices in London.
Taking the hassle out of property, for
communities across southern England,
since 1948
Parkers has 16 high street offices located
along the M4 corridor west of Maidenhead
with a strong presence around Reading.
29 Territories
15 Territories
16 Territories
Providing expertise in sales and lettings
to communities across the South West of
England for over 150 years
CJ Hole was established in 1867 and has
a strong local brand heritage. operated
through 16 high street offices in Avon,
Somerset, and Gloucestershire.
When you’re ready to move, Mullucks will
get you moving
Mullucks has been established in
Hertfordshire and Essex for over 30 years
and has a long-standing reputation for
professionalism and local expertise.
Local Agent, a network of smiles
Country Properties operates 14 high street
offices across Hertfordshire
and Bedfordshire.
.
14 Territories
16 Territories
3 Territories
Financial services brands
Your online mortgage broker
The Mortgage Genie is an online mortgage
broker based in Newcastle and was
established in 2016. It has a team of financial
advisers offering products from a panel of
over 90 lenders.
The Property Franchise Group PLC
Annual Report and Accounts 2022
03
Chairman’s statement
2022 has proved to be
another outstanding
year for the Group.
Before getting into the detail of why that’s
the case during my first year as Chairman,
I want to say a few words of thank you to
our founder, Richard Martin, who retired as
Chairman in May 2022.
Richard espouses all of the virtues of TPFG.
The requirements for strong leadership,
entrepreneurial drive, tight cost control and
creative vision. As a direct result of Richard’s
outstanding leadership, the Group today
benefits from each of these virtues being
embodied in our Executives supported by a
vastly experienced Senior Leadership Team.
Working closely together they are capable
of identifying and assessing the merits of
acquisition opportunities whilst ensuring that
the knitting of the day job has their full and
appropriate attention.
I am very pleased that Richard agreed to
remain on our Board as a Non-Executive
Director and we are extremely grateful for his
continued encouragement and insight.
Throughout the year we continued to
work hard to fully integrate Hunters and
this process was completed by year-end –
some three months ahead of our original
timetable. As with previous acquisitions, we
have demonstrated our ability to achieve
the planned synergies and our capability to
successfully manage such acquisitions for
the benefit of all our stakeholders. This
was especially pleasing given the scale
of the acquisition.
Our financial results this year have confirmed
the success of our acquisition of Hunters in
2021. Our headline profit before tax being
ahead of market expectations at £8.8m
(2021: £6.4m) and the more insightful
adjusted profit before tax being higher than
market expectations at £10.7m (2021: £9.4m).
In turn we also improved our return on
capital employed to 20% (2021: 17%) and our
return on capital invested to 27% (2021: 24%).
Paul Latham | Non-Executive Chairman
04 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
The growth of our portfolio of managed
properties together with an improvement
in the lettings revenues in Hunters are at
the core of our plans for 2023. Whilst there
are clear signs that there may well be more
economic stability than we expected in Q4
2022, which invariably translates into an
improved housing market, any headwinds
faced are also likely to create opportunities
for the Group given our balance sheet
strength and growing net cash position.
The Group is today, the largest property
franchisor in the UK. The resilience of
the franchise model to weather periods
of economic uncertainty backed by an
underlying recurring revenue stream,
predominantly from our portfolio of
managed properties, allows the Group
to actively pursue the development of
complementary revenue streams. Three
such streams under development being
financial services, conveyancing and
block management.
By way of conclusion I would like to thank
my Board colleagues, the dedicated head
office teams in Bournemouth, York and
Cleckheaton and our many excellent
franchisees and their staff for all of their
efforts over the last year. Similarly I extend
my thanks to all of our shareholders and
business partners for their continued support.
We could not achieve what we do without
all these stakeholders striving to help us
achieve our strong vision and clearly
defined strategic initiatives.
Paul Latham
Non-Executive Chairman
17 April 2023
The Group’s shareholders will be aware of the
highly cash generative nature of our activity. It
is, therefore, very pleasing to report that after
using a debt facility of £12.5m and cash of
£2.5m to fund the acquisition of Hunters as
well as paying increased dividends of £3.8m,
the Group has swiftly returned to a net cash
position of £1.7m at 31 December 2022.
As a result of our financial progress in 2022,
I am particularly pleased to announce that
the Board has approved a final dividend for
FY22 of 8.8p (2021: 7.8p) bringing the total
dividend for FY22 to 13.0p, an increase of 12%
over the 11.6p paid for 2021.
Despite our record financial performance in
2022, the year was operationally challenging
for our more sales reliant businesses.
The housing market was affected by the
macro-economic issues facing the UK and
reacted to the increase in interest rates
with a noticeable decline in agreed sales
transactions as mortgage deals became
more expensive and stuttered through the
political uncertainty of Q4. From a sales
perspective, 2022 was a year of two halves
with good levels of sales agreed but slow
conversion into completed transactions in
H1 and slowing levels of sales agreed but
much better conversion into completed
transactions in H2. We ended the year with
a sales agreed pipeline of £22.2m (2021:
£26.5m) which still represents a good start to
our 2023 financial objectives.
2022 was a year where our strength in
lettings showed its considerable influence
on our financial results. Our heritage and
focus has always been in lettings. We
managed 76,000 tenanted properties for
landlords at 31 December 2022. Our total
lettings revenues represented 47% of total
revenue and lettings accounted for 55% of
management service fees. It is a recurring
revenue stream, annuity like in nature, that
grew in 2022, largely as a result of rental
inflation. The early signs are showing a similar
trend in 2023.
2022 was a year
where our strength
in lettings showed
its considerable
influence on our
financial results.
£8.8m
Profit before tax
13.0p
Dividend for FY22
20%
ROCE
The Property Franchise Group PLC
Annual Report and Accounts 2022
05
Investment case
Why invest in The
Property Franchise Group?
We are a robust business in the face of adversity as well as a
market leader able to reap the rewards in better times.
Since listing on AIM in 2013 we have acquired a number of complementary property franchising
businesses and become the largest lettings and estate agency franchise business in the UK.
We have rewarded our shareholders with a progressive dividend policy.
06 The Property Franchise Group PLC
Annual Report and Accounts 2022
We are a robust business in the face of adversity as well as a
market leader able to reap the rewards in better times.
Since listing on AIM in 2013 we have acquired a number of complementary property franchising
businesses and become the largest lettings and estate agency franchise business in the UK.
We have rewarded our shareholders with a progressive dividend policy.
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Proven franchise
model:
High degree of
recurring revenue:
+27
years in franchising
51%
of total revenue in 2022
Track record of
growth:
+764%
growth in adjusted
diluted EPS since 2013
Experienced
leadership team:
24 years
average industry experience
Six acquisitions
since 2013 to date:
Progressive dividend
policy:
9
franchise brands
+828%
growth since 2013 at
13.0p for 2022
Strong free cash
flow generation:
+£8.2m
for 2022
Capital light
model:
20%
ROCE in 2022
27%
ROCI in 2022
The Property Franchise Group PLC
Annual Report and Accounts 2022
07
Chief Executive Officer’s statement
Strength of franchise
model delivers material
revenue growth.
I am delighted to report that 2022 produced
another strong set of record results as we
delivered on our investment and growth
objectives. We achieved material revenue
growth, up 13% to £27.2m and a significant
increase of 38% in reported profit before tax
to £8.8m.
As we continue to navigate an unpredictable
UK property market which saw a drop in sales
activity in 2022, in line with our expectations,
the strength of our franchise business model
and our commitment to lettings activities has
come to the fore in achieving these results.
I would like to take this opportunity to thank
our team for their continued commitment
to the business and hard work in supporting
our franchisees.
Following a transformational year in 2021
with the acquisition of Hunters, a key focus
for us during the year was to fully integrate
the business which was achieved ahead of
target. We are now benefitting financially,
operationally and strategically from being an
enlarged Group.
Our performance has been particularly
pleasing when compared against the
economic backdrop and reduction in
house sales transactions across the UK
property market. Our business model has
proven its robustness with the growth in
lettings’ revenues which more than offset
the impact of the market-led reduction in
sales transactions. Looking ahead, we don’t
envisage this abating. We expect residential
sales transactions to continue to reduce
in 2023. We also expect recurring lettings’
revenues to continue to grow at or above
the levels seen in 2022, which is particularly
encouraging for the Group with such a
strong lettings heritage and performance.
We have continued to strengthen our senior
leadership team and the team dedicated
to supporting franchisees during 2022 as
well as investing in new operating systems
for EweMove and Hunters to further their
growth. By leveraging our position, we
believe opportunities exist to continue our
strategic initiatives over the next 12 months.
Execution of our
strategic plan
continues
to deliver
growth.
Gareth Samples | Chief Executive Officer
08 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
£27.2m
Turnover
£9.0m
Net cash generated
from operations
Financial performance
I am very proud of our franchisees, who
collectively contributed to the delivery of
another year of growth in Management
Service Fees (“MSF”), up 8% to £15.9m (2021:
£14.7m) and our Group for maintaining
its strong operating margin and, thereby,
achieving an adjusted profit before tax
increase of 14% to £10.7m (2021: £9.4m),
ahead of market expectations.
We continue to be strongly cash generative,
generating net cash from operations of £9.0m
(2021: £8.9m). As a result, we fully repaid the
outstanding balance of the £7.5m term loan
in November 2022 that formed part of the
£12.5m debt facility used to fund the Hunters
acquisition in March 2021, paid an increased
interim dividend and ended the year with a net
cash position of £1.7m (2021: net debt £2.7m).
We are delighted to have put ourselves back
into a net cash position within 18 months of
our largest acquisition to date which gives us a
strong platform for further growth.
As a result of our continued financial progress
and our commitment to a progressive
dividend policy, we are pleased to announce
a final dividend of 8.8p for 2022 (2021: 7.8p).
Its approval at our AGM in June will mean an
increase in the full year dividend of 12% to
13.0p (2021: 11.6p).
Our network's lettings performance
A lack of stock, unprecedented demand,
in part driven by continuing high levels of
long-term net migration, and rising mortgage
costs have all driven rental inflation in 2022
and continue to do so into 2023.
The Group and the broader UK lettings
market saw double digit growth in new
tenancy rents in 2022, with the Homelet
Index recording growth of 10.8%. For the
75% of renters who do not move every year,
rent increases were 4.2% in the 12 months
to December 2022, representing the largest
annual percentage change since the ONS UK
Index began in January 2016.
core of our activities. We remain committed to
this being the most significant element of our
revenue and MSF. Lettings represented 47% of
total revenue (2021: 48%) and 55% of total MSF
(2021: 53%) in the period.
The above factors, together with a full
year’s contribution from Hunters and some
progress in assisted acquisition numbers,
have generated total growth in lettings
revenues of 9% and lettings MSF of 13% over
2021 (of which Hunters contributed 3% and
4% respectively).
Amidst an uncertain trading environment, it
is the lettings market which underpins our
prospects for growth in 2023.
Our network's sales performance
Total residential sales transactions in the UK
declined from c.1.5m in 2021 to c.1.25m in
2022*, a trend reflected in the Group’s overall
performance with the notable exception
being Martin & Co where sales completions
were almost unchanged year on year. This
reflects the continued work to grow the
brand’s sales capabilities.
In 2022, the Group listed over 37,000 homes
for sale, agreed sales on over 31,000 homes
and helped buyers complete on over
24,000 homes.
Whilst the sales transaction market is
notoriously difficult to predict, early signs of
stock levels and instructions, coupled with
improved conversion times, indicate that the
market for residential properties is likely to
align with that of 2019 as we move through
the year. Whilst realigning, we expect
residential sales transactions to reduce and
2023 to perhaps achieve 1.06m transactions
in line with forecasts by Zoopla.
Strategic initiatives delivering growth
We made progress in 2022 with all our
strategic initiatives with economic uncertainty
and challenges brought about by that
impacting the initiatives to various degrees.
Whilst pursuing a mix of revenues, the lettings
side of our business with 76,000 rental
properties under management remains at the
•
Lettings growth
Our assisted acquisitions programme
brought 1,890 tenanted properties into
* UK monthly property transactions commentary – GOV.UK
the network, in turn adding £2.1m of
network income on an annualised basis.
We aim to grow this further in FY23.
• Develop sales activity in the high
street-led brands
All of our long-standing brands
performed strongly showing a 9%
reduction in sales transactions overall
against a UK market reduction of 16% in
2022. As a result, we gained market share,
led by the initiatives within Martin & Co.
Financial services growth
H2 2022 presented a significant
challenge for financial services in this
sector and that has continued into 2023.
Mortgage Genie made progress but
MSF from this activity remains at 1% of
the Group total against a longer term
objective of 5%.
EweMove recruitment
2022 was yet another good year for
EweMove as it continued to build on its
brand positioning and scale, selling 44
new territories and finishing the year with
189 territories under contract.
•
•
• Acquisitions
We continue to assess potential
targets primarily with the aim of adding
managed properties to our nine owned
offices in 2023.
• Digital marketing
We provide local solutions for
franchisees and Group-wide customer
journey management. New campaigns
are driving pleasing levels of results for
the network as we improve our customer
for life journeys and invest in more
capable operating systems.
Outlook
Whilst remaining cognisant of the external
environment, we remain confident in the
execution of our strategic plan moving
forwards. We have an excellent team in place,
continuing to support a very experienced
group of franchisees and a proven strategy,
which we expect to continue delivering
growth into 2023 and beyond.
Gareth Samples
Chief Executive Officer
17 April 2023
The Property Franchise Group PLC
Annual Report and Accounts 2022
09
Our market
Our understanding of the drivers
of the residential property market.
Residential property has established itself as
an investment asset class and the economic
need for residential agency remains as strong
as ever.
KEY FACTORS – LETTINGS
Immigration to UK
Long-term net migration has played a significant part in
rental demand. Estimates for the 12 months ended June
2022 showed 504,000 more people arriving into the UK
than departing. Looking at visas granted, work visas were
up 77% over 2021, and study visas were up 44% over
2021. Towards the end of 2022, Rightmove reported that
the number of people enquiring about rental properties
was up 23% on the prior year.
UK Visas Granted
2019
2020
2021
2022
)
s
d
n
a
s
u
o
h
t
(
s
a
s
v
i
f
o
.
o
N
1,400
1,200
1,000
800
600
400
200
0
Work
Study
Family
Total
Market drivers
• People will always need somewhere to live
• Population growth/increased life expectancy means more
UK households in the future
•
Social housing provision has declined significantly over the
last 30 years
• The private rental sector has grown significantly to almost
20% of total housing stock
• Residential property has become an investment asset class
• Demand continues to outstrip supply
Homes in the Private Rented Sector
UK rental stock reached 5.4m homes in 2016 and has not
changed significantly since with the latest data showing 5.5m
homes in 2021. There are structural challenges from the current
tax regime, ageing landlords sitting on big capital gains and
decarbonisation through the move to EPC C rules in 2028 holding
back growth. Accidental landlords should help growth in the short-
term along with landlords that favour low LTV purchases.
Number of private rented homes (million)
6,000
)
n
o
i
l
l
i
m
(
e
m
o
h
f
o
r
e
b
m
u
N
5,000
4,000
3,000
2,000
1,000
0
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
Source: Home Office / ONS
Source: UK stock of private rented homes – Zoopla
Affordability
Availability of Stock
The percentage of gross income that households spend on their
rent appears to be relatively static. The Homelet Rental Index
Report for February 2023, recorded 31% in February 2023 up
from 30.5% in February 2022 and almost identical to February
2019. This despite UK rents for new tenancies increasing year on
year by an average of almost 10% in 2022.
Rental properties available to tenants looking for a home
at any time has improved slightly over 2021 apart from in
London, and Scotland according to Twenty CI’s Property
and Homemover Report December 2022. That said,
against the 5 year average, rental stock is down 38%
according to Zoopla.
Rent as a % of household’s gross income for new tenancies
Rental Stock
31.5
31.0
30.5
30.0
29.5
29.0
Feb-19
Feb-20
Feb-21
Feb-22
Feb-23
4
3
2
1
0
s
h
t
n
o
M
Scotland
Wales
North
Midlans
London
South
December 2022
December 2021
Source: Homelet Rental Index Report
Source: Twenty CI
10 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
KEY FACTORS – SALES
Mortgage Rates
Housebuilding
We are living through mortgage rates not seen in the UK since
November 2008. Although they appear to have stabilised
and offer room for reduction in 2023, higher than expected
inflation may cause mortgage rates to fall more slowly in 2023
than forecasts suggest. That said, 50% of purchases are by
cash buyers, up 10% in November 22 over pre-Covid levels
according to Savills, and through low value mortgages.
House building in England has been falling short of Government
targets and forecasts suggest that will remain the case. The
target is currently 300,000 homes pa. Starts were circa 180,000
in 2021 and 2022. Building the right properties in the right
locations may prove difficult. Supply constraints will continue to
be a factor in house prices and rents for many years to come.
New mortgage rate 75% loan to value (%)
House Building in England
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
250,000
200,000
150,000
100,000
50,000
t
l
i
u
B
s
e
m
o
H
0
2
0
-
c
e
D
3
0
-
c
e
D
4
0
-
c
e
D
5
0
-
c
e
D
6
0
-
c
e
D
7
0
-
c
e
D
8
0
-
c
e
D
9
0
-
c
e
D
0
1
-
c
e
D
1
1
-
c
e
D
2
1
-
c
e
D
3
1
-
c
e
D
4
1
-
c
e
D
5
1
-
c
e
D
6
1
-
c
e
D
7
1
-
c
e
D
8
1
-
c
e
D
9
1
-
c
e
D
0
2
-
c
e
D
1
2
-
c
e
D
2017
2018
2019
2020
2021
2022
2023
Total Homes
Help to buy (other sales support)
Build to rent
Source: Bank of England
Source: DLUHC
House Buyers/Sellers
Residential Property Transactions
The reduction in sales agreed (-15%) and exchanges in 2022
(-11%) together with an increase in seller instructions meant stock
availability was much closer to typical values going into 2023.
The ratio of new sales to new instructions has returned to pre-
Covid levels. That said, Zoopla research shows demand in Jan/
Feb 23 was up 15% on Jan/Feb 19, which is reflected in house
prices not falling as far as expected and showing little change
year on year.
The expected fall in transactions in 2022 over 2021 occurred
as the costs of stamp duty became a factor again coupled
with rising inflation and mortgage rates. The result, 1.26m
transactions on a seasonally adjusted basis, comparable with the
best years pre-Covid. So far in 2023, cash buyers represent
a higher proportion of transactions. Zoopla forecasts circa
1.05m transaction in 2023.
Residential Sales Stock
UK Residential Property Transactions
s
h
t
n
o
M
7
6
5
4
3
2
1
0
Scotland
Wales
North
Midlans
London
South
December 2022
December 2021
m
£
'
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
2019 A
2020 A
2021 A
2022 A
2023 F
2024 F
Cash buyer
Mortgaged buy-to-let investor
Mortgaged home owners
Source: Twenty CI
Sources: Zoopla
The Property Franchise Group PLC
Annual Report and Accounts 2022
11
Business model
Our proven franchise model
creates a solid platform for
value creation and further
growth opportunities.
What
we do
How we
add value
Lettings and property management
We are one of the largest managing agents
of residential properties in the UK with a deep
understanding of lettings and a clear view of how
to develop value in the long-term from a portfolio.
Our franchisees are fully insured members of
professional bodies, supported by specialist software,
who know their local rental market and manage
all properties locally.
Estate agency
We operate on a no sale no fee basis. We cater both
for the majority of sellers who prefer to instruct
an agent operating from high street premises
and for those sellers who choose to use a more
technologically enabled agent without a high street
office. Two of our brands have been engaged in estate
agency for more than 150 years.
Financial services
Whilst some of our franchisees have been offering
their clients access to property related financial
services for many years, this was identified as a growth
area for us as a large proportion of franchisees do
not engage in this activity. Hence, the development
of a full financial services offering is one of our
strategic initiatives.
Acquisitions
The assisted acquisitions programme, whereby we
provide the expertise to our franchisees to assist with
finding the sellers of managed property portfolios,
negotiating the sales, funding the acquisitions and
integrating those acquisitions, is a primary focus for us.
Franchisees buying managed portfolios of properties
improve their chances of successful future growth.
Established franchise model
At our core, all our brands operate exactly the same franchise
model. It’s a model that’s been developed over the last 27
years, based around long-term commitment by franchisor
and franchisee to the development of the franchisees’
revenue streams. Franchisees sign a five-year agreement
and agree to put all their efforts into developing the
franchise brand in their territory.
Expertise and scale
We have significant expertise in buying, letting and managing
rental properties. In the last eight years, aided by the
acquisition of some more sales-dominated businesses,
we have developed our expertise in selling homes. We
have grown to be the second largest branch network
for residential sales and the second largest manager of
rental properties.
Central support
The support required by franchisees changes as their
franchises mature and as the economic environment
changes. We continue to evolve and invest in our central
support through IT, marketing, assisted acquisitions,
compliance and to invest in business advice through the
growth of our leadership team.
Harnessing technology
The use of technology is evolving in our sector. The
acquisition of EweMove helped us understand how
important it was to embrace new technologies. We have
been improving lead generation through improved websites,
social media, improved CRM, live chat, online viewings,
and online appointments. All our national brands will have
replaced their operating platforms over the last 21 months by
Q4 2023.
12 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
How we support our
franchisees
The value our
model creates
We rely on people who are committed to
operating franchises under our brands. A
franchisor’s role is to research, gain insight into
the future environment and determine those
factors likely to impact franchisees’ businesses
in the future. We recognise that experienced
franchise owners have an important role to
play and we engage with them through various
franchise committees, regional business meetings
and through the MD-led operations teams.
We pride ourselves on the comprehensive start-
up training and support we offer. The success
of our franchisees is very important to us. We
support them throughout their initial five-year
franchise agreement and beyond.
• Ongoing support through regional training,
online training, the acquisitions team and our
business development team.
• All offices have unlimited access to our
business systems, helpdesk and to specialist
“market intelligence” tools.
• Marketing campaigns and collaterals are
developed in coordination with the brands’
marketing committees and made available
through a digital hub.
• We build, update and optimise our
brand websites.
• We support our franchisees with regular
customer targeted mailings/messages, PR
and monthly newsletters.
• We use specialist operational software
and work with our providers to ensure
all franchisees and their staff are
competent users.
• We have an internal audit team and conduct
regular checks on the financial practices of
our franchisees.
Shareholders
• A stable annuity like earnings’ stream
due to the size of the managed portfolio
of properties.
• A growing dividend through the success
of acquisitions and diversifying income.
Franchisees
• At the forefront of technology and digital
marketing in our sector.
• Central expertise to steer franchisees
through the business challenges.
• Opportunities to achieve scale and
ambitions through expansion of territory,
assisted acquisitions or buying outgoing
franchisees’ businesses.
Landlords
• One of the largest letting agents in the UK
with a deep understanding of lettings.
• Franchisees supported by the best
operational software available.
• High standards of compliance that meet
or exceed the legal requirements.
