Mortgage Advice Bureau (Holdings) plc Annual Report 2019

FY2019 Annual Report · Mortgage Advice Bureau (Holdings) plc

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Mortgage Advice Bureau (Holdings) plc
Capital House
Pride Place
Derby
DE24 8QR

Mortgage Advice Bureau (Holdings) plc
Annual Report 2019

Introduction

Mortgage Advice Bureau is one of the UK’s leading consumer intermediary brands and specialist
appointed representative networks for mortgage intermediaries. MAB’s advisers specialise in providing
mortgage advice to customers, as well as advice on protection and general insurance products.
Providing customers with the right advice is at the heart of everything we do.

Our strategy remains focused on securing further growth through initiatives such as technology
developments, lead generation and specialisation. This gives us a competitive advantage which will
drive further market share increases in all market conditions and enable us to continue to deliver strong
returns to our investors.

Technology is integral to our business. We are building our new technology platform to enhance the
advice process and enable more choice for our customers in terms of how they research, receive advice
and transact. Our platform is designed to improve the customer and adviser experience through making
the process of applying for a mortgage more straightforward and efficient.

Our competitive advantage helps us attract the best firms into our Appointed Representative (“AR”)
network. Last year, we completed the acquisition of 80% of First Mortgage Direct Limited, one of the
UK’s leading mortgage brokers with a strong presence in Scotland, an excellent reputation, and an
omni-channel strategy that complements our own. This acquisition was a real success for the Group,
and we look forward to delivering further growth opportunities.

Contents

Strategic report

Financial highlights
Chair’s statement
Chief Executive’s review
Financial review
Financial performance and
future developments
Principal risks and uncertainties

Governance

Board of Directors
Company information
Directors’ report
Corporate governance
Directors’ remuneration report
Directors’ responsibilities for
the financial statements
Independent auditor’s report

Financial statements

Consolidated statement
of comprehensive income
Consolidated statement
of financial position
Consolidated statement
of changes in equity
Consolidated statement
of cash flows
Notes to the consolidated
financial statements
Company statement
of financial position
Company statement
of changes in equity
Notes to the Company
statement of financial position

Glossary of terms

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02.
05.
15.

16.
21.

24.
25.
26.
29.
33.

36.
37.

43.

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85.

86.

87.

91.

“I am pleased to report this strong set of results. Although the
political uncertainty persisted throughout 2019, we achieved
strong revenue growth of 17% to £143.7m and strong earnings
growth, with adjusted EPS up 17% to 30.1 pence per share.
The Board had intended to propose an increased final
dividend of 12.8 pence per share, making total dividends for
the year of 23.9 pence per share, up 2.6% on the previous
year, in line with our policy of paying out a minimum of 75%
of adjusted earnings as announced on the acquisition of First
Mortgage Direct Limited (“First Mortgage”). However, in view
of the severity of the Coronavirus pandemic, we now propose
a final dividend of 6.4 pence per share, with the intention to
pay a further 6.4 pence when the Board considers it prudent
to do so.

“MAB has always had a clear strategy of pursuing and
delivering long-term sustainable growth in market share,
regardless of mortgage and housing market conditions.
In 2019 we increased our market share of new mortgage
lending to 5.7%, a strong increase of 20% versus the prior
year. Mortgage completions from MAB advisers grew 20%
to £16.7bn.

“Technology continues to be an important growth enabler for
MAB. We started piloting the first part of our new platform at
the end of 2019 and we have now commenced a programme
of implementation of new technology-led processes.

“I am also very pleased with the acquisition of First Mortgage,
which is now fully integrated into the Group. First Mortgage
is a business of exceptional quality which is highly
complementary to MAB. We look forward to enhancing its
strong growth track record through the deployment and
rollout of our technology platform and our support structure.”

Peter Brodnicki
Chief Executive
See review on page 05

For more information please visit our website
www.mortgageadvicebureau.com/investor-relations

Strategic report

Financial highlights

Revenue

£143.7m

2018: £123.3m

+17%

Profit before tax and acquisition related costs

£18.7m

2018: £15.7m

Adjusted EPS

30.1 pence

2018: 25.9 pence

+19%

+17%

Proposed total ordinary dividends

17.5 pence per share(1)
–25%

2018: 23.3 pence per share

Gross mortgage completions

£16.7bn

2018: £14.0bn

+20%

(1) In view of the severity of the Coronavirus pandemic, the Board proposes
a final dividend of 6.4 pence per share, with the intention to pay a further
6.4 pence when the Board considers it prudent to do so.

01.

Mortgage Advice Bureau Annual Report 2019Strategic report

Chair’s statement

“We are confident that our strategy, driven by our customers and their changing expectations, will continue
to drive growth in MAB’s market share year on year and deliver attractive returns to investors. Our response
to the Coronavirus pandemic has been to ensure our customers can continue to access high quality advice
in these challenging times, whilst ensuring that the health and well-being of our employees is protected.”

Katherine Innes Ker
Chair

Dear Shareholder

I am pleased to report that MAB has delivered a fifth full year of strong revenue and profit growth since IPO through a 20%
growth in our market share to 5.7% (2018: 4.7%) and mortgage completions increasing by 20% to £16.7bn, in a reduced housing
transaction market.

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UK Finance Gross
Mortgage Lending

UK GAAP Group
Pre-Exceptionals
Pre-Tax Profit
(2005-2011)

IFRS Group
Pre-Exceptionals
Pre-Tax Profit
(2012-2019)

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Source: UK Finance and MAB accounts

Our technology platform has progressed well and is designed
to enable our AR partners and advisers to compete at the
highest level and to enable us to deliver what our customers
increasingly expect. These developments will ease the
process of obtaining the finance and protection necessary
to complete arguably the most important purchase our
customers make, and allow our advisers to continue to
provide high quality advice throughout the life of the mortgage.

Acquisition of First Mortgage Direct Limited

The acquisition of 80% of First Mortgage Direct Limited
(“First Mortgage” or “FMD”) in July 2019 for £16.5m
was our first substantial acquisition since the IPO in 2014.
First Mortgage is one of the UK’s leading mortgage brokers
with a strong presence in Scotland, an excellent reputation,
and an omni-channel growth strategy, particularly in telephony,
that complements our own. First Mortgage is now fully
integrated into the Group and its strong growth track record
will be further enhanced with MAB’s technology platform
and support structure.

Board changes

With effect from 1 July 2019, Ben Thompson, formerly
Managing Director, became Deputy Chief Executive Officer;
Lucy Tilley, formerly Finance Director, became Chief Financial
Officer; and David Preece, formerly Chief Operating Officer,
became a Non-Executive Director. I congratulate them on their
new roles and look forward to continuing working with them.

02.

Coronavirus pandemic

The MAB team has responded quickly and efficiently
to the Coronavirus pandemic, by redeploying the Group’s
resources to focus on telephone advice and remote working,
as well as driving lead generation opportunities available
in the current market.

Whilst it is too early to predict the impact on the Group,
we remain very optimistic about MAB’s growth prospects
and intend to be in a strong position to take full advantage
of the opportunities that will present themselves in the future.

Stakeholder engagement

Part of our ethos is to actively engage with all our
stakeholders in order to ensure that the best decisions are
taken and to secure sustainable growth. Our stakeholders
include our employees, our Appointed Representatives, their
Advisers, our suppliers, and our shareholders. We are proud
to report on how we have had regard to, and have engaged
with, all our stakeholders this year in accordance with Section
172 of the Companies Act 2006 and other requirements.

In particular, core to the way we do business is our
employees, and their commitment to our high standards of
customer service. I would like to thank them on behalf of the
Board for their exceptional attitude, hard work and dedication,
especially during this unprecedented time.

Mortgage Advice Bureau Annual Report 2019200520062007200820092010201120122013201420152016201720182019£0bn£50bn£100bn£150bn£200bn£250bn£300bn£350bn£400bn£0m£2m£4m£6m£8m£10m£12m£14m£16m£18m£20m288345363254144135141145179204220246258269268

Ordinary dividends

The Board had intended to propose an increased final
dividend of 12.8 pence per share, making total dividends
for the year of 23.9 pence per share, up 2.6% on the previous
year, in line with our policy of paying out a minimum of 75%
of adjusted earnings as announced on the acquisition of
First Mortgage. However, in view of the escalating severity
of the current Coronavirus pandemic, we now propose
a final dividend of 6.4 pence per share, with the intention
to pay a further 6.4 pence when the Board considers
it prudent to do so.

If approved at the AGM on 26 May 2020, the final dividend
will be paid on 29 May 2020 to shareholders on the register
at the close of business on 1 May 2020.

Current trading and outlook

A clear change in customer sentiment following the General
Election in early December 2019 led to much improved
activity in the housing market from the start of 2020, giving
our AR firms and their advisers a strong start to the year in
terms of new business levels and productivity. This marked
increase in activity remained strong up to the end of March
2020, despite increasing concerns about the Coronavirus
pandemic.

The Government imposed lockdown has had the effect
of calling a halt on most house purchase transactions, with
key elements such as physical viewings and valuations ruled
out for the period of the lockdown. Consequently, after the
strong start to the year, we have seen a significant reduction
in purchase related activity. This has already impacted both
Adviser numbers and productivity.

MAB’s growth in Adviser numbers started to slow down
from early March 2020, as AR firms temporarily put their
recruitment plans on hold. As at 17 April 2020, Adviser
numbers were 1,473, including 196 Advisers currently
furloughed. The furloughed Advisers relate mostly to ARs
that have strong links to estate agencies or the new build
sector. Some Adviser attrition has also occurred among the
lower performing Advisers and it is unlikely any of those
advisers will be replaced until the purchase market fully recovers.

As expected, focus and demand has increased in the
re-mortgage and product transfer markets, which together
represented around 65% of the value of all UK mortgage
transactions last year. The MAB team and our ARs have
prioritised resources to optimising opportunities in this
sector and early results are very encouraging. Re-mortgage
opportunities cannot be fully optimised at present due to loan
to value restrictions that are currently in place as a result of
many lenders experiencing processing capacity issues and
the limitations of automated valuations in higher loan to value
mortgages, but product transfers have significantly increased
in recent weeks. By the time Government restrictions are
lifted, our typically purchase focused AR firms will have
improved their procedures for servicing existing clients
in this sector, and we expect that increased efficiency
to be maintained once purchase activity starts to return.

Although we expect protection sales to reduce in line
with purchase activity, the escalation of the Coronavirus
pandemic has resulted in a heightened awareness of the
importance of such products amongst customers. Alongside
our realignment of resources to re-mortgage and product
transfer transactions, is our immediate opportunity to have a
meaningful impact on the lower protection attachment rates
seen on non-purchase mortgages. Plans are already in place
to ensure the improvements we are seeing are maintained
and built upon when advisers become busier again.

All elements of the mortgage and protection advice process
can be transacted by telephone. Over the last month or
so this has become the only option for our customers.
Telephone advice was already a fast-growing area of our
business, both through strong growth in specialist telephone
Advisers, as well as an increasing number of telephone
appointments being conducted by traditionally face-to-face
Advisers. MAB has been providing new guidance and tools
to support a seamless transition to telephone advice across
our distribution network, ensuring business continuity for
advisers and customers across all purchase, product transfer
and re-mortgage transactions.

All our systems and processes were robustly tested pre
lockdown to allow MAB’s head office and field-based teams
to work effectively from home, ensuring continued and
tailored support for our distribution channels. We have also
reviewed our cost base to a level where it is now appropriate
for the current circumstances, and importantly we have
ensured that our ARs and Advisers are fully supported
through this very difficult time in their new ways of working,
including redirecting certain allocated budgets to other areas
of spend where it is optimal to do so.

In response to the challenging environment, MAB, our AR
firms and their advisers have a heightened focus on business
efficiency and ensuring no opportunities are missed.
We have commenced the implementation of new
technology-led processes and efficiencies to optimise
working practices, customer engagement and income
generation, which we expect to deliver long lasting benefits.

The changes in the circumstances and priorities for
consumers has led us to design new campaigns and initiatives
as part of our communication strategy. These include a free
mortgage support helpline dedicated to the financial wellbeing
of homeowners worried about paying their mortgage.
In addition, all our online, social media, and existing client
communications, which now feature in this free service,
have also been tailored to reflect a heightened awareness
of protection and refinancing.

The Government has announced a strong package of
measures to ensure lenders can continue to lend to mortgage
borrowers as usual, including access to new, significant
and cost-effective funding and reduced regulatory capital
buffer requirements in this period of exceptional challenge.
As referenced above, there are however some loan to value
restrictions currently in place.

03.

Mortgage Advice Bureau Annual Report 2019Strategic report

Chair’s statement (continued)

In addition, the Bank of England recently reduced its base
rate to a record low of 0.1%, allowing the cost of mortgages
to be reduced even further. This has triggered a higher level
of interest in re-mortgages and product transfers as well as
benefited all those buying a new house or moving home when
restrictions are lifted and they are able to continue proceeding
with their transactions. Wider measures, including increased
investment in all types of housing, should ensure the medium
to long term outlook for our market remains very positive.

MAB is also actively engaged in lobbying key stakeholders
in the Government for specific actions to be taken to ensure a
speedier recovery in the UK housing market when restrictions
are lifted.

Over 20 years we have built a high-quality distribution
network, a leading consumer brand, and an exceptional
management team that continues to adapt quickly and
efficiently to our new ways of working. The Group has a strong
balance sheet, is cash generative and enjoys a healthy surplus
over its regulatory capital requirement. To give ourselves
additional flexibility to capitalise on potential opportunities
quickly, we drew down our full £12m Revolving Credit Facility
on 20 March 2020. We are in a stronger position than many to
deal with the challenges that we face over the coming months
and are confident in our ability to continue growing our market
share, with a specific additional focus on re-mortgages
and product transfers.

MAB has a clear strategy and we continue to strengthen our
proposition. During this pandemic our priority is to redeploy
our resources where possible to focus on lead generation,
telephone advice and remote working. It is too early to predict
the extent of the disruption to trading in the coming months
and the associated impact on our results for the full year,
though we expect to see a reduction in revenue and profit.
However, we remain very optimistic about MAB’s growth
prospects. The quality and level of support that MAB provides
is really standing out at a time when our AR firms and advisers
need that support more than ever. In the months ahead,
AR firms will look back at how their network supported them
during these times and this will be a great opportunity for
MAB to capitalise upon as we look to resume our growth
plans and build on the positives that have come from these
challenging times.

Katherine Innes Ker
Chair
1 May 2020

04.

Mortgage Advice Bureau Annual Report 2019Strategic report

Chief Executive’s review

Overview of 2019

This has been a particularly strong performance from MAB given the reduced level of consumer confidence
that we have seen, caused by the protracted political uncertainty with regard to Brexit and the General
Election at the end of 2019.

Our revenue and profits have continued to increase, building on our consistent track record
of delivering growth.

Our growth in mortgage completions is set out below:

New mortgage lending

Product Transfers

Gross mortgage lending

2019
£bn

15.2

1.5

16.7

2018
£bn

12.7

1.3

14.0

Increase

+20%

+18%

+20%

MAB’s total gross mortgage completions (including Product Transfers) increased by 20% to £16.7bn
(2018: £14.0bn). Gross mortgage completions through new lenders1 increased by 20% to £15.2bn
(2018: £12.7bn). This growth in purchase and re-mortgage lending takes our overall share of UK new
mortgage lending up 20% to 5.7%, from 4.7%.

This growth was achieved in a slightly softer housing transaction and mortgage lending market. Hence,
our 2019 results, as with previous years, represent a clear outperformance against both the overall UK
housing and the new mortgage lending markets.

I am also particularly pleased with our growth in new advisers over the last year, especially since as
predicted, the subdued housing market led to very limited growth from the circa 40% of our AR firms
that are linked to estate agents. Our Adviser numbers grew 20% to 1,457 (2018: 1,213) at the year end,
and 13% excluding the 82 Advisers at First Mortgage, now fully integrated into the MAB Group.

Technology continues to be an important growth enabler for MAB. We started piloting the first part of our
new platform at the end of 2019 and we have now commenced a programme of implementation of new
technology-led processes.

Peter Brodnicki
Chief Executive

Market environment

Housing transactions by volume overall for 2019 were
1% below 2018, which had also been a relatively subdued
year. Overall house moves in 2019 continued to be muted
compared to longer-term average levels. In all likelihood this
was because many consumers were not sufficiently confident
to commit to larger transactions such as moving home given
the wider political uncertainty. In addition there continued
to be multiple factors that contributed to a quieter market,
including affordability, the increases in stamp duty and lower
levels of housing stock available for sale.

Overall, the new mortgage market was generally flat.
The number of First Time Buyers (FTBs) showed a modest
increase as they benefitted from record low mortgage rates,
and purchase finance assistance from the Help to Buy Equity
Loan scheme and Shared Ownership scheme, and as low
property price inflation offset affordability and moderate
wage inflation. The number of home-movers continued
to be broadly flat.

(1) ‘Gross mortgage completions through new lenders’ means either a new mortgage

in connection with a house purchase or a re-mortgage with a different lender to the
customer’s existing lender.

New mortgages for buy to let purchases continued to fall,
carrying on a downward trend seen over recent years as
taxation changes impacted the activity in the market.

The re-mortgaging market remained steady, although owner
occupier re-mortgaging activity showed a slight decline year-
on-year, with buy to let re-mortgages partly countering this.

Mortgage rates again remained at or near record lows,
as the Base Rate remained at 0.75% though 2019.
The low cost of borrowing, the Help to Buy Equity Loan
and Shared Ownership schemes, and a highly competitive
lending market supported activity in the mortgage market.

The £267.6bn UK Finance gross new mortgage lending
figure for 2019 excludes product transfers. In 2019, product
transfers represented £167bn of mortgage lending, a 5%
increase compared to 2018. The latest UK Finance statistics
indicated that the product transfer market is likely to increase
slightly from current levels, but flatten off in the medium term.
These have not as yet been updated since the start
of the Coronavirus pandemic.

05.

Mortgage Advice Bureau Annual Report 2019

First Mortgage contributed revenues of £8.1m and profit before
tax of £1.9m (including £0.5m of revenue synergies) to the
Group for the period from 2 July 2019 to 31 December 2019.
We are very pleased with this acquisition, and the business is
now fully integrated into MAB. We look forward to leveraging
the strengths of the business and further enhancing its strong
growth track record through the planned deployment and rollout
of our technology platform and our support structure.

n Technology developments: the transformation programme
has commenced

Technology is integral to our business, and we believe it plays
a key role in helping customers to move home and re-mortgage
more expediently. Importantly, we are building our technology
platform specifically to help with the following:

• Customers – deliver more choice and convenience for our
customers in terms of how they research, receive advice
and transact.

• Lead Generation – capture and nurture customers

at an earlier point in their home-moving process, and
optimise the ingestion, management and distribution
of lead sources.

• Advisers – enhance Adviser experience, efficiency and

performance through simplifying and shortening the advice
and mortgage application process.

• MAB / our AR Firms – optimise business efficiency
and profitability for our AR firms and the Group.

• Lenders – deliver seamless two-way integration to ensure

simplified application and faster mortgage approvals.

We believe that advice should and will remain of paramount
importance to customers who are looking to make significant
life decisions such as buying a home or protecting their home
and family.

Looking at the future and new models that may emerge
in the mortgage market, we have deliberately built our
technology platform to be agile, enabling us to continually
evolve its overall shape, design and performance, driven
by customer behaviour and expectations. Our objective
is to ensure we have a future-proof business model that
stays relevant to all customers regardless of how they
want to research, receive advice and transact.

We will further develop all parts of the new platform through
2020 and continue our planned rollout, paying special
attention to customer interaction and process efficiencies.

Strategic report

Chief Executive’s review (continued)

The first quarter of 2020 saw a strong pick-up in
activity in the housing market. The February 2020 RICS
Residential Market Survey pointed to a lift in new buyer
enquiries, agreed sales and new listings across all regions.
However, the Coronavirus pandemic and the Government
imposed lockdown has changed this significantly in the short
term. The period for which these restrictions will remain in
place and the impact on consumer confidence and market
activity are currently uncertain.

Delivering our strategy

n Growth in Advisers

2019 was again a strong year for our Adviser growth, with
our adviser base growing by 20% to 1,457 (13% to 1,375
excluding First Mortgage). This is especially pleasing given
how uncertain the economic and political climate was
throughout the year and reflects our success at attracting
new Advisers and AR firms into MAB. This was achieved in a
year where approximately 40% of our total AR firms (mostly
those with direct links to estate agents) did not recruit new
advisers due to the subdued housing market.

Despite the impact of the Coronavirus pandemic on current
Adviser numbers, we expect our market share to continue
to grow, and this will be assisted by continued momentum
in the rollout of our technology developments through 2020
and beyond. Technology developments are important both in
optimising customer experience and enhancing our Adviser
proposition. We are committed to ensuring that technology
becomes a differentiating factor for MAB and contributes
to attracting and retaining ARs, Advisers and customers.

n Acquisition of First Mortgage Direct Limited
(“First Mortgage”)

On 2 July 2019, MAB acquired an 80% stake in First Mortgage
for a consideration of £16.5m. First Mortgage is one of the UK’s
leading mortgage brokers, employing 82 highly productive
mortgage and protection Advisers as at 31 December 2019.

First Mortgage’s strong presence in Scotland, as well as
its omni-channel growth strategy, particularly in telephony,
are highly complementary to MAB’s offering. As a result of
the acquisition, MAB is now strongly represented through
the two leading mortgage intermediary brands in Scotland.

Like MAB, First Mortgage focuses on ensuring that it meets
customers’ protection needs and approximately half of its
revenues are derived from protection products, hence driving
strong margins.

Under the direction of its highly regarded management team,
First Mortgage has developed strong direct to consumer lead
generation expertise. The business also acquires over half of
its new customers via referrals from its existing customer base
and enjoys outstanding repeat business levels. Both factors
have driven its highly reputable brand presence which
is substantiated by very impressive customer reviews.

06.

Mortgage Advice Bureau Annual Report 2019Customer interaction

In February 2020 MAB’s principal regulator, The Financial
Conduct Authority (FCA), issued its final rules relating to the
Mortgages Market Study and its revision of Mortgage Advice
and Selling Standards. One change implemented by the FCA
aims to make it easier for lenders to offer “execution only”
sales channels.

We already provide our customers with a tailored and
value-added advice service, by giving them autonomy
and the ability to choose how and when to interact with our
Advisers depending on their confidence and circumstances.
We have been deliberately building our technology platform
to enhance customer engagement in the expectation that
regulation would make execution only faster and easier for
customers.

Lenders value the advice given to customers as this assists
them in their underwriting process. Moreover, not all lenders
will want to take part in execution only developments which
will likely result in more limited choices for consumers.
As a result, we can deliver both convenience and speed of
execution without sacrificing choice and invaluable advice.

Process efficiencies

We have been focusing on this area most recently
(with our mortgage technology partner Twenty7Tec) through
opening up connectivity directly to our lending partners.
This will remove elements of keying and duplication,
thereby improving Adviser productivity and ensuring
a faster and more seamless application process.

We have now established seven direct to lender submission
routes for mortgage applications and are delighted to report
that we have been piloting this with one of the UK’s largest
lenders. This first group of lenders have set the agenda for
others to follow. Whilst these developments have taken
longer to put in place than lenders originally anticipated due
to the magnitude of technology development required within
lenders, there is now a firm commitment across the lending
industry to deliver this.

n Driving income opportunities

Broadening our addressable market

• Older and younger customers

Currently MAB typically interacts with customers aged
between 35 and 65 whilst they are buying their first homes
and then moving and/or re-mortgaging. The proportion of
first time buyers living in privately rented accommodation
continues to increase (from 39% in 1995-96 to 66% in
2015-16(1)). Through our extensive estate agency and lettings
relationships we intend to nurture these future home buyers
from a younger age. We also offer protection solutions to
tenants who rent pre home ownership, as well as to those
renting on a permanent basis.

(1) English Housing Survey 2015 to 2016: first time buyers.
(2) Centre for Economics and Business Research and more 2 life, 2019.
(3) Swiss Re Term and Health Watch 2017.

We have also been looking at ways to better serve our
customers who are aged 60 or over, or the so-called
“Later Life Lending” market. Typically these customers want
to use mortgages to release equity to boost their retirement
income or pay for a better lifestyle, to help their children
through university, buy a home or pay for weddings,
or to roll over an interest only mortgage for a longer term.
Other reasons also include avoiding downsizing, carrying
out home improvements and discharging any remaining
unsecured or other secured debt.

The most specialist part of this market is Lifetime Mortgages
where no repayments of capital or interest are made.
Both lenders and the regulator are responding to the
innovation required in this market and some lenders have
already expanded their mortgage portfolios to also include
interest only products that help customers to borrow money
at older ages, and, also to borrow that money until they
are much older. This innovation is in response to demand
from an ageing population.

It is estimated that the Later Life Lending market will almost
double over the next decade, from about £295bn in 2019 to
£548bn in 2029(2). It is also estimated that the housing wealth
of the ‘over-55s’ is worth £2.5trillion(3). Again, the anticipated
growth in this market presents MAB with incremental
opportunities, as a direct result of a new and growing market
segment which will be highly intermediated, with customers
very much relying on advice.

This is a highly intermediated and growing sector and over
the last year we have been developing a leading proposition
to enter this market. We look forward to announcing our
launch into this market as soon as it is appropriate to do so.

• Expanding into the broader home-moving process

We have continued to explore and introduce solutions
that provide more assistance and value to our customers
in the home moving process. We have now successfully
piloted with a number of our AR firms a process for helping
mortgage customers with a wider range of services including
energy and other utilities. We have proven the concept and
demonstrated that MAB is well positioned to help busy
mortgage customers in organising their wider home-moving
products and services. We intend to extend this pilot once
the current Government restrictions are lifted and the
conditions have started to normalise, and enhance this
new development via technology in 2021.

07.

Mortgage Advice Bureau Annual Report 2019Strategic report

Chief Executive’s review (continued)

Protection

n Summary

We take pride not just in helping customers with securing
their new mortgage borrowing, but importantly we seek
to provide customers with appropriate and adequate
protection and insurance against both unforeseen and tragic
circumstances. Protection is becoming increasingly a more
specialist area thereby delivering consistency of offerings
and optimal customer outcomes.

Over the course of the last year we have successfully
embedded protection more deeply into our technology driven
processes and have built such processes to help ensure
that protection opportunities are not missed. These initiatives
are in addition to our centralised internal outsourcing
solutions for our customers where their needs are best
served by a specialist protection Adviser. Many of our
protection initiatives have helped to increase protection
attachment rates despite our lending mix being less
in favour of purchase business over the last three years.

Lead generation

A key part of our current focus is continuing to leverage our
unique business model and digital expertise to secure new
lead sources so that we can capture and nurture customers
earlier in the home moving process.

We have over the last year successfully built the technology
that enables us to receive, ingest, distribute, fulfil and report
on new customer-led introductions from a wide variety and
scale of business and affinity partners.

This new capability, along with our omni-channel choice
for customers and fully national scale, means we are very
well placed to win new customer leads into MAB.

This has been a deliberate part of our technology and
proposition design, and represents a real value add in terms
of our proposition in what we can offer our existing and
prospective AR firms, thus further enhancing our offering
to both consumers and our AR partners.

The partnership announced with Charles Cameron in 2019
is expected to gain good momentum this year, and other
lead generation activity is progressing well.

Our 2019 performance was very strong despite our continued
investment in our team and technology. Our Adviser base
and market share grew steadily despite a subdued housing
market. Growing our market share in all market conditions
remains an integral part of the strategy that we have
continued to successfully deliver.

The acquisition of First Mortgage, our first substantial
transaction since listing in 2014, brings many exciting
opportunities to MAB as a Group. We are really pleased
with how well their entire team has worked with MAB to
become successfully integrated into our Group as an AR firm.
We look forward to leveraging the strengths of the business
and further enhancing its strong growth track record through
MAB’s technology platform and support structure.

Broadening our addressable market and becoming more
involved in the home-moving process means we will reach
new customers and help them in more ways than we have
previously, thereby ensuring we continue to grow and
diversify as a Group, and become more prominent and
relevant in home-moving generally.

