Annual Report and Consolidated Financial Statements for the year ended 31 January 2019 253486 (0) OnTheMarket_AR_2019_cover spread.indd 1-3 19/06/2019 15:53 Background and origins Overview Highlights Chairman’s Statement Strategic Report Chief Executive Offi cer’s Report Financial Review and Key Performance Indicators Risk Management and Principal Risks Governance Board of Directors Directors’ Report • Corporate Governance Statement Directors’ Remuneration Report Directors’ Responsibilities Statement Independent Auditor’s Report to the Members of OnTheMarket plc Financial Statements Consolidated Income Statement Consolidated Statement of Financial Position Company Statement of Financial Position Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Company Information 1 3-4 5 7-11 12-13 14-15 17 18-22 19-22 23-24 25 26-29 31 32 33 34-35 36-37 38 39-65 66 253486 (0) OnTheMarket_AR_2019_cover spread.indd 4-6 19/06/2019 15:53 Background and origins O v e r v e w i (“OTM” or the OnTheMarket plc “Company”) is the UK’s agent-backed residential property portal provider. The business aims to provide an alternative to its competitors, offering property-seekers a “go to” premier search experience, charging property fair prices, advertisers sustainably creating for all shareholders and being a rewarding place to work for its people. long-term value OnTheMarket is the parent company of Agents’ Mutual Limited (“Agents’ Mutual”), which owns and operates the UK online residential property portal OnTheMarket.com. Agents’ Mutual was formed in January 2013 by several leading estate and lettings agents to create a new residential property portal as a challenger to the two existing major portal groups, Rightmove plc and ZPG plc. Agents’ Mutual was born from widespread agent dissatisfaction with the growing imbalance of power between agents and the two existing major portal groups. Both groups were felt to be using their strong positions relative to their agent customers to impose signifi cant price increases for their portal services. The Agents’ Mutual proposition, for a portal owned by agents which would offer a premier search service to property-seeking consumers whilst charging fair prices to agents, quickly found support among a very wide group of leading independent agents across the UK. These agent fi rms were prepared to fund the venture by way of loan note subscriptions and to commit to list with the portal once it went live. The portal launched in January 2015 as the fi rst major new market entrant since 2008, with the properties of 4,600 estate agent branches. Agents provide the majority of income for the property portals and also supply their essential and most valuable content - the property listings. As a portal with signifi cant agent support, the Directors believe OnTheMarket.com is uniquely positioned to create an alternative to the leading incumbent portals. The Directors believe that with their invaluable database of active property vendors and property-seekers, agents are able to proactively support the portal and create valuable competitive advantage for it. The Company’s senior management has signifi cant industry experience and expertise. Led by Ian Springett, Chief Executive Offi cer, it includes the team responsible for founding and, until 2008 following its sale to Daily Mail & General Trust plc, managing PrimeLocation. In addition, many of the Group’s1 employees have previously worked for other UK property portals. The ordinary share capital of OTM was successfully admitted to AIM on the London Stock Exchange on 9 February 2018 (“Admission”). Through a placing to investors, £30m (gross) of new equity capital was raised on Admission to fund the further growth of OnTheMarket. At Admission agents owned approximately 70 per cent. of the issued share capital. OTM is incorporated in England & Wales and has its registered offi ce in the UK. 1 The Group is OTM and its subsidiary undertakings as set out in note 15 to these fi nancial statements. 253486 (1) OnTheMarket_AR_2019_front end.indd 1 19/06/2019 16:20 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 1 Overview 10 0 million Instant property alert emails sent in May 2019. Across 2018, Rightmove sent an average of 65 million alerts per month 30 Average leads per £100 in May 2019 based on an ARPA of £337 per month. In FY 2018, Rightmove provided on average 17 leads per month per £100, down from 28 leads in FY 2015 2 253486 (1) OnTheMarket_AR_2019_front end.indd 2 19/06/2019 16:20 Strong first year of operational performance O v e r v e w i Highlights Operational and strategic highlights ● Conversion of agents from free to paying contracts is underway and new agents are being recruited directly to paying contracts. A total of almost 1,000 branches have been signed under paying contracts since conversion commenced, with an average ARPA2 of £337 per month. ● Of these new contracts, 57% are long-term commitments of three or fi ve years with shares and the majority of the balance are on 1 year contracts with an option to convert to a longer-term contract with shares. ● The ongoing growth in paying contracts is key to the Group’s transition into profi tability and is supported by: ● ● ● ● Growing property stock: As at 3 June 2019, the portal displayed over 650,000 UK residential property listings, already approximately 65% of Rightmove’s3 and over 83% of Zoopla’s3. in agent branches on Continued growth OnTheMarket.com remains key to our strategy and future success; Growing consumer traffi c: In May 2019, a record 25.4m visits were made to the portal, up 8% from the previous record in January 2019; Growing consumer engagement: In the month of May 2019, more than 1m people were using our property alerts service and over 100m instant alert emails were sent. Across 2018, Rightmove sent an average of 65m instant alert emails per month to over 2m people. Growing leads to agents: In May 2019, the Group’s average leads per UK residential property advertiser rose to 102 per month. Based on their most recently published information, Zoopla’s average per month fell to 92 (H1 2018) and Rightmove’s fell to 171 (FY 2018); ● ● Improving value for money: Based upon an ARPA of £337, in May 2019 the Group provided an average of 30 leads per £100. In FY 2018, Rightmove provided on average 17 leads per month per £100, down from 28 leads in FY 2015. The Board is particularly pleased with this as it highlights the signifi cant value we are providing to our customers; and Matching Rightmove’s core agent products: In March 2019 we began rolling out products which support agents’ operations within the listing fee and provide them with additional advertising opportunities at extra cost. ● Preparatory work to extend our offering to new home developers has begun. ● The Group continues to evaluate opportunities to acquire businesses, particularly in the area of property technology, which can offer solutions to current business problems faced by its agent customers. ● With revenues broadly covering operational costs before marketing expenditure and growing, a cash balance at 31 May 2019 of £10.2m and the continued support of agents, we are well placed to deliver long- term value to shareholders. Financial highlights and KPIs ● As at 31 January and 31 May 2019, OnTheMarket had signed listing agreements with UK estate and letting agents with more than 12,500 offi ces. This refl ects continued recruitment of new agents on free trials or straight to paying contracts, offset by agents who have been removed from the portal following the end of their free trial periods. ● ARPA £130 (2018: £198), refl ecting the strategy to grow rapidly through free short-term introductory trial offers. Average branch numbers listed at OnTheMarket.com 9,460 (2018: 5,694), visits4 158.9m (2018: 77.3m). OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 3 253486 (1) OnTheMarket_AR_2019_front end.indd 3 19/06/2019 16:20 Highlights Continued ● Group revenue of £14.2m (20185: £13.6m). ● Administrative expenses of £27.8m (20185: £9.7m) after advertising expenditure of £14.9m (2018: £2.2m) as the Group invested capital raised in increased marketing and expansion of the team, in line with the new growth strategy. The Group is pleased to report that its marketing spend during the year was more effi cient than originally envisaged and expects to continue this trend in the future. ● Adjusted operating loss6 £13.6m (2018: adjusted operating profi t6 £3.9m). ● Operating loss of £14.5m (2018: £10.8m) which includes £0.9m (2018: £14.7m) of specifi c professional fees, share-based payments and non-recurring items. ● Loss after tax attributable to shareholders £14.5m (2018: £12.1m). ● Cash balance at 31 January 2019 £15.7m (2018: £3.2m). 2 Average revenue per property advertiser, being revenues due from property advertisers for a period divided by the average number of property advertisers for that period. ARPA presented herein is the average of the monthly ARPAs for the year. 3 Rightmove, in its 2018 Annual Report, stated that it had “1 million UK residential properties”. As at 3 June 2019, Zoopla stated on its website that it was listing 562,144 UK residential sales properties and 225,592 UK residential lettings properties, totalling 787,736 properties - down from 822,250 as at 3 July 2018. 4 Visits comprise individual sessions on OnTheMarket.com’s web based portal or mobile applications by users for the period indicated as measured by Google Analytics. 5 Revenues and administrative expenses for the year ended 31 January 2018 have been restated under IFRS 15. Further information is set out in note 2.5. 6 Adjusted operating loss / profi t is defi ned as operating loss / profi t before fi nance costs, taxation, share-based payments, specifi c professional fees or non-recurring items. This is an alternative performance measure and should not be considered an alternative to IFRS measures, such as revenue or operating loss / profi t. Please see the Financial Review and Key Performance Indicators for a reconciliation of operating loss to adjusted operating loss. 4 4 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (1) OnTheMarket_AR_2019_front end.indd 4 19/06/2019 16:20 Chairman’s Statement O v e r v e w i I am pleased to be reporting on a period of strong operational progress following our successful AIM listing and fundraising on 9 February 2018. The fundraising and listing on AIM was part of a transformational strategy intended to enable the Company to accelerate its growth and enhance its position as a serious challenger to the duopoly UK property portals Zoopla and Rightmove, by offering a more responsive and better value option to agents and property-seeking consumers alike. investment of proceeds The from our £30m AIM fundraising in marketing expenditure and team expansion has enabled us to achieve success against our own internal key operational performance targets: Agent offi ces under listing contracts than 7,000 since up by more Admission, with over 12,500 as at 31 January 2019 Traffi c to the portal in the year to 31 January 2019 was 158.9m visits, compared with 77.3m in the prior year Key sales-force and IT recruitment ahead of plan, with team numbers increased since Admission from 15 to 50 and 21 to 58 respectively by 31 January 2019 2018 was a year spent investing in the growth of OnTheMarket.com and in positioning the business to create a strong, credible alternative to Rightmove and Zoopla. Governance The Company has adapted well to being a listed company, retaining its entrepreneurial culture and pro-agent ethos whilst embracing the corporate governance challenges that are part of life within a publicly listed company. Current trading Since the year end we have increasingly engaged with agents to convert those who joined us on an introductory free trial to paying customers. That process will continue throughout the year ahead and with the continued support of agents we are well placed to deliver long-term value to shareholders. Further details on progress to date are set out in the Chief Executive Offi cer’s Report. Our team of colleagues remain highly focused to continue to build upon our strong growth to date. I would again like to thank all of my colleagues, team members and shareholders for their continued hard work and support. Many challenges remain before us, but with the continued commitment of all our stakeholders I am confi dent that we can achieve our aim. That is to provide an agent-backed alternative residential property portal , offering property-seekers a “go to” premier search experience, charging property advertisers sustainably fair prices, creating long-term value for all shareholders and being a rewarding place for our people to work and thrive. Christopher Bell Non-Executive Chairman 12 June 2019 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 5 253486 (1) OnTheMarket_AR_2019_front end.indd 5 19/06/2019 16:20 Strategic Report 6 253486 (1) OnTheMarket_AR_2019_front end.indd 6 19/06/2019 16:20 Chief Executive Officer’s Report S t r a t i e g c R e p o r t I am pleased to report that OnTheMarket, the UK’s agent-backed residential property portal provider, has delivered a strong, successful first year of operational progress since its admission to AIM on 9 February 2018 alongside a capital raise of £30 million (gross). As a challenger business and brand, OnTheMarket aims to become an alternative to Rightmove and Zoopla by providing the property-seeking public with an excellent agent-backed portal and by providing its agent investors and customers with listing and support services and a commitment to sustainably fair pricing. In our fi rst year as a listed business, we have vigorously pursued the transformational growth strategy we had set out in our Admission Document, delivering disciplined rapid expansion while investing to generate long-term benefi t and value for our customers, for our consumers, for our shareholders and for our people. OnTheMarket is already indisputably established as one of the leading portals and as a go-to destination for the most serious property-seekers in the market. Operational KPIs in terms of growth in agent offi ces, consumer visits to our portal and leads to our agent customers have met or exceeded internal expectations and have been achieved with lower-than-planned cash burn. We have already achieved much to close the gap between OnTheMarket and the previous effective duopoly and we have every intention of fi rst matching and then bettering their current core services and products to create a viable alternative for agents and property -seekers alike. Leveraging our unique agent-backed business model At Admission, OnTheMarket was 70% owned by over two thousand agent fi rms. The majority of agent shareholders committed to new 5 year listing agreements and to enter lock-in arrangements to retain the majority of their shares for 5 years post Admission. It has been an objective to broaden agent ownership still further and as at the date of these accounts, 1.7m new shares have been issued to agents signing long-term listing agreements, although not all shares contracted to be issued under long-term paying listing agreements signed have been issued to date as share issues lag contract commencement. Agents provide the majority of income for the property portals and also supply their essential and most valuable content - the property listings. As a portal with signifi cant agent support, the Directors believe that OnTheMarket.com is uniquely positioned to create an alternative to the leading incumbent portals. One of the strongest examples of agent support to create competitive advantage is the “New & exclusive” feature: OnTheMarket receives listings for thousands of new-to-market properties every month from its agents to display 24 hours or more before they are on Rightmove or Zoopla. Accelerating the growth in classic network effects In a two-sided network, the pillars of our strategy in 2018/19 have been a rapid build of our agent customer/ shareholder base, a strong marketing campaign to increase consumer traction and leads and a substantial investment in building the team, particularly in sales, customer relations and IT. Building the agent branch base and property listings A key priority in 2018/2019 has been the rapid building of our agent branch base and property listings and our progress has been very strong. As at 31 May 2019, OnTheMarket had signed listing agreements with UK estate and letting agents with more than 12,500 offi ces – an increase of over 7,000 offi ces since Admission. This refl ects continued recruitment of new agents on free trials or straight to paying contracts, offset by agents who have been removed from the portal following the end of their free trial periods. 253486 (1) OnTheMarket_AR_2019_front end.indd 7 19/06/2019 16:20 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 7 Chief Executive Officer’s Report Continued As at 3 June 2019, the portal displayed over 650,000 UK residential property listings, already over 83% of Zoopla’s (which have fallen from 822,250 as at 3 July 2018 to 787,736 as at 3 June 2019) and approximately 65% of Rightmove’s. In its 2018 Annual Report, Rightmove stated it had 1 million UK residential properties. The growth in our agency branch base post-Admission was almost exclusively achieved by offering free listings under short-term introductory trial offers, with a view to converting these to full-tariff contracts in 2019/20 when agents have had the opportunity to assess the value of our offering. Over 6,500 agent branches have joined OnTheMarket.com on such short-term offers. growth Continued on OnTheMarket.com remains a priority and is key to our future strategy and success. branches agent in Conversion of agents from introductory trial offers to paying contracts underway The conversion of agents from free listing to paying contracts is underway and new agents are being recruited directly to paying contracts. A total of almost 1,000 branches have been signed under paying contracts since conversion commenced, with an average ARPA of £337 per month. Of these new contracts, 57% are long- term commitments of three or fi ve years with shares to list all their available properties and actively to promote the OnTheMarket.com brand. The majority of the balance are on 1 year contracts with an option to convert to a longer- term contract with shares. The ongoing growth in paying contracts is key to the Group’s transition into profi tability . The conversion process is using a range of offers which, for selected agents, include long-term agreements which will be accompanied by share issuance. The Directors believe that attractive equity incentives can be provided to new property advertisers joining OnTheMarket.com whilst at time enhancing value substantially for existing shareholders. Such equity issuance enables agents to support the only major agent-backed portal with a view to creating a fairly- priced alternative to Rightmove and Zoopla and to share in any increase in the value of the Company. the same The shares issued to agents are typically subject to lock-in arrangements to ensure that new shareholders’ interests are closely aligned with those of all other agent investors and with the success of the Group. 