Tenants
• Local service and extensive local
knowledge to help find the right property.
• Long established and far reaching
landlord relationships.
• A full redress scheme when needs arise.
Sellers
• A service more suited to customers,
having the choice of traditional or hybrid.
• No sale no fee across all our brands.
• Deep understanding of local markets,
some brands with +150 years of operation.
Employees
• Over 3,500 people are employed within
the network and are given access
to high quality training and career
development opportunities.
51%
Recurring revenue
603
Franchised territories
76,000
Managed properties
35,000
Properties let
37,000
Properties listed for
sale
3,500+
Employees in network
The Property Franchise Group PLC
Annual Report and Accounts 2022
13
14 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
The Property Franchise Group PLC
Annual Report and Accounts 2022
15
Our strategy
We are pursuing a strategy to deliver growth
which is summarised into six key elements:
Strategic growth initiative
Strategic growth initiative
Actions
Actions
Lettings growth
01
We intend to continue to grow the portfolio of
tenanted properties managed by our franchise
network through acquisition (our own and assisting
franchisees), through more engaging and informing
services for our landlords, and by addressing the
causes of attrition.
02
03
04
05
06
Develop sales activity in
the high-street led brands
Some of our high-street led brands have been
heavily weighted towards lettings. For some offices
this is their primary focus. So, there is a significant
opportunity to increase sales activity.
Financial services
growth
We want to build a financial services business
that serves the customers of our brands as part of
becoming a full service provider. Growing our sales
activity will help drive our financial services business.
EweMove recruitment
We want to accelerate the recruitment of franchisees
into EweMove, with a short-term goal to achieve 200
franchised territories before setting our sights on 300
territories. In 2 years EweMove has grown from 115 to
189 franchised territories.
Acquisitions
We will continue to grow the Group through
acquisitions of the same, similar and
complementary businesses.
Digital marketing
Our digital marketing strategy underpins all our
other strategic growth initiatives. We will continually
develop our digital marketing, delivering an intuitive
and engaging customer journey with the right
communications at the right time.
16 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
For details of our KPIs
See pgs 20 – 21
Progress to date
Principal risks
• Most of our franchisees have expressed a desire to buy a portfolio.
• Acquisitions may not be available or we may lose out to
• Franchisees have continued to carry out acquisitions acquiring 1,890
managed properties in 2022 (+49% on 2021).
• The brands’ managing directors are actively working with franchisees
to source opportunities.
• Digitally driven campaigns to win private landlords’ business, retain
existing landlords and win back lost landlords.
other buyers following the same strategy.
• We continue on our upskilling journey through the introduction of
• The same number of agents chasing fewer sales
a network wide training portal.
transactions, causing fees to reduce.
• Martin & Co’s sales transactions in 2022 up 32% over 2019 despite a
• Increasing costs against a background of reduced fees,
16% reduction in the 2022 market over 2021.
causing franchisees to reduce their sales activities.
• Strategic partnership agreed with LSL Property Services Plc to
• Franchisees do not accept that this income stream can
develop financial services.
improve the value of their franchises and apathy continues.
• Developing our offer through or in-house mortgage broker
• Franchisees fail to see this as developing a stronger offering
Mortgage Genie.
to win and retain customers.
• Franchisees running financial services businesses can now be
supported by Mortgage Genie.
• 44 territories sold in EweMove during 2022 (2021: 58). Now just 11
• Lower costs of entry may mean some franchisees fail to
short of 200 with performance suggesting 200 by the end of Q1 2023.
devote the time required to developing the territory.
• Further investment in a regional team to support franchisees.
• The fixed fee model gains traction with wealthier customers
• Installation of new operating system to accommodate growth
ambitions due to be completed in Q1 2023.
given EweMove is no sale no fee.
• Six acquisitions to date, 9 brands.
• Bank facility in place with Barclays Bank Plc to mirror our growth plans.
• Suitable acquisitions do not become available or we lose
out to other buyers following the same strategy.
• Prices sought by sellers leave insufficient room to enhance
earnings as borrowing costs rise.
• In 2022 we have rebuilt some of our websites to allow us to respond
more quickly to market needs.
• Our messages being lost in the swathe of daily digital
communications that many of our customers receive.
• We are part way through installing new operating platforms in our
• Integrations and developments taking longer and costing
three national brands to enable more digital interaction.
more to achieve than anticipated.
The Property Franchise Group PLC
Annual Report and Accounts 2022
17
Financial review
Acquisition
integration enhances
strong financial
performance.
Our commitment to long-term
sustained growth meant that
although we had to be
more cautious in 2022,
we pressed on.
By year end, we had delivered all the strategic
ambitions we had set out to achieve. Namely,
changes required to fully achieve our
acquisition synergies, added to our team
supporting franchisees, commenced the
integration of Mortgage Genie into our
financial services offering and begun the
installation of new operating systems for
all three national brands.
Whilst the organic growth in lettings revenue
continued where it had left off in 2021, our
revenue from sales’ transactions was slow
to materialise, eventually coming through
towards the back end of 2022. With a slower
market for sales’ instructions in Q4 2022, our
sales agreed fee pipeline fell back to £22.2m
(2021: £26.5m). Still strong but down 16%.
Revenue
Group revenue for the financial year ended
31 December 2022 was £27.2m (2021:
£24.0m), an increase of £3.1m (13%) over the
prior year. Hunters contributed £10.9m to
revenue (2021: £9.8m) and Mortgage Genie
contributed £1.4m (2021: £0.4m). There was
like for like growth (excluding the acquisitions
in 2021) of 8% in revenue, delivering £14.9m
(2021: £13.9m).
Management Service Fees (“MSF”), our key
underlying revenue stream, increased 8%
from £14.7m to £15.9m and represented 58%
(2021: 61%) of the Group’s revenue. Hunters
contributed £4.1m of MSF (2021: £3.5m).
There was like for like growth (excluding
Hunters) of 5% to £11.8m (2021: £11.2m).
Lettings contributed 55% of MSF (2021: 53%),
sales contributed 44% of MSF (2021: 46%)
and financial services contributed 1% of MSF
David Raggett
Chief Financial Officer
18
18 The Property Franchise Group PLC
Annual Report and Accounts 2022
(2021: 1%). Lettings MSF increased by 12%
in the year, excluding the amortisation of
prepaid assisted acquisitions support, and
sales MSF increased by 2%.
Our franchise sales activity was again
predominantly focused on reselling
existing franchises to experienced franchise
owners in the high street-led brands, and
encouraging new entrants into EweMove.
Territory sales in EweMove were 44 (2021:
58), the second highest in EweMove’s history.
Operating profit
Headline operating profit increased by 40%
for the second year in a row to £9.3m (2021:
£6.7m) with an improved operating margin
of 34% (2021: 27%). Adjusted operating profit
before exceptional items, amortisation
of acquired intangibles and share-based
payments charges increased 15% from £9.7m
to £11.1m and the resulting operating margin
remained strong at 41% (2021: 40%).
As a result of our acquisitions in 2021, our
cost of sales increased by 51% to £5.6m
(2021: £3.7m). Headline administrative
expenses decreased by 7% to £11.9m (2021:
£12.7m) and, excluding the exceptional costs
incurred in 2021 of £0.9m, administrative
expenses were unchanged year on year.
There were no exceptional costs
incurred in the year (2021: £0.9m due
to the acquisitions).
Share options were granted to the Executive
Directors in 2022 over a maximum of
290,000 ordinary shares. There were also
share options granted to senior employees in
2022 amounting to a maximum of 212,500
ordinary shares on the same conditions as
those applying to the Executive Directors.
Total shares under option at 31 December
2022 were 2,213,000.
An assessment of the share-based payment
charges resulting from the options granted
was made on 31 December 2022 resulting
in £0.4m being charged to the profit and
loss account (2021: £1.0m). Further details
can be found in notes 4, 5 and 33 to the
consolidated financial statements.
Adjusted EBITDA
Adjusted EBITDA for 2022 was £11.8m (2021:
£10.4m), an increase of £1.4m (14%) over the
prior year.
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Revenue
Management Service Fees
Cost of sales
Administrative expenses
Adjusted operating profit*
Operating profit
Adjusted profit before tax**
Profit before tax
Adjusted EBITDA**
Dividend
Diluted EPS
Adjusted diluted EPS**
Percentage
change
+13%
+8%
+51%
-7%
+15%
+40%
+14%
+38%
+14%
+12%
+99%
+6%
2022
£27.2m
£15.9m
£5.6m
£11.9m
£11.1m
£9.3m
£10.7m
£8.8m
£11.8m
13.0p
22.5p
28.4p
2021
£24.0m
£14.7m
£3.7m
£12.7m
£9.7m
£6.7m
£9.4m
£6.4m
£10.4m
11.6p
11.3p
26.9p
of The Mortgage Genie Limited and its sister
company, £0.3m on the disposal of Auxilium
and £0.3m for the purchase of assets.
The Group borrowed £12.5m from Barclays
to fund the majority of the cash element of
the consideration for Hunters Property plc in
2021. This was made up of a revolving credit
facility of £5.0m and a term loan of £7.5m
repayable over 4 years. The term loan was
fully repaid in 2022 with an outflow of £6.1m.
In 2021, the Group made repayments against
the term loan of £1.4m and repaid loans that
Hunters had with HSBC of £3.0m.
* Before exceptional costs, amortisation of acquired intangibles and share-based payment charges.
** Before exceptional costs, share-based payment charges and loss/gain on listed investment
Dividend payments totalling £3.8m were paid
in the year (2021: £2.9m).
Profit before tax
Profit before tax increased to £8.8m (2021:
£6.4m). Excluding exceptional costs of
£nil (2021: £0.9m), amortisation arising on
acquired intangibles of £1.4m (2021: £1.2m),
the share-based payment charges of £0.4m
(2021: £1.0m) and the loss on the listed
investment of £0.03m (2021: gain £0.1m), the
adjusted profit before tax increased by 14%
from £9.4m to £10.7m.
Taxation
The effective rate of corporation tax for the
year was 18.0% (2021: 42.7%) with the rate in
2021 due to the increase in corporation tax
from 19% to 25% in April 2023 which caused
a deferred tax charge of £1.5m. The total tax
charge for 2022 was £1.6m (2021: £2.7m).
Discontinued operations
On 22 July 2021 the Group disposed of its
majority shareholding in Aux Group Limited.
This resulted from the decision to partner
with LSL so as to scale up more quickly
without the regulatory burdens. A cost of
£0.2m was recognised under discontinued
operations in 2021 being the loss on disposal
of £0.3m less the profit after tax up to the
point of disposal of £0.1m.
Earnings per share
Basic earnings per share (“EPS”) for the year
was 22.6p (2021: 11.3p), an increase of 100%.
This reflects the remaining dilution impact
flowing through from the acquisition of
Hunters in 2021 into the calculation with the
average number of shares in issue for the
period being 32,041,966 (2021: 30,622,102).
Diluted EPS for the year was 22.5p (2021:
11.3p) an increase of 99% based on the
average number of shares in issue for the
period plus an estimate for the dilutive effect
of option grants vesting, being 32,141,592
(2021: 30,721,692).
The impact of the deferred tax rate change
of £1.5m in 2021 was to reduce basic EPS
and diluted EPS from 16.3p to 11.3p in 2021.
Without the charge in 2021, the increase in
basic EPS and diluted EPS for 2022 would
have been 38%.
Adjusted basic EPS for the year was 28.4p
(2021: 27.0p), an increase of 5% based on the
average number of shares in issue for the
period of 32,041,966 (2021: 30,622,102).
Adjusted diluted EPS for the year was 28.4p
(2021: 26.9p), an increase of 6% based on
an estimate of diluted shares in issue of
32,141,592 (2021: 30,721,692).
The adjustments to earnings to derive
the adjusted EPS figures total £1.9m
(2021: £4.8m) and mainly result from the
share-based payment charge of £0.4m
and amortisation of acquired intangibles
of £1.4m.
The profit attributable to owners increased
108% to £7.2m (2021: £3.5m).
Dividends
The Board remains committed to its
progressive dividend policy whilst
maintaining strong dividend cover as part of
its overall capital allocation policy.
The Group has grown significantly over the
last two years and is generating significantly
more cash than ever before. As a result, the
Board is pleased to announce a final dividend
of 8.8p (2021: 7.8p), an increase of 13%,
bringing the total dividend for 2022 to 13.0p
(2021: 11.6p). It will be paid on 9th June 2023
to all shareholders on the register on 12th
May 2023. Our shares will be marked ex-
dividend on 11th May 2023. The total amount
payable is £2.8m (2021: £2.5m).
Cash flow
The Group is strongly operationally cash
generative. The net cash inflow from
operating activities in 2022 was £9.0m
(2021: £8.9m).
The net cash inflow from investing activities
was £0.1m (2021: outflow £13.7m). This
results from acquisitions and disposals of
intangible assets. In 2021 the net outflow
consisted of £13.0m for the purchase of
Hunters Property plc, £0.1m for the purchase
Liquidity
The Group had cash balances of £6.7m on
31 December 2022 (2021: £8.4m) and after
deducting the revolving credit facility of
£5.0m mentioned above, net cash was £1.7m
(2021: net debt £2.7m).
Key performance indicators
The Group uses a number of key financial
and non-financial performance indicators
to measure performance. The Group
also adjusts certain well-known financial
performance measures for share-based
payments charges, amortisation on acquired
intangibles and exceptional items so as to aid
comparability between reporting periods.
The key financial and non-financial
performance indicators are shown on pages
20 and 21.
Financial position
The consolidated statement of financial
position remains strong with total assets of
£57.8m (2021: £60.4m), the decrease being
mainly due amortisation and cash used to
pay off the term loan.
Liabilities reduced from £27.0m to £20.6m
mainly as a result of the repayment of the
term loan.
The Group finished the year with the total
equity attributable to owners of £37.2m, an
increase of £3.8m or 11% over the prior year.
It achieved a ROCE of 20% and a ROCI of
27% in 2022.
The Group again generated strong cash
inflows in 2022 due to growth in lettings
revenues and its operating margins. It
returned to a net cash position by year end,
after its largest acquisition to date in 2021,
leaving it well positioned to continue to
deliver on its strategic initiatives.
David Raggett
Chief Financial Officer
17 April 2023
The Property Franchise Group PLC
Annual Report and Accounts 2022
19
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.
Strategic growth initiatives
01 Lettings growth
02
Sales activity in the high-street
led brands
03 Financial services growth
04 EweMove recruitment
05 Acquisitions
06 Digital marketing
See more
on pgs 16-17
*
Profit after tax before share-based payment charges, amortisation of acquired
intangibles, exceptional items**, losses/gains on listed investments and the
impact of the deferred tax rate change.
** There were no exceptional items in the year. In 2021 there were £0.9m of
costs relating to acquisitions included within administrative expenses.
Financial KPIs
MSF per franchise –
all brands (£k)
Adjusted earnings per share –
fully diluted (pence)
£29k
+5% (2021: £28k)
2022
2021
2020
2019
2018
£29k
£28k
£27k
£26k
£25k
Definition
Total management service fees
“MSF” for all brands for the year
divided by the total number of
franchised trading territories at the
end of the year.
Comments
The average MSF per trading
franchised territory increased again.
28.4p
+6% (2021: 26.9p)
2022
2021
2020
2019
16.5p
15.9p
2018
13.3p
28.4p
26.9p
Definition
Adjusted profit for the year* divided
by the weighted average number of
shares in issue, including the dilutive
effect of share options. See note 15
in the financial statements.
Comments
Adjusted earnings per share has
again increased assisted by the
acquisitions in 2021.
Links to strategy
Links to strategy
Net cash generated from
operations (£m)
Profit before tax
(£m)
Adjusted EBITDA
(£m)
Adjusted PBT
(£m)
£9.0m
0% (2021: £8.9m)
2022
2021
2020
£5.4m
2019
£4.7m
2018 £4.5m
£8.8m
+38% (2021: £6.4m)
£11.8m
+14% (2021: £10.4m)
£10.7m
+14% (2021: £9.4m)
£9.0m
£8.9m
2022
2021
£8.8m
£6.4m
2022
2021
£11.8m
£10.4m
2022
2021
£10.7m
£9.4m
2020
£4.8m
2019 £4.0m
2018 £4.3m
2020 £5.7m
2019 £5.3m
2018 £5.1m
2020 £5.3m
2019 £4.9m
2018 £4.8m
Definition
Cash generated from the day-to-day
trading activities of the business less
taxes and loan interest paid.
Definition
Total revenue minus total costs,
before the deduction of corporation
tax.
Comments
The franchise model continues to be
highly cash generative.
Comments
Profit before tax increased £2.4m in
2022 in the main due to a full year
of Hunters and Mortgage Genie, a
lower share based payment charge
and no exceptional costs in 2022.
Definition
Operating profit to which is added
back share-based payment charges,
depreciation, amortisation and
exceptional costs. The values for
these adjustments are disclosed in
note 11 to the financial statements.
Definition
Profit before tax to which is added
back amortisation arising on
consolidation, exceptional costs,
gain and losses from investments
and share-based payment charges.
All add backs are disclosed in note 15
to the financial statements.
Comments
Adjusted earnings have increased in
the main due to acquisitions in 2021
and acquisition synergies achieved.
Comments
Adjusted PBT has increased in the
main due to acquisitions in 2021 and
acquisition synergies achieved.
Links to strategy
Links to strategy
Links to strategy
Links to strategy
20 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Non-financial KPIs
Tenanted managed
properties
76,000
+2% (2021: 74,000)
Properties sold
in the year
24,200
-8% (2021: 26,200)
2022
2021
2020
2019
2018
76,000
74,000
2022
2021
24,200
26,200
58,000
58,000
55,000
2020 9,500
2019
2018
10,800
10,800
Managed properties
acquired by franchisees
1,890
+49% (2021: 1,270)
1,890
1,270
1,305
2022
2021
2020
2019
2018
2,381
3,115
Definition
Total number of rental properties being fully
managed by our network.
Definition
Total number of property sales completed by our
network in the year.
Definition
Total number of tenanted fully managed rental
properties acquired by a franchisee from an
independent property agent.
Comments
Revenue from managed properties is a reliable
income stream as the landlord is charged a % fee
based on the rent paid each month.
Comments
Residential sales decreased in 2022 with the return
of full stamp duty, the increase in mortgage rates
and the increase in the cost of living.
Comments
The supply of suitable businesses for franchisees
to acquire increased in 2022 after several subdued
years.
Links to strategy
Links to strategy
Links to strategy
Properties let in
the year
35,300
+5% (2021: 33,600)
2022
2021
2020
2019
2018
35,300
33,600
28,100
32,300
31,700
EweMove territories
sold
44
-24% (2021: 58)
2022
2021
2020
11
2019
2018
25
23
44
58
Properties listed
for sale
37,100
+19% (2021: 31,100)
2022
2021
2020
2019
2018
18,600
18,600
19,700
37,100
31,100
Definition
Total number of new lets or re-lets completed by
the network in the year.
Definition
The number of new territories sold by EweMove in
the year.
Definition
The total number of properties listed for sale by our
network.
Comments
The moderate increase results from Hunters
contribution for a full year in 2022 and growth in
new properties to let.
Comments
Interest in starting a franchised business in the
sector has been stronger than for many years with
2022 seeing the second highest recruitment. The
hybrid agents’ offerings are clearly appealing to
those looking for a different type of career.
Comments
Residential listings benefit from a full year’s
contribution in 2022 from Hunters and the increase
in the size of EweMove’s network.
Links to strategy
Links to strategy
Links to strategy
The Property Franchise Group PLC
Annual Report and Accounts 2022
21
Stakeholder engagement
The relationships we build with stakeholders
contribute to our long term success.
oUr emploYeeS
The relationship we have with our employees
is key to our success. We aim to provide
them with an environment where they feel
part of the bigger picture and are able to fulfil
their potential.
oUr FrancHiSeeS
We see our relationship with our franchisees
as a partnership; we give them the tools to
grow their businesses which brings rewards
for both parties. Many have been franchisees
for more than 10 years and a growing number
for more than 20 years.
oUr SHareHolDerS
As a listed business we recognise the
important role that shareholders play in
providing capital and support for new
initiatives. In addition, our institutional
investors provide insight into successful
strategies, advice on risks and support with
monitoring and safeguarding the governance
of the Group.
material topics
material topics
material topics
•
Inclusion in decision making
• Opportunities to share ideas
• Roll-out of new initiatives to the network
• Opportunities for career development
•
Flexible working
• Compliance with new regulations
Leveraging new revenue streams
•
•
Sharing ideas
• Continual roll-out of new initiatives
Engagement with digital marketing
•
Financial and operational performance
•
• Business strategy and model
• Market conditions
• Capital allocation
• Dividend
How we engage
How we engage
How we engage
We use face to face meetings to promote
a sense of ‘one team’ despite people being
based in different locations across the UK.
This is supported by virtual meetings.
Day to day our employees feel comfortable
engaging directly with the most appropriate
person in the business without necessarily
needing to follow hierarchical lines.
Regular face-to-face contact primarily
through our regional team on a day-to-
day basis and also through regular regional
business meetings and marketing meetings
with our franchisees.
Regular newsletters highlight any changes in
the law, processes, third-party services, our
services, training events and new offerings.
We maintain regular communications with
shareholders in line with our regulatory duties.
We have twice yearly results roadshows. Our
Non-Executive Directors hold meetings on
governance matters. We hold an AGM and
provide updates in between via RNSs, our
website and contact through our advisors.
oUr BanKS
Our banking partners play an important role
in our business, enabling us to take advantage
of opportunities when they arise. We maintain
close and supportive relationships through
openness and mutual understanding.
oUr reGUlatorS
There is a continual push by consumers,
society and government to formally regulate
the property industry.
oUr commUnitY
We are mindful that our franchise owners live
in the local communities that they serve and,
thereby, have an interest in ensuring that their
landlords provide suitable accommodation,
that tenants meet acceptable standards and
that their knowledge is put to good use in
serving house sellers and buyers.
material topics
material topics
material topics
Financial and operational performance
Strategy
•
•
• Market and opportunities
• Cash generation
• Compliance with the legislation
• Maintaining high standards
• Property-related qualifications – not yet
mandatory in the industry
Involvement in local organisations
•
• Providing valuable local insight to
customers
Sponsorship
•
• Compliance with regulations
How we engage
How we engage
How we engage
We have regular update meetings with our
banking partners on our current performance
including after investor roadshows. Where
loans exist we regularly supply financial
information and commentary.
As a leading player in the industry we maintain
good relationships with trade bodies such
as The Property Ombudsman, Deposit
Protection Scheme, and Propertymark
(ARLA). We also aim to be at the forefront of
new regulations and requirements including
the much talked about Regulation of
Property Agents.
Actively engaging in social media and using
the digital marketing techniques to provide
useful information to local communities.
