Property Franchise Group Annual Report 2020

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FY2020 Annual Report · Property Franchise Group

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The
Property
Franchise
Group PLC

Parkers

Ewemove

Whitegate

CJ Hole

Martin & Co

Ellis & Co

ANNUAL REPORT & ACCOUNTS 2020

We are the UK’s largest
multi-brand property
franchisor, with a
network of over 500
lettings and estate agency
businesses delivering
high quality services
to residential clients.

As legislation changes and
technology evolves, our
central team innovate to
keep our franchise owners
ahead of the game.

Find out more at
thepropertyfranchisegroup.co.uk

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— oUr V I S IoN

— F I NaNcIa l H I G HlI G Ht S

The Property Franchise Group PLC
annual report and accounts 2020

r E VE N U E

m aNa G E m E N t S E r V I c E F E E S

£11.5m

+1%

(2019: £11.4m)

£9.4m

-3%

(2019: £9.7m)

a D J U S tE D E B ItD a*

p r o F I t B E F o r E ta X

£5.7m

+8%

(2019: £5.3m)

£4.8m

+20%
(2019: £4.0m)

D I V I D E N D

8.7p

+234%
(2019: 2.6p**)

N E T C A S H /( N E T D E B T )

£8.8m

+120%
(2019: £4.0m)

*
**

Before exceptional items and share-based payment charges
No final dividend paid for FY19

o p E r at I o Na l H I G H lI G H t S

• Recruited new CEO, Gareth Samples
• Demonstrated adaptability and leadership
in the actions taken to mitigate the impact
of the pandemic on the business

• Strengthened the Leadership Team through

the recruitment of two new Managing
Directors into Martin & Co bringing with
them a wealth of industry experience
• EweMove achieved record sales listings
and completions in the second half
of the year, with the hybrid model
continuing to grow its market share

• Group has a portfolio of 58,000

properties (2019: 58,000), providing
a reliable, regular income stream
• Decision taken to put in an offer to

acquire Hunters Property PLC, an estate
agency franchisor with 210 offices.
Acquisition effective 19 March 2021

To achieve an increasing UK
market share of lettings, estate
agency and financial service
transactions, using a proven
franchise model with multiple,
and clearly differentiated,
brands. The Property Franchise
Group PLC intends to develop
both the depth and breadth
of its network, supporting
our franchise owners to grow
their local market shares.

— oUr S t r atEG Ic
Gr o WtH I N ItIatI V E S

• Lettings growth
• Develop sales activity in
the traditional brands
• Financial services growth
• EweMove recruitment
• Acquisitions
• Digital marketing

See more on pgs 18-19

S t r atEG Ic rEp o rt
Overview of the year
At a glance
Chairman’s statement
Chief Executive’s statement
Investment case
Chief Executive’s Q&A
Our response to Covid-19
Our market
Business model
Our strategy
Strategy in Action
Financial review
Stakeholder engagement
Responsible Business
Risk Management
Principal risks and uncertainties

Go V ErNaNcE
Chairman’s introduction to governance
The Board
Corporate governance statement
Audit and Risk Committee report
Directors’ remuneration report
Directors’ report

F I NaNcIa l S tatEmE Nt S
Independent auditor’s report
Consolidated statement
of comprehensive income
Consolidated statement
of financial position
Company statement
of financial position
Consolidated statement
of changes in equity
Company statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated statement
of cash flows
Company statement of cash flows
Notes to the Company statement
of cash flows
Notes to the consolidated and
Company financial statements
Shareholder information

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82

The Property Franchise Group PLC
annual report and accounts 2020

— at a GlaNcE

Providing responsive local residential sales
and lettings expertise across the nation
through our award-winning brands.

— oUr N EtW o rK

2 02 0 I N N U mB E r S

We have representation stretching
from Falmouth to Aberdeen with a
presence in most major towns and
cities including 45 offices in London.
We achieve this both through
traditional high street offices and
through virtual offices where the
franchisee typically works from
home or a serviced office.

p r o p E r t I E S l E t BY
F r a Nc H I S E N E t Wo r K

Ho m E S S o l D BY
F r a Nc H I S E N E t Wo r K

28,092

(2019: 32,278)

9,493

(2019: 10,823)

ac Q U I S I t IoN S

(2019: 24)

F r a Nc H I S E
N E t Wo r K t U r N oV E r

F r a Nc H I S E
N E t Wo r K E m p loY E E S

£94m

(2019: £93m)

2,300

(2019: 2,250)

— oUr Br aN D S

Nat I o Nal B r aN DS

Our brands are household names
in their local communities, regions
and nationally. Whilst the majority
of franchisees operate through high
street offices and have been with us
for many years, a growing number
of new franchisees choose to offer a
24/7 hybrid service through EweMove.

The national network of
independently owned
property agents
Martin & Co was established in 1986 and has
154 high street offices serving England, Wales
and Scotland with offices from Falmouth to
Aberdeen. It is one of the major residential
letting agents in the UK with over 40,000
properties under management, deriving 89%
of its Management Service Fees from lettings
services. A multi-award winning agency, it
specialises in residential lettings, property
management, property investment and sales.

The UK’s most trusted agent
Launched in late 2013, EweMove has grown
to a network of 115 territories at the year end.
The EweMove franchise model combines
the recruitment of local property experts
(“LPEs”), typically serving micro territories of
20,000 households through a centralised
24/7 technology platform, with the traditional
features of a full estate agency service and a
consumer fee predicated on completed sales,
rather than listings. It has been the UK’s “No 1
Most Trusted Agent” on Trustpilot since 2015.

oF F IcE S

154

tEr rIto rI E S

115

The Property Franchise Group PLC
annual report and accounts 2020

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— oUr S UccE S S

Our brands have achieved
many awards over the
years demonstrating
their capabilities.

EweMove won both Best
National Sales Agent and Best
National Lettings Agent in the
Best Estate Agency Guide awards
2020, which ranked agents on
customer service, marketing
and performance.

Parkers and CJ Hole also won
recognition in these awards
for Sales and Lettings and
Martin & Co in Lettings.

r EG I o Nal B r aN DS

Unrivalled local knowledge,
for all your property needs
Whitegates has been trading
in the Midlands and North
of England since 1978. It was
one of the first estate agents
to advertise on TV. Today its
activities are evenly split
across sales and lettings.

Property experts providing
service and value for
London communities
since 1850
Ellis & Co has 18 high street
offices, 17 within London. It
shares complementary branding
with Martin & Co offices in
London and the two brands,
with a combined strength of
30 offices, work together to
serve London.

Taking the hassle out of
property, for communities
across southern England,
since 1948
Parkers has 13 high street offices
located along the M4 corridor
west of Maidenhead with a
strong presence around Reading.

Providing expertise
in sales and lettings to
communities across the
South West of England and
Wales for over 150 years
CJ Hole was established in
1867. An award winning brand
with strong local brand heritage
operated through 14 high street
offices in Avon, Somerset,
Gloucestershire and Gwent.

oF F IcE S

The Property Franchise Group PLC
annual report and accounts 2020

— cHaIrmaN’S StatEmENt

It has been a remarkable year for us and our network.
Despite the challenges we all faced because of the
Covid-19 pandemic, I am pleased to report that we
have made strong progress as a Group and achieved
a significant improvement in profit before tax, up to
£4.8m vs last year’s £4.0m.

We have also delivered revenues ahead of last
year and a host of operational achievements.

I am full of admiration for our franchisees, who have demonstrated
their local leadership skills and leveraged the strengths of the franchise
model to achieve exceptional performance in the face of adversity.
I am also very proud of our head office teams, who have worked
tirelessly to manage many new and complex situations, providing our
network with the highest quality of support. I would like to take this
opportunity to sincerely thank all our colleagues across the Group.

An effective franchise model requires both franchisee and franchisor
to have a clear understanding of joint goals, ambitions, and
responsibilities. Whilst the disruption of the first lockdown created
a number of challenges, it also presented an opportunity for us to
reset our approach. We moved swiftly to deliver renewed value
to our franchisees. The quality, depth and integrity of the support
the central team provided was outstanding, and franchisees have
been very forthcoming in their gratitude to our response. It is clear
that franchisees see the benefits of being part of a strong and
capable Group.

Richard Martin
Chairman

p ro F It B E F o r E ta X

£4.8m

D IVI D E N D Fo r F Y2 0

8.7p

The Property Franchise Group PLC
annual report and accounts 2020

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Board focus during 2020
Responding to the pandemic understandably
took up much of our focus in the early part
of the year. The safety of our staff, franchisees
and their customers were our primary
concern, followed closely by the continuation
of our franchisees’ business activity. As such,
we were quick to roll out equipment and
test all systems to ensure our teams could
work remotely, completed ahead of the
first government lockdown. Thanks to our
experience of remote working and established
channels of communication, we were able
to ensure franchisees and their staff were
fully prepared and supported throughout.

The Board met 15 times in the year as the
circumstances of those unprecedented and
uncharted times dictated. We prioritised
stakeholder engagement, briefing major
shareholders on our plans to navigate the
pandemic regularly alongside our usual
periodic presentations to shareholders.

Hunters acquisition and
strengthening of our team
Our new CEO, Gareth Samples, joined the
Group in February 2020 and formally took
up his role in April 2020. He has provided
dynamic leadership during a challenging first
year in the role. He has not only navigated the
pandemic, he has also refreshed our growth
strategy and strengthened our operations.
On top of this, he has now led the team on
the delivery of a major milestone post-period
end, with the acquisition of Hunters.

The acquisition of Hunters, effective 19th
March 2020, marks a step change in scale
and moves us significantly further ahead in
the execution of our strategy. With Hunters
joining our Group we have become the
UK’s largest property franchise business,
and indeed a significant player in the wider
estate agency sector.

As part of the acquisition, we were delighted to
welcome several highly experienced and well-
regarded new members of the management
into our team. Glynis Frew, previously Chief
Executive of Hunters, and Dean Fielding,
formerly a Non-Executive Director of Hunters,
have both joined the TPFG Board, as an
Executive Director and an independent Non-
Executive Director respectively. This marks a
considerable bolstering of our team and we
know they will bring significant value to the
Group going forward.

Beyond these appointments, and as part
of our commitment to our new strategy, we
have also expanded our senior management
team with the creation of a number of
new Managing Director roles which
Gareth details further in his statement. The
bolstered executive team has quickly built
relationships and provided valuable support
to our network, exploring opportunities with
franchise owners, and agreeing courses of
action for expanding their businesses in line
with our wider growth ambitions.

Market developments
As with many industries, Covid-19 has
prompted an accelerated rate of change
over the last year. The pent-up demand in the
property sector experienced in the second half
was fuelled by many new factors, including
new job relocations, the stamp duty holiday
and changing personal finance positions,
along with homeowners reassessing their
housing needs during lockdown.

Looking forward, I believe that the housing
market represents a strong investment
opportunity. The UK government has
demonstrated that the housing market is
integral to a strong economy and that it will
implement initiatives to support its continued
strength. We have now seen the stamp duty
holiday extension and announcement of
95% mortgages being offered by lenders,
which together with the onset of a new era
of flexible working, gives us confidence that
strong market demand will be maintained
for some time.

Our founding brand, Martin & Co, was an
early pioneer of franchising in estate agency,
and we are pleased to note that the model
is today firmly established. We believe, as the
industry evolves, it will ultimately become the
pre-eminent model and we intend TPFG to
be at the forefront of that evolution.

Dividend
In line with the Board’s ongoing focus on
cash management, and similarly to many
quoted companies, we did not pay a final
dividend for 2019. However, we were one
of the first companies to reinstate dividends
with an interim payment of 2.1 pence per
TPFG share in September 2020. We also
decided to pay a second interim dividend,
in lieu of a final dividend for FY 2020, of 6.6
pence per TPFG share on 23 February 2021.
Going forward we intend to maintain our
progressive dividend policy.

Furlough repayment
Post-period end and aligned to the current
strength of the business and its balance sheet,
the Board made the decision to repay the
£0.09m of Government Covid-19 financial
support received under the Coronavirus Job
Retention Scheme.

Outlook
Trading in the current year has begun well.
The primary areas of growth and focus for
us in the year ahead will be the increase
in franchisees, residential sales activity,
portfolio acquisitions, growing our financial
services’ revenues, improving our digital
support channels and integrating Hunters
into the Group.

We go into the period ahead closer to our
franchisees than ever before, and as a result,
stronger as a Group. We are confident that we
are very well placed to push forward with our
new strategy and long-standing growth plans.

Richard Martin
Non-Executive Chairman
26 April 2021

The Property Franchise Group PLC
annual report and accounts 2020

— cHIEF EXEcUtIVE’S StatEmENt

I am delighted to be reporting on
The Property Franchise Group’s
full year results; the first in my
role as Chief Executive Officer.

Since I joined the Group in February, the pandemic has driven a huge
amount of change in our market. However, I am pleased to say that
the Group has navigated the challenges and seized the opportunities
that came with those changes. It has continued to drive growth and,
ultimately, delivered a very strong set of results. I would like to take
this opportunity to thank the entire team and our franchisees, whose
dedication and resourcefulness has underpinned the year’s progress.

Following a resilient performance in the more challenging first
half, momentum built quickly when restrictions were eased in the
summer and the pent-up demand started to flow through. Bolstered
further by the stamp duty holiday initiative, the remainder of the year
saw activity levels remain very high with the Group delivering record
profits in the second half.

We increased our revenue for a seventh consecutive year to £11.5m
(FY19: £11.4m) thanks to the acquisition of Auxilium Partnership
Ltd and increased our operating margin to 42% (FY19: 35%). The
Group achieved a profit before tax of £4.8m (FY19: £4.0m). We have
remained cash generative throughout the year and our cash balance
increased to £8.8m as at December 2020, with net cash generated
from operations of £5.4m (FY19: £4.7m) The strength of our balance
sheet provided the stability needed to build further momentum
behind our growth strategy.

Gareth Samples
Chief Executive

tUr N oVEr

£11.5m

c a S H G E N Er at E D
Fro m o p E r atIoN S

£5.4m

The Property Franchise Group PLC
annual report and accounts 2020

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Strong performance from the
high-street led brands
The Group’s high-street lettings and estate
agency brands operated by our franchisees
delivered a strong performance. Whilst sales
and lettings activities were suspended by the
Government from 16 March to 13 May, our
franchisees were proactive in responding
to the surge in activity from the pent-up
demand following the re-opening of the
housing market. They subsequently delivered
a record year of activity for the Group.
Lettings continues to be our most significant
and important source of MSF from these
brands accounting for 79% of total MSF.

Our focus on digital marketing remains key,
as it is an essential tool in running a successful
estate and lettings agency business. Our
franchisees’ ability to deliver a quick recovery
was in part driven by digital marketing and
it remains a key part of the Group’s core
strategy for future growth.

As with the wider industry, our franchisees
in our high-street led brands demonstrated
that they could adapt to an environment that
observed social distancing guidelines. As our
market is driven by consumer behaviour, we
have ensured that we have embraced digital
solutions together as part of their offering to
customers’ evolving needs and requirements.
Virtual viewings and valuations are now an
established offering that provide efficiencies
that can benefit franchisees and customers
alike. We will continue to enhance our own
technology in line with that development.

Hybrid model EweMove thrives
EweMove delivered its best ever half year
performance in H2 and continues to
demonstrate the benefits of its unique,
hybrid, highly customer centric and
flexible cost-based model.