8 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 The Group has authority remaining to issue up to a further 34.7 million Ordinary Shares to recruit new property advertisers, and the issuance of these shares is expected to result in both direct and indirect revenue growth. Marketing to build property-seeker traffic and engagement and to increase value to agents With the capital raised at Admission, the Group has been able to deploy signifi cant and increasing funds to multi- channel marketing. The Company has taken a disciplined approach to the building of its advertising investment to ensure optimal value. In addition to ramping up our advertising on paid search and other digital marketing, we have been able to conduct our heaviest national TV advertising since our launch period in 2015. A new TV advertising campaign was introduced in September 2018 and ran in the key period from Boxing Day, through the month of January and beyond into 2019. In addition, we ran national radio and poster advertising, with our biggest ever monthly budget in January 2019. A key theme of these advertising campaigns is the “New & exclusive” properties which many of our agents choose to list at OnTheMarket.com in advance of listing on Rightmove or Zoopla. The Directors believe this gives OnTheMarket a competitive advantage as this has been shown to hold a signifi cant appeal to active property -seeking consumers, who are the key target group as they in turn provide listing agents with the highest quality leads. Combined with our growth in agents and property listings, the investment in marketing has also led to a substantial increase in visitor traffi c to OnTheMarket.com, generating substantially greater value to our agent investors and customers through a higher volume of high-quality leads. In May 2019 a record 25.4 million visits were made to the portal, up 8% on January 2019’s seasonal high and previous monthly record. Leads to agent customers also reached record monthly levels in May 2019 with an average of 102 leads per advertiser per month , despite the uncertainty surrounding the UK residential property market . Based on its last published half-year report as ZPG plc (H1 2018), Zoopla delivered an average of 92 leads per advertiser per month for that period, down from 136 in FY 2015 253486 (1) OnTheMarket_AR_2019_front end.indd 8 19/06/2019 16:20 Chief Executive Officer’s Report Continued (the year that OnTheMarket.com was launched). In FY 2018, Rightmove delivered an average of 171 leads per advertiser per month, down from 210 in FY 2015. In 2018 Rightmove provided on average 17 leads per month per £100 of advertiser spend, down from 28 leads in FY 2015. Based upon an average monthly fee per advertiser of £3 37, in May 2019 the Group provided an average of 3 0 leads per £100 of advertiser spend. The Board is particularly pleased with this as it highlights the signifi cant value we are providing to our customers. In June 2018, 4 months after our Admission to AIM, a YouGov survey of all adults recorded our prompted brand awareness at 19%. Amongst active property-seekers, being those surveyed who had moved within the prior 5 months or who were actively looking to move, our prompted brand awareness was 27%. Following the investment in marketing detailed above, including the new TV campaign, in May 2019 our prompted brand awareness has risen dramatically to 35% for all adults and to 47% for active property-seekers. We have invested in continuously improving the quality of the user experience on the portal and consumer engagement has continued to grow. In May 2019 OnTheMarket sent over 100 million instant property alert emails to its registered users. This compares with 781 million instant alert emails sent by Rightmove across the whole of 2018, an average of 65 million per month. A key reason for the most serious property-seekers in the market to sign up for an alert with OnTheMarket is that they will be fi rst to see any relevant “New & exclusive” properties: OnTheMarket displays thousands of new properties every month 24 hours or more before they are on Rightmove or Zoopla. Our sales team continue to engage with our agent customers and as a result of this we are seeing hundreds of new branches each month signing up to our “New and exclusive” programme. On 5 September 2018, we announced an agreement with Facebook that our UK agents’ home rental property listings would be available to view on Facebook Marketplace. The Facebook Marketplace integration has been another productive example of how we have been increasing the exposure of our agents’ properties for the benefi t of our agent customers and the property-seeking public alike. Investing to build the team to deliver in the short term and the long term The greater fi nancial resources available to the Group have also been deployed in expanding the team, in particular the sales and customer relations team and the IT team. “Combined with our growth in agents and property listings, the investment in marketing has also led to a substantial increase in visitor traffic to OnTheMarket.com, generating substantially greater value to our agent investors and customers through a higher volume of high-quality leads.” S S S t t t r r r a a a t t t i i i e e e g g g c c c R R R e e e p p p o o o r r r t t t At Admission on 9 February 2018, the fi eld sales team numbered 15 employees. As at 31 January 2019 this had been increased to 50. This signifi cant expansion in sales and customer relations support enables us to rapidly and effectively recruit new agents whilst implementing and maintaining the expected levels of service for existing and new customer agents during the period of rapid growth. The sales team has progressively broadened its focus to engage with customers to seek to increase the number of agents prepared to adopt “New & exclusive” for their new instructions as well as increase property alert sign-ups. In addition, the team continues to focus on the value delivered to customers as the short-term introductory contracts come to an end and we explore with them the opportunities to convert to paying contracts. Likewise, as at 31 January 2019, the IT team had been increased from 21 to 58. The enlarged team is focused on technical support for on-boarding agents and property data, specifying and delivering new products for consumers and customers and the continuous improvement of existing products. The success of the rapid but controlled growth in the organisation has depended on a culture of disciplined inclusion and empowerment. This refl ects the powerful combination of entrepreneurial spirit and seasoned management within the leadership team and across the business. Creating new products and services for our property advertisers In addition to the core property and agency listing service, the two market-leading UK property portals offer a variety OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 9 253486 (1) OnTheMarket_AR_2019_front end.indd 9 19/06/2019 16:20 Chief Executive Officer’s Report Continued of paid-for additional consumer-facing promotion and branding products, as well as a variety of back-offi ce products for agents and new homes developers. The new homes market is our initial focus and preparatory work has been initiated to enable us to address th is opportunit y in the current year. The Company aims fi rst to match and then to better the core set of agent products and services of its competitors, ranging from advertising products to a full set of intelligence-based services to enable them to track their performance locally and nationally across a range of valuable measures. I am pleased to report that after much preparatory work in the year ended January 2019 the Company has since launched the fi rst phase of its back-offi ce service to its agents in the form of a “Market Appraisal Guide” to support agents with intelligence and branded materials for appraisal meetings with clients. I am equally pleased to report that OnTheMarket has recently launched a range of value-adding products to enable agents to boost the visibility of their brand and their listings on the portal. These products, including enhanced property presentation and banners on our portal and property alerts, are bought separately from the contractual listing fee. Further revenue-generating products will be released later this year. A Market Intelligence Report product is currently in beta testing and is expected to be ready for release shortly. Additionally, the Group continues to evaluate opportunities to acquire businesses, particularly in the area of property technology, which can offer solutions to current business problems faced by its agent customers. Broadening our advertiser base The Company’s growth strategy will in due course address the wider property market, including new home developers and the commercial and overseas property markets. We will also offer non-property advertisers the opportunity to promote themselves and their products and services to our very large and growing audience of active and engaged property-seekers. Responding positively to market conditions The Directors believe that the UK agency market has continued to be under pressure from the uncertainty caused by a number of economic and political factors. Nevertheless, the volume of housing transactions at a national level remained resilient throughout 2018, broadly in line with the 5-year average, and house prices at a national level have also continued to increase, albeit modestly and with some strong regional differences. In 2019, many industry bodies have reported a slow start to the year with agents’ property for sale stocks down on last year. Overall UK agent offi ce numbers, including hybrid agents, have not reduced signifi cantly, indicating that competition in the market for agency services remains strong, with downward pressures on commission rates. Against this backdrop, independent agents’ portal costs have continued to rise signifi cantly. Some portals are competing with their agent customers for cross-sell revenues. for agents The Directors believe that these market developments provide a strong rationale to support OnTheMarket, which provides substantially fair pricing and increasing value as we deliver on our strategy, including increasing website traffi c amongst the property- seeking public and growing the volume of quality enquiries from these property-seekers to the agents listing at OnTheMarket.com. Litigation In July 2017, judgment was handed down by the Competition Appeal Tribunal in favour of Agents’ Mutual and against Gascoigne Halman Limited on all competition issues: the One Other Portal rule* was upheld as lawful and enforceable and Agents’ Mutual was awarded £1.2m as an interim payment towards its litigation costs. 10 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 * The One Other Portal rule is a provision included in Agents’ Mutual’s original listing agreements whereby agents committed to list their properties on OnTheMarket.com and contractually agreed to using a maximum of one other competing portal. 253486 (1) OnTheMarket_AR_2019_front end.indd 10 19/06/2019 16:21 S t r a t i e g c R e p o r t With a clear vision and direction of travel, our outlook is therefore positive. Our progress to date and the clear support for an agent-backed portal give us confi dence that we can continue to build on this strong start and develop a market-leading, agent-backed alternative to Rightmove and Zoopla. Agents have demonstrated their support and have begun converting to, or signing up for, paying contracts, predominantly long-term in nature. Agents provide the core content that any successful property portal requires. With the continued support of agents we are therefore well placed to deliver long-term value to shareholders. Group revenues are now broadly covering operational costs before marketing expenditure and growing and at 31 May 2019 we had a cash balance of £10.2m. The ongoing growth in paying contracts is key to our future success and remains our focus. We will look to support this by offering the range of products and services agents require, increasing further the value for money we provide them and aligning many of them with the long-term interests of the Company as shareholders. Such a strong year of delivery could not have been achieved without an outstanding team across all areas of the business. I thank my exceptionally committed colleagues for all their hard work and I welcome all those new employees who have recently joined us. Ian Springett Ian Springett Chief Executive Offi cer Chief Executive Offi cer 12 June 2019 12 June 2019 Chief Executive Officer’s Report Continued In December 2017, having had an application to appeal to the Competition Appeal Tribunal refused, Gascoigne Halman Ltd was granted leave to appeal the judgment of the Competition Appeal Tribunal at the Court of Appeal. The hearing of the appeal took place on 27 November 2018 for three days. I am pleased to report that in January 2019 the Court of Appeal unanimously and comprehensively dismissed Gascoigne Halman’s appeal and issued judgment in favour of Agents’ Mutual with regard to all the competition issues in its proceedings against Gascoigne Halman. Whilst the residual non -competition issues relating to our claim remain to be resolved, OnTheMarket emerges from this stage of the litigation stronger and as committed as ever to injecting much needed competition into the property portals market, which had previously been heavily dominated by two large groups. The litigation proceedings are now focused on the recovery of material costs and damages suffered by the Group due to Gascoigne Halman’s breach of contract. Outlook I am proud of what the Group has achieved this year. As the UK’s agent-backed residential property portal provider, the Group’s strategy to build strong network effects and deliver increasing value to our agents is working. The investment in marketing has led to a substantial increase in visitor traffi c to OnTheMarket.com, generating erating greater value to our customers through a greater volume volume of high-quality leads. We have benefi ted from growing agent support since since Admission. We are positioned to continue our growth growth in agent offi ces listing and in agent fi rms converting to ting to tracts. becoming investors alongside long-term paying contracts. The investment in expanding the team has provided ovided OnTheMarket with a workforce with the talent, motivation ivation and capacity to deliver a fi rst-class product and service service to both property-advertising agent customers and s and property -seeking consumers. 253486 (1) OnTheMarket_AR_2019_front end.indd 11 19/06/2019 16:21 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 11 Financial Review and Key Performance Indicators During the year ended 31 January 2019 and following Admission and the associated capital raise on 9 February 2018, the Group implemented its transformational growth strategy. As a result, throughout the year we saw an increase in agents listing, almost exclusively under free, short-term introductory trial offers. Some agents, however, received shares in OnTheMarket and entered long-term paying listing agreements. Together with other market factors, this led to an increase in revenues. Prior year fi gures for revenue and administrative expenses have been restated under IFRS 15 as further set out in note 2.5. The Group delivered revenue of £14.2m in the year ended 31 January 2019, refl ecting a 4% increase (2018: £13.6m), and an adjusted operating loss of £13.6m (2018: adjusted operating profi t £3.9m). This loss refl ected the investment of capital raised in increased marketing expenditure and expansion of the team. At 31 January 2019 the Group had net cash of £15.7m (2018: £3.2m) . It had £10.2m of net cash at 31 May 2019. The reported operating loss of the Group was £14.5m (2018: £10.8m) and is further analysed as follows: Group operational KPIs were as follows: ● ARPA £130 (2018: £198), refl ecting the strategy to grow rapidly through free short-term introductory trial offers; ● average branches listing 9,460 (2018: 5,694); ● visits 158.9m (2018: 77.3m); and ● as at 31 January 2019, OnTheMarket had signed listing agreements with UK estate and letting agents with more than 12,500 offi ces – an increase of over 7,000 offi ces since Admission. The Group’s fi nancial performance is presented in the Consolidated Income Statement on page 31 . The loss for the year attributable to the owners of the Group was £14.5m (2018: £12.1m). Administrative expenses in 2019 increased to £27.8m (2018: £9.7m) as the Group invested capital raised at Admission in increased marketing expenditure and expansion of the team, in line with the new growth strategy. Marketing expenditure was £14.9m (2018: £2.2m). Reconciliation of operating loss to adjusted operating (loss)/profi t: Operating loss Adjustments for: Professional fees (note 6) Agent recruitment charges (note 6) Share-based management incentives (note 22) Adjusted operating profi t The loss per share in the year was 24.02p (2018: 34.03p). 2019 £’000 (14,544) 597 565 (257) (13,639) 2018 £’000 (10,839) 1,436 - 13,290 3,887 12 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (1) OnTheMarket_AR_2019_front end.indd 12 19/06/2019 16:21 Financial Review and Key Performance Indicators Continued Professional fees of £0.6m (net of costs of £0.2m awarded) were incurred in the year (2018: £1.4m net of costs of £1.2m awarded, in relation to the litigation with Gascoigne Halman Limited and Admission (see note 6). An agent recruitment charge of £0.6m was incurred in relation to share-based charges arising on the issue of shares to agents in return for committing to long-term listing agreements, in line with the Group’s strategy to grow the agent shareholder base. During the year there arose a non-cash credit of £0.3m in relation to share option awards made to employees (2018: non-cash charge of £13.3m). Further details on options awarded, exercised and forfeited are set out in note 22. Receivables increased to £3. 3m as at 31 January 2019 (2018: £ 0.6m) mainly as a result of prepayments recognised for agent shares issued. Details on the accounting treatment are set out in note 2.16. Trade and other payables as at the year-end increased to £4. 7m (2018: £3.0m) mainly as a result of an increase in trade payables including payables resulting from increased advertising expenditure. S S t t r r a a t t i i e e g g c c R R e e p p o o r r t t The Group currently incurs losses and its strategy to achieve profi tability is based upon increasing the number of paying customer agents, primarily through converting those agents who joined on an introductory free trial to paying customers. At the end of the year, the Statement of Financial Position showed total assets of £2 3.0m (2018: £7.4m) and total equity of £17.3m (2018: £(9.7)m). The increase refl ects the capital raise of £30m (gross) that completed on 9 February 2018. At the same time all outstanding long- term borrowings (£11.3m at 31 January 2018) were extinguished under a debt for equity swap. The Group has a number of customers who are not paying their contractually committed listing fees. The majority of these chose to breach the One Other Portal rule in their listing agreements and their properties were removed from the portal some time ago. Under IFRS 15 these amounts are not recognised as revenues. It is the intention of the Company to engage with these customers in due course, to seek either payment of both fees outstanding and further fees as they fall due or to reach a compromise position such that historic debts are held in abeyance and potentially waived in the future in return for entering, and honouring, a new long-term listing agreement with the Company. As at 31 January 2019, net unrecovered cash amounted to approximately £6.8m. Key Performance Indicators ARPA (2018: £198) Offices an increase of over 7,000 £130 12,500 Visits to OnTheMarket.com (2018: 77.3m) Average branches listing (2018: 5,694) 9,460 158.9m 253486 (1) OnTheMarket_AR_2019_front end.indd 13 19/06/2019 16:21 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 13 Risk Management and Principal Risks The Board assumes responsibility for risk management and the effective and appropriate delegation of responsibilities in this regard. Risks and risk management are subject to regular review by the Board. The key risks, other than fi nancial risks discussed in note 19, that the Group is exposed to include: Commercial Risk Description Monitoring and mitigation Competitive portal industry Changes to the UK residential property market Conversion of agents to paying contracts The UK property portal market includes large, established and well-resourced competitors, as well as new and potential new entrants looking to disrupt the market with new and evolving business models. Competition from these, or the reversal in trends such as the move to online digital advertising, may impact the Group’s ability to retain its customers or to win new customers. The Group derives its revenues from the UK residential property market, and the Group’s principal business is to derive revenues from customers, which include estate agents, letting agents and, in future, new home developers, who pay listing fees to market their property listings and services on the Group’s online portal OnTheMarket.com. As such, the Group may be adversely affected by factors outside its control, which may reduce the advertising spend of its customers, and/or by changes in the United Kingdom’s residential property market, which may cause a lower volume of property transactions and/or a lower number of estate agents, letting agents and new home developers seeking to use the Group’s services. The Group’s strategy is to offer free listings under short-term introductory trial offers to agents with a view to converting these to full- tariff contracts when the value of the offering has been demonstrated. The Group may be unable to convert agents to full-tariff contracts in the numbers or at the speed it wishes due to a range of factors, which may reduce revenues and customer numbers. Recruitment of agents as shareholders The Group’s policy of issuing shares to estate agents in return for listing contracts to generate a signifi cant and dispersed share owning estate agency paying customer base may not be successful or may give rise to greater than anticipated dilution. • Offering competitive pricing and value for money. the brand and profi le of • Strengthening OnTheMarket.com and increasing consumer traffi c to provide increasing value to customers. through marketing spend • Maintaining strong agent support through shareholdings, fair pricing and developing new and value added products and services. • Offering competitive pricing and value for money to provide a lower cost marketing channel to customers if their markets and revenues are weak. • Adopting revenue models that do not depend directly on volumes or prices in the underlying customer markets. • Strengthening the brand and profi le of OnTheMarket.com and increasing consumer traffi c to provide increasing value to customers. through marketing spend • Continuing to invest in marketing and people to provide a fi rst class portal service to property- advertising customers and the property-seeking public. • The commitment to charging property- advertisers sustainably fair prices. • Monitoring and developing the value of the to property-advertising customers, offering seeking to increase leads through investment in marketing, increasing the number of properties listed on the portal and widening distribution channels. • Developing new products and services to offer greater value to property-advertising customers. • Investment in marketing and growth in traffi c to the OnTheMarket.com portal provides reassurance on value for money to paying customers. • Growth in agents listing underpins the longer term success of OnTheMarket.com. • Offering competitive pricing to provide an incentive for agents to support the Company’s longer term success. 