22 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
S17 2 S tate m e nt
As required by s172 of the Companies Act 2006, a director of a
company must act in the way he or she considers, in good faith,
would most likely promote the success of the company for the
benefit of its shareholders. In so doing, the director must have
regards amongst other matters to the:
•
•
Likely consequences of any decision in the long term
Interests of the company’s employees
• Need to foster the company’s business relationships
with suppliers, customers and others
•
Impact of the company’s actions on the community
and environment
• Desirability of the company maintaining a reputation for
high standards of business conduct
• Need to act fairly between members of the company
p r i n c i pal D ec i S i o n S i n 2 02 2
We have considered the decisions taken
by the Board which will have an impact on
the longer-term performance and prospects
for our Group.
SIGNIFICANT DECISION
In support of our franchisees, our owned offices and the strategic
partnership with LSL we have taken the decision to expand our
in-house brokerage services provided via Mortgage Genie. All
our employees dedicated to financial services will be employed
by Mortgage Genie and all our franchisees providing brokerage
services to customers will be supported by Mortgage Genie. It will
oversee training, development, delivery and compliance in order
to provide a consistently high level of service to customers. LSL
will continue to support franchisees who are unwilling or unable
to invest in becoming an authorised representative of the PRIMIS
Mortgage Network.
STAKEHOLDERS AFFECTED AND ENGAGEMENT
•
Shareholders – discussions have taken place about the plan
and will continue as it evolves.
• Banks – we have kept our bank informed as we need their
support to deliver the operational goals.
• Regulators – LSL are assisting with the regulatory requirements
for franchisees.
•
•
Employees – we have informed all affected employees.
Franchisees – we have been working with franchisees to
implement these changes.
REASON FOR DECISION
Having learnt a tremendous amount from implementing the
plan in 2021 and 2022, in what has been two unusual years for
mortgage broking, we recognised that refinement was necessary.
Our Management Services Fees (“MSF”) from financial services still
represent just 1% of total MSF set against a long-term goal of 5%.
LSL is one of the largest providers of services to mortgage
intermediaries and mortgage and protection advice to estate
agency customers. It will concentrate on supporting the
franchisees who choose a route other than becoming an
authorised representative via themselves, through their PRIMIS
Mortgage Network and through their partners. LSL will continue to
be supported by our regional business team in the implementation
and delivery of these services to franchisees.
The strategic partnership with LSL gives our franchisees:
•
•
•
access to the PRIMIS Mortgage Network, a well-established
mortgage and protection advice services network whereby they
can work with the local PRIMIS network member to provide the
financial services to their clients.
the ability to set up their own mortgage brokerage as
an authorised representative of the PRIMIS Mortgage
Network employing their own advisors and supported
by Mortgage Genie.
access to the call centre mortgage broking services provided
by LSL to whom they can pass leads if they feel that their sales
activity levels are not sufficient to partake in the other two
options already outlined above.
ANTICIPATED EFFECTS
Increased income for franchisees from a third revenue stream and
increased MSF for the Group.
A more rounded service offering by our franchisees to their clients
to support them with mortgage and insurance advice which in
turn can help speed up the completion of sales transactions,
develop their relationships with their landlord clients and win
further instructions.
Shareholders will benefit from increased earnings.
PROGRESS
•
Signed Strategic Partnership agreement with LSL.
• Acquired an 80% shareholding in The Mortgage Genie Limited.
•
Implemented original plan and now refinements.
The Property Franchise Group PLC
Annual Report and Accounts 2022
23
Responsible business
Understanding our
social, environmental
and economic
impacts.
TPFG is committed to
the management and
development of its business
in a socially responsible and
sustainable way
Overview
The Group recognises the importance of
ESG and is committed to integrating ESG
considerations into its operations and
decision-making processes. Despite being
at the start of its ESG journey, the Group has
taken some initial steps to improve its ESG
performance, which are outlined on the
following pages.
To further advance its ESG efforts, the
Group is in the process of developing a
comprehensive sustainability strategy. The
strategy will outline the goals and targets
for improving its environmental and social
performance, as well as its governance
practices. It will also establish metrics to
measure its progress towards these goals.
The Group recognise that its ESG journey will
be a continuous process and is committed
to learning and improving as it progresses.
It will engage with stakeholders to ensure
that their views are taken into account in
the development and implementation of its
sustainability strategy. The Group has just
begun to collaborate with a third-party ESG
specialist to share best practices and drive
positive change through a thorough external
ESG assessment.
24 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Governing
sustainability
through the ESG
steering group
Governance is a critical aspect of the Group's
commitment to environmental, social, and
governance (ESG) principles. Our Board
provides strategic direction and oversight of
the Group’s Executives and senior leadership
team, who are responsible for implementing
the Board's strategy and managing the
Group's day-to-day operations.
We have formed a team, initially composed
of the Executives and members of the senior
leadership team, supported by third parties
to examine the Group’s ESG position, and to
look at good sustainable practices in these
areas, to examine the risks and opportunities
that intended legal changes will bring and,
ultimately, to develop a sustainability strategy
within the next two years, supported by an
Environmental Policy.
The risks and opportunities are less apparent
and immediate for the Group. Hence,
there are no materiality judgements about
environmental matters disclosed in these
financial statements.
We have the 2030 agenda for sustainable
development adopted by the UN as a guide
to developing sustainable development
goals. We also have Exposure Drafts on
the first two standards to be issued by the
International Sustainability Standards Board
to guide us.
Publishing an Environmental Policy will
be one of our key objectives for FY23
The policy will set out our ESG objectives
and responsibilities, as well as those of
our franchisees. Once established with
targets, we will consider how best to
review progress and to identify
opportunities for improvement.
Environmental
matters
An increasing element our franchising
reputation and the value that our brands
enjoy will be determined by how we make
a difference to the environment. Our Board
is mindful of the need to determine where
it and its franchisees can make more of a
difference and to provide the necessary
leadership and support to establish good
environmental practices. At the same time,
it believes in learning through experiences
and will be actively encouraging our owned
businesses alongside our franchisees
to share their experiences and develop
best practices to continually improve our
contribution to a better future.
Reducing our environmental impact
e n e rGY eFF i c i e n c Y
G e t ti n G aroU n D
WaS te r e D Uc ti o n
We are committed to reducing our
energy consumption and promoting
energy efficiency in all of our leased
properties. As part of our refurbishment
program, energy-efficient lighting and
appliances are installed in our newly
refurbished properties to reduce their
energy demand. Shortly, we will begin
working with an ESG specialist who will
help us with developing a strategy to
combat our emissions.
We understand the impact business
travel has on our carbon footprint and
encourage our employees to travel by train
whenever possible, which is an efficient
and environmentally friendly mode of
transport. In addition, we utilise virtual
meeting technology to reduce the need for
face-to-face meetings and minimise travel.
Responsible business travel will be essential
to achieving our long-term sustainability
goals and reducing our impact on
the planet.
The Group is committed to reducing its
environmental impact through a range of
recycling initiatives. It has implemented a
paper and cardboard recycling program.
In addition, the company has adopted
electronic document storage, which
has significantly reduced the need for
paper-based documentation.
The Property Franchise Group PLC
Annual Report and Accounts 2022
25
Responsible business continued
Our people
Our people strategy is focused on training,
motivating and engaging our employees in a
fairly flat hierarchical structure to deliver the
highest standards of customer service.
In doing so we:
• Recognise that we are stronger together.
• Believe that a rewarding environment
•
inspires and motivates.
Encourage an open and supportive
culture where every individual is
respected.
Share success, reward achievement and
remember to say thank you.
• Provide appropriate training and
•
development.
Glynis Frew, previously CEO of Hunters and
with a background in HR heads up Training
and Development. Her remit is to deliver
these services to our Group as well as
training to our franchise network.
We firmly believe in developing future talent
within our Group who share our values
and the same goes for our franchisees. We
want people to grow their careers like those
who have gone before and provide support
for them to do so. Motivated and highly
engaged teams with the appropriate skills are
fundamental to our success.
We believe in creating a supportive and
inclusive work environment that promotes
positive mental health. It is essential to
creating a happy and productive workforce.
We’re committed to continually improving
our approach to mental health and wellbeing
and ensuring that our employees feel
supported and valued.
Engaging with our
suppliers
We recognise that our suppliers play a
crucial role in our ESG journey. As part of
our commitment to sustainability, we will
look to engage with our suppliers over the
coming years to ensure that they share our
values and commitment to sustainability.
We will look to work and collaborate with
our value chain where possible, promoting
sustainable practices and building long-
term relationships based on mutual
understanding, transparency, and shared
sustainability goals.
Building strong
communities: our
commitment to
social responsibility
Being a franchise network, we have many
local businesspeople and their teams
up and down the country engaged in
charitable causes, social groups and business
organisations. They are raising funds and
making donations to both support the local
communities that they live and work in as
well as national charities. Our success in
achieving our strategy is closely tied to the
success of the communities in which
we operate.
We are looking at ways to provide more and
improved support of these activities so that
our franchisees and their local communities,
as well as our own employees, can enjoy the
benefits and positive re-enforcement that
such activities can bring.
26 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Risk management
The Group’s approach to
effective risk management is to
identify principal risks through
regular reviews, evaluations and
prioritising of risks.
We then develop actions or
processes within the business
to eliminate or mitigate
those risks to an acceptable
level. Responsibility for
the management of risk
is detailed in our risk
management framework,
as presented here.
Risk Management Framework
TH E B OAR D
The Board has overall responsibility
for the management of risk, defining
the Group’s risk appetite and setting
key risk management policies.
AU D IT AN D R I S K
CO M M IT TE E
The Audit and Risk Committee
assists the Board in fulfilling
its oversight responsibilities
by reviewing and monitoring
the integrity of the Group’s
systems of internal control
and risk management.
FR AN C H I S E AU D IT S
AN D CO M PLIAN C E
An internal team is responsible
for auditing franchises in rotation.
Audit work is geared towards
mitigating financial risks.
A compliance dashboard enables
us to monitor franchisees’
adherence to relevant standards
such as having the correct
insurances in place.
AN N UAL R I S K R E VI EW
The Group carries out a risk review
annually. The document sets out the
name of the risk as well as describing it,
considering the effect on the business,
looking at the controls in place, looking
for additional mitigating factors, and
deciding its seriousness by considering
the probability of it occurring and
what damage it would cause if the
event occurred.
Board members and senior
management all contribute the risk
review. The Audit and Risk Committee
review the document, examine the risks,
decide on the actions to recommend
and then pass it on to the Board
for approval. Once a risk has been
determined as requiring action, the
Board allocates the responsibility to
the appropriate Board member.
See more
on pgs
36-37
The Property Franchise Group PLC
Annual Report and Accounts 2022
27
Principal risks and uncertainties
The Board considers that the risks detailed below represent the key risks to achieving the Group’s strategy. There could be additional risks and
uncertainties which are not known to the Board and there are risks and uncertainties which are currently deemed to be less material, which may
adversely impact on the achievement of the Group’s strategy and objectives.
Risk area
NO GUARANTEE
OF GROWTH
The Group’s main source of revenue is Management
Service Fees (“MSF”) derived from franchise network
turnover. MSF is dependent on market conditions
and the experience, expertise and commitment
of the franchisees.
Potential impact
Reduced growth in MSF,
especially from sales,
which are more prone to
economic uncertainty.
Reduced market share
and representation.
Poor or no profit growth
from the franchise model.
Less attractive to new
franchisees for which a
growth track record is an
essential element.
LEGISLATIVE
CHANGES AND
GOVERNMENT
POLICY
The residential property market is continually influenced
by changes in UK legislation and government policy.
This can cause short-term changes in the behaviour
of our clients and lead to inefficiencies in the way
we operate as we get to grips with complying with
new requirements.
Landlords could resort
to selling their properties
after having to suffer
an ever-growing list of
regulations and a greater
tax burden.
Entry into Financial
Services could be more
difficult and costly
than envisaged with
increasing FCA levies
and insurance charges
already seen recently.
GROWTH IN
PORTFOLIO
OF MANAGED
PROPERTIES
The Group needs to continue to help find suitable
portfolios of managed properties for its franchisees
to buy to meet its targets. Franchisees need to be
committed to this source of long-term growth and
prepared to compete to win such acquisitions.
Reduced growth in MSF
especially if attrition
negates organic growth.
Franchisees may lack
the skills, experience and
funding to complete to
win such acquisitions.
FINDING,
RECRUITING,
RETAINING
AND SCALING
UP SKILLED
FRANCHISEES
An inability of the Group to attract new franchisees
with the necessary skills, expertise and resources to
cold start or purchase resales of existing territories and/
or an unwillingness for existing franchisees to take on
further opportunities would impact on our growth.
There may be slower
growth through an
inability to increase
market representation or
achieve a timely exit for
a franchisee.
Lower resale values may
result and discourage
new entrants.
REPUTATIONAL
RISK TO OUR
BRAND
A strong brand is key to being successful in any sector
and central to that is the reputation of the Group and
its franchisees. Our combined ability to provide our
service commitments and the way in which we do that
is central to our reputation.
ONLINE & IT
THREATS
Cyber threats could affect our business systems causing
services to be suspended. They could also be a source
of identity theft and invoice fraud. The scale of reported
incidents in the press seems to increase every year and
we are all subjected to this in our daily lives.
Failure by the
franchisees to meet
the expectations of
landlords, tenants,
buyers and sellers
or to fall short of the
standards set by the
Group may have a
material impact on
reputation. As a result,
franchisees may lose
clients and revenue.
We may lose MSF
and find it difficult to
recruit franchisees.
The success of the
business relies on
robust IT systems.
Interference by third
parties could impact the
ability of those systems
to operate and the
delivery of services to
customers. It could also
impact the abilities of
customers to complete
on transactions as well
as their trust in us.
28 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Mitigation
Indicator
Strategy
Increase
Decrease
No change
The acquisition of Hunters helped to increase
market share.
The leadership team and Board continually
monitor revenue from MSF, the underlying KPIs
and variances to expectations. This informs key
focuses for the leadership team and the roll out of
actions to the network of franchisees.
EweMove’s proposition is a lower cost model and
has proved successful in attracting new franchisees
and can be developed further as a model for
other brands.
There is the opportunity to use the data we
hold and the customer relationships we have
established to offer other products and services
that increase franchisees’ revenue and our MSF.
The property management service offered by the
network aims to free landlords from the burden of
legislation where it can.
We have entered into a strategic partnership with
LSL, a respected partner, which means they take
care of the FCA requirements.
We have in-house resource and tools to ensure
our network is compliant.
We have several compliance experts in the Group
some of whom assist the regulatory bodies.
In-house experienced team assists throughout the
whole process.
The Group is actively engaged in “walking the talk”
through the purchase of managed portfolios for its
owned offices.
The Group has earmarked funds to help
franchisees buy portfolios in 2023 where primary
sources of traditional finance are scarcer and other
sources of finance are too expensive.
In-house experienced franchise sales team play an
active role in promoting a career in franchising.
EweMove has continued to be a very successful
recruiter of franchisees.
The “hub and spoke” model has encouraged new
entrants to work with existing franchisees to deliver
our services in previously unexploited areas of
the UK.
A network training portal to support e-learning
and qualifications has been rolled out alongside
further investment in the regional team to
support franchisees.
Minimum standards are set out to franchisees and
their compliance is monitored.
Increased focus on social media by the
central team.
Increased leadership team supported by Regional
Operations Managers.
PR agencies are retained to monitor, assist and
advise on strategies to minimise these risks.
Specialist advisors are regularly consulted and
reviews undertaken, supplementing the two main
service providers’ activities in the Group, to ensure
that any vulnerabilities are addressed.
The security of franchisees’ operating systems are
being improved through the implementation of
new platforms. All three national brands will have
completed implementations by the end of 2023.
Two-factor authentication has been adopted by
the business along with tools aimed at detecting
suspicious activity and training aimed at making
employees more aware.
The Strategic Report is contained on pages 1 to 29. It was approved by the Board on 17 April 2023 and signed on its behalf by:
David Raggett
Chief Financial Officer
The Property Franchise Group PLC
Annual Report and Accounts 2022
29
Chairman’s introduction to governance
High standards of
corporate governance
contribute to our success.
Since our IPO in December 2013, we have stated that the Directors
recognise the importance of applying sound corporate governance
guidelines, to the extent appropriate for a Company of our nature
and size, and we have observed and complied with the Corporate
Governance Guidelines devised by the Quoted Companies Alliance
(“QCA”). The London Stock Exchange now requires AIM-listed
companies to state which recognised corporate governance code
they have adopted. Our Board continues to confirm its commitment
by adopting the Quoted Companies Alliance Corporate Governance
Code (Edition 2018) which contains 10 principles. We believe this
code provides us with the most appropriate governance code to
allow us to successfully develop our business. Our full statement of
compliance with the Code is set out on our website at
www.thepropertyfranchisegroup.co.uk/our-business/governance.
We continually review the framework within which we operate,
reflecting upon the updated guidelines and research published by the
QCA so as to ensure we have a sufficiently dynamic management
structure reflecting the complexities of our business which is capable
of adding value as we grow. As a result of which we are about to
establish a Nominations Committee.
The Board sets the strategic direction, regularly reviews performance
and ensures that there are sufficient and appropriate resources
available to support its achievement. It is satisfied that there
are the necessary controls and resources in place to discharge
these responsibilities.
Our primary objective is to enhance shareholder value and to
ensure that the Company and Group is managed for the long-term
benefit of its shareholders. We do recognise our responsibilities to all
stakeholders in our Group and the importance these relationships play
in the delivery of our vision. The Board promotes a culture of good
governance in dealing with all stakeholders.
Corporate governance regime
We confirm that our governance structures and practices continue
to be in agreement with the Quoted Companies Alliance Corporate
Governance Code (Edition 2018).
Paul Latham
Non-Executive Chairman
Paul Latham
Non-Executive Chairman
My main function is to manage
the Board, so the Company and
Group are run in the best interests
of stakeholders. As part of my role
as Chairman, I am responsible
for overseeing the adoption,
delivery and communication
of the Company’s corporate
governance model. Corporate
governance is an important element
of the management of long-term
shareholder value, mitigating
the risks and helping to create
sustainable growth.
30 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
QCA code compliance
Our full statement of compliance with the
Quoted Companies Alliance Corporate
Governance Code is set out on our website
at www.thepropertyfranchisegroup.co.uk/
our-business/governance
GOVERNANCE PRINCIPLE
EXPLANATION
1
2
3
4
5
6
7
8
9
10
Establish a strategy and business
model which promotes long-
term value for shareholders.
Seek to understand and
meet shareholder needs
and expectations.
Take into account wider
stakeholder and social
responsibilities and their
implications for long-
term success.
Embed effective risk
management, considering
both opportunities and threats,
throughout the organisation.
Maintain the Board as a well-
functioning, balanced team led
by the Chair.
Ensure that between them the
Directors have the necessary
up-to-date experience, skills
and capabilities.
Evaluate Board performance
based on clear and relevant
objectives, seeking continuous
improvement.
Promote a corporate culture
that is based on ethical values
and behaviours.
Maintain governance structures
and processes that are fit for
purpose and support good
decision making by the Board.
Communicate how the Company
is governed and is performing
by maintaining a dialogue
with shareholders and other
relevant stakeholders.
Our strategy can be summarised as to buy and build,
diversify our income streams, maintain operational
efficiency and support our franchisees’ growth. Our growth
will principally be achieved through our franchise model.
The Board is committed to ensuring that its shareholders
and potential shareholders have opportunities to express
their expectations through roadshows, investor platforms,
the AGM, its advisors’ organised feedback sessions and
ensuring that their contact details are easily available.
Wider stakeholders start with our people, our franchise
owners and their staff. Then those who support and
partner our franchise model to deliver products and
services to end-customers. We are intent on binding
them together in a fair and respectful partnership to
deliver our long-term success.
Board meetings have naturally become even
more focused on how to mitigate risks and exploit
opportunities given uncertainties over recent years such
as Brexit, the global pandemic, and conflict in Ukraine.
The Board consists of four Non Executive Directors ,two
of whom are independent, and two Executive Directors.
It has operated with a majority of non-executives for
many years.
The Board consists of members with extensive property
franchising and listed company experience. They are
encouraged to keep their skills up to date.
Our strategy, franchise model and size allow us to
have greater freedom to discuss our performance and
effectiveness than many organisations enjoy. We are
continually improving what we do, how we do it and, at
times, how we correct underperformance.
We are a people business led by hard working executives
mindful of the need to work ethically. Our teams whether
home-working, hybrid working or office based working,
are led by managers who promote our culture supported
by extensive policies setting out what behaviours we expect.
We have the appropriate size specific structures
recommended by the QCA. The Board are supported by
an experienced senior management team.
We engage in investor roadshows, an active financial PR
process, and dialogue with analysts following our sector.
We have continued to focus more resource on engaging
with retail investors and making research more easily
accessible to them. At the same time, we keep our people,
our franchisees and their staff, our suppliers and our lenders
regularly informed about our performance and strategy.
COMPLIANT FURTHER READING
✔ See more on pgs 16-17
✔ See more on pgs 22-23
✔ See more on pgs 22-23
✔ See more on pgs 27-29
✔ See more on pgs 34-35
✔ See more on pgs 34-35
✔ See more on pgs 16-17
✔ See more on pgs 24-26
✔ See more on pg 32
✔ See more on pgs 22-23
The Property Franchise Group PLC
Annual Report and Accounts 2022
31
Corporate governance statement
The Board
The Board comprises the Non-Executive
Chairman (non-independent), 3 Non-
Executive Directors (2 of whom are
independent), and 2 Executive Directors
who are the Chief Executive Officer and the
Chief Financial Officer of the Company. It has
established an Audit and Risk Committee and
a Remuneration Committee.
The Board are supported by a strong senior
management team which consists of the
managing directors running our franchisors,
a commercial director, a managing director
running our financial services business,
a training and development director, a
franchise services director and several
qualified accountants alongside the Chief
Executive Officer and Chief Financial Officer.
Non-Executive Directors/
Board independence
The Company has 2 independent Non-
Executive Directors, Phil Crooks and
Dean Fielding who provide an important
contribution to its strategic development.
These two Non-Executive Directors meet the
independence criteria which are set out in
the UK Corporate Governance Code.
The Board is responsible for the overall
performance of the Group, which includes
the broad strategic direction, development
and control of the Group. The policies and
strategies of the Group are formulated by the
Board and the detailed considerations about
the day-to-day operations are delegated
to a senior management team under the
leadership of the Executive Directors.
The Board of Directors meets at least 9
times a year to review the implementation of
strategy and policy decisions and to review
the Group’s progress to ensure that the
operation of the Group is at all times in line
with the Group’s objectives.
The Board has regular contact with its
advisers to keep up to date with corporate
governance matters. The Group purchases
appropriate insurance cover in respect of
legal action against its Directors.
The Chairman’s main function is to manage
the Board so that the Group is run in the
best interests of its stakeholders. It is also
the Chairman’s responsibility to ensure the
Board’s integrity and effectiveness.