The hybrid estate agency model continues
to be an appealing option for estate agents
and buyers alike. EweMove recruited 11
new franchisees in the year, despite being
temporarily closed to recruitment for half
the year and during a period of significant
uncertainty, demonstrating that it is a highly
desirable model for people who are looking
to become franchisees.

During the period, EweMove was awarded
‘Best National Sales Agency’ and ‘Best
National Lettings Agency’ at the EA Masters
Awards 2020. These are highly regarded
awards in the industry and one of the highest
accolades that the brand could receive. We
are delighted with the recognition the brand
is receiving and the traction its gaining, which
positions it well and supports our objective
of doubling the size of its network in the
next two years.

Our Covid-19 response
With over 330 businesses depending on
us to guide and inform them through an
unprecedented period, we responded quickly
and developed a comprehensive approach to
maintaining operations and safeguarding our
future. This included getting to grips with the
requirements of the furlough scheme and the
other government support available, advising
franchisees on what actions they should take
and working with them to identify how they
could reduce costs as much as possible.
Though the second half of the year proved
to be a lot more positive, we continued to
guide our franchisees closely throughout the
period and I am proud of the role we played
in supporting each and every franchisee
across the year.

Supporting our franchisees
Since joining the Group, one area of
key focus for me has been the level of
support we provide to our franchisees.
The pandemic undoubtedly sharpened our
focus on strengthening relationships with our
franchisees and accelerated the way in which
we went about implementing changes. We
have now made tangible progress and re-
affirmed our internal approach, culture and
attitude, clearly recognising that our purpose
as a business, and every individual role within
that, is to support the franchisees and to
help them to become more successful.

In line with this purpose, we enhanced our
experienced senior management team, who
are focused on understanding which parts
of the strategy each franchisee is keen to
embrace and ultimately, to help them grow
their businesses. In October we welcomed
Eric Walker, as Managing Director of Martin
& Co (South and Scotland) shortly followed
up by the appointment of Gareth Williams as
Managing Director of Martin & Co (Midlands
and North). They join Kate Randall, MD of
CJ Hole, Ellis & Co, Parkers and Whitegates
and Nick Neill, MD of EweMove. Finally,
Glynis Frew will continue to lead Hunters
as its Managing Director. This represents an
extremely experienced and skilled MD team.

Our franchisees have responded
very positively to our commitment to
support them with such a high calibre
new team and feedback on its initial
impact has been extremely positive and
encouraging. The Managing Directors
are regularly communicating with them
about the opportunities we perceive
for their businesses and helping them
to understand the actions needed to
realise the opportunities.

The Property Franchise Group PLC
annual report and accounts 2020

— cHIEF EXEcUtIVE’S StatEmENt CONTINUED

Executing on strategic growth
opportunities
As part of my recruitment, I was set the task
of identifying how to substantially grow the
Group. Having achieved buy in from our
Board and been appointed, I have been keen
to implement that growth strategy held back
initially by the pandemic. There are six core
areas of focus, where we believe there is a
significant opportunity to build on existing
foundations, many of which will be further
accelerated or enhanced with the acquisition
of Hunters in March 2021. The key areas to
develop are as follows:
• Lettings growth

– We intend to continue to grow

the portfolio of tenanted properties
managed by our franchise network
through acquisition (our own and assisting
franchisees), through more engaging and
informing services for our landlords, and
by addressing the causes of attrition.

• Develop sales activity in the high

street-led brands
– Overall, these brands are missing

revenue opportunities by their focus
on lettings. Through the provision of
additional support and training, we
believe there is a good opportunity
to increase the level of sales activity
executed by our high street-led brands.

• Financial services growth

– It is our intention for all our customers
to have access to a full-service lettings
and estate agency service, and financial
services provision is part of that journey.
– It is our intention to grow the number
of financial services advisers serving
our network to over 100 across all
brands by the end of 2021.

• EweMove recruitment

– We are aiming to double the number
of territories occupied by EweMove
franchisees (115 as at 01/01/2021)
by the end of 2022 which involves
a significant increase in recruitment.

• Acquisitions (franchisee and

franchisor level)
– We support the acquisition by our
franchisees of local competitors'
lettings books. These acquisitions
increase the stability and profitability
of their businesses.

– We will also consider the acquisition of
other franchise brands where it is clear
it would bring value to the Group.

• Digital marketing

– Best-in-class digital marketing is

essential to running a successful estate
and/or lettings agency business and we
continue to invest in our capabilities.

Through the acquisition our value proposition
to franchisees and customers has been
enhanced and we now have the additional
resources to build a stronger and more efficient
franchised network. Moreover, because of our
accelerated route to growth and enhanced
capabilities, we have been presented with
several new growth opportunities.

We made good progress against several of
these initiatives over the year, and post period
end. We have of course, met one of our key
acquisition objectives with the completion of
our acquisition of Hunters (please see below).
This also supports our ambitions to grow our
portfolio of managed properties, Hunters having
15,000 at acquisition, and to expand residential
sales activity and footprint in the high street-led
brands, as we plan to leverage Hunters’ existing
sales knowledge across the Group.

We have also made strides forward in other
areas. We recruited 11 EweMove franchisees
in the year, a good performance given
the industry backdrop, and have recruited
20 more in Q1 FY21. The total number of
territories occupied is now at 135, in line
with our 2022 target. We made 11 assisted
acquisitions in the year, adding 1,305
managed properties to the Group’s portfolio.
Our announcement regarding the strategic
partnership with LSL will help us significantly
on our journey to grow the number of
financial service advisers available to the
Group and allow franchisees to pursue their
own financial services growth ambitions.

Acquisition of Hunters
We are delighted to have completed the
acquisition of Hunters Property PLC on
19 March 2021, a property franchise business
with 210 branches nationwide specialising in
residential sales and lettings. Hunters is a strong
brand in the industry and boasts an extremely
experienced management team led by Glynis
Frew. The combined businesses create the
leading UK property franchisor, with enhanced
scale and geographic reach; nine brands and
over 550 outlets across the UK.

We see great opportunity ahead and very
much look forward to working with Glynis
Frew and her team as we continue to grow
our market share in the sector.

Strategic Partnership with LSL
We are incredibly excited by the opportunities
presented through our strategic partnership
with LSL, announced today. This results from
the acquisition of Hunters and the work
undertaken in 2020 on the delivery of our
strategic objective with regards to financial
services. It involves the supply of mortgage
and protection advice throughout our
franchised network to all their customers.

Outlook
We will continue to focus on acquiring
businesses that expand our footprint,
enhance current revenue streams,
and deliver new revenue streams.

We expect the positive increase in market activity
seen in the second half of 2020 to continue in
2021 due to the Government’s focus on assisting
our sector and the quick rollout of vaccines
allowing greater freedom of movement. Whilst
uncertainties continue, and we have yet to see
the full impacts of the pandemic, we see good
reasons to believe that the residential housing
market will be a beneficiary.

We have set a clear agenda for growth,
which both our people and franchisees
are fully behind. We have already started
delivering on our new strategy and, with
the enhanced management team, we will
continue to build and invest for the future.

Gareth Samples
Chief Executive
26 April 2021

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The Property Franchise Group PLC
annual report and accounts 2020

— INVEStmENt caSE

Why invest in The Property
Franchise Group?

We are a robust business in the face of
adversity as well as a market leader able to
reap the rewards in better times. Since listing
on AIM in 2013 we have acquired a number of
complementary property franchising businesses
and become the largest lettings and estate
agency franchise business in the UK.

We have rewarded our shareholders
with a progressive dividend policy.

p r oV E N Fr aNcH I S E
m oD El:

H I G H D EGrE E oF
rE cUr rI N G rE V E N U E :

+25

61%

years in franchising

of total revenue in 2020

t r acK rE co rD
oF Gr o WtH :

317%

E X pErI E NcE D
lEaD ErS H Ip tEa m:

22 years

growth in EPS since 2013

average industry experience

S t r oN G c aS H
G E N Er atIoN :

up 15%

on 2019 at £5.4m for 2020

c a pIta l lI G Ht
m oD El:

22% 41%

ROCE
in 2020

ROCI
in 2020

F I V E ac Q U I S ItIoN S
S I N C E 2 0 1 3 TO DAT E :

p r oGrE S S I V E
D I V I D E N D p o lIcY:

Eight

franchise brands

8.7p

per share in 2020

10 The Property Franchise Group PLC
annual report and accounts 2020

— cHIEF EXEcUtIVE’S

Q
&
A

The Property Franchise Group PLC
annual report and accounts 2020

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Gareth joined The Property Franchise Group
in February 2020 and became Chief Executive
in April 2020. He brings over 30 years of
industry experience to the role and has already
been making his mark, delivering a strong
performance during an unprecedented year.

Q —
W Hat at t r ac tE D
YoU to tH E
p r o pErtY
Fr aNcH I S E Gr oUp?

Q —
W Hat W ErE
YoUr F IrS t
Im p rE S S IoN S
oF tH E Gr oUp?

Q —
W Hat Ha V E B E E N
YoUr Im mE D IatE
p rIo rItI E S ?

Q —
W Hat W aS Y oUr
a p p r oacH to
D ElI V ErI N G a
N E W S T R AT EGY ?

I came on board in February
and only had two weeks of
relative normality before we
all transitioned to working
from home. That was quite
challenging in terms of
taking on a new role, building
relationships and growing my
own understanding of the
business. But also because
we were straight into crisis
management, working with
our people and franchisees to
understand what our role was
in this unprecedented situation.
On the flipside, I learnt a huge
amount about the business
and our people from how they
responded to an incredibly
challenging period.

The main focus of my first year,
irrespective of the pandemic,
was to get closer to the
franchisees and strengthen
those key relationships.
Working collaboratively and
with common direction can
only benefit both sides, so I set
about understanding their needs,
ambitions and challenges, as
well as clearly communicating
what the TPFG stands for and
expects from them. Through the
pandemic and the second half
of the year, we have developed
those relationships and I believe
we now have more motivated
and engaged franchisees,
a great result that we can
build on in the future.

Stage one of developing a
new strategy was identifying
the opportunities where we
believed we could most help
the franchisees and articulating
what we wanted to achieve.
Stage two was putting the
right management structure
and resources in place to
deliver on those objectives and
demonstrate our commitment.
Stage three will be executing
our plans going forward and
meetings our targets over
the next two years.

See more on pgs 18-19

Q —
W Hat Im p rE S S E D
YoU aBoUt tH E
Gr oUp D UrI N G tH E
COV I D - 1 9 C R I S I S ?

Q —
W Hat a rE Y oUr
tHoU G Ht S oN
T H E C U LT U R E
O F T P F G ?

We have a really experienced
and willing team of people, who
truly want to help our franchisees
succeed. Making that focus on
help and collaboration more
central to our purpose and
culture has been vital to our
pandemic response this year,
and we have had incredibly
positive feedback from our
franchisees so far.

See more on pg 30

The transition to working from
home for the central team was
seamless, with high levels of
engagement and resilience. Our
daily communications with our
franchisees were comprehensive
and appreciated, as was the
impact team we put in place
to support on questions and
challenges around furlough,
business rates, supplier
negotiations, etc. Our help
enabled the franchisees to offer
a very strong service to their
customers despite working from
home. Overall, the effectiveness
of our response gave us a great
platform for driving our new
agenda once the market
reopened.

As the UK’s largest multi-brand lettings and estate agency franchising group, The Property Franchise Group was clearly a very successful business that had consistently performed very well over a long period of time. Ian had done an incredible job over the past 15 years and so the chance to build on that foundation was an exciting prospect.

12 The Property Franchise Group PLC
annual report and accounts 2020

— OUR RESPONSE TO COVID-19

We took swift action to mitigate
the impact of Covid-19.

Thanks to the dedication of our people
and partners, and the resilience of our
operating model, we have been able
to deliver a strong performance while
protecting the health and wellbeing
of all our stakeholders.

S taG E 1 :

Our initial
response

W H at W E D I D

When the gravity of the pandemic became apparent in
early March we started to make plans to minimise the
possible disruption. We carried out some trial runs to
ensure our central team had the technology set up to
work from home and we encouraged our franchisees
to do the same. This meant when the first lockdown
was announced the move to home-working was very
smooth so we could concentrate on business initiatives.

• We formed an ‘Impact Team’ with each franchise owner being
allocated to a member of the central team who became their
key point of contact during this difficult time. We worked very
closely with our network to support them throughout.

• Daily updates were sent via email to franchise owners on areas
such as government financial assistance, operational advice
and HR matters.

• We negotiated price breaks and discounts with our suppliers

and also on behalf of our network.

• We took advantage of technological solutions such as virtual

viewings and video calls.

• We created a cash flow model to help inform decisions on
cost saving measures. A small number of central staff were
furloughed. We had a voluntary reduction in basic salaries
across the board and commissions, bonuses and car
allowances were suspended.

• Financial services acquisition targets and other growth

initiatives were put on hold.

• Signed up for the furlough scheme and deferred

VAT arrangement.

As a result of our careful planning, and our subsequent actions, we
were able to react quickly to the changing landscape and continue
to operate safely and effectively across the business.

The Property Franchise Group PLC
annual report and accounts 2020

0
1

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c
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p
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0
3

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a
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a
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t
a
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m
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S taG E 2 :

S taG E 3 :

Adapting
to ongoing
restrictions

Positive
outcomes
across rest
of the year

W H at W E D I D

Having navigated the initial
challenges well, when the
restrictions of the first lockdown
began to ease in the middle of the
year, the market responded eagerly
and we were immediately busy.
That provided new challenges
around safety, responding to the
demand for franchisees’ services
and supporting our franchisees.

• Thorough PPE and risk assessments
were undertaken for every branch.

• Staff returned from furlough in
line with increased demand.

• Marketing levels rapidly

returned to normal levels.
• Daily updates to franchisees
on government financial
assistance, operational advice
and HR matters continued.

• Return to strategic growth initiatives.

Resuming all our operations with a robust
focus on health and safety at this time enabled
us to capitalise on a spike in market interest
and activity.

With the market responding
very positively, and buoyed by the
government’s stamp duty incentives,
the second half of the year was
stronger than anyone could have
expected back in March 2020.

• Reinstated interim dividend in
line with market expectations.
• Reimbursed staff for all voluntary

reductions in basic salaries
and commissions and bonuses
that had been suspended.

• Subsequent changes in restrictions,
including the UK going into various
further lockdowns, did nothing
to dampen the sales market .
Impact Team success has
strengthened the relationship with
our franchise owners and puts us in
a good position going forwards.

•

• Seamless long-term working from home.
• Repaid furlough monies received
of £0.1m and repaid deferred
VAT in full post year-end.

The strong performance throughout the
second half of the year meant our operating
margins were maintained and our cash
balances increased.

14 The Property Franchise Group PLC
annual report and accounts 2020

— oUr marKEt

Our understanding of
the macro-economic
drivers of the residential
property market.

Residential property has
established itself as an
investment asset class
and the economic need
for residential agency
remains as strong as ever.

Market drivers
• People will always need

somewhere to live

• Population growth/increased
life expectancy means more
UK households in the future

• Social housing provision has declined
significantly over the last 30 years
• The private rental sector has grown
significantly to over 20% of total
housing stock

• Residential property has become

an investment asset class

• Demand continues to outstrip supply

— K E Y M AC R O - ECO N O M I C FAC TO R S

Low interest rates and current reductions in stamp duty
Increased activity in the housing market as people take advantage of the
low interest rates and reduced stamp duty. The bank base rate has been
below 1% since February 2009, a period of over 12 years. The stamp
duty nil rate band of £500,000 has been extended until 30 June 2021
and will then become £250,000 until 30 September 2021.

