OnTheMarket
Annual Report 2021

Plain-text annual report

A n n u a l R e p o r t a n d C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s f o r t h e y e a r e n d e d 3 1 J a n u a r y 2 0 2 1 Annual Report and Consolidated Financial Statements for the year ended 31 January 2021 Annual Report and Consolidated Financial Statements for the year ended 31 January 2021 “The operational and financial progress during the year to 31 January 2021 are a testament to the strength of the team and of the business” GROUP REVENUE ADJUSTED OPERATING PROFIT +22% 2020 2021 £11.6m £18.8m 2020 £(9.2)m £23.0m 2021 £2.4m ARPA (average revenue per advertiser) ALPA (average leads per advertiser) +16% 2020 2021 £122 £142 +22% 2020 2021 96 117 Design and printed by Perivan YEAR-END CASH +23% 2020 2021 £8.7m £10.7m WEB TRAFFIC/VISITS Highlights: Traffic / visits +13% 2020 2021 237m 267m Contents Highlights Our Story Chairman’s Statement Strategic Report Chief Executive Officer’s Report Financial Review and Key Performance Indicators Risk Management and Principal Risks s172 Statement 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 2 4 5 9 17 20 23 26 28 30 34 38 39 45 46 47 48 49 50 51 78 1 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021Highlights of the year Year ended 31 January Group revenue Adjusted operating profit / (loss)1 Operating profit / (loss) Profit / (loss) after tax Year-end cash ARPA2 Average advertisers3 listed Total advertisers at 31 Jan Traffic / visits4 Average monthly leads per advertiser Highlights of the year • Revenue and ARPA up 22% and 16% respectively – – In part reflects increased revenues from new home developers and despite COVID-19 related customer support discounts of £2.6m and the curtailment of contract conversion activity in H1 FY21. Conversion activity resumed in H2 FY21 with 93% of agency advertisers on paying contracts at year end (2020: 68%). Delivered first full year of profitability with profit after tax of £2.7m (2020: loss after tax of £11.5m). Cost base carefully managed in response to the pandemic – administrative expenses reduced by 26% against 2020. Cash generated from operating activities of £5.1m (2020: £(7.0)m). 2021 £23.0m £2.4m £1.2m £2.7m £10.7m £142 13,285 12,687 267m 117 2020 Change £18.8m £(9.2)m £(11.7)m £(11.5)m £8.7m £122 12,740 13,364 237m 96 22% £11.6m £12.9m £14.2m 23% 16% 4% (5)% 13% 22% • • Strong balance sheet with year-end cash of £10.7m before deferred creditor payments of £0.4m (31 January 2020: £8.7m before deferred creditors of £0.7m). Strong operational performance with growing consumer engagement amongst active property- seekers – – Visits and average monthly leads per advertiser up 13% and 22% respectively, despite the effective suspension of UK housing market activity during the first lockdown and the curtailment of advertising expenditure (down 51% on FY20 to £5.9m). Once property market restrictions were lifted, H2 FY21 visits and average monthly leads per advertiser were up 30% and 31% respectively to 151m (H2 FY20: 116m) and 130 (H2 FY20: 99). Adjusted operating profit or loss is defined as operating profit or loss before share-based payments (including charges relating to shares issued for agent recruitment), specific professional fees and non-recurring items. This is an alternative performance measure and should not be considered an alternative to IFRS measures, such as revenue or operating profit. Please see the Financial Review and Key Performance Indicators section below for a reconciliation of operating profit / loss to adjusted operating loss / profit. 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. A property advertiser is a listed agency branch or a new home development advertising on OnTheMarket.com. Advertisers are either estate and lettings agent branches or new homes developments listed at OnTheMarket.com. 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. • • • 1) 2) 3) 4) 2 Strategic and corporate developments Outlook • • • • • Positive start to FY22 with current trading in line with the Board’s expectations. Marketing activity has resumed and is driving consumer engagement and ARPA is anticipated to continue to grow as agent conversions to paying contracts annualise in FY22, FY21 discounts unwind and as the migration of customers on reduced rate contracts towards full-tariff continues. The Group has a strong balance sheet which the Board has a reasonable expectation is sufficient to support the Group’s organic growth strategy. Having achieved profitability in FY21, the Board expects to be able to invest further operationally into the business and return to normalised levels of marketing expenditure without damaging the Group’s prospects for the foreseeable future, assuming no materially adverse unforeseen circumstances arise. Cash at 31 May 2021, after the acquisition of Glanty, was £10.0m (before borrowings and deferred creditor payments within Glanty of £0.2m). The Board believes that the Group’s recent considerable operational and financial progress, together with a substantial, loyal advertiser base, provides a strong platform for the implementation of its strategy, in order to drive long-term profitable growth. • An in-depth strategic assessment has been completed and the business has a clear vision to build a differentiated, technology-enabled property business providing services for agents, housebuilders, advertisers and consumers that offers ‘best in class’ products and platforms across the broader property ecosystem, consisting of: – an engaging and relevant property portal; – – – software solutions to meet evolving customer needs; the provision of market leading data and market intelligence; and a leading property communications and marketing capability, both on behalf of, and in conjunction with, our customers. • Following the year end OnTheMarket has announced a number of corporate developments including: – – – – the acquisition of the remaining 80% of Glanty Limited, a property technology business which specialises in providing solutions to the UK residential estate and lettings sectors; a media partnership with Reach plc, the UK’s largest commercial news publisher, to enhance consumer engagement and support our agents’ brands; new agreements with both Canopy and Sprift Technologies, to provide agent customers with free tenant referencing checks and enhanced Market Appraisal Guides; and the launch of three new areas of website functionality to support interactions between agents and consumers. • Given the strong performance, strength of balance sheet and confidence in the future, the Company will be repaying to HMRC the grants of £449k it received under the Coronavirus Job Retention Scheme. 3 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021 Our Story Launched in January 2015, OnTheMarket.com is the simple way to search for property. The website and its apps aim to provide all potential buyers, sellers, landlords and tenants with an exceptional property search service. 4 Before COVID-19 customer discounts of £2.6m Group revenue of £23.0m (FY20: £18.8m) +22% +36% +16% +22% Year-on-year Average monthly leads per advertiser up, held back by significantly reduced levels during the first lockdown and effective property market closure ARPA of £142 (FY20: £122), Agency ARPA up 21% to £150 Chairman’s Statement I am pleased to report OnTheMarket’s full year results to 31 January 2021. CHRISTOPHER BELL - NON-EXECUTIVE CHAIRMAN The year began positively, with increasing activity in the UK residential property market following the UK general election in December 2019 and the UK’s withdrawal from the EU on 31 January 2020. However, the year was dominated by the onset and impact of the COVID-19 pandemic. As we have previously expressed, our thoughts have been first and foremost with those who have been impacted by the pandemic. Despite the unprecedented challenges, the Group delivered a strong performance and FY21 was a year of considerable progress for OnTheMarket. Continued growth in paying customers combined with the migration of customers on discounted rates towards full-tariff contracts saw our revenues grow 22% to £23m, despite COVID-19 related discounts to customers of £2.6m. Careful cost management, in particular a significant reduction in marketing spend, down £6.1m to £5.9m (2020: £12.0m), during the early months of the crisis proved effective as the Group achieved an adjusted operating profit of £2.4m (2020: adjusted operating loss £9.2m). The national lockdown restrictions in response to COVID-19 which were implemented in March 2020 gave rise to substantial uncertainty for businesses, including ours. OnTheMarket took quick and decisive actions to support our staff, assist our customers and protect our business, further details of which are set out in the Financial Review section below. One of these actions was to utilise the government’s Coronavirus Job Retention Scheme, receiving grants totalling £449k. Doing so undoubtedly allowed us to protect the jobs of many of our team. However, the other mitigating actions we took proved effective in protecting our business and conserving our cash. In light of our performance since the onset of the COVID-19 pandemic, the strength of our balance sheet and our confidence in the business, we have chosen to repay the £449k of grants received to HMRC. Following the easing of national lockdown restrictions in May 2020, and despite the substantial reduction in advertising expenditure, consumer engagement with OnTheMarket.com has been very strong and the leads we have achieved indicate to us that those consumers most active in the property market visit our portal. I am particularly delighted to welcome Jason Tebb as our new Chief Executive Officer. Jason started with us on 14 December 2020 and has settled in quickly. We are excited about his vision for our business and his enthusiasm to deliver tangible results in the short and longer term, further details of which are set out in the Chief Executive Officer’s review below. After the year end we completed the acquisition of Glanty Limited. The business brings a range of additional products, services and capabilities to OnTheMarket and it provides us with the ability to fast- track some of the planned enhancements to our wider offering to customers and users, including revenue generating and revenue sharing products and services. I extend my warmest welcome to my new colleagues who are now part of the wider OnTheMarket team following the acquisition. The dedication and resilience exhibited by my colleagues in the face of unprecedented challenges during the year reinforce to me that our business is founded on the people within it 5 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021CHAIRMAN’S STATEMENT CONTINUED Governance Outlook During the year we made changes to the Board that we believe will best enable us to continue our progress as a strong, agent-backed, profitable and technology- enabled business. I reported on these in my statement in last year’s accounts, with the exception of the appointment of Jason as Chief Executive Officer. Jason brings extensive property and estate agency experience across digital and physical markets, having been Group COO of Ultimate Holdings for the last three years, a group of companies specialising in property investment and finance, property management, property development and property technology. Prior to this, Jason successfully launched, scaled and exited Ivy Gate, an estate and letting agency, was a Regional Managing Director at Main Market listed LSL Property Services plc for three years and held senior management positions at agents Chestertons Limited and Foxtons Group plc. Chief Financial Officer, Clive Beattie, took on the additional role of Acting Chief Executive Officer from March through to Jason’s start in December. I would like to once more record my thanks to Clive for taking on this role and for all he achieved under exceptionally challenging circumstances. UK residential property markets remain very active, aided by ongoing government support initiatives. We continue to work tirelessly to support our agent and housebuilder customers with improved and more extensive products and services, whilst providing consumers with the tools and information they seek from a modern, property technology business. I am confident that the many initiatives my colleagues are working on will continue to deliver increasing value to all our stakeholders. The dedication and resilience exhibited by my colleagues in the face of unprecedented challenges during the year reinforce to me that our business is founded on the people within it. Once more, I offer them my sincerest thanks for their continued support, as well as the support we have been grateful to receive from our shareholders, customers and suppliers. Christopher Bell Non-Executive Chairman 7 June 2021 6 7 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021Strategic Report 88 8 Chief Executive Officer’s Review I am delighted to be making my inaugural statement as Chief Executive Officer of OnTheMarket and am very excited about the future of our business. JASON TEBB – CHIEF EXECUTIVE OFFICER The year under review was unprecedented due to the impact of COVID-19. We have previously reported details of the measures we took to mitigate the impact on all our stakeholders, which have proved successful, and these are summarised in the Financial Review section of these accounts below. As a business dedicated to supporting our customers and enabling their competitive advantage, we acted quickly to offer significant discounts amounting to £2.6m to support agents through the first lockdown period. Following the easing of national lockdown restrictions in May 2020, activity levels in the UK residential property market have been extremely high. The combination of demand built up during and prior to the lockdowns, a reassessment of housing wants and needs by many of the British public, continuing record low interest rates and the stamp duty holiday introduced by the Chancellor in July 2020 have all contributed towards significant activity, which continues to this day. I have been particularly pleased by the assistance we were able to provide to our customers as market activity increased. Record site visits produced record leads to customers and evidences strong consumer engagement the portal now has, especially with the most serious property-seekers, while our brand awareness continues to grow. These results were achieved despite the significant reduction in advertising expenditure during the year. • Visits were up 13% to 267 million (FY20:237 million). This growth is despite a decline in visits during the months of March to May 2020 while the first national lockdown was in place. Visits in H2 FY21 were up 30%, to 151m (H2 FY20: 116m). • Average monthly leads per advertiser were up 22% to 117 (FY20: 96), reflecting strengthening engagement with property-active consumers. As with visits, leads also saw a decline during the months of March to May 2020 as housing market activity was effectively suspended. However, average monthly leads per advertiser in H2 FY21 were up 31% to 130 (H2 FY20: 99). Our marketing activities have now resumed at normal levels. During the key period from Boxing Day through January 2021 we ran an extensive multi-channel marketing campaign, including TV, radio, video on demand and digital. A new vision for OnTheMarket As we move forward, our vision is to build a differentiated, technology-enabled property business providing services for agents, housebuilders, advertisers and consumers that offers ‘best in class’ products and platforms across the broader property ecosystem. Our strategy will be focussed around four key pillars, consisting of: 1. Portal An engaging and relevant property portal; 2. Software software solutions to meet evolving customer needs; 3. Data & Market Intelligence the provision of market leading data and market intelligence; and 4. Communications & Marketing Tools a leading property communications and marketing capability, both on behalf of, and in conjunction with, our customers. Further details of these strategic pillars are set out later in my report. 9 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCECHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED We will remain true to our commitment to sustainably low listing fees, aligned to first-class service to all stakeholders and the provision of a proposition differentiated by agent ownership, currently at c60% following the acquisition of Glanty. Some examples of our early but significant progress towards a more holistic offering within the broader property marketplace above are also set out later in my report. Product development Notwithstanding the impact of COVID-19, the Group continued to innovate during the year with developments to assist customers. During the national lockdown, we adapted our filters to allow consumers to search for properties that included video tours or imagery, a function designed to help qualify potential purchasers or tenants before they made contact with agents or housebuilders. This recognised the significant constraints our customers faced and the need to try and identify the most serious prospects, improving the quality of our leads and time efficiency for consumers. In December 2020 we launched an automated valuation model. Users of OnTheMarket.com can now click on a ‘Value my home’ tab and, after entering a few details, obtain an estimate of the value of their house. Consumers are also presented with the opportunity to contact agents to seek a full, professional valuation, which in turn supports the provision of high-quality leads to our customers. Advertiser customers In response to COVID-19, during the first half of the year the Group chose to suspend conversion activity of those agents on free or discounted listing contracts. The decision was made in order to further support agents given the financial stress and uncertainty that weighed on their businesses. In April 2020, we introduced new full-tariff contracts, albeit with an initial free listing period to September 2020 to provide support whilst the market recovered, which offered agents shares in the Company alongside their listing agreements. These contracts provide for the issue of a number of initial welcome shares, with additional shares to be issued based on fees paid to OnTheMarket up to 31 August 2022. In the second half of the year, once agency markets had reopened and housing transactions started to complete, we restarted the paused conversion process. As expected, not all those on free of charge listing contracts opted to 10 migrate immediately to paying contracts and this led to the removal of a number of agents from the portal. We believe that it is only fair that the minority of agents who remained under extended free contracts are now asked to pay, alongside the majority who already do so and who provide us with the revenues that we have reinvested to continue to increase our value to them through a greater quantity and quality of leads. Reflecting this strategic decision, agency branches were down 15% to 10,645 as at 31 January 2021 (2020: 12,470). However, the percentage of agency advertisers on paying contracts at the year end was 93% (31 January 2020: 68%). New homes advertiser numbers continued to grow strongly through the period, with 2,042 developments listed at 31 January 2021, up 128% from 894 at 31 January 2020. Our objective is to deliver housebuilders increasing value through access to highly-motivated and active property seekers and the delivery of incremental high quality leads. We are pleased with the progress we have made in this area over the last 12 