The Chief Executive Officer is responsible for
the running of the Group’s businesses. There
is a schedule of matters specifically reserved
for the Board’s decision to ensure that the
management and direction of the Group are
under its control. Each Executive Director has
his own sphere of responsibility. Decisions
relating to strategy, major contracts,
acquisitions, internal controls, for example,
are taken at Board level.
The Board has an appropriate balance of
skills, capabilities and experience, including
in areas of residential property sales and
lettings, franchising, finance and marketing.
Each Directors’ biography is set out on
pages 34-35 which demonstrates the
experience mix.
During the years ended 2021 and 2022, the
Remuneration Committee has sought advice
from Deloitte LLP as well as H2glenfern
Remuneration Advisory in relation to share
option schemes and other employee
reward mechanisms.
All Directors are able to take independent
professional advice in the furtherance of their
duties and to attend seminars and training
to assist them with the development of their
own knowledge and expertise.
All Directors have access to the advice and
services of the Company Secretary, who
is responsible to the Board for ensuring
that Board procedures are followed and
the applicable rules and regulations are
complied with.
Evaluation of Board performance
The Board reviews its effectiveness
internally by discussion, members suggest
improvements and where agreed upon,
these are implemented. However, the
Board does not consider it appropriate for
a company of its size to carry out regular
formal evaluations of its performance as
a unit.
Directors’ time commitments
The Executive Directors are employed on a
Monday to Friday 8.30 am to 5.30 pm basis
and such additional hours as may be required
for proper performance of their duties and
responsibilities. Non-Executive Directors
are required to allocate sufficient time to
properly carry out their duties and perform
their roles as the circumstances will dictate.
This includes attendance at monthly Board
meetings, Committee meetings, meetings
to consider acquisitions and major contracts
and the AGM. Non-Executive Directors are
required to devote appropriate preparation
time ahead of each meeting.
Board Committees
The Board has delegated specific
responsibilities to the Audit & Risk and
Remuneration Committees. The Board
considers that all the members of each
Committee have the appropriate experience.
All Board Committees have their own terms
of reference which are available on request.
Remuneration Committee
The Remuneration Committee is chaired by
Dean Fielding, and its other members are
Phil Crooks and Paul Latham. It met 3 times
in 2022 and will continue to meet at least
twice a year.
The Remuneration Committee has
responsibility for determining, within agreed
terms of reference, the Group’s policy on
the remuneration of senior executives and
specific remuneration packages for Executive
Directors including pension payments and
compensation rights. It is also responsible
for making recommendations for grants of
options under the Share Option Plans.
The remuneration of Non-Executive
Directors is a matter for the Board. No
Director may be involved in any discussions
as to their own remuneration.
Details of the level and composition of the
Directors’ remuneration are disclosed in the
Directors’ Remuneration Report on pages
38 to 40.
Audit and Risk Committee
Phil Crooks is the Chair of the Audit and Risk
Committee. Paul Latham and Dean Fielding
are its other members. The Audit and Risk
Committee met 3 times in 2022 and will
continue to meet at least twice a year.
32 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
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F i n a n c i a l S tat e m e n t S
During the course of the year the Board reviews progress against the risks set out in the risk
review. The key risks are set out in the section of principal risks and uncertainties on pages 28
and 29.
Directors attendance at meetings held during the financial year ended 31 December 2022:
Number of meetings
Gareth Samples
David Raggett
Glynis Frew (resigned 31 March 2022)
Richard Martin
Paul Latham
Phil Crooks
Dean Fielding
Board
Audit
Committee
Remuneration
Committee
9
9
9
2/2
8
9
8
8
3
–
–
–
–
3
3
2
3
–
–
–
–
3
3
3
Internal control
The Board acknowledges that it is responsible for the Group’s system of internal control and
for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the
risk of failure to achieve business objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss.
The Board has established clear operating procedures and responsibility structures. These
procedures include:
• monthly financial reporting against budget and the prior year;
• day-to-day financial control of operations;
•
•
annual budgeting, half-yearly forecasting and monthly outturn review;
the monitoring and assessment of risk;
• performance monitoring and the taking of remedial action; and
• planning, reviewing, approving and monitoring major projects.
Relations with shareholders
The Board is committed to maintaining good communications with shareholders and the
website thepropertyfranchisegroup.co.uk provides up-to-date information on the Group.
The AGM is an important opportunity to meet and communicate with its investors and for
them to raise with the Board any issues or concerns they may have. The Group dispatches
the Notice of AGM at least 21 days before the meeting. Registered shareholders have direct
access to the Group and receive a copy of the Annual Report, which contains the full financial
statements of the Group.
The Audit and Risk Committee has the
primary responsibility for ensuring that
the financial performance of the Group
is properly measured, reported on and
monitored. These responsibilities extend to:
•
•
•
•
the Group’s draft financial statements and
interim results statement prior to Board
approval and reviewing the external
auditor’s detailed reports thereon;
the appropriateness of the Group’s
accounting policies;
the potential impact on the Group’s
financial statements of certain events
and risks;
the external auditor’s plan for the audit
of the Group’s accounts, which includes
key areas of audit focus, key risks, the
proposed audit fee and approving the
terms of engagement for the audit;
•
internal assurance reporting;
• non-audit services;
•
•
the dividend policy;
the processes for identifying the risks
to the business and managing those
risks; and
•
its terms of reference.
For more information on the work of the
Audit and Risk Committee during the year
please refer to its report on pages 36 and 37.
Risk management
The Board carries out a risk review annually.
Board Directors and senior management
all contribute to the drawing up of the risk
review. The Audit and Risk Committee review
the document, examine the risks, decide on
the actions to recommend and then pass it
on to the Board for approval. The document
sets out the name of the risk as well as
describing it, considering the effect on the
business, looking at the controls in place,
looking for additional mitigating factors, and
deciding its seriousness by considering the
probability of it occurring and what damage
it would cause if the event occurred. Once a
risk has been determined as requiring action,
the Board allocates the responsibility to the
appropriate Board member.
The Property Franchise Group PLC
Annual Report and Accounts 2022
33
Our Board of Directors
Committed to the development of the business
in a socially responsible way.
Our Board is responsible for the overall performance of the Group, which
includes the broad strategic direction, development and control of the Group.
The policies and strategies of the Group are formulated by the Board and the
detailed considerations about the day-to-day operations are delegated to a
senior management team under the leadership of the Executive Directors.
Paul Latham
Non-Executive Chairman
Richard Martin
Non-Executive Director
Gareth Samples
Chief Executive Officer
Paul is a Chartered Surveyor. Until 2014, he
sat on the Residential Board for the Royal
Institution of Chartered Surveyors of which
he was Chair until 2011.
Paul served as Deputy Group CEO of LSL
Property Services plc until 2010 having been
part of the management buyout in 2004,
which ultimately saw the business successfully
list on the London Stock Exchange in 2006.
During this period Paul was managing director
of a number of the LSL Group’s subsidiary
businesses including e.surv Chartered
Surveyors and also sat on a number of
external company boards and trade bodies.
Subsequently Paul served as a Non-Executive
Director of LSL until 2012. Paul was appointed
as a non-executive director of The Property
Franchise Group PLC’s Board in December
2013 and served as Chair of its Remuneration
Committee until being appointed Chairman
of the Board in May 2022.
After leaving Bristol Technical School, Richard
became an apprentice stereotyper for the
Bristol Evening Post in 1967. In 1975 he moved
to The Western Gazette, another newspaper
in the same group based in Yeovil. Ahead of
the introduction of computerisation into the
industry, Richard moved into the commercial
side and in 1981, became trained in advertising
design and sales, and was subsequently
promoted to Advertising Manager.
Following the profitable sale of a retail business
in early 1986, which was managed by his wife
Kathy, he left the newspaper business to pursue
his interest in property and forge a career in
estate agency. Richard founded Martin & Co in
1986 in Yeovil. In 1995, Martin & Co became a
franchise operation and the brand has grown
from strength to strength since.
Richard served as our non-independent
Chairman of the Board until May 2022. He
continues to take an active role as a non-
independent Non-Executive Director.
With over 30 years’ industry experience,
Gareth brings a wealth of Estate Agency,
Financial Services and digital marketing
knowledge to our Group.
During his 21 year career at LSL, Gareth was
appointed Managing Director of the Your
Move brand, which was the largest single
brand estate agency in the UK at the time. In
this role he was responsible for Your Move’s
franchise operation as well as having overall
control of Financial Services and Lettings and
the strategy of the brand.
Following his successful career at LSL,
Gareth became Managing Director of
Briefyourmarket.com where he gained
significant digital marketing experience and
knowledge. Gareth joined us in February
2020 and became CEO on 30 April 2020.
34 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
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David Raggett
Chief Financial Officer
Phil Crooks
Independent
Non-Executive Director
Dean Fielding
Independent
Non-Executive Director
Since qualifying with PwC as a Chartered
Accountant David has spent his whole
working life in franchising as franchisor
and franchisee. Initially David held financial
responsibility for several Ford franchises
before, in the mid 90s, moving to Porsche's
UK headquarters. Here he held financial
responsibility for its distribution, retail and
financial services businesses at various times,
as well as being their company secretary and,
for several years, Head of Legal.
In 2007 David took up the role of Finance
Director for the Motability Scooter and
Powered Wheelchair Scheme to restore
its financial stability, to improve its offering
and to expand its customer base. After
successfully turning the scheme around and
leading it into new ownership, David joined
the Group in February 2013.
Phil is a Chartered Accountant. He has
over 40 years’ experience in accounting,
auditing and investigations and is currently
a Managing Director at Berkeley Research
Group. He retired as a partner in Forensic and
Investigations Services at Grant Thornton
UK LLP in June 2019. He was previously UK
Head of Audit for 6 years and a member of
the International Assurance Advisory Board
at Grant Thornton. Prior to that he spent 15
years at Price Waterhouse. Phil has extensive
audit and advisory experience, addressing
financial reporting and accounting issues and
has worked with a wide range of listed and
private international companies.
Phil was appointed as an independent Non-
Executive Director of Board and Chair of its
Audit and Risk Committee in May 2015.
Dean joined GA Property Services in 1995
and became Finance Director of Your Move
in 2002. He subsequently served as Group
Finance Director of LSL Property Services plc
from 2004 to 2010. Since 2010 Dean has
performed a variety of consultancy and NED
roles. He was appointed a Non-Executive
Director of Hunters Property plc in April 2015.
Dean joined our Board as an independent
Non-Executive Director in March 2021 and
Chairs our Remuneration Committee.
Chair of the Audit and Risk Committee
Chair of the Remuneration Committee
The Property Franchise Group PLC
Annual Report and Accounts 2022
35
Audit and Risk Committee report
Ensuring effective controls
are maintained across
the business.
I present our Audit and Risk Committee (“ARC”)
report which summarises the work we have
undertaken during the year and how we have
fulfilled our responsibilities.
The ARC is formed of Paul Latham, Dean Fielding and myself. The three
of us have extensive general business and management experience.
Dean also brings a wealth of experience in the industry and of Hunters
in particular, complementing my experience in accounting, audit and
forensic investigations and Paul’s sector knowledge.
Regular meeting attendees include Paul, Dean and myself as well as our
Chief Financial Officer, Head of Group Finance and representatives of
our external auditor, BDO LLP.
We undertake to meet at least twice a year and in the last year we
met formally 3 times to continue our rolling process of reviewing
matters during the year. We aim to ensure that actions are both being
undertaken in a timely manner and, as importantly, supported with
necessary expertise. Details of attendance at meetings can be found on
page 33.
In addition, in 2022 myself and fellow Board members had the
opportunity to meet franchisees at their annual conferences which
helped us to gain a greater understanding of the opportunities and
challenges they currently face.
Purpose
The ARC operates under written terms of reference which set out its
role and the authorities delegated to it by the Board.
The main responsibilities are summarised below:
•
•
•
•
review and monitor the integrity of the financial information
provided to shareholders,
review and, where appropriate, make recommendations to the
Board on the adequacy of the Group’s internal control and risk
management systems,
review and monitor the external auditor’s independence and
objectivity, and the effectiveness of the Group’s external audit
process,
review and monitor the effectiveness of Group’s internal audit
function,
•
report to the Board on how it has discharged its responsibilities.
Phil Crooks
Chairman - Audit & Risk Committee
Members
• Phil Crooks (Chairman)
• Paul Latham
• Dean Fielding
Objectives
• Maintain vigilance over
our business
• Pay appropriate attention to the
general and specific risks that
our business faces
Achievements in 2022
•
Further enhancement of
Hunters’ financial procedures
and controls so as to align to
Group standards.
36 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Internal audit
We continue to take an interest in internal
audit and discuss any adverse audit results
at our ARC meetings. We seek to ensure
the function remains effective and adapts to
current circumstances.
The year ahead
In the year ahead the ARC will continue to
focus on key risks and accounting matters.
This specifically includes information
security, the results of our internal audits of
franchisees and our year-end audit.
I would like to thank the attendees of our
ARC meetings for their time and valuable
contributions during the year.
Phil Crooks
Chairman of the Audit and Risk
Committee
17 April 2023
Activity in 2022
Financial information
The ARC has taken a leading role in
ensuring, on behalf of the Board, that
the Annual Report remains fair, balanced,
understandable and provides the information
required by shareholders to assess the
Group’s performance, business model
and strategy.
During the year we reviewed the Interim
Results and Trading Updates to ensure
the integrity of the financial information
being presented. The ARC also reviewed
the budget assumptions ahead of it being
presented to the Board for approval. In doing
so it has considered the appropriateness
of the accounting policies adopted and,
where appropriate, the estimates and
judgements made.
The ARC has considered whether the Group
has adopted appropriate accounting policies
and, where necessary, made appropriate
estimates and judgements taking into
account the external auditor's view. It has
paid particular attention to monitoring the
estimates and judgements made in respect
of the share-based payments charge,
including vesting assumptions, and any
potential impairment of intangibles.
Risk management and internal control
On an annual basis the Group draws up an
updated risk review. This risk review includes
contributions from Directors and senior
management. Once the ARC has reviewed
the risk review documentation it is then
presented to our Board for their approval.
The ARC considers the auditor’s report on
findings from the audit and any comments on
controls within the business. The ARC ensures
that the Company responds appropriately.
External audit
The effectiveness of the external audit
process is dependent on the appropriate
audit risk identification at the start of the
audit cycle. A detailed audit plan was
received from BDO which set out the key
risks identified. The ARC subsequently met
with BDO who gave an overview of the new
International Standards of Auditing (“ISAs”)
that they were required to follow for this
year’s audit and explained the impact on their
audit work and scope. The ARC approved the
audit plan and the auditor’s remuneration.
The independence and objectivity of the
external audit function is a fundamental
safeguard to the Company’s shareholders. In
order to ensure audit independence, the ARC
restricts the engagements of BDO in relation
to non-audit work. Our current Audit Partner
has served for 5 years and, as required, will
be replaced in time for the annual audit cycle
leading to next year’s Annual Report. No
non-audit work was undertaken by BDO in
the year.
The effectiveness of the external audit
process is currently assessed by the
ARC based on discussions with those
involved in the process. The ARC has
made a recommendation to the Board
to reappoint BDO as the Company’s
auditors for the 2023 financial year. In
making that recommendation the ARC
has also considered the independence
and objectivity of the auditors as well as
the cost effectiveness of the external audit.
Accordingly, a resolution proposing the
reappointment of BDO will be tabled at the
AGM in 2023.
The Property Franchise Group PLC
Annual Report and Accounts 2022
37
Remuneration Committee report
Rewarding the efforts of those
responsible for the successful
growth of the Group.
As Remuneration Committee Chair, I am
pleased to present its report for the year.
This report sets out the Group’s remuneration
policy for Directors and explains how this
policy was applied during the financial year
to 31 December 2022.
The Remuneration Committee comprises Phil Crooks, Paul Latham
and myself. Phil and I are independent and we all combine extensive
industry knowledge with a deep understanding of corporate reporting
governance. The Committee seeks external advice from various sources
including Deloitte LLP and H2glenfern Remuneration Advisory.
The Remuneration Committee met formally on 3 occasions in 2022.
It also held a number of informal meetings. Apart from Phil, Paul and
myself, our Chief Financial Officer is a regular attendee of our meetings,
supporting us with papers and analysis.
Purpose
The Committee operates under written terms of reference which set
out its role and the authorities delegated to it by the Board. Its main
responsibilities are to:
•
ensure that the Executive Directors and other key employees of the
Group are fairly rewarded for their individual contributions to the
overall performance of the Group.
• demonstrate to the shareholders of the Company that the
remuneration of the Executives is set by a committee of the Board
whose members have no personal interest in the outcome of the
decisions of the Committee and who will have due regard to the
interests of shareholders of the Company.
• oversee any major changes in employee benefit structures
throughout the Group.
Activity in 2022
The Committee believes that the entire senior team, and in particular
the Executive Directors, have continued to provide extraordinary,
inspiring and resourceful leadership during the year.
The Committee considered the remuneration arrangements for the
Executive Directors and other key employees and satisfied itself that
they are aligned to the Group’s strategic goals and properly incorporate
the key performance indicators. Further, the Committee is satisfied that
the remuneration outcomes for 2022 were aligned to performance and
the Committee believes that the arrangements continue to promote the
long-term success of the Group and incentivise the delivery of strong,
sustainable, financial results.
Dean Fielding
Chairman - Remuneration Committee
Members
• Dean Fielding (Chairman)
• Phil Crooks
• Paul Latham
Objectives
• To ensure the Remuneration
Policy is aligned to the long-
term success of the Group
• To ensure executive
remuneration is competitive to
aid retention, recruitment and
motivation
38 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Policy on remuneration of Directors
The Remuneration Committee has
responsibility for determining, within agreed
terms of reference, the Group’s policy on the
remuneration of senior management and
specific remuneration packages for Executive
Directors including pension payments and
compensation rights. It is also responsible
for making recommendations for grants of
options under the Share Option Plan.
The remuneration of Non-Executive Directors
is a matter for the Board. It consists of fees
for their services in connection with Board
and Committee meetings. No Director may
be involved in any discussions as to their
own remuneration.
The remuneration policy is designed to
shape the Group’s remuneration strategy
for an anticipated 3 years, ensuring that the
structure and levels of remuneration continue
to remain appropriate for the Group. The
policy aims to:
• pay competitive salaries to aid
recruitment, retention and motivation
being reflective of the person’s
experience and importance to the Group.
• pay annual bonuses to incentivise the
delivery of stretching short-term business
targets whilst maintaining an element of
variability allowing flexible control of the
cost base and being able to respond to
market conditions.
• provide long-term share incentive
plans designed to incentivise long-term
value creation, reward execution of
strategy, align Directors’ interests with
the long-term interests of investors and
promote retention.
Components of Directors’ remuneration
Basic salary or fees
Basic salary or fees for each Director are
determined by considering the performance
of the individual and information from
independent sources on the rates of salary
and fees for similar posts. The salaries and
fees paid to Directors by the Group were
£698,000 (2021: £723,000).
Annual bonus
The Company has a formal bonus scheme
for its Executive Directors. Bonuses were paid
and payable to the Executive Directors by the
Group of £400,000 (2021: £464,000).
Pension
Contributions made to Executive Directors’
pensions in the year were £45,000
(2021: £70,000).
Share options
On 9 August 2022 an option over 175,000
ordinary shares was granted to the Chief
Executive Officer, an option over 115,000
ordinary shares was granted to the Chief
Financial Officer and options were granted to
senior management over 175,000 ordinary
shares. These options have an exercise price
of £0.01.
The vesting conditions are based on two
performance conditions; adjusted basic
earnings per share adjusted for exceptional
income/costs, amortisation arising on
consolidation and share-based payment
charges ("adjusted EPS") and total shareholder
return ("TSR") over the 3 years to 31 December
2024. Each performance condition will apply
to 50% of the award being made.
In respect of both performance conditions,
growth of 20% over the three-year period
will be required for threshold vesting of the
awards (the “floor”), with growth of 42%
or higher in both performance measures
required for all of the awards to vest (the
“cap”). Straight-line vesting applies between
the floor and the cap.
Company policy on contracts of service
The Executive Directors of the Company
do not have a notice period in excess of
12 months under the terms of their service
contracts. Their service contracts contain no
provisions for pre-determined compensation
on termination, which exceeds 12 months’
salary and benefits in kind. Non-Executive
Directors do not have service contracts
with the Company but have letters of
appointment which can be terminated
on 3-months’ notice.
Termination date
Richard Martin
3-months’ notice
Gareth Samples
12-months’ notice
David Raggett
12-months’ notice
Paul Latham
3-months’ notice
Phil Crooks
3-months’ notice
Dean Fielding
3-months’ notice
Company policy on external
appointments
The Company recognises that its Executive
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 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.
Taxable benefits
The Executive Directors did not receive any
taxable benefits such as a company car or
private medical insurance during the year.
Directors’ emoluments
The figures that follow represent
emoluments earned by the Executive
Directors and Non-Executive Directors from
the Group during the financial year and relate
to the period of each Director’s membership
of the Company’s and Subsidiaries’ Boards.
The Property Franchise Group PLC
Annual Report and Accounts 2022
39
Remuneration Committee report continued
Executive Directors:
Gareth Samples
David Raggett
Glynis Frew (appointed 22 March 2021, resigned 31 March 2022)
Non-Executive Directors:
Richard Martin
Paul Latham
Phil Crooks
Dean Fielding (appointed 22 March 2021)
Total remuneration
Changes to Board members
Glynis Frew resigned as a Director on 31 March 2022.
Salary & fees
£’000
Bonus
£’000
Total 2022
£’000
Total 2021
£’000
257
207
34
498
55
50
50
45
200
698
250
150
–
400
–
–
–
–
400
507
357
34
898
55
50
50
45
200
1,098
447
325
225
997
55
50
50
35
190
1,187
Directors’ interests
The interests of the Executive Directors, Non-Executive Directors and their spouses in the shares of the Company were as follows as at
31 December 2022:
The Property Franchise Group PLC ordinary 1 pence shares.
Directors:
Gareth Samples
David Raggett
Richard Martin
Paul Latham
Phil Crooks
Dean Fielding
2022
2021
Shares
Options
Shares
Options
9,000
390,101
7,039,950
79,727
15,000
37,874
1,075,000
615,000
–
–
–
–
–
383,101
7,039,950
75,000
9,351
37,874
900,000
500,000
–
–
–
–
The dividends paid to the Executive Directors, Non-Executive Directors and their spouses during the year are disclosed in note 34 to the
Financial Statements.
By order of the Board
Dean Fielding
Chairman of the Remuneration Committee
17 April 2023
40 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Directors’ report
Delivering value to
our stakeholders.
David Raggett
Chief Financial Officer
The Directors present their Annual
Report and audited financial
statements for the financial
year ended 31 December 2022.
Information that would normally
be presented in the Directors’
Report has been presented in
the Group’s Strategic Report in
accordance with s414C(11) of the
Companies Act 2006.
Principal activities
The principal activity of the Group during the year was the sale of
franchises and the support of franchisees in supplying residential
letting, sales and property management services within the UK.