Covid-19 restrictions in 2020 have led to more time spent at home and
a re-evaluation of living requirements.

Official Bank Rate

Jan
00

Feb
01

May
01

Sep
01

Nov
01

Jul
03

Feb
04

Aug
05

Jun
Nov
04
06
Month and Year

May
07

Dec
07

Apr
08

Nov
08

Jan
09

Mar
09

Nov
17

Mar
20

— K E Y m a rK Et o p p o rtU N ItI E S

Growing private rented sector
The private rented sector (“PRS”) has grown from a low of 9% in the late
1980s to 20% of UK housing stock in recent times. Renters aged 35–49
are now the largest group. They are expected to show the highest
growth rate in the years ahead. By 2021 it’s estimated that the PRS
will account for 5.8m privately rented homes in the UK.

Stored Equity
There is an estimated £3.7 trillion of equity stored in UK housing
stock, with the over 50s owning £2.8 trillion* of it. The majority
of rental properties are bought wholly from cash resources.
Cash buyers are forecast to account for 36% of all purchases
over the next 5 years*.

S t o r E D E Q U I t Y

£3.7tn

* Savills Research (Autumn 19, June 19 and Autumn 17).

Growth of the Private Rented Sector

Stored Equity (£trillion)

FORECAST

s
d
o
h
e
s
u
o
h

l
l

f
o
%

80%

70%

60%

50%

40%

30%

20%

10%

1
9
9
1

2
9
9
1

3
9
9
1

4
9
9
1

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

0
2
0
2

1
2
0
2

Owned

Private rented

Social rented

1.6

0.2

0.7

1.2

<35

35-49

50-65

>65

The Property Franchise Group PLC
annual report and accounts 2020

Net Migration
Net migration for the year to March 2020 was 313,000 up from
240,000 for the year to September 2019. Of those entering the UK
64% were for work. Whilst EU citizens have been leaving the UK
since the referendum, non-EU citizens have been entering the UK in
record numbers. The pandemic might change this but the extent of
net migration over the last decade should leave a legacy. The foreign
born UK population is almost 3 times as likely to be in the private
rented sector.

ONS Quarterly Report (27 August 2020).

Government plan to regenerate
cities with new homes
In December 2020, following consultation over the summer,
the government set out plans to encourage councils to plan
for more family homes and also to re-purpose vacant building
such as offices and under-used land. The government has
set out £12bn of investment in affordable homes which
is expected to unlock a further £38bn public and private
investment in affordable housing. This is in addition to
the £7.1bn National Home Building Fund

https://www.gov.uk/government/news/plan-to-regenerate-
england-s-cities with-new-homes.

Net Migration to UK

s
t
n
a
r
g
M

f
o

o
N

800

700

600

500

400

300

200

100

YE
Jun
10

YE
Dec
10

YE
Jun
11

YE
Dec
11

YE
Jun 1
2

YE
Dec
12

YE
Jun
13

YE
Dec
13

YE
Jun
14

YE
Dec
14

YE
Jun
15

YE
Dec 1
5

YE
Jun
16

YE
Dec
16

YE
Jun
17

YE
Dec
17

YE
Jun
18

YE
Dec
18

YE
Jun
19

YE
Dec
19

YE
Mar
20

0
1

S
t
r
a
t
E
G

c
r
E
p
o
r
t

0
2

G
o
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E
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N
a
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c
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0
3

F
I

N
a
N
c

a
l

S
t
a
t
E
m
E
N
t
S

Immigration

Emigration

Net migration

Annualised Migration

Increased interest in hybrid model as
customer preferences change
Customers are showing increasing interest in using Hybrid
brands, where technology is coupled with a traditional
approach. Online only agents, on the other hand,
have struggled to gain market share.

Increased regulation – RoPA
(Regulation of Property Agents)
The government is expected to introduce legislation within the
next 2-3 years which will require all property agents to be regulated
by an independent regulator, with mandatory qualifications and a
code of practice, in order to raise standards in the industry. This will
benefit networks such as ours where we can roll out the training
and provide support to ensure compliance with the legislation.

H Y BrI D a G E Nt S m a rK Et S Ha rE

9.9%

Twenty CI.

Market share in final quarters of 2016–2020

)

(

9.9%

7.9%

7.2%

6.1%

3.8%

2016

2017

2018

2019

2020

Graph title

500

400

300

200

100

2012

2013

2014

2015

2016

2017

2018

Label 1

Label 2

Label 3

15.0%

25.0%

15.0%

30.0%

16 The Property Franchise Group PLC
annual report and accounts 2020

— BUSINESS moDEl

We have established a proven
franchise model with clearly
differentiated property brands,
creating a solid platform for
value creation and further
growth opportunities.

W H at W E D o

H o W W E a D D Va l U E

Lettings and property management
We are one of the largest managing agents
of residential properties in the UK with a deep
understanding of lettings and a clear view of
how to develop value in the long-term from
a portfolio. Our franchisees are fully insured
members of professional bodies, supported by
specialist software, who know their local rental
market and manage all properties locally.

Estate agency
We operate on a no sale no fee basis. We cater
both for the majority of sellers who prefer to
instruct an agent operating from high street
premises and for those sellers who choose
to use a more technologically enabled agent
without a high street office. Two of our brands
have been engaged in estate agency for more
than 150 years.

Financial services
Many of our franchises offer their clients
access to property related financial services.
We see this is a growth area for us, part of
providing a fuller service to our clients and
an opportunity for a longer term relationship.
Hence, the development of a full financial
services offering forms part of our strategic
plan.

Acquisitions
The assisted acquisitions programme, whereby
we provide the expertise to our franchisees
to assist with finding the sellers of managed
property portfolios, negotiating the sales,
funding the acquisitions and integrating
those acquisitions, is a primary focus for
us. Franchisees buying managed portfolios
of properties improve their chances of
successful future growth.

Established franchise model
At our core, all our brands operate exactly
the same franchise model. It’s a model that’s
been developed over the last 25 years, based
around long-term commitment by franchisor
and franchisee to the development of the
franchisees’ revenue streams. Franchisees sign
a five-year agreement and agree to put all their
efforts into developing the franchise brand in
their territory.

Expertise and scale
We have significant expertise in buying, letting
and managing rental properties. In the last six
years we have developed our expertise in selling
houses such that today 30% of our business
comes from this activity. Since the year-end we
have grown to be the second largest branch
network for residential sales and the second
largest manager of rental properties through
the acquisition of Hunters Property PLC.

Central support
The support required by franchisees changes
as their franchises mature, as the economic
environment changes and as the pandemic
takes its course. We continue to evolve and
invest in our central support through IT,
marketing, assisted acquisitions, compliance
and to invest in business advice through the
growth of our leadership team.

Harnessing technology
The use of technology is evolving in
our sector. The acquisition of EweMove
helped us understand how we might meet
customers’ expectations. Having improved
lead generation through providing useful
information and improved websites, we
built a customer relationship management
(“CRM”) platform to be able to engage at
the right times with customers. Live chat was
implemented on a 24/7 basis along with virtual
viewings and online appointments. Online
meetings with clients are now common place.
The pandemic has accelerated the changes
that would have eventually filtered into our
sector and we are continually evaluating
our next steps.

The Property Franchise Group PLC
annual report and accounts 2020

0
1

S
t
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c
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p
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0
2

G
o
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a
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c
E

0
3

F
I

N
a
N
c

a
l

S
t
a
t
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m
E
N
t
S

H o W W E S U p p o r t o U r F r a N c H I S E E S

t H E Va l U E o U r m o D E l c r E at E S

We rely on people who are committed to operating franchises
under our brands. A franchisor’s role is to research, gain insight
into the future environment and determine those factors likely
to impact franchisees’ businesses in the future. We recognise
that experienced franchise owners have an important role
to play and we engage them through various franchise
committees, regional business meetings, our Impact Team
and through the enhanced MD structure implemented in
our leadership team.

We pride ourselves on the comprehensive start-up training
and support we offer. As the success of our franchise owners
on an ongoing basis is very important to us we support them
throughout their initial five-year franchise agreement and
beyond.

• Ongoing support through regional training,
online training, the acquisitions team and
our business development team.
• All offices have unlimited access to

our business systems, helpdesk and to
specialist “market intelligence” tools.

• Marketing campaigns and collaterals are developed in
coordination with the brands’ marketing committees
and made available through a digital hub.

• We build, update and optimise our brand websites.
• We support our franchisees with regular
customer targeted mailings/messages,
PR and monthly newsletters.

• We use specialist operational software and work
with our providers to ensure all franchisees
and their staff are competent users.

• We have an internal audit team and conduct regular
checks on the financial practices of our franchisees.

Shareholders
• A stable earnings’ stream due to the size of

the managed portfolio of properties.

• A growing dividend through the success of

acquisitions and diversifying income.

Franchisees
• At the forefront of technology and
digital marketing in our sector.

• Central expertise to steer franchisees
through challenging economic times.

• Opportunities to achieve scale and ambitions

through expansion of territory, assisted acquisitions
or buying outgoing franchises’ businesses.

Landlords
• One of the largest letting agents in the UK
with a deep understanding of lettings.

• Franchisees supported by the best
operational software available.
• High standards of compliance that

meet the legal requirements.

Tenants
• Local service and extensive local knowledge

to help find the right property.
• Long established and far reaching

landlord relationships.

• A full redress scheme when needs arise.

Vendors
• A service more suited to customers,

having the choice of traditional or hybrid.

• No sale no fee across all our brands.
• Deep understanding of local markets,

some brands with +150 years of operation.

Employees
• Over 2,000 people are employed within the
network and are given access to high quality
training and career development opportunities.

18 The Property Franchise Group PLC
annual report and accounts 2020

— oUr StratEGY

In response to the changing
market dynamics, we have
developed a new strategy
for delivering growth.

S t r atEG Ic Gr o WtH I N ItIatI V E

Lettings growth

Develop sales
activity in the
traditional brands
Financial
services growth

We intend to continue to grow the portfolio of
tenanted properties managed by our franchise
network through acquisition (our own and
assisting franchisees), through more engaging
and informing services for our landlords,
and by addressing the causes of attrition.

Our traditional brands franchises are heavily
weighted towards lettings, for some offices this
is their primary focus, so there is a significant
opportunity to increase sales activity.

We want to build a financial services business
and aim to have 100 financial services
consultants servicing our brands by the end
of 2021. Growing our sales activity will help
drive our financial services business.

EweMove
recruitment

We want to accelerate the recruitment of
franchisees into EweMove, aiming for the brand to
have over 200 franchised territories by the end of
2023 with 500 people working in those franchises
(2020: 115 franchised territories with 275 people).

Acquisitions

We will continue to grow the Group through
acquisitions of the same, similar and
complementary businesses.

Digital
marketing

Our digital marketing strategy underpins all
our other strategic growth initiatives. We need
to continually develop our digital marketing,
delivering an intuitive and engaging customer
journey with the right communications at the
right time.

See pgs 25 and 27 for details of our KPIs

The Property Franchise Group PLC
annual report and accounts 2020

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p r oGrE S S to D atE

p rI NcIpa l rI S K S

• Around 150 of our franchisees have expressed a desire
to buy a portfolio if one was available in their area
• Franchisees have continued to carry out acquisitions
• The brands’ managing directors are actively working with

franchisees to source opportunities

• Digitally driven campaigns to win private landlords’ business,
retain existing landlords and win back lost landlords are ready
for launch in 2021

We’re embarking on a journey to support our franchisees
in this area through upskilling and helping them to recruit
the right people to expand their offering in sales

• Trials have already started in a number of offices
• Hub and spoke launched whereby offices can increase their
presence in an area without the need to open up a full office

Acquisitions may not be available
or we may lose out to other buyers
following the same strategy

Some franchisees do not currently have
the resources and training to execute

No guarantee of growth

In January 2020 Mark Graves joined us bringing with him a wealth
of expertise in this sector. The Financial Services strategy was put on
hold as a consequence of Covid-19, so progress has been slower
than first anticipated

Regulation of the Financial Services
sector is complex and costly

No guarantee of growth

Post year-end agreed a strategic partnership with LSL Property
Services Plc to develop financial services

• New recruitment strategy since October 2020 is already
generating more engaged leads than seen for several
years. Increased trade press coverage to get our story
out there

More competitors are
entering the market

• Discussions with and the assessment of potential targets

increased in 2020. More so, once the first lockdown had eased

• New facilities were agreed with Barclays Bank Plc to mirror

our growth plans

Acquisitions may not be available
or we may lose out to other buyers
following the same strategy

•

Improvements have been made to websites to enhance
the customer journey
Further assessments were carried out to assist the
development roadmap

Our messages being lost in the swathe
of daily digital communications that
many of our customers will receive
and/or our messages lacking relevance

20 The Property Franchise Group PLC
20 The Property Franchise Group PLC
annual report and accounts 2020
annual report and accounts 2020

— StratEGY IN actIoN

Growth initiative #5

Acquisition
of Hunters
Property PLC

Enhancing
earnings and expertise

Reasons for the Acquisition

Enhanced scale and
geographic reach

Earnings accretion
and annual synergies

of the enlarged group will
see it operating with more
than 450 franchise owners,
400 high street offices and
110 hybrid agents across the
UK. It will be managing more
than 72,000 properties on
behalf of landlords and selling
more than 20,000 properties
per annum.

identified will provide
a stronger platform for
further organic growth
and enhancement of the
progressive and resilient
dividend policy.

Acceleration
of our financial
services strategy

through the enlarged group
being able to use more
effectively the planned
100 advisors servicing the
franchised network as well
as to develop both a digital
offering and specialist service
to landlords and tenants.

Strengthened
management team

through Glynis Frew joining
the TPFG Board as an
Executive Director and Dean
Fielding joining the TPFG
Board as a Non-Executive
Director as well as most of
the leadership team within
Hunters both continuing in
their roles and sharing their
expertise and experience with
the TPFG leadership team.

The Property Franchise Group PLC
The Property Franchise Group PLC
annual report and accounts 2020
annual report and accounts 2020

21
21

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Network revenue broadly breaks
down into lettings and sales.

Network Growth

6
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0
7
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2

7
9
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6
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2

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1
2

6
2
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3
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n Number of Offices — Network Income

Network income 2020

34%

Sales %

Lettings %

66%

Stored Equity (£trillion)

terms of the
acquisition

Effective on 19 March 2021,
The Property Franchise
Group Plc (“TPFG”) acquired
the entire issued share
capital of Hunters Property
Plc in exchange for £14.53m
in cash and 5,551,916
ordinary shares of 1p each in
TPFG, valuing the acquired
group at £26.1m.

C_GEN Section

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22 The Property Franchise Group PLC
22
annual report and accounts 2020

— StratEGY IN actIoN CONTINUED

Launched in 1992, Hunters is a widely respected national sales brand with high
levels of customer satisfaction. The Group had a network of 210 offices on acquisition.

the services offered cover residential sales; lettings;
buy-to-let and investment; auction; residential block
management; land and new homes.