months. Total property advertisers were 12,687 at 31 January 2021 (2020: 13,364). Whilst advertiser numbers declined slightly, the conversion or removal of those under free listings has led to a corresponding increase in agency ARPA. Much of the impact will be more evident in the current financial year, given that the conversions or removals occurred during the second half of the year to 31 January 2021, as well as that ARPA in FY21 was suppressed by the customer support discounts which we offered to agents. Nevertheless, agency ARPA in the year to 31 January 2021 was up 21% to £150 (2020: £124). New Homes ARPA increased to £83 in the year to 31 January 2021, up 168% from £31 in the year to 31 January 2020. Financial performance Group revenue and ARPA were up 22% and 16% respectively to £23m and £142, despite COVID-19 related customer support discounts of £2.6m and the curtailment of contract conversion activity during H1 FY21. The Group achieved profitability in the year as a result of measures implemented to reduce costs and conserve cash. In particular, marketing expenditure was down 51% to £5.9m (2020: £12.0m). We ended the year with a strong balance sheet, with year-end cash of £10.7m before deferred creditor payments of £0.4m (31 January 2020: £8.7m before deferred creditors of £0.7m). Further details on the Group’s financial performance are set out in the Financial Review and Key Performance Indicators section. Litigation settlement On 13 March 2020, the Group was pleased to announce that it had reached an out of court settlement between Agents’ Mutual Limited and Gascoigne Halman Limited and Connells Limited. The agreement ended all litigation proceedings between the parties. Post year-end developments On 31 March 2021 the Group announced a commercial media partnership with Reach plc, the UK’s largest commercial news publisher. This relationship is expected to enhance our consumer engagement as well as provide a valuable platform to support our estate agents’ brands via social media campaigns on a hyperlocal basis. In May 2021, we signed a commercial partnership with Insurestreet Limited, trading as Canopy, a residential lettings platform providing a rental passport for tenants, enabled by open banking, which provides tenants with the ability to report rental payments to the two main UK credit agencies (Experian and Equifax) to improve their credit history and credit score. This commercial partnership will provide our agency customers with the opportunity for free tenant referencing checks. With the private rental sector currently estimated to comprise almost 6 million households in the UK and growing, this offers us the opportunity to create more leads and value for our advertisers. Also in May 2021, we signed an exclusive commercial partnership with Sprift Technologies, the award- winning property data specialist. This will enable us to provide our agent customers with free Market Appraisal Guides which are powered by the Sprift platform via OnTheMarket Expert. On 28 May 2021 we completed the acquisition of the remaining 80% of Glanty Limited that we did not already own, following our initial investment in December 2019. Glanty is a property technology business which specialises in providing solutions to the UK residential estate and lettings sectors. The acquisition is expected to allow the Company to: • • integrate Glanty’s products and services into the OnTheMarket platform; and develop ‘best in class’ products and platforms to benefit and drive engagement with estate agents, housebuilders and consumers. Glanty is the owner and developer of software products and services designed to reduce overheads, maximise efficiencies and increase revenues for estate and lettings agents. At the time of OnTheMarket’s investment in December 2019, Glanty’s primary product was “teclet”, an automated portal for the lettings industry which manages the lettings process end-to-end, from the creation of a tenancy through to its management to renewal. In the period since that investment, revenue from sales of “teclet” has increased as its customer base has continued to grow and further new products offering similar efficiency savings for the estate agency sector have been developed. This includes a range of API partnerships which are expected to accelerate OnTheMarket’s digital commerce strategies, offering agents the opportunity to earn income by directly presenting buyers, sellers, tenants and landlords with products and services that they can purchase at appropriate points in their property journey. The initial consideration for the remaining 80% of the shares in Glanty that the Company did not already own was £156k in cash and the issue of 1,528,832 shares in OnTheMarket, alongside the repayment of £1.4m of loans. The initial consideration is subject to adjustment post-completion (with such adjustment based on Glanty’s actual net cash/net debt and actual working capital position as at completion), which may result in additional payments or recoveries depending on whether OnTheMarket or the selling shareholders of Glanty are liable in respect of any balancing payment. Additional consideration may become payable under earn-out arrangements based on revenue and EBITDA performance in the 12-month period commencing on the day following the second anniversary of completion (capped at £12m and payable in shares or cash at the Company’s discretion) and in the event that Glanty receives R&D tax credits from HMRC which relate to periods prior to completion (capped at £150k). The consideration shares are subject to lock-in arrangements which restrict their sale save in limited circumstances. 474,194 Consideration Shares are locked-in for 3 years post-completion and 1,054,638 Consideration Shares are locked-in for 4 years post- completion, relating to certain sellers actively involved in the business. All consideration shares are subject to orderly market arrangements for a further 12 months after the above initial lock-in periods have expired. Further information on Glanty is set out in note 17. 11 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSCHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED More than just a portal A strategic move from a specific listing service to a holistic approach towards service and product delivery. Portal Continued development of the onthemarket.com website with additional products, services and functionality. onthemarket.com Software Developing software solutions that benefits estate agents and house builders. Glanty & other software Communications Centre Communications & Marketing Tools Support consumer interactions in a post covid virtual environment and provide agents with engagement tools. 12 12 Data Provision Data & Market Intelligence A commitment to data and market information to inform consumers and help agents win more instructions. Future strategy 2. Software solutions As I set out above, our vision for the business sees OnTheMarket being structured around four core strategic ‘pillars’ which will drive our future growth, delivered through a mix of in-house developments, partnerships with ‘best in class’ specialist providers and, if appropriate, acquisitions. 1. Property portal Following on from extensive estate agent, letting agent, developer and consumer work groups, we have embarked upon a complete refresh of the user experience (UX) at OnTheMarket.com, with a new look and feel. The design team, which is working from a position of strength with an already popular portal, will be focusing specifically on consumer engagement strategies within the UX to encourage users to visit the site time and time again and to improve conversion rates from visits to leads. The introduction of several new ‘lead types’ (e.g. Automated Valuation Model leads and AskTheAgent) is providing new ways for consumers to interact with our advertisers, whilst at the same time providing a clear proposition which encourages such interactions. The design of new products and functionality will be focussed on increasing lead and valuation opportunities for customers. We have embarked upon a large ‘customer journey’ project, highlighting and segmenting the different cohorts of buyers, sellers, tenants and landlords with the ultimate aim of providing tailored and specific content which is useful, informative, educational and entertaining for them, as well as conducive to encouraging interaction with our advertisers. Our New Homes section of the site has grown significantly in the last 12 months and we are further developing this part of the business in response to growing numbers of housebuilder customers joining the portal. As a technology-enabled property business, OnTheMarket will continually evolve and innovate to meet the needs of both our customers’ and consumers. Our strategy is to become a valuable resource for consumers that provides detailed property data, intuitive tools and expert content to help make their property journey easier and simpler to navigate. We will adopt a rapid and nimble development strategy, driven by consumer behaviours that will provide intuitive solutions to ‘real world’ problems. In parallel, we will seek to empower agents by developing information-led solutions that enable them to operate more efficiently and support their compliance responsibilities, as well as deliver digitally based campaigns and asset toolkits, all with the ultimate aim of generating more leads and adding more value to their own social media and marketing strategies. 3. Data and market intelligence A key piece of feedback from the ‘Town Hall’ and one-to-one meetings I have held with OnTheMarket agents since joining is the requirement for more data, for, amongst other purposes, conducting valuations and providing market intelligence. In parallel, there is an increasing focus by the National Trading Standards Estate and Letting Agency Team on portals to provide consumers with more detailed information on all properties listed for sale, in order to provide increased transparency to potential buyers about any property prior to making an offer. To address these factors, in May 2021 we signed a commercial partnership with award-winning property data specialists Sprift Technologies Limited (“Sprift”) which will enable OnTheMarket to provide significantly enhanced property data to its customers. Market Appraisal Guides powered by the Sprift platform will be available for free via OTM Expert and we believe these will be a very valuable tool for agent customers. We will continue to innovate to develop the data-led services that our customers need to win instructions, convert leads and operate most efficiently. 13 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSCHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED 4. Communications and marketing Cash position As one of my priorities on joining the business, I conducted a ‘root and branch’ marketing and communications review. This led me to conclude that the OnTheMarket brand, marketing and PR execution would benefit from a new approach, with a particular focus on consumer behaviour to ensure that we can successfully compete with incumbent businesses as well as new entrants to the sector. In a competitive space, understanding who we are as a brand from the consumer’s perspective is crucial to gaining and retaining user engagement, which in turn creates a platform for our advertisers’ brands from which to create leads. This has led to the appointment of a new marketing and communications agency, Aylesworth Fleming, with significant experience in the property sector. Aylesworth Fleming has provided a brand refresh and execution strategy for both the consumer and B2B client base. This will inform all areas including the consumer facing website, ‘above the line’ activities, such as new television and radio advertising creatives and Out Of Home advertising, and ‘below the line’ activities including social media and digital advertising campaigns, as well as the introduction of nurture path strategies designed to create long-term, targeted consumer engagement. Our commercial media partnership with Reach plc is part of this new marketing and communications strategy; as the UK’s largest commercial news publisher, Reach plc’s brands ‘reach’ 80% of all UK consumers every day, through a stable of mainstream titles. In working with Reach plc on a digital campaign, we can leverage their proprietary contextual marketing platform to directly generate traffic to OnTheMarket.com, as well as motivated leads for our agents, together with supporting our agents in their own hyperlocal social media campaigns. By leveraging this relationship, we intend to create a leading property communications and marketing suite, both on behalf of, and in conjunction with, our customers. The product is expected to comprise of a bespoke social media marketing support service to agents to enhance their local presence, promote their brand through ‘success message’ and proposition USPs, and specifically engage with local consumers. This local support alongside national coverage will benefit our agent customers and provide economies of scale advantages. As at 31 May 2021, the Group had cash of £10.0m (before borrowings and deferred creditor payments within Glanty of £0.2m). The Directors have prepared and reviewed cash forecasts and projections for the Group for the next 12 months. They have also conducted sensitivity analyses and considered scenarios where the impact on future revenues is more significant and more sustained than currently experienced or anticipated, together with the mitigating actions they may take in such circumstances. Based upon these analyses, the Directors have a reasonable expectation that the Group has adequate financial resources to continue its operations for the foreseeable future. Outlook I am pleased to have joined the Company at a time when OnTheMarket.com has become established as a leading UK residential property portal, a significant achievement. I am particularly excited about the opportunities for further differentiation and to provide enhanced offerings to our customers and consumers, moving the business from being seen as ‘just a portal’ towards being a provider of end-to-end services for estate and lettings agents and housebuilders and a key value-generating element of their business strategies. I have a clear vision for our direction of travel; to become a technology-enabled property business across the four pillars of portal, software, data and market intelligence and communications and marketing. Most pleasing is that my colleagues within the business share the same vision and the drive to succeed. The operational and financial progress during the year to 31 January 2021 are a testament to the strength of the team and of the business. The return to a normal level of advertising expenditure, in conjunction with the steps we have taken since year end, including the acquisition of Glanty Limited and several commercial partnerships, and our substantial, loyal and supportive customer base, provide a strong platform from which to implement our strategy. 14 I am pleased to report that trading in the first few months of the current financial year is in line with our expectations. With the strong financial foundation the Company has established, I believe we are well placed to invest in our vision for the business, which will allow us to deliver profitable growth as we move forwards. Having achieved profitability in FY21, the Board expects to be able to invest further operationally into the business and return to normalised levels of marketing expenditure without damaging the Group’s prospects for the foreseeable future, assuming no materially adverse unforeseen circumstances arise. I would like to thank all of my new colleagues for their welcome and for their support and I look forward to working alongside them with the common goal of delivering our vision and, in doing so, value to all our stakeholders. Jason Tebb Chief Executive Officer 7 June 2021 15 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSIn December 2020 we launched an automated valuation model. Users of OnTheMarket.com can now click on a ‘Value my home’ tab and, after entering a few details, obtain an estimate of the value of their house. Consumers are also presented with the opportunity to contact agents to seek a full, professional valuation, which in turn supports the provision of high-quality leads to our customers. AVM tool launched December 2020 Users of OnTheMarket.com can now obtain an estimate of the value of their house. Consumers are also presented with the opportunity to contact agents 161616 Financial Review and Key Performance Indicators The year ended 31 January 2021 saw revenue and ARPA up 22% and 16% respectively, despite COVID-19 related customer support discounts of £2.6m and the curtailment of contract conversion activity for some months following the first lockdown in March 2020. These increases reflect the growth in paying customers and the migration of customers on discounted rates towards full-tariff contracts. The Group delivered revenue of £23.0m in the year ended 31 January 2021 (2020: £18.8m) and an adjusted operating profit of £2.4m (2020: adjusted operating loss £9.2m). At 31 January 2021, the Group had cash of £10.7m before deferred creditors of £0.4m (2020: £8.7m before deferred creditors of £0.7m). It had £10.0m of cash at 31 May 2021 (before borrowings and deferred creditor payments within Glanty of £0.2m). The reported operating profit of the Group was £1.2m (2020: reported operating loss of £11.7m) and is further analysed as follows: Reconciliation of operating profit/(loss) to adjusted operating profit/(loss): Operating profit/(loss) Adjustments for: 2021 £’000 2020 £’000 1,231 (11,688) Share-based employee incentives 683 355 Compensation net of professional fees incurred Share-based agent recruitment charges Government grant Payments in relation to loss of office Non-recurring staff related costs (941) 1,233 1,406 (449) 304 192 921 - - - Adjusted operating profit/(loss) 2,426 (9,179) The basic and diluted profit per share in the year were 3.76p and 3.42p respectively (2020: basic and diluted loss per share 17.99p). COVID-19 response As previously announced, in response to COVID-19 and the associated public health restrictions, the Group took a number of measures during the year to safeguard employee well-being, provide value and support to agent and housebuilder customers and to manage costs and conserve cash. In particular, the Group acted decisively before the formal lockdown restrictions came into place to support customers through this period of uncertainty by offering discounts on full-tariff listing agreements. Accordingly, revenue growth in the year was tempered by these discounts, which amounted to £2.6m, as well as by the suspension of activity to convert agents on short-term, introductory free of charge contracts to paying contracts during H1 FY21. The measures that were implemented to reduce costs and conserve cash proved effective. We, like many of our customers, utilised the Coronavirus Job Retention Scheme, without which there would very likely have been a significant number of redundancies. This, together with voluntary pay waivers by staff, gave rise to a reduction of £0.6m in staff costs. Marketing expenditure was significantly curtailed, down 51% to £5.9m (2020: £12.0m) in the year to support the Group’s ability to offer COVID-19 related discounts to its customers. Government grant income of £0.4m was received under the Coronavirus Job Retention Scheme, which is treated as a non-recurring item. 17 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSFINANCIAL REVIEW AND KEY PERFORMANCE INDICATORS CONTINUED Analysis of revenue and ARPA by source Operational KPIs Following the launch of the Group’s new homes function in September 2019, the Group reports revenues attributable to products and services offered to: Group operational KPIs were as follows: As at 31 Jan 2021 2020 Change • estate and letting agents; Total advertisers 12,687 13,364 (5)% (15)% Agency branches 10,645 12,470 New homes developments 2,042 894 128% • • • • Agency branches listed at 31 January 2021 were lower year-on-year as in the second half of the year the Group removed agents who had come to the end of their introductory free listing and chose not to enter a paying contract. ARPA was £142, reflecting the growing number of agents under paying contracts in the year and the migration of customers on discounted rates towards full-tariff contracts, offset by customer discounts offered in response to the COVID-19 pandemic (FY20: £122). Visits were up 13% to 267 million (FY20:237 million). This included a decline in visits during the months of March to May 2020 during which the national lockdown was in place. Visits in the second half of the year were up 30% to 151m (H2 FY20: 116m). Average monthly leads per advertiser were up 22% to 117 (FY20: 96), reflecting strong engagement with property-active consumers. Leads also saw a decline during the months of March to May 2020. Average monthly leads per advertiser in the second half of the year were up 31% to 130 (H2 FY20: 99). • new home developers; and • other, non-property advertiser customers. Costs, assets and liabilities are not attributed to the different revenue sources and so segmental reporting under IFRS 8 is not appropriate. Year ended 31 Jan 2021 £’000 2020 £’000 Change Group revenue Agency New Homes Other Group Average advertisers Agency New Homes Group ARPA Agency New Homes Group £21.2m £18.7m 13% £1.5m £0.1m 1,400% £0.3m £0.0m £23.0m £18.8m 11,789 12,497 1,496 584 13,285 12,7401 £150 £83 £142 £124 £31 £122 N/a 22% (6)% 156% 4% 21% 168% 16% 1 Average for the year impacted as New Homes only commenced in Sep 2019. Average in first 7 months of FY20 was 12,453 and in last 5 months including New Homes was 13,140. 