In terms of employees and culture, we successfully
completed our initial pre-deadline work under the
new Senior Managers & Certification Regime (SM&CR).
This new FCA regulatory requirement changes the way
that financial services firms are regulated. MAB has always
operated with the highest integrity. We embrace this new
regulation and are pleased that improved quality control will
be enforced across the whole mortgage intermediary sector.
Ultimately, this new way of working has been embedded
into MAB to further strengthen our culture and integrity, and
to ensure that we always strive to do the right thing, thereby
minimising or ideally eliminating any potential customer
harm or detriment.

We will roll out the various changes through 2020 and
also continue to work on our company values and culture,
well beyond the minimum standards that regulation enforces.

We will strive to continue to develop the best technology
in our sector, thereby driving efficiencies and growth
across the business and ensuring that we can achieve
all of our objectives, including Adviser productivity gains,
lead generation, and customer retention.

Whilst, with the exception of First Mortgage, our investments
to date have been relatively modest in size, we will continue
to consider investments into larger and more profitable
companies to help accelerate our growth plans or bring
additional skills into the Group, and ensure we remain
highly competitive and at the forefront of the changing
intermediary landscape.

08.

Mortgage Advice Bureau Annual Report 2019Following clear evidence of market improvement in the
first quarter of 2020, the Coronavirus pandemic has created
significant disruption, particularly in the purchase market with
key elements such as physical viewings and valuations ruled
out for the period of the Government imposed lockdown.
It is too early to predict the extent of the disruption to
trading in the coming months and the associated impact
on our results for the full year, though we do expect to see
a reduction in revenue and profit.

We have reacted quickly and efficiently to the pandemic,
by redeploying the Group’s resources to focus on telephone
advice and remote working, as well as driving lead generation
opportunities available in the current market.

We do note positively the package of measures announced
in the March budget. These measures, along with the
reduction in base rate, have reduced the cost of mortgage
borrowing most likely to record lows and boosted the
availability of funding for all mortgage lenders. This, combined
with the additional funding dedicated to long term increases
in the construction of new houses should ensure the medium
to long term outlook for our market remains very positive.

MAB has a very clear strategy, and we continue to invest
significantly in our proposition and team. We are in a stronger
position than many to deal with the current environment
and are confident in our ability to continue growing our
market share with a specific focus on re-mortgages and
product transfers. We remain very optimistic about our
growth prospects.

Board Changes

With effect from 1 July 2019, Ben Thompson, formerly
Managing Director, became Deputy Chief Executive Officer
and Lucy Tilley, formerly Finance Director, became Chief
Financial Officer.

David Preece, formerly Chief Operating Officer, retired
with effect from 1 July 2019, at which point he became
a Non-Executive Director of the Group. David’s retirement
came after a career spanning over 41 years in financial
services, including the last 15 years as an Executive
Director of MAB. David provides additional time over
and above his Non-Executive Director responsibilities
in a consultancy capacity to MAB.

Customer satisfaction

Customer feedback is a core component in our strategy
to ensure consumers receive a first-class experience.
We have partnered with the online review company Feefo,
to give us feedback on the service our Advisers provide.
To date, we have received just under 8,000 reviews,
achieving an average score of 4.9/5 and are accredited
with the Gold Trusted Service award.

09.

Mortgage Advice Bureau Annual Report 2019Strategic report

Chief Executive’s review (continued)

Employee engagement

Our employees are a key ingredient to our success and
their knowledge, skills and experience are vital to ensuring
we maintain the high standards of customer service and
satisfaction which underpins the provision of quality advice.

Staff recruitment, retention and reward are critical.
Outstanding performance is recognised in our annual
awards and we have a low staff turnover rate compared
to the national average. We also run a mentoring
programme to enable our employees to fulfil their potential.

Although our head office is based in Derby, we employ
people from across the country who are dedicated
to supporting our Adviser network.

To create a sustainable company where growth is achieved
successfully year-on-year, we focus heavily on creating
a working environment that people thrive in and where our
core values are communicated effectively. We hold regular
management briefings and encourage staff feedback
through employee surveys.

In 2019 we set up a Values & Culture Committee whereby
staff representatives from each team within the business
collectively think of ways to improve our processes,
procedures and the general culture of the Company so that
our customers can ultimately benefit from these changes.

We have a strong set of values and having regard to
our employees’ interests is paramount. In 2019 we
made positive changes to our working environment
by setting up a number of initiatives led by the Values
& Culture Committee. Those included a new cycle to
work scheme; fresh fruit available to all employees to
encourage healthy living; a new garden area to take time
away from computer screens; and financial well-being
sessions. We also held a mental health awareness week
with various activities ranging from grow-your-own-flower
and jogging sessions to a mindfulness coaching session
and a positivity wall.

In recognition of our training Academy, which is available
to all our Advisers from our AR firms, we became in
2019 just one of 44 UK companies to achieve the City
& Guilds Princess Royal Training Award. The award is an
honour for UK employers across all industries that have
created lasting impact by successfully linking their skills
development needs to business performance. It is no mean
feat to achieve this standard and we are very proud of it.

10.

Mortgage Advice Bureau Annual Report 2019Section 172(1) statement

The Directors of MAB consider that they have acted in
the way they consider, in good faith, would be the most
likely to promote the success of the Company for the benefit
of its members as a whole, having regard to matters set out
in s172(1)(a-f) of the Companies Act 2006, in the decisions
taken during the year ended 31 December 2019. In particular:

(a) Likely consequences of any decision in the long-term

Our core business model and strategy are designed to secure
sustainable long-term growth whilst continuing to deliver
strong results in the meantime.

More details on strategic developments can be found
on pages 6 to 8.

(b) The interests of the Company’s employees

Our employees are fundamental to the delivery of our
strategy. We encourage employee participation and have
worked hard on improving MAB’s working environment.
More details on how we have regard for their interests
and how this has shaped our decisions can be found
on page 10.

Engaging with our stakeholders is very much a part of our
ethos as it strengthens our relationships and helps us make
better business decisions. More details on how we have regard
for the interests of our suppliers and customers and how this
has shaped our decisions can be found on pages 27 and 28.

(d) The impact of the Company’s operations on the
community and the environment

We are proud to support our local community. Across 2018
and 2019, as part of our Corporate Social Responsibility
(CSR) programme to support local communities, we
raised nearly £60,000 for Macmillan Cancer Support.
This money will:

• pay for a Macmillan nurse for a whole year;
• enable grants to more than 30 local people who are
struggling with the financial impact of cancer; and

• cover the costs of an Information and Support Assistant

at a specialist unit for six weeks.

We partnered with our ARs in a Company and network-wide
effort and participated in multiple fundraising events including
a golf day; a 26-mile hike through the Peak District; as well as
Christmas jumper days and Macmillan coffee mornings.

We have introduced a number of initiatives to minimise
our impact on the environment, including energy saving
lighting and heating at our premises and a cycle to work
scheme open to all our employees. We have also replaced
all of our single use plastic drinking cups with recyclable
paper ones, and have donated some of our old office
furniture to charity for reuse.

(e) The desirability of the Company maintaining a reputation
for high standards of business conduct

The Board is committed to achieving and maintaining high
standards of business conduct, corporate governance,
integrity and business ethics.

A key to maintaining our reputation for high standards
is to treat our customers, partners and employees fairly
at all times, and our approach to conducting our business
is focused on this outcome. We have designed a Risk
Management Framework that is both robust and acts as
an enabler to our business, ensuring that advisers receive
the support and education they need to provide their
customers with good advice and the best customer
experience. This gives the Board confidence that the
Company’s strategic and growth objectives can be met
within our risk and business conduct framework.

More details on our risk and internal controls can be found
on pages 29 to 32.

Our training Academy has been a huge success, and in 2019
we became just one of 44 UK companies to achieve the City
& Guilds Princess Royal Training Award.

MAB operates well beyond the minimum standards required
by regulation. We have embraced the new Senior Managers
& Certification Regime (SM&CR) and are pleased that
this regime will be enforced across the industry, thereby
improving quality control across the whole mortgage
intermediary sector.

In 2019, we also engaged with the regulator on topics
such as vulnerable customers and kept an active role in
industry-wide discussions on how best to meet diverse
customer segment needs.

We measure customer satisfaction through the online review
platform Feefo. We are a Gold-rated Feefo member with
a score of 4.9 out of 5 from almost 8,000 reviews.

(f) The need to act fairly as between members of the Company.

The Board is committed to openly engaging with our
shareholders. We recognise the importance of a continuing
effective dialogue, whether with major institutional investors,
private or employee shareholders. Further details on how
we engage with our shareholders can be found on page 32.

11.

Mortgage Advice Bureau Annual Report 2019Strategic report

Chief Executive’s review (continued)

Our business model

n Revenue model

MAB is directly authorised by the Financial Conduct Authority
(“FCA”) and is one of the UK’s leading consumer mortgage
brands and networks for mortgage intermediaries. MAB
specialises in providing mortgage advice to customers, as
well as advice on protection and general insurance products.
The Group has a long established and broad geographic
spread across the United Kingdom.

MAB seeks to develop long term strategic relationships
withits AR firms so that there is a close alignment of interests.
Our proposition appeals most to multiple adviser firms that
have ambition to grow both their market share and business,
with the MAB brand an important USP that is adopted by
the majority of our AR partners.

Aside from our subsidiary, First Mortgage, almost all
the Advisers are engaged directly by the ARs themselves.
However, MAB carries out all of the compliance supervision
on behalf of the AR firms, ensuring greater control and
helping to achieve consistently high standards of consumer
outcomes.

n Relationships

The Group’s performance and value to our shareholders is
influenced by other stakeholders, principally our employees,
our ARs (and their Advisers), our customers and our suppliers.
Our approach to engaging with all of these parties is founded
on the principle of open and honest dialogue, based on
a mutual understanding of needs and objectives.

Our relationship with our ARs is fundamental to the success
of MAB, and is based on strategic alignment of interests,
with both parties benefiting from any improvement in the
ARs business performance.

n Products available through the Group

The Group’s network offers advice on over 12,000 residential
and buy to let mortgage products from circa 100 lenders,
including those that are only available through mortgage
intermediaries.

The Group’s network also offers advice on a range
of both protection and general insurance products,
which are sourced from a panel of insurers.

The Company has 3 core revenue streams:

1. Mortgage procuration fees paid to MAB by lenders

via the L&G Mortgage Club.

2. Insurance commission from advised sales of protection

and general insurance policies.

3.Client fees paid by the underlying customer for the provision
of mortgage advice. These can be split between application
fee, and mortgage offer or completion fee.

Contractually, these income streams are paid to the
Company. The AR Agreements set out the arrangements
under which income from products sold by the Advisers of
the Appointed Representatives is split between the Company
and the relevant AR. MAB retains its revenue share from
each of the above core income streams and then passes the
balance onto its AR firms. The average number of Advisers
in each financial year is one of the key drivers of revenue.

n Sector focus and specialisations

MAB has developed bespoke support services for
intermediary firms that operate in specialist sectors such
as estate agency (including on-line), new build, buy-to-let,
mortgage shops and telephone-based mortgage advice.
These specialist sectors are typically rich in generating new
customers and sales, and offer intermediaries the greatest
opportunity to grow their business.

n Proprietary software

Technology is an increasingly important differentiator
in the intermediary sector, and unlike the vast majority
of other networks, MAB has developed its technology
in-house, providing the business with a major competitive
advantage in terms of the customer and adviser experience.
This is one of the reasons why advisers and intermediary
firms decide to join MAB.

Our proprietary software MIDAS Pro gives us the
flexibility to deliver bespoke solutions in all our areas
of specialisation, and is playing an increasingly important
role in managing data to generate more leads, increasing
Adviser capacity/efficiency, as well as cross sales,
customer retention and repeat sales.

Our proprietary software enables us to be at the forefront
of responding to changing consumer behaviours and driving
increasingly streamlined digital processes. This, combined
with our existing expertise in face-to-face and telephony
advice solutions, gives us a market leading position and a
platform from which we can grow the Group further, through
providing our Advisers and customers with a better and more
rounded mortgage and protection experience.

12.

Mortgage Advice Bureau Annual Report 2019Business review of the year

n Industry data and trends

I am pleased to report further strong growth in revenue
of 17% to £143.7m with profit before tax and exceptional
costs relating to the acquisition of First Mortgage rising by
19% to £18.7m. MAB’s gross mortgage lending (including
product transfers) increased by 20% to £16.7bn in 2019
(2018: £14.0bn). MAB’s overall share of UK gross new
mortgage lending increased by 20% to 5.7% (2018: 4.7%).

Gross new mortgage lending activity in 2019 was
broadly flat year-on-year at £267.6bn (2018: £268.7bn(1)).
The Intermediary Mortgage Lenders Association’s (IMLA)
current estimates (published post the General Election
and pre Coronavirus pandemic) are £268bn for gross
new mortgage lending in 2020, indicating the market
was anticipated to be broadly similar in the near term.
The UK Finance industry data on gross new mortgage
lending excludes Product Transfers. The latest UK Finance
statistics indicate that the product transfer market is likely
to continue to slightly increase from current levels,
but flatten off in the medium term, much as anticipated.
These have not as yet been updated since the start
of the Coronavirus pandemic.

UK property transactions by volume for 2019 were
1% lower than in 2018, with monthly transactions
shown in the graph below.

Property transactions in the UK by volume

140

120

100

s
0
0
0

0
Ja n-1 8

Feb-18

M ar-18

A pr-18

M ay-18

Ju n-1 8

Jul-18

A u g-18

Se p-18

O ct-1 8

N ov-18

D ec-18

Ja n-1 9

Feb-19

M ar-19

A pr-19

M ay-19

Ju n-1 9

Jul-19

A u g-19

Se p-19

O ct-1 9

N ov-19

D ec-19

England

Wales

Scotland

Northern Ireland

Source: HM Revenue and Customs

(1) UK Finance regularly updates its estimates. MAB previously reported £268bn

for 2018 but this figure has slightly increased since.

13.

Mortgage Advice Bureau Annual Report 2019Strategic report

Chief Executive’s review (continued)

Low property inflation(1) of circa 1% during 2019 did not quite offset the slight reduction in volumes across all new mortgage
lending in the year, leading to a reduction in UK gross new mortgage lending for the year of 1%, as set out in the graph below.

New mortgage lending by purpose of loan

30,000

25,000

20,000

m
£

15,000

10,000

5,000

Jan-18

M ar-18

M ay-18

Jul-18

Se p-18

N ov-18

Jan-19

M ar-19

M ay-19

Jul-19

Se p-19

N ov-19

First time buyers

Home-owner movers

Home-owner re-mortgages

BTL purchases

BTL re-mortgages

Other (inc. lifetime
and further advances)

Source: UK Finance Regulated Mortgage Survey (excludes product transfers with the same lender),
Bank of England, UK Finance BTL data (used for further analysis)

UK gross mortgage lending in 2019 for first time buyers and home-owner movers grew by 2% and 1% respectively, whereas
home-owner re-mortgages reduced by 2%. UK gross mortgage lending in 2019 for BTL re-mortgages increased by 1%,
with BTL purchases reducing by 5%.

Approximately 77% of UK mortgage transactions (excluding buy to let, where intermediaries have a higher market share,
and Product Transfers where intermediaries have a lower market share) were via an intermediary in 2019 which is slightly
higher than in 2018.

(1) Land Registry House Price Index.

14.

Mortgage Advice Bureau Annual Report 2019Strategic report

Financial review

n We measure the development, performance and position of our business against a number of key indicators:

Revenue

£143.7m

Adjusted profit before tax

Adjusted earnings per share

£18.7m

30.1p

£143.7m

£18.7m

30.1p

£123.3m

£108.8m

£92.8m

£15.7m

£14.5m

25.9p

23.8p

£12.5m

20.3p

2016

2017

2018

2019

2016

2017

2018

2019

2016

2017

2018

2019

Total income from all revenue streams.

Strategy/objective
Shareholder value and financial performance

Profit before exceptional items and tax.
Adjustments include an exceptional gain
of £2.7m in 2016 and £1.0m of acquisition
expenses in 2019.

Total comprehensive income, attributable to
equity holders of the Company, adjusted to
deduct an exceptional gain in 2016 and
acquisition related expenses in 2019.

Strategy/objective
Shareholder value and financial performance

Gross profit margin

Overheads % of revenue

Profit before tax margin

25.3%

12.4%
12.4%

13.0%

23.9%

23.8%

23.1%

25.3%

11.1%

10.9%

10.7%

12.4%

13.5%

13.4%

12.7%

13.0%

2016

2017

2018

2019

2016

2017

2018

2019

2016

2017

2018

2019

Gross profit generated as a proportion
of revenue.

Strategy/objective
Managing gross margins

Group’s adjusted administrative expenses as
a proportion of revenue. Adjustments are for
exceptional items.

Strategy/objective
Operating efficiency

Group’s adjusted profit before tax as a
proportion of revenue.

Strategy/objective
Shareholder value and financial performance

Adviser numbers

Capital adequacy (£m)

Unrestricted cash balances

1,457

At
31.12.18

1,213

At
31.12.17

1,078

At
31.12.16
950

At
31.12.19

1,457

£11.7m

£12.0m
Excess
Capital

£11.7m
Excess
Capital

£10.8m

£9.5m
Excess
Capital

£7.8m
Excess
Capital

£7.0m

£13.9m

£13.2m

£7.0m

2016

2017

2018

2019

The average number of advisers in 2019
was 1,341 (2018: 1,130).

Strategy/objective
Increasing the scale of operations

£2.1m
FCA
2016

£2.5m
FCA
2017

£2.8m
FCA
2018

£3.1m
FCA
2019

Excess capital requirements over amounts
required by the Financial Conduct
Authority (FCA).

Strategy/objective
Financial stability

2016

2017

2018

2019

Bank balances at 31 December available for use
in operations.

Strategy/objective
Financial stability

15.

Mortgage Advice Bureau Annual Report 2019Strategic report

Financial performance and future developments

n Revenue

Revenue increased by 17% to £143.7m (2018: £123.3m).
A key driver of revenue is the average number of Advisers
during the period. MAB delivered strong organic revenue
growth of 10% (12% on an underlying basis(1)) to £135.6m,
driven by a 14% increase (excluding First Mortgage) in
the average number of MAB Advisers for the year to 1,293
(2018: 1,130) due to a combination of expansion by existing
ARs and the recruitment of new ARs. First Mortgage, which
was acquired on 2 July 2019, added another 82 Advisers
to the Group as at 31 December 2019, and contributed an
additional £8.1m of revenue. Our business model continues
to attract forward thinking ARs who are seeking to expand
and grow their own market share.

The Group generates revenue from three core areas,
summarised as follows:

Income source

Mortgage procuration fees
Protection and general
insurance commission

Client fees

Other income

Total

2019
£m

64.3

56.2

20.2

3.0

2018
£m

56.2

47.0

18.3

1.8

143.7

123.3

Increase

15%

20%

10%

66%

17%

Excluding First Mortgage, MAB generated revenue from three
core areas, summarised as follows:

Income source

Mortgage procuration fees
Protection and general
insurance commission

Client fees

Other income

Total

2019
£m

60.6

52.3

20.2

2.5

2018
£m

56.2

47.0

18.3

1.8

135.6

123.3

Increase

11%

10%

41%

10%

All income sources continued to grow with the average
number of Advisers in the period increasing by 14% on last
year. Activity in the housing market in 2019 was impacted
by the continuing political and economic uncertainties
associated with Brexit, particularly in the earlier part of the
year. The Group’s underlying average revenue per adviser(1)
was flat for the year (2% down excluding FMD), and we saw
improving productivity through H2 2019 relative to H1 2019.

First Mortgage contributed revenue generated from two core
areas summarised as follows:

Income source

Mortgage procuration fees
Protection and general
insurance commission

Other income

Total

2 July 2019 –
31 Dec 2019

3.8

3.9

0.4

8.1

MAB’s revenue, in terms of proportion, is split as follows:

Income source

Mortgage procuration fees
Protection and general
insurance commission

Client fees

Other income

Total

2019
%

2018
%

100

With gross mortgage completions (including Product
Transfers) increasing by 20% for the year, mortgage
procuration fees increased by 15% (18% on an underlying
basis(1)). Excluding FMD, gross mortgage completions
(including Product Transfers) increased by 11% for the
year, with mortgage procuration fees increasing by 8%
(11% on an underlying basis(1)). Protection and general
insurance commission increased by 20% (11% excluding
FMD), and client fees rose by 10%, in line with expectations.
First Mortgage does not charge client fees.

Looking ahead, we continue to expect client fees to become
increasingly dependent upon the type and complexity of
the mortgage transaction, as well as the delivery channel.
This will lead to a broader spread of client fees on mortgage
transactions, which, by their nature, are our lowest margin
revenue stream.

16.

(1) Underlying basis excludes a one-off adjustment in H1 2018 of £1.7m for

procuration fees awaiting processing.

Mortgage Advice Bureau Annual Report 2019

n Gross profit margin

n Profit before tax and margin thereon

Gross profit margin for the year was 25.3% (2018: 23.1%)
reflecting the anticipated increase due to the acquisition of
First Mortgage. First Mortgage naturally has a higher gross
margin than MAB of circa 65% as its advisers are directly
employed. Excluding FMD, gross profit margin was 23.1%
(2018: 23.1%). The Group typically receives a slightly reduced
margin as its existing ARs grow their revenue organically
through increasing their Adviser numbers. In addition, larger
new ARs typically join the Group on lower than average
margins due to their existing scale, which therefore impacts
upon the Group’s gross margin.

n Overheads

Overheads as a percentage of revenue were 13.1%
(2018: 10.7%). Excluding one-off acquisition costs, additional
costs relating to MAB’s option to acquire the remaining 20%
of First Mortgage and amortisation of acquired intangibles,
totalling £1.0m, overheads as a percentage of revenue
were 12.4% (2018: 10.7%). This increase in overheads as
a percentage of revenue results from First Mortgage having
a higher overheads ratio than that of MAB due to its
operating model. Excluding FMD, overheads as a percentage
of underlying revenue were 10.8% (2018: 10.7%). MAB
continues to benefit from the scalable nature of the majority
of its cost base as well as our regulatory costs being below
that of the prior year due to Pure Protection Intermediation
moving from the Life and Pensions Intermediation funding
class of FSCS to the General Insurance Distribution funding
class, though this has been mostly offset by increased IT costs.

Certain costs, primarily those relating to compliance
personnel, are closely correlated to the growth in the number
of Advisers, due to the high standards we demand and
the requirement to maintain regulatory spans of control.
The balance of our compliance costs mainly relate to FCA
and FSCS regulatory fees and charges. The majority of the
remainder of MAB’s costs typically rise at a slower rate
than revenue which will, in part, counter the expected
erosion of MAB’s underlying gross margin as the business
continues to grow.

As a result of MAB’s IT plans and capital expenditure,
as previously indicated, we expect our IT costs and our
amortisation on IT capital expenditure to increase by a
modest amount. All development work on MIDAS Pro and our
new platform technology are treated as revenue expenditure.

(1) Adjusted for non-cash exceptional items of £0.6m.

Statutory profit before tax rose by 13% to £17.7m
(2018: £15.7m) with the margin thereon being 12.3%
(2018: 12.7%). Excluding one-off acquisition costs,
additional non-cash costs relating to MAB’s option
to acquire the remaining 20% of First Mortgage and
amortisation of acquired intangibles, totalling £1.0m,
adjusted profit before tax was £18.7m with the margin
thereon being 13.0% (2018: 12.7%).

n Finance income and finance expenses

Finance income of £0.1m (2018: £0.1m) reflects continued
low interest rates and interest income accrued on loans to
associates. Finance expenses of £0.1m (2018: nil) relate to
interest paid on drawdowns and non-utilisation charges on
MAB’s revolving credit facility with National Westminster Bank
Plc that was put in place at the time of the acquisition of
First Mortgage to part finance the acquisition (and had been
repaid by 31 December 2019) and allow MAB to capitalise
on potential opportunities.

n Taxation

The effective rate of tax on statutory profit before tax
increased slightly to 16.8% (2018: 15.9%) mainly as a result
of disallowable expenses incurred in connection with the
acquisition of First Mortgage. Going forward we expect our
effective tax rate to be marginally below the prevailing UK
corporation tax rate subject to tax credits for MAB’s research
and development expenditure on our continued development
of MIDAS Pro, MAB’s proprietary software, still being
available and further tax deductions arising from the
exercise of share options.

n Earnings per share and dividend

Basic earnings per share rose by 9% to 28.2 pence
(2018: 25.9 pence). Adjusted earnings per share rose
by 17% to 30.1 pence (2018: 25.9 pence).

In line with our dividend policy following the First Mortgage
acquisition of paying out a minimum of 75% of our adjusted
earnings, the Board intended to propose the payment of an
increased final dividend of 12.8 pence per share, up 1% from
the previous year, making total ordinary dividends for the year
of 23.9 pence per share, which would have been up 2.6%
from the previous year. However, in view of the severity of
the Coronavirus pandemic and the impact of the Government
imposed lockdown, we now propose a final dividend of 6.4
pence per share, with the intention to pay a further 6.4 pence
per share when the Board considers it prudent to do so.

The proposed final dividend of 6.4 pence per share
represents a cash outlay of £3.3m. Following payment of
the dividend, the Group will continue to maintain significant
surplus regulatory reserves. This proposed final dividend
represents circa 38% of the Group’s adjusted(1) post-tax and
minority interest profits for H2 2019 and reflects our ongoing
intention to distribute excess capital.

The record date for the final dividend will be 1 May 2020 and
the payment date 29 May 2020. The ex-dividend date will be
30 April 2020.

17.

Mortgage Advice Bureau Annual Report 2019Strategic report

Financial performance and future developments (continued)

n Cash flow and cash conversion

The Group’s net cash generated from operating activities
increased 38% to £20.4m (2018: £14.9m).

Headline cash
conversion(1) was:

Adjusted cash
conversion(2) was:

128%

131%

113%

119%

2018

2019

2018

2019

1 Headline cash conversion is cash generated from operating activities

adjusted for movements in non-trading items including loans to
Appointed Representative firms (“ARs”) and loans to associates totalling
£0.9m in 2019 (2018: £2.2m) as a percentage of operating profit.
2 Adjusted cash conversion is headline cash conversion adjusted for

increases in restricted cash balances of £2.2m in 2019 (2018: £2.3m)
as a percentage of operating profit.

The Group’s operations are capital light with our most
significant ongoing capital investment being in computer
equipment. Only £0.2m of capital expenditure on office and
computer equipment and software licences was required
during the period (2018: £0.8m). Group policy is not to
provide company cars, and no other significant capital
expenditure is foreseen in the coming year. All development
work on MIDAS Pro is treated as revenue expenditure.

In connection with the acquisition of First Mortgage,
MAB entered into an agreement with NatWest in respect
of a new revolving credit facility for £12m. The Group had
no bank borrowings at 31 December 2019 (2018: £nil)
with unrestricted bank balances of £7.0m (31 December 2018:
£13.9m).

The Group has a regulatory capital requirement amounting
to 2.5% of regulated revenue. At 31 December 2019
this regulatory capital requirement was £3.1m
(31 December 2018: £2.8m), with the Group having
a surplus of £11.7m (31 December 2018: £12.0m).

The following table demonstrates how cash generated
from operations was applied:

The following table demonstrates how cash generated from operations was applied:

Unrestricted bank balances at the beginning of the year

£13.9m

Cash generated from operating activities excluding movements in
restricted balances and dividends received from associates

£20.1m

£1.4m

Issue of shares

£0.3m

Dividends received from associates

£0.1m

Interest received

Dividends paid

£12.2m

Tax paid

£2.4m

Capital expenditure (including new software)

£0.2m

Interest paid

£0.1m

Investments in associates

£1.7m

£12.2m

Acquisition of subsidiary, net of cash acquired

£7.0m

Unrestricted bank balances at the end of the year

18.