14 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (1) OnTheMarket_AR_2019_front end.indd 14 19/06/2019 16:21 Risk Management and Principal Risks Continued S S t t r r a a t t i i e e g g c c R R e e p p o o r r t t Description Monitoring and mitigation A strong brand and reputation are vital to the Group’s growth strategies. Brand strength and awareness are important to drive end user traffi c on OnTheMarket.com which in turn should underpin the retention and recruitment of advertising customers. Any damage to the Group’s brand might reduce traffi c and deter customers from joining or from renewing contracts. • Investment in brand development through marketing spend. • Regular risk review and oversight from the Board and senior management. • Instilling a culture based on ethical behaviour and commitment to the customer and website users throughout the workforce. Reputational Risk Brand strength Human resources Employees IT/Data Security breaches Data The Group’s operations are dependent on the experience, skills and knowledge of its executive offi cers and on its ability to attract and retain talented employees. Should key employees leave the Group, or should the Group be unable to recruit new staff with the required capabilities, it may be unable to deliver its strategy for growth. The Group’s information technology systems may be impacted by breaches of security or may fail, or the transmission of property listings data from agents may be disrupted or impaired, with material negative consequences for the Group. The Group processes personal data as part of its business. There is a risk that this data could become public if there were a security breach at the Group or third party service providers in respect of such data and the Group could face liability under data protection laws. The General Data Protection Regulation (“GDPR”) GDPR came into force on 25 May 2018. Failure to comply with GDPR could result in the Group being liable under GDPR, including for fi nes. Legal Litigation Agents’ Mutual Ltd is party to litigation with Gascoigne Halman Ltd, an estate agent in the North West of England, in relation to an agreement between the Company and Gascoigne Halman Ltd under which Gascoigne Halman Ltd agreed to become a member of Agents’ Mutual Ltd and to list certain of its properties at OnTheMarket.com. • Instilling a strong team culture within the Group. • Management has signifi cant experience building members. teams and integrating new in team • Providing competitive compensation packages, which vest over time to encourage retention. • Maintenance of up to date security measures and regular review. • Regular security testing of IT systems. • Provision of appropriate staff training and access levels. • Testing of builds against the latest web app security threats. • All infrastructure, devices and laptops that touch personal data are encrypted in transit and at rest. • The Company’s email and document storage are encrypted in transit and at rest. • Personal information is anonymised and pseudonymised where reasonably needed. • Staff are trained on handling personal information. • OnTheMarket has policies, procedures, and security in place to protect personal data in accordance with applicable data protection laws including GDPR. • OnTheMarket has an ongoing programme of security by design. • The Competition Appeal Tribunal handed down judgment in the Group’s favour. • The Court of Appeal unanimously upheld the Competition Appeal Tribunal’s judgment. • Following the Court of Appeal ruling, Connells Ltd (which owns Gascoigne Halman Ltd) has been joined in the action as 2nd defendant. • The Company continues to take expert legal advice to recover legal costs incurred and to seek damages for breach of contract. • The Company takes expert legal advice as required in relation to any other potential litigation. On behalf of the Board Ian Springett – Chief Executive Offi cer 12 June 2019 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 15 253486 (1) OnTheMarket_AR_2019_front end.indd 15 19/06/2019 16:21 Governance “The Company has adapted well to being a listed company, retaining its entrepreneurial culture and pro- agent ethos whilst embracing the corporate governance challenges that are part of life within a publicly listed company.” Christopher Bell, Non-Executive Chairman 16 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 16 19/06/2019 16:21 Board of Directors year ended 31 January 2019 G o v e r n a n c e Christopher Bell Non-Executive Chairman Helen Whiteley Commercial Director Christopher joined OnTheMarket as its Non-Executive Chairman in October 2017 as the Group prepared for its proposed placing and admission to AIM. Christopher has considerable listed board experience across a range of sectors. He has, since 2015, been Senior Independent Director for The Rank Group Plc, where he also serves on the Audit Committee, the Nominations Committee, the Remuneration Committee and the Responsible Gambling Committee. Helen joined Agents’ Mutual in August 2013, having previously been Sales & Marketing Director and part of the founding management team at PrimeLocation.com. Helen began her career at Citibank and later joined Lombard Bank, where, as Marketing Director, she developed the Lombard Direct brand with national TV, press and direct marketing campaigns to achieve a market-leading position. Helen has been central to the planning, development and growth of OnTheMarket.com, with responsibility for sales, member relations and marketing. He is Non-Executive Chairman of three other AIM-listed companies, at all of which he serves on key governance committees. He took both XL Media plc and TechFinancials, Inc to market and has since May 2018 chaired Team17 Group plc. Chris was Chairman of Gaming Realms plc from October 2017 until his resignation in June 2018. Christopher joined Ladbroke Group plc in 1991, becoming Managing Director of its Racing Division in 1995. In 2000, he became Chief Executive of Ladbrokes Worldwide and joined the Board of the rebranded Hilton Group plc, becoming Chief Executive of Ladbrokes plc, following the sale of the Hilton International Hotel division, until 2010. He has also served as Non-Executive Director at Spirit Pub Company plc (from 2011 to 2015) and as Senior Independent Director at Quintain Estates and Development plc (from 2010 to 2015). Prior to joining Ladbrokes plc (formerly Hilton Group plc and Ladbrokes Group plc), Christopher held senior marketing positions at Allied Lyons plc. Ian Springett Chief Executive Offi cer Ian joined the business in April 2013 as founding CEO. After holding a number of senior banking roles over 15 years within NatWest Group, the last fi ve years of which as Managing Director of Lombard Bank, Ian founded PrimeLocation.com in 2000 and, as Chief Executive, led its growth and ultimate sale to Daily Mail and General Trust plc in 2006. He remained with the business until 2008, when he left to pursue other interests. From 2012, he worked with the agent founders of Agents’ Mutual to develop its strategy and proposition and led the recruitment of the broader group of agents who provided funding for the venture in early 2014. Ian has driven the successful launch and growth of the OnTheMarket.com business and led its demutualisation in preparation for admission to AIM and the associated capital raise. Clive Beattie Chief Financial Offi cer Clive joined the business in March 2017. Having qualifi ed as a chartered accountant with PriceWaterhouse he spent 12 years working in investment banking with UBS before working six years at ThruVision, a security technology business, initially as CFO and then also as CEO. Clive then spent three years as CEO/CFO at Croft Associates, a business specialising in containers for the transport and disposal of radioactive materials. Ian Francis Non-Executive Director Ian joined OnTheMarket as a Non-Executive Director in October 2017 as the Company prepared for its proposed placing and admission to AIM. Ian has extensive listed board experience both from his executive career as a senior audit partner with Ernst & Young and from his subsequent roles. He served as Independent Non-Executive Director at Southern Water from September 2018 to February 2019. He was appointed to the board of Paysafe Group plc (previously Optimal Payments plc) in 2010 as a Non- Executive Director and served as Chairman of the Audit Committee until its sale in December 2017. He also served, from 2009 to 2014, as a Non-Executive Director of Umeme Limited, the privatised national power distribution company of Uganda, which was listed on the Uganda and Nairobi Securities Exchanges in 2012. Ian established and chaired Umeme’s Audit Committee. Prior to this, he was a senior audit partner with Ernst & Young London until 2009, specialising in FTSE-listed and multinational companies. Ian is also an active mentor at Board Mentoring, supporting executive and non-executive directors stepping into new situations and roles. 253486 (2) OnTheMarket_AR_2019_back end new.indd 17 19/06/2019 16:21 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 17 Directors’ Report year ended 31 January 2019 The Directors present their report together with the fi nancial statements for the year ended 31 January 2019. Directors’ third party indemnity provisions Principal activities The principal activity of OnTheMarket plc (the “Company”) during the period was that of a holding company. The principal activity of the subsidiaries (which together with the Company form the “Group”) in the year under review was that of providing online property portal services to businesses in the estate and lettings agency industry under the trading name of OnTheMarket.com. In operating the OnTheMarket.com website and associated apps, the Group seeks to provide the best online advertising environment for agents to showcase their clients’ properties and the best property search experience for property-seeking consumers. The Directors consider the principal place of business to be 2-6 Boundary Row, London SE1 8HP. The Group maintains appropriate insurance to cover directors’ and offi cers’ liability. The Group provides an indemnity in respect of all the Group’s directors. Neither the insurance nor the indemnity provides cover where the Director has acted fraudulently or dishonestly. Employees The Group believes in valuing a diverse workforce. It is our policy to provide employment equality to all, irrespective of: gender, sexual orientation, race, ethnic or national origins, nationality, colour, disability, gender reassignment, religion or belief, marriage or civil partnership, pregnancy and maternity or age. All job applicants, employees and others who work for us will be treated fairly and will not be discriminated against on any of the above grounds. Results and dividends Going concern An analysis of the Group’s performance is contained within the Strategic Report. The Group’s income statement is set out on page 31 and shows the result for the year. No dividends were proposed or paid (2018: £nil) to the holders of ordinary shares during the year. Directors The Directors who held offi ce during the year and up to the date of signature of the fi nancial statements were as follows: C Beattie I Springett H Whiteley C Bell I Francis Political and charitable donations The Group made no charitable donations during the year (2018: £nil). Directors’ interests The present membership of the Board, together with biographies on each, is set out on page 17 . All of these Directors served during the year. Directors’ interests in shares in the Company are set out in the Directors’ remuneration report. The Group made a loss after tax for the year of £14,500k (2018: £12,092k) and as at 31 January 2019 the Group had a net cash balance of £15,673k (2018: £3,174k). At 31 May 2019 the Group had a net cash balance of £10,164k. The Group currently incurs losses albeit that revenues almost cover fi xed costs and are growing. The Group’s strategy to achieve profi tability is based upon increasing the number of paying customer agents, primarily through converting those agents who joined on an introductory free trial to paying customers. The Directors have prepared and reviewed the Group’s cash forecast and projections for the next 12 months in light of the experience of conversions to date, among other factors. They have also conducted sensitivity analyses and considered scenarios where future conversions fall below the rate and number expected, together with the mitigating actions they may take in such circumstances, such as a reduction in budgeted discretionary expenditure, a signifi cant proportion of which relates to advertising and marketing cost that can be reduced materially at short notice. Based upon these projections and analyses the Directors have a reasonable expectation that the Group has adequate fi nancial resources to continue its operations for the foreseeable future and to be able to meet its debts as and when they fall due. In the light of this, the Directors consider the going concern basis to be appropriate to the preparation of these fi nancial statements. 18 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 18 19/06/2019 16:21 Directors’ Report Continued G o v e r n a n c e Future developments The Directors have discussed the future developments for the business within the Strategic Report on page 11, in accordance with Section 414C of the Companies Act 2006. Financial instruments The Group’s risk management policies in relation to fi nancial instruments are set out in note 19 to these consolidated fi nancial statements. Independent auditors A resolution to reappoint RSM UK Audit LLP, Chartered Accountants, as auditor will be put to the shareholders at the annual general meeting. Statement of disclosure to auditors We, the Directors of the Company and Group, who held offi ce at the date of the approval of these consolidated fi nancial statements as set out above, each confi rm so far as we are aware, that: there is no relevant audit information of which the Group’s auditor is unaware; and we have taken all the steps that we ought to have taken as Directors in order to make ourselves aware of any relevant audit information and to establish that the Group’s auditor is aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and fi nancial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of fi nancial statements may differ from legislation in other jurisdictions. Corporate Governance Statement The Board is committed to effective and robust corporate governance and has progressed the Company’s corporate governance since Admission. The Board has agreed to apply the QCA Code. The disclosures required by the QCA Code can be found at the company’s website, https://plc.onthemarket.com. The QCA Code is available from the QCA website, www.theqca.com. The Board The full biographies of the Directors can be found on page 17. At the date of this report, the Board comprises three Executive Directors and two Non-Executive Directors, one of which is the Non-Executive Chairman. Christopher Bell - Non-Executive Chairman - Joined October 2017 Ian Springett Joined July 2017 Clive Beattie Joined July 2017 - Chief Executive Offi cer - - Chief Financial Offi cer - Helen Fiona Whiteley - Commercial Director - Joined July 2017 Ian Raymond Francis - Non-Executive Director - Joined October 2017 The Chairman and the CEO have separate and clearly defi ned roles. The Chairman is responsible for overseeing the Board and the CEO is responsible for implementing the stated strategy of the Company and for its operational performance. The Chairman is committed to ensuring that the Board comprises suffi cient Non-Executive Directors to establish an independent oversight which is challenging and constructive in its operation. The Board believes that the Non-Executive Directors are of suffi cient experience and quality to bring an expert and objective dimension to the Board. The Company ensures that the Non-Executive Directors are enabled to call on specialist external advice where necessary. Directors are expected to attend Board and Committee meetings and to devote enough time to the Company and its business in order to fulfi l their duties as Directors. Non-Executive Directors/Board independence The Company has two independent Non-Executive Directors, Christopher Bell (Non-Executive Chairman) and Ian Francis, who provide an important contribution to its strategic development. The Non-Executive Chairman acquired 30,303 shares in the Company in the placing which occurred on 9 February 2018. However, due to the small size of this shareholding, the Directors do not consider that this impacts on the Chairman’s independence. Board meetings The Board meets on a regular basis throughout the calendar year and as required on an ad hoc basis with a mandate to consider strategy, operational and fi nancial performance and internal controls. In advance of each meeting, the Chairman sets the agenda, with the assistance of the 253486 (2) OnTheMarket_AR_2019_back end new.indd 19 19/06/2019 16:21 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 19 Directors’ Report Continued Company Secretary. Directors are provided with appropriate and timely information, including board papers distributed in advance of the meetings. Those papers include reports from the executive team and other operational heads. The Company Secretary produces full minutes of each meeting, including a log of actions to be taken. The Chairman then follows up on each action at the next meeting, or before if appropriate. Director Position Christopher Bell Non -Executive Chairman Ian Raymond Francis Non-Executive Director Ian Springett Clive Beattie Chief Executive Offi cer Chief Financial Offi cer Helen Fiona Whiteley Commercial Director Board Committee Max possible attendance Meetings attended Nomination Audit Remuneration Agent Recruitment 11 11 11 11 11 10 11 11 11 11 4 4 1 1 2 2 2 2 2 Matters reserved for the Board The Remuneration Committee Matters reserved for the decision of the Board include: ● Strategy and management ● Structure and capital ● Financial reporting and controls ● Risk management and internal controls ● Bank facilities, guarantees and indemnities ● Communication with shareholders ● Board membership and other appointments ● Remuneration, employee benefi ts and employee issues ● Delegation of authority ● Corporate governance matters ● Policies Committees The Board has in place Audit, Nomination and Remuneration Committees, which comply with the stated terms of reference for each committee. The Company also has an Agent Directors’ Remuneration Recruitment Committee. The Report can be found on pages 23 to 24. The Remuneration Committee is chaired by Christopher Bell and Ian Francis is the other member. Meetings are held at least once a year. The Remuneration Committee is responsible for advising on the remuneration policy for Directors and Senior Management only. responsibility The Remuneration Committee has for determining, within agreed terms of reference, the Group’s policy on the remuneration of senior executives and specifi c remuneration packages for Executive Directors, including pension payments and compensation rights. It is also responsible for making recommendations for grants of options to Directors and senior management under the Group’s share-based plans. The remuneration of Non-Executive Directors is a matter for the Board. No Director may be involved in any discussions as to their own remuneration. Details of the level and composition of the Directors’ remuneration are disclosed in the Directors’ remuneration report. The Audit Committee Ian Francis chairs the Audit Committee and Christopher Bell is the other member. The Audit Committee meets at least twice a year. The Audit Committee has the primary responsibility for ensuring that the fi nancial performance of the Group is properly measured, reported on and monitored. 