18 The Group’s financial performance is presented in the Consolidated Income Statement on page 45. The profit for the year attributable to the owners of the Group was £2.7m (2020: loss attributable to the owners £11.5m). During the year there arose a non-cash charge of £0.7m in relation to share option awards made to employees (2020: £0.4m). Further details on options awarded, exercised and forfeited are set out in note 22. Administrative expenses in 2021 decreased by £7.4m to £20.6m (2020: £28.0m). This movement is primarily as a result of cost reduction measures implemented during the COVID-19 pandemic. Staff costs (including temporary workers and consultants) fell to £10.0m (2020: £11.9m), with £0.6m of the reduction due to utilisation of the Coronavirus Job Retention Scheme and from voluntary pay waivers and the majority of the balance from reduced staff commission payments due to the market impact of the COVID-19 response measures. Marketing expenditure was down 51% to £5.9m (2020: £12.0m), following a significant reduction implemented to support the Group’s ability to offer COVID-19 related discounts to its customers. Compensation net of professional fees of £0.9m was received in the year (2020: professional fees net of compensation incurred £1.2m), predominantly in relation to the litigation with Gascoigne Halman Limited which was settled in the year (see note 6). Grant income of £0.4m was received under the Coronavirus Job Retention Scheme (2020: £nil). An agent recruitment charge of £1.4m (2020: £0.9m) was incurred in relation to share-based charges arising on the issue of shares to certain new and existing agents following them having earlier signed new long-term listing agreements to advertise all of their UK residential sales and letting properties at OnTheMarket.com. Intangible assets were flat at £4.7m (2020: £4.7m), due to the capitalisation of staff and consultant costs incurred in the ongoing development of OnTheMarket.com being offset by the amortisation charge arising on costs previously capitalised. Receivables fell to £4.8m as at 31 January 2021 (2020: £6.1m), mainly as a result of a fall in prepayments with respect to advertising and in prepayments recognised for agent shares issued. Details on the accounting treatment for agent shares issued are set out in note 2.18. Trade and other payables as at the year end fell to £4.9m (2020: £6.8m), mainly as a result of lower year-end payables relating to advertising expenditure and the settlement of litigation during the year to 31 January 2021. Amounts due and accrued at 31 January 2020 in relation to the settled litigation were paid or credited in full in the current year. A deferred tax asset of £1.6m (2020: £nil) was recognised in the year. Further details are set out in note 11. At the end of the year, the Statement of Financial Position showed total assets of £22.9m (2020: £21.0m) and total equity of £16.9m (2020: £13.0m). OnTheMarket plc Annual Report and Consolidated Financial Statements 2021 19 19 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS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 financial risks discussed in note 20, that the Group is exposed to include: Commercial COVID-19 Description Monitoring and mitigation Measures to combat the coronavirus crisis continue to restrict the movements of, and physical interaction between, people. The UK government has introduced financial support measures for the UK residential property market, such as the stamp duty relief provisions, and markets have been very active in recent months. However, it remains too early to say what the consequences for the UK property market may be once these support measures cease. Should the economic climate deteriorate, some agents may be unwilling or unable to pay fees to the Group, which may make it difficult for the Group to maintain or grow its revenues. • • • • Furthermore, it is uncertain whether there will be greater restrictions re-imposed at a future date due to the impacts of COVID-19, COVID-19 variants or other pandemics. Regular management and Board meetings to discuss and implement appropriate responses in a rapidly changing environment. Offering competitive pricing and value for money to customers. Offering new contracts to agents alongside share offers to grow our agent shareholder base and allow the agency industry to support its portal. The Group has shown during the year that it has the ability to curtail costs if necessary, including discretionary marketing expenditure, to conserve cash and protect the Group in any future crisis. Competitive portal industry 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. Changes to the UK residential property market The Group principally derives its revenues from the UK residential property market; its customers include estate agents, letting agents and new homes developers, who pay a combination of listing fees and additional product 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. 20 • Offering competitive pricing and value for money. • • • • • • • • • Strengthening the brand and profile of OnTheMarket. com and increasing consumer traffic and customer leads through marketing spend and product development, to provide increasing value to customers. Maintaining strong agent support through shareholdings, fair pricing and developing new and value-added products and services. Focussing on innovation strategies to differentiate the core proposition from competitors. Leveraging our agent ownership to build and maintain customer loyalty. Offering competitive pricing and value for money 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 profile of OnTheMarket. com and increasing consumer traffic and customer leads through marketing spend to provide increasing value to customers. The development of new products and services to differentiate OnTheMarket.com and provide greater value to customers and consumers. Developing engagement strategies with those serious property seekers most likely to transact in any market. Commercial - continued Inability to increase the number of agents on full- tariff contracts 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 alongside new listing agreements to generate a significant and dispersed share-owning estate agency paying customer base may not be successful or may give rise to greater than anticipated dilution. Reputational Brand strength A strong brand and reputation are vital to the Group’s growth strategies. Brand strength and awareness are important to drive end user traffic to OnTheMarket. com which in turn should underpin the retention and recruitment of advertising customers. Any damage to the Group’s brand might reduce traffic and deter customers from joining or from renewing contracts. Human resources COVID-19 Employees may be affected by COVID-19 and either fall ill themselves or be unable to work whilst caring for others Monitoring and mitigation • • • • • • • • • • Continuing to invest in marketing and people to provide a first-class portal service to property-advertising customers and the property-seeking public. The commitment to charging property advertisers sustainably fair prices. Developing new products and services to offer greater value to property-advertising customers. Developing additional revenue creating opportunities for our customers. Investment in marketing and growth in traffic 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. 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. • Prioritising the health and safety of our colleagues. • • Permitting home or flexible working when appropriate to restrict travel and facilitate self-isolation. Implementing suitable health and safety procedures and providing PPE at work as appropriate. 21 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSRISK MANAGEMENT AND PRINCIPAL RISKS CONTINUED Human resources - continued The Group’s operations are dependant on the experience, skills and knowledge of its executive officers 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. • Instilling a strong team culture within the Group. • • • Management has significant experience in building teams and integrating new team members. Providing competitive compensation packages, which vest over time to encourage retention. Monitoring and assessing staff satisfaction and engagement with surveys and analysis. Description Monitoring and mitigation 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. Failure to comply with GDPR could result in the Group being liable under GDPR, including for fines. With government support measures still in place, the full implications of COVID-19 on the state of the UK economy are as yet unknown. A rise in UK unemployment or issues in global trade from travel restrictions between countries may also give rise to adverse economic impacts. • 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. Regular management and Board meetings to discuss and implement appropriate responses to any changes. Offering competitive pricing and value for money to customers if their markets are weak Employees IT/Data Security breaches Data The General Data Protection Regulation (“GDPR”) Economic Recession 22 s172 Statement The Board has a duty under s172 of the Companies Act 2006 to promote the success of the Company for the benefit of its stakeholders. All decisions are made with this objective and the Board considers the long-term implications of its actions. The Group has a continuous stakeholder engagement programme in which both Executive and Non-Executive Directors participate to ensure the Board is aware of stakeholder interests. The Directors believe that the long-term success of the business depends on them giving due regard to all stakeholder interests when making decisions and that the decisions made should prioritise long-term value creation over short-term gains. The Directors also consider the impact of the Group’s activities on the environment and the community. During the year the Group announced the departure of Ian Springett, then Chief Executive Officer, and the subsequent appointment of Jason Tebb, who took up the role of Chief Executive Officer on 14 December 2020. Chris Bell, Non-executive Chairman, engaged directly with larger shareholders and customers to discuss these changes, which the Board believes will benefit stakeholders. The Group believes its employees are its greatest asset and it seeks to establish policies that provide a working environment that is safe, enjoyable and rewarding. A dedicated HR resource was established in the year to allow for better employee communications and to establish more formal performance management and review procedures. In addition, many employees hold options over shares in the Company, which aligns their interests with those of the business and is intended to reward them for work they do in helping the Group successfully achieve its objectives. A “Colleague of the Month” scheme was established during the year, allowing staff to nominate colleagues who have gone the extra mile in the work place, with the winner receiving a prize and additional holiday. Recognising the impact of the COVID-19 pandemic on staff, since March 2020 the Group has allowed staff to work from home. Staff surveys have been conducted as to when and how any return to the workplace should be implemented, with more flexible ongoing arrangements under consideration. In addition, during the year the Group put in place a mental health and wellbeing scheme, giving all staff access to mental health support services. Since the year end, a staff satisfaction survey has been established which will act as a measure of employee engagement and provide opportunities for feedback to the senior management team. The Group utilised the government’s Coronavirus Job Retention Scheme, with a number of employees placed on furlough leave during 2020. Marketing spend was also reduced in the year, in response to the restrictive measures put in place due to COVID-19 and the impact these had on customers. These decisions were taken in the interests of our staff, customers and other stakeholders to protect jobs and support customer discounts whilst ensuring the Group retained a strong balance sheet to position it to still deliver value in the longer-term. Given the success of these measures, since the year end the Board has resolved that the Company should repay in full to HMRC the grants received under the Coronavirus Job Retention Scheme. The Board believes this is the appropriate course of action and in line with the Group’s commitment to being a good and responsible corporate citizen. Critical to the success of the Group is its long-term relationship with agents and new homes developers as they represent our suppliers and customers, as well as being in many cases our shareholders. The Board believes the decisions it has made have been appropriate both to support these stakeholders and to foster stronger, long-term relationships with them. In particular, it has always been, and remains, a strategy of the Group to welcome more agents as shareholders in the Company to foster commonality of interests and build long-term, mutually beneficial relationships. 0.7m shares were issued to agents during the year following them signing new long-term listing agreements (see note 23 to these accounts for further details). 23 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe reputation of the Group and its brand image are considered by the Board to be critical to its success. As such the Board promotes a culture and workplace that demonstrate integrity and where all employees are encouraged to perform in line with best business practices. A review of its policies in areas such as whistleblowing, dignity at work, equal opportunities and anti-corruption is planned to ensure these remain appropriate and in line with legal requirements and best practice. The Group has also set up a series of engagement forums where our teams can have a direct input into the future strategic direction of the business, based upon their feedback from customers and consumers. Overall, in considering and taking decisions the Board seeks to act in the best interests of the business and all its stakeholders, treating all members fairly. On behalf of the Board Jason Tebb Chief Executive Officer 7 June 2021 S172 STATEMENT CONTINUED Additionally, after the year end the Group completed the acquisition of Glanty Limited, which the Board believes will allow it to develop and provide a greater range of value added products and services to customers and deliver long-term value to all stakeholders. The importance of the Group’s long-term relationships with its customers was reflected in its response to the COVID-19 pandemic, where the Group offered discounts totalling £2.6m to its customers, whose businesses were impacted by the effective closure of the UK housing market. In addition, during the second and third quarters of 2020 the Group curtailed its activities to convert agents onto paying and full-tariff contracts, recognising the financial stress and uncertainty that weighed on their businesses. More recently, the Group has increased its engagement with customers through a range of measures, including the hosting of ‘virtual town hall’ meetings with agents by the Chief Executive Officer and the establishment of email addresses for customers to use to make suggestions as to how the Group might improve the quality and range of services it offers. The Group has enhanced its social media engagement and presence with a view to more effectively communicated its messaging to both customers and consumers. The Group is mindful of its role within its local communities and seeks to minimise the impact of its operations on the environment and to be a good neighbour. The Group has a fleet of leased vehicles for use by staff who are required, when permitted, to travel regularly to visit customers. A number of vehicle leases will require renewal later this year and new leases entered will be for hybrid or electric vehicles other than where special circumstance exist. More flexible working arrangements and the use of technology such as video meetings are also reducing the environmental impact of commuting or travelling for work by staff and contractors. The Group engages regularly with its key suppliers and its policy is to target 100% of invoices to be settled by the due date. The Group has been grateful for the engagement with, and support of, its suppliers. In a number of cases, these strong relationships were the basis of constructive dialogues in addressing the challenges of COVID-19, with certain suppliers providing temporary discounts and revised terms, including deferred payment dates. 