Mortgage Advice Bureau Annual Report 2019n Post period end

n Current trading and outlook

The Group is financially very resilient, with a strong
balance sheet, a healthy surplus capital over its regulatory
capital requirement and a robust model generating strong
cash flows, enabling us to deal with the impact of the
current Government lockdown on property and lending
markets during the Coronavirus pandemic. The Group has
implemented cost cutting measures, including the furloughing
of some staff, and all remaining staff are currently working
remotely on a reduced salary. In order to give ourselves
additional flexibility to react quickly in this environment and
capitalise on potential opportunities, we have drawn down
the full amount on our Revolving Credit Facility with National
Westminster Bank Plc on 20 March 2020, amounting to £12m.

n Dividends paid in prior years

Whilst the individual entity of Mortgage Advice Bureau
(Holdings) plc has always had sufficient reserves to pay
its dividends, the Company has not filed interim balance
sheets as required under s838 of the Companies Act 2006.
A resolution will be put to shareholders at the AGM to
release current and past directors and shareholders from
any liabilities potentially resultant from this inadvertent
and technical infringement in relation to prior dividends.
More details will be set out in the notice of AGM.

A clear change in customer sentiment following the General
Election in early December 2019 led to much improved
activity in the housing market from the start of 2020,
giving our AR firms and their Advisers a strong start to
the year in terms of new business levels and productivity.
This marked increase in activity remained strong up to the
end of March 2020, despite increasing concerns about
the Coronavirus pandemic.

The Government imposed lockdown has had the effect of
calling a halt on most house purchase transactions, with key
elements such as physical viewings and valuations ruled
out for the period of the lockdown. Consequently, after the
strong start to the year, we have seen a significant reduction
in purchase related activity. This has already impacted both
Adviser numbers and productivity.

MAB’s growth in Adviser numbers started to slow down
from early March 2020, as AR firms temporarily put their
recruitment plans on hold. As at 17 April 2020, Adviser
numbers were 1,473, including 196 Advisers currently
furloughed. The furloughed Advisers relate mostly to ARs that
have strong links to estate agencies or the new build sector.
Some Adviser attrition has also occurred among the lower
performing Advisers and it is unlikely any of those Advisers
will be replaced until the purchase market fully recovers.

n Forward looking statements

The strategic report is prepared for the members
of MAB and should not be relied upon by any other
party for any other purpose. Where the report contains
forward- looking statements these are made by the
Directors in good faith based on the information available
to them at the time of their approval of this report.

Consequently, such statements should be treated
with caution due to the inherent uncertainties, including
both economic and business risks underlying such forward
looking statements and information. The Group undertakes
no obligation to update these forward looking statements.

19.

Mortgage Advice Bureau Annual Report 2019Strategic report

Financial performance and future developments (continued)

n Current trading and outlook (continued)

Although we expect protection sales to reduce in line
with purchase activity, the escalation of the Coronavirus
pandemic has resulted in a heightened awareness of the
importance of such products amongst customers. Alongside
our realignment of resources to re-mortgage and product
transfer transactions, is our immediate opportunity to have
a meaningful impact on the lower protection attachment rates
seen on non-purchase mortgages. Plans are already in place
to ensure the improvements we are seeing are maintained
and built upon when Advisers become busier again.

All elements of the mortgage and protection advice
process can be transacted by telephone. Over the last month
or so this has become the only option for our customers.
Telephone advice was already a fast-growing area of our
business, both through strong growth in specialist telephone
advisers, as well as an increasing number of telephone
appointments being conducted by traditionally face-to-face
Advisers. MAB has been providing new guidance and tools
to support a seamless transition to telephone advice across
our distribution network, ensuring business continuity
for Advisers and customers across all, product transfer
purchase and re-mortgage transactions.

All our systems and processes were robustly tested
pre lockdown to allow MAB’s head office and field-based
teams to work effectively from home, ensuring continued and
tailored support for our distribution channels. We have also
reviewed our cost base to a level where it is now appropriate
for the current circumstances, and importantly we have
ensured that our ARs and Advisers are fully supported
through this very difficult time in their new ways of working,
including redirecting certain allocated budgets to other areas
of spend where it is optimal to do so.

In response to the challenging environment, MAB, our AR
firms and their Advisers have a heightened focus on business
efficiency and ensuring no opportunities are missed. We
have commenced the implementation of new technology-led
processes and efficiencies to optimise working practices,
customer engagement and income generation, which we
expect to deliver long lasting benefits.

20.

The changes in the circumstances and priorities
for consumers has led us to design new campaigns
and initiatives as part of our communication strategy.
These include a free mortgage support helpline dedicated
to help the financial wellbeing of homeowners worried about
paying their mortgage. In addition, all our online, social
media, and existing client communications, which now
feature in this free service, have also been tailored to reflect
a heightened awareness of protection and refinancing.

In addition, the Bank of England recently reduced its base
rate to a record low of 0.1%, allowing the cost of mortgages
to be reduced even further. This has triggered a higher level
of interest in re-mortgages and product transfers as well
as benefited all those buying a new house or moving home
when restrictions are lifted and they are able to proceed
with their transactions. Wider measures, including increased
investment in all types of housing, should ensure the medium
to long term outlook for our market remains very positive.

MAB is also actively engaged in lobbying key stakeholders
in the Government for specific actions to be taken to ensure
a speedier recovery in the UK housing market when
restrictions are lifted.

Over 20 years we have built a high-quality distribution
network, a leading consumer brand, and an exceptional
management team that continues to adapt quickly and
efficiently to our new ways of working. The Group has
a strong balance sheet, is cash generative and enjoys a
healthy surplus over its regulatory capital requirement.
To give ourselves additional flexibility to capitalise on
potential opportunities quickly, we drew down our full £12m
Revolving Credit Facility on 20 March 2020. We are in a
stronger position than many to deal with the challenges that
we face over the coming months and are confident in our
ability to continue growing our market share, with a specific
additional focus on re-mortgages and product transfers.

MAB has a clear strategy and we continue to strengthen our
proposition. During this pandemic our priority is to redeploy
our resources where possible to focus on lead generation,
telephone advice and remote working. It is too early to
predict the extent of the disruption to trading in the coming
months and the associated impact on our results for the full
year, though we do expect to see a reduction in revenue
and profit. However, we remain very optimistic about MAB’s
growth prospects. The quality and level of support that
MAB provides is really standing out at a time when our AR
firms and advisers need that support more than ever. In the
months ahead, AR firms will look back at how their network
supported them during these times and this will be a great
opportunity for MAB to capitalise upon as we look to resume
our growth plans and build on the positives that have come
from these challenging times.

Mortgage Advice Bureau Annual Report 2019Strategic report

Principal risks and uncertainties

There are a number of potential risks which could hinder the implementation of our strategy and have a material impact on our
long-term performance. These arise from internal or external events, acts or omissions which could pose a threat to the Group.
The Group maintains a risk register, and this is reviewed by the Group Risk and Compliance Committee on a regular basis.

The table below outlines the most significant risk factors for the business. The risk factors set out below do not purport
to be exhaustive as there may be additional risks that materialise over time that the Group has not yet identified or deemed
to have a potentially material adverse effect on the business.

Risk category

Risk description

Mitigating factors/commentary

Sector resilience

The Group operates in a highly
competitive environment
with competition from other
intermediaries and from lenders.

Availability of mortgage
lending

The Group is exposed to a
significant reduction in the
availability of mortgage lending.

Regulatory compliance

Infrastructure and IT
systems

Failure to comply with current
regulatory requirements could
result in reputational and
financial damage, including
withdrawal of authorisation
by the Financial Conduct
Authority and the additional
powers of the Information
Commissioner’s Office following
the implementation of GDPR.

Failure to anticipate, react and
embed new legislation and
regulation (e.g. Senior Managers
& Certification Regime, IR35 and
FCA Mortgage Advice and Selling
Standards) would also give rise to
increased risk for the Group.

The Group’s performance would
be adversely impacted if the
availability and security of the
Group’s proprietary MIDAS system,
and other IT infrastructure was
compromised.

The Group aims to be at the forefront of providing advice
to consumers, leveraging its proprietary MIDAS Pro
technology, by offering its customers the choice of
how they want to research information, receive advice
and transact. MAB offers access to circa 100 lenders
and thousands of mortgage products, ensuring customers
have access to a wide choice, coupled with the best
advice to meet their mortgage and protection needs.

UK gross new mortgage lending was broadly flat in
2019 versus the previous year. MAB’s gross mortgage
completions increased by 20% to £16.7bn in 2019.
Since the Global Financial Crisis (GFC) in 2008, banks
and lenders have significantly strengthened their
balance sheets and capital adequacy. Regulation of the
mortgage market has tightened the criteria for lending to
consumers. The cost of debt remains at historic lows and
lenders maintain strict affordability tests. In 2019, MAB’s
mortgages were spread across circa 100 lenders, meaning
that even if there was a noticeable reduction in specialist,
non-bank lenders, the Group’s mortgage proposition would
remain adequately comprehensive and competitive.

The majority of Advisers are directly employed or engaged
by ARs (rather than by the Group), and all compliance
monitoring and supervision is undertaken by the Group’s
own specialist compliance team. The quality of consumer
outcomes is central to our compliance strategy. The Risk
and Compliance Committee reviews the adequacy and
effectiveness of the Group’s internal controls, compliance
and risk management systems to ensure the Group is
fulfilling its regulatory responsibilities.

The Group maintains open and effective relationships with
regulators and relevant industry associations in addition to
having a governance structure and controls in place across
the entire business and up to Board committee level, in
order to ensure that it complies with the relevant prevailing
regulatory and legislative requirements and that it can
anticipate change quickly.

There has been significant investment into the Group’s IT
infrastructure. All the Group’s servers are currently hosted
in a specialist data centre with appropriate security and
systems resilience. A copy of the MIDAS database is also
held at another location. The group will shortly further
strengthen and re-factor its technology, as part of a new
project that will ensure cloud-hosting through a leading
provider of cloud-based services.

21.

Mortgage Advice Bureau Annual Report 2019Strategic report

Principal risks and uncertainties (continued)

Risk category

Risk description

Mitigating factors/commentary

Appointed
Representative (“AR”)
model

The Group has full regulatory
responsibility for the actions of its
network of ARs, who employ or
engage the Advisers.

The Group has robust compliance procedures stated
above. Whilst the Group has ultimate regulatory
responsibility, the commercial liability (e.g. complaint
redress) remains with the ARs.

The Group could be exposed should
large ARs fail.

Concentration

The Group could be exposed to a
significant geographic concentration,
or overexposure to particular ARs or
suppliers.

Key personnel

The Group could lose some key
employees.

Litigation and
complaints

The Group could be subject to
litigation or complaints not covered
by insurance.

Liquidity risk, including
bank default

One or more banks could fail.

The Group maintains strong relationships with its ARs
to ensure it is able to provide appropriate support for the
continued growth of the Group and its ARs and it is aware
of key risks posed to the Group within its AR Model.

The Group has a broad geographical spread in the UK.
The Group has no significant exposure to any single AR.
Typically ARs enter into five or ten year contracts with the
Group, and the renewal dates for these contracts are fairly
evenly spread between calendar years. The Group enjoys
strong relationships with the many mortgage lenders it
places its new business with, as well as with the major
businesses that make up its panel of protection and
insurance providers.

Remuneration is reviewed annually and a large proportion
of the Group’s employees participate in the Group’s
share-based incentive plans. The Group has a successful
track record of retaining senior employees and the
recruitment of additional key personnel provide assurance
that there is appropriate breadth of management and
appropriate span of control. Succession planning is
assessed annually by the Nomination committee.

The Group has not been subject to any actual or
threatened material litigation. Complaint levels are low
compared to transactional volumes, and the redress
from those complaints are borne by the ARs.
PI insurance is in place as required by the FCA.

The Group has a highly cash generative business model
so holds substantial amounts of cash on deposit with
its principal bank. The stringent capital adequacy tests
imposed on the banks after the GFC should enable them
to better withstand extreme negative market downturn
and reduction in liquidity.

Coronavirus -
Operational Resilience

The occurrence of Coronavirus
(COVID-19) presents potentially
unprecedented risks to businesses
within the UK including the potential
impact to staff and the subsequent
impact on the wider economy and
the mortgage and protection markets.

The impact of Coronavirus presents
operational challenges to the Group’s
product suppliers (e.g. mortgage
lenders and insurance companies),
as well as to surveyors and
conveyancing firms. There is a risk
in terms of operational shutdown,
as well as a risk to the payment
of fees and commission to MAB.

The Group has successfully implemented all aspects
of its business continuity plan, requiring all staff to work
remotely. The Group’s IT platform is well adapted to
maintain operations on this basis for as long as is required.

While Government decisions are out of the Group’s control,
the Group is confident in its infrastructure and plans to
maintain operational resilience and business continuity.

Whilst the purchase market will be largely halted, with
elements such as physical viewings and valuations ruled
out for the period of the lock down, all of the Group’s
product providers have their own business continuity
plans in place and as such most if not all are required and
able to operate remotely, ensuring that in these extreme
circumstances, MAB can rely on business continuing,
albeit on a reduced or slower basis.

22.

Mortgage Advice Bureau Annual Report 2019Risk category

Risk description

Mitigating factors/commentary

Political Environment

The current economic environment
is highly uncertain as the UK
Government tries to manage its exit
of the UK from the EU.

Technological
advancements

The continued development of
technology increases somewhat
the likelihood of existing and new
competitors emerging, for example
to serve Execution Only mortgages
online directly with consumers.

Third party
dependency risk

The Group is dependent on a
number of third parties to provide
services to enable us to carry out
our business. There is an operational
and financial risk of third parties
increasing the costs of services
or withdrawing the service.

Political uncertainty within the UK is still prevalent due
to Brexit and the potential of a second Independence
Referendum in Scotland. However, regardless of any
market activity and movements, the Group aims to deliver
its strategy to continue to grow its market share and
mortgage completions through the deployment of its new
technology platform and the rollout of a variety of other
new initiatives, including the promotion of new products
to a broader addressable market.

The Group has an internal IT function and while the
development of new technologies means the landscape
in which the Group operates continues to change,
the development of new technologies is seen as an
opportunity for the Group in potentially increasing its
market share. The Group already provides its customers
with a tailored and value-added advice service, by giving
them autonomy and the ability to choose how and when
to interact with Advisers depending on their confidence
and circumstances. The Group has been deliberately
building its technology platform to enhance customer
engagement in the expectation that regulation would make
Execution Only faster and easier for customers.

The Group Risk Committee regularly monitors and
controls our risk exposure to third parties and considers
the possibility of contingency arrangements.
Appropriate due diligence is conducted before entering
into any agreements with third parties, and reporting and
notification requirements from third parties to the Group
are defined in contractual documents. These documents
include performance targets to assess the adequacy of
service provision. The Group maintains good relationships
with its third party service providers.

Fraud

The Group is potentially exposed
to fraudulent activity from any of
its AR firms or Advisers

The Group has embedded controls at all process levels
to mitigate this risk and these are periodically reviewed
by our Group Risk and Compliance Committee.

The Group has a robust compliance function.
Our compliance team runs regular compliance workshops
for each AR firm, and has a network of field compliance
managers to monitor the performance and behaviour of
each Adviser against the Group’s internal procedures and
systems. This ensures that we are fulfilling our regulatory
responsibilities and that our AR firms’ and Advisers’
knowledge of potential risks and how to deal with
them is always kept fully up to date.

n Approval

The strategic report in its entirety has been approved by the Board of Directors and signed on its behalf by:

Peter Brodnicki
Chief Executive

1 May 2020

23.

Mortgage Advice Bureau Annual Report 2019Governance

Board of Directors

The Board comprises three Executive and four Non-Executive Directors. A short biography of each Director is set out below:

Katherine Innes Ker,
Aged 59
Non-Executive Chair

Peter Brodnicki,
Aged 57
Chief Executive Officer

Katherine has extensive executive
and non-executive director
experience. She is Senior
Independent Director of Forterra
plc and Non-Executive Director
of Go-Ahead Group plc and Vistry
Group plc. Her experience as a chair
includes The Television Corporation,
Shed Media plc, Victoria Carpets plc
and Sovereign Housing Association
and she was deputy chair of
Marine Farms S.A. She has been
a non-executive director of, amongst
others, St Modwen Properties plc,
Taylor Wimpey plc, Taylor Woodrow
plc, Fibernet plc, Williams Lea plc,
S&U plc and Gyrus Group plc.
She is chair of the Remuneration
Committee, Balliol College, Oxford.

Peter was one of the founders of
MAB in 2000. He has over 30 years’
mortgage and financial services
experience. Immediately prior to
founding MAB, he was with Legal
& General for five years where he
held the position of Head of the
Estate Agency Network, and also
latterly as Recruitment Director.
Peter’s experience prior to Legal
& General includes sales and
management roles at Albany Life,
before which Peter was at John
Charcol. Peter has received a
number of industry awards in recent
years, including Business Leader
of the Year (three consecutive years),
Mortgage Strategist of the Year
(two consecutive years), and the
Industry’s Most Influential Person.

Ben Thompson,
Aged 50
Deputy Chief Executive
Officer

Ben was previously Chief Executive
Officer of ULS Technology plc, the
AIM-listed provider of online B2B
platforms for the UK conveyancing
and financial intermediary markets.
Prior to that he held senior positions
at Legal & General Group Plc,
where he ran their market-leading
mortgage distribution business,
as well as the banking division.

Lucy Tilley,
Aged 48
Chief Financial Officer
and Company Secretary

Lucy joined MAB in May 2015 as
Finance Director and became Chief
Financial Officer in July 2019. She
qualified as a Chartered Accountant
in 1996 with KPMG. Prior to joining
MAB, Lucy was most recently a
director in the corporate broking
team at Canaccord Genuity Limited
and was part of the team that
worked on MAB’s admission to AIM
in November 2014. At Canaccord
Genuity Limited she advised
numerous quoted and unquoted
companies predominantly in the
financial services sector.

Stephen Smith,
Aged 62
Non-Executive Director

David Preece,
Aged 59
Non-Executive Director

Stephen Smith has worked in the
financial services market for nearly
40 years and was most recently
responsible for Legal & General’s
award winning Mortgage Club,
estate agency and technology
operations, before retiring at the
end of 2017. He is a former deputy
chairman of The Association of
Mortgage Intermediaries and served
on its board for 14 years. He is a
Fellow of the Chartered Institute
of Bankers and holds a number
of non-executive directorships
with companies operating in the
mortgage and surveying markets.

David joined MAB as an Executive
Director in 2004 and retired as Chief
Operating Officer in 2019, remaining
on the Board as a Non-Executive
Director. He has over 40 years of
experience in financial services and
is an Associate of the Chartered
Institute of Bankers. Prior to joining
MAB, roles included Senior Manager
at NatWest Group Financial Control,
Head of Mortgage Operations at
NatWest and Head of Membership
Services at the Britannia Building
Society. David holds non-executive
director positions, as well as acting
in an advisory capacity, with
companies in the financial
services sector.

Nathan Imlach,
Aged 50
Senior Independent
Non-Executive Director

Nathan is Chief Financial Officer
of AIM listed Mattioli Woods plc.
He qualified as a Chartered
Accountant with Ernst & Young,
specialising in providing mergers
and acquisitions advice to a broad
range of quoted and unquoted
clients in the UK and abroad.
He is a Fellow of the Chartered
Institute for Securities & Investment
and holds the Corporate Finance
qualification from the Institute of
Chartered Accountants in England
and Wales. Nathan is a director of
Custodian Capital and Company
Secretary to Custodian REIT plc.
Nathan is also a trustee of
Leicester Grammar School Trust.

24.

Mortgage Advice Bureau Annual Report 2019Governance

Company information

Company:

Directors:

Mortgage Advice Bureau (Holdings) plc

Katherine Innes Ker
Peter Brodnicki
Ben Thompson
Lucy Tilley
Nathan Imlach
Stephen Smith
David Preece

Non-Executive Chair
Chief Executive Officer
Deputy Chief Executive Officer
Chief Financial Officer
Senior Independent Non-Executive Director
Independent Non-Executive Director
Non-Executive Director

Company secretary:

Lucy Tilley

Registered office:

Capital House
Pride Place
Pride Park
Derby
DE24 8QR

Registered number:

04131569

Nominated adviser and broker:

Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT

Auditor:

Solicitors:

Principal bankers:

Registrars:

BDO LLP
55 Baker Street
London
W1U 7EU

Norton Rose Fulbright LLP
3 More London Riverside
London
SE1 2AQ

NatWest Bank plc
Cumberland Place
Nottingham
NG1 7ZS

Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA

25.

Mortgage Advice Bureau Annual Report 2019

Governance

Directors’ report

The Directors have pleasure in presenting their report
together with the financial statements for the year ended
31 December 2019. For the purposes of this report,
the expression “Company” means Mortgage Advice
Bureau (Holdings) plc and the expression “Group”
means the Company and its subsidiaries.

n Results and business review

The principal activity of the Group continues to be the
provision of financial services, in particular the provision
of mortgage advice and advice on protection and general
insurance products. The principal activity of the Company
is that of a non-trading holding company. The review
of the business, operations, principal risks and outlook
are included in the Strategic report on pages 01 to 23.
The financial statements set out the results of the Group
on pages 43 to 84.

The Group has achieved further significant growth both
in terms of revenues and underlying profitability. Group
revenues increased by 17% to £143.7m. Profit before tax and
acquisition related costs amounted to £18.7m, a rise of 19%.
Group profit for the year after taxation amounted to £14.7m,
up 12% on the previous year. Income tax expense for the
year was £3.0m, an effective rate of 16.8% (2018: 15.9%).

n Dividends

In line with the Group’s dividend policy following the First
Mortgage acquisition of paying out a minimum of 75% of
its adjusted earnings, the Board intended to propose the
payment of an increased final dividend of 12.8 pence per
share, up 1% from the previous year. However, in view of
the Coronavirus pandemic, the Directors now recommend
a final dividend of 6.4 pence per share, totalling £3.3m.
This represents a payout of 38% of the Group’s adjusted
post tax and minority interest profit for H2 2019. The Board
intends to pay a further 6.4 pence per share when
it considers it prudent to do so.

This has not been included within the Group financial
statements as no obligation existed at 31 December 2019.
If approved, the final dividend will be paid on 29 May 2020
to ordinary shareholders whose names are on the register
on 1 May 2020. Dividends paid during the year amounted to
£12.2m and were in respect of the final dividend for the year
ended 31 December 2018 and the interim dividend for the
year ended 31 December 2019.

n Going concern

The Directors’ financial modelling considers the Group’s
profit, cash flows, regulatory capital requirements, borrowing
covenants and other key financial metrics over the period.
These metrics are subject to sensitivity analysis, which
involves flexing a number of key assumptions underlying
the projections, including the duration of the Government
imposed lockdown and its impact on the UK property market
and the Group’s revenue mix, which the Directors consider
to be severe but plausible stress tests on the Group’s cash
position, banking covenants and regulatory capital adequacy.
The Group’s financial modelling shows that the Group should
continue to be cash generative, maintain a surplus on its
regulatory capital requirements and be able to operate within
its current financing arrangements. Based on the results of
the financial modelling, the Directors expect that the Group
will be able to continue in operation and meet its liabilities
as they fall due over this period. Accordingly, the Directors
continue to adopt the going concern basis for the preparation
of the financial statements.

n Events after the reporting date

Due to the current global Coronavirus pandemic, in order
to provide additional flexibility and to capitalise on potential
opportunities quickly, the Group drew down the full amount
on its Revolving Credit Facility with National Westminster
Bank Plc on 20 March 2020, amounting to £12m. Whilst the
Group is expecting an impact on mortgages relating to house
purchase activity, it cannot estimate the length of time that
this situation will continue and hence cannot estimate its
financial effect on the Group, however the Group remains
in a strong financial position.

n Directors’ indemnity

All Directors and Officers of the Company have the benefit
of the indemnity provision contained in the Company’s
Articles of Association and have received a deed of indemnity
from the Company. The Group also purchased and maintained
throughout the financial year Directors’ and Officers’ liability
insurance in respect of itself and its Directors and Officers,
although no cover exists in the event Directors or Officers
are found to have acted fraudulently or dishonestly.

n Share capital

Mortgage Advice Bureau (Holdings) plc is a public limited
company incorporated in England and Wales and its shares
are quoted on the AIM market of the London Stock Exchange
plc. The Company’s issued share capital during the year
and as at 31 December 2019 is shown in note 23. Save as
agreed at the Annual General Meeting of the shareholders,
the ordinary shares have pre-emption rights in respect of
any future issues of ordinary shares to the extent conferred
by section 561 of the Companies Act 2006.

n Rule 9 of the City Code

Under rule 9 of the City Code, where any person acquires
an interest in shares which carry 30% or more of the voting
rights that person is normally required to make a general
offer to all remaining shareholders of the Company to acquire
their shares.

26.

Mortgage Advice Bureau Annual Report 2019At 31 December 2019 Peter Brodnicki held 27.1% of the
Share Capital. In addition, the Panel on Takeovers and
Mergers (“the Panel”) considers two of the Directors
(Peter Brodnicki and David Preece) as persons acting in
concert for the purposes of the City Code. At 31 December
2019 the Concert Party (as now constituted) held ordinary
shares, in aggregate, representing 30.1% of the Share Capital.
The Panel has waived the requirement for Peter Brodnicki
and related parties to make a general offer to the shareholders
of the Company. Except with the consent of the Panel
none of the Concert Party (or their connected persons)
will individually be able to acquire any additional interests in
ordinary shares without triggering an obligation under Rule 9
of the City Code, other than the issue of shares to members
of this Concert Party in relation to the options granted at
IPO under the option scheme as disclosed in the Directors’
Remuneration Report on pages 33 to 35, and which has been
approved by the Panel.

n Substantial shareholdings

At 31 December 2019, the Company had been notified of
the following interests representing 3% or more of its issued
share capital:

Shareholder

Number of

ordinary Percentage
holding

n Employee involvement

The Group continues to involve its staff in the future
development of the business. Information is provided to
employees through briefing sessions, the Group’s website,
MABchat and its intranet, “MAB Online”. The Group operates
a WorkSave Pension Plan available to all employees and
contributes to the pension schemes of Directors and
employees. The Group operates an Enterprise Management
Incentive scheme, Unapproved Incentive Plan and Share
Incentive Plan, details of which are given in the Directors’
Remuneration Report and the financial statements.

The Mortgage Advice Bureau (Holdings) plc Share Incentive
Plan (“the SIP”) enables employees to buy shares in the
Company at an effective discount to the Stock Exchange
price by having an amount deducted from pre-tax salary
each month. In addition, the Company grants participating
employees matching shares. The Group is committed to the
principle of equal opportunity in employment, regardless of
a person’s race, creed, colour, nationality, gender, age, marital
status, sexual orientation, religion or disability. Employment
policies are fair, equitable and consistent with the skills and
abilities of the employees and the needs of the business.

More details on our employees and how we engage with
our employees can be found on page 10.

13,997,910
Peter Brodnicki
Liontrust Investment Partners 10,301,372
Kayne Anderson Rudnick
Investment Management
M&G Investment
Management

7,724,429

2,857,414

27.12%
19.96%

14.97%

5.54%

n Engagement with customers and suppliers

Engaging with our stakeholders is very much a part of
our ethos as it strengthens our relationships and helps
us make better business decisions to deliver on our
commitments. The Board is regularly updated on wider
stakeholder engagement feedback to stay abreast
of customers, suppliers and shareholders’ insights into
the issues that matter most to them and our business.

n Directors’ interests

Directors’ emoluments, beneficial interests in the shares
of the Company and their options to acquire shares are
disclosed in the Directors’ Remuneration Report.
During the period covered by this report, no Director had
a material interest in a contract to which the Company or
any of its subsidiaries was a party (other than their own
service contract), requiring disclosure under the Companies
Act 2006. There are procedures in place to deal with any
Directors’ conflicts of interest arising under section 175
of the Companies Act 2006 and such procedures have
operated effectively.

n Related party transactions

Details of related party transactions are given in note 26.

In particular, maintaining an active dialogue with our ARs
is key to our business. We use a collaborative approach
in operational matters such as setting goals and objectives
and hold regular review meetings with each AR firm.
We also work with specialist ARs and providers to explore
new ideas and growing markets.

We aim to be at the forefront of providing good advice to
consumers, leveraging our proprietary MIDAS Pro software
platform, by offering our customers the choice of how they
want to transact whilst giving our ARs the tools to improve
their productivity. ARs input regularly into MIDAS Pro for
instance through the Regular User Group that we have set up.