IN 2020 HUNtErS
DElIVErED

26%

increase in EBITDA at
£3.47m (2019: £2.76m)

36%

increase in basic adjusted
EPS at 7.87p (2019: 5.86p)

70%

increase in PBT at
£1.53m (2019: £0.90m)

74%

increase in basic EPS
at 3.96p (2019: 2.28p)

Net debt of

nil

(2019: £3.2m)

About Hunters Group

Hunters opened its first office in York in 1992. It
was established on the principles of excellent
customer service, unrivalled pro-activity and
achieving the best possible results for its
customers. It was driven by the goals of being
the UK’s favourite estate agent and the largest
estate agency group.

By the time of its acquisition Hunters Group
had grown to be a top 5 sales agency brand by
residential properties sold subject to contract
and had achieved 9 consecutive years with
customer satisfaction exceeding 90%. Along
the way it had won more than 30 awards
and been featured in the Sunday Times
Best 100 Companies.

2005 saw the start of expansion with the
creation of a franchising model which
has subsequently led to great success in

persuading independent agents to convert
to the Hunters brand and system. It has also
grown its franchising business through the
acquisition of Countrywide Plc’s franchising
arm in 2011, Country Properties in 2015 and
Besley Hill in 2017.

Hunters has added a total of 46 branches
through acquisition and, in the seven years
to December 2020, opened 153 branches.
Network income has steadily increased
alongside the growth in the number of offices.

Today Hunters operates through 210 offices
in England mainly under the Hunters brand
with Country Properties accounting for 15 of
the offices and Mullucks for 3 of the offices.
It operates 10 of the offices itself.

HUNtErS promISE IS tHat It'S “HErE to
GEt YoU tHErE” aND cHampIoNS 5 ValUES

D r I VE

p r o G r E S S I VE

I N Vo lV E D

Be passionate and deliver the
customer’s goal

Deliver a modern and relevant
service to our customers

Invest time and care so that
the customers understand
their business is important
to us

E m patH Y

I NtE G r It Y

Stand in our customers shoes
and truly understand their
aims and challenges

Respect others, truly listen
and provide relevant and
appropriate advice

Financial Performance for 2020

2020 saw a very strong performance despite
the enforced lockdowns and disruption caused
by the pandemic. Through the central team and
franchisees pulling together, the Hunters Group
achieved both record profitability and improved
its customer service rating to 97%.

The Hunters Group reported consolidated
turnover down by 11% year on year but partly
due to franchising two owned offices and
changes in service charges to franchisees
resulting from the pandemic. Once these
elements were adjusted for, turnover dropped
by only 4% from £13.0m to £12.5m.

There was a lot of positive activity in the
residential sales market post the lifting of the
first lockdown in May 2020. As can be seen

from the KPIs on page 23, this translated into
significant increase in the sales agreed pipeline
which reached a record at the year-end of
£17.3m. Furthermore, despite losing almost two
months of activity during the first lockdown,
fees invoiced by the network for exchanged
deals recovered to mirror the prior year.

The Hunters Group generated an 112% increase
in net cash from operations in 2020 at £4.1m
(2019: £1.9). This meant that by the year-end,
notwithstanding the Covid loan of £3.5m, the
business had net debt (excluding lease liabilities)
of less than £5,000. The positive performance
also translated into a 20% increase in net assets
at 31 December 2020 of £9.0m (2019: £7.6m)

C_GEN Section

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The Property Franchise Group PLC
annual report and accounts 2020

23
23

FINaNcIal pErFormaNcE
For laSt 5 YEarS

Revenue has been more or less static over 4
of the last 5 years. The exception being 2020
where a combination of franchising off two
owned offices and reduced charges for portals
reflecting actions to minimise the financial
impact on the franchised network has caused
revenue to fall to £12.5m.

At the same time the opening of branches
borne from success with attracting independent
agents to Hunters has seen MSF increase by
35% over the period to £3.5m, very similar to
the growth of MSF for TPFG at 36%.

Adjusted EBITDA grew by 67% over the period
to £3.5m helped by the opening of offices and
growth in the portfolio of managed properties.

A faster rate than TPFG which over the same
period generated an increase in adjusted
EBITDA of 46%.

2020 was a strong year for profitability and net
cash generated from operations as Hunters
Group took action to curtail discretionary
expenditure and reorganise its resources.

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Hunters Audited Performance

Turnover

EBITDA

PBT

Adjusted PBT

Basic EPS (pence)

Basic adjusted EPS (pence)

Net debt

Hunters Non-Financial KPIs

Customer service rating

Number of offices

Offices opened

Average office turnover

Exchange fees invoiced

Lettings income

Pipeline (sales agreed)

Managed properties

2020
£'m

12.46

3.47

1.53

2.81

3.96

7.87

0.00

2020

97%

209

£0.2m

£27.7m

£15.5m

£17.3m

14,588

2019
£'m

13.99

2.76

0.9

2.06

2.28

5.86

3.22

Change
%

(11)%

26%

70%

36%

74%

34%

100%

2019

Change %

96%

206

£0.2m

£27.7m

£14.6m

£9.4m

13,842

(55)%

83%

Revenue (£m)

MSF (£m)

Adjusted EBITDA (£m)

8
3
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2016

2017

2018
n Hunters n TPFG

2019

2020

2016

2017

2018
n Hunters n TPFG

2019

2020

2016

2017

2018
n Hunters n TPFG

2019

7
5

5
3

2020

Adjusted PBT (£m)

Net Cash Generated from Operations (£m)

Net Assets (£m)

8
4

9
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2018
n Hunters n TPFG

2019

2020

2016

2017

2018
n Hunters n TPFG

2019

2020

2016

2017

2018
n Hunters n TPFG

2019

2020

24 The Property Franchise Group PLC
annual report and accounts 2020

— FINaNcIal rEVIEW aND
KEY PERFORMANCE INDICATORS (KPIs)

Sharp focus on cost
and cash management
delivers strong results.

o p E r atI N G
p ro F It

£4.8m

m aNa G E m E Nt
S E rVIc E F E E S

£9.4m

In 2020 several key attributes of TPFG’s business
model came to the fore. The business benefitted
from being a financially strong franchised
network that was quick to adapt and resourceful.
It benefitted from having built a large managed
portfolio supported by its franchisors. It
benefitted from its franchisors having strong
operating margins and an experienced team
capable of supporting rapid change. Last but
not least, TPFG benefitted from being a Plc with
clear views about cash allocation and how to
support its stakeholders for long-term benefit.

2020 started with increased sales activity, giving
way in March to a two-month lockdown. From
13 May 2020 sales activity picked up, assisted by

the stamp duty holiday, however sales revenue
was held back by sales taking significantly longer
to complete. Lettings transactions went digital
and lettings income proved resilient.

Revenue
Group revenue for the financial year to
31 December 2020 was £11.5m (2019: £11.4m),
an increase of £0.1m (1%) over the prior year.

Management Service Fees (“MSF”), our key
underlying revenue stream, decreased 3% from
£9.7m to £9.4m and represented 82% (2019:
85%) of the Group’s revenue. The remainder
of Group revenue was from franchise sales

Revenue
Management Service Fees
Administrative expenses
Adjusted operating profit*
Operating profit
Adjusted profit before tax*
Profit before tax
Adjusted EBITDA*
Dividend

2020

£11.5m
£9.4m
£5.7m
£5.4m
£4.8m
£5.4m
£4.8m
£5.7m
8.7p

2019

£11.4m
£9.7m
£5.8m
£5.0m
£4.0m
£4.9m
£4.0m
£5.3m
2.6p**

* Before exceptional costs, amortisation of acquired intangibles and share-based payment charges.
** No final dividend for 2019.

of £0.2m (2019: £0.2m), ancillary services to
support MSF generation of £1.5m (2019: £1.5m)
and, new for 2020, revenue from financial
services of £0.4m (2019: nil).

Lettings contributed 70% of MSF (2019: 69%),
sales contributed 29% of MSF (2019: 30%) and
financial services contributed 1% of MSF (2019:
1%). Lettings MSF decreased by 1% in the year,
excluding the amortisation of prepaid assisted
acquisitions support, and sales MSF decreased
by 5%.

Our franchise sales activity was predominantly
focused on reselling existing franchises to
experienced franchise owners in the high
street-led brands, and to encouraging new
entrants into EweMove. Resale activity was
subdued in 2020 due to the pandemic. Sales
to new entrants into EweMove were high,
given that recruitment was temporarily paused
for six months due to the uncertainty created
by the pandemic, with 11 new franchisees
gained in the year (2019: 25).

Operating profit
Headline operating profit increased 19% to
£4.8m (2019: £4.0m) with an operating margin of
42% (2019: 35%). Adjusted operating profit before
exceptional items, amortisation of acquired
intangibles and share-based payments charges
increased 8% from £5.0m to £5.4m and the
resulting operating margin was 47% (2019: 44%).

Given the challenging market conditions
caused by the pandemic, cost reductions were
sought from all contributors including suppliers,
contractors, and our employees in March/April
2020. The latter agreed to a 20% reduction in
basic salaries and to the suspension of bonuses,
commissions and allowances. A small number of
employees were furloughed resulting in financial
support of less than £0.1m being received.

No sooner had we restructured the cost base
and offices were able to reopen. We saw activity
in the sector return. Indeed, it was evident from
EweMove that customer demand was increasing
rapidly, and this necessitated reinstating third-
party suppliers and bringing back from furlough
our own employees so that by July we were
almost at full strength again.

By the final quarter of 2020 we had settled
into a more predictable pattern of costs once
more. Cost savings were not as much as we

The Property Franchise Group PLC
annual report and accounts 2020

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Measuring our performance

The Group tracks a series of financial and
non-financial metrics that demonstrate the
progress we are making. These have been
discussed in further detail throughout
the Strategic report.

— F I NaNcIa l KpI S

N E t c a S H G E N E r atE D F ro m
O P E R ATI O N S (£M )

M S F P E R F R AN C H I S E –
ALL B R AN DS (£K )

£5.4m

+15% (2019: £4.7m)
Definition
Cash generated from the
day to day trading activities
of the business.

Comments
The franchise model
continues to be highly
cash generative and
Covid-19 cost savings
have contributed to the
increase in 2020.

Links to strategy

3 4 5 6

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5

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4

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5
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2

£27k

+5% (2019: £26k)
Definition
Total management service
fees “MSF” for all brands for
the year divided by the total
number of franchises at the
end of the year

Comments
MSF per franchise
continues to rise.

Links to strategy

3 4 5 6

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p ro F It B E F o r E ta X
(£M )

£4.8m

+20% (2019: £4.0m)

Definition
Total revenue minus total
costs, before the deduction
of corporation tax.

3
4

2
3

3
04
4

aD J U S tE D E ar N I N G S p E r
S HAR E – FU LLY D I LUTE D
( P E N C E )

16.5p

+4% (2019: 15.9p)

8
4

Definition
Adjusted profit for the year*
divided by the weighted
average number of shares in
issue, including the dilutive
effect of share options.

5
6
1

9
5
1

3
3
1

9
2
1

1
1

Comments
Profit before tax increased
by £0.8m in 2020.

Comments
Adjusted earnings per share
continues to increase.

6
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2

7
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2

8
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9
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0
2
0
2

* before share-based payment
charges and amortisation of
acquired intangibles

6
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2

7
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8
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9
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2
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Links to strategy

3 4 5 6

Links to strategy

3 4 5 6

had expected in April 2020, in part because
the Board decided to repay the voluntary
20% reduction in salaries agreed to by
employees and to fully pay the bonuses and
commissions that had been suspended in Q1
2020. This was in recognition of the efforts
of the Group’s employees and in recognition
of the profit before tax achieved. Post year
end the Board has also decided to repay the
furlough monies received of £0.09m.

As a result, cost of sales was reduced by 13%
to £0.9m (2019: £1.1m) and administrative
expenses were reduced by 3% to £5.7m
(2019: £5.8m).

Share options were issued to the Executive
Directors in 2020 over a maximum
of 200,000 shares and in 2019 over a
maximum of 100,000 shares. However,
most of the potential shares available under
share options resulted from share options
granted to almost all employees in 2017
and 2018. Those granted in 2017 and 2018
have come to the end of their assessment
periods. Almost all the options issued in 2018
were “parallel” options whereby the holders
could either exercise their options issued
in 2017 or their options issued in 2018 but
not both. After careful consideration and,
for the options issued in 2018, a detailed
review of underlying performance in 2020,
the vesting percentages for both schemes
were determined at 25%.

An assessment of the share-based payment
charges resulting from the options granted
was made on 31 December 2020 resulting
in £0.1m being charged to the profit and
loss account (2019: £0.4m). Further details
can be found in notes 4, 5 and 27 to the
consolidated financial statements.

S t r atEG Ic Gr o WtH I N ItIatI V E

Lettings growth

Sales activity in the traditional brands

Financial services growth

4 EweMove recruitment

5 Acquisitions

6 Digital marketing

See more on pgs 18-19

26 The Property Franchise Group PLC
annual report and accounts 2020

Adjusted EBITDA
Adjusted EBITDA for 2020 was £5.7m (2019:
£5.3m), an increase of £0.4m (8%) over the prior
year. The high street-led brands contributed
£0.2m of this increase through cost reductions
offsetting the small reduction in revenue of
£0.1m and EweMove contributed £0.2m of
this increase again through cost reductions
offsetting the reduction in revenue of £0.2m.

Profit before tax
Profit before tax was £4.8m for 2020 (2019: £4.0m)
which includes the share-based payment charge
of £0.1m in 2020 (2019: £0.4m). Excluding
exceptional costs, amortisation arising on
acquired intangibles and the share-based
payment charges, the adjusted profit before
tax increased from £4.9m to £5.4m (9%).

Taxation
The effective rate of corporation tax for the year
was 21.1% (2019: 19.1%) due to the Government
deciding not to implement the 17% rate of
corporation tax which caused a deferred tax
adjustment of £0.1m. The total tax charge
for 2020 was £1.0m (2019: £0.8m).

Earnings per share
Basic earnings per share (“EPS”) for the year was
14.6p (2019: 12.5p), an increase of 17% based on
the average number of shares in issue for the
period of 25,822,750 (2019: 25,822,750).

Diluted EPS for the year was 14.4p (2019: 12.1p)
an increase of 19% based on the average
number of shares in issue for the period plus an
estimate for the dilutive effect of option grants
vesting, being 26,342,567 (2019: 26,692,929).

The increase in EPS for both measures results
from the increase in profit before tax year on
year caused in the main by the cost reduction
measures during the year.

Adjusted basic EPS for the year was 16.8p (2019:
16.2p), an increase of 4% based on the average
number of shares in issue for the period of
25,822,750 (2019: 25,822,750).

Adjusted diluted EPS for the year was 16.5p
(2019: 15.6p), an increase of 6% based on an
estimate of diluted shares in issue of 26,342,567
(2019: 26,692,929).

The adjustments to earnings to derive the
adjusted EPS figures total £0.6m (2019: £0.9m)
and result from the share-based payment
charge and the amortisation of acquired
intangibles.

The profit attributable to owners was £3.8m
(2019: £3.2m) with the increase of £0.6m mainly
due to the impact of both the cost reduction
measures in 2020 and a lower share-based
payment charge in 2020.

Dividends
With the financial picture improving the Board
took the decision, despite significant uncertainty
created by the pandemic, to reinstate dividend
payments in September 2020 at a time
when few companies had decided upon
such a course of action. It was clear that our
business model had proved resilient. An interim
dividend of 2.1p per ordinary share was paid on
23rd September 2020.