24 Governance OnTheMarket plc Annual Report and Consolidated Financial Statements 2021 25 Board of Directors Christopher Bell Non-Executive Chairman Jason Tebb Chief Executive Officer Clive Beattie Chief Financial Officer Jason joined the business on 14 December 2020. He brings extensive property and estate agency experience across digital and physical markets, having been Group COO of Ultimate Holdings for the previous three years, a group of companies specialising in property investment and finance, property management, property development and property technology. Prior to this, Jason successfully launched, scaled and exited Ivy Gate, an estate and letting agency, was a Regional Managing Director at main market listed LSL Property Services PLC for three years and held senior management positions at agents Chestertons and Foxtons. Clive joined the business in March 2017. In addition to his role as CFO, Clive was Acting Chief Executive Officer of OnTheMarket from 9 March 2020 until 14 December 2020, when Jason Tebb joined as Chief Executive Officer. Having qualified 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 and CFO at Croft Associates, a business specialising in containers for the transport, storage and disposal of radioactive materials. Chris joined OnTheMarket as its Non- Executive Chairman in October 2017 as the Group prepared for its proposed placing and admission to AIM. He has considerable listed board experience across a range of sectors. Chris 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. As Non-Executive Chairman of three other AIM-listed companies, he took both XL Media plc and TechFinancials, Inc to market and has since May 2018 chaired Team17 Group plc. He resigned from TechFinancials, Inc in March 2020. 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. 2626 Helen Whiteley Commercial Director Ian Francis Non-Executive Director Rupert Sebag-Montefiore Non-Executive Director 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. 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. Rupert joined OnTheMarket as a Non- Executive Director in February 2020. Rupert has extensive Board experience at both listed and private companies. He is currently a Non-Executive Director at Clarion Housing Association (the UK’s largest housing association) and Pigeon Land Limited (a development land promotion company). Prior to this he was on the Savills plc main Board, followed by the Group Executive Board, for 21 years. His roles included CEO of Savills’ principal UK subsidiary for 12 years and Head of Global Residential. He has also previously served as Non- Executive Chairman of Fastcrop plc, which operated the property web portal PrimeLocation, as Non-Executive Director of Adventis, a marketing company, during its flotation on AIM, and as Chairman of the Finance Committee for a university. Rupert now sits on a number of external investment committees, including Christ Church College at the University of Oxford, is a Trustee of the Orchestra of the Age of Enlightenment and chairs the property companies for the private office of a European family. OnTheMarket plc Annual Report and Consolidated Financial Statements 2021 27 27 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Directors’ Report year ended 31 January 2021 The Directors present their report together with the financial statements for the year ended 31 January 2021. Principal activities Directors’ interests The principal activity of OnTheMarket plc (the “Company”) during the year 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 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 present membership of the Board, together with biographies of each Director, are set out on pages 26-27. All of these Directors served for all or part of the year. Directors’ interests in shares in the Company are set out in the Directors’ Remuneration Report. Directors’ third party indemnity provisions The Group maintains appropriate insurance to cover directors’ and officers’ 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. Results and dividends Employees An analysis of the Group’s performance is contained within the Strategic Report. The Group’s income statement is set out on page 45 and shows the result for the year. No dividends were proposed or paid (2020: £nil) to the holders of ordinary shares during the year. Directors The Directors who held office during the year or up to the date of signature of the financial statements were as follows: Clive Beattie Ian Springett (resigned 9 March 2020) Jason Tebb (appointed 14 December 2020) Helen Whiteley Christopher Bell Ian Francis Rupert Sebag-Montefiore (appointed 27 February 2020) Political and charitable donations The Group made no charitable donations during the year (2020: £nil). 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. Going concern The Group made a profit after tax for the year of £2.7m (2020: loss of £11.5m) and as at 31 January 2021 the Group had a cash balance of £10.7m before deferred creditors of £0.4m (2020: £8.7m before deferred creditors of £0.7m). At 31 May 2021, the Group had cash after the acquisition of Glanty of £10.0m (before borrowings and deferred creditor payments within Glanty of £0.2m). The Directors have prepared and reviewed cash forecasts and projections for the Group for the next 12 months. They have also conducted sensitivity analyses and considered scenarios where there is an adverse impact on future revenues, together with the mitigating actions they may take in such circumstances, such as a reduction in budgeted discretionary expenditure. 28 Statement of disclosure to auditors We, the Directors of the Company and Group, who held office at the date of the approval of these Consolidated Financial Statements as set out above, each confirm 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 financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board Jason Tebb Chief Executive Officer 7 June 2021 Based upon these projections and analyses the Directors have a reasonable expectation that the Group has adequate financial 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 financial statements. Future developments The Directors have discussed the future developments for the business within the Outlook section of the Strategic Report on pages 14-15, in accordance with Section 414C(11) of the Companies Act 2006. Financial instruments The Group’s risk management policies in relation to financial instruments are set out in note 20 to these Consolidated Financial 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. Research and development The Group undertakes research and development activity in order to develop new products and services and to continually improve the OnTheMarket.com portal. Further details are disclosed in note 2.9 to these Consolidated Financial Statements. Post Balance Sheet Events Details of significant events since 31 January 2021 are disclosed in note 27 to these Consolidated Financial Statements. 29 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSCorporate Governance Statement year ended 31 January 2021 The Board is committed to effective and robust corporate governance and continues to progress and embed the Company’s corporate governance procedures. The Board has agreed to apply the QCA Code without any significant deviations. 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. Principle 1 of the QCA Code requires the Board to establish a strategy and business model which promote long-term value for shareholders. These are described in more detail in the Chief Executive Officer’s Report in these accounts. The Board The full biographies of the Directors can be found on pages 26-27. At the date of this report, the Board comprises three Executive Directors and three Non-Executive Directors, one of whom is the Non-Executive Chairman. • • • • • • Christopher Bell - Non-Executive Chairman - Joined October 2017 Clive Beattie - Chief Financial Officer - Joined July 2017 Helen Whiteley - Commercial Director - Joined July 2017 Ian Francis - Non-Executive Director - Joined October 2017 Rupert Sebag-Montefiore - Non-Executive Director - Joined February 2020 Jason Tebb - Chief Executive Officer - Joined December 2020 The Chairman and the Chief Executive Officer (or Acting Chief Executive Officer) have separate and clearly defined roles. The Chairman is responsible for overseeing the Board and the Chief Executive Officer (or Acting Chief Executive Officer) is responsible for implementing the stated strategy of the Company and for its operational performance. Clive Beattie served as Chief Financial Officer and Acting Chief Executive Officer following the departure of the previous Chief Executive Officer in March 2020. Jason Tebb joined the Board as Chief Executive Officer in December 2020, at which point Clive Beattie resumed his role as Chief Financial Officer. The Chairman is committed to ensuring that the Board comprises sufficient 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 sufficient 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 fulfil their duties as Directors. Non-Executive Directors/Board independence The Company has three independent Non-Executive Directors, Christopher Bell (Non-Executive Chairman), Ian Francis and Rupert Sebag-Montefiore, 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 and 14,285 shares in the placing which occurred on 23 December 2019. On 3 July 2020 Rupert Sebag-Montefiore acquired 11,365 shares in the Company. However, due to the small size of these shareholdings, the Directors do not consider that this impacts on either Director’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 financial performance and internal controls. In advance of each meeting, the Chairman sets the agenda, with the assistance of the 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 as appropriate. 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. 30 Director Position Board Committee Independence Max possible attendance Meetings attended Nomination Audit Remuneration Agent Recruitment Christopher Bell Ian Francis Rupert Sebag- Montefiore1 Jason Tebb2 Clive Beattie3 Helen Whiteley Ian Springett4 Non- Executive Chairman Non- Executive Director Non- Executive Director Chief Executive Officer Chief Financial Officer Commercial Director Chief Executive Officer 9 9 9 1 9 9 1 9 9 9 1 9 9 1 6 6 5 - - - 1 2 2 2 - - - - 5 5 4 - - - - 4 4 4 1 4 4 - ✔ ✔ ✔ - - - - 1 Appointed 27 February 2020 2 Appointed 14 December 2020 3 Acting Chief Executive Officer and Chief Financial Officer from 9 March 2020 to 14 December 2020 4 Resigned 9 March 2020 Matters reserved for the Board 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 Recruitment Committee. The Directors’ Remuneration Report can be found on pages 34-37. 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 benefits and employee issues • Delegation of authority • • Corporate governance matters Policies 31 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSCORPORATE GOVERNANCE STATEMENT CONTINUED The Remuneration Committee The Nomination Committee The Remuneration Committee is chaired by Rupert Sebag-Montefiore and Christopher Bell and Ian Francis are the other members. 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. The Remuneration Committee has responsibility for determining, within agreed terms of reference, the Group’s policy on the remuneration of senior executives and specific remuneration packages for Executive Directors, including pension payments and compensation rights. It is also responsible for making recommendations for grants of options 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 and Rupert Sebag-Montefiore are the other members. The Audit Committee meets at least twice a year. The Audit Committee has the primary responsibility for ensuring that the financial performance of the Group is properly measured, reported on and monitored. In performing this role, part of its function is to review management’s approach to any key judgemental areas of reporting and the related comments of the external auditor on these. The Audit Committee also ensures that at least some of each meeting with the auditors is conducted without any executives present. 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. 32 Christopher Bell chairs the Nomination Committee. Ian Francis and Rupert Sebag-Montefiore 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. During the year, the Nomination Committee met to consider the appointment of Rupert Sebag-Montefiore, Non-Executive Director, as well as a number of meetings with regard to Ian Springett’s departure and the appointment of a new Chief Executive Officer. External advice was taken from Korn Ferry, an organisational consultancy firm, to manage the selection and appointment process, identify suitable candidates and consider appropriate remuneration packages, which led to the appointment of Jason Tebb as the new Chief Executive Officer. The Agent Recruitment Committee The Board has also established an Agent Recruitment Committee, comprising any one of the Non-Executive Directors and any two 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 Following his appointment to the Board on 14 December 2020, Jason Tebb retires and is standing for election to the Board. Rupert Sebag-Montefiore retired and was re-elected at the Company’s annual general meeting in July 2020. Accordingly he is not retiring and standing for re-election at this year’s annual general meeting. All of the other Directors retired and were re-elected at the Company’s annual general meeting in July 2018. Accordingly, they 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 Corporate culture 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. The Board delegates day-to-day risk management to the executives, however it requires regular feedback on the risk systems adopted, any issues or new risks arising and actions proposed and taken. More details are set out in the Risk Management and Principal Risks section of this report. 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 Non-Executive Directors 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 Officer (or Acting Chief Executive Officer). The committee is also the primary forum within which Board development is discussed. The Nomination Committee, comprising the Non-Executive Directors, 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. As part of the process of appointing a new Chief Executive Officer, a review of the incumbent senior management team was undertaken to identify strengths and weaknesses and highlight complementary skills, experience and attributes that the new Chief Executive Officer should possess to strengthen the team. The review concluded that each of the executive managers had significant strengths in their fields of expertise but that the team would benefit as a whole from the introduction of a Chief Executive Officer with direct experience in the UK residential agency and new home development markets. Jason Tebb’s appointment complemented the existing team through his substantial experience from his prior roles in those markets. The Board places significant 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. Since the year end, an external consultant has been engaged to oversee regular, anonymous employee feedback surveys. Results will be reported to the Board and seek to identify areas where employees believe the Board and management could take actions to improve the work environment and corporate culture, internally and externally. 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 financial and operational matters. The Company meets with shareholders on formal roadshows after publication of interim and preliminary final results and holds ad hoc meetings with shareholders during the course of the year. On behalf of the Board Christopher Bell Non-Executive Chairman 7 June 2021 33 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSDirectors’ Remuneration Report year ended 31 January 2021 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 financial year by each Director of the Company acting in such a capacity during the financial 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 Rupert Sebag-Montefiore and Christopher Bell and Ian Francis are its other members. The Remuneration Committee seeks input from the Chief Executive Officer (or Acting Chief Executive Officer). The Remuneration Committee refers to external evidence of pay and employment conditions in other companies and is free to seek advice from external advisers. During the year a new Chief Executive Officer was appointed, with advice received from Korn Ferry, an organisational consultancy firm. The Remuneration Committee considered and recommended the appropriate remuneration arrangements, with advice from Eversheds Sutherland LLP on appropriate equity scheme arrangements. As part of this process, the Remuneration Committee also considered and approved new remuneration arrangements for Clive Beattie, Chief Executive Officer, in his role as Acting Chief Executive Officer and thereafter. Further details on these arrangements, including the award of options under the Company’s Long Term Investment Plan, are set out below in this report. Policy on remuneration of Directors The Remuneration Committee has responsibility for determining, within agreed terms of reference, the Group’s policy on the remuneration of senior executives and specific 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 reflective 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 flexible 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: 34 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, including contractual payments due on loss office, paid to Directors by the Group were £948k (2020: £793k). On his appointment as Acting Chief Executive Officer, Clive Beattie’s salary was increased to £250,000 per annum. His salary remained at this level until 31 January 2021. From 1 February 2021, his salary has been £215,000 per annum. Jason Tebb joined the Group on 14 December 2020 on a salary of £270,000 per annum. There were no other changes to the salaries of the Executive Directors or to the rates of fees for Non-Executive Directors during the year. Bonus The Company has a formal bonus scheme which was effective for the Executive Directors. No bonuses were paid to the Executive Directors by the Group (2020: nil). Pensions Contributions made to Directors’ pensions in the year were £3k (2020: £5k). The Executive Directors and the Chairman receive pensions from the Company under the government workplace NEST pension scheme (currently contributions of 3% of qualifying remuneration are paid by the Company). Benefits Benefits for Executive Directors comprise life assurance, income protection and private health care. The benefits were introduced late in 2020 and total £3k in the year (2020: £nil). Share incentive Share options were issued to Directors as follows during the year: Director Date of grant Date of normal vesting Holding period end date C Beattie 10 September 2020 1 February 2023 n/a C Beattie 10 September 2020 10 September 2023 10 September 2025 J Tebb 14 December 2020 14 December 2023 14 December 2025 Number of options Fair value of options (£) 119,048 285,714 379,249 784,011 91,667 185,714 352,702 630,083 All the above options were issued pursuant to the Company’s Long Term Investment Plan over ordinary shares of £0.002 in the Company. All the options have a nil exercise price and are subject to performance conditions based on the total shareholder return achieved by the Company relative to the FTSE AIM 100 Index in the three years prior to the relevant normal vesting date. No options were issued to Directors in 2019. No options were exercised by the Directors during the year (2020: nil). Subsequent to his resignation as a Director on 9 March 2020, Ian Springett has exercised a total of 693,162 options. 