Results for the financial year and business review
The Group achieved a profit before tax of £8.8m in the financial
year as compared to £6.4m for the prior year and a profit after tax of
£7.2m (2021: £3.5m). The change in the deferred tax rate from 19%
to 25%, due to an increase in the corporation tax rate in April 2023 to
25%, had a significant impact on the profit after tax in 2021, reducing
it by £1.5m. The results are shown in the Consolidated Statement
of Comprehensive Income on page 48. A full review of the Group’s
business is included in the Strategic Report on pages 1 to 29.
The Group’s profit before tax was £2.4m higher than the previous
year. Excluding exceptional acquisition costs of £nil (2021: £0.9m),
amortisation arising on acquired intangibles of £1.4m (2021: £1.2m),
the share-based payment charges of £0.4m (2021: £1.0m) and the loss
on the listed investment of £0.03m (2021: gain £0.1m), the adjusted
profit before tax from continuing operations increased by 14% from
£9.4m to £10.7m.
Financial risk management
The Group’s objectives and policies with regards to financial
risk management are set out in note 32 to the consolidated
financial statements.
Future developments
The Group intends to pursue the following over the next few years:
•
Lettings growth through assisting franchisees to acquire portfolios
of tenanted managed properties and by helping the Group’s more
sales dominated brands to grow their lettings revenue streams.
• The further development of its residential sales activity in the high
street led brands.
•
Financial services growth through participation of the network in
the partnership with LSL and through the Group’s development of
its owned mortgage broking subsidiaries.
• The accelerated recruitment of franchisees through its
hybrid offerings.
• The search for suitable corporate acquisitions so as to continue to
buy and build.
•
Improved use of digital marketing to win business for all our brands
and to track attribution
More details on the progress made to date with these key areas of
focus can be found in the Strategic Report on pages 16 and 17.
Dividends
The Group paid an interim dividend for the financial year ended
31 December 2022 of 4.2p per share on 7 October 2022 (2021:
3.8p per share on 8 October 2021).
The Property Franchise Group PLC
Annual Report and Accounts 2022
41
Directors’ report continued
The Board recommends a final dividend for
the financial year ended 31 December 2022
of 8.8p per share (2021: 7.8p per share) to be
paid on 9 June 2023 to all shareholders on
the register at the close of business on 12 May
2023 subject to shareholders approval on
6 June 2023.
Directors
The Directors shown below have held office
throughout the year unless otherwise stated:
R W Martin
G M Samples
D A Raggett
G J Frew (resigned 31 March 2022)
P M Latham
P J Crooks
D A Fielding
The Directors’ remuneration and the
Directors’ interests in the Group are disclosed
in the Directors’ Remuneration Report on
pages 38 to 40.
The Group maintains Directors and Officers
liability insurance, which gives appropriate
cover against any legal action that may be
brought and has indemnified the Directors
for negligence, default, breach of duty and
breach of trust incurred to third parties.
Going concern
The Group has produced detailed budgets,
projections and cash flow forecasts, which
include a forecast of future bank covenant
compliance. These have been stress tested
to understand the impacts of reductions
in revenue and costs. The Directors have
concluded after reviewing these budgets,
projections and forecasts and making
appropriate enquiries of the business,
that there is a reasonable expectation
that the Group has adequate resources to
continue in operation for the foreseeable
future. Accordingly, they have adopted
the going concern basis in preparing the
financial statements.
The Group maintains a strong cash position
at the year-end of £6.7m (2021: £8.4m) with
bank debt of £5.0m (2021: £11.1m). The bank
debt consists of a revolving credit facility
which is repayable in January 2024 (2021:
term loan and revolving credit facility).
42 The Property Franchise Group PLC
Annual Report and Accounts 2022
The 4 year term loan drawn to part fund the
acquisition of Hunters in March 2021 was
repaid early on 28 November 2022.
Auditor
BDO LLP has expressed its willingness to
continue in office. In accordance with section
489 of the Companies Act 2006; a resolution
to reappoint BDO LLP will be proposed at the
Annual General Meeting.
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; and
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 auditors are aware of
that information.
Statement of Directors’ responsibilities
The Directors are responsible for preparing
the Strategic Report and the Directors’ Report
and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to
prepare Group and Company financial
statements for each financial year. The
Directors are required by the AIM Rules of
the London Stock Exchange to prepare
Group financial statements in accordance
with UK adopted international accounting
standards in conformity with requirements of
the Companies Act 2006 and have elected
under company law to prepare the Company
financial statements in accordance with UK
adopted international accounting standards.
The financial statements are required by law
and UK adopted international accounting
standards to present fairly the financial
position of the Group and the Company
and the financial performance of the Group.
The Companies Act 2006 provides in
relation to such financial statements that
references in the relevant part of that Act
to financial statements giving a true and
fair view are references to their achieving a
fair presentation.
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
the Company and of the profit or loss of the
Group for that period.
In preparing the Group and Company
financial statements, the Directors are
required to:
•
select suitable accounting policies and
then apply them consistently;
• make judgements and accounting
estimates that are reasonable
and prudent;
•
state whether they have been prepared
in accordance with UK adopted
international accounting standards; and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and the Company will continue
in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Group’s
and the Company’s transactions and
disclose with reasonable accuracy at any
time the financial position of the Group and
the Company and enable them to ensure
that the financial statements comply with
the Companies Act 2006. They are also
responsible for safeguarding the assets of
the Group and the Company and hence for
taking reasonable steps for the prevention
and detection of fraud and
other irregularities.
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.
On behalf of the Board
David Raggett
Chief Financial Officer
17 April 2023
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Independent auditor’s report
to the members of The Property Franchise 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 2022 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 Group financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of The Property Franchise Group plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the
year ended 31 December 2022 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial
Position, Company Statement of Financial Position, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity,
Consolidated Statement of Cash Flows, Notes to the Consolidated Statement of Cash Flows. Company Statement of Cash Flows, Notes to the
Company Statement of Cash Flows, and 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:
• Gaining an understanding of the Directors’ method for assessing going concern including evaluating relevance and reliability of underlying
data used to make the assessment, and whether assumptions and changes to assumptions from prior years are appropriate and where
relevant consistent with each other. This included assessing the accuracy of the previous forecasts by comparing to actual results for the
current year.
• Verified the mathematical accuracy of the going concern forecasts running up to December 2024.
• The Directors’ plans for future actions within their going concern assessment including whether such plans are feasible in the circumstances.
• The Directors’ stress-testing of the forecasts to the extent of reasonable worst-case scenarios, which included modelling significant
downturns in both the sales and lettings markets and modelling what reduction in sales and lettings markets would result in breach of
covenants linked to rolling credit facility. We have assessed these assumptions against the Group’s results for the current financial year
to date.
We carried out the above procedures through using our understanding of the business model, objectives, strategies and related business risk, the
measurement and review of the Group’s financial performance, forecasting and budgeting processes and the entity’s risk assessment process.
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
91% (2021: 98%) of Group revenue
93% (2021: 97%) of Group profit before tax
98% (2021: 100%) of Group total assets
Goodwill and intangible asset impairment risk – Ewemove and Hunters CGU
Revenue Recognition
Acquisition accounting – Hunters
There were no acquisitions during the year and therefore acquisition accounting is
not a key audit matter for 2022.
–
P
P
P
2022
2021
Materiality
Group financial statements as a whole
£420,000 (2021: £480,000) based on 5% of profit before tax
(2021: 5% of adjusted profit before tax)
The Property Franchise Group PLC
Annual Report and Accounts 2022
43
Independent auditor's report continued
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.
We identified seven components, five of which, including the Parent Company, were considered significant and subject to full-scope audits by
the Group audit team. The other non-significant components were subject to a desktop review and specific-scope procedures in areas such as
revenue, which was carried out by the Group audit team.
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
Goodwill and
intangible asset
impairment risk
– Ewemove and
Hunters CGU
The accounting
policy in respect of
the accounting for
intangible assets
is included within
the accounting
policy on note 4.;
the accounting
estimate in respect
of the impairment of
intangible assets is
included within the
accounting estimates
and judgements note
on note 5 and note
17.
Revenue recognition
The accounting
policy in respect of
the accounting for
revenue recognition
is included within the
accounting policy on
note 4.
The risk that goodwill and intangible assets may
be impaired is considered to lie in the Ewemove
and Hunters CGU – as the conclusion is
dependent on achieving forecast growth – and is
significant due to the level of judgement involved
in the impairment review and the opportunity for
management bias within the impairment model
assumptions. We considered this to be a key audit
matter due to the inherent level of judgement.
Management’s review found no evidence
of impairment in the Ewemove, Hunters or
other cash-generating units, nor indicators of
impairment in relation to other intangible assets.
As detailed in the accounting policies and
also note 7 to the financial statements, the
Group earns revenue principally in the form of
Management Service Fees and owned offices
– lettings and sales fees, which are derived as a
percentage of the franchisees’ income or directly
in the case of owned and operated sites.
The Management Service lettings and sales
fees are recorded in separate sales systems
and imported into the accounting system on a
monthly basis.
We consider there to be a significant risk in
relation to the existence of revenue through not
be accurately recognising revenue or recording
revenue in the wrong period due to error or
manipulation.
A significant part of our audit strategy in terms
of the level of direction and supervision and
allocation of resources is focused on the
reconciliation of data from the sales systems to
the nominal ledger and so, consequently, revenue
recognition is considered a key audit matter.
How the scope of our audit addressed the key audit matter
We assessed the impairment review of the Group’s goodwill
and intangible assets prepared by management, specifically
checking the integrity of management’s value-in-use model and,
with the assistance of our valuation specialists, we challenged
the key inputs - being forecast growth rates, operating cash
flows and the discount rate. We also checked if the Cash-
Generating Unit (“CGU”) was appropriately determined and the
correct assets included in its carrying value. Our audit procedures
relating to the operating cash flows and forecast growth rates
included, comparing the forecast to recent financial performance
and budgets approved by the Board, including checking for
consistency with forecasts prepared for the purposes of the going
concern assessment. We used historical trends and industry
forecasts to assess the reasonableness of the Group’s forecasts.
We also used market data to independently calculate a discount
rate for comparison and also performed our own sensitivity
analysis upon the key valuation inputs.
Key observations:
We found management’s judgements in this area are not
unreasonable and found no evidence of management bias in the
assumptions used.
We obtained and tested the underlying sales systems to which
the lettings/sales data was uploaded and the revenue recorded
in the nominal ledger. We witnessed the data extraction from
the underlying systems and engaged our technology and
systems experts to reperform a full match of the data sets. We
investigated and corroborated to supporting documentation
reconciling items such as manual journals to revenue including
year-end cut-off adjustments to accrue revenues for the final
month of the year.
We tested the integrity of the data in the underlying sales
systems by tracing a sample from submission, ensuring that the
correct revenue rate had been applied in accordance with the
relevant contractual arrangement, through to invoice issued and
ultimately cash collection.
In considering the completeness of the data in the underlying
sales systems, we selected a sample of contractual agreements
and ensured that the revenue had been appropriately included in
the sales system and at the appropriate rate.
Key observations:
Based on the procedures performed, we have not identified any
instances that may suggest that revenue has been inappropriately
recognised.
44 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider
materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that
are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence,
when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:
Materiality
Basis for determining materiality
Rationale for the benchmark applied
Group financial statements
Parent company financial statements
2022
£000
441
2021
£000
480
2022
£000
399
2021
£000
460
5% of the profit before tax (2021: 5% of
adjusted profit before tax)
Profit before tax is considered to be one of
the principal considerations for the users
of the financial statements in assessing the
financial performance of the Group.
95% of Group materiality
Capped 95% (2021: 95%) of Group
materiality given the assessment of the
components aggregation risk.
Performance materiality
315
360
299
345
Basis for determining performance materiality
75% of materiality based on a low expected total value of known and likely
misstatements.
Component materiality
We set materiality for each significant component of the Group, apart from the Parent Company whose materiality is set out above, based on a
percentage of between 18% and 95% (2021: 6% and 95% ) of Group materiality dependent on the size and our assessment of the risk of material
misstatement of that component. Component materiality ranged from £77,000 to £399,000 (2021: £27,000 to £460,000). In the audit of each
component, we further applied performance materiality levels of 75% (2021: 75%) of the component materiality to our testing to ensure that the
risk of errors exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £16,800 (2021: £15,000). 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.
The Property Franchise Group PLC
Annual Report and Accounts 2022
45
Independent auditor's report continued
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 the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the
course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to
report to you if, in our opinion:
•
•
•
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
the Parent Company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in 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:
Based on our understanding of the Group and sector in which it operates, we identified that the principal risks of non-compliance with laws and
regulations relate to corporate and VAT legislation, Employment Taxes and Landlord and Tenant Act, and the extent to which non-compliance
might have a material effect on the financial statements. We also considered those laws and regulations which have direct impact on the
preparation of the financial statements such as the Companies Act 2006 and the applicable accounting frameworks.
As a result of performing the above we identified the principal risks of irregularity, including fraud, were related to bias in accounting estimates,
with the most significant considered to relate to revenue recognition and goodwill and intangible asset impairment. Our procedures included:
•
Evaluation of management incentives, including the extent to which remuneration is influenced by reported results, and opportunities for
fraudulent manipulation of the financial statements such as management override;
• This evaluation involved a particular focus on the judgements and estimates inherent in the key audit matters and exercising professional
scepticism in considering the impact of those estimates and judgements on the reported results and key performance measures such as the
profit before tax;
• Discussions with Management and the Audit and Risk Committee regarding known or suspected instances of non-compliance with laws
and regulations including tax and data protection legislation;
• Obtaining an understanding of controls designed to prevent and detect irregularities, including the reconciliation of customer monies held
in client account balances;
• Review of board meeting minutes for any evidence of fraud or non-compliance with laws and regulations including health and safety and
taxation regulations; and
• Assessment of journal entries to accounts that were considered to carry a greater risk of fraud as part of our planned audit approach.
46 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members who were all
deemed to have appropriate competence and capabilities and remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed
and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the
less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Malcolm Thixton (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Southampton
United Kingdom
17 April 2023
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
The Property Franchise Group PLC
Annual Report and Accounts 2022
47
Consolidated statement of comprehensive income
for the year ended 31 December 2022
Revenue
Cost of sales
Gross profit
Administrative expenses
Share-based payments charge
Operating profit
Finance income
Finance costs
Other gains and losses
Profit before income tax expense
Income tax expense
Profit for the year from continuing operations
Discontinued operations
Profit and total comprehensive income for the year
Profit and total comprehensive income for the year attributable to:
Owners of the parent
Non-controlling interest
Earnings per share attributable to owners of parent
Diluted Earnings per share attributable to owners of parent
Notes
7
8
9, 33
11
12
12
21
13
14
15
15
2022
£’000
27,158
(5,575)
21,583
(11,876)
(411)
9,296
39
(470)
(32)
8,833
(1,588)
7,245
–
7,245
7,229
16
7,245
22.6p
22.5p
2021
£’000
24,042
(3,697)
20,345
(12,719)
(970)
6,656
4
(320)
83
6,423
(2,745)
3,678
(169)
3,509
3,469
40
3,509
11.3p
11.3p
48 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Consolidated statement of financial position
31 December 2022
Notes
2022
£’000
2021
£’000
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Prepaid assisted acquisitions support
Investments
Investment properties
Other receivables
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Shareholders’ equity
Called up share capital
Share premium
Own share reserve
Merger reserve
Other reserves
Retained earnings
Non-controlling interest
Total equity attributable to owners
Liabilities
Non-current liabilities
Borrowings
Lease liabilities
Deferred tax
Provisions
Current liabilities
Borrowings
Trade and other payables
Lease liabilities
Tax payable
Total liabilities
Total equity and liabilities
17
18
19
20
21
22
23
23
24
25
27
26
27
28
19
30
31
28
29
19
44,958
162
1,613
297
137
–
240
47,407
3,718
6,684
10,402
57,809
320
4,129
(348)
14,345
1,316
17,399
37,161
22
37,183
5,000
1,856
5,168
212
12,236
–
6,724
506
1,160
8,390
20,626
57,809
46,498
217
1,568
424
169
256
–
49,132
2,820
8,413
11,233
60,365
320
4,129
(348)
14,345
905
13,999
33,350
6
33,356
9,219
2,275
5,570
212
17,276
1,875
6,280
465
1,113
9,733
27,009
60,365
The financial statements were approved and authorised for issue by the Board of Directors on 17 April 2023 and were signed on its behalf by:
David Raggett
Chief Financial Officer
The Property Franchise Group PLC
Annual Report and Accounts 2022
49
Company statement of financial position
31 December 2022 (Company No: 08721920)
Assets
Non-current assets
Investments
Deferred tax asset
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Shareholders’ equity
Called up share capital
Share premium
Own share reserve
Merger reserve
Other reserves
Retained earnings
Total equity
Liabilities
Non-current liabilities
Borrowings
Current liabilities
Borrowings
Trade and other payables
Total liabilities
Total equity and liabilities
Notes
2022
£’000
2021
£’000
21
30
23
24
25
27
26
27
28
28
29
60,773
412
61,185
1,065
1,539
2,604
63,789
320
4,129
(348)
32,335
1,316
19,276
57,028
5,000
5,000
–
1,761
1,761
6,761
63,789
60,743
377
61,120
811
4,635
5,446
66,566
320
4,129
(348)
32,335
905
16,668
54,009
9,219
9,219
1,875
1,463
3,338
12,557
66,566
As permitted by Section 408 of the Companies Act 2006, the income statement of the Parent Company is not presented as part of these
financial statements. The Parent Company’s profit for the financial year was £6.4m (2021: £5.7m).
The financial statements were approved and authorised for issue by the Board of Directors on 17 April 2023 and were signed on its behalf by:
David Raggett
Chief Financial Officer
50 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Consolidated statement of changes in equity
for the year ended 31 December 2022
Attributable to owners
Called up
share capital
£’000
Retained
earnings
£’000
Share
premium
£’000
Own share
reserve
£’000
Balance at 1 January 2021
258
12,690
4,040
Profit and total comprehensive
income
Disposal of subsidiary
Dividends
Shares issued – acquisition
consideration
Shares issued – share option
exercises
Purchase of shares by Employee
Benefit Trust
Release of deferred tax on share
based payments
Share-based payments charge
Total transactions with owners
Balance at 31 December 2021
Profit and total comprehensive
income
Dividends
Share-based payments charge
Total transactions with owners
–
–
–
55
7
–
–
–
3,469
–
(2,922)
–
762
–
–
–
–
–
–
–
89
–
–
–
62
320
(2,160)
13,999
89
4,129
–
–
–
–
7,229
(3,829)
–
(3,829)
–
–
–
–
–
–
–
–
–
–
(348)
–
–
(348)
(348)
–
–
–
–
Merger
reserve
£’000
2,797
–
–
–
11,548
–
–
–
–
11,548
14,345
–
–
–
–
Other
reserves
£’000
Total
equity
£’000
Non-
controlling
interest
£’000
Total
equity
£’000
778
20,563
9
20,572
–
–
–
–
3,469
–
(2,922)
11,603
(762)
96
–
(348)
(81)
970
127
905
–
–
411
411
(81)
970
9,318
33,350
7,229
(3,829)
411
(3,418)
40
(43)
–
–
–
–
–
–
–
6
16
–
–
–
22
3,509
(43)
(2,922)
11,603
96
(348)
(81)
970
9,318
33,356
7,245
(3,829)
411
(3,418)
37,183
Balance at 31 December 2022
320
17,399
4,129
(348)
14,345
1,316
37,161
The Property Franchise Group PLC
Annual Report and Accounts 2022
51
Company statement of changes in equity
for the year ended 31 December 2022
Balance as at 1 January 2021
Profit and total comprehensive income
Dividends
Shares issued – acquisition consideration
Shares issued – share option exercises
Purchase of shares by Employee Benefit Trust
Release of deferred tax on share based payments
Share-based payments charge
Total transactions with owners
Balance as at 31 December 2021
Profit and total comprehensive income
Dividends
Share-based payments charge
Total transactions with owners
Called up
share capital
£’000
258
–
–
55
7
–
–
–
62
Retained
earnings
£’000
13,123
5,705
(2,922)
–
762
–
–
–
(2,160)
Share
premium
£’000
4,040
–
–
–
89
–
–
–
89
320
16,668
4,129
–
–
–
–
6,437
(3,829)
–
(3,829)
–
–
–
–
Own share
reserve
£’000
–
–
–
–
–
(348)
–
–
(348)
(348)
–
–
–
–
Merger
reserve
£’000
20,787
–
–
11,548
–
–
–
–
11,548
32,335
–
–
–
–
Other
reserves
£’000
778
–
–
–
(762)
–
(81)
970
127
905
–
–
411
411
Total
equity
£’000
38,986
5,705
(2,922)
11,603
96
(348)
(81)
970
9,318
54,009
6,437
(3,829)
411
(3,418)
Balance as at 31 December 2022
320
19,276
4,129
(348)
32,335
1,316
57,028
52 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Consolidated statement of cash flows
for the year ended 31 December 2022
Cash flows from operating activities
Cash generated from operations
Interest paid
Tax paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiary net of cash acquired – Hunters
Acquisition of subsidiary net of cash acquired – The Mortgage Genie
Disposal of subsidiary net of cash disposed of - Auxilium
Purchase of intangible assets
Disposal of intangible assets – FDGs and rebrands
Disposal of intangible assets – Customer lists
Purchase of tangible assets
Assisted acquisitions support
Interest received
Net cash generated from / (used in) investing activities
Cash flows from financing activities
Issue of ordinary shares
Equity dividends paid
Purchase of shares by Employee Benefit Trust
Bank loan drawn
Bank loan repaid
Principal paid on lease liabilities
Interest paid on lease liabilities
Net cash (used in) / generated from financing activities
(Decrease) / Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Notes
A
B
C
D
2022
£’000
11,295
(359)
(1,962)
8,974
–
–
–
(387)
143
150
(38)
(102)
39
(195)
–
(3,829)
–
–
(6,094)
(473)
(112)
(10,508)
(1,729)
8,413
6,684
2021
£’000
10,856
(232)
(1,679)
8,945
(13,041)
(103)
(323)
(116)
–
–
(87)
(57)
4
(13,723)
96
(2,922)
(348)
12,500
(4,419)
(399)
(88)
4,420
(358)
8,771
8,413
The Property Franchise Group PLC
Annual Report and Accounts 2022
53
Notes to the consolidated statement of cash flows
for the year ended 31 December 2022
A. Reconciliation of profit before income tax to cash generated from operations
Cash flows from operating activities
Profit before income tax
Profit before income tax – discontinued
Depreciation of property, plant and equipment
Amortisation of intangibles
Amortisation of prepaid assisted acquisitions support
Amortisation of right-of-use assets
Profit on disposal of FDGs and rebrands
Share-based payments charge
Gain on revaluation of listed investment
Finance costs
Finance income
Operating cash flow before changes in working capital
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Cash generated from operations
B. Acquisition of Subsidiary undertakings net of cash acquired
On 19 March 2021 the Group obtained control of Hunters Property plc and it’s subsidiaries.