20 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 20 19/06/2019 16:21 Directors’ Report Continued G o v e r n a n c e The Audit Committee makes recommendations to the Board on the appointment, re-appointment and removal of the external auditor. In making the recommendation on the annual re-appointment of the external auditor, it monitors the relationship to assess independence, objectivity and cost effectiveness of the external auditor. It is responsible for ensuring that an appropriate relationship between the Group and the external auditors is maintained, including reviewing non-audit services and fees. The Nomination Committee Christopher Bell chairs the Nomination Committee. Ian Francis and Ian Springett are the other members of this committee. Nomination Committee meetings are held as required and provide a formal and transparent procedure to the appointments of new directors to the Board. The Agent Recruitment Committee The Board has also established an Agent Recruitment Committee, comprising any one of the Non-Executive Directors and any two of the Executive Directors, in order to ensure that there is appropriate oversight of any issues of Agent Recruitment Shares. The Agent Recruitment Committee approves the Group strategy in relation to share issues to agents, approves guidelines for such share issues and is required to pre-approve issues to agents over a certain threshold. Election and re-election of the Directors All of the Directors retired and were re-elected at the Company’s annual general meeting in July 2018. Accordingly none are retiring and standing for re-election at this year’s annual general meeting. Support for Directors Each Director has access to the advice and support of the Company Secretary, who ensures compliance with the Board’s procedures and advice as to applicable rules and regulations. The Company also provides professional training for the Directors where necessary (at the Company’s expense). Internal control The Board is ultimately responsible for maintaining the Company’s risk framework system of internal control and for reviewing the effectiveness of such system. No system can be perfect but the Board considers the Company’s systems manage risks appropriately in order that the Company can achieve its business objectives. Board evaluation The focus of Board activity is on the review of progress being achieved by the management team against a clearly expressed growth strategy with published KPIs which are well understood by stakeholders. The Board has established a Remuneration Committee comprising the Chairman and the Non-Executive Director which meets at least once in each calendar year. This committee, in the course of its work, reviews the performance of individual Directors and senior managers and the workings of the Board and its committees, in consultation with the Chief Executive Offi cer. The committee is also the primary forum within which Board development is discussed. The Nomination Committee, comprising the Chairman, the Non-Executive Director and the Chief Executive Offi cer, is the formal decision-making body in relation to Board appointments, composition and resourcing. The Nomination Committee meets as required. The Chairman takes overall responsibility for evaluation of the Board and its progress against its stated strategy. Corporate culture The Board places signifi cant importance on the promotion of ethical values and good behaviour within the Company and takes ultimate responsibility for ensuring that these are promoted and maintained throughout the organisation and that they guide the Company’s business objectives and strategy. The central role that sound ethical values and behaviour play within the Company is enshrined in the Employee Handbook, which promotes this culture through all aspects of the business, from initial recruitment and hiring to career advancement. The Employee Handbook also sets out the Company’s requirements and policies on such matters as whistleblowing, communication and general conduct of employees. 253486 (2) OnTheMarket_AR_2019_back end new.indd 21 19/06/2019 16:21 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 21 Directors’ Report Continued Relations with shareholders The Board considers it important to maintain an open dialogue with the Company’s shareholders and to keep those shareholders fully informed of the strategy, operational developments and prospects. The Company keeps investors informed of its progress through announcements and updates as to fi nancial and operational matters. The executives meet with shareholders on formal roadshows after publication of interim and preliminary fi nal results and hold ad hoc meetings with shareholders during the course of the year. Annual General Meeting The AGM will be held at 1 Wood Street, London EC2V 7WS on 16 July 2019 at 09:30 . The Notice of AGM, setting out the resolutions proposed, is contained in a separate document and is available on the Company’s website https://plc. onthemarket.com/investors. On behalf of the Board Ian Springett Chief Executive Offi cer 12 June 2019 22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 22 19/06/2019 16:21 Directors’ Remuneration Report year ended 31 January 2019 G o v e r n a n c e As an AIM listed company, the Company is not required to comply with Schedule 8 of the Companies Act. However, in accordance with AIM notice 36, the Company has provided, in the Directors’ remuneration report, the necessary disclosure of the Directors’ remuneration earned in respect of the fi nancial year by each Director of the Company acting in such a capacity during the fi nancial year. The Directors also feel it is appropriate to provide the following information to shareholders. Remuneration Committee The remuneration of each Executive Director is determined by the Remuneration Committee. It is chaired by Christopher Bell and its other member is Ian Francis. The Committee seeks input from the Chief Executive Offi cer. The Committee refers to external evidence of pay and employment conditions in other companies and is free to seek advice from external advisers. Policy on remuneration of Directors responsibility for The Remuneration Committee has determining, within agreed terms of reference, the Group’s policy on the remuneration of senior executives and specifi c remuneration packages for the Executive Directors, including pension payments and compensation rights. It is also responsible for making recommendations for grants of options under Company share option plans. The remuneration of Non-Executive Directors is a matter for the Board. It consists of fees for their services in connection with Board and Committee meetings. No Director may be involved in any discussions as to their own remuneration. The remuneration policy is designed to shape the Company’s remuneration strategy for the future, ensuring that the structure and levels of executive remuneration continue to remain appropriate for the Company. The policy aims to: pay competitive salaries to aid recruitment, retention and motivation being refl ective of the executive’s experience and importance to the Group; pay annual bonuses to incentivise the delivery of stretching short-term business targets whilst maintaining an element of variability allowing fl exible control of the cost base and being able to respond to market conditions; and provide long-term share incentive plans designed to incentivise long-term value creation, reward execution of strategy, align Directors’ interests with the long- term interests of investors and promote retention. The main remuneration components are: Basic salary or fees Basic salary or fees for each Director are determined taking into account the performance of the individual and information from independent sources on the rates of salary and fees for similar posts. The salaries and fees paid to Directors by the Group were £793k (2018: £535k). With effect from 1 February 2018, and based upon a review by the Remuneration Committee of performance and of rates for similar posts, Executive Directors’ salaries were amended as follows: Director I Springett H Whiteley C Beattie Previous Salary (£’000) New Salary (£’000) 170 170 170 250 200 190 There were no changes Non-Executive Directors. to the rates of fees for Bonus The Company has a formal bonus scheme which was effective for the Executive Directors. Bonuses were paid to the Executive Directors by the Group of £nil (2018: £81k). Pensions Contributions made to Directors’ pensions in the year were £3k (2018: £1k). Share incentive No share options were exercised by the Directors during the period. Company policy on contracts of service The Executive Directors of the Company do not have a notice period in excess of 12 months under the terms of their service contracts. Their service contracts contain no provisions for pre-determined compensation on termination which exceeds 12 months’ salary and benefi ts in kind. Non-Executive Directors do not have service contracts with the Company, but have letters of appointment which can be terminated on 3 months’ notice. Company policy on external appointments The Company recognises that its Directors are likely to be invited to become non-executive directors of other 253486 (2) OnTheMarket_AR_2019_back end new.indd 23 19/06/2019 16:21 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 23 Directors’ Remuneration Report Continued companies and that exposure to such non-executive duties can broaden their experience and knowledge, which will benefi t the Group. Executive and Non-Executive Directors are therefore, subject to approval of the Company’s Board, allowed to accept non- executive appointments, as long as these are not with competing companies and are not likely to lead to confl icts of interest. Executive and Non-Executive Directors are allowed to retain the fees paid. Directors’ emoluments The fi gures below represent emoluments earned by Directors from the Group during the fi nancial year: Salary & fees £’000 Bonus £’000 2019 Total £’000 2018 Total £’000 190 250 200 640 100 53 153 793 3 796 – – – – – – – – – – 190 250 200 640 100 53 153 793 3 796 162 204 204 570 32 14 46 616 1 617 Executive Directors: C Beattie I Springett H Whiteley Non-Executive Directors: C Bell I Francis Total remuneration before pension contributions Pension contributions Total remuneration Changes to Board members There have been no changes to the board members in the year. Directors’ interests The interests of the Directors and their spouses in the shares of the Company were as follows: OnTheMarket plc ordinary shares of £0.002: 2019 2018 Shares Options No. 30,303 96,969 90,909 30,303 – No. 151,515 3,466,367 1,733,184 – – Shares No. 30,303 96,969 90,909 30,303 – Options No. 151,515 3,466,367 1,733,184 – – 248,484 5,351,066 248,484 5,351,066 C Beattie I Springett H Whiteley C Bell I Francis No dividends were paid to the Directors during the year. On behalf of the Board Christopher Bell Non-Executive Chairman 12 June 2019 24 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 24 19/06/2019 16:21 Directors’ Responsibilities Statement year ended 31 January 2019 G o v e r n a n c e The Directors are responsible for keeping adequate accounting records that are suffi cient to show and explain the Company’s and Group’s transactions and disclose with reasonable accuracy at any time the fi nancial position of the Company and Group and enable them to ensure that the fi nancial statements comply with the Companies Act 2006. They have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and Group and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and fi nancial information included on the OnTheMarket plc website. The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the consolidated fi nancial statements in accordance with applicable law and regulations. in accordance with Company law requires the Directors to prepare Group and Company fi nancial statements for each fi nancial year. Under that law, the Directors are required under the AIM rules of the London Stock Exchange to prepare the Group fi nancial statements International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”), and have elected to prepare the Company fi nancial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), – UK Generally including Accepted Accounting Practice (“UK GAAP”), Financial Reporting Standard 101: Reduced Disclosure Framework (“FRS 101”). The Group fi nancial statements are required by law and IFRS adopted by the EU to present fairly the fi nancial position and performance of the Group; the Companies Act 2006 provides in relation to such fi nancial statements that references in the relevant part of that Act to fi nancial statements giving a true and fair view are references to their achieving a fair presentation. Under company law, the Directors must not approve the fi nancial statements unless they are satisfi ed that they give a true and fair view of the state of affairs of the Company and Group and of the profi t or loss of the Group for that period. In preparing each of the Group and Company fi nancial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether they have been prepared accordance with IFRSs adopted by the EU; and in prepare the fi nancial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. 253486 (2) OnTheMarket_AR_2019_back end new.indd 25 19/06/2019 16:21 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 25 Independent Auditor’s Report to the Members of OnTheMarket plc year ended 31 January 2019 Opinion the Consolidated We have audited the fi nancial statements of OnTheMarket plc (the “parent company”) and its subsidiaries (the “group”) for the year ended 31 January 2019 which Income Statement, comprise Consolidated Statement of Financial Position, Company Statement of Financial Position, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity, Consolidated Statement of Cash Flows and notes to the fi nancial statements, including a summary of signifi cant accounting policies. The fi nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company fi nancial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: the fi nancial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 January 2019 and of the group’s loss for the year then ended; the group fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies Act 2006; and the fi nancial 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 fi nancial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the fi nancial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities and we have fulfi lled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our 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 the fi nancial accounting the preparation of statements is not appropriate; or in the directors have not disclosed in the fi nancial statements any identifi ed material uncertainties that may cast signifi cant doubt about the group’s or the 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 fi nancial statements are authorised for issue. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most signifi cance in our audit of the group and parent company fi nancial statements of the current period and include the most signifi cant assessed risks of material misstatement (whether or not due to fraud) we identifi ed, 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 group and parent company fi nancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Group key audit matters Going concern Risk As disclosed in Note 2.4, the Group is in the process of converting agents on free contracts and signing up new agents to the OnTheMarket portal. The forecasted revenues from these agents, together with forecast the most signifi cant discretionary expenditure, are assumptions in assessing the Group’s ability to continue as a going concern. The calculations supporting the 26 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 26 19/06/2019 16:21 Independent Auditor’s Report to the Members of OnTheMarket plc Continued G o v e r n a n c e assessment require management to make subjective judgments. The calculations are based on estimates of future performance and are key to assessing the suitability of the basis adopted for the preparation of the fi nancial statements. We have therefore spent signifi cant audit effort, including the time of senior members of our audit team, in assessing the appropriateness of the going concern assumption. Performing an assessment of trade receivable recoverability at 31 January 2019 and 31 January 2018 to confi rm revenue had not been recognised in respect of trade receivables for arrangements which do not meet the defi nition of a contract with a customer. Parent company key audit matters Response Impairment of group receivables fl ow model and discussing Our audit procedures included reviewing management’s cash the model with management. We confi rmed the opening cash position in management’s model and have held discussions with management in respect of the key assumptions. In particular we checked the current revenue run rate and reviewed forecast expenditure and performed our own sensitivity analysis to further challenge management’s assumptions. We also challenged management’s ability to be able to reduce discretionary expenditure at short notice if necessary. Revenue recognition Risk As at 1 February 2018 IFRS 15 “Revenue from contracts with customers” became effective for the Group. IFRS 15 requires the group to assess whether the fi ve-point revenue recognition criteria set out by IFRS 15 has been met. As disclosed in Note 2.5, this has impacted the treatment of revenue recognised where payment by agents is considered not to be probable. On this basis there is signifi cant risk associated with determining whether revenue has been recognised in respect of arrangements which do not meet the defi nition of a contract with a customer. Response Our audit procedures to address the risk of material misstatement relating to revenue recognition included: Performing a review of management’s transition calculations at 31 January 2018 and calculations performed at 31 January 2019 for arrangements which were not deemed to meet the defi nition of a contract under IFRS 15. Risk As disclosed in Note 16, the company has a group receivable with a carrying value of £28.2m at 31 January 2019. Under IFRS 9, management must calculate an expected credit loss provision in respect of this balance. There is signifi cant measurement uncertainty involved assessing the forecasts and probabilities assigned to this calculation. As a result the valuation of group receivables was signifi cant to our audit of the parent company fi nancial statements. Response Our audit procedures included reviewing the signifi cant assumptions within management’s expected credit loss calculation and considering their appropriateness in light of management’s forecasts in relation to the underlying subsidiary. Our application of materiality When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures. When evaluating whether the effects of misstatements, both individually and on the fi nancial statements as a whole, could reasonably infl uence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements. During planning materiality for the group fi nancial statements as a whole was calculated as £700,000 which was not signifi cantly changed during the course of our audit. We also applied a lower level of fi nancial statement materiality of £335,000 for our work performed over turnover. Materiality for the parent company fi nancial statements as a whole was calculated as £354,000, which was not signifi cantly changed during the course of our audit. We agreed with the Audit Committee that we would report to them all unadjusted differences in excess of £5,000, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 27 253486 (2) OnTheMarket_AR_2019_back end new.indd 27 19/06/2019 16:21 Independent Auditor’s Report to the Members of OnTheMarket plc Continued Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identifi ed 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 fi nancial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specifi ed by law are not made; or we have not received all explanations we require for our audit. the information and Responsibilities of directors As explained more fully in the Directors’ Responsibilities Statement set out on page 2 5, the directors are responsible for the preparation of the fi nancial statements and for being satisfi ed that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of fi nancial statements that are free from material misstatement, whether due to fraud or error. In preparing the fi nancial 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. An overview of the scope of our audit Our audit was scoped by obtaining an understanding of the group and its control environment and assessing the risks of material misstatement. The fi nancial statements were audited on a consolidated basis using group materiality. The scope of our audit covered 100% of both consolidated profi t before tax and consolidated net assets. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the fi nancial statements and our auditor’s report thereon. Our opinion on the fi nancial 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 fi nancial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the fi nancial 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 fi nancial 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 fi nancial year for which the fi nancial statements are prepared is consistent with the fi nancial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. 28 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 28 19/06/2019 16:21 Independent Auditor’s Report to the Members of OnTheMarket plc Continued G o v e r n a n c e Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the fi nancial 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 infl uence the economic decisions of users taken on the basis of these fi nancial statements. A further description of our responsibilities for the audit of the fi nancial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the 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 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 company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Colin Roberts (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants Third Floor One London Square Cross Lanes Guildford Surrey GU1 1UN 12 June 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 29 19/06/2019 16:21 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 29 Financial Statements 30 OnTheMarket Annual Report and Accounts 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 30 19/06/2019 16:21 i F n a n c a i l S t a t e m e n t s Consolidated Income Statement year ended 31 January 2019 Revenue Administrative expenses Operating (loss)/profi t before specifi c professional fees, share-based payments and non-recurring items Specifi c professional fees, share-based payments and non-recurring items: Share-based management incentive Professional fees net of compensation received Share-based agent recruitment charges Operating loss Finance income Finance expense Loss before income tax Income tax Loss and total comprehensive income for the year attributable to owners of the parent Loss per share from continuing operations Basic and diluted The operating loss arises from the Group’s continuing operations. 2019 £’000 14,172 (27,811) 2018 (restated) £’000 13,553 (9,666) (13,639) 3,887 257 (597) (565) (14,544) 85 (35) (14,494) (6) (13,290) (1,436) – (10,839) 2 (1,233) (12,070) (22) (14,500) (12,092) Pence (24.02) Pence (34.03) Notes 4 5 22 6 6 7 9 10 11 12 There is no recognised income or expense for the year other than the loss shown above and therefore no separate statement of other comprehensive income has been presented. The notes on pages 39 to 65 are an integral part of these consolidated fi nancial statements. 253486 (2) OnTheMarket_AR_2019_back end new.indd 31 19/06/2019 16:21 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 31 Consolidated Statement of Financial Position at 31 January 2019 Company Reg. No. 10887621 ASSETS Non-current assets Property, plant and equipment Intangible assets Current assets Trade and other receivables Cash and cash equivalents TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Borrowings Provisions Current tax Non-current liabilities Borrowings Provisions TOTAL LIABILITIES NET ASSETS/(LIABILITIES) EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT Share capital Share premium Merger reserve Other reserve Retained earnings TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT Notes 13 14 16 17 18 21 18 21 23 2019 £’000 130 3,948 4,078 3, 286 15,673 18, 959 2 3,037 (4, 730) – (776) (6) (5, 512) – (233) (233) 2018 £’000 18 3,654 3,672 553 3,174 3,727 7,399 (2,957) (1,217) (1,258) (22) (5,454) (11,256) (354) (11,610) (5, 745) (17,064) 17,292 (9,665) 123 40,6 98 (71) 111 (23,5 69) 17,292 71 – (71) (252) (9,413) (9,665) The notes on pages 39 to 65 are an integral part of these consolidated fi nancial statements. These consolidated fi nancial statements are approved by the Board of Directors and authorised for issue on 12 June 2019 and are signed on its behalf by: Clive Beattie Chief Financial Offi cer 32 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 32 19/06/2019 16:22 Company Statement of Financial Position at 31 January 2019 i F n a n c a i ASSETS Non-current assets Investments in subsidiaries Current assets Trade and other receivables Cash and cash equivalents TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Borrowings Current tax Non-current liabilities Borrowings TOTAL LIABILITIES NET ASSETS EQUITY Share capital Share premium Other reserve Retained earnings TOTAL EQUITY Company Reg. No. 10887621 l S t a t e m e n t s Notes 2019 £’000 2018 £’000 15 16 17 18 – – 28,221 15,107 43,328 23,389 – 23,389 (222) – (6) (228) (82) (512) (22) (616) 18 – (11,256) 23 (228) (11,872) 43,100 11,517 123 40,6 98 111 2,1 68 43,100 71 – (252) 11,698 11,517 The Company’s loss and total comprehensive income for the year was £4,754k (2018: profi t of £91k). The notes on pages 39 to 65 are an integral part of these consolidated fi nancial statements. These consolidated fi nancial statements are approved by the Board of Directors and authorised for issue on 12 June 2019 and are signed on its behalf by: Clive Beattie Chief Financial Offi cer 253486 (2) OnTheMarket_AR_2019_back end new.indd 33 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 33 Consolidated Statement of Changes in Equity year ended 31 January 2019 Share capital £’000 Share premium £’000 Share- based payment £’000 Other reserves £’000 Merger Retained earnings reserve £’000 £’000 Total equity £’000 Balance as at 1 February 2017 Loss for the fi nancial period Total comprehensive expense for the period Transactions with owners: Share options issued Transfer to retained earnings Legal fees on Admission and placing Balance as at 31 January 2018 Balance as at 1 February 2018 Loss for the fi nancial period Total comprehensive expense for the period Transactions with owners: Shares issued for placing Shares issued for agent recruitment shares Shares issued to extinguish loan notes Legal and professional fees on placing shares issued Transfer to share premium Agent recruitment share-based payment Share-based payment charge on employee options Transfer to retained earnings 71 – – – – – 71 71 – – – – – – – – – – – – 36 29,964 2 1,8 95 14 10,905 – – – – – (1,814) (252) – – – – – – 11,678 (11,678) – – – – – – – – – – – 344 (344) – – – – – (252) (252) (252) – – – – – – 252 111 – – (71) – (8,999) (12,092) (8,999) (12,092) – (12,092) (12,092) – – – – 11,678 – 11,678 – (252) (71) (9,413) (9,665) (71) – (9,413) (14,500) (9,665) (14,500) – – – – – – – – – (14,500) (14,500) – – – – – – – 344 30,000 1,8 97 10,919 (1,814) – 111 344 – Balance as at 31 January 2019 123 40,6 98 – 111 (71) (23,5 69) 17,292 Share capital Share capital represents the par value of ordinary shares issued by the Company. Share premium Share premium represents the difference between the issue price and the par value of ordinary shares issued by the Company. Share-based payment reserve Share-based payment reserve represents the cumulative share-based payment expense for the Group’s share option schemes. 34 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 34 19/06/2019 16:22 Consolidated Statement of Changes in Equity Continued i F n a n c a i l S t a t e m e n t s Other reserves Other reserves represent costs incurred for shares issued in the placing on Admission and the issue of agent recruitment shares. Retained earnings Retained earnings represent the cumulative profi t and loss net of distributions to owners. Merger reserve Merger reserve represents the difference between the cost of the investment in a subsidiary undertaking and the equity of that subsidiary acquired, on consolidation. The notes on pages 39 to 65 are an integral part of these consolidated fi nancial statements. 253486 (2) OnTheMarket_AR_2019_back end new.indd 35 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 35 Company Statement of Changes in Equity year ended 31 January 2019 Share capital £’000 Share-based payment reserve £’000 Share premium £’000 Other reserves £’000 Retained earnings £’000 Balance as at 27 July 2017 Profi t for the fi nancial period Total comprehensive income for the period Transactions with owners: Issue of ordinary shares Share options issued Transfer to retained earnings Legal fees on Admission and placing IAS 27 adjustment1 Balance as at 31 January 2018 Provision on Group receivables arising on transition to IFRS 9 Loss for the fi nancial period Total comprehensive income for the period Transactions with owners: Shares issued for placing Shares issued for agent recruitment Shares issued to extinguish loan notes Legal and professional fees on placing shares issued Transfer to share premium Agent recruitment share-based payment Share-based payment charge on employee options Transfer to retained earnings – – – 71 – – – – 71 – – – 36 2 14 – – – – – – – – – – – – – – – – – 29,964 1,8 95 10,905 (1,814) (252) – – – Balance as at 31 January 2019 123 40,6 98 – – – – 11,678 (11,678) – – – – – – – – – – – – 344 (344) – Total equity £’000 – 91 91 71 11,678 – – – – – – – – 91 91 – – 11,678 (252) – (252) – (71) (252) (71) 11,698 11,517 – – – – – – – 252 111 – – (5,120) (4,754) (5,120) (4,754) (4,754) (4,754) – – – – – – – 344 30,000 1,8 97 10,919 (1,814) – 111 344 – 111 2,1 68 43,100 1 In the circumstances of a group reorganisation as was undertaken in the prior year, IAS 27 requires that the newly formed parent company accounts for its interest in the original parent company at cost and it requires that cost to be measured at the carrying amount of its share of the equity items shown in the separate fi nancial statements of the original parent at the date of the reorganisation. Since the original parent, Agents’ Mutual, had negative equity at the relevant date, the investment was valued at £nil. In order to record the shares issued to effect the reorganisation at their nominal value (£71k) an equal and opposite debit entry is recognised against equity. Share capital Share capital represents the par value of ordinary shares issued by the Company. Share premium Share premium represents the difference between the issue price and the par value of ordinary shares issued by the Company. 36 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 36 19/06/2019 16:22 Company Statement of Changes in Equity Continued i F n a n c a i l S t a t e m e n t s Share-based payment reserve Share-based payment reserve represents the cumulative share-based payment expense for the Group’s share option schemes. Other reserves Other reserves represent costs incurred for shares issued in the placing on Admission and the issue of agent recruitment shares. Retained earnings Retained earnings represent the cumulative profi t and loss net of distributions to owners. The notes on pages 39 to 65 are an integral part of these consolidated fi nancial statements. 253486 (2) OnTheMarket_AR_2019_back end new.indd 37 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 37 Consolidated Statement of Cash Flows year ended 31 January 2019 Cash fl ows from operating activities Loss for the year after income tax Adjustments for: Income tax Finance income Finance expense Amortisation Depreciation Agent recruitment expense (Profi t)/loss on disposal of FA Share-based payment 2019 £’000 2018 £’000 (14,500) (12,092) 6 (85) 35 1,856 33 342 (9) 344 22 (2) 1,233 1,440 27 – – 11,678 Operating cash fl ows before movements in working capital (11,978) 2,306 (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Increase in provisions Tax paid Net cash (used in)/generated from operating activities Cash fl ows from investing activities Finance income received Acquisition of intangible assets Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash fl ows from fi nancing activities Finance expense paid Proceeds from issue of shares Repayment of borrowings Expenses incurred for share listing Net cash generated from/(used in) fi nancing activities Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Cash and cash equivalents (1,224) 1,591 (601) (22) (12,234) 85 (2,150) (155) 19 (2,2 01) (35) 30,000 (1,217) (1,814) 2 6,934 12,499 3,174 15,673 3,156 (2,980) 1,612 – 4,094 2 (1,538) (1) 1 (1,53 6) (1,395) – – (252) (1,64 7) 911 2,263 3,174 For the purposes of the statement of cash fl ows, cash and cash equivalents comprise cash at bank and in hand. This is consistent with the presentation in the Statement of Financial Position. The notes on pages 39 to 65 are an integral part of these consolidated fi nancial statements. 38 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 38 19/06/2019 16:22 i F n a n c a i l S t a t e m e n t s Notes to the Consolidated Financial Statements year ended 31 January 2019 1. General information The principal activity of the Company is that of a holding company. The principal activity for the Group continued to be that of providing online property portal services to businesses in the estate and lettings agency industry under the trading name of OnTheMarket.com. The Company is a public company limited by shares and it is incorporated and domiciled in the UK. The address of its registered offi ce is PO Box 450, 155-157 High Street, Aldershot, GU11 9FZ. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated fi nancial statements are set out below. They have, unless otherwise stated, been applied consistently to all periods presented. 2.1 Basis of preparation These consolidated fi nancial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards (“IFRS”) and IFRS Interpretation Committee interpretations (“IFRS IC”) as adopted by the European Union and with the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated fi nancial statements comprise an income statement, a statement of fi nancial position, a statement of changes in equity, a statement of cash fl ows and notes. Income and expenses, excluding the components of other comprehensive income, are recognised in the statement of profi t or loss. Other comprehensive income is recognised in the statement of comprehensive income and comprises items of income and expenses (including reclassifi cation adjustments) that are not recognised in the statement of profi t or loss, as required or permitted by IFRS. Reclassifi cation adjustments are amounts reclassifi ed to profi t or loss in the current period that were recognised in other comprehensive income in the current or previous periods. Transactions with the owners of the Group in their capacity as owners are recognised in the statement of changes in equity. The Group presents the statement of profi t or loss using the classifi cation by function of expenses. The Group believes this method provides more useful information to the users of its fi nancial statements as it better refl ects the way operations are run from a business point of view. The statement of fi nancial position format is based on a current/non-current distinction. Measurement bases The consolidated fi nancial statements have been prepared under the historical cost convention. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The preparation of the consolidated fi nancial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates and management judgements in applying the accounting policies. The signifi cant estimates and judgements that have been made and their effects are disclosed in note 3. 2.2 Basis of consolidation The consolidated fi nancial statements incorporate those of OnTheMarket plc and all of its subsidiaries (i.e. entities that the Group controls through its power to govern the fi nancial and operating policies so as to obtain economic benefi ts). These are adjusted, where appropriate, to conform to Group accounting policies. All intra-group transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. 