We run educational events for the continuing professional
development of our Advisers. These events supplement
our content-rich MAB Online platform which is used across
our network. Approximately 300 Advisers have graduated
from our training Academy. In 2019 we became just one of
44 UK companies to achieve the City & Guilds Princess Royal
Training Award. The award is an honour for UK employers
across all industries that have created lasting impact
by successfully linking their skills development needs
to business performance.

27.

Mortgage Advice Bureau Annual Report 2019

Governance

Directors’ report (continued)

n Engagement with customers and suppliers (continued)

n Principal risks and uncertainties

The Directors’ view of the principal risks and uncertainties
facing the business is summarised in the Strategic report on
pages 21 to 23. A full review of financial risk management
can be seen on pages 73 to 75.

n Corporate governance

A full review of Corporate governance appears on pages
29 to 32.

n Auditors

BDO LLP, who were appointed as auditors during 2014, have
confirmed their willingness to continue in office as auditor in
accordance with Section 489 of the Companies Act 2006.
The Group is satisfied that BDO LLP are independent and
there are adequate safeguards in place to safeguard their
objectivity. A resolution to re-appoint BDO as the Company’s
auditor will be proposed at the AGM on 26 May 2020.

n Directors’ statement as to disclosure of information

to the auditor

All of the Directors who were members of the Board at
the time of approving the Directors’ Report have taken all
the steps they might reasonably be expected to have taken
to make themselves aware of any relevant audit information
and to establish that the auditor is aware of that information.
To the best of each Director’s knowledge and belief, there
is no relevant audit information of which the Company’s
auditor is unaware.

On behalf of the Board

Lucy Tilley
Chief Financial Officer

1 May 2020

The quality of consumer outcomes is central to our culture,
which is reflected in our compliance strategy. We run regular
compliance workshops for each AR firm, and have put in
place a network of field compliance managers to monitor
the performance of each Adviser against our internal
procedures and systems to ensure we are fulfilling our
regulatory responsibilities.

Strong and sustainable relationships with our product
providers are also fundamental to our success. We hold
regular roundtable events with them where topics such as
business process improvements are discussed as a group.
This open dialogue has for instance contributed to the
implementation by our technology team of a more seamless
mortgage submission process. We have also established
seven direct to lender submission routes for mortgage
applications and have been piloting this with one
of our providers.

n Political donations

The Group has made no political donations during the year
(2018: £nil).

n Environmental

The Board believes in good environmental practices.
We have introduced a number of initiatives to minimise
our impact on the environment, including energy saving
lighting and heating at our premises and a cycle to work
scheme open to all our employees. We have also replaced
all of our single use plastic drinking cups with recyclable
paper ones, and have donated some of our old office
furniture to charity for reuse. Since the acquisition of the
freehold of Capital House, the Group’s head office, the Group
has been improving the environmental impact of the building.
However, due to the nature of its business generally, the
Group does not have a significant environmental impact.

n Annual General Meeting

The Annual General Meeting (AGM) of the Company will
be held on 26 May 2020. The notice of meeting is included
with this document and contains further information on
the ordinary business to be proposed at the meeting.

Whilst in normal circumstances the Board values very highly
the opportunity to meet shareholders in person at the AGM
and listen and respond to their questions, at the time of
approval of this Annual Report, compulsory Government
measures are in force that prohibit public gatherings of
more than two people and require that people do not make
unnecessary journeys. As a consequence of these measures,
it is not possible to hold our AGM in the usual format without
risking exposure to attendees, the Board, the Company and
employees. The Board has made the difficult decision that
the AGM will be a closed meeting. More details on this year’s
AGM arrangements are included in the notice of meeting.

28.

Mortgage Advice Bureau Annual Report 2019Governance

Corporate governance

n Introduction

n Operation of the Board

The Board is committed to achieving high standards
of corporate governance, integrity and business ethics.
Under the AIM Rules the Group is required to apply a
recognised corporate governance. The Board resolved
to adopt the Quoted Companies Alliance (QCA) corporate
governance code, which requires the Group to apply
10 principles focused on the pursuit of medium to
long-term value for shareholders and also to publish
certain related disclosures.

As a Board we believe that good governance is crucial
to the delivery of our strategic objectives. We aim always
to remain abreast of best practice and of developments
in the regulatory framework within which we operate,
and in the way in which we seek to serve the needs
of our customers.

Further details on MAB’s corporate governance are
contained in the section entitled ‘Corporate Governance’
on MAB’s investor website (www.mortgageadvicebureau.
com/investor-relations).

n Board composition and independence

The Board of Directors currently comprises three Executive
Directors, three independent Non-Executive Directors
and one other Non-Executive Director. Their biographies
on page 24 demonstrate a range of experience which
is key to the success of the Group.

The three independent Non-Executive Directors are
considered by the Board to be independent of management
and free from any relationship which might materially
interfere with the exercise of independent judgement.
The Board does not consider the independent Non-Executive
Directors’ shareholdings to impinge on their independence.
The independent Non-Executive Directors provide a strong
independent element to the Board and bring a mix of skills
and experience at a senior level of business operations and
strategy. Together they bring the skills and experience which
support our strategic direction and our culture. Nathan Imlach
is the Senior Independent Director.

All Directors have access to the Company Secretary,
Lucy Tilley, who is responsible for ensuring that Board
procedures and applicable rules and regulations are
observed. Any Director, on appointment and throughout
their service, is entitled to receive any training they consider
necessary to fulfil their responsibilities effectively.

The Board meets at least seven times each year, and
additional meetings are held as required. The Board is the
principal forum for directing the business of the Group.

The Board is responsible to shareholders for the proper
management of the Group and has a formal schedule of
matters specifically reserved to it for decision. These include
approval of the Group’s long-term objectives and commercial
strategy, of the Group’s business plans, operating and capital
budgets, and of the interim and annual accounts.

The Board considers and approves the Group’s dividend
policy, changes in the Group’s capital and financing
structure, and significant transactions including acquisitions
and disposals. The Board is responsible for ensuring
the maintenance of a sound system of internal control and
risk management, for Board appointments and succession
planning, the approval of the Remuneration Policy and
remuneration arrangements for the Directors and other senior
managers, and for setting the terms of reference for Board
Committees. Other matters are delegated to management,
supported by policies for reporting to the Board.
The Company maintains appropriate insurance cover
in respect of legal action against the Company’s Directors,
but no cover exists in the event that a director is found to
have acted fraudulently or dishonestly.

The agenda and papers for Board meetings are distributed
by the Company Secretary on a timely basis, usually five
days before each Board meeting.

The roles of Chair and Chief Executive Officer are distinct
with clear division of responsibilities. The Chair’s role is to
ensure good corporate governance, and her responsibilities
include leading the Board, ensuring the effectiveness of the
Board in all aspects of its role, setting the Board’s agenda,
ensuring that all directors participate fully in the activities and
decision making of the Board, and ensuring communication
with shareholders. As part of the Senior Managers and
Certification Regime (SM&CR) which applies to the Company
as an FCA-regulated firm, the Chief Executive Officer,
Deputy Chief Executive Officer and Chief Financial Officer
each have a specific role clearly set out in a statement of
responsibilities. Together, they are responsible for overseeing
the development and the delivery of the strategy approved by
the Board, and the day-to-day operational and commercial
management of the Group by the senior executive team. The
Board is committed to developing the corporate governance
and management structures of the Group to ensure they
continue to meet the ongoing needs of the business.

As required by SM&CR, the non-executive Chair regularly
assesses the continuing fitness and propriety of each Board
member and their individual contributions to ensure amongst
other things that:

• their contribution is relevant and effective;
• they are committed; and
• where relevant, they have maintained their independence.

Over the next twelve months we will continue with our
annual review of the performance of the Board to assess its
effectiveness, taking into account the views of the Directors
on composition, business leadership and other matters.

29.

Mortgage Advice Bureau Annual Report 2019Governance

Corporate governance (continued)

n Operation of the Board (continued)

n Audit Committee

All the Directors keep abreast of key issues and
developments pertaining to industry, financial, regulatory and
governance matters. The Directors regularly attend briefing
seminars, conferences and/or industry forums, read trade
publications and undertake training courses or online learning
to keep up-to-date on relevant matters. Where appropriate,
the Board receives presentations from industry and
professional experts. The Chief Executive Officer and Deputy
Chief Executive Officer are regular participants at a number
of industry specific conferences, and the Chief Financial
Officer and Company Secretary regularly participates in
seminars on accounting, other financial and governance
matters. In addition, the Non-Executive Directors hold other
directorships and continually add to their skillset through
those connections. Regular and open communication
ensures that relevant information is disseminated effectively
to the Board as a whole.

On appointment, Board members, in particular the Chair
and the independent Non-Executive Directors, disclose their
commitments and agree to allocate such time as is necessary
to the Company in order to discharge their duties effectively.
The Board has considered the time commitments of each
director and is comfortable that each has sufficient available
capacity to carry out the required duties for the Company.
Any conflicts of interest are dealt with in accordance with
the Board’s conflict of interest procedures.

All Executive and Non-Executive Directors retire and put
themselves forward for re-election annually at each Annual
General Meeting and as such all Directors will stand for
re-election at the 2020 Annual General Meeting.

The Board aims to lead by example and do what is in the
best interests of the Company. We have a strong set of
values that we constantly communicate, as fundamental
to achieving good customer outcomes and promoting
business success, and this is core to our culture.
The board is committed to ensuring MAB has a healthy
corporate culture, and conducts an annual staff survey
as part of this.

n Board committees

To assist in discharging its duties, the Board has delegated
authority to four specialist committees: an Audit Committee,
a Group Risk Committee, a Remuneration Committee,
and a Nominations Committee. The terms of reference of
each committee are approved by the Board and kept under
review. The Chair of each committee provides a report of
any meeting of that committee at the next Board meeting,
and all are present at the Annual General Meeting to answer
questions from shareholders.

30.

The Audit Committee comprises Nathan Imlach (Chair),
Katherine Innes Ker, David Preece and Stephen Smith.

Nathan Imlach is a Chartered Accountant and the Board
is satisfied that all members of the committee have recent
and relevant financial experience. The Committee meets
together with the Chief Financial Officer, Lucy Tilley,
not less than twice a year. The Board believes the
Committee is independent, with all members being
Non-Executive Directors.

The key responsibilities of the Audit Committee are:

• To review the reporting of financial and other information

to the shareholders of the Company and to monitor
the integrity of the financial statements, interim report,
and any other announcements relating to the Group’s
financial performance or position, and to assess whether
management have made appropriate estimates
and judgements

• To review the effectiveness of the external audit process,
and the independence and objectivity of the external
auditors, negotiate and agree their remuneration and
make recommendations to the Board in respect of
their appointment

• To keep under review the adequacy and effectiveness

of the Group’s internal financial control and risk
management systems

• To review and challenge where necessary any changes

to significant accounting policies

• To monitor the effectiveness of the Group’s procedures
on whistleblowing, anti-bribery and corruption, and anti
money-laundering

• To report to the Board how it has discharged its

responsibilities.

Committee meetings are normally attended by the Chief
Financial Officer and by representatives of the external
auditors by invitation. The presence of other senior
executives from the Group may be requested. The Committee
meets with representatives of the external auditors without
management present at least once a year.

The Committee is responsible for ensuring the financial
performance of the Group is properly reported on and
monitored. The Committee considers the appointment
of, and fees payable to, the external auditor and discusses
with them the scope of the annual audit. The Committee
also reviews the external auditor’s management letter
and detailed presentations are made to the Committee
by the Company’s auditor at least once a year. An analysis
of fees payable to the external audit firm in respect of audit
and non-audit services during the year is set out in note 5
to the financial statements. The Company is satisfied the
external auditor remains independent in the discharge of
their audit responsibilities.

The Committee met twice during the year with future
meetings to be structured around the financial calendar of
the Company. During the year the Committee considered
significant financial and audit issues, the judgements made
in connection with the financial statements and reviewed the
narrative within the Annual Report and the Interim Report.

Mortgage Advice Bureau Annual Report 2019The Committee works in close consultation with the
Executive Directors, with its main priorities being Board
structure, ensuring that we have the right skills and
experience to fulfil our responsibilities, and management
development and succession.

n Group Risk Committee, and Risk and Compliance Committee

The Group Risk Committee (GRC) comprises Stephen Smith
(Chair), Katherine Innes Ker, Nathan Imlach, and David
Preece. The GRC meets five times per annum
to review and discuss the following:

• all major Group-related existing and potential risks,

including a review of the Group Risk Register and any
RCC escalations,

• Senior Managers and Certification Regime (SM&CR),
• General Data Protection Regulation (GDPR),
• operational resilience,
• Environmental, Social and Governance (ESG),

vulnerable clients, diversity, and any other relevant
regulatory themes, and

• other major risk considerations and relevant upcoming

legislation.

The Risk and Compliance Committee (RCC) reports
to the GRC and meets on a monthly basis to review
the adequacy and effectiveness of the Company’s internal
controls, compliance and risk management systems
(including conduct risk), ensuring that it is fulfilling its
regulatory responsibilities. This ensures at least two
independent risk and compliance reviews. As and when
required, the RCC escalates major risk events to the GRC.

The Group’s risk framework is designed to ensure that risks
are identified, managed and reported effectively. The Group
has been investing in its risk management framework to meet
the requirements of key regulatory changes on the Group,
such as MIFID II, the GDPR and the SM&CR, as well as
implementing its own Risk Profiler system. The Group’s risk
management framework remains subject to ongoing review.

The Committee also reviews the effectiveness of the internal
controls of the Group. Specific audit issues the Committee
discussed included the Group’s accounting for the acquisition
of First Mortgage Direct Limited.

n Remuneration Committee

The Remuneration Committee comprises Katherine Innes
Ker (Chair), Nathan Imlach, David Preece and Stephen Smith.
The Committee meets not less than twice a year, and more
frequently as required. It is responsible for determining and
reviewing the Group’s policy on executive remuneration and
other benefits, ensuring that this is aligned to the delivery of
the Group’s strategic objectives and terms of employment,
including performance-related bonuses and share options.
The Committee administers the operation of the share option
and share incentive schemes established by the Company.

The members of the Remuneration Committee have
no personal interest in the outcome of their decisions
and seek to serve the interests of shareholders to ensure
the continuing success of the Company. The remuneration
of the Non-Executive Directors is determined by the Executive
Directors of the Board. No Director is permitted to participate
in decisions concerning their own remuneration.

The Committee met multiple times during the year, with key
items considered including:

• The Group’s remuneration policy
• Annual review of the Executive Directors’ and other Senior

Managers’ base salaries and bonus arrangements

• Awards to be granted under the share option and share

incentives schemes operated by the Company

• Vesting of options
• Trends in executive pay in the wider market.

The Committee continues to review the Group’s long-term
incentive plans to ensure it can continue to attract, retain
and incentivise appropriately qualified staff to achieve
its goals.

Further information about the Committee and the Group’s
remuneration policy is as set out on pages 33 to 35
in the Directors’ Remuneration Report.

n Nominations Committee

The Nominations Committee comprises Katherine Innes Ker
(Chair), Nathan Imlach, David Preece, Stephen Smith, and
Peter Brodnicki. The Committee is responsible for:

• reviewing the size, structure and composition (including
the skills, knowledge, experience and diversity) of the
Board and to make recommendations to the Board with
regard to any changes,

• succession planning for both Executive Directors and

Non-Executive Board roles, and other Senior Executives
in the Group, and

• identifying and recommending to the Board for approval

candidates to fill Board and senior management vacancies
where required.

31.

Mortgage Advice Bureau Annual Report 2019Governance

Corporate governance (continued)

n Communications with shareholders

n Internal control and risk management

The Board is committed to maintaining communication
with the Company’s shareholders. The principal methods
of communication with private investors remain the Annual
Report and financial statements, the Interim Report, the AGM
and the Group’s website (www.mortgageadvicebureau.com/
investor-relations).

All Directors will normally attend each AGM and shareholders
are given the opportunity to ask questions. In addition, the
Chief Executive, Deputy Chief Executive and Chief Financial
Officer welcome dialogue with individual institutional
shareholders to understand their views and feed these back
to the Board. General presentations are also given to analysts
and investors covering the annual and interim results.

Whilst in normal circumstances the Board values very
highly the opportunity to meet shareholders in person at
the AGM and listen and respond to their questions, at the
time of approval of this document, compulsory Government
measures are in force that prohibit public gatherings of
more than two people and require that people do not make
unnecessary journeys. As a consequence of these measures,
it is not possible to hold our AGM in the usual format without
risking exposure to attendees, the Board, the Company
and employees. The Board has therefore made the difficult
decision that the AGM will be a closed meeting. More details
can be found in the notice of AGM.

The Board is ultimately responsible for the Group’s system
of internal control and for reviewing its effectiveness. Such
systems are designed to manage rather than eliminate risks
and can only provide reasonable not absolute assurance
against material misstatement or loss.

The Directors believe that the Group has internal control
procedures in place appropriate to the size and nature
of the business. In accordance with the guidance of the
Turnbull Committee on internal control, an ongoing process
is in operation for the identifying, evaluating and managing
significant risks faced by the Group. The Board routinely
reviews the effectiveness of the system of internal control
and risk management to ensure controls react to changes
in the nature of the Group’s operations. There are two Board
committees that review various risks: the Audit Committee
and the Group Risk Committee. Further details of these
committees are described on pages 30 and 31.

The Group maintains appropriate insurance cover and reviews
the adequacy of the cover regularly, in conjunction with the
Group’s insurance brokers.

On behalf of the Board

Lucy Tilley
Chief Financial Officer

1 May 2020

32.

Mortgage Advice Bureau Annual Report 2019Governance

Directors’ remuneration report

n Remuneration Committee

n Long term incentives

The Group has adopted the Mortgage Advice Bureau
Executive Option Plan to incentivise certain of its senior
employees and directors.

On 2 July 2019, 175,547 options over ordinary shares
of 0.1 pence each in the Company were granted to the
Executive Directors and senior executives of MAB under
the equity- settled Mortgage Advice Bureau Executive
Share Option Plan, representing 0.3% of the current issued
share capital. Exercise of these options is subject to the
achievement of performance conditions based on total
shareholder return and earnings per share criteria.
Subject to achievement of the performance conditions,
these options will be exercisable three years from the date
of grant. The exercise price for these options is 0.1 pence,
being the nominal cost of ordinary shares.

n Service contracts

Executive Directors have contracts of employment that
are subject to notice periods of twelve months for Peter
Brodnicki, and six months for Ben Thompson and Lucy Tilley.

The Non-Executive Directors were appointed for an initial
period of 36 months and are subject to a three-month notice
period. The remuneration of Non-Executive Directors takes
the form of a base fee.

The Remuneration Committee comprises Katherine Innes
Ker (Chair), Nathan Imlach, David Preece and Stephen Smith.
It is responsible for determining and reviewing the Group’s
policy on executive remuneration and other benefits and
terms of employment, including performance related bonuses
and share options. The Committee also administers the
operation of the share option and share incentive schemes
established by the Company, including the Appointed
Representative option scheme.

n Remuneration policy

The policy of the Remuneration Committee is to set
basic salaries at a level which is competitive with that
of comparable businesses, with a substantial proportion
of the overall remuneration package being linked to
performance through participation in short term and
long term incentive schemes. The objective of the overall
remuneration package is to be sufficiently competitive
to attract, retain and motivate high quality executives
capable of achieving the Group’s objectives and thereby
enhance shareholder value.

During the year the Committee has taken advice from Aon
Hewitt Limited (“Aon Hewitt”), a trading division of Aon plc.
Aon Hewitt is a member of the Remuneration Consultants
Group. Aon Hewitt provides guidance on the share incentive
plans and does not provide any other services to the Group.

n Salaries, fees and benefits

Salaries for Executive Directors are determined by the
Remuneration Committee and are reviewed annually, taking
into account individual performance over the previous twelve
months and external benchmark salary data. The Executive
Directors also receive other customary benefits such as
holidays, pension contributions, death in service insurance
and sick pay.

Fees for the Non-Executive Directors are determined by the
Board, having regard to fees paid to Non-Executive Directors
in other UK quoted companies of a similar scale, the time
commitment and responsibilities of the role. No options are
held by the independent Non-Executive Directors. Individuals
cannot vote on their own remuneration.

n Short term incentive arrangements

For the year ended 31 December 2019, the short-term
incentive arrangements for the Executive Directors’
comprised a bonus based on actual profit achieved
compared to the highest previous profit achieved by the
Group, a “high watermark scheme”. The maximum award
as a percentage of salary under the scheme is 200% of basic
salary for any individual Executive Director.

33.

Mortgage Advice Bureau Annual Report 2019Governance

Directors’ remuneration report (continued)

n Directors’ emoluments and pension contributions

Directors’ remuneration payable in respect of the year ended 31 December 2019 was as follows:

Basic salary
and fees
£

Performance
related
short term
incentives
£

77,000
377,080
160,960
242,925
236,560
40,000
35,000

–
289,755
144,877
285,280
193,170
–
–

Pension
contributions
£

Benefits(1)
£

–
–
–
12,020
5,000
–
–

–
–
–
–
–
–
–

Total emoluments

2019
£

77,000
666,835
305,837
540,225
434,730
40,000
35,000

2018
£

74,000
498,834
295,557
181,492
291,549
38,300
31,061

Director

Katherine Innes Ker
Peter Brodnicki
David Preece(2)
Ben Thompson
Lucy Tilley
Nathan Imlach
Stephen Smith

Notes:

(1) The benefit package of each Executive Director includes the provision of life assurance under a Group scheme.
(2) Includes a basic salary and fees of £93,060 as an Executive Director (from 1 January 2019 until 1 July 2019), £17,500 as a Non-Executive Director (from 2 July 2019),

and an additional consultancy fee of £50,400. The performance related short term incentives corresponds to the time as an Executive Director.

n Directors’ interests in shares

As at 31 December 2019, the interest of the Directors in the Ordinary shares of the Company were:

Director

Katherine Innes Ker
Peter Brodnicki
Ben Thompson
David Preece
Lucy Tilley
Nathan Imlach

Ordinary shares of 0.1p

13,227
13,997,910
113,086
1,524,800
17,477
32,292

0.03
27.12
0.22
2.95
0.03
0.06

Notes:
Directors’ shareholdings include any shareholdings of trusts or family members deemed to be connected persons.

34.

Mortgage Advice Bureau Annual Report 2019

n Interest in options

The Group operates the Mortgage Advice Bureau Executive Option Plan by which certain of the Executive Directors and other
Senior Executives are able to subscribe for ordinary shares in the Company. All options were measured at fair value at the date
of grant. The interests of the Directors were as follows:

Director

Peter Brodnicki (b)
(c)
(e)
(f)
(h)

David Preece

(a)
(b)
(c)
(e)
(f)

Exercise At 31 Dec
2018
No.

price
£

Forfeited/
Granted Exercised Not vested
during
during
the year
the year
No.
No.

during
the year
No.

1.60
3.5775
4.3083
0.001
0.001

1.60
1.60
3.5775
4.3083
0.001

162,500
173,305
148,550
19,915
–

–
–
–
–
37,396

504,270

37,396

78,125
59,377
142,557
73,346
15,136

368,541

–
–
–
–
–

–

–
–
–
–
–

–

72,665
–
–
–
–

–
16,239
–
–
–

16,239

5,460
4,149
13,358
19,608
8,977

At 31 Dec
2019
No.

162,500
157,066
148,550
19,915
37,396

525,427

–
55,228
129,199
53,738
6,159

72,665

51,552

244,324

Ben Thompson (g)
(h)

0.001
0.001

59,263
–

–
37,396

Lucy Tilley

(a)
(c)
(d)
(e)
(f)
(h)

–

37,396

2.19
3.5775
3.5775
4.3083
0.001
0.001

37,670
82,459
23,759
95,165
19,915
–

–
–
–
–
–
29,085

–
–

–

18,836
–
–
–
–
–

258,968

29,085

18,836

–
–

–

–
7,727
2,227
–
–
–

9,954

59,263
37,396

96,659

18,834
74,732
21,532
95,165
19,915
29,085

259,263

Notes:
(a) Approved Option scheme – first date exercisable is 31 March 2017, last date exercisable is 11 November 2022 or in the case of Lucy Tilley, 19 May 2023.
(b) Unapproved Option scheme – first date exercisable is 31 March 2017, last date exercisable is 11 November 2022.
(c) Unapproved Option scheme – first date exercisable is 04 May 2019, last date exercisable is 3 May 2024.
(d) Approved Option scheme – first date exercisable is 04 May 2019, last date exercisable is 3 May 2024.
(e) Unapproved Option scheme – first date exercisable is 19 April 2020, last date exercisable is 18 April 2025.
(f) Unapproved Option scheme – first date exercisable is 11 April 2021, last date exercisable is 9 April 2026.
(g) Unapproved Option scheme – first date exercisable is 8 June 2021, last date exercisable is 6 June 2026.
(h) Unapproved Option scheme - first date exercisable is 1 July 2022, last date exercisable is 1 July 2027.

Note 28 to the financial statements contains details of all options granted to directors and employees as at 31 December 2019.
All of the share options were granted for nil consideration.

The mid-market closing price of the Company’s ordinary shares at 31 December 2019 was 774 pence and the range during
the financial year was 515 pence to 795 pence.

None of the Directors had an interest in any contract of significance in relation to the business of the Company or its subsidiaries
at any time during the financial year.

On behalf of the Board

Katherine Innes Ker
Chairman of the Remuneration Committee

1 May 2020

35.

Mortgage Advice Bureau Annual Report 2019

Governance

Directors’ responsibilities for
the financial statements

The Directors are responsible for preparing the Directors’
report, strategic report and the financial statements in
accordance with applicable law and regulations.

UK 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 International Financial Reporting Standards
(“IFRS”) as adopted by the European Union (“EU”) and have
elected to prepare the Company financial statements in
accordance with IFRS as adopted by the EU.

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 each of the Group and Company
financial statements, the Directors are required to:

• select suitable accounting policies and then apply them

consistently;

• make judgements and estimates that are reasonable

and prudent;

• state whether they have been prepared in accordance

with IFRSs adopted by the EU; 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 Company and enable them to ensure the
financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of
the Group and Company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.

The Directors are responsible for ensuring the annual report
and the financial statements are made available on a website.
The maintenance and integrity of the corporate and
financial information included on the Group’s website
is the responsibility of the Directors. Legislation in the UK
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.

36.

Mortgage Advice Bureau Annual Report 2019Governance

Independent auditor’s report to the members of
Mortgage Advice Bureau (Holdings) plc

Opinion

Conclusions relating to going concern

We have nothing to report in respect of the following matters
in relation to which the ISAs (UK) require us to report to
you where:

• the Directors’ use of the going concern basis of accounting

in the preparation of the financial statements is not
appropriate; or

• the Directors have not disclosed in the financial statements

any identified material uncertainties that may cast
significant doubt about the Group’s or Parent Company’s
ability to continue to adopt the going concern basis of
accounting for a period of at least twelve months from the
date when the financial statements are authorised for issue.

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) 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.

We have audited the financial statements of Mortgage
Advice Bureau (Holdings) plc (the “Parent Company”)
and its subsidiaries (the “Group”) for the year ended
31 December 2019 which comprise the consolidated
statement of comprehensive income, consolidated
and Parent Company statement of financial position,
consolidated and company statement of changes
in equity, consolidated statement of cash flows, notes
to the financial statements and notes to the company
statement of financial position, including a summary
of significant accounting policies.

The financial reporting framework that has been applied
in the preparation of the Group financial statements
is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
The financial reporting framework that has been applied
in the preparation of the Parent Company financial
statements is applicable law and United Kingdom
Accounting Standards, including Financial Reporting
Standard 102 The Financial Reporting Standard in
the United Kingdom and Republic of Ireland (United
Kingdom Generally Accepted Accounting Practice).

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 2019 and of the Group’s profit
for the year then ended;

• the Group financial statements have been properly
prepared in accordance with IFRSs as adopted
by the European Union;

• the Parent Company financial statements have been

properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and

• the financial statements have been prepared in accordance

with the requirements 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 are
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. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide
a basis for our opinion.

37.

Mortgage Advice Bureau Annual Report 2019Governance

Independent auditor’s report to the members of
Mortgage Advice Bureau (Holdings) plc (continued)

Key audit matter description

How we addressed the key audit matter in the audit

Revenue recognition

The Group’s revenue comprises of commissions (including
procuration fees), client fees and other income.