Consideration – cash element
Less: Cash acquired
Acquisition of subsidiary undertakings net of cash acquired
C. Acquisition of Subsidiary undertakings net of cash acquired
On 6 September 2021 the Group obtained control of The Mortgage Genie Limited and The Genie Group UK Ltd.
Consideration – cash element
Less: Cash acquired
Acquisition of subsidiary undertakings net of cash acquired
2022
£’000
8,833
–
91
1,477
229
305
(195)
411
32
471
(39)
11,615
(837)
517
11,295
2022
£’000
–
–
–
2022
£’000
–
–
–
D. Disposal of Subsidiary undertakings net of cash disposed of
On 22 July 2021 the Group disposed of its controlling interest in Aux Group Limited and Auxilium Partnership Limited
Consideration – cash element
Less: Cash disposed of
Disposal of subsidiary undertakings net of cash disposed of
2022
£’000
–
–
–
2021
£’000
6,423
152
79
1,249
233
317
–
970
(83)
320
(4)
9,656
247
953
10,856
2021
£’000
14,531
(1,490)
13,041
2021
£’000
400
(297)
103
2021
£’000
20
(343)
(323)
54 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Company statement of cash flows
for the year ended 31 December 2022
Cash flows from operating activities
Cash generated from operations
Interest paid
Net cash used in operating activities
Cash flows from investing activities
Acquisition of subsidiary – Hunters
Acquisition of subsidiary – The Mortgage Genie
Disposal of subsidiary - Auxilium
Equity dividends received
Net cash generated from / (used in) investing activities
Cash flows from financing activities
Issue of ordinary shares
Equity dividends paid
Purchase of own shares by Employee Benefit Trust
Bank loan drawn
Bank loan repaid
Net cash (used in) / generated from financing activities
Decrease / (increase) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Notes
E
2022
£’000
(764)
(359)
(1,123)
–
–
–
7,950
7,950
–
(3,829)
–
–
(6,094)
(9,923)
(3,096)
4,635
1,539
2021
£’000
(1,005)
(220)
(1,225)
(14,531)
(400)
20
8,250
(6,661)
96
(2,922)
(348)
12,500
(1,406)
7,920
34
4,601
4,635
The Property Franchise Group PLC
Annual Report and Accounts 2022
55
Notes to the Company statement of cash flows
for the year ended 31 December 2022
E. Reconciliation of profit before income tax to cash generated from operations
Cash flows from operating activities
Profit before income tax
Share-based payments charge
Gain on revaluation of listed investment
Loss on disposal of subsidiary
Finance costs
Equity dividend received
Operating cash flow before changes in working capital
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
Cash used in operations
2022
£’000
6,120
366
15
–
358
(7,950)
(1,091)
28
299
(764)
2021
£’000
4,846
773
(68)
180
220
(8,250)
(2,299)
(8)
1,302
(1,005)
56 The Property Franchise Group PLC
Annual Report and Accounts 2022
S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Notes to the consolidated and company financial statements
for the year ended 31 December 2022
1. General information
The principal activity of The Property Franchise Group PLC and its Subsidiaries is that of a UK residential property franchise business. The Group
operates in the UK. The Company is a public limited company incorporated and domiciled in the UK and listed on AIM. The address of its head
office and registered office is 2 St Stephen’s Court, St Stephen’s Road, Bournemouth, Dorset, UK.
2. Basis of preparation
These consolidated financial statements have been prepared in accordance with 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. The consolidated financial
statements have been prepared under the historical cost convention modified to include the revaluation of certain investments at fair value.
The preparation of financial statements in accordance with UK adopted international accounting standards requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The
areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 5.
The presentational currency of the financial statements is in British pounds and amounts are rounded to the nearest thousand pounds.
Going concern
The Group has produced detailed budgets, projections and cash flow forecasts, which include a forecast of future bank covenant compliance.
These have been stress tested to understand the impacts of reductions in revenue and costs. The Directors have concluded after reviewing
these budgets, projections and forecasts, making appropriate enquiries of the business, that there is a reasonable expectation that the Group has
adequate resources to continue in operation for the foreseeable future. Accordingly, they have adopted the going concern basis in preparing the
financial statements.
Changes in accounting policies
a) New standards, amendments and interpretations effective from 1 January 2022
We do not consider there to be any relevant new standards, amendments to standards or interpretations, that are effective for the financial year
beginning on 1 January 2022, which would have a material impact on the financial statements.
b) New standards, amendments and interpretations not yet effective
We do not consider there to be any relevant new standards, amendments to standards or interpretations that have been issued, but are not
effective for the financial year beginning on 1 January 2022, which would have a material impact on the financial statements.
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
3. Basis of consolidation
The Group financial statements include those of the Parent Company and its Subsidiaries, drawn up to 31 December 2022. Subsidiaries are all
entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from
the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary
is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the
Group. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair
values at the acquisition date. Acquisition-related costs are expensed as incurred.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also
eliminated. When necessary, amounts reported by Subsidiaries have been adjusted to conform to the Group’s accounting policies.
4. Significant accounting policies
Revenue recognition
Performance obligations and the timing of revenue recognition
Revenue represents income, net of VAT, from the sale of franchise agreements, resale fees and Management Service Fees levied to franchisees
monthly based on their turnover, and other income being the provision of ad hoc services and ongoing support to franchisees. In addition there
is lettings and residential sales income, net of VAT, from a small number of Hunters’ owned offices and financial services commissions.
Franchises excluding EweMove:
Fees from the sale of franchise agreements are not refundable. These fees are for the use of the brand along with initial training and support and
promotion during the opening phase of the new office. As such the Group has some initial obligations that extend beyond the receipt of funds
and signing of the franchise agreement so an element of the fee is deferred and released as the obligations are discharged, usually between 1 to
4 months after receipt of funds, which is the typical period of on-boarding for new franchisees.
Resale fees are recognised in the month that a contract for the resale of a franchise is signed. Upon signing of the contract all obligations have
been completed.
Management Service Fees are recognised on a monthly basis and other income is recognised when the services and support is provided to the
franchisee. There are no performance obligations associated with levying the Management Service Fees. For ad hoc services and support all
performance obligations have been fulfilled at the time of revenue recognition.
The Property Franchise Group PLC
Annual Report and Accounts 2022
57
4. Significant accounting policies continued
EweMove:
Fees from the sale of franchise agreements for the EweMove brand are not refundable. Some new franchisees pay a higher fee to include the
first 12 months’ licence fee, in this scenario the licence fee element of the initial fee is deferred and released over the first 12 months of trading of
the franchise where no monthly licence fees are payable. The franchise fee is for the use of the brand along with initial support and promotion
during the opening phase of the new franchise. As such the Group has some initial obligations that extend beyond the receipt of funds and
signing of the franchise agreement so an element of the fee is deferred and released as the obligations are discharged, usually between 1 to 4
months after receipt of funds, which is the typical period of on-boarding for new franchisees.
Management Service Fees consist of monthly licence fees and completion fees. Licence fees are recognised on a monthly basis, completion
fees are recognised when sales or lettings transactions complete and other income is recognised when the services and support are provided to
the franchisee. There are no additional performance obligations associated with levying the licence fee and completion fees beyond providing
access to the systems, brand and marketing support. For ad hoc services and support all performance obligations have been fulfilled at the time
of revenue recognition.
Hunters owned offices:
Revenue from the sale of residential property is recognised, net of vat, at the point the Group has performed its performance obligation to see
the transaction through to the exchange of contracts between a buyer and a vendor.
Revenue from lettings represents commission earned from operating as a lettings agent, net of vat. Where the performance obligation relates
to the letting of a property the revenue is recognised at the point the property has been let. Where the performance obligation relates to the
management of a lettings property revenue is recognised over the period the property is managed.
Financial services commissions:
Financial services commissions received are recognised upon receipt, being a point in time when the Group has met its obligations in delivering a
customer to the mortgage and / or insurance partners. A provision is made for the best estimate of future clawbacks resulting from insurance policies
being subsequently cancelled, however this is not material to the financial statements. There is no vat applicable to financial services commissions.
Rental income:
Rental income represents rent received from short term licensing arrangements entered into to make use of vacant office space. The Group’s
obligation is to provide office accommodation through the period of the license. Revenue is recognised over the period of the license.
Operating profit
Profit from operations is stated before finance income, finance costs and tax expense.
Business combinations
On the acquisition of a business, fair values are attributed to the identifiable assets and liabilities and contingent liabilities unless the fair value
cannot be measured reliably in which case the value is subsumed into goodwill. Where the fair values of acquired contingent liabilities cannot be
measured reliably, the assumed contingent liability is not recognised but is disclosed in the same manner as other contingent liabilities.
Goodwill is the difference between the fair value of the consideration and the fair value of identifiable assets acquired. Goodwill arising on acquisitions is
capitalised and subject to an impairment review, both annually and when there is an indication that the carrying value may not be recoverable.
Intangible assets
Intangible assets with a finite life are carried at cost less amortisation and any impairment losses. Intangible assets represent items which meet
the recognition criteria of IAS 38, in that it is probable that future economic benefits attributable to the assets will flow to the entity and the cost
can be measured reliably.
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 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, on a straight-line basis, as follows:
Brands – CJ Hole, Parkers, Ellis & Co
Brands – EweMove
Brands – Hunters
Customer lists – lettings books
Customer lists – franchise development grants
Master franchise agreements – Whitegates, CJ Hole, Parkers, Ellis & Co
Master franchise agreements – Hunters
Master franchise agreements – EweMove
Technology – Ewereka
Technology – Websites, CRM system and Software
Indefinite life
21 years
20 years
12 years
15 years
25 years
21 years
15 years
5 years
3 years
58 The Property Franchise Group PLC
Annual Report and Accounts 2022
Notes to the consolidated and company financial statements for the year ended 31 December 2022 S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Acquired trade names are identified as separate intangible assets where they can be reliably measured by valuation of future cash flows. The
trade names CJ Hole, Parkers and Ellis & Co are assessed as having indefinite lives due to their long trading histories.
Acquired customer lists 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. The life of the relationship is assessed annually.
Customer lists acquired as part of the Hunters acquisition relate to Lettings books and are being written off over a remaining life of 12 years.
Acquired master franchise 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 15-25 years as historical analyses shows that, on average, 4% – 10% of franchises will change ownership per annum.
Subsequent to initial recognition, intangible assets are stated at deemed cost less accumulated amortisation and impairment charges, with the
exception of indefinite life intangibles.
Impairment of non-financial assets
In respect of goodwill and intangible assets that have an indefinite useful lives, management are required to assess whether the recoverable
amount of each exceeds their respective carrying values at the end of each accounting period.
In respect of intangible assets with definite lives, management are required to assess whether the recoverable amount exceeds the carrying
value where an indicator of impairment exists at the end of each accounting period.
The recoverable amount is the higher of fair value less costs to sell and value in use.
Impairment losses represent the amount by which the carrying value exceeds the recoverable amount; they are recognised in profit or loss.
Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated
to the cash generating unit and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. Where an indicator of
impairment exists against a definite life asset and a subsequent valuation determines there to be impairment, the intangible asset to which it
relates is impaired by the amount determined.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
The master franchise agreement is assessed separately for impairment as an independent asset that generates cash inflows that are largely
independent of those from other assets.
Investment in subsidiaries
Investments in subsidiaries are stated in the Parent Company’s balance sheet at cost less any provisions for impairments.
Equity investments
Investments in the Group balance sheet represent listed investments which are measured at market value and unlisted investments which are
measured at cost. Listed investments are revalued at fair value through the profit and loss account based on the quoted share price.
Property, plant and equipment
Items of property, plant and equipment are stated at cost of acquisition less accumulated depreciation and impairment losses. Depreciation is
charged so as to write-off the cost of assets over their estimated useful lives on the following bases:
Fixtures, fittings and office equipment
Computer equipment
Leasehold buildings and short leasehold improvements
15% - 25% reducing balance or 10% - 33% straight line
over 3 years
over the lease term
Right-of-use assets
Right of use assets relate to operating leases that have been brought onto the balance sheet under IFRS 16. They are initially measured at the
amount of the lease liability, reduced for any lease incentives received, and increased for:
•
•
•
lease payments made at or before commencement of the lease;
initial direct costs incurred; and
the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset
Subsequent to initial measurement right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the
remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.
The Property Franchise Group PLC
Annual Report and Accounts 2022
59
Notes to the consolidated and company financial statements for the year ended 31 December 2022 4. Significant accounting policies continued
Lease liabilities
Lease liabilities 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 rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the
Group’s incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of
the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will
remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are
reduced for lease payments made.
Prepaid assisted acquisitions support
Prepaid assisted acquisitions support represents amounts payable to franchisees in relation to their acquisition of qualifying managed property
portfolios and amounts payable to brokers for assisting with the acquisition of those portfolios. The payments are recognised as an asset and
amortised to the profit and loss account over 5 years. The amounts payable to franchisees are amortised as a reduction in revenue, whereas
amounts payable to brokers are amortised through cost of sales.
Investment properties
Investment property comprises a property held under a lease by Hunters which is subleased to an independent third party. The investment
property is held at historic cost less accumulated depreciation, and is being depreciated over the term of the lease as set out in the Property,
plant and equipment note above. It is recognised on this basis because it is a short term lease and as such it is not possible to reliably determine
a fair value.
Income taxes
Income tax currently payable is calculated using the tax rates in force or substantively enacted at the reporting date. Taxable profit differs from
accounting profit either because some income and expenses are never taxable or deductible, or because the time pattern that they are taxable
or deductible differs between tax law and their accounting treatment.
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except if it arises from transactions or
events that are recognised in other comprehensive income or directly in equity.
Deferred tax
Deferred income taxes are calculated using the liability method on temporary differences, at the tax rate that is substantively enacted at the
balance sheet date. On 24 May 2021 the Finance Bill 2021 was substantively enacted which amends the corporation tax rate from 19% to 25%
with effect from 1 April 2023. 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 the tax expense in the income
statement. For share-based payments the deferred tax credit is recognised in the income statement to the extent that it offsets the share-based
charge, with any remaining element after offset being shown in the statement of changes in equity.
Cash and cash equivalents
Cash and cash equivalents are defined as cash balances in hand and in the bank (including short-term cash deposits).
Financial assets
The Group and Company only have financial assets comprising trade and other receivables and cash and cash equivalents in the Consolidated
Statement of Financial Position.
These assets arise principally from the provision of goods and services to customers (eg. trade receivables), but also incorporate other types of
financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely
payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition
or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision. for impairment.
Impairment of financial assets
Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using
a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the
trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the
lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate
provision account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On
confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
60 The Property Franchise Group PLC
Annual Report and Accounts 2022
Notes to the consolidated and company financial statements for the year ended 31 December 2022 S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward looking expected credit
loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit
risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the
financial asset, 12 month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased
significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit
impaired, lifetime expected credit losses along with interest income on a net basis are recognised.
Financial liabilities
Financial liabilities are comprised of trade and other payables, borrowings and other short-term monetary liabilities, which are recognised at
amortised cost.
Trade payables, other payables and other short-term monetary liabilities, are initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of
the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of
the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of
the facility to which it relates.
Share-based payments
The Group and Company issue equity-settled share-based payments to employees. Equity-settled share-based payments are measured at fair
value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments are amortised through the
Consolidated Statement of Comprehensive Income over the vesting period of the options, together with a corresponding increase in equity,
based upon the Group and Company’s estimate of the shares that will eventually vest.
Fair value is measured using the Black-Scholes option pricing model taking into account the following inputs:
•
•
•
•
•
•
the exercise price of the option;
the life of the option;
the market price on the date of the grant of the option;
the expected volatility of the share price;
the dividends expected on the shares; and
the risk free interest rate for the life of the option.
The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations.
At the end of each reporting period, the Group and Company revise its estimates of the number of options that are expected to vest based on
the non-market conditions and recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding
adjustment to equity.
5. Critical accounting estimates and judgements and key sources of estimation uncertainty
The Company 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.
Valuation of separable intangible assets on acquisition
When valuing the intangibles acquired in a business combination, management estimate the expected future cash flows from the asset and
choose a suitable discount rate in order to calculate the present value of those cash flows. Separable intangibles valued on acquisitions made in
year were £nil (2021: £17.4m) as detailed further in note 17.
Impairment of intangible assets
The Group is required to test, where indicators of impairment exist or there are intangible assets with indefinite lives, whether intangible assets
have suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the
estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Key assumptions for
the value in use calculation are described in note 17.
Share-based payment charge (“SBPC”)
The aggregate fair value expense of each grant is determined through using the Black-Scholes model and an estimate for the attainment of the
performance conditions, where they exist. All the options granted but not vested bar the option granted to Gareth Samples in March 2021 as a result
of deferring bonus, have a non-market based performance condition, earnings per share, and a total shareholder return performance condition.
The Property Franchise Group PLC
Annual Report and Accounts 2022
61
Notes to the consolidated and company financial statements for the year ended 31 December 2022 5. Critical accounting estimates and judgements and key sources of estimation uncertainty Continued
In order to estimate the likely achievement of the performance conditions. management have used the actual results for FY22, the budget for
FY23 and projections of earnings for future years as well as taking into account available market data, performance trends and listed company
valuation metrics.
The share-based payment charge in relation to the performance-based options granted in 2021 assumes that performance will generate vesting
of 50% of the maximum number of shares available under those options. The charge is £0.15m. If the performance assumptions generated
vesting of 100%, the cumulative charge would increase by £0.8m and if the performance assumptions generated vesting of 0%, the cumulative
charge would decrease by £0.8m.
The share-based payment charge in relation to the performance-based options granted in 2022 assumes that performance will generate vesting
of 27% of the maximum number of shares available under those options. The charge is £0.04m. If the performance assumptions generated
vesting of 100% the cumulative charge would increase by £0.1m and if the performance assumptions generated vesting of 0% the cumulative
charge would decrease by £0.04m.
6. Segmental reporting
The directors consider there to be two operating segments in 2022 and 2021 being Property Franchising and Financial Services.
For the year ended 31 December 2022:
Continuing
Revenue
Segment profit before tax
Discontinued
Revenue
Segment profit before tax
For the year ended 31 December 2021:
Continuing
Revenue
Segment profit before tax
Discontinued
Revenue
Segment profit before tax
Property Franchising
£’000
Financial Services
£’000
25,429
8,379
1,729
454
Property Franchising
£’000
Financial Services
£’000
–
–
–
–
Property Franchising
£’000
Financial Services
£’000
23,595
6,363
447
60
Property Franchising
£’000
Financial Services
£’000
–
–
267
153
There was no inter-segment revenue in any period. See note 14 for details of discontinued operations.
7. Revenue
Property Franchising segment:
Management Service Fees
Owned offices – lettings and sales fees
Franchise sales
Franchisee support and similar services
Financial Services segment:
Financial Services commissions
2022
£’000
15,882
5,157
318
4,072
25,429
1,729
27,158
All revenue is earned in the UK and no customer represents greater than 10% of total revenue in either of the years reported.
See note 23 for details of accrued income and note 29 for details of deferred income.
See note 20 for the value of prepaid assisted acquisitions support amortised as a deduction from Management Service Fees.
62 The Property Franchise Group PLC
Annual Report and Accounts 2022
Total
£’000
27,158
8,833
Total
£’000
–
–
Total
£’000
24,042
6,423
Total
£’000
267
153
2021
£’000
14,706
4,708
589
3,592
23,595
447
24,042
Notes to the consolidated and company financial statements for the year ended 31 December 2022 S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
8. Administrative expenses
Administrative expenses relate to those expenses that are not directly attributable to any specific sales activity.
Administrative expenses for the year were as follows:
Employee costs
Marketing and digital costs
Property costs
Amortisation
Exceptional costs (note 10)
Other administrative costs
2022
£’000
6,563
1,004
408
1,782
–
2,119
11,876
9. Employees and Directors
Average numbers of employees (including Directors), employed during the year:
Administration
Management
Employee costs (including Directors) during the year amounted to:
Wages and salaries
Social security costs
Pension costs
Private medical insurance
Share-based payments charge
Group
Company
2022
173
12
185
2021
171
12
183
2022
–
2
2
Group
Company
2022
£’000
8,302
946
193
22
9,463
411
2021
£’000
6,785
1,117
194
19
8,115
970
2022
£’000
929
126
45
–
1,100
366
Key management personnel are defined as Directors and executives of the Group. Details of the remuneration of the key management
personnel are shown below:
Wages and salaries
Social security costs
Pension costs
Share-based payments charge
2022
£’000
2,293
314
63
2,670
372
2021
£’000
6,301
995
547
1,567
853
2,456
12,719
2021
1
2
3
2021
£’000
731
263
19
–
1,013
773
2021
£’000
2,218
456
97
2,771
902
Details of the Directors’ emoluments are disclosed in the Directors’ remuneration report on pages 38 to 40. The share-based payments charge
for the current year has been charged to the Statement of Comprehensive Income, of this £0.36m (2021: £0.77m) relates to Directors.
10. Exceptional costs
Exceptional costs of £0.85m are included in administrative expenses for the year ended 31 December 2021 which comprised costs associated
with the acquisition of Hunters Property plc. There were no exceptional costs in the year ended 31 December 2022.
The Property Franchise Group PLC
Annual Report and Accounts 2022
63
Notes to the consolidated and company financial statements for the year ended 31 December 2022 11. Breakdown of expenses by nature
The operating profit is stated after charging:
Depreciation
Amortisation – intangibles
Amortisation – prepaid assisted acquisitions support
Amortisation – leases
Share-based payments charge
Auditor’s remuneration (see below)
Staff costs (note 9)
Exceptional costs (note 10)
Audit services
– Audit of the Company and consolidated accounts
12. Finance income and costs
Finance income:
Bank interest
Other similar income
Finance costs:
Bank interest
Interest expense on lease liabilities
13. Taxation
Current tax
Adjustments in respect of previous periods
Current tax total
Deferred tax on acquired business combinations
Deferred tax on share-based payments
Deferred tax total
Total tax charge in statement of comprehensive income
2022
£’000
91
1,477
229
305
411
127
8,791
–
127
127
2022
£’000
37
2
39
2022
£’000
358
112
470
2022
£’000
1,930
60
1,990
(366)
(36)
(402)
1,588
2021
£’000
79
1,249
233
317
970
113
8,115
853
113
113
2021
£’000
2
2
4
2021
£’000
232
88
320
2021
£’000
1,680
29
1,709
1,245
(209)
1,036
2,745
The tax assessed for the period is lower (2021: higher) than the standard rate of corporation tax in the UK. The difference is explained below.