253486 (2) OnTheMarket_AR_2019_back end new.indd 39 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 39 Notes to the Consolidated Financial Statements Continued 2.3 Reduced disclosures The fi gures presented in relation to the Company’s solus fi nancial statements have been prepared in accordance with FRS 101 Reduced Disclosure Framework (“FRS 101”). In accordance with FRS 101 the following exemptions from the requirements of IFRS have been applied in the preparation of the Company fi nancial statements and, where relevant, equivalent disclosures have been made in the consolidated fi nancial statements of the Group: ● presentation of a Company Cash Flow Statement and related notes; ● disclosure of the objectives, policies and processes for managing capital; ● inclusion of an explicit and unreserved statement of compliance with IFRS; ● disclosure of Company key management compensation; ● disclosure of the categories of fi nancial instrument and nature and extent of risks arising on these fi nancial instruments; ● disclosure of share-based payment expense charge to profi t or loss, reconciliation of opening and closing number and weighted average exercise price of share options and how the fair value of options granted was measured; ● related party disclosures in respect of two or more wholly owned members of the Group; and ● disclosure of the future impact of new International Financial Reporting Standards in issue but not yet effective at the reporting date. The fi nancial statements of the Company are consolidated within these fi nancial statements which are publicly available from Companies House, Crown Way, Cardiff, CF14 3OZ. 2.4 Going concern The Group made a loss after tax for the year of £14,500k (2018: £12,092k) and as at 31 January 2019 the Group had a net cash balance of £15,673k (2018: £3,174k). At 31 May 2019 the Group had a net cash balance of £10,164k. The Group currently incurs losses albeit that revenues almost cover fi xed costs and are growing. The Group’s strategy to achieve profi tability is based upon increasing the number of paying customer agents, primarily through converting those agents who joined on an introductory free trial to paying customers. The Directors have prepared and reviewed the Group’s cash forecast and projections for the next 12 months in light of the experience of conversions to date, among other factors. They have also conducted sensitivity analyses and considered scenarios where future conversions fall below the rate and number expected, together with the mitigating actions they may take in such circumstances, such as a reduction in budgeted discretionary expenditure, a signifi cant proportion of which relates to advertising and marketing cost that can be reduced materially at short notice. Based upon these projections and analyses the Directors have a reasonable expectation that the Group has adequate fi nancial resources to continue its operations for the foreseeable future and to be able to meet its debts as and when they fall due. In the light of this, the Directors consider the going concern basis to be appropriate to the preparation o f these fi nancial statements. 40 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 40 19/06/2019 16:22 i F n a n c a i l S t a t e m e n t s Notes to the Consolidated Financial Statements Continued 2.5 Adoption of new and revised standards and interpretations Application of new and amended standards For the preparation of these consolidated fi nancial statements, the following new or amended standards are mandatory for the fi rst time for the fi nancial year beginning 1 February 2018. - Annual Improvements to IFRS standards 2014-2016 cycle was issued on 8 December 2016 and addresses the following amendments: - - - IFRS 1 “First time adoption of International Financial Reporting Standards” deleted the short-term exemptions dealing with IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefi ts and IFRS 10 Consolidated Financial Statements. The amendment is effective for annual periods beginning on or after 1 January 2018. The reliefs provided are no longer applicable and had been available to the Group for reporting periods that have now passed. IFRS 12 “Disclosure of interest in other entities” clarifi es that entities are not exempt from all of the disclosure requirements in IFRS 12 when entities have been classifi ed as held for sale or as discontinued operations. The amendment is effective for annual periods beginning on or after 1 January 2017. No changes have been made in respect of this amendment as it does not apply to the Group. IAS 28 “Investments in associates and joint ventures” provides a choice of accounting for investments in joint ventures and associates at fair value or using the equity method. The amendment is effective for annual periods beginning on or after 1 January 2018. No changes have been made in respect of this amendment as it does not apply to the Group. - - IFRS 2, “Classifi cation and measurement of share-based payment transactions”, provides requirements on the accounting for: the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; share-based payment transactions with a net settlement feature for withholding tax obligations; and a modifi cation to the terms and conditions of a share-based payment that changes the classifi cation of the transaction from cash-settled to equity-settled. The standard is effective for accounting periods beginning on or after 1 January 2018. The Group has implemented the standard and no retrospective adjustments were made. IFRS 9, “Financial instruments”, addresses the classifi cation, measurement and recognition of fi nancial assets and fi nancial liabilities. It replaces the guidance in IAS 39 that relates to the classifi cation and measurement of fi nancial instruments. IFRS 9 is effective for accounting periods beginning on or after 1 January 2018. An expected credit losses model replaces the incurred loss impairment model used in IAS 39. Under IAS 39, an “incurred loss” model previously applied to the Group’s intercompany loans. However, IFRS 9 requires a liability to be recognised for the weighted average expected payments due from the Company’s subsidiary when the subsidiary does not have suffi cient accessible highly liquid resources to repay the loan at the reporting date. On transition to IFRS 9 the modifi ed retrospective application method has been applied and the opening intercompany loan has been recalculated to refl ect the expected credit losses impairment model. Prior years are not restated. The application of IFRS 9 has not changed the measurement of the Group’s fi nancial liabilities or the Group’s accounting policies for the recognition or derecognition of fi nancial instruments, other than the Company’s recognition of a provision for expected credit losses on amounts due from its subsidiary undertakings. No material impact was identifi ed on transition to IFRS 9 for applying the expected credit losses model to trade and other receivables. Notes 2.12, 3, 16 and 19 contain further information with respect to the adoption of IFRS 9, the Group’s policies under IFRS 9 and the expected credit loss on amounts due to the Company from its subsidiary undertakings. 253486 (2) OnTheMarket_AR_2019_back end new.indd 41 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 41 Notes to the Consolidated Financial Statements Continued - IFRS 15, “Revenue from contracts with customers”, deals with revenue recognition and establishes principles for reporting useful information to users of fi nancial statements about the nature, amount, timing and uncertainty of revenue and cash fl ows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefi ts from the good or service. The standard is effective for annual periods beginning on or after 1 January 2018. The Group offers its agents 5-year listing agreements. The Group has a number of customers who are not paying their contractually committed listing fees. The majority of these chose to breach the One Other Portal rule in their listing agreements and no longer have access to the portal. The year to 31 January 2019 was the fi rst period in which the Group was required to prepare fi nancial statements under IFRS 15, “Revenue from contracts with customers”. Previously under IAS 18 all amounts due under contracts with customers were included as revenues and a corresponding bad debt expense was recognised within administrative expenses in respect of amounts due from agents. Under IFRS 15 these amounts are no longer recognised within revenues or administrative expenses as it is not probable that the Group will collect the revenue it is entitled to on the due date. This therefore does not constitute a contract. The prior period comparatives have been restated on the same basis to aid comparison. As originally stated 31 January 2018 IFRS 15 adjustment Year to 31 January 2018 (restated) As if recognised under IAS 18 at 31 January 2019 IFRS 15 adjustment Year to 31 January 2019 Administrative expenses £’000 Revenue £’000 Operating loss £’000 16,046 (2,493) 13,553 16,634 (2,462) 14,172 (12,159) 2,493 (9,666) (30,273) 2,462 27,811 10,839 – 10,839 14,544 – 14,544 New standards, amendments and interpretations not yet adopted - Annual improvements to IFRS standards 2015-2017 cycle was issued on 12 December 2017 and addresses the following amendments: - - - - IFRS 3 “Business combinations” clarifi es that an acquirer is to remeasure the fair value of previously held interests at acquisition date. IFRS 11 “Joint arrangements” states that when a party subsequently obtains joint control, it must not remeasure its previously held interest. IAS 12 “Income taxes” applies to income tax consequences of dividends recognised on or after the beginning of the earliest comparative period presented. IAS 23 “Borrowing costs” clarifi es that once a qualifying asset funded through specifi c borrowings becomes ready for its intended use or sale, the rate applied on those borrowings is included in the determination of the capitalisation rate applied to general borrowings. 42 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 42 19/06/2019 16:22 Notes to the Consolidated Financial Statements Continued i F n a n c a i l S t a t e m e n t s The above amendments are effective for annual periods beginning on or after 1 January 2019 and are not expected to have a material impact on the Group’s fi nancial statements. - IFRS 16, “Leases”, addresses the defi nition of a lease, recognition and measurement of leases, and it establishes principles for reporting useful information to users of fi nancial statements about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that almost all operating leases will be accounted for on balance sheet for lessees. The standard replaces IAS 17, “Leases”, and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2019 and earlier application is permitted, subject to the entity adopting IFRS 15, “Revenue from contracts with customers”, at the same time. The Directors have reviewed all lease contracts and concluded that 39 motor vehicles leases would be affected by IFRS 16. The cumulative catch up method will be taken, together with the practical expedients to apply a single discount rate to a portfolio of leases with reasonably similar characteristics and to exclude leases from the calculation where the lease term ends within 12 months of the date of initial application. The fi nancial impact applying the catch up method will be to recognise opening balances as at 1 February 2019 as follows: Non-current assets Property, plant & equipment Current liabilities Lease liability Non-current liabilities Lease liability At 1 February 2019 (under IAS 17) £’000 IFRS 16 adjustment At 1 February 2019 (adjusted) £’000 £’000 130 447 577 – – (182) (182) (265) (265) 2.6 Functional and presentation currency The consolidated fi nancial statements are presented in ‘Pounds Sterling’, rounded to the nearest thousand (£’000), which is also the Group’s functional currency. 2.7 Property, plant and equipment All property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated using an appropriate method to allocate their cost amounts to their residual values over their estimated useful lives, as follows: Fixtures, fi ttings and equipment Straight line 4 years 2.8 Intangible assets In accordance with IAS 38, “Intangible Assets”, expenditure incurred on research and development is distinguished as relating to a research phase or to a development phase. Expenditure on research activities is recognised as an expense in the period in which it is incurred. 253486 (2) OnTheMarket_AR_2019_back end new.indd 43 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 43 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Continued Continued An internally generated intangible asset arising from the development and enhancement of the online platform, OnTheMarket. com, and associated applications is recognised when the development has been deemed technically feasible, the Group has the intention to complete the development, probable future economic benefi ts will occur, the Group has the required funds to complete the development and when the Group has the ability to measure the expenditure on the development reliably. The amount initially recognised for internally generated intangible assets is the sum of the directly attributable expenditure incurred from the date when the intangible asset fi rst meets the recognition criteria defi ned above. Capitalisation ceases when the asset is brought into use. Where no internally generated asset can be recognised, development expenditure is recognised in the income statement in the period in which it is incurred. Subsequent to initial recognition, internally generated assets are reported at cost less accumulated amortisation and impairment losses. Amortisation is charged on a straight-line basis over 4 years from when the asset is fi rst brought into use. The current intangible assets will be fully amortised in the next 1-4 years. 2.9 Impairment of property, plant and equipment and intangible assets At each year end date, the carrying amounts of assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash fl ows that are independent from other assets, the recoverable amount of the cash-generating unit to which the asset belongs is estimated. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately as profi t, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 2.10 Investments in subsidiaries The investment in the Company’s subsidiary undertakings is stated at cost less any impairment. Where management identify uncertainty over these investments, the investment is impaired to an estimate of its net realisable value. 2.11 Financial instruments Recognition of fi nancial instruments Financial assets and fi nancial liabilities are recognised when the Group becomes party to the contractual provisions of the instrument. Financial assets Initial and subsequent measurement of fi nancial assets Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and other short-term deposits held by the Group with maturities of less than three months. 44 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 44 19/06/2019 16:22 i F n a n c a i l S t a t e m e n t s Notes to the Consolidated Financial Statements Continued Trade, Group and other receivables Trade receivables are initially measured at their transaction price. Group and other receivables are initially measured at fair value plus transaction costs. Financial liabilities and equity Financial liabilities and equity instruments are classifi ed according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Initial and subsequent measurement of fi nancial liabilities Trade, Group and other payables Trade, Group and other payables are initially measured at fair value net of direct transaction costs and subsequently measured at amortised cost. Equity instruments Equity instruments issued by the Group are recorded at fair value on initial recognition net of transaction costs. Derecognition of fi nancial assets (including write-offs) and fi nancial liabilities A fi nancial asset (or part thereof) is derecognised when the contractual rights to cash fl ows expire or are settled, or when the contractual rights to receive the cash fl ows of the fi nancial asset and substantially all the risks and rewards of ownership are transferred to another party. When there is no reasonable expectation of recovering a fi nancial asset it is derecognised (“written off”). The gain or loss on derecognition of fi nancial assets measured at amortised cost is recognised in profi t or loss. A fi nancial liability (or part thereof) is derecognised when the obligation specifi ed in the contract is discharged, cancelled or expires. Any difference between the carrying amount of a fi nancial liability (or part thereof) that is derecognised and the consideration paid is recognised in profi t or loss. 2.12 Impairment of fi nancial assets An impairment loss is recognised for the expected credit losses on fi nancial assets when there is an increased probability that the counterparty will be unable to settle an instrument’s contractual cash fl ows on the contractual due dates, a reduction in the amounts expected to be recovered, or both. The probability of default and expected amounts recoverable are assessed using reasonable and supportable past and forward-looking information that is available without undue cost or effort. The expected credit loss is a probability-weighted amount determined from a range of outcomes and takes into account the time value of money. For trade receivables, material expected credit losses are measured by applying an expected loss rate to the gross carrying amount. The expected loss rate comprises the risk of a default occurring and the expected cash fl ows on default based on the aging of the receivable. For intercompany loans that are repayable on demand, expected credit losses are based on the assumption that repayment of the loan is demanded at the reporting date. If the subsidiary does not have suffi cient accessible highly liquid assets in order to repay the loan if demanded at the reporting date, an expected credit loss is calculated. This is calculated based on the expected cash fl ows arising from the subsidiary, discounted using an effective interest rate, and weighted for probability likelihood variations in cash fl ows. 253486 (2) OnTheMarket_AR_2019_back end new.indd 45 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 45 Notes to the Consolidated Financial Statements Continued 2.13 Share capital Ordinary shares are classifi ed as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds. 2.14 Income taxes Tax currently payable is calculated using the tax rates in force or substantively enacted at the reporting date. Taxable profi t differs from accounting profi t either because some income and expenses are never taxable or deductible, or because the time pattern on which they are taxable or deductible differs between tax law and their accounting treatment. Using the statement of fi nancial position liability method, deferred tax is recognised in respect of all temporary differences between the carrying value of assets and liabilities in the consolidated statement of fi nancial position and the corresponding tax base, with the exception of temporary differences arising from goodwill or from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profi t nor the accounting profi t. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date. Deferred tax assets are recognised only to the extent that the Group considers that it is probable (i.e. more likely than not) that there will be suffi cient taxable profi ts available for the asset to be utilised within the same tax jurisdiction. Deferred tax assets and liabilities are offset only when there is a legally enforceable right to offset current tax assets against current tax liabilities, they relate to the same tax authority and the Group’s intention is to settle the amounts on a net basis. The tax expense for the period comprises current and deferred tax. Tax is recognised in profi t or loss, except if it arises from transactions or events that are recognised in other comprehensive income or directly in equity. In this case, the tax is recognised in other comprehensive income or directly in equity, respectively. Where tax arises from the initial accounting for a business combination, it is included in the accounting for the business combination. Since the Group is able to control the timing of the reversal of the temporary difference associated with interests in subsidiaries, associates and joint arrangements, a deferred tax liability is recognised only when it is probable that the temporary difference will reverse in the foreseeable future mainly because of a dividend distribution. 2.15 Employee benefi ts Defi ned contribution plans The Group pays fi xed percentage contributions into independent entities in relation to plans and insurances for individual employees. The Group has no legal or constructive obligations to pay contributions in addition to its fi xed percentage contributions, which are recognised as an expense in the period that related employee services are received. Short-term employee benefi ts Short-term employee benefi ts, including holiday entitlement, are current liabilities included in pension and other employee obligations, measured at the undiscounted amount that the Group expects to pay as a result of the unused entitlement. 46 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 46 19/06/2019 16:22 i F n a n c a i l S t a t e m e n t s Notes to the Consolidated Financial Statements Continued 2.16 Share-based payments The Group operates equity-settled share-based remuneration plans for its employees. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair value of employees’ services is determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example profi tability and sales growth targets and performance conditions). All share-based remuneration is ultimately recognised as an expense in profi t or loss with a corresponding increase to equity. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any adjustment to cumulative share-based compensation resulting from a revision is recognised in the current period. The number of vested options ultimately exercised by holders does not impact the expense recorded in any period. Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, are allocated to share capital up to the nominal (or par) value of the shares issued with any excess being recorded as share premium. The social security contributions payable in connection with the grant of the share options are considered an integral part of the grant itself and the charge will be treated as a cash-settled transaction. The Group issues shares to key agents who commit to long-term listing agreements, in line with its strategy to grow the agent shareholder base. Shares are issued in return for payment of the nominal share value in cash and, in some cases, in return for share premium in non-cash consideration relating to the long-term listing agreements signed. Upon contract commencement an agent recruitment share reserve is credited (shown within other reserves in the fi nancial statements) and a prepayment created, based on the value of the shares, which is then amortised over the life of the contract. 2.17 Provisions Where, at the reporting date, the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that the Group will settle the obligation, a provision is made in the statement of fi nancial position. Provisions are made using best estimates of the amount required to settle the obligation. Changes in estimates are refl ected in profi t or loss in the period they arise. Provisions for social security on share options granted are measured using the fair value of the expected number of share options to be exercised at the applicable tax rate in use at the measurement date. 2.18 Revenue Revenue represents income for the sales of services, net of discounts and rebates, to external customers at invoice value less value added tax. Revenue represents listing fees in respect of the property portal OnTheMarket.com. The transaction price, bring the monthly listing fee, does not include any other elements e.g. no incentives or free periods. There is only one performance obligation therefore. Revenue is recognised evenly over the life of the contract. Amounts are billed monthly in advance and released to the income statement over the period of access to the portal. Details on the application of IFRS 15 have been included in note 2.5. Within one reporting segment, there is only one major service provision line. All revenue relates to services transferred over time, namely a period of one month, as the Group invoices on a monthly basis. Sales are billed monthly in advance and predominantly collected via direct debit. At the end of the year, one month of deferred income is outstanding. 253486 (2) OnTheMarket_AR_2019_back end new.indd 47 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 47 Notes to the Consolidated Financial Statements Continued 2.19 Leased assets Operating leases – Group as lessee All leases are operating leases. Payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. 3. Critical accounting judgements and key sources of estimation uncertainty The preparation of the consolidated fi nancial statements requires management to make judgements, estimates and assumptions concerning the future which impact the application of accounting policies and reported amounts of assets, liabilities, income and expenses. The accounting estimates resulting from these judgements and assumptions seldom equal the actual results but are based on historical experiences and future expectations. Revenue recognition A material number of customers have for some time been defaulting on the payment terms of their contracts. Management have made judgements as to whether there is any current intention to pay by these customers and, where there is judged not to be, the contract is deemed not to meet the contract recognition criteria under IFRS 15 and hence the amounts due are not included within revenues or administrative expenses. Impairment of development costs Development costs are recognised in respect of the online property portal. These costs are not considered to be impaired due to the ongoing economic benefi t obtained from the portal. In determining that ongoing economic benefi t is obtained management make judgements about the ability to generate revenues and profi ts from the portal under existing contracts, many of which are long-term, as well as judgements about the growth of future revenues and profi ts from new paying agent customers. Impairment of Company receivables The Company has intercompany loans to its subsidiary Agents’ Mutual Limited which are repayable on demand. As the subsidiary did not have suffi cient highly liquid resources to repay the loans at 31 January 2019, an expected credit loss is calculated under IFRS 9. The calculation is based upon the expectation that Agents’ Mutual Limited will trade profi tably in the future and that this will allow it to repay the loans in time. Forecast cash fl ows under a range of possible outcomes are discounted to derive a probability-weighted present value for the loan based upon the time taken to repay the outstanding amount in full. These calculations rely on management judgements as to the future cash fl ow forecasts, the probability weightings assigned and the effective discount rate applied. Further details on the impairment provision are set out in note 16. 4. Revenue and segmental information The Group has determined that the Chief Executive Offi cer (“CEO”) is the chief operating decision maker. Monthly management numbers are reported and issued to the CEO, which are used to assess the performance of the business. The Group has determined it has only one reportable segment, namely the provision of access to its online portal OnTheMarket. com (listing fees). Within the one reporting segment, there is only one major service provision line. All revenue relates to services transferred over time, namely a period of one month, as the Group invoices on a monthly basis. Sales are billed monthly in advance and payments are recognised as deferred income. The Group has no contract assets but has contract liabilities of £1,126k at 31 January 2019 (2018: £1,042k) in respect of deferred income. All revenue is generated in the UK for this service. 48 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 48 19/06/2019 16:22 Notes to the Consolidated Financial Statements Continued 5. Expenses by nature Expenses are comprised of: Depreciation Amortisation Staff costs (note 8) Operating lease expense - property Operating lease expense - other Advertising expenditure Other administrative expenses i F n a n c a i l S t a t e m e n t s 2019 £’000 33 1,856 6,136 664 177 14,905 4,040 27,811 2018 (restated) £’000 27 1,440 3,416 397 113 2,199 2,073 9,665 6. Specific professional fees, share-based payments and non-recurring items Professional fees Compensation Agent recruitment charges 2019 £’000 797 (200) 565 1,162 2018 £’000 2,679 (1,243) – 1,436 Professional fees incurred were in relation to the Group’s admission to AIM and the capital raise by way of an associated placing, as well as to ongoing litigation. Compensation received was in respect of ongoing litigation. These costs relate to one off events that are not expected to be recurring and they have therefore been classifi ed separately. Agent recruitment charges relate to share-based charges arising on the issue of shares to agents in return for committing to long-term listing agreements, in line with the Group’s strategy to grow the agent shareholder base. 253486 (2) OnTheMarket_AR_2019_back end new.indd 49 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 49 Notes to the Consolidated Financial Statements Continued 7. Operating loss Operating loss is stated after charging: Depreciation of property, plant and equipment Gain on disposal of property, plant and equipment Amortisation of intangible assets Operating lease expense - property Operating lease expense - other Share-based payment expense (note 22) Foreign exchange losses / (gains) Audit fees payable to the Company’s auditor - audit of Group fi nancial statements - audit related assurance services Other fees payables to the Company’s auditor: - taxation compliance services - corporate fi nance transaction services - all other services not covered above 2019 £’000 33 9 1,856 664 177 344 10 80 8 14 67 42 2018 £’000 27 2 1,440 397 113 11,678 (2) 55 – 58 – 68 In addition to the above fees paid to the Company’s auditor there is a further £nil for other services (2018: £46k) which is disclosed within other reserves. 8. Employees and Directors Group Staff costs (including Directors) comprise: Wages and salaries Social security costs Pension 2019 £’000 6,727 824 63 7,614 The amounts above include £1,478k (2018: £1,092k) of staff costs that have been capitalised to intangible assets. Company Staff costs (including Directors) comprise: Wages and salaries Social security costs Pension 2019 £’000 153 19 1 173 2018 £’000 3,999 497 11 4,507 2018 £’000 46 – – 46 50 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 50 19/06/2019 16:22 Notes to the Consolidated Financial Statements Continued The average monthly number of persons employed by the Group during the year was: Non-Executive Directors Marketing, sales and administration IT i F n a n c a i l S t a t e m e n t s 2019 Number 2018 Number 2 72 31 105 1 40 20 61 The Non-Executive Directors were the only employees in the Company as they had service contracts during the year: Directors’ remuneration Group Aggregate emoluments Pension contributions Share-based payments Highest paid Director Group Aggregate emoluments 2019 £’000 793 3 – 796 2019 £’000 250 2018 £’000 616 1 7,724 8,341 2018 £’000 204 Key management personnel compensation Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group. The Group considers the Directors to be the only key management personnel. As well as the e molu ments above the Group paid employers national insurance contributions of £103k (2018: £49k) due in respect of the Directors. 9. Finance income Finance income: Other interest receivable 10. Finance expense Interest arising on: Interest payable on loan notes Other interest payable 2019 £’000 2018 £’000 85 2 2019 £’000 29 6 35 2018 £’000 1,230 3 1,233 253486 (2) OnTheMarket_AR_2019_back end new.indd 51 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 51 Notes to the Consolidated Financial Statements Continued 11. Income tax Current tax: UK corporation tax on income for year Total current tax Deferred tax: Origination and reversal of timing difference Total deferred tax Income tax charge 2019 £’000 2018 £’000 6 6 – – 6 22 22 – – 22 Factors affecting tax charge for the year The tax assessed for the year is different from the effective rate of corporation tax as explained below: Loss before taxation 2019 £’000 2018 £’000 (14,500) (12,070) Loss before taxation multiplied by the effective rate of corporation tax 19% (2018: 19.18%) (2,755) (2,315) Effects of: Expenses not deductible for tax purposes Share-based payment not deductible for tax purposes Deferred tax not recognised Capital allowances in excess of depreciation Losses carried forward Tax expense 476 54 (257) (310) 2,798 6 539 2,549 (1,032) 281 – 22 The Finance Act 2016 was enacted during the prior period. The Finance Act 2016 includes provisions to reduce the main rate of corporation tax to 17% from 1 April 2020. Deferred tax is measured at 17% (2018: 17%) as this is the materially correct rate at which deferred tax assets and liabilities are expected to unwind. The subsidiary, Agents’ Mutual, has trading losses available for carry forward of £14,726k (2018: £8,798k) for which no deferred tax asset has been recognised. The Group has been implementing its strategic plans for the long-term development of the business. These plans envisage a period of strong growth in the future, underpinned by signifi cant initial investment. As a result of the Group’s strategic plans, circumstances with respect to recoverability of the deferred tax asset in relation to losses carried forward in the foreseeable future remain uncertain. Consequently no deferred tax asset has been recognised. The Group has also not recognised a deferred tax asset arising on the share-based payment charge of £385k (2018: £412k). The Group has not recognised a deferred tax liability arising on non-current asset timing differences of £58k (2018: £95k) due to the availability of tax losses to extinguish this liability. 52 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 52 19/06/2019 16:22 Notes to the Consolidated Financial Statements Continued i F n a n c a i l S t a t e m e n t s 12. Earnings per share Numerators: Earnings attributable to equity Loss for the year from continuing operations attributable to owners of the Company Total basic earnings and diluted earnings Denominators: Weighted average number of equity shares Basic and diluted 2019 £’000 2018 £’000 (14,500) (12,092) (14,500) (12,092) No. No. 60,371,132 35,530,263 As the Group made a loss for the year there is no dilutive effect. Instruments that would dilute earnings per share have not been included as these are anti-dilutive. 13. Property, plant and equipment Group Cost: At 1 February 2017 Additions Disposals At 31 January 2018 Depreciation: At 1 February 2017 Charge for the year At 31 January 2018 Net book value: At 31 January 2018 Cost: At 1 February 2018 Additions Disposals At 31 January 2019 Depreciation: At 1 February 2018 Charge for the year Disposals At 31 January 2019 Net book value: At 31 January 2019 Fixtures, fi ttings and equipment £’000 116 1 (1) 116 71 27 98 18 116 155 (16) 255 98 33 (6) 125 130 Depreciation is included within administrative expenses in the income statement. OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 53 253486 (2) OnTheMarket_AR_2019_back end new.indd 53 19/06/2019 16:22 Notes to the Consolidated Financial Statements Continued 14. Intangible assets Group Cost: At 1 February 2017 Additions – internally developed At 31 January 2018 Amortisation: At 1 February 2017 Charge for the year At 31 January 2018 Net book value: At 31 January 2018 Cost: At 1 February 2018 Additions – internally developed At 31 January 2019 Amortisation: At 1 February 2018 Charge for the year At 31 January 2019 Net book value: At 31 January 2019 Development costs £’000 5,062 1,538 6,600 1,506 1,440 2,946 3,654 6,600 2,150 8,750 2,946 1,856 4,802 3,948 Amortisation is included within administrative expenses in the income statement. The development costs relate to those costs incurred in relation to the development of the Group’s online property portal, OnTheMarket.com. The development costs capitalised above are amortised over a period of 4 years which represents the period over which the Directors expect the Group to consume the asset’s future economic benefi ts. The development costs are amortised from the point at which the asset is ready for use within the business. 15. Investments in subsidiaries Company At 27 July 2017 Additions At 31 January 2018 At 31 January 2019 Subsidiary undertakings £’000 – – – – 54 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 54 19/06/2019 16:22 i F n a n c a i l S t a t e m e n t s Notes to the Consolidated Financial Statements Continued The Company has the following investments in subsidiary undertakings: Agents’ Mutual Limited On The Market (Europe) Limited Class of shares held1 Principal Ownership 2019 activity Member Online property portal services Ordinary Dormant 100% 100% 1 Agents’ Mutual Limited is a company limited by guarantee and has no shares. The Company owns the only member interest in Agents’ Mutual Limited. All the above subsidiary undertakings share the same registered offi ce as the Company. On The Market (Europe) Limited is a subsidiary of Agents’ Mutual Limited. 16. Trade and other receivables Trade receivables Amounts due from Group undertakings Other receivables Prepayments and accrued income Group 2019 £’000 368 – 330 2,588 3, 286 Company 2019 £’000 – 28,178 – 43 28,221 Group 2018 £’000 Company 2018 £’000 433 – 59 61 553 – 23,366 – 23 23,389 The aged analysis of trade receivables is shown in note 19. Included within prepayments is £1.3m in relation to prepaid agent recruitment share-based payment charges (2018: nil). Of this, £0.95m is not due to be recognised in the income statement until the year to 31 January 2021 or after. Impairment of Company receivables from subsidiaries The Company’s group receivables represent trading balances and loan amounts advanced to other Group companies with no fi xed repayment dates. Under IFRS 9 the fair value of this intercompany receivable repayable on demand to the Company by Agents’ Mutual Limited is considered impaired as Agents’ Mutual Limited did not have suffi cient liquid resources at 31 January 2019 to repay the loan in full. The impairment loss in the Company’s accounts is based upon the 12-month expected credit losses methodology under IFRS 9 and is calculated as set out in note 2.12. See also note 19. Upon transition to IFRS 9 an impairment of £5,120k was included within the Company’s opening retained earnings. Following an impairment review as at 31 January 2019, the provision has been adjusted to £9,123k. The credit risk is not deemed to have increased signifi cantly but the larger provision refl ects the larger intercompany receivable (£37,301k before impairment). This provision is included within the Company’s loss for the period, however it is fully eliminated on Consolidation and has no impact on the Group’s reported fi nancial performance for the year or fi nancial position at the balance sheet date. 253486 (2) OnTheMarket_AR_2019_back end new.indd 55 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 55 Notes to the Consolidated Financial Statements Continued 17. Trade and other payables Current liabilities Trade payables Social security and other taxes Other payables Accruals and deferred income 18. Borrowings Current borrowings Accrued loan interest Non-current borrowings Loan notes Group 2019 £’000 Company 2019 £’000 Group 2018 £’000 Company 2018 £’000 1,580 471 21 2,658 4, 730 2 199 1 20 222 317 637 – 2,003 2,957 1 5 – 76 82 Group 2019 £’000 Company 2019 £’000 Group 2018 £’000 Company 2018 £’000 – – – – – – 1,217 512 11,256 12,473 11,256 11,768 On Admission to AIM, the Company issued 6,821,237 ordinary shares of £0.002 each at £1.65 per share to the loan note holders on a £ for £ basis equivalent to their loan note holdings. The loan notes were extinguished by this issue. Accrued loan interest was settled in cash from the placing proceeds immediately following Admission. Details of the terms and conditions attached to the loan notes held at 31 January 2018 are disclosed in the prior year annual report. Reconciliation of liabilities arising from fi nancing activities: Accrued loan interest Loan notes 31 January 2018 £’000 1,217 11,256 12,473 Cash fl ows £’000 (1,217) – (1,217) Non-cash 31 January 2019 £’000 fl ows £’000 – (11,256) (11,256) – – – 19. Financial instruments and financial risks Financial risks The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the CEO. The Board receives monthly reports from the fi nance function through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. 