Revenue recognition is considered to be a significant audit
risk as it is a key driver of return to investors and there is a
risk that there could be manipulation or omission of amounts
recorded in the system.

Management’s associated accounting policies are detailed
on page 54.

Clawback provision

The clawback provision relates to the estimated value of
repaying commission received up front on life assurance
policies that may lapse in a period of up to four years
following inception of the policies.

The clawback provision is considered a significant audit
risk due to the management judgement and estimation
applied in calculating the provision and we therefore
considered this to be a key audit matter.

Management’s associated accounting policies are detailed
on page 54 with detail about judgements in applying
accounting policies and critical accounting estimates
on page 56 and Note 21.

We responded to this risk by performing the following
procedures:

• We tested that revenue is recognised in line with

approved policies that are in accordance with IFRS 15.

• We tested the operating effectiveness of the

reconciliation controls in place between revenue and
cash banked.

• For commission income we obtained the third reports

and tested a sample back to cash receipts.

• Using third party reports, we recalculated all the

procuration fees independently.

• For other income we agreed a sample to third party

statements and cash receipts.

• We agreed a sample of other income to third party

support.

Key observations: There were no matters arising from
performing these procedures.

We responded to this risk by performing the following
procedures:

• We compared the relevant assumptions e.g. unearned
commission, likely future lapse rate, lapse rate history,
used in the model with third party reports.

• For other assumptions e.g. age profile of the commission
received, the Group’s share of any clawback, and the
success of the in-house team that focuses on preventing
lapses and/or generating new income at the point of a
lapse we validated these to management’s supporting
analysis which is based the Group’s actual experience.
• We tested the arithmetical accuracy of the spreadsheet

model.

Key observations: There were no matters arising from
performing these procedures.

38.

Mortgage Advice Bureau Annual Report 2019Key audit matter description

How we addressed the key audit matter in the audit

Carrying value of loans to associates

The Group has granted loans to its associates.
These loans are held at amortised cost.

The carrying value of loans to associates is considered a
significant risk due to the judgements and estimates used
by management in the preparation of the expected credit
loss model as required by IFRS 9.

Management’s associated accounting policies are
detailed on page 54 with detail about judgements in
applying accounting policies and critical accounting
estimates on page 56.

We responded to this risk by performing the following
procedures:

• We assessed the design and implementation of key

controls by undertaking a walk-through.

• We ensured that the classification of the loans to

associates was in line with the requirements of IFRS 9
by checking that they meet the requirements to be held
at amortised cost.

• We reviewed agreements to test for any movement in

loan balances in the year.

• We reviewed the Expected Credit Loss model in respect

of the loans to associates and checked if this is in
compliance with IFRS 9, which involved:
- Agreeing to management’s analysis and where relevant
external specific loan documentation, the key inputs
including the level of credit risk, stage allocation,
exposure at default, probability of default and loss
given default; and

- Performing sensitivity analysis on the probability

of defaults and the credit risk staging.

Key observations: There were no matters arising from
performing these procedures.

Acquisition of First Mortgage Direct
Limited (FMD)

We responded to this risk by performing the following
procedures:

During 2019 Mortgage Advice Bureau Limited acquired
an 80% shareholding in First Mortgage Direct Limited for
a consideration of £16.5m.

• We tested that the accounting treatment of the intangible

assets is in accordance with IFRS.

• We engaged our internal valuation expert to review

The Group has entered into an option agreement to acquire
the remaining 20% shareholding.

As per IFRS 3, the group has measured the identifiable
assets acquired and the liabilities assumed at the acquisition
date at fair value.

The valuation of the acquired assets and liabilities as well
as accounting and valuation of the option was a complex
exercise which involved a significant level of management
judgement. We also identified this as an area for potential
management bias in the assumptions.

Management’s associated accounting policies are detailed
on page 53 and in Note 29.

the purchase price allocation that was performed for
management by an accounting firm. This included
considering the key estimates within the intangible asset
valuation methodology including the weighted average
cost of capital and the useful economic life judgements.

• We performed substantive procedures on FMD’s net
assets as at 2 July 2019 by agreeing the balances to
supporting documentation to obtain assurance on the net
assets brought in at date of acquisition.

• Management used an accounting firm to consider the
accounting treatment of the option (comprising the
put and the call option) over the remaining 20% of the
issued share capital of FMD. We engaged our internal
technical specialist to consider this accounting treatment.
This considered the terms included in the purchase
agreements and the requirements of IAS 19 and IFRS 2.
• We agreed the term of the option to signed agreements

and the discount rate to third party support.

Key observations: As a result of our procedures we
considered that management’s identification of separate
intangible assets was appropriate and that the acquisition
and option had been appropriately accounted for.

39.

Mortgage Advice Bureau Annual Report 2019Governance

Independent auditor’s report to the members of
Mortgage Advice Bureau (Holdings) plc (continued)

Key audit matter description

How we addressed the key audit matter in the audit

Going concern
COVID-19 and post balance sheet event

When preparing financial statements, management are
required to make an assessment to support the going
concern basis of preparation. An entity is a going concern
unless management either intends to cease trading, or has
no realistic alternative but to do so.

Following the year end, the COVID-19 virus is having
a significant impact on businesses and the economy
in the UK and Globally.

In assessing whether the entity is a going concern
management is required to take into account all available
information about the future including the implications of
COVID-19 effects on their operations, for a period of at least
12 months from the date when the financial statements are
authorised for issue.

Management has concluded that there is no material
uncertainty in relation to the entity’s ability to continue
as a going concern.

Management’s associated consideration is in the
Directors’ report on page 26.

Given the uncertainty regarding the impact of COVID-19
on the economy we considered this to be a key audit matter.

In responding to this risk, our audit procedures included
assessing the reasonableness of the assumptions within
management’s forecasts for liquidity and profitability for
a period of 12 months from the signing of these accounts.

In particular:

• We considered the base and stress scenarios testing
undertaken by management to support the going
concern assessment which included assumptions about
the potential impact this could have on revenue (mainly
from purchase mortgages) and possible cost saving
measures and consider these assumptions plausible.
We focused on the cash and capital position during
this period;

• The Group has an undrawn revolving credit facility in

place of £12m at year end, which was then drawn post
year end. We validated that the Group has at the date of
signing the accounts fully drawn the credit facility and
have validated to bank statements the Group’s cash
position at 20 April 2020; and

• We have also considered the Group’s ability to comply

with the covenants attached to the banking facility during
this period.

40.

Mortgage Advice Bureau Annual Report 2019Our 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.

We determined materiality for the Parent Company to be
£285,000 (2018: £218,000) which represents 5% of net
assets. We have used net assets as the Parent Company
acts as a holding company only. We have then set the
performance materiality at 75% (2018: 75%) due to no
identified misstatements in the past.

Materiality measure

Purpose

Key considerations and benchmarks Quantum (£)

Financial statement
materiality
(5% of profit before tax)

Assessing whether the financial
statements as a whole present
a true and fair view.

Performance
materiality
(70% of materiality)

Lower level of materiality applied
in performance of the audit
when determining the nature
and extent of testing applied to
individual balances and classes
of transactions.

We agreed with the audit committee that we would report to
the committee all individual audit differences identified during
the course of our audit in excess of £17,000 (2018: £15,000)
for the Group and £5,000 (2018: £4,000) for the Parent
Company. We also agreed to report differences below these
thresholds that, in our view, warranted reporting on
qualitative grounds.

An overview of the scope of our audit

Our audit approach was scoped by obtaining an
understanding of the Group’s activities, the key functions
undertaken by the Board and the overall control environment.
Based on this understanding we assessed those aspects of
the Group’s transactions and balances which were most likely
to give rise to a material misstatement at a Group level.

The audit of the Group was conducted by BDO LLP directly
at Group level as all transactions are recorded in a common
accounting system, except for those of First Mortgage Direct
Limited, which has been consolidated within the Group and
was identified as a significant component. The materiality
used for the audit of First Mortgage Direct Limited as a
component of the Group has been set at £140,000. The audit
of the Group and all entities were conducted by BDO LLP.

The audit of the Group, including First Mortgage Direct
Limited, accounted for 100% of the Group’s net assets,
100% of the Group’s revenue and 100% of the Group’s profit
before tax.

• A principal consideration for
members of the company in
assessing the financial performance
of the Group

£885,000
(31 December
2018: £787,000)

• Financial statement materiality
• Risk and control environment
• No history of misstatements

£620,000
(31 December
2018: £590,000)

Other information

The Directors are responsible for the other information.
The other information comprises the information included
in the report and financial statements, 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.

In connection with our audit of the financial statements,
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 audit or otherwise
appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements,
we are required to determine whether there is a material
misstatement in the financial statements or a material
misstatement of the other information. 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.

Opinions on other matters prescribed by the Companies
Act 2006

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.

41.

Mortgage Advice Bureau Annual Report 2019Governance

Independent auditor’s report to the members of
Mortgage Advice Bureau (Holdings) plc (continued)

Matters on which we are required to report by exception

Other matters which we are required to address

Following the recommendation of the Audit Committee,
we were appointed by the Board of Directors during 2014
to audit the financial statements for the year ending
31 December 2014 and subsequent financial periods.
The period of total uninterrupted engagement is 6 years,
covering the year ended 31 December 2019.

The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Group and we remain
independent of the Group in conducting our audit.

Our audit opinion is consistent with the additional report
to the Audit Committee.

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.

Ariel Grosberg
(Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

London
22 April 2020

BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).

In the light of the knowledge and understanding of the Group
and the 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 the Directors’ responsibilities
statement, 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.

A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.

42.

Mortgage Advice Bureau Annual Report 2019Financial statements

Consolidated statement of comprehensive income
for the year ended 31 December 2019

Revenue

Cost of sales

Gross profit

Administrative expenses

Share of profit of associates, net of tax

Operating profit

Analysed as:

Operating profit before charging

Acquisition costs

Operating profit

Finance income

Finance expense

Profit before tax

Tax expense

Profit for the year

Note

2019
£’000

143,741

(107,316)

36,425

(18,877)

17,636

18,623

(987)

17,636

147

(86)

17,697

(2,968)

14,729

2018
£’000

123,291

(94,851)

28,440

(13,201)

361

15,600

–

15,682

(2,492)

13,190

Total comprehensive income

14,729

13,190

Profit is attributable to:

Equity owners of parent company

Non-controlling interests

Earnings per share attributable to the owners of the parent company

Basic

Diluted

All amounts shown relate to continuing activities.

The notes on page 47 to 84 form part of these financial statements

14,499

230

14,729

28.2p

27.7p

13,190

–

13,190

25.9p

25.3p

43.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Consolidated statement of financial position
as at 31 December 2019

Assets

Non-current assets
Property, plant and equipment

Right of use assets

Goodwill

Other intangible assets

Investments in associates and joint venture

Investments in non-listed equity shares

Other receivables

Deferred tax asset

Total non-current assets

Current assets

Trade and other receivables

Cash and cash equivalents

Total current assets

Total assets

Equity and liabilities

Share capital

Share premium

Capital redemption reserve

Share option reserve

Retained earnings

Equity attributable to owners of the Parent Company

Non-controlling interests

Total equity

Liabilities

Non-current liabilities
Provisions

Lease liabilities

Deferred tax liability

Total non-current liabilities

Current liabilities
Trade and other payables

Lease liabilities

Corporation tax liability

Total current liabilities

Total liabilities

Total equity and liabilities

Note

2019
£’000

2,924

2,907

15,155

3,862

3,133

3,330

1,517

2018
£’000

2,616

–

4,114

645

1,573

–

2,296

878

32,903

12,122

4,959

20,867

25,826

58,729

5,451

2,799

17,272

25,594

1,595

27,189

3,735

2,645

651

7,031

22,371

334

1,804

24,509

31,540

58,729

4,603

25,589

30,192

42,314

4,094

1,675

14,829

20,669

–

20,669

1,704

–

1,758

18,690

–

1,197

19,887

21,645

42,314

The notes on page 47 to 84 form part of these financial statements.

The financial statements were approved by the Board of Directors on 22 April 2020.

P Brodnicki
Director

44.

L Tilley
Director

Mortgage Advice Bureau Annual Report 2019

Financial statements

Consolidated statement of changes in equity
for the year ended 31 December 2019

Attributable to the holders of the Parent Company

Share
capital premium
£’000

Capital
Share redemption
reserve
£’000

£’000

Share
option Retained
reserve earnings
£’000

£’000

Non-
controlling
interests
£’000

Total
£’000

Balance at 1 January 2018

3,574

1,450

13,071

18,166

–

520

–

520

–

477

(185)

13,190

–

520

477

(185)

(67)

–

(11,499)

225

(11,432)

(10,687)

Total
Equity
£’000

18,166

13,190

520

477

(185)

–

(11,499)

(10,687)

–

4,094

1,675

14,829

20,669

–

20,669

14,499

230

14,729

14,499

230

14,729

–

760

544

–

1,357

–

1,357

–

1,358

–

1,358

–

1,365

760

544

–

760

544

–

(12,236)

(180)

180

–

(12,236)

1,124

(12,056)

(9,574)

1,365

(8,209)

Profit for the year

Total comprehensive income

Transactions with owners

Issue of shares

Share based payment transactions

Deferred tax asset recognised in equity

Reserve transfer

Dividends paid

Transactions with owners

Balance at 31 December 2018
and 1 January 2019

Profit for the year

Total comprehensive income

Transactions with owners

Issue of shares

Non-controlling interest on acquisition
of subsidiary

Share based payment transactions

Deferred tax asset recognised in equity

Reserve transfer

Dividends paid

Transactions with owners

Balance at 31 December 2019

5,451

2,799

17,272

25,594

1,595

27,189

The notes on page 47 to 84 form part of these financial statements.

45.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Consolidated statement of cash flows
for the year ended 31 December 2019

Cash flows from operating activities

Profit for the year before tax

Adjustments for:

Depreciation of property, plant and equipment

Depreciation of right of use assets

Amortisation of intangibles

Share based payments

Share of profit from associates

Dividends received from associates

Finance income

Finance expense

Changes in working capital

Decrease/(increase) in trade and other receivables
(other than accrued interest income)

Increase in trade and other payables

Increase in provisions

Cash generated from operating activities

Income taxes paid

Net cash generated from operating activities

Cash flows from investing activities

Payment for acquisition of subsidiary, net of cash acquired

Purchase of property, plant and equipment

Purchase of intangibles

Acquisitions of associates and investments

Acquisition of investments in non-listed equity shares

Net cash used in investing activities

Cash flows from financing activities

Interest received

Interest paid

Principal element of lease payments

Issue of shares

Dividends paid

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of year

Cash and cash equivalents at the end of the year

The notes on page 47 to 84 form part of these financial statements.

46.

Notes

2019
£’000

2018
£’000

17,697

15,682

303

187

249

760

(280)

311

(147)

207

–

477

(494)

392

(82)

–

19,166

16,226

446

2,566

586

22,764

(2,360)

20,404

(12,223)

(186)

(1)

(1,591)

(75)

(14,076)

(86)

(163)

1,358

(12,236)

(11,050)

(4,722)

25,589

20,867

(2,437)

3,691

208

17,688

(2,818)

14,870

–

(175)

(591)

(132)

–

(898)

–

520

(11,499)

(10,934)

3,038

22,551

25,589

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements
for the year ended 31 December 2019

1. Accounting policies

n Basis of preparation

The principal accounting policies adopted in the preparation
of the consolidated financial statements are set out below.
The policies have been consistently applied to all the
years presented.

The consolidated financial statements are presented in Great
British Pounds, which is also the Group’s functional currency.
All amounts are rounded to the relevant thousands, unless
otherwise stated.

These financial statements have been prepared under
the historical cost convention and in accordance with
International Financial Reporting Standards, International
Accounting Standards and Interpretations (collectively IFRSs)
issued by the International Accounting Standards Board
(IASB) as adopted by the European Union (EU) (EU “adopted
IFRSs”) and with those parts of the Companies Act 2006 that
are applicable to companies that prepare financial statements
in accordance with IFRSs.

The preparation of financial statements in compliance
with adopted EU IFRS requires the use of certain critical
accounting estimates. It also requires Group management
to exercise judgement in applying the Group’s accounting
policies. The areas where significant judgements and
estimates have been made in preparing the financial
statements and their effect are disclosed in note 2.

The Group’s business activities, together with the factors
likely to affect its future development, performance and
position are set out in the Strategic Report as set out earlier
in these financial statements. The financial position of the
Group, its cash flows and liquidity position are described
in these financial statements.

The Group made an operating profit of £17.6m during
2019 (2018: £15.6m) and had net current assets of £1.3m
at 31 December 2019 (31 December 2018: £10.3m) and
equity attributable to owners of the Group of £25.6m
(31 December 2018: £20.7m).

The Directors have assessed the Group’s prospects until the
end of 2021, taking into consideration the current operating
environment, including the impact of the Government
imposed “lockdown” due to the coronavirus pandemic on
property and lending markets. To give the Group additional
flexibility to react quickly in this environment and capitalise
on potential opportunities the Group drew down its Revolving
Credit Facility of £12m in full in March 2020. The Group
has implemented cost cutting measures, including the
furloughing of some staff, and all remaining staff are currently
working remotely on a reduced salary. The Directors’
financial modelling considers the Group’s profit, cash flows,
regulatory capital requirements, borrowing covenants and
other key financial metrics over the period. These metrics
are subject to sensitivity analysis, which involves flexing
a number of key assumptions underlying the projections,
including the duration of the Government imposed lockdown
and its impact on the UK property market and the Group’s
revenue mix, which the Directors consider to be severe but
plausible stress tests on the Group’s cash position, banking

covenants and regulatory capital adequacy. The Group’s
financial modelling shows that the Group should continue
to be cash generative, maintain a surplus on its regulatory
capital requirements and be able to operate within its current
financing arrangements. Based on the results of the financial
modelling, the Directors expect that the Group will be able
to continue in operation and meet its liabilities as they fall
due over this period. Accordingly, the Directors continue
to adopt the going concern basis for the preparation of
the financial statements.

n Changes in accounting policies

New standards, interpretations and amendments effective
for the year ended 31 December 2019

New standards, interpretations and amendments applied
for the first time

The Group applied IFRS 3 (amendment) and IFRS 16
for the first time. The nature and the effect of the changes
as a result of adoption of these new accounting standards
are described below.

Several other standards and interpretations apply for the first
time in 2019 but do not have an impact on the consolidated
financial statements of the Group. The Group has not early
adopted any standards, interpretations or amendments that
have been issued but are not yet effective.

• IFRS 16 Leases. The scope of IFRS 16 includes leases
of all assets, with certain exceptions. A lease is defined
as a contract, or part of a contract, that conveys the right
to use an asset (the underlying asset) for a period of time
in exchange for consideration. IFRS 16 sets out the
principles for the recognition, measurement, presentation
and disclosure of leases and requires lessees to account
for all leases under a single on-balance sheet model similar
to the accounting for finance leases under IAS 17.
The standard includes two recognition exemptions
for leases – leases of “low value” assets (e.g. personal
computers) and short-term leases (i.e. leases with a lease
term of 12 months or less). At the commencement date
of a lease, a lessee will recognise a liability to make lease
payments (i.e. the lease liability) and an asset representing
the right to use the underlying asset during the lease term
(i.e. the right of use asset). Lessees will be required
to separately recognise the interest expenses on the
lease liability and the depreciation expense on the right
of use asset.

• Lessees will also be required to remeasure the lease liability

upon the occurrence of certain events (e.g. a change in
the lease term, a change in future lease payments resulting
from a change in an index or rate used to determine those
payments). The lessee will generally recognise the amount
of the remeasurement of the lease liability as an adjustment
to the right of use asset.

Lessor accounting under IFRS 16 is substantially
unchanged from today’s accounting under IAS 17.
Lessors will continue to classify all leases using the same
classification principles as in IAS 17 and distinguish
between two types of leases: operating and finance leases.

47.

Mortgage Advice Bureau Annual Report 2019Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

• IFRS 11 Joint Arrangements. A party that participates
in, but does not have joint control of, a joint operation
might obtain joint control of the joint operation in which
the activity of the joint operation constitutes a business
as defined in IFRS 3. The amendments clarify that the
previously held interests in that joint operation are
not remeasured.

An entity applies those amendments to transactions in
which it obtains joint control on or after the beginning of the
first annual reporting period beginning on or after 1 January
2019, with early application permitted. These amendments
are currently not applicable to the Group but may apply
to future transactions.

• IAS 12 Income Taxes. The amendments clarify that

the income tax consequences of dividends are linked
more directly to past transactions or events that
generated distributable profits than to distributions
to owners. Therefore, an entity recognises the income
tax consequences of dividends in profit or loss, other
comprehensive income or equity according to where
the entity originally recognised those past transactions
or events.

An entity applies those amendments for annual
reporting periods beginning on or after 1 January 2019,
with early application permitted. When an entity
first applies those amendments, it applies them to the
income tax consequences of dividends recognised on
or after the beginning of the earliest comparative period.
Since the Group’s current practice is in line with these
amendments, there has been no effect on its consolidated
financial statements.

1. Accounting policies (continued)

n Changes in accounting policies (continued)

New standards, interpretations and amendments effective
for the year ended 31 December 2019 (continued)

New standards, interpretations and amendments applied
for the first time (continued)

This amendment has been applied to new leases
in the year. There were no other leases held recently
by the Group.

• IFRS 3 Business Combinations. The amendments clarify
that, when an entity obtains control of a business that
is a joint operation, it applies the requirements for a
business combination achieved in stages, including
remeasuring previously held interests in the assets and
liabilities of the joint operation at fair value. In doing so,
the acquirer remeasures its entire previously held interest
in the joint operation.

An entity applies those amendments to business
combinations for which the acquisition date is on or after
the beginning of the first annual reporting period beginning
on or after 1 January 2019, with early application permitted.
These amendments will apply on all business combinations
of the Group.

New standards with no impact on the Group

• IFRIC Interpretation 23. Uncertainty over income tax

treatments. The interpretation addresses the accounting
for income taxes when tax treatments involve uncertainty
that affects the application of IAS 12 (Income taxes) and
does not apply to taxes or levies outside the scope of IAS
12, nor does it specifically include requirements relating
to interest and penalties associated with uncertain tax
treatments. The interpretation specifically addresses
the following:

• Whether an entity considers uncertain tax treatments

separately

• The assumptions an entity makes about the examination

of tax treatments by taxation authorities

• How an entity determines taxable profit (tax loss),
tax bases, unused tax losses, unused tax credits
and tax rates

• How an entity considers changes in facts and

circumstances.

An entity must determine whether to consider each
uncertain tax treatment separately or together with one
or more uncertain tax treatments. The approach that better
predicts the resolution of the uncertainty should
be followed.

48.

Mortgage Advice Bureau Annual Report 2019
1. Accounting policies (continued)

• Amendments to IAS I and IAS 8: Definition of material.

n Changes in accounting policies (continued)

New standards, interpretations and amendments
not yet effective

The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group’s financial
statements are disclosed below. The Group intends to adopt
these standards, if applicable, when they become effective.

• Amendments to IFRS 10 and IAS 28: Sale or

contribution of Assets between an investor and its
Associate or Joint Venture. The amendments address
the conflict between IFRS 10, Consolidated Financial
Statements and IAS 28 in dealing with the loss of control
of a subsidiary that is sold or contributed to an associate
or joint venture. The amendments clarify that the gain and
loss resulting from the sale or contribution of assets that
constitute a business, as defined in IFRS 3, between
an investor and its associate or joint venture, is recognised
in full. Any gain or loss resulting from the sale or contribution
of assets that do not constitute a business, however,
is recognised only to the extent of unrelated investors’
interest in the associate or joint venture. The IASB
has deferred the effective date of these amendments
indefinitely, but an entity that early adopts the amendments
must apply them prospectively. The Group will apply
these amendments when they become effective.

• Amendments to IFRS 3: Definition of a business.
The IASB issued amendments to the definition of a
business in IFRS 3 Business Combinations to help entities
determine whether an acquired set of activities and assets
is a business or not. They clarify the minimum requirements
for a business, remove the assessment of whether
market participants are capable of replacing any missing
elements, add guidance to help entities assess whether
an acquired process is substantive, narrow the definitions
of a business and of outputs, and introduce an optional
fair value concentration test. The amendments clarify that
to be considered a business, an integrated set of activities
and assets must include, at a minimum, an input and a
substantive process that together significantly contribute
to the ability to create output. They also clarify that a
business can exist without including all of the inputs and
processes needed to create outputs. That is, the inputs and
processes applied to those inputs must have ‘the ability to
contribute to the creation of outputs’ rather than the ability
to create outputs.

The amendments must be applied to transactions that
are either business combinations or asset acquisitions for
which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after 1
January 2020. Consequently, entitles do not have to revisit
such transactions that occurred in prior periods. Earlier
application is permitted and must be disclosed.

In October 2018, the IASB issued amendments to
IAS 1 Presentation of Financial Statements and IAS 8 to
align the definition of ‘material’ across the standards and
to clarify certain aspects of the definition. The new
definition states that, ’Information is material if omitting,
misstating or obscuring it could reasonably be expected
to influence decisions that the primary users of general
purpose financial statements make on the basis of those
financial statements, which provide financial information
about a specific reporting entity.’ The amendments clarify
that materiality will depend on the nature or magnitude
of information, or both. An entity will need to assess
whether the information, either individually or in combination
with other information, is material in the context of the
financial statements.

An entity must apply these amendments for annual
reporting periods beginning on or after 1 January 2020.
The amendments must be applied prospectively. Early
application is permitted and must be disclosed.

• The Conceptual Framework of Financial Reporting.

The revised Conceptual Framework for Financial Reporting
(the Conceptual Framework) is not a standard, and none
of the concepts override those in any standard or any
requirements in a standard. The purpose of the Conceptual
Framework is to assist the Board in developing standards,
to help preparers develop consistent accounting policies
if there is no applicable standard in place and to assist all
parties to understand and interpret the standards. Effective
immediately for the IASB and the IFRS IC. For preparers
who develop accounting policies based on the Conceptual
Framework, it is effective for annual periods beginning
on or after 1 January 2020.

n Current versus non-current classification

The Group presents assets and liabilities in the statement of
financial position based on current/non-current classification.
An asset is current when it is:

• Expected to be realised or intended to be sold or consumed

in the normal operating cycle

• Held primarily for the purpose of trading
• Expected to be realised within twelve months after

the reporting date.

All other assets are classified as non-current.

Assets included in current assets which are expected to be
realised within twelve months after the reporting date are
measured at fair value which is their book value. Fair value
for investments in unquoted equity shares is the net proceeds
that would be received for the sale of the asset where this
can be reasonably determined.

49.

Mortgage Advice Bureau Annual Report 2019
Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

1. Accounting policies (continued)

n Joint ventures

The Group accounts for its interests in joint ventures in
the same manner as investments in Associates (i.e. using
the equity method).

Any premium paid for an investment in a joint venture above
the fair value of the Group’s share of the identifiable assets,
liabilities and contingent liabilities acquired is capitalised
and included in the carrying amount of the investment in
the joint venture. Where there is objective evidence that the
investment in a joint venture has been impaired the carrying
amount of the investment is tested for impairment in the
same way as other non-financial assets.

n Property, plant and equipment

Items of property, plant and equipment are initially recognised
at cost. As well as the purchase price, cost includes directly
attributable costs.

Depreciation is provided on all items of property, plant and
equipment at rates calculated to write off the cost of each
asset on a straight line basis over their expected useful lives,
as follows:

Freehold land
Freehold buildings
Fixtures and fittings
Computer equipment

not depreciated
36 years
5 years
3 years

Gains and losses on disposal are determined by comparing
the proceeds with the carrying amount and are recognised
in the income statement. The Directors reassess the useful
economic life of the assets annually.

n Goodwill

Goodwill represents the excess of a cost of a business
combination over the Group’s interest in the fair value of
identifiable assets under IFRS 3 Business Combinations.