Due to the proposed acquisition of the entire
issued and to be issued share capital of Hunters
Property Plc the Board took the decision to pay
an interim dividend to existing shareholders
of 6.6p per ordinary share in lieu of a final
dividend for 2020. This dividend was paid
on 23 February 2021.

Cash flow
The Group is strongly operationally cash
generative. The net cash inflow from operating
activities in 2020 was £5.4m (2019: £4.7m) as the
Group continued to generate strong operating
cash inflows.

The net cash outflow from investing activities
was £0.1m (2019: outflow £0.7m). This
consisted of £0.1m for the purchase of Auxilium
Partnership Limited in January 2020, £0.2m
provided to franchisees to support their
acquisitions of managed properties under the
assisted acquisitions program and £0.2m repaid
by Mark Graves following the purchase of 85%
of the ordinary shares in Auxilium Partnership
Limited from him (more details in note 15).
In 2019, most of the net outflow was due
to payments made to franchisees under the
assisted acquisitions program and the loan of
£0.2m to Mark Graves.

There were no bank loans outstanding in 2020.
In 2019 £1.6m in repayments were made to
Santander Plc to clear the outstanding loans.

Dividend payments totalling £0.5m were made
in the year (2019: £2.2m).

Liquidity
The Group had cash balances of £8.8m on
31 December 2020 (2019: £4.0m) and no
bank debt in either year. It entered negotiations
with Barclays Bank Plc for a new facility at the
year-end of up to £12.5m as part of its proposed
acquisition of Hunters Property Plc.

Key performance indicators
The Group uses a number of key financial
and non-financial performance indicators to
measure performance. The Group also adjusts
certain well-known financial performance
measures for share-based payment charges,
amortisation on acquired intangibles and
exceptional items so as to aid comparability
between reporting periods.

Financial position
The consolidated statement of financial position
remains strong with total assets of £25.2m (2019:
£21.1m) due mainly to an increase in cash.

There was an increase of £0.8m in liabilities
during the year mainly due to the deferral
of £0.5m of VAT under the Government’s
pandemic support measures and, because
of the Board deciding to pay bonuses and
commissions that had been suspended at the
end of Q1 2020, an increased employment
costs accrual of £0.3m.

The key financial measures are as follows:
• Management Service Fees
• Adjusted operating profit
• Adjusted EBITDA
• Adjusted profit before tax
• Adjusted earnings per share

These have been discussed above in
further detail.

The key non-financial measures focus on
some long-standing drivers of financial
performance as well as reflecting the Board’s
continued investment in its assisted acquisitions
programme and digital marketing:

• Number of properties listed for sale
• Number of properties let
• Number of properties sold
• Number of leads generated through

digital marketing

• Number of managed properties
• Number of managed properties acquired

through assisted acquisitions

The Group finished the year with the total equity
attributable to owners of £20.6m, an increase of
£3.3m or 19% over FY19.

The Group generated stronger cash inflows than
ever before in 2020 against a history of strong
operational cash inflows due to its operating
margins. This provided the opportunity to
discuss a facility with Barclays Bank Plc of up
to £12.5m and to further pursue its acquisitive
strategy in 2021 with the acquisition of Hunters
Property Plc (see note 30 of the consolidated
financial statements).

David Raggett
Chief Financial Officer
26 April 2021

The Property Franchise Group PLC
annual report and accounts 2020

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— N O N - F I N A N C I A L K P I S

tE NaN tE D m aNa G E D
p ro p E rtI E S

p ro p E rtI E S So lD
I N t H E YE ar

m aNaG E D p ro p E rtI E S
acQ U I r E D BY F r aNc H I S E E S

58,000

+0.1% (2019: 58,000)
Definition
Total number of lettings
properties being let out
on a fully managed basis
by the network.

Comments
Revenue from managed
properties is a reliable
income stream as the
landlord is charged a %
fee based on the rent
paid each month.

0
0
0
8
5

0
0
0
5
5

0
0
0
2
5

0
0
0
8
4

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

0
2
0
2

9,493

-12% (2019: 10,823)
Definition
Total number of property
sales completed by the
network in the year.

3
6
7
0
1

3
2
8
0
1

2
3
4
0
1

3
9
4
9

0
7
2
8

Comments
The housing market
was closed for a period in
2020 due to the Covid-19
pandemic and some people
are likely to have avoided
moving.

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

0
2
0
2

Links to strategy

3 4 5 6

Links to strategy

3 4 5 6

1,305

-45% (2019: 2,381)
Definition
Total number of contracts for
fully managed rental properties
acquired by a franchisee
upon their purchase from an
independent property agent.

Comments
For much of the year the
Covid-19 pandemic meant
franchisees were focusing on
cutting costs and surviving,
rather than expansion of
their business. However,
some continued to acquire
porfolios and this continues
to be one of our growth
initiaitives.

Links to strategy

3 4 5 6

5
1
1
,
3

1
8
3
2

2
1
0
2

5
0
3
,
1

0
7
5

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

0
2
0
2

p ro p E rtI E S l E t
I N t H E YE ar

28,092

-13% (2019: 32,278)

Definition
Total number of new lets
or re-lets completed by
the network in the year.

Comments
The housing market
was closed for a period in
2020 due to the Covid-19
pandemic and some people
are likely to have avoided
moving.

EWE m oVE F r aNc H I S E E S
r Ec r U ItE D

-92% (2019: 25)

PAI D S E ARC H LE ADS –
tr aD I tI o Nal B r aN DS

39,886

-16% (2019: 47,658)

6
6
3
,
1
3

6
3
7

,
1
3

8
7
2
2
3

7
5
4
0
3

2
9
0
8
2

Definition
The number of new
franchisees recruited into
EweMove in the year.

1
3

5
2

3
2

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

0
2
0
2

Comments
It has been difficult to sign
up new franchisees during
a pandemic, however, since
the limited impact on the
housing market became
apparent there has been
a surge in enquiries and
sign ups.

1
1

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

0
2
0
2

8
5
6
7
4

6
8
8
9
3

4
7
4
0
3

9
0
6
6
1

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

0
2
0
2

Definition
The total number of leads
generated for the traditional
brand network from pay per
click (“PPC”) website spend.

Comments
Over the last 4 years
efforts have been made
to encourage traditional
brand franchisees to
embrace digital marketing.
Leads were lower in 2020
due to lower market activity
during the pandemic and
also PPC was switched off
for a short period as a cost
saving measure.
Links to strategy

3 4 5 6

Links to strategy

3 4 5 6

Links to strategy

3 4 5 6

28 The Property Franchise Group PLC
annual report and accounts 2020

— StaKEHolDEr ENGaGEmENt

The relationships
we build with stakeholders
contribute to our long
term success

s172 Statement
As required by s172 of the Companies
Act 2006, a director of a company must
act in the way he considers, in good faith,
would most likely promote the success
of the company for the benefit of its
shareholders. In so doing, the director
must have regards amongst other
matters to the:

• Likely consequences of any
decision in the long term
Interests of the company’s
employees

•

• Need to foster the company’s
business relationships with
suppliers, customers and others
Impact of the company’s actions on
the community and environment

•

• Desirability of the company

maintaining a reputation for high
standards of business conduct

• Need to act fairly between
members of the company

oUr S taK E Ho lD ErS

m atErIa l to pIcS

Em p lo Y E E S

The relationship we have with our
employees is key to our success. We aim
to provide them with an environment
where they feel part of the bigger picture
and are able to fulfil their potential.

•
Inclusion in decision making
• Opportunities to share ideas
• Roll-out of new initiatives

to the network

• Opportunities for career

development
• Flexible working

Fr aNcH I S E E S

We see our relationship with our
franchisees as a partnership, we give
them the tools to grow their business
which brings rewards for both parties.
Most have been franchisees for
more than 10 years and a growing
number for more than 20 years.

S Ha rE Ho lD ErS

As a listed business we recognise the
important role that shareholders play
in providing capital and support for new
initiatives. In addition, our institutional
investors provide insight into successful
strategies, advice on risks and support
with monitoring and safeguarding
the governance of the Group.

BaN K S

Our banking partners play an important
role in our business, enabling us
to take advantage of opportunities
when they arise. We maintain close
and supportive relationships through
openness and mutual understanding.

• Compliance with new regulations
• Leveraging new revenue streams
• Sharing ideas
• Continual roll-out of new initiatives
• Engagement with digital marketing

•

Financial and operational
performance

• Business strategy and model
• Market conditions
• Capital allocation
• Dividend

•

Financial and operational
performance
Strategy

•
• Market and opportunities
• Cash generation

rEG Ul ato rS

There is a continual push by consumers,
society and government to formally
regulate the property industry.

• Compliance with the legislation
• Maintain high standards
•

Franchisees encouraged to hold
a property-related qualification
even though it is not yet
mandatory in the industry

co m mU N ItY

We are mindful that our franchise
owners live in the local communities
that they serve and, thereby, have an
interest in ensuring that their landlords
provide suitable accommodation, that
tenants meet acceptable standards
and that their knowledge is put to
good use in serving house buyers.

Involvement in local organisations

•
• Providing valuable local
insight to customers
Sponsorship

•
• Compliance with regulations

The Property Franchise Group PLC
annual report and accounts 2020

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Ho W W E E N Ga G E

p rI NcIpa l D E cI S IoN S I N 2 0 2 0

Our regular head office meetings provide updates on financial
performance and new initiatives plus a Q&A session.

Day to day our employees feel comfortable engaging
directly with the most appropriate person in the business
without necessarily needing to follow hierarchical lines.

Our regular face-to-face meetings with franchisees were replaced
with virtual meetings in 2020. Regional business meetings took
place between groups of franchisees, we kept the groups small to
encourage interaction. We also continued with brand marketing
meetings and one-to-one meetings. The Covid-19 Impact Team
we set up had regular contact with each franchisee in the network.

Regular newsletters highlight any changes in the law, processes,
third-party services, our services, training events and new offerings.

We maintain regular communications with shareholders in
line with our regulatory duties. We have twice yearly results
roadshows, our Non-Executive Directors hold meetings on
governance matters, we hold an AGM and provide updates in
between via RNSs, our website and contact through our advisors.
Our meetings in 2020 were largely carried out virtually with a
video recording being posted on our website after the event.

We have considered the decisions taken by the
Board which will have an impact on the longer-
term performance and prospects for our Group.

S I G N I F Ic aNt D E cI S IoN

Towards the end of 2020 we took the decision
to pursue the purchase of Hunters Property
PLC, a listed estate agency franchisor.

S taK E Ho lD ErS aF F E c tE D aN D E N Ga G EmE Nt

• Shareholders – from previous discussions we were
already aware that shareholders had an appetite for
us to grow the business by acquiring a competitor
franchisor, further discussions took place and
various RNS communications followed
• Banks – a new loan facility was required,

negotiations were already in progress prior to
the decision to enable us to act quickly

• Regulators – advisors assisted with the regulatory

requirements of putting in an offer for a listed company

• Employees – we timed our announcement to
employees to occur at the same time as the
news of our intentions became public

• Franchisees – a newsletter was sent to franchisees
on the morning of the news becoming public

We have regular update meetings with our banking partners on
our current performance after investor roadshows. Where loans
exist we regularly supply financial information and commentary.

As a leading player in the industry we maintain good relationships
with trade bodies such as The Property Ombudsman,
Deposit Protection Scheme, and Propertymark (ARLA).

Actively engaging in social media and using the digital marketing
techniques to provide useful information to local communities.

rEaSoN F o r D E cI S IoN

Enhanced scale and geographic reach – the enlarged Group
will benefit from increased scale with more than 400 physical
branches, managing in excess of 70,000 tenanted properties
and selling more than 20,000 properties per annum.

Earnings accretion and annual synergies - these are anticipated
to be largely cost synergies including but not limited to:
leverage of IT expertise, operational savings from duplicated
costs across some administrative functions and operational
cost savings from the cancellation of Hunters' AIM quotation.

Acceleration of financial services strategy - the enlarged Group
would have the scale to make effective use of The Property
Franchise Group's plans to create a pool of 100 financial
advisers, as well as to justify further recruitment in this area.

Strengthened management team – it is proposed that
the Executive Directors of both The Property Franchise
Group and Hunters will remain within the enlarged
Group following completion of the acquisition.

aNtIcIpatE D E F F E c t S

Increased market share.

Sharing of knowledge and best practices is expected
to generate increased revenue in both businesses.

Shareholders will benefit from increased earnings.

p r oGrE S S

Acquisition effectively completed on 19 March 2021.

30 The Property Franchise Group PLC
annual report and accounts 2020

— rESpoNSIBlE BUSINESS

We believe that acting in a socially
and environmentally responsible
manner will help maximise future
growth and success.

As demonstrated in our
s172 statement, we recognise
the importance of engaging
with and balancing the interests
of our employees, franchisees,
shareholders, partners and the
communities in which we operate.
We aspire to carry out our business
to the highest ethical standards,
treating all stakeholders in a
professional, courteous and
honest manner.

This year, that has required a focus
on ensuring colleagues, franchisees
and our customers are not exposed
to unnecessary risk in the course of
doing business during the Covid-19
pandemic, and that everyone has
been adequately supported during
challenging and difficult periods.

— P EO P L E A N D C U LT U R E

We have a very experienced,
long serving and
committed team which
we believe is one of the
reasons for our success.

The Group recognises the
importance of diversity at all levels
of the business. Age, colour, race,
gender, disability, ethnic origin,
national origin, marital status,
sexual orientation, religious or
political views are not seen as
barriers to employment.

We believe each person is important
to the whole team, making it vital
to recruit the right people and
retain them.

The development of talent is also
fundamental to achieving the long-
term strategic goals of the business.
We give people the opportunity to
progress their career with us through
training and supporting colleagues
in obtaining external qualifications,
and new recruits benefit from the
extensive experience held by our
existing employees.

The success of our business is also
dependent on our culture – the
way we think, behave and act
towards each other and our key
stakeholders. We believe in fostering
a culture based on trust, support
and collaboration, and this was
demonstrated in how we responded
to the Covid-19 pandemic.

tH E G ro U p
E m p loYS

2,300

p Eo p lE

We understand the importance
of maintaining a healthy work-
life balance and tried to ensure
everyone’s family’s needs were
not neglected while we worked
through the crisis.

See pgs 12-13 for more on our
response to Covid-19

— CO M M U N I T Y

— E N V I R O N M E N T

During 2020 we assisted
our franchisees to provide
support to landlords,
tenants, buyers and sellers,
and the wider community
in response to the impact
of the pandemic.

Actions included arranging rent
guarantee insurance for landlords,
implementing virtual viewings,
advising on and obtaining supplies
of PPE and putting tenants
experiencing hardship in touch
with professional advisors.

The move to remote working has
meant we made significant steps
towards becoming a paperless
operation, with many employees
not having access to a printer new,
more environmentally friendly,
ways of working have prevailed.

The Group is an
environmentally-
conscious organisation.

We acknowledge the impact
our operations and services may
potentially have on the environment,
and we aim to minimise energy
and resource consumption, and
wherever practicable, reduce,
recycle and reuse resources
to prevent unnecessary waste.

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The Property Franchise Group PLC
annual report and accounts 2020

— rISK maNaGEmENt

The Group’s approach to effective risk
management is to identify principal risks
through regular reviews, evaluations
and prioritising of risks.