Profit on ordinary activities before tax
Profit on ordinary activities multiplied by the effective standard rate of corporation tax
in the UK of 19%
Effects of:
Expenses not deductible for tax purposes
Depreciation in excess of capital allowances
Effect of change in deferred tax rate
Deferred tax provision
Adjustments in respect of previous periods
Total tax charge in respect of continuing activities
2022
£
8,833
1,678
253
(1)
–
(402)
60
1,588
2021
£
6,423
1,220
448
12
1,540
(504)
29
2,745
Factors that may affect future tax charges
Increases in the corporation tax rate in the UK from 19% to 25% (19% effective from 1 April 2017, and 25% effective from 1 April 2023) have been
substantively enacted. This will impact the Group’s future tax charge accordingly. The value of the deferred tax asset at the statement of financial
position date in 2022 and 2021 have been calculated using the applicable rate when the asset is expected to be realised.
64 The Property Franchise Group PLC
Annual Report and Accounts 2022
Notes to the consolidated and company financial statements for the year ended 31 December 2022 S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
14. Discontinued operations
On 22 July 2021 the Group sold it’s majority shareholdings in Aux Group Limited and Auxilium Partnership Limited. Auxilium was a financial
services business operating as life assurance buyers club. The Group took the decision to pursue a different approach to delivering its financial
services strategy so no longer operates a life assurance buyers club.
The profit of Aux Group Limited and Auxilium Partnership Limited for the period up to 22 July 2021, net of tax, has been included in discontinued
operations and the profit net of tax for the comparative period has been moved to discontinued operations. The difference between the
proceeds received on sale, £0.02m and the assets to be disposed of, £0.29m, resulted in an impairment loss of £0.27m, which has been
included in discontinued operations. The profit for the period to 22 July 2021, net of tax, was £0.1m.
15. Earnings per share
Earnings per share is calculated by dividing the profit for the financial year by the weighted average number of shares during the year.
Profit for the financial year attributable to owners of the parent
Amortisation on acquired intangibles
Share-based payments charge
Exceptional costs (note 10)
Deferred tax rate change from 19% to 25%
Discontinued operations – loss on disposal
Loss/(gain) on revaluation of listed investment
Adjusted profit for the financial year
Weighted average number of shares
Number used in basic earnings per share
Dilutive effect of share options on ordinary shares
Number used in diluted earnings per share
Basic earnings per share
Diluted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
2022
£’000
7,229
1,443
411
–
–
–
32
9,115
32,041,966
99,626
32,141,592
22.6p
22.5p
28.4p
28.4p
2021
£’000
3,469
1,214
970
853
1,540
293
(83)
8,256
30,622,102
99,590
30,721,692
11.3p
11.3p
27.0p
26.9p
There were options over 2,213,000 ordinary shares outstanding at 31 December 2022; 100,000 do not have performance conditions attached
to them. The average share price during the year ended 31 December 2022 was above exercise price of the 100,000 options without
performance conditions, for this reason in 2022 there is a dilutive effect of share options on the earnings per share calculation.
There were options over 1,825,500 ordinary shares outstanding at 31 December 2021; 100,000 do not have performance conditions attached to
them. The average share price during the year ended 31 December 2021 was above exercise price of the 100,000 options without performance
conditions, for this reason in 2021 there was a dilutive effect of share options on the earnings per share calculation.
The charge relating to share-based payments that have a dilutive effect is immaterial and therefore the earnings used in the diluted earnings per
ordinary share calculation are the earning per ordinary share calculation before dilution.
16. Dividends
Final dividend for 2021
7.8p per share paid 27 May 2022 (2021: 6.6p per share paid 23 February 2021)
Interim dividend for 2022
4.2p per share paid 7 October 2022 (2021: 3.8p per share paid 11 October 2021)
Total dividend paid
2022
£’000
2,489
1,340
3,829
2021
£’000
1,704
1,218
2,922
The Directors propose a final dividend for 2022 of 8.8p per share totalling £2.82m, which they expect will be paid on 9 June 2023. As this is
subject to approval by the shareholders no provision has been made for this in these financial statements.
The Property Franchise Group PLC
Annual Report and Accounts 2022
65
Notes to the consolidated and company financial statements for the year ended 31 December 2022 17. Intangible assets
Cost
Brought forward at 1 January 2021
Acquisitions (note 35)
Additions
Disposals
Carried forward 31 December 2021
Additions
Disposals
Master
Franchise
Agreement
£’000
7,803
10,789
–
–
18,592
–
–
1,972
3,060
–
–
5,032
–
–
Carried forward 31 December 2022
18,592
5,032
Amortisation & Impairment
Brought forward at 1 January 2021
Charge for year
Carried forward 31 December 2021
Charge for the year
Amortisation on disposals
Carried forward 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
2,565
798
3,363
927
–
4,290
14,302
15,229
289
181
470
220
–
690
4,342
4,562
Brands
£’000
Technology
£’000
Customer lists
£’000
Goodwill
£’000
Total
£’000
338
14
51
–
403
387
–
790
314
30
344
31
–
375
415
59
225
3,556
65
–
3,846
–
(527)
7,411
16,017
–
(185)
23,243
–
–
17,749
33,436
116
(185)
51,116
387
(527)
3,319
23,243
50,976
201
240
441
299
(77)
663
–
–
–
–
–
–
3,369
1,249
4,618
1,477
(77)
6,018
2,656
3,405
23,243
23,243
44,958
46,498
The carrying amount of goodwill relates to 6 (2021: 6) cash generating units and reflects the difference between the fair value of consideration
transferred and the fair value of assets and liabilities purchased.
Business combinations completed in October 2014 – Xperience & Whitegates
Goodwill is assessed for impairment by comparing the carrying value to the value in use calculations. The value in use of the goodwill arising on
the acquisitions of Xperience Franchising Limited (“XFL”) and Whitegates Estate Agency Limited (“WEAL”) is based on the cash flows derived from
the actual revenues and operating margins for 2022 and projections through to 31 December 2027. Thereafter projected revenue growth was
assumed to decline linearly to a long-term growth rate of 2.2%.
The cash flows arising were discounted by the weighted average cost of capital which included a small companies’ risk premium to allow for
factors such as illiquidity in the shares. These discount rates were 13.5% for XFL and 15.0% for WEAL, the latter higher rate reflecting WEAL’s
smaller size and more volatile earnings. This resulted in a total value for each company of the identifiable intangible assets that exceeded the
carrying values of the respective companies’ goodwill.
The Directors do not consider goodwill to be impaired. The Directors believe that no reasonably possible change in assumptions at the year end
will cause the value in use to fall below the carrying value and hence impair the goodwill.
The master franchise agreements are being amortised over 25 years. The period of amortisation remaining at 31 December 2022 was 16 years
10 months.
The brand names under which XFL trades of C J Hole, Parkers and Ellis & Co have been in existence for between 73 years and 171 years.
Management see them as strong brands with significant future value and has deemed them to have indefinite useful lives as there is no
foreseeable limit to the period over which the assets are expected to generate net cash inflows for the Group. As a consequence, management
annually assess whether the carrying value of these brands have been impaired.
The Directors believe that no reasonably possible change in assumptions at the year end will cause the value in use of the brands names CJ
Hole, Parkers and Ellis & Co to fall below their carrying values and hence impair their intangible values.
The Whitegates brand was valued in a similar manner and deemed to have an immaterial value when the acquisition was made principally due
to its lack of profitability over preceding years. It is therefore not recognised separately.
Business combination completed in September 2016 - EweMove
Goodwill is assessed for impairment by comparing the carrying value to the value in use calculations. The value in use of the goodwill arising on
the acquisition of EweMove Sales & Lettings Ltd (“ESL”) is based on the cash flows derived from the actual revenues and operating margins for
2022 and projections through to 31 December 2027. Thereafter projected revenue growth was assumed to be 2.2% per annum.
The revenue growth rates used in the valuation range from 26% in FY23 to 4% in FY27. The high rate in FY23 is as result of increased activity from
the significant number of recruits that joined in FY21 and FY22.
66 The Property Franchise Group PLC
Annual Report and Accounts 2022
Notes to the consolidated and company financial statements for the year ended 31 December 2022 S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
The cash flows arising were discounted by the weighted average cost of capital being 17.33% which included a small companies’ risk premium
to allow for factors such as illiquidity in the shares. This resulted in the value in use exceeding the carrying value of the goodwill and separately
identifiable intangible assets. The enterprise’s overall value exceeds the cash generating unit’s carrying value.
The useful life of the master franchise agreement was assessed as 15 years and remains unchanged. The period of amortisation remaining at 31
December 2022 was 8 years 8 months.
The remaining useful life of the brand name was also reviewed. It continues to attract and recruit the same level of franchisees as in previous
years and to attract higher numbers of customers. Given these 2 factors the remaining useful life of the brand was considered to be unaltered at
21 years. The period of amortisation remaining at 31 December 2022 was 14 years and 8 months.
The carrying value of EweMove the identified cash generating unit, was £7.7m at 31 December 2022 whereas the recoverable amount was
assessed to be £13.1m at the same date. Headroom of £5.4m therefore existed at the year end.
The following table reflects the level of movements required in revenue or costs which could result in a potential impairment per the value in
use calculation of goodwill. A further percentage (fall)/increase, of the magnitude indicated in the table below, in any one of the key assumptions
set out above would result in a removal of the headroom in the value in use calculation for goodwill in 2022. Thus, if the discount rate increased
by 76% to 30%, an impairment change would result against goodwill, all other assumptions remaining unchanged.
Assumption
Judgement
Discount rate
Revenue – FY23 to FY27
Direct costs – all years
Indirect costs – all years
Direct and indirect costs – all years
As indicated above the rate used is 17.33%
The range of growth rates for FY23 to FY27 are stated above
Assumed to be 22% of revenue in FY23 and then 21% of revenue for all years
Assumed to be 79% of revenue in all years
As indicated above for direct and indirect costs
Sensitivity
76%
(142%)
77%
41%
27%
Business combination completed in January 2020 - Auxilium
Auxilium Partnership Limited was acquired in January 2020 and disposed of in July 2021.
Business combination completed in March 2021 - Hunters
Goodwill is assessed for impairment by comparing the carrying value to the value in use calculations. The value in use of the goodwill arising on
the acquisitions of Hunters is based on the cash flows derived from the actual revenues and operating margins for 2022 and projections through
to 31 December 2027. Thereafter projected revenue growth was assumed to be 2.0% per annum.
The revenue growth rates used in the valuation range from (5%) in FY23 to 4% in FY26.
The cash flows arising were discounted by the weighted cost of capital being 12.23%. This resulted in the value in use exceeding the carrying
value of the goodwill and separately identifiable intangible assets. The enterprise’s overall value exceed the carrying value.
The useful life of the master franchise agreement was assessed as 21 years and remains unchanged. The period of amortisation remaining at 31
December 2022 was 19 years 3 months.
The useful life of the brand name was also reviewed. There have been no significant changes since acquisition so as such it is considered to be
unaltered at 20 years. The period of amortisation remaining at 31 December 2022 was 18 years and 3 months.
The useful life of the lettings books was assessed as 12 years and remains unchanged. The period of amortisation remaining at 31 December
2022 was 10 years 3 months.
The carrying value of Hunters the identified cash generating unit, was £25.5m at 31 December 2022 whereas the recoverable amount was
assessed to be £29.0m at the same date. Headroom of £3.5m therefore existed at the year end.
The following table reflects the level of movements required in revenue or costs which could result in a potential impairment per the value in
use calculation of goodwill. A further percentage (fall)/increase, of the magnitude indicated in the table below, in any one of the key assumptions
set out above would result in a removal of the headroom in the value in use calculation for goodwill in 2022. Thus, if the discount rate increased
by 11% to 13.6%, an impairment change would result against goodwill, all other assumptions remaining unchanged.
Assumption
Judgement
Discount rate
Revenue – FY22 to FY27
Direct costs – all years
Indirect costs – all years
Direct and indirect costs – all years
Weighted average cost of capital used of 12.2%
The range of growth rates for FY23 (5%) to FY27 4%
Assumed to be 40% of revenue
Assumed to be 28% of revenue
As indicated above for direct and indirect costs
Sensitivity
11%
(52%)
64%
39%
25%
The Property Franchise Group PLC
Annual Report and Accounts 2022
67
Notes to the consolidated and company financial statements for the year ended 31 December 2022 17. Intangible assets continued
Business combination completed in September 2021 – The Mortgage Genie
Goodwill is assessed for impairment by comparing the carrying value to the value in use calculations. The value in use of the goodwill arising on
the acquisitions of The Mortgage Genie Limited and The Genie Group UK Limited is based on the cash flows derived from the actual revenues
and operating margins for 2022 and projections through to 31 December 2027. Thereafter projected revenue growth was assumed to decline
linearly to a long-term growth rate of 2.2%.
The Directors do not consider goodwill to be impaired. The Directors believe that there are no change in assumptions at the year end that will
cause the value in use to fall below the carrying value and hence impair the goodwill.
Goodwill and indefinite life intangible assets have been allocated for impairment testing purposes to the following cash generating units.
The carrying values are as follows:
Xperience Franchising Limited
Whitegates Estate Agency Limited
Martin & Co (UK) Limited
EweMove Sales & Lettings Ltd
Hunters Property Limited
The Mortgage Genie Limited & The Genie Group
UK Ltd
Goodwill
2022
£’000
912
401
75
5,838
15,871
146
23,243
2021
£’000
912
401
75
5,838
15,871
146
23,243
Brands
2022
£’000
571
–
–
–
–
–
571
2021
£’000
571
–
–
–
–
–
571
Website costs included in technology
In 2017 new websites were launched for each of the 5 traditional brands. The costs associated with these websites have been capitalised as
intangible assets as the purpose of the websites is to generate leads and revenue for the network.
Company
No goodwill or customer lists exist in the Parent Company.
18. Property, plant and equipment
Group
Short leasehold
improvements
£’000
Office
equipment
£’000
Fixtures &
fittings
£’000
37
–
7
–
44
–
–
44
33
6
–
39
3
42
2
5
155
62
64
(14)
267
29
(1)
295
112
48
(6)
154
59
213
82
113
163
99
16
(116)
162
8
–
170
142
25
(104)
63
29
92
78
99
Total
£’000
355
161
87
(130)
473
37
(1)
509
287
79
(110)
256
91
347
162
217
Cost
Brought forward 1 January 2021
Acquisitions
Additions
Disposals
Carried forward 31 December 2021
Additions
Disposals
Carried forward 31 December 2022
Depreciation
Brought forward 1 January 2021
Charge for year
Depreciation on disposals
Carried forward 31 December 2021
Charge for year
Carried forward 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
68 The Property Franchise Group PLC
Annual Report and Accounts 2022
Notes to the consolidated and company financial statements for the year ended 31 December 2022 S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
19. Leases
The Group has several operating leases relating to office premises and motor vehicles. Under IFRS16, which was adopted on 1 January 2019
these operating leases are accounted for by recognising a right-of-use asset and a lease liability,
Right-of-use assets
At 1 January 2021
Acquisitions
Additions
Amortisation
Carried forward 31 December 2021
Reclassification from Investment Properties (see note 22)
Additions
Amortisation
Carried forward 31 December 2022
Lease liabilities
At 1 January 2021
Acquisitions
Additions
Interest expenses
Lease payments
Carried forward 31 December 2021
Additions
Interest expenses
Lease payments
Carried forward 31 December 2022
20. Prepaid assisted acquisitions support
Group
Cost
Brought forward 1 January 2021
Additions
Carried forward 31 December 2021
Additions
Carried forward 31 December 2022
Amortisation
Brought forward 1 January 2021
Charge for year – to revenue
Charge for year – to cost of sales
Carried forward 31 December 2021
Charge for year – to revenue
Charge for year – to cost of sales
Carried forward 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Land and
Buildings
£’000
86
1,579
145
(304)
1,506
256
94
(277)
1,579
Land and
Buildings
£’000
86
2,833
145
86
(457)
2,693
95
109
(555)
2,342
Motor
vehicles
£’000
–
22
53
(13)
62
–
–
(28)
34
Motor
vehicles
£’000
–
22
53
2
(30)
47
–
3
(30)
20
Total
£’000
86
1,601
198
(317)
1,568
256
94
(305)
1,613
Total
£’000
86
2,855
198
88
(487)
2,740
95
112
(585)
2,362
Total
£’000
1,109
57
1,166
102
1,268
509
188
45
742
185
44
971
297
424
Cashback and broker’s commission is presented as prepaid assisted acquisitions support
The additions represent sums provided to franchisees that have made qualifying acquisitions to grow their lettings’ portfolios. The cashback sum
provided is based on a calculation of the estimated increase in MSF as a result of the acquisition and the sum provided for broker’s commission
is based on the charge payable to the broker. In providing these sums the Group ensures that franchisees are contractually bound to the relevant
franchisor for a period in excess of that required for the economic benefits to exceed the sums provided.
Company
No prepaid assisted acquisitions support exists in the Parent Company.
The Property Franchise Group PLC
Annual Report and Accounts 2022
69
Notes to the consolidated and company financial statements for the year ended 31 December 2022 21. Investments
Group
Cost
At 1 January 2021
Acquisitions
Additions
Movement in fair value of listed investment
At 31 December 2021
Movement in fair value of listed investment
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Company
Shares in listed and
unlisted companies
£’000
–
61
25
83
169
(32)
137
137
169
Shares in Group
undertakings
£’000
Shares in
listed company
£’000
Cost
At 1 January 2021
Disposal of Auxilium Partnership Limited
Acquisition of Hunters Property plc
Acquisition of The Mortgage Genie Limited and The Genie Group UK Ltd
Capital contribution to subsidiaries – share options
Movement in fair value of listed investment
At 1 January 2022
Movement in fair value of listed investment
Capital contribution to subsidiaries – share options
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
34,083
(200)
26,134
461
197
–
60,675
–
45
60,720
60,720
60,675
–
–
–
–
–
68
68
(15)
–
53
53
68
Total
£’000
–
61
25
83
169
(32)
137
137
169
Total
£’000
34,083
(200)
26,134
461
197
68
60,743
(15)
45
60,773
60,773
60,743
The Property Franchise Group PLC was incorporated on 7 October 2013. On the 10 December 2013 a share for share exchange acquisition took
place with Martin & Co (UK) Limited; 17,990,000 ordinary shares in The Property Franchise Group PLC were exchanged for 100% of the issued
share capital in Martin & Co (UK) Limited.
On 31 October 2014 the Company acquired the entire issued share capital of Xperience Franchising Limited and Whitegates Estate Agency
Limited for a consideration of £6.1m.
On 5 September 2016 the Company acquired the entire issued share capital of EweMove Sales & Lettings Ltd, and its dormant subsidiary
Ewesheep Ltd, for an initial consideration of £8m. Of the total consideration, £2.1m represented contingent consideration, of which £0.5m was
paid out on 30 July 2017 and £0.5m was paid out on 31 December 2017. No further sums are due.
On 7 January 2020 the Company acquired a majority share of Auxilium Partnership Limited for a total cash consideration of £0.2m. The
Company disposed of this on 22 July 2021.
On 19 March 2021 the Company acquired the entire issued share capital of Hunters Property plc for a total consideration of £26.1m.
On 6 September 2021 the Company acquired the entire issued share capital of The Genie Group UK Ltd and 80% of the issued share capital of
The Mortgage Genie Limited for an initial cash consideration of £0.4m. A further consideration of £0.06m is due which was based on working
capital at the time of acquisition.
The carrying value of the investment in EweMove has been considered for impairment through value in use calculations and it was determined
that no impairment was required in the year ended 31 December 2022.
The carrying value of the investment in Hunters Property Limited has been considered for impairment through value in use calculations and it
was determined that no impairment was required in the year ended 31 December 2022.
The carrying values of the other investments (all companies except for EweMove and Hunters) have been considered for impairment and it has
been determined that the value of the discounted future cash inflows exceeds the carrying value. Thus, there is no impairment charge.
70 The Property Franchise Group PLC
Annual Report and Accounts 2022
Notes to the consolidated and company financial statements for the year ended 31 December 2022 S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
The listed investments comprise a 0.2% holding of ordinary shares in OnTheMarket plc, a company listed on the Alternative Investment Market. The
movement in fair value of listed investment represents the difference between the market value at 31 December 2022 and 31 December 2021.
The Company’s investments at the balance sheet date in the share capital of companies include the following, which all have their registered
offices at the same address as the Company:
Subsidiaries
Martin & Co (UK) Limited
Xperience Franchising Limited
Whitegates Estate Agency Limited
EweMove Sales & Lettings Ltd
Ewesheep Ltd*
MartinCo Limited
Hunters Property Limited
Hunters Property Group Limited*
Greenrose Network (Franchise) Limited*
Hunters Franchising Limited*
Hunters (Midlands) Limited*
Hunters Financial Services Limited*
Hapollo Limited*
RealCube Limited*
Hunters Group Limited*
Hunters Land & New Homes Limited*
Maddison James Limited*
Herriot Cottages Limited*
Hunters Partners Limited*
Hunters Survey & Valuation Limited*
RealCube Technology Limited*
The Genie Group UK Ltd
The Mortgage Genie Limited
*
indirectly owned
Company number
Share class
% ownership
and voting rights
Country of
incorporation
02999803
02334260
00757788
07191403
08191713
09724369
09448465
03947557
02934219
05537909
02587709
02604278
08008359
07736494
02965842
06292723
05920686
04452874
03777494
02602087
08139888
12372201
09803176
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
80
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
All companies in the Subsidiaries list above are exempt from the requirements of the Companies Act 2006 relating to the audit of accounts
under section 479A of the Companies Act 2006.
At the year-end The Property Franchise Group plc has guaranteed all liabilities of all companies in the Subsidiaries list above. The value of the
contingent liability resulting from this guarantee is unknown at the year-end.
22. Investment properties
Group
Cost
Brought forward 1 January 2021
Acquisitions
Carried forward 31 December 2021
Reclassification to Right of Use Assets (see note 19)
Carried forward 31 December 2022
Depreciation
Brought forward 1 January 2021
Charge for year
Carried forward 31 December 2021
Reclassification to Right of Use Assets (see note 19)
Carried forward 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Total
£’000
–
292
292
(292)
–
–
36
36
(36)
–
–
256
In the year ended 31 December 2021 Investment Properties comprised a property held under operating lease within Hunters Property Group
Limited which is subleased to an independent third party. The investment property was held at historic cost less accumulated depreciation. This
accounting treatment was consistent with that used by Hunters Property Group Limited prior to its acquisition by The Property Franchise Group
plc in March 2021. In the year ended 31 December 2022 the asset was reclassified as a Right of Use Asset which management consider to be a
more accurate representation of the asset.
The Property Franchise Group PLC
Annual Report and Accounts 2022
71
Notes to the consolidated and company financial statements for the year ended 31 December 2022 23. Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net of impairment provisions
Loans to franchisees
Other receivables
Amounts due from Group undertakings
Prepayments and accrued income
Tax receivable
Total trade and other receivables
Less: non-current portion – Loans to franchisees
Current portion
Group
2022
£’000
1,856
(420)
1,436
319
60
–
2,143
–
3,958
(240)
3,718
2021
£’000
1,193
(323)
870
31
137
–
1,782
–
2,820
–
2,820
Company
2022
£’000
11
–
11
–
–
770
9
275
1,065
–
1,065
2021
£’000
–
–
–
–
–
21
47
743
811
–
811
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade
receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and aging. The
expected loss rates are based on the Group’s historical credit losses experienced over the previous year. Forward looking factors are considered
to the extent that they are deemed material.