35 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSDIRECTORS’ REMUNERATION REPORT CONTINUED Company policy on contracts of service The Executive Directors of the Company do not have a notice period in excess of 12 months under the terms of their service contracts. Their service contracts contain no provisions for pre-determined compensation on termination which exceeds 12 months’ salary and benefits in kind. Non-Executive Directors do not have service contracts with the Company, but have letters of appointment which can be terminated on 3 months’ notice. Company policy on external appointments The Company recognises that its Directors are likely to be invited to become non-executive directors of other companies and that exposure to such non-executive duties can broaden their experience and knowledge, which will benefit the Group. Executive and Non-Executive Directors are therefore, subject to approval of the Company’s Board, allowed to accept non-executive appointments, as long as these are not with competing companies and are not likely to lead to conflicts of interest. Executive and Non-Executive Directors are allowed to retain the fees paid. Directors’ emoluments The figures below represent emoluments earned by Directors from the Group during the financial year: Executive Directors: J Tebb C Beattie I Springett1 H Whiteley Non-Executive Directors: C Bell I Francis R Sebag-Montefiore Total remuneration Salary & fees £’000 Benefits £’000 Pensions £’000 2021 Total £’000 2020 Total £’000 37 253 277 190 757 95 50 46 191 948 1 1 - 1 3 - - - - 3 - 1 - 1 2 1 - - 1 3 38 255 277 192 762 96 50 46 192 954 - 191 252 201 644 101 53 - 154 798 1 Salary for 2021 includes contractually entitled payment of notice on termination of £250,000. Changes to Board members During the year, Rupert Sebag-Montefiore joined as a Non-Executive Director (27 February 2020), Ian Springett resigned as a Director (9 March 2020) and Jason Tebb joined as a Director (14 December 2020). 36 Directors’ interests The interests of the Directors and their spouses in the shares of the Company at 31 January were as follows: OnTheMarket plc ordinary shares of £0.002: C Beattie I Springett1 H Whiteley C Bell I Francis R Sebag-Montefiore2 J Tebb3 1 Resigned 9 March 2020 2 Appointed 27 February 2020 3 Appointed 14 December 2020 2021 2020 Shares No. 30,303 n/a 90,909 44,588 - 11,365 Options No. 556,277 n/a 1,733,184 - - - - 379,249 Shares No. 30,303 96,969 90,909 44,588 - - - Options No. 151,515 3,466,367 1,733,184 - - - - 177,165 2,668,710 262,769 5,351,066 No dividends were paid to the Directors during the year. On behalf of the Board Rupert Sebag-Montefiore Non-Executive Director, Remuneration Committee Chairman 7 June 2021 37 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSDirectors’ Responsibilities Statement year ended 31 January 2021 The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Company financial statements for each financial year. The Directors have elected under company law and the AIM Rules of the London Stock Exchange to prepare Group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and have elected under company law to prepare the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including Financial Reporting Standard 101: Reduced Disclosure Framework (“FRS 101”). The Group financial statements are required by law and international accounting standards in conformity with the requirements of the Companies Act 2006 to present fairly the financial position and performance of the Group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing each of the Group and Company financial statements, the Directors are required to: a. select suitable accounting policies and then apply them consistently; b. make judgements and accounting estimates that are reasonable and prudent; c. d. for the Group financial statements, state whether they have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the OnTheMarket plc website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 38 Independent Auditor’s Report to the Members of OnTheMarket plc year ended 31 January 2021 Opinion We have audited the financial statements of OnTheMarket plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 January 2021 which comprise 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 and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Accounting Standards in conformity with the requirements of the Companies Act 2006. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice). In our opinion: • • • • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 January 2021 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of accounting included examining management’s cash flow model (2-years to 31 January 2023) and performing our own sensitivity analysis, by reference to existing cash levels, current revenue run rate and consideration of the level of discretionary expenditure. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s or the parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 39 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT CONTINUED Summary of our audit approach Key audit matters Group • None Parent Company • None Materiality • Overall materiality: £230,000 • Overall materiality: £115,000 (2020: £592,000) (2020: £296,000) • Performance materiality: £173,000 • Performance materiality: £86,000 (2020: £444,000) (2020: £222,000) Scope Our audit procedures covered 100% of revenue, 96% of total assets and 92% of profit before tax. Key audit matters We have determined that there are no key audit matters to communicate in our report. 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 financial statements as a whole, could reasonably influence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements. Based on our professional judgement, we determined materiality as follows: Group Parent Company Overall materiality £230,000 (2020: £592,000) £115,000 (2020: £296,000) Basis for determining overall materiality 1% of revenue 0.2% of net assets Rationale for benchmark applied Performance materiality Basis for determining performance materiality Reporting of misstatements to the Audit Committee Revenue is a key indication of the group’s growth. This is a driver for ultimate profitability in the long- term on the basis that a proportion of the group’s overhead expenditure is discretionary and varies year on year. This measure therefore eliminates variations in profitability. Net assets is considered to be the most appropriate benchmark for the parent company as it is primarily a holding company. The percentage applied to the benchmark has been restricted for the purposes of calculating an appropriate component materiality. £173,000 (2020: £444,000) £86,000 (2020: £222,000) 75% of overall materiality 75% of overall materiality Misstatements in excess of £11,500 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds. Misstatements in excess of £6,000 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds. We applied an overall materiality for the group in the year ended 31 January 2020 based on a profit before tax benchmark. We have revised the benchmark in the year ended 31 January 2021 to revenue. This is because the group’s performance has been impacted by Covid-19 in the year ended 31 January 2021 which has given rise to a reduction in the marketing spend and other overheads. On this basis we have applied a revenue-based benchmark as this is considered most appropriate to eliminate the impact of these changes in the year. 40 An overview of the scope of our audit The group consists of 3 components, all of which are based in the UK. The coverage achieved by our audit procedures was: Full scope audit Total Number of components Revenue Total assets 2 2 100% 100% 96% 96% Profit before tax 92% 92% Analytical procedures at group level were performed for the remaining 1 component. Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. 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 identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • • • • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. 41 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT CONTINUED Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 38 the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The extent to which the audit was considered capable of detecting irregularities, including fraud Irregularities are instances of non-compliance with laws and regulations. The objectives of our audit are to obtain sufficient appropriate audit evidence regarding compliance with laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements, to perform audit procedures to help identify instances of non-compliance with other laws and regulations that may have a material effect on the financial statements, and to respond appropriately to identified or suspected non-compliance with laws and regulations identified during the audit. In relation to fraud, the objectives of our audit are to identify and assess the risk of material misstatement of the financial statements due to fraud, to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud through designing and implementing appropriate responses and to respond appropriately to fraud or suspected fraud identified during the audit. However, it is the primary responsibility of management, with the oversight of those charged with governance, to ensure that the entity’s operations are conducted in accordance with the provisions of laws and regulations and for the prevention and detection of fraud. In identifying and assessing risks of material misstatement in respect of irregularities, including fraud, the group audit engagement team. obtained an understanding of the nature of the industry and sector, including the legal and regulatory frameworks that the group and parent company operates in and how the group and parent company are complying with the legal and regulatory frameworks; inquired of management, and those charged with governance, about their own identification and assessment of the risks of irregularities, including any known actual, suspected or alleged instances of fraud; discussed matters about non-compliance with laws and regulations and how fraud might occur including assessment of how and where the financial statements may be susceptible to fraud. • • • 42 The most significant laws and regulations were determined as follows: Legislation / Regulation Additional audit procedures performed by the Group audit engagement team included: IFRS, FRS 101 and Companies Act 2006 Tax compliance regulations • Review of the financial statement disclosures and testing to supporting documentation; • Completion of disclosure checklists to identify areas of non-compliance. • Inspection of advice received from external tax advisors. The areas that we identified as being susceptible to material misstatement due to fraud were: Risk Audit procedures performed by the audit engagement team: Capitalisation of development costs • • Testing a sample of additions in the year to supporting contracts and invoices. Assessing the reasonableness of costs capitalised for each relevant member of staff or contractor year on year. • Holding discussions with the group’s Product & Technology Director. Management override of controls • • • Testing the appropriateness of journal entries and other adjustments. Assessing whether the judgements made in making accounting estimates are indicative of a potential bias. Evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. A further description of our responsibilities for the audit of the financial 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 Date: 7 June 2021 43 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSFinancial Statements 44 Consolidated Income Statement year ended 31 January 2021 Revenue Administrative expenses Operating profit / (loss) before specific professional fees, share-based payments and non-recurring items Specific professional fees, share-based payments and non-recurring items: Share-based management incentive Professional fees net of compensation received Share-based agent recruitment charges Government grant Payments in relation to loss of office Non-recurring staff related costs Operating profit / (loss) Finance income Finance expense Share of loss of associate Profit / (loss) before income tax Income tax Profit / (loss) and total comprehensive income for the year attributable to owners of the parent Profit / (loss) per share from continuing operations Basic Diluted Notes 4 5 6, 22 6 6 6 6 6 7 9 10 17 11 12 12 2021 £’000 23,028 2020 £’000 18,810 (20,602) (27,989) 2,426 (9,179) (683) 941 (1,406) 449 (304) (192) 1,231 25 (22) (94) 1,140 1,542 2,682 Pence 3.76 3.42 (355) (1,233) (921) – – – (11,688) 45 (16) – (11,659) 192 (11,467) Pence (17.99) (17.99) The operating profit arises from the Group’s continuing operations. There is no recognised income or expense for the year other than the profit shown above and therefore no separate statement of other comprehensive income has been presented. The notes on pages 51 to 77 are an integral part of these consolidated financial statements. 4545 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSConsolidated Statement of Financial Position at 31 January 2021 ASSETS Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Investments in associates Deferred tax asset Current assets Trade and other receivables Cash and cash equivalents TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Lease liabilities Provisions Current tax Non-current liabilities Lease liabilities Provisions TOTAL LIABILITIES NET ASSETS 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 2021 £’000 2020 £’000 13 14 15 17 11 18 19 14 21 14 21 23 103 180 4,685 851 1,558 7,377 4,793 10,719 15,512 22,889 (4,934) (157) (622) (16) (5,729) (2) (258) (260) (5,989) 16,900 145 47,453 (71) 782 (31,409) 16,900 127 373 4,697 985 – 6,182 6,113 8,685 14,798 20,980 (6,814) (200) (707) (7) (7,728) (110) (101) (211) (7,939) 13,041 140 46,814 (71) 701 (34,543) 13,041 The notes on pages 51 to 77 are an integral part of these consolidated financial statements. These consolidated financial statements are approved by the Board of Directors and authorised for issue on 7 June 2021 and are signed on its behalf by: Clive Beattie Chief Financial Officer 46 Company Statement of Financial Position at 31 January 2021 ASSETS Non-current assets Investments in subsidiaries Investments in associates Current assets Trade and other receivables Cash and cash equivalents TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Current tax TOTAL LIABILITIES NET ASSETS EQUITY Share capital Share premium Other reserve Retained earnings TOTAL EQUITY Notes 16 17 18 19 23 2021 £’000 – 851 43,011 6,189 50,051 (58) (16) (74) 2020 £’000 – 985 41,099 7,062 49,146 (666) (7) (673) 49,977 48,473 145 47,453 782 1,597 49,977 140 46,814 701 818 48,473 The Company’s profit and total comprehensive income for the year was £327k (2020: loss of £1,843k). The notes on pages 51 to 77 are an integral part of these consolidated financial statements. These consolidated financial statements are approved by the Board of Directors and authorised for issue on 7 June 2021 and are signed on its behalf by: Clive Beattie Chief Financial Officer 47 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSConsolidated Statement of Changes in Equity year ended 31 January 2021 At 1 February 2019 Loss for the financial period Total comprehensive expense for the period Transactions with owners: Shares issued for placing Shares issued for agent recruitment shares Shares issued for employee share options Legal and professional fees on placing shares issued Share-based payment charge on employee options Transfer to retained earnings At 31 January 2020 At 1 February 2020 Profit for the financial period Total comprehensive income for the period Transactions with owners: Shares issued for agent recruitment shares Shares issued for employee share options Share-based payment charge on employee options Transfer to retained earnings Share capital £’000 Share premium £’000 123 40,698 – – 10 6 1 – – 140 140 – – 2 3 – – – – 3,390 2,912 – (186) – – 46,814 46,814 – – 639 – – – At 31 January 2021 145 47,453 Share- based payment £’000 – – – – – – – 493 (493) – – – – – – 452 (452) – Other reserves £’000 Merger reserve £’000 Retained earnings £’000 Total equity £’000 111 (71) (23,569) 17,292 – – – 590 – – – – 701 701 – – 81 – – – – – – – – – – – (71) (71) – – – – – – (11,467) (11,467) (11,467) (11,467) – – – – – 493 (34,543) (34,543) 2,682 2,682 – – – 452 3,400 3,508 1 (186) 493 – 13,041 13,041 2,682 2,682 722 3 452 – 782 (71) (31,409) 16,900 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. Other reserves Other reserves represent movements in share prices from contract date to share issue date in relation to the issue of agent recruitment shares (see note.2.19). 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. Retained earnings Retained earnings represent the cumulative profit and loss net of distributions to owners. The notes on pages 51 to 77 are an integral part of these consolidated financial statements. 48 Company Statement of Changes in Equity year ended 31 January 2021 Share capital £’000 Share premium £’000 123 40,698 – – 10 6 1 – – – – – 3,390 2,912 – (186) – – 140 140 46,814 46,814 – – 2 3 – – – – 639 – – – 145 47,453 Share- based payment reserve £’000 – – – – – – – 493 (493) – – – – – – 452 (452) – Other reserves £’000 Retained earnings £’000 Total equity £’000 111 2,168 43,100 – – – 590 – – – – 701 701 – – 81 – – – (1,843) (1,843) (1,843) (1,843) – – – – – 493 818 818 327 327 – – – 452 3,400 3,508 1 (186) 493 – 48,473 48,473 327 327 722 3 452 – 782 1,597 49,977 At 1 February 2019 Loss for the financial period Total comprehensive expense for the period Transactions with owners: Shares issued for placing Shares issued for agent recruitment shares Shares issued for employee share options Legal and professional fees on placing shares issued Share-based payment charge on employee options Transfer to retained earnings At 31 January 2020 At 1 February 2020 Profit for the financial period Total comprehensive income for the period Transactions with owners: Shares issued for agent recruitment shares Shares issued for employee share options Share-based payment charge on employee options Transfer to retained earnings At 31 January 2021 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. Other reserves Other reserves represent movements in share prices from contract date to share issue date in relation to the issue of agent recruitment shares (see note.2.19). Retained earnings Retained earnings represent the cumulative profit and loss net of distributions to owners. The notes on pages 51 to 77 are an integral part of these consolidated financial statements. 49 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSConsolidated Statement of Cash Flows year ended 31 January 2021 Cash flows from operating activities Profit / (loss) for the year after income tax Adjustments for: Income tax Finance income Finance expense Amortisation Depreciation Agent recruitment expense Share-based payment Share of loss of associate Operating cash flows before movements in working capital Decrease / (increase) in trade and other receivables (Decrease) / increase in trade and other payables Increase / (decrease) in provisions Tax (paid)/received Net cash generated from / (used in) operating activities Cash flows from investing activities Finance income received Acquisition of intangible assets Acquisition of tangible assets Acquisition of associate Net cash used in investing activities Cash flows from financing activities Finance expense paid Proceeds from issue of shares Repayment of lease liabilities Expenses incurred for share listing Net cash (used in) / generated from financing 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 2021 £’000 2020 £’000 2,682 (11,467) (1,542) (25) 22 2,204 388 1,406 452 94 5,681 592 (1,267) 72 (7) 5,071 25 (2,192) (26) (527) (2,720) (18) 2 (301) – (317) 2,034 8,685 10,719 (192) (45) 16 1,856 273 921 493 – (8,145) (343) 1,517 (201) 193 (6,979) 45 (2,605) (37) (418) (3,015) (8) 3,400 (200) (186) 3,006 (6,988) 15,673 8,685 For the purposes of the statement of cash flows, 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 51 to 77 are an integral part of these consolidated financial statements. 