Goodwill is capitalised as an intangible asset with
any impairment in carrying value being charged to the
consolidated statement of comprehensive income. Where
the fair value of identifiable assets, liabilities and contingent
liabilities exceed the fair value of consideration paid, the
excess is credited in full to the consolidated statement of
comprehensive income on the acquisition date.

n Basis of consolidation

Where the company has control over an investee, it is
classified as a subsidiary. The company controls an investee
if all three of the following elements are present: power over
the investee, exposure to variable returns from the investee,
and the ability of the investor to use its power to affect those
variable returns. Control is reassessed whenever facts and
circumstances indicate that there may be a change in any
of these elements of control.

The consolidated financial statements present the results
of the company and its subsidiaries (“the Group”) as if
they formed a single entity. Intercompany transactions
and balances between group companies are therefore
eliminated in full.

The consolidated financial statements incorporate the
results of business combinations using the acquisition
method. In the statement of financial position, the acquiree’s
identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at the acquisition
date. The results of acquired operations are included in the
consolidated statement of comprehensive income from the
date on which control is obtained. They are deconsolidated
from the date on which control ceases.

n Associates

Where the Group has the power to participate in, but not
control the financial and operating policy decisions of another
entity, it is classified as an associate. Associates are initially
recognised in the consolidated statement of financial position
at cost. Subsequently associates are accounted for using the
equity method, where the Group’s share of post-acquisition
profits and losses and other comprehensive income is
recognised in the consolidated statement of profit and loss
and other comprehensive income (except for losses in excess
of the Group’s investment in the associate unless there is an
obligation to make good those losses).

Profits and losses arising on transactions between the
Group and its associates are recognised only to the extent of
unrelated investors’ interests in the associate. The investor’s
share in the associate’s profits and losses resulting from
these transactions is eliminated against the carrying value
of the associate.

Any premium paid for an associate above the fair value of
the Group’s share of the identifiable assets, liabilities and
contingent liabilities acquired is capitalised and included in
the carrying amount of the associate. Where there is objective
evidence that the investment in an associate has been
impaired the carrying amount of the investment is tested for
impairment in the same way as other non-financial assets.

50.

Mortgage Advice Bureau Annual Report 20191. Accounting policies (continued)

n Financial assets

n Other intangible assets

Intangible assets other than goodwill acquired by the
Group comprise licences, the website and software and
are stated at cost less accumulated amortisation and
impairment losses. Amortisation is charged to the statement
of comprehensive income within administrative expenses
on a straight line basis over the period of the licence
agreements or expected useful life of the asset and is
charged once the asset is in use. Assets are tested annually
for impairment or more frequently if events or circumstances
indicate potential impairment.

Amortisation, which is reviewed annually, is provided on
intangible assets to write off the cost of each asset on a
straight-line basis over its expected useful life as follows:

Licences
Website and Software
Customer contracts
Trademarks

6 years
3 years
9 years
10 years

n Impairment of non-financial assets

Impairment tests on goodwill and other intangible assets
with indefinite useful economic lives are undertaken annually
at the financial year end. Other non-financial assets are
subject to impairment tests whenever events or changes
in circumstances indicate that their carrying amount may
not be recoverable. Where the carrying value of the asset
exceeds its recoverable amount (i.e. the higher of value
in use and fair value less costs to sell), the asset is written
down accordingly.

Where it is not possible to estimate the recoverable amount
of an individual asset, the impairment test is carried out
on the smallest group of assets to which it belongs for
which there are separately identifiable cash flows, its cash
generating units (‘CGUs’). Goodwill is allocated on initial
recognition to each of the group’s CGUs that are expected
to benefit from the synergies of the combination giving rise
to the goodwill.

Impairment charges are included in profit or loss except to
the extent that they reverse gains previously recognised
in other comprehensive income. An impairment loss for
goodwill is not reversed.

In the consolidated statement of financial position, the Group
classifies its financial assets as loans, trade receivables and
cash and cash equivalents. The classification depends on
the purpose for which the financial assets were acquired.
Loans and trade receivables are non-derivative financial
assets with fixed or determinable payments which arise
principally through the Group’s trading activities, and these
assets arise principally 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 provisions for trade receivables are recognised
based on the simplified approach within IFRS 9 using 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 cost of sales 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.

Impairment provisions for loans to associates 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,
twelve 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.

Cash and cash equivalents include cash in hand and
deposits held at call with banks with an original maturity
of three months or less.

n Financial liabilities

Trade and other payables are recognised initially at fair value
and subsequently carried at amortised cost.

51.

Mortgage Advice Bureau Annual Report 2019Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

1. Accounting policies (continued)

To determine the incremental borrowing rate, the Group:

• where possible, uses recent third-party financing received
by the individual lessee as a starting point, adjusted to
reflect changes in financing conditions since third party
financing was received

• where it does not have recent third party financing, the

Group uses a build-up approach that starts with a risk-free
interest rate adjusted for credit risk for leases held by the
Group, and

• makes adjustments specific to the lease, e.g. term, country,

currency and security.

Lease payments are allocated between principal and
finance cost. The finance cost is charged to profit or loss
over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for
each period.

Right of use assets are measured at cost comprising
the following:

• the amount of the initial measurement of lease liability.
• any lease payments made at or before the commencement

date less any lease incentives received, and

• any initial direct costs.

Right of use assets are depreciated over the shorter of the
asset’s useful life and the lease term on a straight-line basis.
The Group does not revalue its land and buildings that are
presented within property, plant and equipment, and has
chosen not to do so for the right of use buildings held by
the Group.

n Leases

The Group’s leasing activities and how they are accounted for

The Group leases a number of properties from which it
operates. Rental contracts are typically made for fixed
periods of five to ten years, with break clauses negotiated
for some of these.

Contracts may contain both lease and non-lease
components. The Group allocates the consideration in the
contract to the lease and non-lease components based on
their relative stand-alone prices.

Until the end of 2018, leases of property, plant and equipment
were classified as either finance leases or operating leases.
Under the transitional approach the comparatives have
not been adjusted. Therefore, the Group has adopted the
modified retrospective transition approach.

From 1 January 2019, all leases are accounted for by
recognising a right of use asset and a corresponding liability
at the date at which the leased asset is available for use by
the Group, except for:

• Leases of low value assets; and
• Leases with a duration of 12 months or less

Payments associated with short-term leases and leases
of low value assets will continue to be recognised on
a straight-line basis as an expense in the statement of
comprehensive income. Low value assets within the Group
comprise of IT equipment.

Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include
the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments),

less any lease incentives receivable

• variable lease payments that are based on an index or

a rate, initially measured using the index or rate as at the
commencement date; and

• payments of penalties for terminating the lease, if the lease

term reflects the Group exercising that option.

Lease payments to be made under reasonably certain
extension options are also included in the measurement
of the liability. The lease payments are discounted using
the interest rate implicit in the lease. If that rate cannot be
readily determined, which is generally the case for leases in
the Group, the Group’s incremental borrowing rate is used,
being the rate that the Group would have to pay to borrow
the funds necessary to obtain an asset of similar value to
the right of use asset in a similar economic environment
with similar terms, security and conditions.

52.

Mortgage Advice Bureau Annual Report 20191. Accounting policies (continued)

n Business Combinations and Goodwill

n Leases (continued)

Variable lease payments

The Group is exposed to potential future increases in variable
lease payments based on an index or rate, which are not
included in the lease liability until they take effect. When
adjustments to lease payments based on an index or rate
take effect, the lease liability is reassessed and adjusted
against the right of use asset.

Some property leases contain variable lease payments linked
to current market rental from August 2023. A 1% fluctuation
in market rent would impact total annual lease payments
by approximately £16,000.

Extension and termination options

Termination options are included in a number of the leases
across the Group. These are used to maximise operational
flexibility in terms of managing the assets used in the
Group’s operations. The majority of termination options
held are exercisable only by the Group and not by the
respective lessor.

In determining the lease term, management considers all
facts and circumstances that create an economic incentive
to exercise an extension option, or not exercise a termination
option. Extension options (or periods after termination
options) are only included in the lease term if the lease
is reasonably certain to be extended (or not terminated).

For leases of property, the following factors are normally
the most relevant:

• If there are significant penalties to terminate, the Group

is typically reasonably certain not to terminate

• If any leasehold improvements are expected to have
a significant remaining value, the Group is typically
reasonably certain to not terminate

• Otherwise, the Group considers other factors including
historical lease durations and the costs and business
disruption required to replace the leased asset. Most
extension options in offices have not been included in the
lease liability, because the Group could replace the assets
without significant cost or business disruption.

At 31 December 2019, the carrying amounts of lease
liabilities are not reduced by amount of payments that would
be avoided from exercising a break clause because it was
considered reasonably certain that the Group would not
exercise its right to break the lease. Total lease payments of
£0.6m are potentially avoidable were the Group to exercise
break clauses at the earliest opportunity.

Business combinations are accounted for using the
acquisition method. The cost of an acquisition is measured
as the aggregate of the consideration transferred, which
is measured at acquisition date fair value, and the amount
of any non-controlling interests in the acquiree. For each
business combination, the Group elects whether to measure
the non-controlling interests in the acquiree at fair value or
at the proportionate share of the acquiree’s identifiable net
assets. Acquisition-related costs are expensed as incurred
and included in administrative expenses.

When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification
and designation in accordance with the contractual terms,
economic circumstances and pertinent conditions as at the
acquisition date. This includes the separation of embedded
derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the
acquirer will be recognised at fair value at the acquisition
date. Contingent consideration classified as equity is not
remeasured and its subsequent settlement is accounted for
within equity. Contingent consideration classified as an asset
or liability that is a financial instrument and within the scope
of IFRS 9 Financial Instruments, is measured at fair value
with the changes in fair value recognised in the statement
of profit or loss in accordance with IFRS 9. Other contingent
consideration that is not within the scope of IFRS 9 is
measured at fair value at each reporting date with changes
in fair value recognised in profit or loss.

Goodwill is initially measured at cost (being the excess of the
aggregate of the consideration transferred and the amount
recognised for non-controlling interests and any previous
interest held over the net identifiable assets acquired and
liabilities assumed). If the fair value of the net assets acquired
is in excess of the aggregate consideration transferred, the
Group re-assesses whether it has correctly identified all of
the assets acquired and all of the liabilities assumed and
reviews the procedures used to measure the amounts to be
recognised at the acquisition date. If the reassessment still
results in an excess of the fair value of net assets acquired
over the aggregate consideration transferred, then the gain
is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose of
assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash inflows
which are largely independent of the cash inflows from other
assets or groups of assets (cash-generating units).

Where goodwill has been allocated to the Group’s cash-
generating unit (CGU) and part of the operation within the
unit is disposed of, the goodwill associated with the disposed
operation is included in the carrying amount of the operation
when determining the gain or loss on disposal. Goodwill
disposed in these circumstances is measured based on the
relative values of the disposed operation and the portion of
the cash generating unit retained.

53.

Mortgage Advice Bureau Annual Report 2019Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

1. Accounting policies (continued)

n Business Combinations and Goodwill (continued)

If the business combination is achieved in stages, the
acquisition date carrying value of the acquirer’s previously
held equity interest in the acquiree is remeasured to fair
value at the subsequent acquisition date. Any gains or
losses arising from such remeasurement are recognised
in profit or loss.

Where a business combination is for less than the entire
issued share capital of the acquiree and there is an option
for the acquirer to purchase the remainder of the issued
share capital of the business and/or for the vendor to sell
the rest of the entire issued share capital of the business
to the acquirer, then the acquirer will assess whether a
non-controlling interest exists and also whether the
instrument(s) fall within the scope of IFRS 9 Financial
Instruments and is/are measured at fair value with the
changes in fair value recognised in the statement of profit
or loss in accordance with IFRS 9. Options that are not
within the scope of IFRS 9 and are linked to service will
be accounted for under IAS 19 Employee Benefits and/or
IFRS 2 Share Based Payments as appropriate.

n Retirement benefits: Defined contribution schemes

Contributions to defined contribution pension schemes are
charged to the consolidated statement of comprehensive
income in the year to which they relate.

n Provisions

A provision is recognised in the statement of financial
position when the Group has a present legal or constructive
obligation as a result of a past event, and it is probable that
an outflow of economic benefits will be required to settle
the obligation.

n Share capital

Financial instruments issued by the Group are treated as
equity only to the extent that they do not meet the definition
of a financial liability. The Company’s ordinary shares are
classified as equity instruments. Incremental costs directly
attributable to the issue of new shares are shown in share
premium as a deduction from the proceeds.

n Revenue

Revenue comprises commissions, client fees and other
income. Commissions and client fees are included at the
gross amount’s receivable by the Group in respect of all
services provided. Commissions payable to trading partners
in respect of their share of the commissions earned are
included in cost of sales.

Commissions and client fees earned are accounted for when
received or guaranteed to be received, as until received
it is not possible to be certain that the transaction will be
completed. When commissions and client fees are received
this confirms that the performance obligation has been
satisfied. In the case of life commissions there is a possibility
for a four year period after the inception of the policy that part
of the commission earned may have to be repaid if the policy
is cancelled during this period. A clawback provision
is made for the expected level of commissions repayable.

54.

Other income comprises income from ancillary services
such as survey and conveyancing fees and is credited
to the statement of comprehensive income when received
or guaranteed to be received.

n Finance income

Finance income comprises interest receivable on cash
at bank and interest recognised on loans to associates.
Interest income is recognised in the statement of
comprehensive income as it accrues.

n Foreign exchange

Transactions entered into by Group entities in a currency
other than the currency of the primary economic environment
in which they operate (their “functional currency”) are
recorded at the rates ruling when the transactions occur.
Foreign currency monetary assets and liabilities are translated
at the rates ruling at the reporting date. Exchange differences
arising on the retranslation of unsettled monetary assets and
liabilities are recognised immediately in profit or loss.

Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions. Non-monetary
items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair
value is determined. The gain or loss arising on translation of
non-monetary items measured at fair value is treated in line
with the recognition of the gain or loss on the change in fair
value of the item (i.e., translation differences on items whose
fair value gain or loss is recognised in OCI or profit or loss
are also recognised in OCI or profit or loss, respectively).

n Taxation

Income tax comprises current and deferred tax. Income
tax is recognised in profit or loss other than if it relates to
items recognised in other comprehensive income in which
case it is recognised in other comprehensive income.

Current tax is the expected tax payable on the taxable
income for the year using tax rates enacted or substantively
enacted by the statement of financial position date and any
adjustment to tax payable in respect of previous years.

Deferred tax is provided using the liability method on
temporary differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting
purposes at the reporting date.

Deferred tax assets and liabilities are recognised for all
taxable temporary differences, except for when;

• The difference arises from the initial recognition of goodwill
or an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss.
• In respect of deductible temporary differences associated
with investments in subsidiaries, associates and interests
in joint arrangements, deferred tax assets are recognised
only to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and
taxable profit will be available against which the temporary
differences can be utilised.

Mortgage Advice Bureau Annual Report 20191. Accounting policies (continued)

n Segment reporting

n Taxation (continued)

The carrying amount of deferred tax assets is reviewed at
each reporting date and reduced to the extent that it is no
longer probable that enough taxable profit will be available
to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are re-assessed at each
reporting date and are recognised to the extent that it has
become probable that future taxable profits will allow the
deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date.

Deferred tax relating to items recognised outside profit or loss
is recognised outside profit or loss. Deferred tax items are
recognised in correlation to the underlying transaction either
in OCI or directly in equity.

Tax benefits acquired as part of a business combination,
but not satisfying the criteria for separate recognition at that
date, are recognised subsequently if new information about
facts and circumstances change. The adjustment is either
treated as a reduction in goodwill (as long as it does not
exceed goodwill) if it was incurred during the measurement
period or recognised in profit or loss.

Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:

• the same taxable group company, or
• different company entities which intend either to settle

current tax assets and liabilities on a net basis, or to realise
the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred
tax assets and liabilities are expected to be settled
or recovered.

n Sales taxes

Sales tax expenses and assets are recognised net of the
amount of sales tax, except:

• When the sales tax incurred on a purchase of assets or

services is not recoverable from the taxation authority, in
which case, the sales tax is recognised as part of the cost
of acquisition of the asset or as part of the expense item,
as applicable.

• When receivables and payables are stated with the amount

of sales tax included.

The net amount of sales tax recoverable from, or payable to,
the taxation authority is included as part of receivables or
payables in the statement of financial position.

An operating segment is a distinguishable segment of an
entity that engages in business activities from which it may
earn revenues and incur expenses and whose operating
results are reviewed regularly by the entity’s chief operating
decision maker (CODM). The Board reviews the Group’s
operations and financial position as a whole and therefore
considers that it has only one operating segment, being the
provision of financial services operating solely within the UK.
The information presented to the CODM directly reflects that
presented in the financial statements and they review the
performance of the Group by reference to the results of the
operating segment against budget.

Operating profit is the profit measure, as disclosed on the
face of the combined income statement that is reviewed by
the CODM.

n Dividends

Dividends are recognised when they become legally payable.
In the case of interim dividends to equity shareholders, this
is when they are paid. In the case of final dividends, this is
when they are approved by the shareholders.

n Share-based payments

Where equity-settled share options are awarded to
employees, the fair value of the options at the date of grant
is charged to the statement of comprehensive income over
the vesting period. Non-market vesting conditions are taken
into account by adjusting the number of equity instruments
expected to vest at each reporting date so that, ultimately,
the cumulative amount recognised over the vesting period
is based on the number of options that eventually vest.
Non-vesting conditions and market vesting conditions are
factored into the fair value of the options granted. As long
as all other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are
satisfied. The cumulative expense is not adjusted for failure
to achieve a market vesting condition or where a non-vesting
condition is not satisfied.

Where the terms and conditions of options are modified
before they vest, the increase in the fair value of the options,
measured immediately before and after the modification, is
also charged to the statement of comprehensive income over
the remaining vesting period.

Where options are granted to persons other than employees,
the statement of comprehensive income is charged with
the fair value of the options at the date of the grant over the
vesting period.

55.

Mortgage Advice Bureau Annual Report 2019Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

2. Critical accounting estimates and judgements

(d) Freehold building

The Group makes certain estimates and assumptions
regarding the future. Estimates and judgements are
continually evaluated based on historical experience and
other factors, including expectations of future events that
are believed to be reasonable under the circumstances. In
the future, actual experience may differ from these estimates
and assumptions. The Directors consider that the estimates
and judgements that have the most significant effect on the
carrying amounts of assets and liabilities within the financial
statements are set out below.

The freehold building is depreciated over its useful life.
The useful life is based on management’s estimate of the
period that the asset will generate revenue and will be
reviewed annually for continued appropriateness. The
carrying value will be tested for impairment when there is
an indication that the value of the asset might be impaired.
When carrying out an impairment test this would be based
on future cash flow forecasts and these forecasts would be
based on management judgement. No such indication of
impairment has been noted.

(a) Impairment of goodwill

(e) Deferred tax assets

The Group is required to test, on an annual basis, whether
goodwill has suffered any impairment. The recoverable
amount is determined based on value in use calculations.
The use of this method requires the estimation of future cash
flows and the choice of a discount rate in order to calculate
the present value of the cash flows. Actual outcomes may
vary. More information including carrying values is included
in note 13.

Deferred tax assets include temporary differences related
to the issue and exercise of share options. Recognition of
the deferred tax assets assigns an estimate of proportion of
options likely to vest, an estimate of share price at vesting
and assumes share options will have a positive value at the
date of vesting, which is greater than the exercise price.
The carrying amount of deferred tax assets relating to share
options at 31 December 2019 was £1.5m (2018: £0.8m).

(b) Impairment of trade and other receivables

Judgement is required when determining if there is any
impairment to the trade and other receivable balances,
and the Group is using the simplified approach for trade
receivables within IFRS 9 using the lifetime expected credit
losses. During this process judgements about the probability
of the non-payment of the trade receivables are made.

In considering impairment provisions for loans to associates
the forward looking expected credit loss model used. In
determining the lifetime expected credit losses for loans to
associates, the Group has had to consider different scenarios
for repayments of these loans and have also estimated
percentage probabilities assigned to each scenario for
each associate where applicable. More information is
included in note 17.

The provision relates to the estimated value of repaying
commission received up front on life assurance policies that
may lapse in a period of up to four years following inception.
The provision is calculated using a model that has been
developed over several years. The model uses a number of
factors including the total unearned commission at the point
of calculation, the age profile of the commission received,
the Group’s proportion of any clawback, likely future lapse
rates, and the success of the Group’s team that focuses on
preventing lapses and/or generating new income at the point
of a lapse. More information is included in note 21.

56.

Mortgage Advice Bureau Annual Report 20193. Revenue

The Group operates in one segment being that of the provision of financial services in the UK. Revenue is derived as follows:

Mortgage related products

Insurance and other protection products

Other income

4. Cost of sales

Costs of sales are as follows:

Commissions paid

Wages and salary costs

Gross

Employers’ National Insurance

Defined contribution pension costs

Other direct costs

2019
£’000

84,542

56,220

2,979

2018
£’000

74,453

47,021

1,817

143,741

123,291

2019
£’000

102,380

4,936

107,316

2019
£’000

4,006

470

214

246

2018
£’000

93,088

1,763

94,851

2018
£’000

1,344

160

198

4,936

1,763

57.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

5. Profit from operations

Profit from operations is stated after charging the following:

Depreciation of property, plant and equipment

Depreciation of right of use assets

Amortisation of intangibles

Auditor remuneration:

Fees payable to the Group’s auditor for the audit of the Group’s
financial statements

Fees payable to the Group’s auditor for the audit of the Group’s
subsidiary financial statements

2019
£’000

303

187

249

2018
£’000

207

–

Other administrative expenses are incurred in the ordinary course of the business and in 2019 include £1.0m of costs relating
to the acquisition of First Mortgage Direct Limited, of which £0.4m is non-recurring.

Profits from associates are disclosed as part of the operating profit as this is the operational nature of the Group.

6. Staff costs

Staff costs, including Executive and Non-Executive Directors’ remuneration, were as follows:

Wages and salaries

Share based payments (see note 28)

Social security costs

Defined contribution pension costs

Other employee benefits (see note 29)

2019
£’000

13,636

1,289

1,428

671

202

2018
£’000

7,692

801

765

260

–

17,226

9,518

Included within share based payments is £0.2m relating to the option to purchase the remaining 20% of First Mortgage Direct
Ltd (see note 29).

The average number of people employed by the Group during the year was:

Executive Directors

Advisers

Compliance

Sales and marketing

Operations

Total

58.

2019
Number

2018
Number

104

287

–

166

Mortgage Advice Bureau Annual Report 2019

6. Staff costs (continued)

Key management compensation

Key management are those persons having authority and responsibility for planning, directing and controlling the activities of
the Group. These are the directors of Mortgage Advice Bureau (Holdings) plc.

Wages and salaries

Share based payments

Defined contribution pension costs

2019
£’000

2,083

285

2,385

2018
£’000

1,233

238

1,505

During the year retirement benefits were accruing to 2 directors (2018: 2) in respect of defined contribution pension schemes.

The total amount payable to the highest paid director in respect of emoluments was £666,835 (2018: £498,834). The value of
the Group’s contributions paid to a defined contribution pension scheme in respect of the highest paid director amounted to
£nil (2018: £nil).

7. Finance income and expense

Finance income

Interest income

Interest income accrued on loans to associates

Finance expense

Interest expense

Interest expense on lease liabilities

2019
£’000

147

2019
£’000

2018
£’000

–

59.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

8. Income tax

Current tax expense

UK corporation tax charge on profit for the year

Adjustment to charge in respect of prior periods

Total current tax

Deferred tax expense

Origination and reversal of timing differences

Temporary difference on share based payments

Adjustment to deferred tax charge in respect of prior periods

Total deferred tax (see note 22)

Total tax expense

2019
£’000

3,170

(62)

3,108

(69)

(127)

(140)

2,968

2018
£’000

2,627

–

2,627

(64)

(71)

–

(135)

2,492

The reasons for the difference between the actual charge for the year and the standard rate of corporation tax in the United
Kingdom of 19% (2018: 19%) applied to profit for the year is as follows:

Profit for the year before tax

Expected tax charge based on corporation tax rate

Expenses not deductible for tax purposes

Research & Development allowances

Tax on share options exercised

Adjustment to deferred tax charge in respect of prior periods

Adjustment to corporation tax charge in respect of prior periods

Profits from associates

Effect of lower deferred tax rate

Total tax expense

2019
£’000

17,697

3,363

188

(285)

(263)

(62)

(53)

2018
£’000

15,682

2,980

(212)

(269)

–

(94)

2,968

2,492

For the year ended 31 December 2019 the deferred tax charge relating to unexercised share options, recognised in equity was
(£544,179) (2018: £184,671).

60.

Mortgage Advice Bureau Annual Report 2019

9. Earnings per share

Basic earnings per share are calculated by dividing net profit for the year attributable to ordinary equity holders of the Company
by the weighted average number of ordinary shares outstanding during the year.

Basic earnings per share

Profit for the year attributable to the owners of the parent

2019
£’000

14,499

2018
£’000

13,190

Weighted average number of shares in issue

51,413,922

51,022,846

Basic earnings per share (in pence per share)

28.2 p

25.9p

For diluted earnings per share, the weighted average number of ordinary shares in existence is adjusted to include potential
ordinary shares arising from share options.

Diluted earnings per share

Profit for the year attributable to the owners of the parent

2019
£’000

14,499

2018
£’000

13,190

Weighted average number of shares in issue

52,434,259

52,201,486

Diluted earnings per share (in pence per share)

27.7p

25.3p

The share data used in the basic and diluted earnings per share computations are as follows:

Weighted average number of ordinary shares

Issued ordinary shares at start of period

Effect of shares issued during period

Basic weighted average number of shares

Potential ordinary shares arising from options

Diluted weighted average number of shares

2019

2018

51,105,708

50,787,345

308,214

235,501

51,413,922

51,022,846

1,020,337

1,178,640

52,434,259

52,201,486

Adjusted earnings per ordinary share is also presented to eliminate the effects of acquisition costs, £374,000 of which are
non-recurring costs. This presentation shows the trend in earnings per ordinary share that is attributable to the underlying
trading activities of the Group.

The reconciliation between the basic and adjusted figures is as follows:

2019
£’000

2018
£’000

2019
Basic
earnings
per share
pence

2018
Basic
earnings
per share
pence

2019
Diluted
earnings
per share
pence

2018
Diluted
earnings
per share
pence

Profit for the period

14,499

13,190

28.2

25.9

27.7

25.3

Adjustments:

Acquisition costs

Tax effect of adjustments

987

–

Adjusted earnings

15,486

13,190

1.9

–

30.1

–

25.9

1.8

–

29.5

–

25.3

The Group uses adjusted results as key performance indicators, as the Directors believe that these provide a more consistent
measure of operating performance. Adjusted profit is therefore stated before one-off acquisition costs.

61.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

10. Dividends

Dividends paid and declared during the year:

Final dividend for 2018: 12.7p per share (2017: 11.9p)

Interim dividend for 2019: 11.1p per share (2018: 10.6p)

Equity dividends on ordinary shares:

Proposed for approval:

Final dividend for 2019: 6.4p per share (2018: 12.7p)

2019
£’000

6,507

5,729

12,236

3,305

7,470

2018
£’000

6,082

5,417

11,499

6,490

The record date for the final dividend is 1 May 2020 and the payment date is 29 May 2020. The ex-dividend date will be
30 April 2020. The Company statement of changes in equity shows that the Company has positive reserves of £414,000.
There are sufficient distributable reserves in subsidiary companies to pass up to Mortgage Advice Bureau (Holdings) plc
in order to pay the proposed final dividend.

Prior to the payment of previous dividends since listing, reserves have been passed up from subsidiary companies which
ensured that the Company had sufficient distributable reserves to pay these dividends at the relevant time. However, due to
an administrative oversight interim accounts showing that there were sufficient distributable reserves in the Company were
not filed with the Register of Companies as required by s838(6) Companies Act 2006 and, as a result these dividends could
be considered to have been unlawful distributions.

On becoming aware of this technical failure, the Board has taken steps to rectify this position and at the forthcoming Annual
General Meeting on 26 May 2020 shareholders will be asked to consider a special resolution, which if passed, will:

a) Release shareholders from claims by the Company in relation to the unlawful dividends and direct the Company to enter

into a deed poll in respect of the same;

b) Release past and present Directors from claims in relation to the unlawful dividends and direct the Company to enter into

a deed of release in respect of the same.