— R I S K M A N AG E M E N T F R A M E WO R K

The Board
The Board has overall responsibility
for the management of risk, defining
the Group's risk appetite and setting
key risk management policies.

Audit and Risk Committee
The Audit and Risk Committee
assists the Board in fulfilling
its oversight responsibilities by
reviewing and monitoring the
integrity of the Group's systems
of internal control and risk
management.

Franchise Audits and
Compliance
An internal team is responsible for
auditing franchises in rotation. Audit
work is geared towards mitigating
financial risks. A compliance
dashboard enables us to monitor
franchisees‘ adherence to relevant
standards such as having the correct
insurances in place.

Annual risk review
The Group carries out a risk review annually. The document sets out the name of
the risk as well as describing it, considering the effect on the business, looking at the
controls in place, looking for additional mitigating factors, and deciding its seriousness
by considering the probability of it occurring and what damage it would cause if the
event occurred.

Board members and senior management all contribute to the drawing up of the risk
review. The Audit and Risk Committee review the document, examine the risks, decide
on the actions to recommend and then pass it on to the Board for approval. Once a risk
has been determined as requiring action, the Board allocates the responsibility to the
appropriate Board member.

We then develop actions
or processes within the
business to eliminate
or mitigate those risks
to an acceptable level.
Responsibility for the
management of risk
is detailed in our risk
management framework,
as presented here.

See more on pgs 40-41

32 The Property Franchise Group PLC
annual report and accounts 2020

— prINcIpal rISKS aND UNcErtaINtIES

The Board considers that the risks detailed below represent the key risks to achieving the Group’s strategy. There could be additional risks and
uncertainties which are not known to the Board and there are risks and uncertainties which are currently deemed to be less material, which may
adversely impact on the achievement of the Group’s strategy and objectives.

rI S K a rEa

p otE NtIa l Im pac t

No G U a r aNtE E oF Gr o WtH

The Group’s main source of revenue is Management
Service Fees (“MSF”) derived from franchise network
turnover. MSF is dependent on market conditions
and the experience, expertise and commitment of
the franchisees.

Reduced growth in MSF, especially from sales,
which are more prone to economic uncertainty.

Reduced market share and representation.

Poor or no profit growth from the franchise model.

Less attractive to new franchisees for which a growth
track record is an essential element.

lEG I Sl atI V E cHaN G E S aN D Go V ErNmE Nt p o lIcY

The residential property market is continually
influenced by changes in UK legislation and
government policy. There is also a move towards
bringing in regulation of the industry in the next
few years.

This can cause short-term changes in the behaviour
of our clients and lead to inefficiencies in the way
we operate as we get to grips with complying with
new requirements.

Financial Services legislation provides a barrier to new
entrants both in regulatory requirements and the cost
of compliance.

Landlords could resort to selling their properties after having to
suffer an ever-growing list of regulations and a greater tax burden.

Stamp duty land tax was temporarily stopped by the Government
on 8 July 2020 on the first £0.5m of any residential property
transaction. This is currently planned to change on 1 July 2021
and be phased out on 30 September 2021. Its result has been a
significant increase in sales being agreed.

Entry into Financial Services could be more difficult and costly
than envisaged with increasing FCA levies and insurance charges
already seen recently.

aB IlItY to co m pEtE F o r p o rtF o lIo S oF
m aNa G E D p r o pErtI E S

The Group needs to continue to find suitable portfolios
of managed properties for its franchisees to buy to meet
its targets. We are not the only franchisor in our sector
pursuing this strategy and we also face competition
from well-known estate agents.

With fewer opportunities to win letting instructions due to
the increased length of tenancies and the loss of tenant fees,
franchisees should buy turnover to ensure they continue to
be profitable.

Franchisees may be unable to complete on deals for lack of
external funding.

Tight lending criteria of major lenders may limit the
external funding available to our franchisees.

aB IlItY to F I N D, rE c r U It , rEtaI N aN D Sc a lE Up
S K Il lE D Fr aNcH I S E E S

An inability of the Group to attract new franchisees
with the necessary skills, expertise and resources to
cold start or purchase resales of existing territories and/
or an unwillingness for existing franchisees to take on
further opportunities would impact on our growth.

There may be slower growth through an inability to increase
market representation or achieve a timely exit for a franchisee.
Lower resale income.

rEpUtatIoNa l rI S K to oUr Br aN D

A strong brand is key to being successful in any
sector and central to that is the reputation of the
Group and its franchisees. Our combined ability
to provide our service commitments and the way
in which we do that is central to our reputation.

Failure by the franchisees to meet the expectations of
landlords, and tenants or to fall short of the standards set
by the Group may have a material impact on reputation.
As a result, they may lose landlords and revenue. We may
lose MSF and find it difficult to recruit franchisees.

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The Property Franchise Group PLC
annual report and accounts 2020

Increase

Decrease

No change

mItI GatIoN

I N D Ic ato r

S t r atEGY

The leadership team and Board continually monitor revenue from MSF, the underlying KPIs and
variances to expectations. This informs key focuses for the leadership team and roll out of
actions to the network of franchisees.

1, 2

The EweMove proposition is a lower cost model which is attracting a continuing, significant
entry of new recruits and insight/experience, improving both our reach and our appeal to
customers.

There is the opportunity to use the data we hold and the customer relationships we have
established to offer other products and services that increase franchisees’ revenue and our MSF.

The property management service offered by the network aims to
free landlords from the burden of legislation where it can.

Professionalisation of the private rented sector is under way and we aim to win
more instructions as a result. Compliance has always been an important focus
for us, but in 2020 we have set up a new compliance dashboard and increased
our compliance expertise through recruitment, putting us in an even better
position to react to changes as they occur and ensure compliance of offices.

In-house experienced team assists throughout the whole process.

The Group has expanded its relationships with alternative lenders to give franchisees
more options. In addition many contracts are now being signed with some consideration
deferred over a longer period.

The expanded leadership team, with four managing directors for our brands,
has afforded us the opportunity for an increased focus on working with
franchisees to deliver acquisition opportunities. Cashback of £155k was paid
to franchisees in 2020 upon successful completion of acquisitions.

In-house experienced franchise sales team.

Attracting new entrants to our high street brands has been contained in recent years to
resales of franchises. However, a new “hub and spoke” model will seek to encourage new
entrants to work with existing franchisees to deliver our services in previously unexploited
areas of the UK.

EweMove has continued to be a very successful recruiter of franchisees. It ceased
recruitment for 6 months in 2020 due to Covid-19 and still recruited 11 new franchisees.
What’s more, as soon as it reopened to recruitment, there was a significant number of
new applicants. The hybrid model has become more understood and popular as a result
of the pandemic.

Minimum standards are set out to franchisees and their compliance is monitored.

PR agencies are retained to monitor, assist and advise on strategies to minimise
these risks.

The Strategic Report is contained on pages 1 to 33. It was approved by the Board on 26 April 2021 and signed on its behalf by

David Raggett
Chief Financial Officer

34 The Property Franchise Group PLC
annual report and accounts 2020

— cHaIrmaN’S INtroDUctIoN to GoVErNaNcE

High standards of corporate
governance contribute to
our success.

Richard Martin
Chairman

My main function is to
manage the Board, so the
Company and Group are
run in the best interests
of stakeholders. As part of
my role as Chairman I am
responsible for overseeing
the adoption, delivery
and communication of
the Company’s corporate
governance model.
Corporate governance
is an important element
of the management of
long-term shareholder
value, mitigating the risks
and helping to create
sustainable growth.

Since our IPO in December 2013, we have
stated that the Directors recognise the
importance of applying sound corporate
governance guidelines, to the extent
appropriate for a Company of our nature and
size, and we have observed and complied
with the Corporate Governance Guidelines
devised by the Quoted Companies Alliance
(“QCA”). The London Stock Exchange now
requires AIM-listed companies to state
which recognised corporate governance
code they have adopted, our Board
continues to confirm its commitment by
adopting the Quoted Companies Alliance
Corporate Governance Code (Edition
2018) which contains 10 principles. We
believe this code provides us with the most
appropriate governance code to allow us to
successfully develop our business. Our full
statement of compliance with the Quoted
Companies Alliance Corporate Governance
Code is set out on our website at www.
thepropertyfranchisegroup.co.uk/our-
business/governance.

We continually review the framework
within which we operate, reflecting upon the
updated guidelines and research published
by the QCA so as to ensure we have a
framework reflecting the complexities of
our business which is capable of adding
value as we grow.

The Board sets the strategic direction,
regularly reviews performance and
ensures that there are sufficient and
appropriate resources available to support
its achievement. It is satisfied that there
are the necessary controls and resources
in place to discharge these responsibilities.

Our primary objective is to enhance
shareholder value and to ensure that the
Company and Group is managed for the
long-term benefit of its shareholders.
We do recognise our responsibilities to
all stakeholders in our Group and the
importance these relationships play in the
delivery of our vision. The Board promotes
a culture of good governance in dealing
with all stakeholders.

Corporate governance regime
We confirm that our governance structures
and practices continue to be in agreement
with the Quoted Companies Alliance
Corporate Governance Code (Edition 2018).

Richard Martin
Chairman

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— Qc a coD E co m p lIaNcE

The Property Franchise Group PLC
annual report and accounts 2020

Our full statement of compliance with the Quoted Companies
Alliance Corporate Governance Code is set out on our website at
www.thepropertyfranchisegroup.co.uk/our-business/governance

GOVERNANCE PRINCIPLE

EXPLANATION

COMPLIANT FURTHER READING

Establish a strategy and
business model which
promotes long-term value
for shareholders.

Our strategy can be summarised as to buy and build,
diversify our income streams, maintain operational
efficiency and support our franchisees‘ growth. Our growth
will principally be achieved through our franchise model.

Seek to understand and
meet shareholder needs
and expectations.

The Board is committed to ensuring that its shareholders
and potential shareholders have opportunities to express
their expectations through roadshows, investor platforms,
the AGM, its advisors’ organised feedback sessions and
ensuring that their contact details are easily available.

Take into account wider
stakeholder and social
responsibilities and their
implications for
long-term success.

Wider stakeholders start with our people, our franchise
owners and their staff. Then those who support and
partner our franchise model to deliver products and
services to end-customers. We are intent on binding
them together in a fair and respectful partnership to
deliver our long-term success.

Embed effective risk
management, considering
both opportunities and
threats, throughout the
organisation.

A pandemic requires a new approach to risk review.
Afterall, it was not even on our radar. As a result, our regular
Board meetings have been more focused on threats and
opportunities and deciding on how to mitigate threats and
exploit opportunities in an evolving situation.

Maintain the Board
as a well-functioning,
balanced team led by
the Chair.

We have had a Board of five with a majority of non-
executives for many years. It worked together to recruit
Gareth as its new CEO relatively quickly this year, with
little upheaval and to integrate Gareth effectively into
the regular meetings and oversight processes that it has.

Ensure that between
them the Directors have
the necessary up-to-date
experience, skills and
capabilities.

Evaluate Board
performance based
on clear and relevant
objectives, seeking
continuous improvement.

Promote a corporate
culture that is based
on ethical values
and behaviours.

Maintain governance
structures and processes
that are fit for purpose
and support good
decision making
by the Board.

Communicate how the
Company is governed
and is performing by
maintaining a dialogue
with shareholders
and other relevant
stakeholders.

The Board has managed the incorporation of a change
in skills and experience brought by Gareth to establish a
new growth strategy and supported the recruitment of
key appointments to the leadership team to enhance the
breadth and depth of Group’s overall skills and experience.

Our strategy, franchise model and size allow us to
have greater freedom to discuss our performance and
effectiveness than many organisations enjoy. We are
continually improving what we do, how we do it
and, at times, how we correct underperformance.

We are a people business led by hard working executives
mindful of the need to work ethically. Our team has been
home-working through the strains and stresses since
March 2020. It’s adapted quickly and pulled together to
deliver good outcomes ethically.

We have the appropriate size specific structures
recommended by the QCA. What’s changed is that we
have used the structures and processes more frequently
since the pandemic commenced. It’s been important to
increase our communication and ensure we are all on
the same page.

We engage in investor roadshows, an active financial PR
process, and dialogue with analysts following our sector.
We have started to focus more resource on engaging with
retail investors and making research more easily accessible
to them. At the same time, we keep our people, our
franchisees and their staff, our suppliers and our lenders
regularly informed about our performance.

See more on pgs 18-19

See more on pgs 28-29

See more on pgs 28-30

See more on pgs 31-33

See more on pgs 36-37

See more on pgs 18-19

See more on pg 30

See more on pg 38

See more on pgs 28-29

36 The Property Franchise Group PLC
annual report and accounts 2020

— BoarD oF DIrEctorS

Committed to the development
of the business in a socially
responsible way.

The Board is responsible
for the overall performance
of the Group, which
includes the broad strategic
direction, development and
control of the Group. The
policies and strategies of
the Group are formulated
by the Board and the
detailed considerations
about the day-to-day
operations are delegated
to a senior management
team under the leadership
of the Executive Directors.

Richard Martin
Non-Independent
Non-Executive Chairman

Gareth Samples
Chief Executive
Officer

After leaving Bristol Technical School,
Richard became an apprentice
stereotyper for the Bristol Evening
Post in 1967. In 1975 he moved to The
Western Gazette, another newspaper in
the same group based in Yeovil. Ahead
of the introduction of computerisation
into the industry, Richard moved into
the commercial side and in 1981,
became trained in advertising design
and sales. After a few years he gained
promotion to Advertising Manager for
the group's free press titles distributed
throughout Somerset, Dorset, Devon
and Wiltshire.

Following the profitable sale of a retail
business in early 1986, which Richard
set up and was managed by his wife
Kathy, he left the newspaper business
to pursue his interest in property
and forge a career in estate agency.
Richard founded Martin & Co in 1986 in
Yeovil. In 1995, Martin & Co became a
franchise operation and the brand has
grown from strength to strength since.

With 30 years’ industry experience,
Gareth brings a wealth of Estate
Agency, Financial Services and digital
marketing knowledge to the Group.

In his 21 year career at LSL Gareth was
appointed Managing Director of the
Your Move brand, which was the largest
single brand estate agency in the UK at
the time. In this role he was responsible
for Your Move’s franchise operation
as well as having overall control of
Financial Services and Lettings and the
strategy of the brand.

Following his successful career at LSL,
Gareth became Managing Director of
Briefyourmarket.com where he gained
significant digital marketing experience
and knowledge and since 2014 he has
served as Chairman of Legalforlandlords.
Gareth formally joined the Group as
CEO on 30 April 2020.

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David Raggett
Chief Financial Officer

Paul Latham
Independent
Non-Executive Director

Phil Crooks
Independent
Non-Executive Director

Since qualifying with PwC as a
Chartered Accountant David has spent
his whole working life in franchising as
franchisor and franchisee. Initially David
held financial responsibility for several
Ford franchises before, in the mid 90s,
moving to Porsche's UK headquarters.
Here he held financial responsibility
for its distribution, retails and financial
services businesses at various times, as
well as being their company secretary
and, for several years, Head of Legal.

In 2007 David took up the role Finance
Director for the Motability Scooter
and Powered Wheelchair Scheme to
restore its financial stability, to improve
its offering and to expand its customer
base. After successfully turning the
scheme around and leading it into new
ownership, David joined the Group in
February 2013.

Paul is a Chartered Surveyor. Until 2014,
he sat on the Residential Board for the
Royal Institution of Chartered Surveyors
of which he was Chair until 2011.