50 Notes to the Consolidated Financial Statements year ended 31 January 2021 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 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 office 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 financial statements are set out below. They have, unless otherwise stated, been applied consistently to all periods presented. 2.1. Basis of preparation These consolidated financial statements have been prepared on a going concern basis and in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006. The consolidated financial statements comprise an income statement, a statement of financial position, a statement of changes in equity, a statement of cash flows and notes. Income and expenses, excluding the components of other comprehensive income, are recognised in the statement of profit or loss. Other comprehensive income is recognised in the statement of comprehensive income and comprises items of income and expenses (including reclassification adjustments) that are not recognised in the statement of profit or loss, as required or permitted by IFRS. Reclassification adjustments are amounts reclassified to profit 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 profit or loss using the classification by function of expenses. The Group believes this method provides more useful information to the users of its financial statements as it better reflects the way operations are run from a business point of view. The statement of financial position format is based on a current/ non-current distinction. Measurement bases The consolidated financial 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 financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates and management judgements in applying the accounting policies. The significant estimates and judgements that have been made and their effects are disclosed in note 3. 2.2. Basis of consolidation The consolidated financial statements incorporate those of OnTheMarket plc and all of its subsidiaries (i.e. entities that the Group controls through its power to govern the financial and operating policies so as to obtain economic benefits). 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. 2.3. Reduced disclosures The figures presented in relation to the Company’s financial 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 financial statements and, where relevant, equivalent disclosures have been made in the consolidated financial 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 financial instrument and nature and extent of risks arising on these financial instruments; disclosure of share-based payment expense charge to profit 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; disclosure of the future impact of new International Financial Reporting Standards in issue but not yet effective at the reporting date; and • disclosures on fair values. The financial statements of the Company are consolidated within these financial statements which are publicly available from Companies House, Crown Way, Cardiff, CF14 3OZ. 51 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2.4. Going concern The Group made a profit after tax for the year of £2.7m (2020: loss of £11.5m) and as at 31 January 2021 the Group had a cash balance of £10.7m before deferred borrowings of £0.4m (2020: £8.7m before deferred borrowings of £0.7m). At 31 May 2021, the Group had cash after the acquisition of Glanty of £10.0m (before borrowings and deferred creditor payments within Glanty of £0.2m). The Directors have prepared and reviewed cash forecasts and projections for the Group for the next 12 months. They have also conducted sensitivity analyses and considered scenarios where there is an adverse impact on future revenues, together with the mitigating actions they may take in such circumstances, such as a reduction in budgeted discretionary expenditure. Based upon these projections and analyses the Directors have a reasonable expectation that the Group has adequate financial 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 financial statements. 2.5. Adoption of new and revised standards and interpretations Application of new and amended standards For the preparation of these consolidated financial statements, the following new or amended standards are mandatory for the first time for the financial year beginning 1 February 2020. • • • • Amendments to IFRS 9, IAS 39 and IFRS 17: Interest Rate Benchmark Reform (issued on 26 September 2019); Amendments to IAS 1 and IAS 8: Definition of Material (issued on 31 October 2018); Amendments to References to the Conceptual Framework in IFRS Standards (issued on 29 March 2018); and Amendments to IFRS 3: Business Combinations (issued on 22 October 2018). The above standards have been endorsed by both the EU and the UK (from 1 January 2021). The amendments are effective for annual periods beginning on or after 1 January 2020. No changes have been made in respect of these amendments as they do not apply to the Group. For the preparation of these consolidated financial statements, the following new or amended standards are available for early adoption for the financial year ending 31 January 2021. • Amendments to IFRS 16 Leases: COVID-19 Related Rent Concessions (issued on 28 May 2020); • Amendments to IFRS 4: Insurance Contracts • • Deferral of IFRS 9: (issued on 25 June 2020); and Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform – Phase 2 (issued on 27 August 2020). The Group had no leases in the period to which the amendment to IFRS 16 would have been applicable. The other amendments have no impact or do not apply to the Group. 2.6. Functional and presentation currency The consolidated financial 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, fittings and equipment Straight line 4 years 2.8. Leases Right-of-use assets A right-of-use asset is recognised at commencement of the lease and initially measured at the amount of the lease liability, plus any incremental costs of obtaining the lease and any lease payments made at or before the leased asset is available for use by the Group. Payments for the right to use an underlying asset are payments for a lease, regardless of the timing of those payments which may be before the underlying asset is available for use by the lessee. The right-of-use asset is subsequently measured at cost less accumulated depreciation and any accumulated impairment losses. The depreciation methods applied are as follows: Lease vehicles – Straight line 3 years Leased premises – Straight line over lease term Lease liabilities On commencement of a contract (or part of a contract) which gives the Group the right to use an asset for a period of time in exchange for consideration, the Group recognises a right- of-use asset and a lease liability unless the lease qualifies as a ‘short-term’ lease or a ‘low-value’ lease. Short-term leases - Where the lease term is twelve months or less and the lease does not contain an option to purchase the leased asset, lease payments are recognised as an expense on a straight-line basis over the lease term. Leases of low-value assets - Leases where the underlying asset is ‘low-value’, lease payments are recognised as an expense on a straight-line basis over the lease term. 52 Initial measurement of the lease liability The lease liability is initially measured at the present value of the lease payments during the lease term discounted using the interest rate implicit in the lease, or the incremental borrowing rate if the interest rate implicit in the lease cannot be readily determined. 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 first brought into use. The current intangible assets will be fully amortised in the next 1-4 years. The lease term is the non-cancellable period of the lease plus extension periods that the Group is reasonably certain to exercise and termination periods that the Group is reasonably certain not to exercise. Lease payments include fixed payments, less any lease incentives receivable, variable lease payments dependant on an index or a rate (such as those linked to LIBOR) and any residual value guarantees. Variable lease payments are initially measured using the index or rate when the leased asset is available for use. Subsequent measurement of the lease liability Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Variable lease payments not included in the measurement of the lease liability as they are not dependant on an index or rate, are recognised in profit or loss in the period in which the event or condition that triggers those payments occurs. 2.9. 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. 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 benefits 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 first meets the recognition criteria defined 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. 2.10. Impairment of property, plant & equipment, right-of-use assets 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 flows 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 profit, 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. 2.11. Company investments in subsidiaries Investments by the Company in subsidiary undertakings are 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. 2.12. Investments in associates in the consolidated and Company financial statements Associates are entities over which the consolidated entity has significant influence but not control or joint control. Investments in associates are accounted for using the equity method. Under the equity method, the share of the profits or losses of the associate is recognised in profit or loss and the share of the movements in equity is recognised in other comprehensive income. Investments in associates are carried in the statement of financial position at cost plus post acquisition changes in the consolidated entity’s share of net assets of the associate. Goodwill relating to the associate 53 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. Derecognition of financial assets (including write-offs) and financial liabilities Dividends received or receivable from associates reduce the carrying amount of the investment. When the Company or consolidated entity’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables, the Company or consolidated entity does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The Company or consolidated entity discontinues the use of the equity method upon the loss of significant influence over the associate and recognises any retained investment at its fair value. Any difference between the associate’s carrying amount, fair value of the retained investment and proceeds from disposal is recognised in profit or loss. 2.13. Financial instruments Recognition of financial instruments Financial assets and financial liabilities are recognised when the Group becomes party to the contractual provisions of the instrument. Financial assets Initial and subsequent measurement of financial 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. 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 classified 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 financial 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. A financial asset (or part thereof) is derecognised when the contractual rights to cash flows expire or are settled, or when the contractual rights to receive the cash flows of the financial asset and substantially all the risks and rewards of ownership are transferred to another party. When there is no reasonable expectation of recovering a financial asset it is derecognised (“written off”). The gain or loss on derecognition of financial assets measured at amortised cost is recognised in profit or loss. A financial liability (or part thereof) is derecognised when the obligation specified in the contract is discharged, cancelled or expires. Any difference between the carrying amount of a financial liability (or part thereof) that is derecognised and the consideration paid is recognised in profit or loss. 2.14. Impairment of financial assets An impairment loss is recognised for the expected credit losses on financial assets when there is an increased probability that the counterparty will be unable to settle an instrument’s contractual cash flows 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 flows 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 sufficient 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 flows arising from the subsidiary, weighted for probability likelihood variations in cash flows. 2.15. Share capital Ordinary shares are classified 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. 54 2.16. Income taxes Tax currently payable is calculated using the tax rates in force or substantively enacted at the reporting date. Taxable profit differs from accounting profit either because some income and expenses are never taxable or deductible, or because the time pattern on which they are taxable or deductible differs between tax law and their accounting treatment. Using the statement of financial 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 financial 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 profit nor the accounting profit. 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 sufficient taxable profits 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 profit 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. 2.17. Government grants Grants are recognised only when there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received. Grants that are receivable as compensation for expenses already incurred are recognised in profit or loss in the period in which they become receivable. 2.18. Employee benefits Defined contribution plans The Group pays fixed 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 fixed percentage contributions, which are recognised as an expense in the period that related employee services are received. Short-term employee benefits Short-term employee benefits, 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. 2.19. Share-based payments Employee share schemes 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 profitability and sales growth targets and performance conditions). All share-based remuneration is ultimately recognised as an expense in profit 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 prior 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. 55 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Agent recruitment shares 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 historically, 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 financial statements) and a prepayment created, based on the value of the shares, which is then amortised over the life of the contract. Upon the issue of shares to the agents, which predominantly takes place on a quarterly basis, the relevant amount of the balance recorded in other reserves is transferred to share capital and share premium, based on the market share price at the date of issue. The prepayment is adjusted to reflect any increase arising due to a higher share price at issue compared with contract commencement. 2.20. 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 financial position. Provisions are made using best estimates of the amount required to settle the obligation. Changes in estimates are reflected in profit 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. 2.21. 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 predominantly represents listing fees in respect of the property portal OnTheMarket.com. The transaction price does not include any other elements e.g. no incentives or free periods. There is only one performance obligation therefore. Amounts are predominantly billed monthly in advance and released to the income statement over the period of access to the portal. The Group offers its advertising customers contracts that range from rolling notice periods to 5-year term listing agreements. The Group has some agents who did not pay their contractually committed fees in the year to 31 January 2021. Under IFRS 15, amounts due under these contracts are only recognised within revenues when it is considered probable that the Group will collect the revenue it is entitled to. Otherwise, amounts due under contracts are not recognised as revenues and only recognised if and when received. Within each reporting segment, there is only one major service provision line, namely the provision of products and services, including where relevant the provision of access to 56 the online portal OnTheMarket.com. All revenue relates to services transferred over the term of the listing agreement. Sales are predominantly billed monthly in advance and the majority collected via direct debit. At the end of the year, an amount of deferred income is outstanding relating to amounts received in respect of the following month. Sales billed monthly in arrears are recognised as accrued income. 2.22. Derivative assets Derivatives are initially recognised at fair value on the date a derivative contract is entered into, and they are subsequently remeasured to their fair value at the end of each reporting period. Changes in the fair value of any derivative instrument are recognised immediately in profit or loss and are included in other gains/(losses). 