The Directors have no reason to believe that the above resolution will not be passed at the Annual General Meeting.

62.

Mortgage Advice Bureau Annual Report 2019

11. Property, plant and equipment

Freehold
land and
building
£’000

Fixtures &
fittings
£’000

Computer
equipment
£’000

Cost

At 1 January 2019

Acquisition of subsidiary

Additions

At 31 December 2019

Depreciation

At 1 January 2019

Charge for the year

At 31 December 2019

Net book value

2,461

–

2,536

177

234

At 31 December 2019

2,302

567

308

919

371

132

503

416

206

2,924

Freehold
land and
building
£’000

Fixtures &
fittings
£’000

Computer
equipment
£’000

Cost

At 1 January 2018

Additions

At 31 December 2018

Depreciation

At 1 January 2018

Charge for the year

At 31 December 2018

Net book value

2,461

–

2,461

122

177

At 31 December 2018

2,284

494

567

314

371

196

Total
£’000

3,881

425

186

4,492

1,265

303

1,568

Total
£’000

3,706

175

3,881

1,058

207

1,265

853

142

1,037

717

114

831

751

102

853

622

717

136

2,616

63.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

12. Right of use assets

Leases

This note provides information for leases where the group is a lessee.

The balance sheet shows the following amounts to leases:

Right of use assets

At 1 January 2019

On acquisition of subsidiary

Depreciation

At 31 December 2019

Lease liabilities

At 1 January 2019

On acquisition of subsidiary

Interest expense

Lease payments

At 31 December 2019

Land and
Buildings
£’000

–

3,094

(187)

2,907

Land and
Buildings
£’000

–

3,142

(198)

2,979

All additions during 2019 related to the acquisition of First Mortgage Direct Ltd.

The present value of the lease liabilities is as follows:

31 December 2019

Lease payments (undiscounted)

Finance charges

Net present values

Within 1
year

399

(64)

335

1-2
years

389

(57)

332

2-5
years

1,142

After 5
years

1,355

(124)

(61)

1,018

1,294

The statement of comprehensive income shows the following amounts relating to leases:

Depreciation charge of right of use assets

Interest expense

Low value lease expense

64.

Total
£’000

–

3,094

(187)

2,907

Total
£’000

–

3,142

(198)

2,979

Total

3,285

(306)

2,979

2019
£’000

187

Mortgage Advice Bureau Annual Report 2019

13. Intangible assets

Goodwill

Cost

As at 1 January

Acquisition of business (note 29)

At 31 December

Accumulated impairment

At 1 January and 31 December

Net book value

At 31 December

2019
£’000

4,267

11,041

15,308

2018
£’000

4,267

–

4,267

153

15,155

4,114

The goodwill relates to the acquisition of Talk Limited in 2012, and in particular its main operating subsidiary Mortgage Talk
Limited and the acquisition of First Mortgage Direct Limited (“FMD”) in the year (see note 29). The goodwill is deemed to have
an indefinite useful life. It is currently carried at cost and is reviewed annually for impairment.

Under IAS 36, “Impairment of assets”, the Group is required to review and test its goodwill annually each year or in the event
of a significant change in circumstances. The impairment review conducted at the end of 2018 concluded that there had been
no impairment of goodwill.

The Board considers that it has only one operating segment and following the acquisition of FMD, now has two
cash-generating units (CGUs). Goodwill arose on the acquisition of Mortgage Talk Limited and has since been allocated
to the CGU of the Group excluding FMD. Impairment testing for this CGU is carried out by determining recoverable amount
on the basis of a value in use, which is then compared to the carrying value of the assets of the CGU including goodwill.
The value in use that has been determined exceeds the carrying value of this CGU and therefore no impairment of goodwill
is required. Management has estimated future cash flows over a five year period and applied a discount rate of 11% and then
applied a terminal value calculation, which assumes a growth rate of 5% in future cashflows, in order to estimate the present
value of those cash flows in determining the value in use. Management believes that any possible changes to any of the key
assumptions applied in determining the value in use would not cause the carrying amount of goodwill to exceed the present
value of the estimated future cashflows.

65.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

13. Intangible assets (continued)

Other intangible assets

Licences
£’000

Website
£’000

Software
£’000

Cost

At 1 January 2019

108

140

Acquisition of subsidiary

Additions

–

At 31 December 2019

108

140

Accumulated amortisation

At 1 January 2019

Charge for the year

At 31 December 2019

Net book value

108

–

108

At 31 December 2019

–

Customer
contracts
£’000

Trademarks
£’000

–

1,980

1,470

–

Total
£’000

802

3,465

1,980

1,470

4,268

–

110

–

157

249

406

554

570

–

552

1,870

1,396

3,862

Licences
£’000

Website
£’000

Software
£’000

Customer
contracts
£’000

Trademarks
£’000

Total
£’000

Cost

At 1 January 2018

Additions

At 31 December 2018

Accumulated amortisation

At 1 January 2018

Charge for the year

At 31 December 2018

Net book value

108

–

108

–

108

At 31 December 2018

–

103

140

–

554

–

554

–

211

591

802

113

157

645

66.

Mortgage Advice Bureau Annual Report 2019

14. Investments in associates and joint venture

The Group holds investments in associates and a joint venture, all of which are accounted for under the equity method,
as follows:

Company name

Registered office

CO2 Commercial Limited

Lifetime FS Limited(1)

Freedom 365 Mortgage Solutions Limited

Sort Group Limited

Sort Limited

Buildstore Limited

Clear Mortgage Solutions Limited

Profile House, Stores Road,
Derby DE21 4BD

Capital House, Pride Place,
Derby DE24 8QR

Gresley House, Ten Pound Walk,
Doncaster DN4 5HX

Burdsall House, London Road,
Derby DE24 8UX

Burdsall House, London Road,
Derby, DE24 8UX

Nsb & Rc Lydiard Fields,
Great Western Way, Swindon SN5 8UB

114 Centrum House, Dundas Street,
Edinburgh EH3 5DQ

Vita Financial Limited

1st Floor Tudor House, 16 Cathedral Road,
Cardiff CF11 9LJ

MAB Broker Services PTY Limited

Eagle and Lion Limited

The Mortgage Broker Group Limited

Level 7, 68 Alfred Street,
Milsons Point, NSW 2061

8 Mortimer Road, Clifton,
Bristol, BS8 4EX

The Granary Crowhill Farm,
Ravensden Road, MK44 2QS

Percentage
of ordinary
shares held

Description

Property surveyors

43.25

10.52

Provision of
financial services

Conveyancing
services

Provision of

financial services

Provision of
financial services

Provision of

financial services

The reporting date for the Group’s associates, as listed in the table above, is 31 December and their country of incorporation
is England and Wales. The reporting date for the Group’s joint venture, MAB Broker Services PTY Limited, is 30 June and its
country of incorporation is Australia.

(1) MAB Wealth Management Limited changed its name to Lifetime FS Limited

on 31 December 2019

67.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

14. Investments in associates and joint venture (continued)

The investment in associates and the joint venture at the reporting date is as follows:

At 1 January

Additions

Credit/(charge) to the statement of comprehensive income

Share of profit

Amount written off

Dividends received

At 31 December

2019
£’000

1,573

1,783

280

(192)

88
(311)

2018
£’000

1,339

265

494

(133)

361
(392)

3,133

1,573

The Group is entitled to 49% of the results of CO2 Commercial Limited, and Lifetime FS by virtue of its 49% equity stakes.
CO2 Commercial Limited is a dormant holding company, and trades through its wholly owned subsidiary, Pinnacle Surveyors
(England & Wales) Limited. The Group is entitled to 45% of the results of MAB Broker Services PTY Limited by virtue of its
45% equity stake, 35% of the results of Freedom 365 Mortgage Solutions Limited by virtue of its 35% equity stake, 25% of the
results of Buildstore Limited, Clear Mortgage Solutions Limited and The Mortgage Broker Group Limited by virtue of its 25%
equity stakes, 20% of the results of Vita Financial Limited by virtue of its 20% equity stake, and 49% of the results of Eagle and
Lion Limited by virtue of its 49% equity stake.

The Group is entitled to 43.25% of the results of Sort Group Limited by virtue of its 43.25% equity stake. Additionally,
the Group is entitled to 10.52% of the results of Sort Limited by virtue of its 10.52% equity stake. Mortgage Advice Bureau
Limited’s effective holding in Sort Limited, Sort Legal Limited and Sort Technology Limited is now 43.25%, 43.25% and
41.09% respectively.

The carrying value of the Group’s joint venture, MAB Broker Services PTY Limited, at 31 December 2019 is £nil (2018: £nil).
In the period ended 30 June 2019, MAB Broker Services PTY reported a loss of AUD0.9m (2018: AUD0.6m).

Acquisitions and disposals

2018
The Group acquired a 33.33% interest in Eagle and Lion Limited on 15 October 2018 at a cost of £131,460. In accordance with
IFRS 9 the Group increased the value of investments by £133,324 to reflect the present value adjustment to an interest free
loan, to an associate.

2019
The Group acquired a 25% interest in The Mortgage Broker Group Ltd on 20 May 2019 at a cost of £1,250,000.
The Group acquired a further 15.67% interest in Eagle and Lion Limited on 29 July 2019 for nil consideration. The Group
acquired a 6% interest in Sort Ltd on 31July 2019 at a cost of £161,000. The Group acquired a further 5% interest in Sort Ltd
on 29 November 2019 at a cost of £180,000. In accordance with IFRS 9 the Group increased the value of investments
by £192,340 to reflect the present value adjustment to a group interest free loan to an associate.

68.

Mortgage Advice Bureau Annual Report 2019

2019
Total
£’000

881

1,769

4,684

631

280

311

2018
Total
£’000

1,073

1,517

2,635

14. Investments in associates and joint venture (continued)

As the associates are private companies published share prices are not available. The aggregate amounts of certain financial
information of the associates is summarised as follows:

2019

Non-current assets

Cash balances

Pinnacle
Surveyors

(England & Wales)

Limited
£’000

170

Buildstore
Limited
£’000

Sort Group
Limited
£’000

Clear
£’000

Others
£’000

226

455

219

778

333

296

572

Current assets (excluding cash balances) 917

1,737

1,137

321

Current liabilities

(581)

(1,881)

(1,838)

(300)

(248)

(4,848)

Non-current liabilities and provisions

(3)

(32)

(41)

(22)

(1,260)

(1,358)

Revenue

Profit before taxation

Total comprehensive income (PAT)

Profit attributable to Group

3,911

555

450

220

Dividends received from associates

311*

3,894

101

–

7,868

4,717

3,949

24,339

265

(253)

1,122

454

458

132

–

(411)

(103)

–

2018

Non-current assets

Cash balances

Pinnacle
Surveyors

(England & Wales)

Limited
£’000

520

Current assets (excluding cash balances) 900

Current liabilities

(749)

Non-current liabilities and provisions

(4)

Revenue

Profit before taxation

Total comprehensive income

Profit attributable to Group

4,582

1,295

1,046

512

Dividends received from associates

392*

Buildstore
Limited
£’000

Sort Group
Limited
£’000

Clear
£’000

Others
£’000

181

356

713

(841)

–

771

542

406

(18)

190

117

426

(1,157)

(131)

(132)

(3,010)

(84)

(3)

(163)

(254)

3,526

5,744

2,934

1,502

18,288

–

(52)

(23)

–

(148)

(28)

–

1,482

1,004

494

392

* These dividends are received from CO2 Commercial Limited, the parent undertaking of Pinnacle Surveyors (England & Wales) Limited. All other information
disclosed above relates to Pinnacle Surveyors (England & Wales) Limited.

All associates prepare their financial statements in accordance with FRS 102 other than MAB Broker Services PTY
Limited who prepare their financial statements in accordance with the Australian Accounting Standards. There would
be no material difference to the profit attributable to the Group if the accounts of any of the associates were prepared
in accordance with IFRS.

69.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

15. Investments in non-listed equity shares

At 1 January 2019

Additions

At 31 December 2019

£’000

–

The Group acquired a 3.33% interest in YourKeys Technology Limited on 5 February 2019 at a cost of £75,000.

16. Subsidiaries

The subsidiaries of Mortgage Advice Bureau (Holdings) plc at the reporting date have been included in the consolidated
financial statements. The subsidiaries are as follows:

Company name

Country of
Incorporation

Mortgage Advice Bureau Limited

England and Wales

Mortgage Advice Bureau (Derby) Limited

England and Wales

Capital Protect Limited

England and Wales

Mortgage Talk Limited

England and Wales

MABWM Limited

England and Wales

First Mortgage Direct Limited

First Mortgage Limited

Property Law Centre Limited

Scotland

Talk Limited

England and Wales

Mortgage Advice Bureau Australia
(Holdings) PTY Limited

Australia

Mortgage Advice Bureau PTY Limited

Australia

Mortgage Advice Bureau (UK) Limited

England and Wales

Mortgage Advice Bureau (Bristol) Limited

England and Wales

MAB (Derby) Limited

L&P 137 Limited

England and Wales

Mortgage Talk (Partnership) Limited

England and Wales

Financial Talk Limited

Survey Talk Limited

L&P 134 Limited

Loan Talk Limited

MAB1 Limited

First Mortgage Shop Limited

First Mortgages Limited

Fresh Start Finance Limited

70.

England and Wales

Scotland

Percentage
of ordinary
shares held Nature of business

100

Provision of

financial services

Provision of

financial services

Provision of

financial services

Provision of

financial services

Provision of

financial services

Provision of

financial services

Provision of

financial services

Provision of

financial services

Intermediate

holding company

Intermediate
holding company

Holding of

intellectual property

Dormant

Mortgage Advice Bureau Annual Report 2019

16. Subsidiaries (continued)

The registered office for all of the subsidiaries of Mortgage Advice Bureau (Holdings) plc, as listed in the table above, is
Capital House, Pride Place, Pride Park, Derby, DE24 8QR, United Kingdom, other than for the two subsidiaries incorporated
in Australia for which the registered office is Norton Rose Fulbright, Level 18, 225 George Street, Sydney, NSW 2000, Australia
and First Mortgage Direct Limited and its subsidiaries for which the registered office is 30 Walker Street, Edinburgh, EH3 7HR.

Mortgage Advice Bureau Australia (Holdings) PTY Limited has a 100% equity stake in Mortgage Advice Bureau PTY Limited
and also a 45% equity stake in MAB Broker Services PTY Limited.

Mortgage Advice Bureau (Holdings) plc holds 100% of the ordinary share capital of Mortgage Advice Bureau Limited and
Talk Limited.

Mortgage Advice Bureau Limited holds 100% of the ordinary share capital of Mortgage Advice Bureau (Derby) Limited, Capital
Protect Limited, MABWM Limited and Mortgage Advice Bureau Australia (Holdings) PTY Limited. On 2 July 2019, Mortgage
Advice Bureau Limited acquired 80% of the ordinary share capital of First Mortgage Direct Limited. Details of the acquisition
are given in note 29.

First Mortgage Direct Limited holds 100% of the ordinary share capital of First Mortgage Limited, Property Law Centre Limited,
First Mortgages Limited, First Mortgage Shop Limited and Fresh Start Finance Limited.

Talk Limited holds 100% of the ordinary share capital of Mortgage Talk Limited, L&P 137 Limited, Mortgage Talk (Partnership)
Limited, Financial Talk Limited and Survey Talk Limited.

Mortgage Talk Limited holds 100% of the ordinary share capital of Loan Talk Limited.

L&P 137 Limited holds 100% of the ordinary share capital of L&P 134 Limited.

There are no restrictions regarding the utilisation of cash or other resources held by any subsidiary.

17. Trade and other receivables

Trade receivables

Less provision for impairment of trade receivables

Trade receivables – net

Receivables from related parties

Loans to related parties

Less provision for impairment of loans to related parties

Total financial assets other than cash and
cash equivalents classified as at amortised costs

Prepayments and accrued income

Total trade and other receivables

Less: non-current portion – Loans to related parties

Less non-current – Trade receivables

Current portion

2019
£’000

1,936

(363)

1,573

3,124

(171)

4,541

3,748

8,289

(2,832)

(498)

(4,959)

The carrying value of trade and other receivables classified at amortised cost approximates fair value.

2018
£’000

2,047

(284)

1,763

2,257

(290)

3,759

3,140

6,899

(1,560)

(736)

4,603

71.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

17. Trade and other receivables (continued)

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using 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 cost of sales 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. At 31 December 2019 the lifetime expected loss provision for trade receivables is £0.4m (2018: £0.3m).
The movement in the impairment allowance for trade receivables has been included in cost of sales in the consolidated
statement of comprehensive income.

Impairment provisions for loans to associates 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, twelve 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. In determining the lifetime expected credit losses for loans to associates, the Directors have
considered different scenarios for repayments of these loans and have applied percentage probabilities to each scenario
for each associate where applicable.

At 31 December 2019 the lifetime expected loss provision for loans to associates is £0.2m (2018: £0.3m). One of these
receivables has previously been subject to a significant increase in credit risk since initial recognition and, consequently, lifetime
expected credit losses have been recognised. For the remainder, 12 month expected credit losses have been recognised.

The movement in the impairment allowance for receivables for loans to associates has been included in cost of sales in the
consolidated statement of comprehensive income.

Also included in trade receivables are amounts due from Appointed Representatives relating to commissions that are refundable
to the Group when policy lapses or other reclaims exceed new business. As these balances have no credit terms, the Board of
Directors consider these to be past due if they are not received within seven days. In the management of these balances, the
Directors can recover them from subsequent new business entered into with the Appointed Representative or utilise payables
that are owed to the same counterparties and included within payables as the Group has the legally enforceable right of set off
in such circumstances. These payables are considered sufficient by the Directors to recover receivable balances should they
default, and, accordingly, credit risk in this respect is minimal.

In light of the above, the Directors do not consider that disclosure of an aging analysis of trade and other receivables would
provide useful additional information. Further information on the credit quality of financial assets is set out in note 20.

A summary of the movement in the provision for the impairment of receivables is as follows:

At 1 January

New provisions for impairment losses

Increases in existing provisions for impairment losses

Impairment provisions no longer required

At 31 December

2019
£’000

284

(2)

363

A summary of the movement in the provision for the impairment of loans to related parties is as follows:

At 1 January

New provisions for impairment losses

Increases in existing provisions for impairment losses

Impairment provisions no longer required

At 31 December

2019
£’000

290

–

(121)

171

2018
£’000

273

–

284

2018
£’000

–

290

–

290

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above
less collateral held as security. Details of security held are given in note 20.

72.

Mortgage Advice Bureau Annual Report 2019

18. Cash and cash equivalents

Unrestricted cash and bank balances

Bank balances held in relation to retained commissions

Cash and cash equivalents

2019
£’000

6,987

13,880

20,867

2018
£’000

13,878

11,711

25,589

Bank balances held in relation to retained commissions earned on an indemnity basis in relation to life policies are held to cover
potential future lapses in Appointed Representatives’ commissions. Operationally the Group does not treat these balances as
available funds. An equal and opposite liability is shown within Trade and other payables (note 19).

19. Trade and other payables

Appointed Representatives retained commission

Other trade payables

Trade payables

Social security and other taxes

Other payables

Accruals

2019
£’000

13,880

4,542

18,422

642

203

3,104

22,371

2018
£’000

11,711

4,658

16,369

783

1,496

18,690

Should a life policy be cancelled within four years of inception, a proportion of the original commission will be clawed back by
the insurance provider. The majority of any such repayment is payable by the Appointed Representative. It is the Group’s policy
to retain a proportion of commission payable to the Appointed Representative to cover such potential future lapses; these sums
remain a liability of the Group. This commission is held in a separate ring fenced bank account as described in note 18.

As at 31 December 2019 and 31 December 2018, the carrying value of trade and other payables classified as financial liabilities
measured at amortised cost approximates fair value.

Appointed Representatives retained commission is expected to be payable after more than one year. Other trade payables
normally fall due within 30 to 60 days.

20. 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.
Further quantitative information in respect of these risks is presented throughout these financial statements.

Principal financial instruments

• Trade and other receivables
• Cash and cash equivalents
• Trade and other payables

73.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

20. Financial instruments – risk management (continued)

The Group does not issue or use financial instruments of a speculative nature. A summary of financial instruments held by
category is provided below:

Financial assets

Cash and cash equivalents

Trade and other receivables

Total financial assets

Financial liabilities

Trade and other payables

Accruals

Lease liabilities

Total financial liabilities

2019
£’000

20,867

4,541

25,408

2019
£’000

19,267

3,104

3,235

25,606

2018
£’000

25,589

3,759

29,348

2018
£’000

17,194

1,496

–

18,690

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and designs
and operates processes that ensure the effective implementation of the objectives and policies to the Group’s finance function.
The Board sets guidelines to the finance team and monitors adherence to its guidelines on a monthly basis.

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.

Credit risk

Credit risk is the risk of financial loss to the Group if a trading partner or counterparty to a financial instrument fails to meet
its contractual obligations. The Group is mainly exposed to credit risk from loans to its trading partners. It is Group policy to
assess the credit risk of trading partners before advancing loans or other credit facilities. Assessment of credit risk utilises
external credit rating agencies. Personal guarantees are generally obtained from the directors of its trading partners.

Quantitative disclosures of the credit risk exposure in relation to financial assets are set out below. Further disclosures regarding
trade and other receivables are given in note 17.

Financial assets – maximum exposure

Cash and cash equivalents

Trade and other receivables

Total financial assets

2019
£’000

20,867

4,541

25,408

2018
£’000

25,589

3,759

29,348

The carrying amounts stated above represent the Group’s maximum exposure to credit risk for trade and other receivables.
An element of this risk is mitigated by collateral held by the Group for amounts due to them.

Trade receivables consist of a large number of unrelated trading partners and therefore credit risk is not concentrated. Due to
the large volume of trading partners the Group does not consider that there is any significant credit risk as a result of the impact
of external market factors on their trading partners. Additionally, within trade payables are amounts due to the same trading
partners that are included in trade receivables; this collateral of £795,534 (2018: £825,357) significantly reduces the credit risk.

The Group’s credit risk on cash and cash equivalents is limited because the Group places funds on deposit with National
Westminster Bank Plc and Bank of Scotland Plc which are A/A+ and A+ rated respectively.

74.

Mortgage Advice Bureau Annual Report 2019

20. Financial instruments – risk management (continued)

Interest rate risks

The Group’s interest rate risk arises from cash on deposit. The Group aims to maximise its return on cash on deposit whilst
ensuring that cash is available to meet liabilities as they fall due. Current market deposit interest rates are minimal and therefore
any fall in these rates is unlikely to have a significant impact on the results of the Group.

Foreign exchange risk

As the Group does not operate outside of the United Kingdom and has only one investment outside the UK, it is not exposed
to any material foreign exchange risk.

Liquidity risk

Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty
in meeting its financial obligations as they fall due.

The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.
The Group’s trade and other payables are repayable within one year from the reporting date and the contractual undiscounted
cash flow analysis for the Group’s trade and other payables is the same as their carrying value. The contractual maturities
of financial liabilities are as follows:

31 December 2019

Trade and other payables

Accruals

Lease liabilities

Total

Within 1
year

1-2
years

5,387

2,817

399

8,603

–

389

453

2-5
years

–

1,105

1,126

After 5
years

–

202

1,342

1,544

Total

5,387

3,104

3,235

11,726

The appointed representatives retained commissions balance of £13.9m has been excluded from the maturity analysis due
to there being an equal cash balance held within cash and cash equivalents. There is therefore no liquidity risk relating to this
balance.

The Board receives annual 12 month cash flow projections based on working capital modelling as well as information regarding
cash balances monthly. At the end of the financial year, these projections indicated that the Group expected to have sufficient
liquid resources to meet its obligations under all reasonably expected circumstances. Additionally, the Group has financial
resource requirements set by its regulator, the Financial Conduct Authority. The Board has set a policy to ensure that adequate
capital is maintained to ensure that these externally set financial resource requirements are exceeded at all times. Quarterly
reports are made to the Financial Conduct Authority and submission is authorised by the Chief Financial Officer, at which time
capital adequacy is re-assessed.

Capital management

The Group monitors its capital which consists of all components of equity (i.e. share capital, share premium, capital redemption
reserve, share option reserve and retained earnings).

The Group’s objectives when maintaining capital are:

• To safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders

and benefits for other stakeholders

• To ensure that capital is maintained at all times to ensure that financial resource requirements set by its regulator,

the Financial Conduct Authority, are exceeded at all times

• To ensure the Group has the cash available to develop the services provided by the Group to provide an adequate return

to shareholders.

75.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

21. Provisions

Clawback provision

At 1 January

Acquisition of subsidiary

Charged to the statement of comprehensive income

At 31 December

2019
£’000

1,704

1,445

586

3,735

2018
£’000

1,496

–

208

1,704

The provision relates to the estimated cost of repaying commission income received upfront on life assurance policies that
may lapse in the four years following issue. Provisions are held in the financial statements of three of the Group’s subsidiaries:
Mortgage Advice Bureau Limited, Mortgage Advice Bureau (Derby) Limited and First Mortgage Direct Limited. The exact timing
of any future clawbacks within the four year period is uncertain and the provision was based on the Directors’ best estimate,
using industry data where available, of the probability of clawbacks to be made.

22. Deferred tax

Deferred tax is calculated in full on temporary differences using a tax rate of 19% (2018: 17%). The reduction in the main rate
of corporation tax as set out in note 8 has been applied to deferred tax balances which are expected to reverse in the future.

The movement in deferred tax is shown below:

Deferred tax asset – opening balance

Recognised in the statement of comprehensive income

Transfer in on acquisition of subsidiary

Deferred tax movement recognised in equity

Deferred tax asset – closing balance

The deferred tax balance is made up as follows:

Accelerated capital allowances

Other timing differences

Share-based payment

Net deferred tax asset

Reflected in the statement of financial position as follows:

Deferred tax liability

Deferred tax asset

Deferred tax asset net

2019
£’000

824

140

(642)

544

866

2019
£’000

(651)

1,470

866

2019
£’000

(651)

1,517

866

2018
£’000

874

135

–

(185)

824

2018
£’000

(54)

799

824

2018
£’000

(54)

878

824

Deferred tax liabilities have arisen due to capital allowances which have been received ahead of the depreciation charged in
the accounts. A change to the corporation tax rate was substantively enacted on 17 March 2020 to remain at 19% rather than
the previously enacted reduction to 17%. The impact of this has been estimated to be £60,000.

76.

Mortgage Advice Bureau Annual Report 2019

23. Share capital

Issued and fully paid

Ordinary shares of 0.1p each

Total share capital

2019
£’000

2018
£’000

During the year 506,499 ordinary shares of 0.1p each were issued following partial exercise of the third and fourth tranche
of options issued at the time of the Initial Public Offering of the Company and partial exercise of options issued in May 2016
at a total premium of £1.4m. See also note 28.

24. Reserves

The Group’s policy is to maintain an appropriate capital base and comply with its externally imposed capital requirements whilst
providing maximum shareholder value.

The following describes the nature and purpose of each reserve within equity:

Reserve

Share premium

Capital redemption reserve

Share option reserve

Retained earnings

Description and purpose

Amount subscribed for share capital in excess of nominal value.

The capital redemption reserve represents the cancellation of part of the original
share capital premium of the company at par value of any shares repurchased.

The fair value of equity instruments granted by the Company in respect of share
based payment transactions and deferred tax recognised in equity.

All other net gains and losses and transactions with owners (e.g. dividends) not
recognised elsewhere.

There is no restriction on the distribution of retained earnings.

25. Retirement benefits

The Group operates defined contribution pension schemes for the benefit of its employees and also makes contributions to a
self-invested personal pension (“SIPP”). The assets of the schemes and the SIPP are held separately from those of the Group
in independently administered funds. The pension cost charge represents contributions payable by the Group to the SIPP and
amounted to £671,404 (2018: £260,254). There were no contributions payable to the funds or the SIPP at the statement of
financial position date (2018: £nil).

26. Related party transactions

The following details provide the total amount of transactions that have been entered into with related parties during the year
ended 31 December 2019 and 2018, as well as balances with related parties as at 31 December 2019 and 2018.