Paul served as Deputy Group CEO of
LSL Property Services plc until 2010
having been part of the management
buyout in 2004, which ultimately
saw the business successfully list on
the London Stock Exchange in 2006.
During this period Paul was managing
director of a number of the LSL Group’s
subsidiary businesses including e.surv
Chartered Surveyors and also sat on a
number of external company boards
and trade bodies.

Subsequently Paul served as a Non-
Executive Director of LSL until 2012.
Paul was appointed as an Independent
non-executive director of The Property
Franchise Group PLC’s Board and Chair
of its Remuneration Committee in
December 2013.

Phil is a Chartered Accountant.
He has over 40 years’ experience in
accounting, auditing and investigations
and is currently a Managing Director at
Berkeley Research Group. He retired as
a partner in Forensic and Investigations
Services at Grant Thornton UK LLP in
June 2019. He was previously UK Head
of Audit for 6 years and a member of
the International Assurance Advisory
Board at Grant Thornton. Prior to that
he spent 15 years at Price Waterhouse.
Phil has extensive audit and advisory
experience, addressing financial
reporting and accounting issues and
has worked with a wide range of listed
and private international companies.

Phil was appointed as an independent
Non-Executive Director of The Property
Franchise Group PLC’s Board and Chair
of its Audit and Risk Committee in
May 2015.

38 The Property Franchise Group PLC
annual report and accounts 2020

— corporatE GoVErNaNcE StatEmENt

The Board
The Board comprises the non-independent Non-Executive
Chairman, 2 independent Non-Executive Directors and 2 Executive
Directors who are the Chief Executive Officer and the Chief Financial
Officer of the Company. It has established an Audit and Risk
Committee and a Remuneration Committee.

Evaluation of Board performance
The Board reviews its effectiveness internally by discussion,
members suggest improvements and where agreed upon, these are
implemented. However, the Board does not consider it appropriate
for a company of its size to carry out regular formal evaluations of its
performance as a unit.

The Board is responsible for the overall performance of the Group,
which includes the broad strategic direction, development and
control of the Group. The policies and strategies of the Group are
formulated by the Board and the detailed considerations about the
day-to-day operations are delegated to a senior management team
under the leadership of the Executive Directors.

The Board of Directors meets at least 9 times a year to review the
implementation of strategy and policy decisions and to review the
Group’s progress to ensure that the operation of the Group is at all
times in line with the Group’s objectives.

The Board has regular contact with its advisers to keep up to date
with corporate governance matters. The Group purchases appropriate
insurance cover in respect of legal action against its Directors.

The Chairman’s main function is to manage the Board so that
the Group is run in the best interests of its stakeholders. It is
also the Chairman’s responsibility to ensure the Board’s integrity
and effectiveness.

The Chief Executive Officer is responsible for the running of the
Group’s businesses. There is a schedule of matters specifically
reserved for the Board’s decision to ensure that the management
and direction of the Company are under its control. Each Executive
Director has his own sphere of responsibility. Decisions relating to
strategy, major contracts, acquisitions, internal controls, for example,
are taken at Board level.

The Board has an appropriate balance of skills, capabilities and
experience, including in areas of residential property sales and lettings,
franchising, finance and marketing. Each Directors’ biography is set out
on pages 36 to 37 which demonstrates the experience mix.

The Board are supported by a strong senior management team
which contains a managing director of the franchisors, a marketing
director and several qualified accountants alongside the Chief
Executive Officer and Chief Financial Officer.

During the years ended 2019 and 2020, the Remuneration Committee
has sought advice from Deloitte LLP and Shoosmiths LLP in relation to
share option schemes and other employee reward mechanisms.

All Directors are able to take independent professional advice in the
furtherance of their duties and to attend seminars and training to assist
them with the development of their own knowledge and expertise.

All Directors have access to the advice and services of the Company
Secretary, who is responsible to the Board for ensuring that Board
procedures are followed and the applicable rules and regulations
are complied with.

Directors’ time commitments
The Executive Directors are employed on a Monday to Friday 8.30
am to 5.30 pm basis and such additional hours as may be required for
proper performance of their duties and responsibilities. Non-Executive
Directors are required to allocate sufficient time to properly carry out
their duties and perform their roles as the circumstances will dictate.
This includes attendance at monthly Board meetings, Committee
meetings and the AGM. Non-Executive Directors are required to
devote appropriate preparation time ahead of each meeting.

Non-Executive Directors/Board independence
The Company has two independent Non-Executive Directors, Paul
Latham and Phil Crooks, who provide an important contribution to
its strategic development. Paul Latham and Phil Crooks both meet
the independence criteria which are set out in the UK Corporate
Governance Code.

Board Committees
The Board has delegated specific responsibilities to the Audit & Risk
and Remuneration Committees. The Board considers that all the
members of each Committee have the appropriate experience.
All Board Committees have their own terms of reference which
are available on request.

Remuneration Committee
The Remuneration Committee is chaired by Paul Latham and its
other member is Phil Crooks. It met four times in 2020 and will
continue to meet at least twice a year.

The Remuneration Committee has responsibility for determining,
within agreed terms of reference, the Group’s policy on the
remuneration of senior executives and specific remuneration
packages for Executive Directors including pension payments
and compensation rights. It is also responsible for making
recommendations for grants of options under the Share
Option Plans.

The remuneration of Non-Executive Directors is a matter for the
Board. No Director may be involved in any discussions as to their
own remuneration.

Details of the level and composition of the Directors’ remuneration
are disclosed in the Directors’ Remuneration Report on pages
42 to 44.

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The Property Franchise Group PLC
annual report and accounts 2020

Audit and Risk Committee
Phil Crooks is the Chair of the Audit and Risk Committee. Paul Latham is its other member. It met 3 times in 2020 and will continue to meet
at least twice a year.

The Audit and Risk Committee has the primary responsibility for ensuring that the financial performance of the Group is properly measured,
reported on and monitored. These responsibilities extend to:

•

•
•
•

the Group’s draft financial statements and interim results statement prior to Board approval and reviewing the external auditor’s detailed
reports thereon;
the appropriateness of the Group’s accounting policies;
the potential impact on the Group’s financial statements of certain events and risks;
the external auditor’s plan for the audit of the Group’s accounts, which includes key areas of audit focus, key risks, the proposed audit fee
and approving the terms of engagement for the audit;
internal assurance reporting;

•
• non-audit services;
the dividend policy;
•
the processes for identifying the risks to the business and managing those risks; and
•
its terms of reference.
•

For more information on the work of the Audit and Risk Committee during the year please refer to its report on pages 40 and 41.

Risk management
The Board carries out a risk review annually. Board Directors and senior management all contribute to the drawing up of the risk review. The
Audit and Risk Committee review the document, examine the risks, decide on the actions to recommend and then pass it on to the Board for
approval. The document sets out the name of the risk as well as describing it, considering the effect on the business, looking at the controls
in place, looking for additional mitigating factors, and deciding its seriousness by considering the probability of it occurring and what damage
it would cause if the event occurred. Once a risk has been determined as requiring action, the Board allocates the responsibility to the
appropriate Board member.

During the course of the year the Board reviews progress against the risks set out in the risk review. The key risks are set out in the section
of principal risks and uncertainties on pages 32 and 33.

Directors attendance at meetings held during the financial year ended 31 December 2020:

Number of meetings
Richard Martin
Ian Wilson (resigned 30 April 2020)
Gareth Samples (appointed 30 April 2020)
David Raggett
Paul Latham
Phil Crooks

Board

Audit
Committee

Remuneration
Committee

15
15
4
12
15
15
15

3
–
–
–
3
3
3

4
–
–
–
4
4
4

Internal control
The Board acknowledges that it is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system is
designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss.

The Board has established clear operating procedures and responsibility structures. These procedures include:

• monthly financial reporting against budget and the prior year;
• day-to-day financial control of operations;
• annual budgeting and half-yearly forecasting;
•
• performance monitoring and the taking of remedial action; and
• planning, reviewing, approving and monitoring major projects.

the monitoring and assessment of risk;

Relations with shareholders
The Board is committed to maintaining good communications with shareholders and the website thepropertyfranchisegroup.co.uk provides
up-to-date information on the Group.

The AGM is an important opportunity to meet and communicate with its investors and for them to raise with the Board any issues or concerns
they may have. The Group dispatches the Notice of AGM at least 21 days before the meeting. Registered shareholders have direct access to
the Group and receive a copy of the Annual Report, which contains the full financial statements of the Group.

40 The Property Franchise Group PLC
annual report and accounts 2020

— aUDIt aND rISK commIttEE rEport

Phil Crooks
Chairman of the Audit
and Risk Committee

Members
Phil Crooks (Chairman)
Paul Latham

Objectives
• Maintain vigilance over our business
• Pay appropriate attention to the general and specific

risks that our business faces

Achievements in 2020
• Review of cashflow forecasts and internal controls as a
response to the heightened risk environment brought
about by Covid-19

I am delighted to present our Audit
and Risk Committee (“ARC”) report
which summarises the work we have
undertaken during the year and how
we have fulfilled our responsibilities.

The ARC is formed of Paul Latham and myself. Whilst I possess
over 40 years of experience in accounting, audit and forensic
investigations, Paul possesses tremendous industry knowledge.
Both of us are independent Non-Executive Directors with extensive
general business and management experience. We have worked
together on this Committee for the last 5.5 years.

Regular meeting attendees include Paul and myself as well as our
Chief Financial Officer, Group Financial Controller and representatives
of our external auditor, BDO LLP.

We undertake to meet at least twice a year and in the last year we
met formally 3 times to continue our rolling process of reviewing
matters during the year. We aim to ensure that actions are both
being undertaken in a timely manner and, as importantly, supported
with necessary expertise. Details of attendance at meetings can be
found on page 39.

Purpose
The Committee operates under written terms of reference which
set out its role and the authorities delegated to it by the Board.

The main responsibilities of the ARC are summarised below:
•

review and monitor the integrity of the financial information
provided to shareholders,
review and, where appropriate, make recommendations to the
Board on the adequacy of the Group’s internal control and risk
management systems,
review and monitor the external auditor’s independence and
objectivity, and the effectiveness of the Group’s external audit process,
review and monitor the effectiveness of Group’s internal audit function,
report to the Board on how it has discharged its responsibilities

•

•
•

Activity in 2020
Financial information
The ARC has taken a leading role in ensuring, on behalf of the
Board, that the Annual Report when taken as a whole remains fair,
balanced, understandable and provides the information required by
shareholders to assess the Group’s performance, business model
and strategy.

During the year we reviewed the Interim Results and Trading Updates
to ensure the integrity of the financial information being presented.
The ARC also reviewed the budget assumptions ahead of it being
presented to the Board for approval.

At the outset of the Covid-19 pandemic, the ARC was involved in
reviewing the Group’s cash flow modelling through to 31 March
2021, which took a very cautious view, and we agreed that the
going concern basis was appropriate for the financial statements.

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It soon became clear that the impact on the property market was
less significant with performance, and cashflows, much better than
modelled. As a result, an ongoing review of the model by the ARC
was not deemed necessary.

Some changes have been made to the systems in 2020 which satisfies
us that the immediate risk has been mitigated but we will continue
to monitor progress and reports from external suppliers on their
recommendations for a long-term plan to ensure the system is scalable.

The Company operates a share option scheme for the benefit
of the Group’s employees to further align their interests with
those of the other stakeholders. The financial results for the year
ended 31 December 2020 determined whether options would
vest under the 2017 scheme or the 2018 “parallel” scheme. The
ARC, in conjunction with the Remuneration Committee, carefully
reviewed management’s assessment and agreed the calculations
and judgements applied which had an impact on the share-based
payments charge in the financial statements and ultimately the
number of share options that would vest.

The impairment of intangible assets is considered by the ARC on an
annual basis. For assets which do not require an annual assessment,
a review for impairment triggers is performed at each reporting date
by questioning if changes in circumstances suggest the recoverable
value of certain intangible assets may be less than their carrying
value. The ARC reviewed management’s assessment of recoverable
values and relevant judgements made. No impairment triggers were
identified during the year.

Risk management and internal control
On an annual basis the Group draws up an updated risk review.
This risk review includes contributions from Directors and senior
management. Once the ARC has approved the risk review
documentation it is then presented to our Board for their approval.

The ARC review the auditor‘s report on findings from the audit and any
comments on controls within the business. The ARC ensures that the
Company responds appropriately.

Covid-19 has generated a lot of uncertainty and, with that, risk. As
such we have held a number of meetings with the Chief Financial
Officer and Group Financial Controller during the year regarding
risks and controls with discussions on areas such as where there was
a heightened risk of a breakdown in controls as a result of remote
working and whether internal audit processes needed to be adapted
to reflect Covid-19 financial risks. In addition, the ARC enquired into
the authority delegated to new employees recently recruited into
the Group and how this was being monitored. A paper summarising
these discussions was presented to the Board. Whilst there were
no significant concerns arising, the paper included a number of
recommendations on communication and ongoing monitoring.
Last year we started to monitor the work being carried out to assess
whether the EweMove systems would be able to cope with the rapid
expansion plans set out in the Group’s strategic growth initiatives.

External audit
The effectiveness of the external audit process is dependent on the
appropriate audit risk identification at the start of the audit cycle.
A detailed audit plan was received from BDO which set out the key risks
identified. The ARC approved this plan and the auditor’s remuneration.

The independence and objectivity of the external audit function is a
fundamental safeguard to the Company’s shareholders. In order to
ensure audit independence, the ARC restricts the engagements of BDO
in relation to non-audit work. No non-audit work was undertaken by
BDO in the year.

The effectiveness of the external audit process is currently assessed
by the ARC based on discussions with those involved in the process.
The ARC has made a recommendation to the Board to reappoint BDO
as the Company’s auditors for the 2021 financial year. In making that
recommendation the ARC has also considered the independence and
objectivity of the auditors as well as the cost effectiveness of the external
audit. Accordingly, a resolution proposing the reappointment of BDO
will be tabled at the AGM in 2021.

Internal audit
We continue to take an interest in internal audit and discuss any
adverse audit results at our ARC meetings. We seek to ensure the
function remains effective and adapts to current circumstances.

The year ahead
In the year ahead the ARC will continue to focus on key risks,
operations and accounting matters. There will be a particular focus
on the integration of Hunters Property PLC into the Group, but also
we will continue to consider the impact of Covid-19 regulations,
government policy impacting our sector, information security,
the results of our internal audits of franchisees, the developments
regarding EweMove’s operating platform and our year-end audit.
I would like to thank the attendees of our ARC meetings for their
time and valuable contributions during the year.

Phil Crooks
Chairman of the Audit and Risk Committee
26 April 2021

42 The Property Franchise Group PLC
annual report and accounts 2020

— rEmUNEratIoN commIttEE rEport

Paul Latham
Chairman of the
Remuneration Committee

Members
Paul Latham (Chairman)
Phil Crooks

Objectives
• To ensure the Remuneration Policy is aligned to the long-

term success of the Group

• To ensure executive remuneration is competitive to aid

retention, recruitment and motivation

Achievements in 2020
• Recruitment of a new CEO

As Remuneration Committee Chair,
I am pleased to present its report
for the year. This report sets out
the Group’s remuneration policy
for Directors and explains how
this policy was applied during the
financial year to 31 December 2020

The Remuneration Committee comprises Phil Crooks and me.
We are both independent and combine extensive industry
knowledge with a deep understanding of corporate reporting
governance. The Committee seeks external advice from various
sources including Deloitte.