3. Critical accounting judgements and key sources of estimation uncertainty The preparation of the consolidated financial 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. Critical accounting judgements The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements; Revenue recognition Where customers default 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. Amounts, if subsequently received, are recognised as revenue at the time of receipt. Investment in associate The Group acquired 20% of the shares in Glanty Limited in December 2019. The terms and conditions of the arrangement included a call option for the Group to acquire the remaining 80% of shares in Glanty Limited. The Group therefore must consider whether the potential voting rights are substantive so that the Group has control of, and not just significant influence over, Glanty Limited. This will impact whether Glanty Limited is treated as a subsidiary or an associate. In order to determine whether it has power over Glanty Limited, the Directors are required to consider potential voting rights that the Company holds and whether these rights are substantive, as these could give the Group and Company the current ability to direct the relevant activities of Glanty Limited. The Directors consider that, despite the Group holding an option over the remaining 80% of the shares in Glanty Limited during the year to 31 January 2021, these potential voting rights are not substantive and therefore the Directors do not consider that control has been achieved. This is because the time period for delivery of the remaining shares means that the Company cannot immediately direct the activities of Glanty Limited upon exercise of the option. On this basis, the investment in Glanty Limited has been classified as an investment in an associate. Key sources of estimation uncertainty 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 sufficient highly liquid resources to repay the loans at 31 January 2021, an expected credit loss is calculated under IFRS 9. The calculation is based upon a number of scenarios, ranging from a scenario which anticipates that Agents’ Mutual Limited will trade profitably in the future and that this will allow it to repay the loans in time, to a scenario under which it is anticipated that the loan will not be fully recovered. Forecast cash flows under a range of possible outcomes are used to derive a probability-weighted 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 flow forecasts and the probability weightings assigned. The judgements reflect the views of management at 31 January 2021 and the future cash flows therefore vary year to year. Further details on the impairment provision are set out in note 18. Call and put options in respect of Glanty Limited As part of the agreement under which OnTheMarket acquired 20% of the shares in Glanty Limited in December 2019, the Company was granted a call option, under which it had the right, but not the obligation, to enter into a share purchase agreement to acquire the remaining shares in Glanty for an initial consideration of approximately £1.5m (payable in cash or shares at OnTheMarket’s option), plus a revenue and EBITDA based earnout arrangement, alongside the repayment of approximately £1.4m of loans. The call option was exercised after the year end on 19 March 2021. Had it not exercised the call option, OnTheMarket also had a put option to sell its 20% shareholding to an existing shareholder of Glanty for £797k. The same Glanty shareholder also had a call option to acquire OnTheMarket’s shares for £797k in the event that the Company’s call option lapsed. Both these options effectively lapsed on 19 March 2021 following the exercise of the Company’s call option. Inherently the call option value is determined by whether the right it conveyed to acquire the remaining shares on the prescribed terms allowed the Company to obtain those shares at a significantly discounted price to fair value. The Directors do not believe this to be the case as they believe the terms of the acquisition, including the possible payment of additional consideration contingent on the performance of the business, provide for fair value based on expected future performance. In addition, the Directors are unaware of any higher counter-offers from third parties. The put option value is determined by the value of the ability it gives to enforce a sale of the 20% of shares the Company acquired back to a selling shareholder at acquisition cost (£757k). The Directors have therefore concluded that the call option has no value, as the acquisition terms did not give rise to a discounted acquisition price. No value was recognised for the put option as any value was contingent on the call option not being exercised. Deferred tax At 31 January 2021 Agents’ Mutual Limited had tax losses available to carry forward. The company was profitable in the year to 31 January 2021 and the Directors believe it will make taxable profits in the future, against which the tax losses carried forward will be available to offset future corporation tax payments. A deferred tax asset has therefore been recognised in respect of these losses. The amount recognised is based upon the Directors’ judgement of possible taxable profits arising in the foreseeable future. In forming this judgement, The Directors are required to estimate possible revenues and profits that may arise and the asset is restricted to forecast profits in the foreseeable future. 57 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 4. Revenue The Group has determined that the Chief Executive Officer, or Acting Chief Executive Officer, (“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. Following the launch of the Group’s new homes function, the Group reports revenues attributable to products and services offered to: • estate and letting agents; • new home developers; and • other, non-property advertising income. Costs, assets and liabilities are not attributed to the different revenue sources and so segmental reporting under IFRS 8 is not appropriate. Revenues for the year ended 31 January Group revenue – Agency – New Homes – Other Total 2021 £m 21.2 1.5 0.3 23.0 2020 £m 18.7 0.1 nil 18.8 Change 13% 1,400% N/a 22% Within each source of revenue, there is only one major service provision line. All revenue relates to services transferred over the term of the listing agreements or, for Agency and New Homes, contracts for the provision of ancillary products or services. Sales are predominantly billed monthly in advance and these are recognised as deferred income. The Group has contract liabilities as follows in respect of deferred income: Deferred income as at 31 January Group revenue – Agency – New Homes – Other Total 2021 £m 1.7 0.1 nil 1.8 2020 £m 1.5 0.1 nil 1.6 Change 13% N/a N/a 13% Contract liabilities of £1.6m at 31 January 2020 were recognised as revenue in the year ended 31 January 2021. A proportion of sales in New Homes and Other are billed monthly in arrears and are recognised as accrued income. All revenue is generated in the UK for the Group’s services. 58 5. Expenses by nature Expenses are comprised of: Depreciation Amortisation Staff costs (note 8) Short-term lease expenses Advertising expenditure Other administrative expenses 2021 £’000 388 2,204 7,521 732 5,898 3,859 2020 £’000 273 1,856 8,901 719 11,985 4,255 20,602 27,989 6. Specific professional fees, share-based payments and non-recurring items Share-based employee incentives (see note 22) Professional fees net of compensation Share-based agent recruitment charges Government grant Payments in relation to loss of office Non-recurring staff related costs 2021 £’000 683 (941) 1,406 (449) 304 192 1,195 2020 £’000 355 1,233 921 – – – 2,509 Share-based employee incentive charges include employer’s national insurance charge on options exercised in the year as well as the movement in the expected future employer’s national insurance charge based on the year-end share price. See note 22 for further details. Professional fees net of compensation incurred during the current year was in relation to litigation which was settled in the year. Agent recruitment charges relate to share-based charges arising on the issue of shares to agents committing to long-term service agreements, in line with the Group’s strategy to grow the agent shareholder base. Government grant income relates to receipts under the Coronavirus Job Retention Scheme. The Group has not utilised the scheme since October 2020 and has no current intention to do so. The grant income is therefore considered to be non- recurring. Payments in relation to loss of office reflect contractual compensation to Ian Springett on the termination of his employment and associated legal costs. Non-recurring staff related costs relate predominantly to professional fees paid in relation to the search for a Chief Executive Officer following Ian Springett’s departure from the Group. All of these items have been separately analysed as the Directors believe the adjusted operating profit calculated and disclosed before accounting for these amounts provides useful additional information as an alternative performance measure. However, it should not be considered an alternative to IFRS measures, such as revenue or operating loss or profit. 59 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 7. Operating profit/(loss) Operating profit/(loss) is stated after charging: Depreciation of property, plant and equipment and right-of-use assets Amortisation of intangible assets Short-term lease expenses Share-based payment expense (note 22) Audit fees payable to the Company’s auditor - audit of Group financial statements - audit related assurance services Other fees payables to the Company’s auditor: - taxation compliance services - all other services not covered above 8. Employees and Directors Group Staff costs (including Directors) comprise: Wages and salaries Social security costs Pension 2021 £’000 388 2,204 732 452 101 8 – – 2021 £’000 7,582 949 128 8,659 The amounts above include £1,138k (2020: £1,454k) of staff costs that have been capitalised to intangible assets. Company Staff costs (including Directors) comprise: Wages and salaries Social security costs Pension The average monthly number of persons employed by the Group during the year was: 2021 £’000 191 23 1 215 2020 £’000 273 1,856 719 493 101 8 2 8 2020 £’000 9,076 1,148 132 10,355 2020 £’000 153 19 1 173 Non-Executive Directors Marketing, sales and administration IT 60 2021 Number 2020 Number 3 109 29 141 2 111 33 146 The Non-Executive Directors were the only employees in the Company as they had service contracts during the year: Directors’ remuneration Group Aggregate emoluments Contractual payment due on loss of office Pension contributions Highest paid Director Group Aggregate emoluments Contractual payment due on loss of office 2021 £’000 701 250 3 954 2021 £’000 27 250 277 2020 £’000 793 – 5 798 2020 £’000 250 – 250 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 emoluments above the Group paid employers national insurance contributions of £125k (2020: £103k) due in respect of Directors. A charge of £39k (2020: £nil) was recognised in respect of options awarded to Directors in the year. Chris Bell, Non- executive Chairman, and the Executive Directors receive payments from the Group into money-purchase pension schemes. Further details on Directors’ remuneration are set out in the Directors’ Remuneration Report within these accounts. 9. Finance income Finance income: Other interest receivable 10. Finance expense Interest arising on: Lease liability interest (note 14) Other interest payable 2021 £’000 2020 £’000 25 45 2021 £’000 2020 £’000 4 18 22 8 8 16 61 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 11. Income tax Current tax: UK corporation tax on income for year Under-provision in respect of prior period Total current tax Deferred tax: Origination and reversal of temporary differences Income tax charge Factors affecting tax charge for the year 2021 £’000 2020 £’000 16 – 16 (1,558) (1,542) (194) 2 (192) – (192) 2020 £’000 (11,659) (2,215) 249 21 (142) 2,094 2 (201) – (192) The tax assessed for the year is different from the effective rate of corporation tax as explained below: Profit / (loss) before taxation Profit / (loss) before taxation multiplied by the effective rate of corporation tax of 19% (2020: 19%) Effects of: Expenses not deductible for tax purposes Depreciation in excess of capital allowances Expenditure on intangible assets claimed as incurred Tax losses (utilised in year) / carried forward Adjustment recognised for prior periods Research and development tax credit Previously unrecognised tax losses Tax income 2021 £’000 1,140 217 209 49 2 (461) – – (1,558) (1,542) Deferred taxes reflected in these financial statements have been measured using the enacted tax rates at the Balance Sheet date. For UK corporation tax the enacted rate of 19% was used to measure the net deferred tax asset. Following on from the Budget of 3 March 2021 this deferred tax asset will have to be remeasured based on the potential recognition of these assets at the rate of 25% in the year ended 31 January 2022. The Group was profitable in the year, utilising trade losses brought forward to offset tax that would otherwise have been payable. The subsidiary, Agents’ Mutual Limited, has trading losses available for carry forward of £32.4m (2020: £34.8m). 62 Based upon estimations of profits arising in the foreseeable future, a deferred tax asset of £1.6m (2020: £nil) has been recognised for these losses. This deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Employee share-based payments Property, plant and equipment temporary differences Development cost temporary differences Losses Deferred tax asset 12. Earnings per share Numerators: Earnings attributable to equity Profit/(loss) for the year from continuing operations attributable to owners of the Company Total basic earnings and diluted earnings 2021 £’000 1,204 116 (890) 1,128 1,558 2021 £’000 2,682 2,682 2020 £’000 – – – – – 2020 £’000 (11,467) (11,467) Denominators: Weighted average number of equity shares Weighted average number of equity shares used in calculating basic earnings per share Adjustments for calculating diluted earnings per share: - options over equity shares No. No. 71,280,183 7,073,784 63,742,852 – Weighted average number of equity shares used in calculating diluted earnings per share 78,353,967 63,742,852 In periods where the Group made a loss there is no dilutive effect. In these periods, instruments that would dilute earnings per share have not been included as these are anti-dilutive. See share options disclosed in note 22 for details of instruments. 63 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 13. Property, plant and equipment Group Cost: At 1 February 2019 Additions At 31 January 2020 Depreciation: At 1 February 2019 Charge for the year At 31 January 2020 Net book value: At 31 January 2020 Cost: At 1 February 2020 Additions At 31 January 2021 Depreciation: At 1 February 2020 Charge for the year At 31 January 2021 Net book value: At 31 January 2021 Depreciation is included within administrative expenses in the income statement. Fixtures, fittings and equipment £’000 255 37 292 125 40 165 127 292 26 318 165 50 215 103 64 14. Right-of-use assets and lease liabilities The Group has lease contracts for motor vehicles and for premises. The amounts presented in the financial statements are as follows: Right-of-Use Assets At 1 February 2019 Additions Depreciation charge At 1 February 2020 Additions Disposals Depreciation charge Depreciation charge on disposals At 31 January 2021 Lease Liabilities At 1 February 2019 Lease additions Interest expense Lease payments At 1 February 2020 Lease additions Lease disposals Interest expense Lease payments At 31 January 2021 Motor Vehicles £’000 Leasehold Premises £’000 573 33 (233) 373 – (90) (236) 72 119 – – – – 164 – (103) – 61 Motor Vehicles £’000 Leasehold Premises £’000 468 34 8 (200) 310 - (18) 3 (197) 98 – – – – – 164 - 1 (104) 61 Group £’000 573 33 (233) 373 164 (90) (339) 72 180 Group £’000 468 34 8 (200) 310 164 (18) 4 (301) 159 Non-current lease liabilities amount to £2k (2020: £110k) and are all due between 1-5 years. At year end, the Group had future short-term minimum lease payments under non-cancellable operating leases in respect of land and buildings amounting to £136k within one year (2020: £800k). In the year ended 31 January 2021, a charge of £732k was recognised in respect of short-term leases (2020: £719k). At 31 January 2021, the Group had £336k commitments within one year and £268k commitments between one and five years for leases that had not commenced at that date (2020: £104k and £62k respectively). Changes in liabilities arising from financing activities relate to lease liabilities only. The movement during the year in lease liabilities is set out above. During the year, cash repayments of lease liabilities totalled £301k (2020: £200k) and cash payments of short-term lease expenses were £732k (2020: £719k). 65 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 15. Intangible assets Group Cost: At 1 February 2019 Additions – internally developed At 31 January 2020 Amortisation: At 1 February 2019 Charge for the year At 31 January 2020 Net book value: At 31 January 2020 Cost: At 1 February 2020 Additions – internally developed At 31 January 2021 Amortisation: At 1 February 2020 Charge for the year At 31 January 2021 Net book value: At 31 January 2021 Development costs £’000 8,750 2,605 11,355 4,802 1,856 6,658 4,697 11,355 2,192 13,547 6,658 2,204 8,862 4,685 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 benefits. The development costs are amortised from the point at which the asset is ready for use within the business. 16. Investments in subsidiaries Company At 1 February 2019 Additions At 31 January 2020 Additions At 31 January 2021 66 Subsidiary undertakings £’000 – – – – – The Company has the following investments in subsidiary undertakings: Agents’ Mutual Limited On The Market (Europe) Limited Class of shares held1 Principal activity Member Ordinary Online property portal services Dormant Ownership 2021 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 office as the Company. On The Market (Europe) Limited is a subsidiary of Agents’ Mutual Limited. 17. Investments in associates Group and Company At 1 February 2019 Additions At 31 January 2020 Adjustments Share of after-tax loss At 31 January 2021 The Group and Company have the following investments in associated undertakings: Glanty Limited Ordinary shares1 Property services 1 The Group and Company also held at 31 January 2021 an option to acquire the remaining 80%. Class of shares held Nature of business £’000 – 985 985 (40) (94) 851 Proportion of ownership interest 20% Glanty Limited is incorporated in the United Kingdom and its registered address is 4 Prince Albert Road, London, NW1 7SN. Glanty Limited has a 31 December accounting period end. Management information has therefore been used for calculating the Group’s share of the after-tax loss and is the basis for the other financial disclosures at 31 January. As at 31 January Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net (liabilities) / assets 2021 £’000 85 1,436 1,521 (482) (1,530) (2,012) (491) 2020 £’000 612 2,291 2,903 (596) (1,459) (2,055) 848 For the year to 31 January 2021 Glanty reported revenues of £823k (2020: £514k) and a loss after tax of £470k (2020: £359k). Total consideration initially amounted to £797k, of which £230k formed the upfront consideration and was paid in the year to 31 January 2020. £567k related to deferred consideration. 67 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Under the terms of the investment, the consideration was to be reduced by up to £40k should Glanty Limited receive a tax credit for qualifying research and development expenditure. Following the receipt of a payment in May 2020, the investment was reduced by the full £40k. The balance of £527k after payment of the upfront consideration and reduction due to the tax credit received was paid in the year to 31 January 2021. The Group has reviewed the position of Glanty Limited as at 31 January 2021 and concluded that no loss event as set out under IAS 28 has occurred and, accordingly, no impairment of the investment is appropriate. As part of the agreement under which OnTheMarket acquired 20% of the shares in Glanty Limited in December 2019, the Company was granted a call option, under which it had the right, but not the obligation, to enter into a share purchase agreement to acquire the remaining shares in Glanty for an initial consideration of approximately £1.5m (payable in cash or shares at OnTheMarket’s option), plus a revenue and EBITDA based earnout arrangement, alongside the repayment of approximately £1.4m of loans. The call option was exercised after the year end on 19 March 2021. Had it not exercised the call option, OnTheMarket also had a put option to sell its 20% shareholding to an existing shareholder of Glanty for £797k. The same Glanty shareholder also had a call option to acquire OnTheMarket’s shares for £797k in the event that the Company’s call option lapsed. Both these options effectively lapsed on 19 March 2021 following the exercise of the Company’s call option. See note 3 for further details regarding the options and the accounting treatment adopted. The associate’s principal activity is that of property services, and its initial product “teclet” is designed to automate the lettings process and bring efficiency gains to agents, landlords and tenants. The acquisition is considered to be strategic to the Group’s activities, because the associate’s principal activities are the provision of value-added services to customers of the Group. 