56 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 56 19/06/2019 16:22 i F n a n c a i l S t a t e m e n t s Notes to the Consolidated Financial Statements Continued 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 fl exibility. Further details regarding these policies are set out below: The Group is exposed through its operations to the following fi nancial risks: credit risk; and liquidity risk. In common with all other businesses, the Group is exposed to risks that arise from its use of fi nancial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them from previous periods unless otherwise stated in this note. Credit risk Credit risk is the risk of fi nancial loss to the Group if a counterparty to a fi nancial instrument fails to meet its contractual obligations. The Group is exposed to credit risk primarily on its trade receivables, which are spread over a range of customers. There are no specifi c concentrations of credit risk. The maximum credit risk exposure relating to fi nancial assets is represented by their carrying value at the statement of fi nancial position date. The Group assesses the risk associated with its customers based on its own experience with the customer before entering into binding contracts and, where considered necessary, the use of independent credit rating agency reports. The risk is mitigated further by requesting advance payment from customers. Each customer account is reviewed on an on-going basis based on available information and payment history. The credit risk on liquid funds is limited as the funds are held at banks with high credit ratings assigned by international credit rating agencies. Liquidity risk Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter diffi culty in meeting its fi nancial obligations as they fall due. In order to maintain liquidity to ensure that suffi cient funds are available for ongoing operations and future developments, the Group monitors forecast cash infl ows and outfl ows on a monthly basis. The fi nancial assets and liabilities of the Group are as follows: Current assets Trade and other receivables Cash and cash equivalents Total fi nancial assets Financial assets measured at amortised cost 2019 £’000 516 15,673 16,189 2018 £’000 492 3,174 3,666 253486 (2) OnTheMarket_AR_2019_back end new.indd 57 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 57 Notes to the Consolidated Financial Statements Continued Current liabilities Trade and other payables Borrowings - accrued interest Accrued expenses Non-current liabilities Borrowings Total fi nancial assets Capital risk management Financial liabilities held at amortised cost 2019 £’000 1,601 – 1,532 – 3,133 2018 £’000 317 1,217 961 11,256 13,751 Management considers capital to be the carrying amount of equity. The Group manages its capital to ensure its obligations are adequately provided for, while maximising the return to shareholders through the effective management of its resources. The Group’s objective when managing capital is to safeguard its ability to continue as a going concern. The Group meets its objective by aiming to achieve growth which will generate regular and increasing returns to its shareholders. Cash at bank, included in cash and cash equivalents, is with institutions with credit ratings of A or better. The following table shows an aged analysis of trade receivables for the Group. 0 – 30 days 31 – 60 days 61 – 90 days 91 – 120 days Over 120 days 2019 £’000 83 72 40 46 127 368 2019 % 23% 20% 11% 12% 35% 2018 £’000 146 49 45 49 144 433 2018 % 34% 11% 10% 11% 33% The year to 31 January 2019 was the fi rst period in which the Group was required to prepare fi nancial statements under IFRS 15, “Revenue from contracts with customers”. Previously under IAS 18 all amounts due under contracts with customers were included as revenues and a corresponding bad debt expense was recognised within administrative expenses in respect of amounts due from agents in breach of the payment obligations within their listing agreements, subject to a review of recoverability by management. Under IFRS 15 these amounts are no longer recognised within revenues or administrative expenses. The total value of debts past due but not impaired is £285k (2018: £287k). Expected loss rate on balances less than 120 days gives rise to an immaterial loss allowances provision. The expected loss rate on balances greater than 120 days is considered to be 0%. This is because the balance relates to VAT due from HMRC on bad debts written off in previous periods. 58 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 58 19/06/2019 16:22 Notes to the Consolidated Financial Statements Continued i F n a n c a i Financial liabilities The following is an analysis of the maturities of the fi nancial liabilities in the Statement of Financial Position, excluding amounts owed in relation to statutory taxes: l S t a t e m e n t s 2019 Trade and other payables Accrued expenses 2018 Trade and other payables Accrued loan interest Borrowings Accrued expenses Carrying amount £’000 6 months or less £’000 6-12 months £’000 1 year or more £’000 1,601 1,532 3,133 1,601 1,532 3,133 – – – – – – Carrying amount £’000 6 months or less £’000 6-12 months £’000 1 year or more £’000 317 1,217 11,256 961 13,751 317 1,217 – 961 2,495 – – – – – – – 11,256 – 11,256 All fi nancial liabilities are denominated in Sterling. The borrowings consisted of loan notes which were long-term in nature, however these were extinguished during the current year by way of a share issue. Fair values of fi nancial assets and liabilities The fair value of the Group’s fi nancial assets and liabilities are not materially different from their book values and therefore the Directors consider no hierarchical analysis is necessary. Impairment of Company fi nancial assets The Company’s Group receivables represent trading balances and amounts advanced to other Group companies with no fi xed repayment dates. The Company determines that credit risk has increased signifi cantly when: there are signifi cant actual or expected changes in the operating results of the Group entity, including declining revenues, profi tability or liquidity management problems; or there are existing or forecast adverse changes to the business, fi nancial or economic conditions that may impact the Group entity’s ability to meet its debt obligations. The Company has determined that there is no increased credit risk with respect to the intercompany loan to Agents’ Mutual. Management believes the strong operational progress in the business means its future fi nancial prospects are less risky and it is judged to be more likely now to generate future profi ts to allow it to repay the loan then before. As such the expected credit losses have been calculated under the 12-month expected credit losses methodology. Note 16 details the impairment provision applied. 253486 (2) OnTheMarket_AR_2019_back end new.indd 59 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 59 Notes to the Consolidated Financial Statements Continued 20. Deferred income tax – Group and Company Asset At 1 February Charge to income statement At 31 January 21. Provisions At 1 February 2018 Exercise of share options Grant of share options Revaluation At 31 January 2019 Disclosed as: Current liability Non-current liability 2019 £’000 2018 £’000 – – – – – – Social security on share options granted £’000 1,612 (2) 19 (620) 1,009 2018 £’000 1,258 354 1,612 2019 £’000 776 233 1,009 The provision for social security on share options granted relates to the social security charges that will be incurred by the Group when the share options are exercised. This is calculated based on the options disclosed in note 22 in respect of the management incentive share option plan and the employee share option scheme. 22. Share-based payments The Group issued agent recruitment shares during the year. 960,293 ordinary shares were granted. Fair value was determined in accordance with the accounting policy set out in note 2.16. The weighted average fair value of shares granted was £1.74. The Group operates management and employee equity settled share schemes under which nil cost options over its shares were awarded. The options issued during the prior and the current year under the management incentive plan and the employee share scheme were issued at a nil strike price. As a result, the Black-Scholes model was not appropriate. Accordingly, these options were fair valued by reference to the closing share price of the shares on the day of admission to AIM or the date of grant. The fair value is charged to the profi t and loss account over the vesting period related to ongoing employment. Where there is no such vesting period the charge is recognised in full on grant. 60 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 60 19/06/2019 16:22 i F n a n c a i l S t a t e m e n t s Notes to the Consolidated Financial Statements Continued For the options issued under the Company Share Option Plan during the current year, the Black Scholes method was used to value share options. Expected volatility was determined by reference to historic share prices. The valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date Share price at grant date Strike price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date 20/11/2018 20/11/2028 £1.15 £1.65 58.11% 0% 1.44% £0.69 The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as an intragroup loan. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the relevant period as an increase to debtors, with a corresponding credit to equity. Employer’s National Insurance Contributions are accrued, where applicable, at a rate of 13.8%. The amount accrued is based on the market value of the shares at the period end after deducting the exercise price of the share option, adjusted to account for any vesting period related to ongoing employment. The Company has granted share options under its Management Incentive Plan, its employee share scheme and its Company Share Option Plan. The unexercised options at the end of the year are stated below: Grant date of option Expiry Granted 15 September 2017 Granted 19 September 2017 Granted 10 October 2017 Granted 20 November 2018 Granted 4 December 2018 Outstanding at 31 January 2027 2027 2027 2028 2028 Option exercise per share Fair value £ nil nil nil 1.65 nil £ 1.48 1.48 1.48 0.69 1.13 2019 Number 2018 Number 7,940,842 7,950,842 512,953 39,998 742,913 42,424 526,043 78,178 – – 9,279,130 8,555,063 The value of employee services provided of £344k (2018: £11,678k) has been charged to the income statement. Management Incentive Plan Further details of the management incentive share option plan are as follows: Opening at 1 February Granted Exercised Outstanding at 31 January Exercisable at 31 January Weighted average exercise price £ 2019 Number 7,799,327 – (10,000) 7,789,327 6,056,143 – – – – – OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 61 253486 (2) OnTheMarket_AR_2019_back end new.indd 61 19/06/2019 16:22 Notes to the Consolidated Financial Statements Continued These share options expire 10 years after the date of grant. Share options granted under this scheme have a nil exercise price. 1,733,184 options are exercisable as to 10% after the fi rst anniversary of Admission (as described in Background and origins at the start of these accounts), a further 10% after the second anniversary and the remainder after the fi fth anniversary. The remaining 6,056,143 options are exercisable immediately, however any shares arising from exercise are subject to a restriction on sale such that shares deriving from up to 10% of the options are available to be sold after the fi rst anniversary of the Admission, a further 10% after the second anniversary and the remainder after the fi fth anniversary. The fair value of all these options is charged to the profi t and loss account in full in the year to 31 January 2018. Employee share scheme Further details of the employee share option plan are as follows: Opening at 1 February Granted in the period Forfeited in the period Outstanding at 31 January Exercisable at 31 January Weighted average exercise price £ – – – – 2019 Number 755,736 42,424 (51,270) 746,890 – These share options expire 10 years after the date of grant. Share options granted under this scheme have a nil exercise price and vest 3 years after the date of grant. The fair value of these share options is charged to the profi t and loss account over the vesting period. The share options are forfeited should the employee leave. Company Share Option Plan Further details of the company share option plan are as follows: Granted in the period Forfeited in the period Outstanding at 31 January Exercisable at 31 January Weighted average exercise price £ 2019 Number 746,671 (3,758) 742,913 – 1.65 1.65 1.65 – These share options expire 10 years after the date of grant. Share options granted under this scheme have an exercise price of £1.65 and vest 3 years after the date of grant. The fair value of these share options is charged to the profi t and loss account over the vesting period. The share options are forfeit should the employee leave. National Insurance Contributions National insurance contributions are payable by the Group in respect of all share-based payment schemes except the Company Share Option Plan. A provision has been recognised at 13.8% for a total credit of £601k (2018: expense of £1,612k). 62 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 62 19/06/2019 16:22 Notes to the Consolidated Financial Statements Continued The following have been expensed to the consolidated income statement: Share-based payment charge Employer’s social security on share options 23. Share capital Share capital issued and fully paid Opening Ordinary shares of £0.002 each Issued in the year Closing Ordinary shares of £0.002 each Ordinary shares of £0.002 each i F n a n c a i l S t a t e m e n t s 2019 £’000 344 (601) 257 2018 £’000 11,678 1,612 13,290 2019 No. 2018 No. 35,530,263 25,963,348 2 35,530,261 61,493,611 35,530,263 2019 £’000 123 2018 £’000 71 All issued shares are fully paid. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per ordinary share at general meetings of the Company. There is no additional share capital authorised for further share issues. On incorporation, the Company issued 2 ordinary shares of £0.002 each at par. In September 2017, the Company issued 35,530,261 ordinary shares of £0.002 each at par. This issue was in exchange for the member interests in the subsidiary undertaking, Agents’ Mutual, as part of a group reconstruction. On 9 February 2018, the Company’s entire issued share capital was admitted to trading on AIM at the London Stock Exchange. By way of a placing associated with admission to AIM, the Company raised £30m (gross) through the issue of 18,181,818 ordinary shares. Effective on Admission, the Company issued 6,821,237 ordinary shares to the loan note holders on a £ for £ basis equivalent to their loan note holdings. The loan notes were extinguished by this issue. The Company issued 757,203 ordinary shares on 31 May 2018, 29,392 ordinary shares on 31 July 2018, 47,761 ordinary shares on 8 October 2018 and 125,937 ordinary shares on 21 December 2018 to specifi c agents in exchange for a long-term contract to advertise all of their UK residential sales and letting properties on OnTheMarket.com. These shares were granted for non-cash consideration. The shares are accounted for as set out in note 2.16. Share option scheme At the year end, there were a total of 9,279,130 (2018: 8,555,063) share options under the Company’s share option plans (note 22), which on exercise can be settled either by the issue of ordinary shares or by market purchases of existing shares. 253486 (2) OnTheMarket_AR_2019_back end new.indd 63 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 63 Notes to the Consolidated Financial Statements Continued 24. Leases Operating leases At year end, the Group had the following future minimum lease payments under non-cancellable operating leases for each of the following periods: Land and buildings: Not later than one year Later than one year and not later than fi ve years Other: Not later than one year Later than one year and not later than fi ve years 2019 £’000 2018 £’000 565 – 565 172 273 445 1,010 432 – 432 11 – 11 443 25. Retirement benefit schemes Defi ned contribution schemes The Group operates defi ned contribution pension schemes. The assets of the schemes are held separately from those of the Group in independently administered funds. The cost charged represents contributions payable by the Group to the funds. At the balance sheet date contributions of £nil (2018: £nil) were outstanding. Contributions payable by the Group for the year 26. Controlling parties The Directors do not consider there to be a single immediate or ultimate controlling party. 27. Related party relationships and transactions 2019 £’000 60 2018 £’000 11 Some directors of Agents’ Mutual during the year were also, for the short period until 12 February 2018 when they resigned following Admission, directors or partners of estate agency fi rms who are shareholders and also subscribe for services supplied by the Group. Listing fee income for the period in the year during which they were directors of Agents’ Mutual of £46k was received from such shareholders (2018: £1,417k). Although the agents are now shareholders of the Group, given the percentage shareholding owned by each agent, the fact that the agents are no longer represented on any Group company board and the fact the shares are listed and therefore that the Group is no longer wholly owned by agents, these agents are no longer considered to be related parties. None of these shareholders received preferential rates in the year. At the year end, following the issue, effective on Admission, of ordinary shares of £0.002 each at £1.65 per share to the loan note holders which extinguished the loan notes and the settlement of loan interest in cash, £nil (2018: £5,194k) of the Group’s loan note instruments were held by such shareholders and these instruments had interest due of £nil (2018: £650k). 64 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 253486 (2) OnTheMarket_AR_2019_back end new.indd 64 19/06/2019 16:22 Notes to the Consolidated Financial Statements Continued i F n a n c a i In the ordinary course of business the Group has entered into transactions with Whiteleys Chartered Certifi ed Accountants, a company controlled by a direct relation of Helen Whiteley, an Executive Director of the Group. Whiteleys Chartered Certifi ed Accountants provides an outsourced fi nance function to the Group. During the year, the Group purchased services amounting to £587k (2018: £478k) and at the year end the Group owed £68k (2018: £56k). 28. Post balance sheet events There have been no post balance sheet events. l S t a t e m e n t s 253486 (2) OnTheMarket_AR_2019_back end new.indd 65 19/06/2019 16:22 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 65 Company Information Directors Company Secretary Company number Registered offi ce Auditor Nominated adviser and joint broker Joint broker Solicitor Registrars C Beattie I Springett H Whiteley C Bell I Francis R Almond 10887621 PO Box 450 155-157 High Street Aldershot England GU11 9FZ RSM UK Audit LLP Chartered Accountants Third Floor, One London Square Cross Lanes Guildford Surrey GU1 1UN Zeus Capital Limited 82 King Street Manchester M2 4WQ Shore Capital Stockbrokers Limited Bond Street House 14 Clifford Street London W1S 4JU Eversheds Sutherland (International) LLP One Wood Street London EC2V 7WS Link Market Services Limited The Registry 34 Beckenham Road Beckenham BR3 4TU Website plc.onthemarket.com/investors 66 OnTheMarket plc Annual Report and Consolidated Financial Statements 2019 Designed and printed by Perivan 253486 253486 (2) OnTheMarket_AR_2019_back end new.indd 66 19/06/2019 16:22 Background and origins Overview Highlights Chairman’s Statement Strategic Report Chief Executive Offi cer’s Report Financial Review and Key Performance Indicators Risk Management and Principal Risks Governance Board of Directors Directors’ Report • Corporate Governance Statement Directors’ Remuneration Report Directors’ Responsibilities Statement Independent Auditor’s Report to the Members of OnTheMarket plc Financial Statements Consolidated Income Statement Consolidated Statement of Financial Position Company Statement of Financial Position Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Company Information 1 3-4 5 7-11 12-13 14-15 17 18-22 19-22 23-24 25 26-29 31 32 33 34-35 36-37 38 39-65 66 253486 (0) OnTheMarket_AR_2019_cover spread.indd 4-6 19/06/2019 15:53 Annual Report and Consolidated Financial Statements for the year ended 31 January 2019 253486 (0) OnTheMarket_AR_2019_cover spread.indd 1-3 19/06/2019 15:53