The Group is entitled to the revenue by virtue of the terms in the franchise agreements and can force the sale of a franchise to recover a debt
if necessary.
Ageing of trade receivables
The following is an analysis of trade receivables that are past due date but not impaired. These relate to a number of customers for whom there
is no recent history of defaults. The ageing analysis of these trade receivables is as follows:
Group
Not more than 3 months
More than 3 months but not more than 6 months
More than 6 months but not more than 1 year
2022
£’000
72
–
–
72
2021
£’000
137
7
13
157
The Directors consider that the carrying value of trade and other receivables represents their fair value.
The Group does not hold any collateral as security for its trade and other receivables.
Included within “Prepayments and accrued income” is accrued income of £1.1m (2021: £1.11m) in relation to Management Service Fees for some
of our brands that are invoiced at the beginning of the month following the month to which they relate and EweMove license fees. Hunters
invoices to franchisees are dated the same month to which they relate therefore their December month balance is included in trade receivables
rather than accrued income at the year end.
24. Called up share capital
Group
Authorised, allotted issued and fully paid ordinary shares of 1p each
Company
Authorised, allotted issued and fully paid ordinary shares of 1p each
25. Share premium
At 31 December 2022
At 31 December 2021
Share premium is the amount subscribed for share capital in excess of nominal value.
2022
2021
Number
£’000
Number
£’000
32,041,966
320
32,041,966
32,041,966
320
32,041,966
320
320
Number
of shares
32,041,966
32,041,966
Share capital
£’000
320
320
Share premium
£’000
4,129
4,129
72 The Property Franchise Group PLC
Annual Report and Accounts 2022
Notes to the consolidated and company financial statements for the year ended 31 December 2022 S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
26. Merger reserve
Group
At 1 January 2021
Acquisition of Hunters Property plc
At 1 January 2022 and 31 December 2022
Company
At 1 January 2021
Acquisition of Hunters Property plc
At 1 January 2022 and 31 December 2022
Merger
reserve
£’000
2,797
11,548
14,345
20,787
11,548
32,335
Merger reserve
Acquisition of Martin & Co (UK) Limited
The acquisition of Martin & Co (UK) Limited by The Property Franchise Group PLC did not meet the definition of a business combination and
therefore, falls outside of the scope of IFRS 3. This transaction was in 2013 and accounted for in accordance with the principles of merger accounting.
The consideration paid to the shareholders of the subsidiary was £17.99m (the value of the investment). As these shares had a nominal value of
£179,900, the merger reserve in the Company is £17.81m.
On consolidation the investment value of £17.99m is eliminated so that the nominal value of the shares remaining is £0.1799m and, as there is
a difference between the Company value of the investment and the nominal value of the shares purchased in the subsidiary of £100, this is also
eliminated, to generate a merger reserve in the Group of £0.1798m.
Acquisition of EweMove Sales & Lettings Ltd
The consideration for the acquisition of EweMove Sales & Lettings Ltd included the issue of 2,321,550 shares to the vendors at market price. A
merger reserve of £2.797m is recognised in the Group and the Company being the difference between the value of the consideration and the
nominal value of the shares issued as consideration.
Acquisition of Hunters Property plc
The consideration for the acquisition of Hunters Property plc included the issue of 5,551,916 shares to the vendors at market price. A merger
reserve of £11.548m is recognised in the Group and the Company being the difference between the value of the consideration and the nominal
value of the shares issued as consideration.
27. Own share reserve and Other reserves
Own share reserve
Weighted average cost of own shares held in the Employee Benefit Trust.
Other reserves
Group
At 1 January 2021
Share-based payment charge
Release of reserve – share options exercised
Deferred tax on share-based payments
At 1 January 2022
Share-based payment charge
At 31 December 2022
Company
At 1 January 2021
Share-based payment charge
Release of reserve – share options exercised
Deferred tax on share-based payments
At 1 January 2022
Share-based payment charge
At 31 December 2022
Share-based
payment reserve
£’000
Other
reserve
£’000
697
970
(762)
–
905
411
1,316
697
970
(762)
–
905
411
1,316
81
–
–
(81)
–
–
–
81
–
–
(81)
–
–
–
Total
£’000
778
970
(762)
(81)
905
411
1,316
778
970
(762)
(81)
905
411
1,316
Share-based payment reserve
The share-based payments reserve comprises charges made to the income statement in respect of share-based payments.
The Property Franchise Group PLC
Annual Report and Accounts 2022
73
Notes to the consolidated and company financial statements for the year ended 31 December 2022 28. Borrowings
Repayable within 1 year:
Bank loan (term loan)
Repayable in more than 1 year:
Bank loan (term loan)
Bank loan (revolving credit facility)
Bank loans due after more than 1 year are repayable as follows:
Between 1 and 2 years
Between 2 and 5 years
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
–
1,875
–
1,875
–
5,000
5,000
–
4,219
5,000
1,875
7,344
–
5,000
5,000
–
4,219
5,000
1,875
7,344
On 30 March 2021 the Company drew down a £12.5m loan facility provided by Barclays to partially fund the purchase consideration for the
acquisition of Hunters Property plc. This loan facility comprised:
Term loan – £7.5m drawn down on 30 March 2021 and was repayable over 4 years in equal instalments. Interest was charged quarterly on the
outstanding amount and the rate is 2.4% above Bank of England base rate. The term loan was repaid early on 28 November 2022. The amount
outstanding at 31 December 2022 was £nil (2021: £6.1m).
Revolving credit facility (“RCF”) – £5m drawn down on 30 March 2021 and is repayable on 27 January 2024 being the third anniversary of the
date of facility agreement. Interest is charged quarterly on the outstanding amount, the rate is variable during the term at 2.2% above Bank of
England base rate. The amount outstanding at 31 December 2022 was £5m (2021: £5m).
The loans are secured with a fixed and floating charge over the Group’s assets and a cross guarantee across all companies in the Group.
The cash outflow for borrowings arising from financing activities during the year was £6.1m (2021: £4.4m), in the year ended 31 December 2021
this included the repayment of £3.0m in relation to a Hunters loan balance at acquisition.
29. Trade and other payables
Trade payables
Other taxes and social security
Other payables
Amounts due to Group undertakings
Accruals and deferred income
Group
Company
2022
£’000
1,627
1,231
230
–
3,636
6,724
2021
£’000
850
1,387
159
–
3,884
6,280
2022
£’000
51
92
–
257
1,361
1,761
2021
£’000
39
134
–
102
1,188
1,463
The Directors consider that the carrying value of trade and other payables approximates their fair value.
Included in “Accruals and deferred income” is deferred income of £0.6m (2021: £0.7m) in relation to revenue received in advance which will be
recognised over the next 3 years.
30. Deferred tax
Balance at beginning of year
Movement during the year:
Acquisitions
Adjustment to deferred tax rate from 19% to 25%
Statement of comprehensive income
Release of deferred tax balance relating to share
options exercised in year
Balance at end of year
Group
Company
2022
£’000
(5,570)
–
–
402
–
(5,168)
2021
£’000
(1,115)
(3,419)
(1,540)
657
(153)
(5,570)
2022
£’000
377
–
–
35
–
412
2021
£’000
228
–
15
287
(153)
377
74 The Property Franchise Group PLC
Annual Report and Accounts 2022
Notes to the consolidated and company financial statements for the year ended 31 December 2022 S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
Deferred taxation has been provided as follows:
Accelerated capital allowances
Share-based payments
Acquired business combinations
Group
Company
2022
£’000
6
445
(5,619)
(5,168)
2021
£’000
6
409
(5,985)
(5,570)
2022
£’000
10
402
–
412
2021
£’000
10
367
–
377
31. Provisions
The provisions relate to dilapidations on office buildings £0.21m (2021: £0.21m) in relation to Hunters.
32. Financial instruments
Financial instruments – risk management
The Group is exposed through its operations to the following financial risks:
• Credit risk
•
•
Liquidity risk
Interest rate risk
In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the
Group’s objectives, policies and processes for managing those risks and the methods used to measure them.
There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for
managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group and Company, from which financial instrument risk arises, are as follows:
• Receivables
•
Loans to franchisees
• Cash at bank
• Trade and other payables
• Borrowings
Financial assets
Financial assets measured at amortised cost:
Loans and receivables:
Trade receivables
Loans to franchisees
Other receivables
Cash and cash equivalents
Accrued income
Amount owed by Group undertakings
Financial liabilities
Financial liabilities measured at amortised cost:
Other financial liabilities:
Trade payables
Other payables
Accruals
Amounts owed to Group undertakings
Group
2022
£’000
1,435
319
60
6,684
1,093
–
9,591
Group
2022
£’000
1,627
230
3,028
–
4,885
2021
£’000
870
31
137
8,413
1,107
–
10,558
2021
£’000
850
159
3,172
–
4,181
Company
2022
£’000
–
–
–
1,539
–
20
1,559
Company
2022
£’000
51
92
751
257
1,151
2021
£’000
–
–
–
4,635
–
21
4,656
2021
£’000
39
134
526
102
801
All of the financial assets and liabilities above are recorded in the statement of financial position at amortised cost.
The Property Franchise Group PLC
Annual Report and Accounts 2022
75
Notes to the consolidated and company financial statements for the year ended 31 December 2022 32. Financial instruments continued
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate
responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the
objectives and policies to the finance function. The Board receives monthly reports from the finance function through which it reviews the
effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s
competitiveness and flexibility. Further details regarding these policies are set out below:
Capital management policy
The Board considers capital to be the carrying amount of equity and debt. Its capital objective is to maintain a strong and efficient capital base to
support the Group’s strategic objectives, provide progressive returns for shareholders and safeguard the Group’s status as a going concern. The
principal financial risks faced by the Group are liquidity risk and interest rate risk. The Directors review and agree policies for managing each of
these risks. These policies remain unchanged from previous years.
The Board monitors a broad range of financial metrics including growth in MSF, operating margin, EBITDA, return on capital employed, and
balance sheet gearing.
It manages the capital structure and makes changes in light of changes in economic conditions. In order to maintain or adjust the capital
structure, it may adjust the amount of dividends paid to shareholders.
Credit risk
Credit risk is the risk of financial loss to the Group if a franchisee or 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 and to obtain credit information during the franchise
agreement to highlight potential credit risks.
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 franchisees are analysed for creditworthiness before a loan is offered. The Group’s review includes external ratings, when available,
and in some cases bank references. The Group does not consider that it currently has significant concentration of credit risk with loans extended
to franchisees of £319k.
The Group does not offer credit terms with regards sales and lettings transactions occurring in the offices it operates itself, revenue is typically
recognised at the completion date of property or upon receipt of rent from tenants.
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 development, the Group monitors
forecast cash inflows and outflows on a monthly basis.
The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities, including future
interest charges, which may differ from the carrying value of the liabilities as at the reporting date:
As at 31 December 2022
Trade and other payables
Loans and borrowings
Lease liabilities
Total
Up to
3 months
£’000
1,857
–
130
1,987
Between
3 and 12 months
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
–
–
376
376
–
5,000
300
5,300
–
–
773
773
Over
5 years
£’000
–
–
783
783
Interest rate risk
The Group’s exposure to changes in interest rate risk relates primarily to interest earning financial assets and interest bearing financial liabilities.
Interest rate risk is managed by the Group on an ongoing basis with the primary objective of limiting the effect of an adverse movement in
interest rates. The Group has bank borrowings with a variable interest rate linked to the Bank of England base rate (see note 28). The recent rate
increases are in line with expectations and the Group has factored in further changes to its forecasts.
Fair values of financial instruments
The fair value of financial assets and liabilities is considered the same as the carrying values.
76 The Property Franchise Group PLC
Annual Report and Accounts 2022
Notes to the consolidated and company financial statements for the year ended 31 December 2022 S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
33. Share-based payments
Share Option Scheme 2022
On 9 August 2022 an option over 175,000 ordinary shares was granted to the Chief Executive Officer, an option over 115,000 ordinary shares
was granted to the Chief Financial Officer and options over 175,000 ordinary shares were granted to senior management. All options have an
exercise price of £0.01.
This option has a vesting condition based on two performance conditions; adjusted basic earnings per share adjusted for exceptional income/
costs, amortisation arising on consolidation and share-based payment charges ("adjusted EPS") and total shareholder return ("TSR") over the 3
years to 31 December 2024. Each performance condition will apply to 50% of the award being made.
In respect of both performance conditions, growth of 20% in adjusted EPS and 20% in TSR over the three-year period will be required for
threshold vesting of the awards, with growth of 42% or higher in adjusted EPS and 42% or higher in TSR required for all of the awards to vest
Straight-line vesting applies between the floor and the cap.
The following principal assumptions were used in the valuation of the grant made in the year ended 31 December 2022 using the Black-Scholes
option pricing model:
Assumptions
Date of vesting
Share price at grant
Exercise price
Risk free rate
Dividend yield
Expected life
Share price volatility
30/04/2025
£2.78
£0.01
3.50%
4.50%
3 years
31.00%
The weighted average contractual life remaining of this option is 2 year and 4 months.
Expected volatility is a measure of the amount by which a share price is expected to fluctuate during a period. The assumptions used in valuing
each grant are based on the daily historical volatility of the share price over a period commensurate with the expected term assumption.
The risk free rate of return is the implied yield at the date of grant for a zero coupon UK government bond with a remaining term equal to the
expected term of the options.
It’s expected that with an exercise price of £0.01, should the EPS condition be met, the holder will exercise as soon as the option vests. The
Group announces its results usually within the first 10 days of April. So, it has been assumed that the options will be exercised on 30 April 2025.
EPS is measured as the basic earnings per share excluding any exceptional income/costs and any share-based payments charges.
Management has used the budget for FY23, the market outlook and projections for FY24 to determine, at 31 December 2022, the achievement
of the EPS condition. The expectation is that 27% of the options will vest.
The estimated fair value of the option over 443,000 ordinary shares at 31 December 2022 was £978,144. This fair value, moderated for the
extent to which the option is expected to vest, is spread as a charge between grant and the assumed vesting date. Accordingly, a share-based
payments charge of £38,221 has been recognised in the Statement of Comprehensive Income in the year ended 31 December 2022.
Share Option Scheme 2021
On 24 April 2021 a new Share Option Scheme 2021 was introduced, all options under this scheme have an exercise price of £0.01. On 24 April
2021 an option over 700,000 ordinary shares was granted to the Chief Executive Officer and an option over 400,000 ordinary shares was
granted to the Chief Financial Officer under this scheme. On 7 July 2021 options over 425,500 ordinary shares were granted to a director and
senior management under this scheme.
This option has a vesting condition based on two performance conditions; adjusted basic earnings per share adjusted for exceptional income/
costs, amortisation arising on consolidation and share-based payment charges ("adjusted EPS") and total shareholder return ("TSR") over the 3
years to 31 December 2023. Each performance condition will apply to 50% of the award being made.
In respect of both performance conditions, growth of 60% in adjusted EPS and 80% in TSR over the three-year period will be required for
threshold vesting of the awards, with growth of 65% or higher in adjusted EPS and 90% or higher in TSR required for all of the awards to vest. At
threshold vesting, 75% of the shares subject to each performance condition, will vest.
The weighted average contractual life remaining of this option is 1 year and 4 months.
Management has used the budget for FY23, the market outlook and projections for FY23, to determine, at 31 December 2022, the achievement
of the EPS condition. The expectation is that 100% of the EPS target measure will be achieved. At this juncture the TSR condition is not expected
to be achieved. Accordingly Management expect 50% of the options to vest.
The Property Franchise Group PLC
Annual Report and Accounts 2022
77
Notes to the consolidated and company financial statements for the year ended 31 December 2022 33. Share-based payments continued
The estimated fair value of the option over 1,470,000 ordinary shares at 31 December 2022 was £3,016,974. This fair value, moderated for the
extent to which the option is expected to vest, is spread as a charge between grant and the assumed vesting date. Accordingly, a share-based
payments charge of £153,657 has been recognised in the Statement of Comprehensive Income in the year ended 31 December 2022.
Share Option Scheme – CEO bonus deferral
On 24 March 2021 the Chief Executive Officer was granted an option over 100,000 ordinary shares. The award of the nil cost option was in
substitution for two thirds of the total £150,000 performance-based cash bonus payable to the Chief Executive Officer for the financial year to
31 December 2020, with a 100% uplift based on a 30-day VWAP applied to the deferred element, and will become exercisable two years' after
being granted subject to continued employment, vesting criteria and malus conditions. Under the award, the Chief Executive Officer is not be
able to dispose of any of the acquired shares for a further period of two years (save as required to pay tax due on exercise).
The weighted average contractual life remaining of this option is 3 months.
The estimated fair value of the option over 100,000 ordinary shares at 31 December 2022 was £211,455. This fair value, moderated for the extent
to which the option is expected to vest, is spread as a charge between grant and the assumed vesting date. Accordingly, a share-based payments
charge of £105,873 has been recognised in the Statement of Comprehensive Income in the year ended 31 December 2022.
Enterprise Management Incentive (“EMI”) Share Option Scheme 2020
On 23 July 2020 a new EMI Share Option Scheme 2020 was introduced and an option over 100,000 ordinary shares each at an exercise price
of £0.01 each was granted to two directors under this scheme.
This option has a vesting condition based on two performance conditions; basic earnings per share adjusted for exceptional income/costs and
share based payments ("adjusted EPS") and total shareholder return over the 3 years to 31 December 2022. Each performance condition will
apply to 50% of the award being made. In respect of both performance conditions, growth of 15% over the three year period will be required for
threshold vesting of the awards, with growth of 35% or higher required for all of the awards to vest. The shares will be awarded on a sliding scale
for growth between 15% and 35%. None of the awards will vest for adjusted EPS growth below 15% over the period.
The weighted average contractual life remaining of this option is 4 months.
It’s expected that with an exercise price of £0.01, should the EPS condition be met, the holder will exercise as soon as the option vests. The
Group announces its results usually within the first 10 days of April. So, it has been assumed that the options will be exercised on 30 April 2023.
Management has used the actual results for FY22, to determine, at 31 December 2022, that it expects 100% of the options will vest.
The estimated fair value of the option over 200,000 ordinary shares at 31 December 2022 was £312,800. This fair value, moderated for the
extent to which the option is expected to vest, is spread as a charge between grant and the assumed vesting date. Accordingly, a share-based
payments charge of £112,818 has been recognised in the Statement of Comprehensive Income in the year ended 31 December 2022.
Enterprise Management Incentive (“EMI”) Share Option Schemes 2013, 2017, 2018 and 2019
There are no options remaining under these schemes as all vested options were exercised during 2021. Share-based payments charges totalling
£97,389 were recognised in the Statement of Comprehensive Income in the year ended 31 December 2021 in relation to share options that
were exercised.
Movement in the number of ordinary shares under options for all schemes was as follows:
Number of share options
Outstanding at the beginning of the year
Exercised
Forfeited
Granted
Outstanding at the end of the year
2022
2021
'000
1,826
–
(116)
503
2,213
Weighted average
exercise price
£0.01
–
£0.01
£0.01
£0.01
'000
2,380
(667)
(1,513)
1,626
1,826
Weighted average
exercise price
£0.0474
£0.14
£0.01
£0.01
£0.01
The outstanding options at 31 December 2022 comprised 2,213,000 options with an exercise price of £0.01.100,000 are exercisable on
23/03/2023, 200,000 are exercisable on 30/4/2023, 1,470,000 are exercisable on 30/04/2024 and 443,000 are exercisable on 30/04/2025.
The outstanding options at 31 December 2021 comprised 1,825,500 options with an exercise price of £0.01.100,000 are exercisable on
23/03/2023, 200,000 are exercisable on 30/4/2023 and 1,525,500 are exercisable on 30/04/2024.
During the year ended 31 December 2022:
•
37,500 options were granted under the 2021 scheme
• 465,000 options were granted under the 2022 scheme
The weighted average remaining contractual life of options is 1.4 years (2021: 2.3 years).
78 The Property Franchise Group PLC
Annual Report and Accounts 2022
Notes to the consolidated and company financial statements for the year ended 31 December 2022 S t r at eG i c r e p o r t
G ov e r n a n c e
F i n a n c i a l S tat e m e n t S
34. Related party disclosures
Transactions with Directors
Dividends
During the year the total interim and final dividends paid to the Directors and their spouses were as follows:
Interim and final dividend (ordinary shares of £0.01 each)
Richard Martin
Paul Latham
Phil Crooks
Dean Fielding
David Raggett
Glynis Frew
2022
£’000
845
9
1
5
46
37
943
2021
£’000
836
8
0
1
29
12
886
Directors’ emoluments
Included within the remuneration of key management and personnel detailed in note 9, the following amounts were paid to the Directors:
Wages and salaries
Social security costs
Pension contribution
2022
£’000
1,098
145
45
1,288
2021
£’000
1,096
291
76
1,463
Details of Directors’ interests in share options are disclosed in the Directors’ remuneration report on pages 38 to 40.
The Property Franchise Group PLC
Annual Report and Accounts 2022
79
Notes to the consolidated and company financial statements for the year ended 31 December 2022 Shareholder information
Financial calendar
Announcement of results – 18 April 2023
Annual General Meeting – 6 June 2023
Half year results – 12 September 2023
Interim dividend – October 2023
Registered office address
The Property Franchise Group PLC
2 St Stephen’s Court
St Stephen’s Road
Bournemouth
BH2 6LA
Company No. 08721920
01202 614 614
www.propertyfranchise.co.uk
Auditors
BDO LLP
Arcadia House
Maritime Walk – Ocean Village
Southampton
SO14 3TL
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Printed by a carbon balanced, FSC®-recognised printer, certified
to ISO 14001 environmental management system using 100%
renewable energy. This product has been made of material from
well-managed, FSC®-certified forests and other controlled sources.
Both paper and production are measured and carbon balanced,
based on a third party, audited, calculation.
100% of the inks used are HP Indigo ElectroInk which complies
with RoHS legislation and meets the chemical requirements of
the Nordic Ecolabel (Nordic Swan) for printing companies, 95% of
press chemicals are recycled for further use and, on average 99% of
any waste associated with this production will be recycled and the
remaining 1% used to generate energy.
The printer contributes to the World Land Trust’s ‘Conservation Coast’
project in Guatemala. This scheme supports many landowners and
local communities to register and obtain their own land and thereby
protect thousands of acres of threatened coastal forest. The local
organisation FUNDAECO works with over 3000 families to help
transform local livelihoods through job creation and ecotourism.
80 The Property Franchise Group PLC
Annual Report and Accounts 2022
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The Property Franchise Group PLC
2 St. Stephen’s Court
St. Stephen’s Road
Bournemouth
Dorset
BH2 6LA
www.thepropertyfranchisegroup.co.uk