During the year the Group paid commission of £921,508 (2018: £725,301) to Buildstore Limited, an associated company.
There was a balance of £47,932 (2018: £46,757) of retained commission to cover future lapses. At 31 December 2019,
there was a loan outstanding from Buildstore Limited £36,565 (2018: £nil).

During the year the Group received no introducer commission from Lifetime FS, an associated company (2018: £5,462).
There is no balance outstanding with MAB Wealth Management Limited at 31 December 2018 (2017: £nil).

During the year the Group received introducer commission from Sort Limited, an associated company of £885,470
(2018: £679,279). At 31 December 2019 there was a loan outstanding of £220,575 (2018: £126,562) with Sort Group Limited,
an associated company.

During the year the Group paid commission to Clear Mortgage Solutions Limited, an associated company, of £4,735,028
(2018: £3,062,915). There was a balance of £265,992 (2018: £161,425) of retained commission to cover future lapses.

During the year the Group purchased services from Twenty7tec Group Limited, a company in which the Group holds
an investment, of £7,200 (2018: £43,200).

77.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

26. Related party transactions (continued)

During the year the Group paid commission to Freedom 365 Mortgage Solutions Limited, an associated company, of
£595,017 (2018: £778,203). There was a balance of £133,090 (2018: £100,934) of retained commission to cover future lapses.
At 31 December 2019 there was a loan outstanding from Freedom 365 Mortgage Solutions Limited of £1,202,453 (2018: £850,568).

During the year the Group paid commission to Vita Financial Limited, an associated company, of £982,091 (2018: £850,568).
There was a balance of £86,589 (2018: £107,489) of retained commission to cover future lapses. During the year the loan
outstanding from Vita Financial Limited of £27,000 was repaid in full.

At 31 December 2019 there was a loan outstanding from MAB Broker Services PTY Limited, an associated company,
of £1,014,535 (AUD1,900,000) (2018: £616,328 (AUD1,115,000)).

During the year the Group paid commission to Eagle & Lion Limited, an associated company, of £280,829 (2018: £78,265).
There was a balance of £10,982 (2018: £2,785) of retained commission to cover future lapses. At 31 December 2019 there
was a loan outstanding from Eagle & Lion Limited of £565,000 (2018: £365,000).

During the year the Group paid commission to The Mortgage Broker Limited, an associated company, of £1,354,386 (2018:
£nil). There was a balance of £72,081 (2018: £nil) of retained commission to cover future lapses. At 31 December 2019, there
was a loan outstanding from The Mortgage Broker Limited of £84,705 (2018: £nil).

The Group’s related party transactions in the year include the remuneration of the Directors’ emoluments, pension entitlements
and share-based payments disclosed in note 6 of the financial statements.

During the year the Group received dividends from associated companies as follow:

CO2 Commercial Limited

27. Ultimate controlling party

There is no ultimate controlling party.

28. Share based payments

2019
£’000

311

2018
£’000

392

Mortgage Advice Bureau Executive Share Option Plan

The Group operates two equity-settled share based remuneration schemes for Executive Directors and certain senior
management, one being an approved scheme, the other unapproved, but with similar terms. Half of the options are subject
to a total shareholder return (TSR) performance condition and the remaining half are subject to an earnings per share (EPS)
performance condition. The outstanding options in both schemes vest as follows:

For options granted at IPO and on 20 May 2015 and outstanding at 1 January 2019:
• 50% based on performance to 31 March 2018, exercisable between 31 March 2019 and 11 November 2022,

vesting of 100% was achieved.

• 50% based on performance to 31 March 2018, exercisable between 31 March 2020 and 11 November 2022,

vesting of 100% was achieved.

For options granted during 2016 and outstanding at 1 January 2019:
• 100% based on performance to 31 March 2019, exercisable between 4 May 2019 and 3 May 2024, vesting of 90.6%

was achieved.

For options granted during 2017 and outstanding at 1 January 2019:
• 100% based on performance to 31 March 2020, exercisable between 19 April 2020 and 18 April 2025, vesting of 88.7%

was achieved.

For options granted during 2018 and outstanding at 1 January 2019
• 100% based on performance to 31 March 2021, exercisable between 11 April 2021 and 9 April 2026.

For options granted during the year:
• 100% based on performance to 31 March 2022, exercisable between 1 July 2022 and 1 July 2027.

78.

Mortgage Advice Bureau Annual Report 2019

28. Share based payments (continued)

Mortgage Advice Bureau Executive Share Option Plan (continued)

The number and weighted average exercise prices (WAEP) of, and movements in, share options during the year for the
Mortgage Advice Bureau Executive Share Option Plan:

Outstanding at 1 January

Granted during the year

Exercised

Lapsed*

Outstanding at 31 December

* Due to not fully vesting, retirement or leaving the Group.

2019
WAEP
£

2.98

0.001

2.68

–

2.74

2019
Number

2,187,810

175,547

(506,498)

(148,991)

1,707,868

2018
WAEP
£

3.01

0.001

(1.63)

–

2.98

2018
Number

2,371,335

162,829

(318,363)

(27,991)

2,187,810

At 31 December 2019, 550,674 options over ordinary shares of 0.1 pence each in the Company were exercisable with a weighted
average exercise price of £3.09.

On 1 July 2019, 175,547 options over ordinary shares of 0.1 pence each in the Company were granted to the Executive Directors
and senior executives of MAB under the equity-settled Mortgage Advice Bureau Executive Share Option Plan (the “Options”).
Exercise of the Options is subject to the service conditions and achievement of performance conditions based on total shareholder
return and earnings per share criteria. Subject to achievement of the performance conditions, the Options will be exercisable three
years from the date of grant. The exercise price for the Options is 0.1 pence, being the nominal cost of the Ordinary Shares.

Options exercised in April 2019 resulted in 128,315 ordinary shares being issued at an exercise price of £1.60. The price of the
ordinary shares at the time of exercise was £5.50 per share.

Options exercised in May 2019 resulted in 220,394 ordinary shares being issued at an exercise price of £3.58. The price of ordinary
shares at the time of exercise was £5.82.

Options exercised in July 2019 resulted in 157,790 ordinary shares being issued at exercise prices of £1.60, £2.19 and £3.58.
The price of the ordinary shares at the time of exercise was £5.90.

For the share options outstanding under the Mortgage Advice Bureau Executive Share Option Plan as at 31 December 2019,
the weighted average remaining contractual life is 0.5 years (2018 0.9 years).

The following information is relevant in the determination of the fair value of options granted during the year under the equity-settled
share based remuneration scheme operated by the Group.

Equity-settled

Option pricing model – EPS

Option pricing model – TSR

Exercise price

Expected volatility

Expected dividend yield

Risk free interest rate

2019

2018

Black-Scholes

Stochastic

£0.001

31.22%

3.76%

0.58%

£0.001

38.73%

3.42%

0.91%

Expected volatility is a measure of an amount by which the share price is expected to fluctuate during a period. Dividends paid
on shares reduce the fair value of an award as a participant does not receive the dividend income on these shares. For the
share options granted during the year the historic dividend yield has been used, calculated as dividends announced in the
12 months prior to grant (excluding special dividends) calculated as a percentage of the share price on the date of grant
to give a dividend yield of 3.76%.

79.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

28. Share based payments (continued)

Mortgage Advice Bureau Executive Share Option Plan (continued)

The Options offer participants the opportunity to benefit from increasing per share value without risking the current per share
price. The risk-free rate used is the rate of interest obtainable from UK government securities as at the date of grant over the
expected terms.

The options granted this year have vesting periods of 3.0 years from the date of grant and the calculation of the share based
payment is based on these vesting periods.

MAB AR Option Plan

The Group operates an equity-settled share plan, the AR Option Plan, to reward selected ARs of the Group. The AR Option
Plan provides for options which have a nominal exercise price of price of 0.01 pence per Share (or, for any individual AR, not
less than £1 on each occasion of exercise) to acquire Ordinary Shares subject to performance conditions. Certain criteria must
be met in order for ARs to be eligible, including using the Mortgage Advice Bureau brand and being party to an AR Agreement
which provides for an initial contract term of at least five years at the date of grant. The AR Options will normally become
exercisable following the fifth anniversary of grant subject to the satisfaction of performance conditions based on financial
and other targets, including quality of consumer outcomes, compliance standards and continued use of the Mortgage Advice
Bureau brand.

The number and weighted average exercise prices (WAEP) of, and movements in, share options during the year for the MAB AR
Option Plan:

Outstanding at 1 January

Granted during the year

Outstanding at 31 December

2019
WAEP
£

0.01p

–

0.01p

2019
Number

255,000

–

255,000

2018
WAEP
£

0.01p

–

0.01p

2018
Number

255,000

–

255,000

For the share options outstanding under the MAB AR Option Plan as at 31 December 2019, the weighted average remaining
contractual life is 0.4 years (2018: 1.4 years).

Expected volatility is a measure of an amount by which the share price is expected to fluctuate during a period. As the Company
only listed in November 2014 there is insufficient historical data. We have therefore used a proxy volatility figure based on the
medium volatilities, of dividend paying FTSE AIM 100 companies over each of the expected terms.

Dividends paid on shares reduce the fair value of an award as a participant does not receive the dividend income on these shares.
For the share options granted during 2015 the stub dividend in respect of the period from Admission to 31 December 2014 has
been annualised and divided at the share price at date of grant to give a dividend yield of 7.1%.

The options offer participants the opportunity to benefit from increasing per share value without risking the current per share
price. The risk-free rate used is the rate of interest obtainable from UK government securities as at the date of the grant over
the expected terms.

The options granted in 2015 have a vesting period of 5 years from the date of grant and calculation of the share-based payment
is based on these vesting periods.

Share-based remuneration expense

The share-based remuneration expense of £1,288,860 (2018: £800,676) includes the charge for the equity-settled schemes
of £830,340 (2018: £631,416), the matching element of the Group’s Share Incentive Plan for all employees of £62,565 (2018:
£56,885) and £227,968 (2018: nil) in respect of the option relating to First Mortgage Direct Limited (see note 29).

The Group did not enter into any share-based payment transactions with parties other than employees during the current or
previous period.

80.

Mortgage Advice Bureau Annual Report 2019

29. Business combinations

On 2 July 2019 Mortgage Advice Bureau (Holdings) plc acquired 80 per cent. of the entire issued share capital of First Mortgage
Direct Limited (“First Mortgage” or the “Business”) for cash consideration of £16.5m (the “Acquisition”), valuing
the Business at £20.6m. First Mortgage is an omni-channel mortgage broker, with a particularly strong presence in Scotland.

The Acquisition will provide significant additional growth opportunities and enable the Group to further grow its adviser
numbers and market share and will also add another highly respected and leading mortgage broker to the Group.

Details of the purchase consideration, the net assets acquired and goodwill are as follows:

Purchase consideration:

Cash paid

Total purchase consideration

£’000

16,500

The assets and liabilities recognised as a result of the acquisition are as follows:

Book value
£’000

Fair value
adjustment
£’000

Fair value
£’000

Cash

Trade and other debtors

Right of use assets

Plant, equipment and intangibles

Intangible assets: customer contracts

Intangible assets: trademarks

Trade and other payables

Lease liability

Deferred tax liability

Provisions

Net identifiable assets acquired

Less: non-controlling interests

Add: goodwill

Consideration paid

4,277

1,907

3,094

440

–

(1,115)

(3,142)

(56)

(1,445)

3,960

–

1,980

1,470

–

(586)

–

2,864

4,277

1,907

3,094

440

1,980

1,470

(1,115)

(3,142)

(642)

(1,445)

6,824

(1,365)

11,041

16,500

The goodwill is attributable to the workforce and the high profitability of the acquired business. It will not be deductible for
tax purposes.

There were no acquisitions in the year ending 31 December 2018.

81.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

29. Business combinations (continued)

Revenue and profit contributions

First Mortgage contributed revenues of £7.6m and net profit of £1.1m to the Group for the period from 2 July 2019
to 31 December 2019.

If the acquisition had occurred on 1 January 2019, the consolidated pro-forma revenue and profit for the year ended
31 December 2019 would have been £152.4m and £15.7m respectively. These amounts have been calculated using the
subsidiary’s results and adjusting them for:

• differences in accounting policies between the Group and the subsidiary, and
• the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property,
plant and equipment and intangible assets had applied from 1 January 2019, together with the consequential tax effects.

Purchase consideration – cash outflow

Outflow of cash to acquire subsidiary, net of cash acquired

Cash consideration

Less: Balances acquired

Cash

Net outflow of cash – investing activities

2019
£’000

16,500

(4,277)

12,223

2018
£’000

–

The Group funded the cash consideration from a mix of its own cash resources and a partial drawdown on its new
revolving credit facility with National Westminster Bank Plc for £12m. As at 31 December 2019 the Group had no draw
down on this facility.

Acquisition-related costs

Acquisition-related costs of £987,000 that were not directly attributable to the acquired shares are included in administrative
expenses in the statement of profit and loss. £374,000 of these costs are non-recurring and are included in operating cash
flows in the statement of cash flows and £613,000 of these costs are recurring non-cash items.

Option accounting

The option (comprising the put and the call option) over the remaining 20% of the issued share capital of First Mortgage has
been accounted for under IAS 19 Employee Benefits and IFRS 2 Share Based Payments due to its link to the service of First
Mortgage’s Managing Director. In accordance with IAS 19, £0.2m has been included within administrative costs under staff
costs (see note 6), and in accordance with IFRS 2, a further £0.2m has been included within administrative costs under share
based payments (see note 28).

82.

Mortgage Advice Bureau Annual Report 2019

30. Non-controlling interests (NCI)

Accounting policy choice for non-controlling interests

The Group recognises non-controlling interests in an acquired entity either at fair value or at the non-controlling interest’s
proportionate share of the acquired entity’s net identifiable assets. This decision is made on an acquisition-by-acquisition
basis. For the non-controlling interests in First Mortgage, the Group elected to recognise the non-controlling interests at
its proportionate share of the acquired net identifiable assets. See note 1 for the Group’s accounting policies for business
combinations.

Set out below is summarised financial information for each subsidiary that has non-controlling interest that are material
to the group. The amounts disclosed for each subsidiary are before inter-company eliminations.

Summarised balance sheet

Current assets

Current liabilities

Current net assets

Non-current assets

Non-current liabilities

Non-current net liabilities

Net assets

Accumulated NCI

Summarised statement of comprehensive income

Revenue

Profit for the period and total comprehensive income

Profit allocated to NCI

Dividends paid to NCI

Summarised statement of comprehensive income

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Net decrease in cash & cash equivalents

During the period £5.6m of cash was transferred into the Group’s accounts to be managed centrally. This is included in
operating activities above.

First Mortgage
£000’s

7,953

(1,766)

6,187

3,295

(4,372)

(1,077)

5,110

1,595

£000’s

15,638

2,199

230

–

£000’s

(2,257)

(14)

–

(2,270)

83.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2019

31. Contingent liabilities

The group had no contingent liabilities at 31 December 2019 or 31 December 2018.

32. Events after the reporting date

Due to the current coronavirus pandemic, the Group drew down the full amount on its Revolving Credit Facility with National
Westminster Bank Plc on 20 March 2020, amounting to £12m in order to give the Group additional flexibility to react quickly
in this environment and capitalise on potential opportunities. The Government imposed lockdown has had the effect of calling
a halt on most house purchase transactions and as a result the Group is experiencing a significant reduction in mortgages
relating to house purchase activity which will lead to a reduction in revenue and profit. The Group cannot estimate the length
of time that this situation will continue and hence cannot estimate its financial effect on the Group, however the Group remains
in a strong financial position.

33. Notes supporting statement of cash flows

Cash and cash equivalents for purposes of the statement of cash flows comprises:

Cash at bank available on demand

Bank balances held in relation to retained commissions

Short term deposits

Total cash and cash equivalents

2019
£’000

6,987

13,880

–

20,867

2018
£’000

10,287

11,711

3,592

25,589

84.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Company statement of financial position
as at 31 December 2019

Registered number 04131569

The following parent entity financial statements are prepared under FRS 102 and relate to the Company and not to the Group.
The statement of accounting policies which have been applied to these accounts can be found on page 87.

The Company is a non-trading holding company. As permitted by section 408 of the Companies Act 2006 the Company has
elected not to present its own profit and loss account for the year. The Company reported a profit for the financial year of
£12,235,509 (2018: £11,498,746).

Note

2019
£’000

2018
£’000

Fixed assets

Investments

Current assets

Debtors

Net assets

Capital and reserves

Called up share capital

Share premium account

Capital redemption reserve

Retained earnings

The notes on pages 87 to 90 form part of these financial statements.

The financial statements were approved by the board of directors on 22 April 2020.

P Brodnicki
Director

L Tilley
Director

3,305

3,077

2,632

5,937

5,451

414

5,937

1,274

4,351

4,094

186

4,351

85.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Company statement of changes in equity
for the year ended 31 December 2019

Balance at 1 January 2018

3,574

186

Share
capital
£’000

Share
premium
£’000

Capital
redemption
reserve
£’000

Retained
earnings
£’000

Total
Equity
£’000

3,831

Profit for the year

Total comprehensive income

Transactions with owners

Issue of shares

Dividends paid

Transactions with owners

Balance at 31 December 2018
and 1 January 2019

Profit for the year

Total comprehensive income

Transactions with owners

Issue of shares

Share based payments

Dividends paid

Transactions with owners

At 31 December 2019

–

520

–

520

–

11,499

–

520

(11,499)

(10,979)

4,094

186

4,351

–

1,357

–

1,357

5,451

–

12,236

–

228

1,358

228

(12,236)

(12,008)

(10,650)

414

5,937

86.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the Company statement of financial position
as at 31 December 2019

1. Accounting policies

n Basis of preparation

The separate financial statements of the Company are presented as required by the Companies Act 2006 and have been
prepared under the historical cost convention and in accordance with Financial Reporting Standard 102, the Financial Reporting
Standard applicable in the United Kingdom and the Republic of Ireland. The FRS 102 reduced disclosure framework has been
applied and the Company meets the definition of a qualifying entity. The principal accounting policies are summarised below.
They have all been consistently applied to all years presented.

The preparation of financial statements in accordance with FRS 102 requires the use of certain critical accounting estimates.
It also requires management to exercise judgement in applying the Company’s accounting policies. Given the nature of
the company’s business there are no critical accounting estimates or areas of judgement required in the preparation of the
financial statements.

n Cash flow statement

The cash flows of the Company are included in the consolidated cash flow statement of Mortgage Advice Bureau (Holdings) plc
which is included in this annual report. Consequently, the Company is exempt under the terms of FRS 102 from publishing
a cash flow statement.

n Going concern

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue
in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in the
accounts.

n Investments

Investments in subsidiaries are held at historical cost less provision for impairment. The carrying values of investments are
reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

n Share capital

Financial instruments issued by the Company are treated as equity only to the extent that they do not meet the definition
of a financial liability. The Company’s ordinary shares are classified as equity instruments. Incremental costs directly attributable
to the issue of new shares are shown in share premium as a deduction from proceeds.

n Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when
they are paid. In the case of final dividends, this is when they are approved by the shareholders.

n Financial Instruments

The Company makes little use of financial instruments other than intercompany balances and so its exposure to credit risk
and cash flow risk is not material for the assessment of the assets, liabilities, financial position and profit of the Company.

The Directors consider that there is no credit risk on intercompany balances.

2. Profit for the year

During the year its only income was dividends receivable from its subsidiaries. Its only expenditure is in respect of dividends
payable. The auditors’ remuneration for audit and other services is disclosed in note 5 to the consolidated financial statements
for the Group. Remuneration for the audit of the Company financial statements is borne by a subsidiary entity.

87.

Mortgage Advice Bureau Annual Report 2019Financial statements

Notes to the Company statement of financial position (continued)
as at 31 December 2019

3. Investments

Cost

At 1 January 2019 and 31 December 2019

Additions

Net book value

At 31 December 2019

At 31 December 2018

The subsidiaries of Mortgage Advice Bureau (Holdings) plc at each reporting date are as follows:

Subsidiary
undertakings
£’000

3,077

228

3,305

3,077

Company name

Country of
Incorporation

Mortgage Advice Bureau Limited

England and Wales

Mortgage Advice Bureau (Derby) Limited

England and Wales

Capital Protect Limited

Mortgage Talk Limited

MABWM Limited

First Mortgage Direct Limited

First Mortgage Limited

Property Law Centre Limited

Talk Limited

England and Wales

Scotland

Percentage
of ordinary
shares held

100

Nature of business

Provision of financial services

Provision of financialservices

Provision of financial services

England and Wales

100

Intermediate holding company

Mortgage Advice Bureau
Australia (Holdings) PTY Limited

Mortgage Advice Bureau PTY Limited

Australia

Mortgage Advice Bureau (UK) Limited

England and Wales

Mortgage Advice Bureau (Bristol) Limited

England and Wales

MAB (Derby) Limited

L&P 137 Limited

England and Wales

Mortgage Talk (Partnership) Limited

England and Wales

Financial Talk Limited

Survey Talk Limited

L&P 134 Limited

Loan Talk Limited

MAB1 Limited

First Mortgage Shop Limited

First Mortgages Limited

Fresh Start Finance Limited

England and Wales

Scotland

100

Intermediate holding company

Holding of intellectual property

Dormant

88.

Mortgage Advice Bureau Annual Report 2019

3. Investments (continued)

The registered office for all of the subsidiaries of Mortgage Advice Bureau (Holdings) plc, as listed in the table above, is Capital
House, Pride Place, Pride Park, Derby, DE24 8QR, United Kingdom, other than for the two subsidiaries incorporated in Australia
for which the registered office is Norton Rose Fulbright, Level 18, 225 George Street, Sydney, NSW 2000, Australia and First
Mortgage Direct Limited and its subsidiaries for which the registered office is 30 Walker Street, Edinburgh, EH3 7HR.

Mortgage Advice Bureau Australia (Holdings) PTY Limited has a 100% equity stake in Mortgage Advice Bureau PTY Limited
and also a 45% equity stake in MAB Broker Services PTY Limited.

Mortgage Advice Bureau (Holdings) plc holds 100% of the ordinary share capital of Mortgage Advice Bureau Limited and
Talk Limited.

Mortgage Talk Limited holds 100% of the ordinary share capital of Loan Talk Limited.

L&P 137 Limited holds 100% of the ordinary share capital of L&P 134 Limited.

There are no restrictions regarding the utilisation of cash or other resources held by any subsidiary.

4. Debtors – amounts falling due within one year

Amounts due from Group undertakings

2019
£’000

2,632

Amounts due from Group undertakings are unsecured, interest free and have no fixed repayment term.

5. Share capital

Issued and fully paid

Ordinary shares of 0.1p each

Total share capital

2019
£’000

2018
£’000

1,274

2018
£’000

During the period 506,499 ordinary shares of 0.1p each were issued following partial exercise of the third tranche of options
issued at the time of the Initial Public Offering of the Company and partial exercise of options issued in May 2016 at a total
premium of £1.4m. See also note 28 to the financial statements for the Group.

89.

Mortgage Advice Bureau Annual Report 2019

Financial statements

Notes to the Company statement of financial position (continued)
as at 31 December 2019

6. Reserves

The following describes the nature and purpose of each reserve within equity:

Reserve

Share premium

Capital redemption reserve

Retained earnings

Description and purpose

Amount subscribed for share capital in excess of nominal value.

The capital redemption reserve represents the cancellation of part of the original
share capital premium of the Company at par value of any shares repurchased.

All other net gains and losses and transactions with owners (e.g. dividends)
not recognised elsewhere.

There is no restriction on the distribution of retained earnings.

7. Financial instruments and risk

The only financial asset of the company is an amount due from other Group undertakings and therefore the Company is
exposed to minimal financial risks. Details of the Group’s management of the financial risks to which it is exposed are set out
in note 20 to the financial statements for the Group.

8. Related party transactions

The Company has taken advantage of the exemption in s33.1A of FRS102, not to disclose transactions with group companies
which are 100% owned.

90.

Mortgage Advice Bureau Annual Report 2019Glossary of terms

Appointed Representative,
AR, or AR firm

An intermediary firm or person who is party to an agreement with a FCA regulated firm
permitting them to carry out certain regulated activities

AR Agreement

Adviser

Base Rate

Clawbacks

Client fee

Agreement governing the terms of the commercial relationship between MAB and an
AR firm, and setting out how income from products sold by Advisers of the AR is split
between MAB and the AR

A person employed or engaged by an AR firm, carrying out mortgage and/or general
or protection insurance advisory services to customers

The Bank of England base rate is the interest rate that the Bank of England charges
banks for secured overnight lending. It is the UK Government’s key interest rate for
enacting its monetary policy

The right of insurers to reclaim some or all of the commission paid to an intermediary in
the event premiums are not paid by the policy holder in the period during which the policy
holder pays monthly premiums, typically 48 months for protection products for MAB

A fee paid by the consumer to the intermediary who has arranged the consumer’s
mortgage with a lender

Corporate Social Responsibility A type of business self-regulation that aims to contribute to societal goals by engaging

in or supporting ethically-oriented practices (e.g. fundraising for charity)

Directly Authorised

An entity that is directly authorised by the FCA to carry out regulated activities

Execution only

Refers to a customer entering into a regulated mortgage contract without being given
advice, or where the advice given by a firm has been rejected. This is effectively
a self-service process

FCA

FSCS

FTB

GDPR

Financial Conduct Authority

The Financial Services Compensation Scheme (FSCS) is the UK’s statutory deposit
insurance and investors compensation scheme for customers of authorised financial
services firms

First Time Buyer

The General Data Protection Regulation, a regulation in EU law on data protection
and privacy

General insurance

Buildings and contents insurance and certain other non-life insurance products
but excluding protection

Gross mortgage lending

New mortgage lending and product transfers

Help-to-Buy

UK Government incentives that aim to help first time buyers and those looking to move
homes purchase a residential property. Help-to-Buy schemes include Equity Loans and
Shared Ownership schemes

Intermediary, intermediary firm,
or mortgage intermediary

A firm or individual who arranges mortgages with lenders on behalf of customers,
(as opposed to a lender that the customer approaches directly). An intermediary is
either directly authorised by the FCA or is an appointed representative of a directly
authorised firm

IMLA

The Intermediary Mortgage Lenders Association is a trade association that represents
the views and interests of UK mortgage lenders who are involved in the generation
of mortgage business via professional financial intermediaries

Insurance or insurance products Includes protection and general insurance

IR35

Later Life Lending

The UK’s anti-avoidance tax legislation designed to tax disguised employment
at a rate similar to employment

Refers to mortgage products aimed at those approaching or already in retirement,
who are looking to release some of the equity in their home for a variety of reasons

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Mortgage Advice Bureau Annual Report 2019Glossary of terms (continued)

Lifetime Mortgage

A type of Later Life Lending whereby no capital or interest repayments are made.
Compounded interest is added to the capital throughout the term of the loan,
which is then repaid by selling the property when the borrower dies or moves out

Mortgage Advice and Selling
Standards

Policy statement issued by the FCA in February 2020 which sets out a package
of remedies aiming to help consumers make better informed choices with regard
to mortgages

Mortgages Market Study

Market study conducted by the FCA in 2019 as a precursor to the Mortgage Advice
and Selling Standards policy statement

Mortgage panel or lender panel

A panel of mortgage lenders used by intermediaries

New build

Encompasses properties built by developers, custom build, self-build
and affordable housing

New mortgage lending

Lending resulting from a mortgage completion in connection with a house purchase
or a re-mortgage with a different lender to the customer’s existing lender

Procuration fee, or
Mortgage procuration fee

Product transfer

A fee paid by a lender to the intermediary who has arranged a mortgage with the lender

The process of switching an existing mortgage product to a new one with the same
lender

Protection insurance

Life insurance (including critical illness), family income protection and certain other
insurance products (but excluding general insurance)

Service centres or telephone
centres

MAB’s regional telephone service centres operated by certain AR firms. The services
provided by these centres include reviews of mortgage and related insurance products
on an on-going basis with replacement or new products offered to customers,
as appropriate

SM&CR

The Senior Manager and Certification Regime, a regime that aims to raise standards
of governance, increase individual accountability and help restore confidence in the
financial services sector

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Mortgage Advice Bureau Annual Report 2019Design and Production
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