18. Trade and other receivables Trade receivables Amounts due from Group undertakings Other receivables Prepayments and accrued income Group 2021 £’000 733 – 286 3,774 4,793 Company 2021 £’000 – 42,842 – 169 43,011 Group 2020 £’000 389 – 236 5,488 6,113 Company 2020 £’000 – 41,022 10 67 41,099 The aged analysis of trade receivables is shown in note 20. Included within prepayments is £3.2m (2020: £3.9m) in relation to prepaid agent recruitment share-based payment charges. Of this, £1.8m is not due to be recognised in the income statement until the year to 31 January 2023 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 fixed repayment dates. Under IFRS 9 the 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 sufficient liquid resources at 31 January 2021 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 2.14. See also note 20. Following an impairment review as at 31 January 2021, the provision has been adjusted to £10,904k (2020: £11,295k). The weighting of the scenarios applied in the expected credit loss provision was revised to reflect the improved position of Agents’ Mutual Limited, which delivered an after tax profit in the year to 31 January 2021 of £2.7m (2020: after tax loss of £11.5m) and therefore the weighting towards the repayment of more of the loan balance increased. The reduction in the provision is included within the Company’s profit for the year, however it is fully eliminated on Consolidation and has no impact on the Group’s reported financial performance for the year or financial position at the balance sheet date. At 31 January 2021 the gross amount of the loan outstanding was £53.7m (2020: £52.3m). 68 19. Trade and other payables Current liabilities Trade payables Social security and other taxes Other payables Accruals and deferred income Group 2021 £’000 818 1,523 42 2,551 4,934 Company 2021 £’000 Group 2020 £’000 Company 2020 £’000 42 6 1 9 58 2,312 749 606 3,147 6,814 28 6 568 64 666 20. 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 finance function through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below: The Group is exposed through its operations to the following financial risks: • • credit risk; and liquidity risk. In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them from previous periods unless otherwise stated in this note. Credit risk Credit risk is the risk of financial loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligations. No expected credit loss provision has been made given the majority of the trade receivables balance is less than 30 days and older trade receivables include a significant proportion that relates to VAT due from HMRC on bad debts written off in previous periods. The loss allowance on all financial assets is measured by considering the probability of default. Trade receivables are considered to be in default when the amount due is significantly more than the associated credit terms past due, based on an assessment of past payment practices and the likelihood of such overdue amounts being recovered. Trade receivables are written off by the Group when there is no reasonable expectation of recovery, such as when the counterparty (the agent) is known to be going bankrupt, or into liquidation or administration. Trade receivables will also be written off when the amount is more than materially past due. 69 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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 2021 £’000 446 131 52 27 77 733 2021 % 61% 18% 7% 4% 10% 2020 £’000 114 13 30 2 230 389 2020 % 29% 3% 8% 1% 59% The total value of debts past due but not impaired is £288k (2020: £275k). The 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 also give rise to an immaterial loss allowances provision. This is because the majority of the balance (£49k) relates to VAT due from HMRC on bad debts written off in previous periods. 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 difficulty in meeting its financial obligations as they fall due. In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future developments, the Group monitors forecast cash inflows and outflows on a monthly basis. The financial assets and liabilities of the Group are as follows: Financial assets measured at amortised cost Current assets Trade and other receivables Cash and cash equivalents Measured at amortised cost Financial liabilities held at amortised cost Current liabilities Trade and other payables Accrued expenses Lease liabilities Total financial liabilities measured at amortised cost 70 2021 £’000 1,019 10,719 11,738 2021 £’000 860 823 157 1,840 2020 £’000 634 8,685 9,319 2020 £’000 2,918 1,562 200 4,680 The following is an analysis of the maturities of the financial liabilities in the Statement of Financial Position, excluding amounts owed in relation to statutory taxes: 2021 Trade and other payables Accrued expenses Lease liabilities 2020 Trade and other payables Accrued expenses Lease liabilities Carrying amount £’000 6 months or less £’000 6-12 months £’000 1 year or more £’000 860 823 159 1,842 860 823 80 1,763 – – 77 77 – – 2 2 Carrying amount £’000 6 months or less £’000 6-12 months £’000 1 year or more £’000 2,918 1,562 310 4,790 2,666 1,562 100 4,328 252 – 100 352 – – 110 110 All financial liabilities are denominated in Sterling. Capital risk management 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. The principal policies in this regard relate to increasing the number of paying advertiser customers whilst managing costs, in particular discretionary costs, to available resources. The Group deposits cash at bank, which is included in cash and cash equivalents, with a number of separate financial institutions with appropriate credit ratings. Financial liabilities Fair values of financial assets and liabilities The fair value of the Group’s financial assets and liabilities are not materially different from their book values and therefore the Directors consider no hierarchical analysis is necessary. Impairment of Company financial assets The Company’s Group receivables represent trading balances and amounts advanced to other Group companies with no fixed repayment dates. The Company determines that credit risk has increased significantly when: • • there are significant actual or expected changes in the operating results of the Group entity, including declining revenues, profitability or liquidity management problems; or there are existing or forecast adverse changes to the business, financial 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 financial prospects are less risky and it is judged to be more likely now to generate future profits to allow it to repay the loan than before. As such the expected credit losses have been calculated under the 12-month expected credit losses methodology. Note 18 details the impairment provision applied. 71 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 21. Provisions At 1 February 2020 Exercise of share options Revaluation of employers’ social security liability At 31 January 2021 Disclosed as: Current liability Non-current liability Social security on share options granted £’000 808 (156) 228 880 2020 £’000 707 101 808 2021 £’000 622 258 880 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 scheme. 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. 22. Share-based payments Agent recruitment shares The Group issued agent recruitment shares during the year. 742,393 ordinary shares were granted (2020: 3,258,567). Fair value was determined in accordance with the accounting policy set out in note 2.18. The weighted average fair value of shares granted was £0.79 (2020: £1.05). 72 Management and employee share schemes The Group operates management and employee equity settled share schemes. Options over its shares were awarded under the employee share scheme in the year to 31 January 2021, as set out below. 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 Granted 15 September 2017 Granted 19 September 2017 Granted 10 October 2017 Granted 20 November 2018 Granted 4 December 2018 Granted 10 September 2020 Granted 10 September 2020 Granted 14 December 2020 Outstanding at 31 January Expiry 2027 2027 2027 2028 2028 2030 2030 2030 Option exercise per share £ Fair value £ 2021 Number 2020 Number nil nil nil 1.65 nil nil nil nil 1.48 1.48 1.48 0.69 1.13 0.77 0.65 0.93 6,044,454 7,467,525 225,568 25,454 572,219 42,424 119,048 285,714 379,249 491,137 49,088 639,864 42,424 – – – 7,694,130 8,690,038 The value of employee services provided of £452k (2020: £493k) 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 2021 Number 7,316,010 – (1,423,071) 5,892,939 4,506,389 Weighted average exercise price £ – – – – – These share options expire 10 years after the date of grant and have a nil exercise price. 1,386,550 are exercisable on the fifth anniversary (9 February 2023). The remaining 4,506,389 options are exercisable immediately. The fair value of all these options was charged to the profit and loss account in full in the year to 31 January 2018. During the year 1,423,071 options were exercised. The weighted average share price at exercise was £0.600. 73 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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 Exercised in the period Outstanding at 31 January Exercisable at 31 January Weighted average exercise price £ – – – – – – 2021 Number 734,164 784,011 (1,523) (287,680) 1,228,972 402,537 These share options expire 10 years after the date of grant. During the year 287,680 options were exercised. The weighted average share price at exercise was £0.99. All options granted in prior years are exercisable at 31 January 2021 save for 42,424 options which vest on 4 December 2021. Share options granted under this scheme have a nil exercise price and those awarded in prior years vest 3 years after the date of grant. Details of the options granted in the current financial year are as follows: • the options were issued pursuant to the Company’s Long Term Investment Plan; • they are subject to performance conditions based on the total shareholder return achieved by the Company relative to the FTSE AIM 100 Index in the three years prior to the performance period end date and are, save for limited circumstances, forfeited should the employee leave prior to the vesting date; • 119,048 options were granted on 10 September 2020 and vest on 1 February 2023; • 285,714 options were granted on 10 September 2020 and vest on 10 September 2025; and • 379,249 options were granted on 14 December 2020 and vest on 14 December 2025. The options granted were valued using a bespoke Monte-Carlo model. The inputs used to determine the fair value at the date of grant were as follows: Grant date Options Performance period end date Share price at grant date (£) Exercise price (£) Expected volatility Dividend yield 10/09/20 10/09/20 14/12/20 119,048 285,714 379,249 31/01/23 09/09/23 13/12/23 0.92 0.92 1.32 Nil Nil Nil 35% 35% 35% 0% 0% 0% Risk-free interest rate (0.103)% (1.3)% (0.086)% Fair value derived per option (£) 0.77 0.65 0.93 As the Company was listed on AIM for a period shorter than the expected life of some of the options, expected volatility was calculated using both historical data and looking at a basket of comparable companies. The fair value of share options under the employee share scheme is charged to the profit and loss account over the period to vesting. The share options are, save for limited circumstances, forfeited should the employee leave prior to this date. 74 Company Share Option Plan Further details of the company share option plan are as follows: Outstanding at 31 January 2020 Forfeited in the period Outstanding at 31 January 2021 Exercisable at 31 January 2021 Weighted average exercise price £ 1.65 1.65 1.65 – Number 639,864 (67,645) 572,219 – 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 profit and loss account over the vesting period. The share options are, save for limited circumstances, forfeited 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%. The following have been expensed in 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 2021 £’000 452 231 683 2020 £’000 493 (138) 355 2021 No. 70,082,638 2,362,408 2020 No. 61,493,611 8,589,027 72,445,046 70,082,638 2021 £’000 145 2020 £’000 140 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. On incorporation, the Company issued 2 ordinary shares of £0.002 each at par. By a resolution dated 22 December 2017 the Directors are authorised to issue up to 40,000,000 shares to estate agents in connection with such agents signing listing agreements with the Company or its subsidiaries. The Directors confirmed that at most they will issue 36,363,636 under this authority, which expires on 22 December 2022. As at 31 January 2021, 4,961,253 shares had been issued under this authority (2020: 4,218,860) leaving 31,402,383 shares authorised but unissued (2020: 32,144,776). 75 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED The Company issued 174,879 ordinary shares on 30 April 2020, 105,149 ordinary shares on 31 July 2020, 124,557 ordinary shares on 30 October 2020 and 337,808 ordinary shares on 31 January 2021 to certain new and existing agents following them having earlier signed new long-term listing agreements to advertise all of their UK residential sales and letting properties on OnTheMarket.com. These shares were granted for cash at nominal value and for additional non-cash consideration. The shares are accounted for as set out in note 2.18. The Company issued shares following the exercise of options by employees as follows during the year: 11 February 2020 30 April 2020 8 June 2020 26 June 2020 31 July 2020 7 October 2020 29 October 2020 20 November 2020 15 December 2020 29 January 2020 Shares 173,317 200,000 549,754 200,000 300,000 56,222 14,544 32,726 14,545 78,907 1,620,015 Share option scheme At the year end, there were a total of 7,694,130 (2020: 8,655,494) 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. During the year to 31 January 2021, 90,736 options were settled through market purchases by the Employee Benefit Trust. 24. Retirement benefit schemes Defined contribution schemes The Group operates defined 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 £23k (2020: £29k) were outstanding. Contributions payable by the Group for the year 25. Controlling parties The Directors do not consider there to be a single immediate or ultimate controlling party. 2021 £’000 128 2020 £’000 132 76 26. Related party relationships and transactions 27. Post balance sheet events Glanty Limited In the ordinary course of business the Group has entered into transactions with Whiteleys Chartered Certified Accountants, a company controlled by a direct relation of Helen Whiteley, an Executive Director of the Group. Up until 30 September 2020, Whiteleys Chartered Certified Accountants provided an outsourced finance function to the Group. From the 1 October 2020 the finance function transferred in-house under the TUPE regulations. The Group continues to occupy an office space in the building owned by Whiteleys, paying a monthly rental. During the year, the Group purchased services amounting to £518k (2020: £614k) and at the year end the Group owed £2k (2020: £71k). In the ordinary course of business the Group has entered into transactions with Media Magnifique Limited, a company owned by an associate of Jason Tebb, Chief Executive Officer of the Group. Media Magnifique Limited provides an outsourced PR function to the Group. During the year, the Group purchased services amounting to £6k (2020: £nil) and at the year end the Group owed £nil (2020: £nil). Subsidiaries Interests in subsidiaries are set out in note 16. Associates Interests in associates are set out in note 17. Key management personnel As part of the agreement under which OnTheMarket acquired 20% of the shares in Glanty Limited in December 2019, the Company was granted a call option, under which it had the right, but not the obligation, to enter into a share purchase agreement to acquire the remaining shares in Glanty. The call option was exercised after the year end on 19 March 2021 and the acquisition of the remaining 80% of shares in Glanty Limited completed on 28 May 2021. Goodwill on the acquisition is primarily related to growth expectations, expected future profitability and the substantial skill and expertise of Glanty Limited’s workforce. Further details relating to Glanty Limited, the call option exercise and its implications and the rationale for the acquisition are set out in note 17 and in the Chief Executive Officers’ Report. As the acquisition of Glanty only completed on 28 May 2021, the initial accounting for the acquisition was incomplete at the time these accounts were authorised for issue. On this basis, no assessment has yet been performed to determine the fair value of assets and liabilities and the fair value of the consideration. The Group intends to disclose the required information within its interim accounts for the year to 31 January 2022. Commercial agreements A number of commercial agreements have been entered into since 31 January 2021. Further details are included within the Chief Executive Officers’ Report. Disclosures relating to key management personnel are set out in note 8. CSOP ISSUE Other related party transactions There were no further related party transactions during the year. On 19 March 2021 239,112 options were granted under the Company Share Option Plan to certain employees. The options have a £0.95p exercise price, a 3 year vesting period and expire 10 years after the grant. No Directors were awarded any of these CSOP options. Share issues Since year end a further 174,250 ordinary shares have been issued to agents alongside listing agreements and 82,542 ordinary shares have been issued following the exercise of options by employees. There have been no other post balance sheet events. 77 OnTheMarket plc Annual Report and Consolidated Financial Statements 2021STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSCompany Information Directors .......................................................... C Beattie I Springett (Resigned 9 March 2020) J Tebb (Appointed 14 December 2020) H Whiteley C Bell I Francis R Sebag-Montefiore (Appointed 27 February 2020) Company Secretary ...................................... R Almond Company number ........................................ 10887621 Registered office ............................................ PO Box 450 155-157 High Street Aldershot England GU11 9FZ Auditor .............................................................. RSM UK Audit LLP Chartered Accountants Third Floor, One London Square Cross Lanes Guildford Surrey GU1 1UN Nominated adviser and joint broker ...... Zeus Capital Limited 82 King Street Manchester M2 4WQ Joint broker ..................................................... Shore Capital Stockbrokers Limited Cassini House 57 St James’s Street London SW1A 1LD Solicitor ............................................................ Eversheds Sutherland (International) LLP One Wood Street London EC2V 7WS Registrars ......................................................... Link Group Unit 10 Central Square 29 Wellington Street Leeds LS1 4DL Website ............................................................. plc.onthemarket.com/investors 78 Annual Report and Consolidated Financial Statements for the year ended 31 January 2021 “The operational and financial progress during the year to 31 January 2021 are a testament to the strength of the team and of the business” GROUP REVENUE ADJUSTED OPERATING PROFIT +22% 2020 2021 £11.6m £18.8m 2020 £(9.2)m £23.0m 2021 £2.4m ARPA (average revenue per advertiser) ALPA (average leads per advertiser) +16% 2020 2021 £122 £142 +22% 2020 2021 96 117 Design and printed by Perivan A n n u a l R e p o r t a n d C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s f o r t h e y e a r e n d e d 3 1 J a n u a r y 2 0 2 1 Annual Report and Consolidated Financial Statements for the year ended 31 January 2021 

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