The Remuneration Committee has two scheduled meetings a
year. However, in 2020, we held two additional meetings resulting
from the appointment of Gareth Samples as our new CEO and
the need to evaluate the impact of the pandemic on the Group’s
remuneration policy. Apart from Phil and myself, our Chief Financial
Officer is a regular attendee of our meetings, supporting us with
papers and analysis.

Purpose
The Committee operates under written terms of reference which
set out its role and the authorities delegated to it by the Board.
Its main responsibilities are to: -
• ensure that the Executive Directors and other key employees of
the Group are fairly rewarded for their individual contributions
to the overall performance of the Group.

• demonstrate to the shareholders of the Company that the

remuneration of the Executives is set by a committee of the Board
whose members have no personal interest in the outcome of the
decisions of the Committee and who will have due regard to the
interests of shareholders of the Company.

• oversee any major changes in employee benefit structures

throughout the Group.

Activity in 2020
As you are aware, the pandemic caused almost every business to
rapidly evaluate its proposed reaction. The Executive Directors took
immediate steps to conserve cash whilst ensuring that the Group was
in the best possible shape to take advantage of any positive change in
the UK residential property market. Surprisingly, the UK Government
eased the restrictions on the UK estate agency sector rather sooner
than was predicted and, since that time, the entire senior team have
worked tirelessly to take full advantage of and to deliver ongoing
results which back in March 2020 were hard to envisage.

The Committee believes that the entire senior team, and in particular
the Executive Directors, have provided extraordinary, inspiring and
resourceful leadership during an unprecedented year of uncertainty
and disruption.

Given the excellent financial stewardship of the business, the Group
made very limited use of the Government’s financial support offerings.
The Group did determine along with most UK listed businesses that it
was appropriate to retain cash through the cessation of discretionary
expenditure including its final dividend for FY19. The Committee was
very mindful of these actions in considering the payment of bonuses
and, indeed, the vesting percentage for a maturing, Group wide, LTIP
scheme, commenced in 2018.

After undertaking a detailed review of the performance to be considered
in assessing the maturing LTIP from 2018, the Committee recommended
a limited award of 25% in line with the underlying performance.

The Committee recommended to the Board that a deferred bonus
plan should be offered to the Executive Directors whereby they could
receive a defined number of shares in the future, subsequently decided
as 2 years, rather than cash bonuses.

The Committee recommended to the Board the implementation of
a limited LTIP award for the Executive Directors in 2020 amounting
to a maximum of 100,000 shares each based on stretching targets
for adjusted EPS and total shareholder return over a 3-year period.

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2020 was a year of significant change for the Group with the
Committee overseeing the planned departure of our longstanding
CEO Ian Wilson albeit a little earlier than expected due to the
pandemic and the arrival of his replacement, Gareth Samples. The
Committee and Board have been delighted with the performance
of Gareth and alongside our longstanding CFO, David Raggett, they
have brought a new level of dynamism to the Group’s activities.

The Committee carefully considered the granting of a significantly
more substantial LTIP award in 2020 as the Executive Directors
began to press forward with their strategy but given the exceptional
circumstances, the Committee decided to delay any such award
to allow adequate time to better understand the impact of the
pandemic on the wider economy and our business.

The Committee considered the remuneration arrangements for
the Executive Directors and other key employees and satisfied itself
that they are aligned to the Group’s strategic goals and properly
incorporate the key performance indicators. Further, the Committee
is satisfied that the remuneration outcomes for 2020 were aligned
to performance and the Committee believes that the arrangements
continue to promote the long-term success of the Group and
incentivise the delivery of strong, sustainable, financial results.

Policy on remuneration of Directors
The Remuneration Committee has responsibility for determining, within
agreed terms of reference, the Group’s policy on the remuneration of
senior management and specific remuneration packages for Executive
Directors including pension payments and compensation rights. It is also
responsible for making recommendations for grants of options under
the Share Option Plan.

The remuneration of Non-Executive Directors is a matter for the
Board. It consists of fees for their services in connection with Board
and Committee meetings. No Director may be involved in any
discussions as to their own remuneration.

The remuneration policy is designed to shape the Group’s
remuneration strategy for an anticipated 3 years, ensuring that the
structure and levels of remuneration continue to remain appropriate
for the Group. The policy aims to:
• Pay competitive salaries to aid recruitment, retention and
motivation being reflective of the person’s experience and
importance to the Group.

• Pay annual bonuses to incentivise the delivery of stretching short-
term business targets whilst maintaining an element of variability
allowing flexible control of the cost base and being able to
respond to market conditions.

• Provide long-term share incentive plans designed to incentivise
long-term value creation, reward execution of strategy, align
Directors’ interests with the long-term interests of investors
and promote retention.

Components of Directors’ remuneration
Basic salary or fees
Basic salary or fees for each Director are determined by considering
the performance of the individual and information from independent
sources on the rates of salary and fees for similar posts. The salaries
and fees paid to Directors by the Group were £721k (2019: £470k).
The main reason for the significant increase compared to the previous
year was the handover period for our retiring CEO, Ian Wilson, and our
incoming CEO, Gareth Samples.

Annual bonus
The Company has a formal bonus scheme for its Executive Directors.
Bonuses were paid to the Executive Directors by the Group of £297k
(2019: £251k).

Pension
Contributions made to Executive Directors’ pensions in the year were
£20k (2019: £29k).

Share options
On 9 June 2017 options over 1,000,000 and 500,000 new ordinary
shares of the Company were granted to Ian Wilson and David
Raggett, respectively, under a new share option scheme. The options
have an exercise price of 1 pence per share. The awards were
conditional on the achievement of an adjusted earnings per share
target as measured at 31 December 2019 (adjusted earnings per share
being basic earnings per share excluding exceptional income/costs
and share-based payments). Adjusted EPS growth of 15% between
inception and 31 December 2019 was required for threshold vesting
of the awards, with adjusted EPS growth of 44% or higher required
for all the awards to vest. The evaluation of that scheme determined
22% growth in adjusted EPS and, therefore, 25% of the award for each
individual vested in April 2020.

On 1 August 2018, the Board agreed to roll the arrangements
contained in the 2017 share options forward by 1 year, such that the
performance period ran until 31 December 2020. The roll-forward
was structured as the grant to each individual of a new nil-cost
option “in parallel” to, and over the same number of shares as, the
option originally granted to him so that: (1) if the option originally
granted was exercised, the new option would lapse; and (2) if the
new option was to be exercised, the original option must either have
lapsed or have been released. Therefore, Ian Wilson and David Raggett
would only be able to benefit from one of the options granted to
them. The other terms and the EPS growth hurdles were the same
as for the original options.

On 6 August 2019, the Board granted a new option to David Raggett
over a maximum of 100,000 ordinary shares in the Company.
It, like the other two grants stated above, uses the same growth
in EPS metric. The measurement period is for the 3 years ended
31 December 2021.

On 22 July 2020, the Board granted new options to Gareth Samples
and David Raggett over a maximum of 100,000 ordinary shares
each in the Company. The options are subject to two performance
conditions; basic earnings per share adjusted for exceptional income/
costs and share-based payment charges (“adjusted EPS”) and total
shareholder return. Each performance condition applies to 50%
of the award being made. The measurement period is for the 3
years ended 31 December 2022. In respect of both performance
conditions, growth of 15% over the performance period is required
for threshold vesting of the awards, with growth of 35% or higher
required for all the awards to vest. The shares are awarded on a
sliding scale for growth between 15% and 35%.

During the year, the Remuneration Committee sought advice from
Deloitte LLP and Shoosmiths LLP on these share options’ schemes.

Company policy on contracts of service
The Executive Directors of the Company do not have a notice period
in excess of 12 months under the terms of their service contracts.
Their service contracts contain no provisions for pre-determined
compensation on termination, which exceeds 12 months’ salary
and benefits in kind. Non-Executive Directors do not have service
contracts with the Company but have letters of appointment which
can be terminated on 3-months’ notice.

Termination date
Richard Martin
Gareth Samples
David Raggett
Paul Latham
Phil Crooks

3-months’ notice
12-months’ notice
12-months’ notice
3-months’ notice
3-months’ notice

44 The Property Franchise Group PLC
annual report and accounts 2020

— rEmUNEratIoN commIttEE rEport CONTINUED

Company policy on external appointments
The Company recognises that its Executive Directors are likely to be invited to become non-executive directors of other companies and
that exposure to such non-executive duties can broaden their experience and knowledge, which will benefit the Group. Executive and
Non-Executive Directors are, therefore, subject to approval of the Company’s Board, allowed to accept non-executive appointments, as
long as these are not with competing companies and are not likely to lead to conflicts of interest. Executive and Non-Executive Directors
are allowed to retain the fees paid.

Taxable benefits
The Executive Directors were not entitled to taxable benefits such as a company car or private medical insurance during the year.

Directors’ emoluments
The figures below represent emoluments earned by the Executive Directors and Non-Executive Directors from the Group during the financial
year and relate to the period of each Director’s membership of the Company’s and Subsidiaries’ Boards.

Executive Directors:
Gareth Samples* (joined 10 February 2020)
David Raggett
Ian Wilson (retired 30 April 2020)

Non-Executive Directors:
Richard Martin
Paul Latham
Phil Crooks

Total remuneration

Salary & fees
£’000

Bonus
£’000

Total 2020
£’000

Total 2019
£’000

197
200
204

601

40
40
40

120

721

150
100
47

297

–
–
–

–

297

347
300
251

898

40
40
40

120

1018

–
258
343

601

40
40
40

120

721

* Of the bonus stated above for Gareth Samples, £100,000 was deferred into an award of 100,000 shares in the company at an exercise price of 1p.

Vesting of options
During the year ended 31 December 2019, 25% of the shares available under options granted in 2017 vested but were not exercised because
parallel options had been granted in 2018 which were dependent on financial performance in the year ended 31 December 2020. The vesting
percentage for the parallel options has been determined at 25%. No options have yet been exercised.

Changes to Board members
Ian Wilson, former Chief Executive Officer retired on 30 April 2020 after 16 years with the business. His successor Gareth Samples, joined on
13 February 2020 and was appointed Chief Executive Officer on 30 April 2020.

Directors’ interests
The interests of the Executive Directors, Non-Executive Directors and their spouses in the shares of the Company were as follows:

The Property Franchise Group PLC ordinary 1 pence shares.

Directors:
Richard Martin
Gareth Samples
David Raggett
Paul Latham
Ian Wilson (retired 30 April 2020)

2020

2019

Options

8,039,950
–
227,400
50,000
1,179,200

–
100,000
325,000
–
250,000

8,889,950
–
227,400
50,000
1,479,200

–
–
225,000
–
250,000

The dividends paid to the Executive Directors, Non-Executive Directors and their spouses during the year are disclosed in note 28 to the
Financial Statements.

By order of the Board

Paul Latham
Chairman of the Remuneration Committee
26 April 2021

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— DIrEctorS’ rEport

The Property Franchise Group PLC
annual report and accounts 2020

David Raggett
Chief Financial Officer

The Directors present their Annual Report
and audited financial statements for
the financial year ended 31 December
2020. Information that would normally
be presented in the Directors’ Report
has been presented in the Group’s
Strategic Report in accordance with
s414C(11) of the Companies Act 2006.

Principal activities
The principal activity of the Group during the year was the sale of
franchises and the support of franchisees in supplying residential
letting, sales and property management services within the UK.

Results for the financial year and business review
The Group achieved a profit before tax of £4.8m in the financial year
as compared to £4.0m for the prior year and a profit after tax of £3.8m
(2019: £3.2m). The results are shown in the Consolidated Statement
of Comprehensive Income on page 52. A full review of the Group’s
business is included in the Strategic Report on pages 1 to 33.

The Group’s profit before tax was £0.8m higher than the previous
year. £0.3m of this increase can be attributed to a share-based
payments charge of £0.1m compared to £0.4m in the previous year.
The remaining increase was due to cost savings achieved through
the Covid-19 strategy.

Financial risk management
The Group’s objectives and policies with regards to financial risk
management are set out in note 26 to the consolidated financial
statements.

Future developments
The Group intends to pursue the following over the next few years:

• Lettings growth
• Develop sales activity in the traditional brands
• Financial services growth
• Continued recruitment of experienced estate agents as

•

franchisees in EweMove.
Increased focus and support to aid franchisees in buying
independent operators.
Improved use of digital marketing to win business for all
our brands and to track attribution

More details on the progress made to date with these key areas
of focus can be found in the Strategic Report on pages 18 and 19.

Dividends
The Group paid an interim dividend for the financial year ended
31 December 2020 of 2.1p per share on 23 September 2020 and
a dividend of 6.6p per share was paid on 23 February 2021 in lieu
of a final dividend. Final dividends are usually paid after the release
of the final results but a payment in lieu of the final dividend was
made earlier than that so as to be ahead of the acquisition of
Hunters Property PLC.

The Group paid an interim dividend for the financial year ended
31 December 2019 of 2.6p per share on 1 October 2019 but did
not pay a final dividend for 2019 due to Covid-19.

46 The Property Franchise Group PLC
annual report and accounts 2020

— DIrEctorS’ rEport CONTINUED

The financial statements are required by law and IFRS to present fairly
the financial position of the Group and the Company and the financial
performance of the Group. The Companies Act 2006 provides in
relation to such financial statements that references in the relevant
part of that Act to financial statements giving a true and fair view
are references to their achieving a fair presentation.

Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and the Company and of the profit
or loss of the Group for that period.

In preparing the Group and Company financial statements,
the Directors are required to:

• select suitable accounting policies and then apply them

consistently;

• make judgements and accounting estimates that are reasonable

and prudent;

• state whether they have been prepared in accordance with

IFRSs; and

• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business.

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and the
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and the Company
and enable them to ensure that the financial statements comply
with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Group and the Company and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation
in other jurisdictions.

By order of the Board

David Raggett
Chief Financial Officer
26 April 2021

Directors
The Directors shown below have held office throughout the year
unless otherwise stated:
R W Martin
I Wilson (resigned 30 April 2020)
G M Samples (appointed 30 April 2020)
D A Raggett
P M Latham
P J Crooks

The Directors’ remuneration and the Directors’ interests in the Group
are disclosed in the Directors’ Remuneration Report on pages 42 to 44.

The Group maintains Directors and Officers liability insurance, which
gives appropriate cover against any legal action that may be brought.

Going concern
The Group and Company’s financial statements have been prepared
on the going concern basis after due consideration of the potential
impacts of Covid-19 and the enlarged Group, following the acquisition
of Hunters Property PLC, on the financial position of both up until
30 April 2022.

The Group maintains a strong cash position and towards the end of
2020 the Group finalised arrangements for a new loan facility with
Barclays Bank Plc which was primarily to be used for the acquisition
of Hunters Property PLC.

Auditor
BDO LLP has expressed its willingness to continue in office.
In accordance with section 489 of the Companies Act 2006;
a resolution to reappoint BDO LLP will be proposed at the
Annual General Meeting.

The Directors confirm that:

• so far as each Director is aware, there is no relevant audit
information of which the Group and Company’s auditor is
unaware; and
the Directors have taken all the steps that they ought to have
taken as Directors in order to make themselves aware of any
relevant audit information and to establish that the auditors
are aware of that information.

•

Statement of Directors’ responsibilities
The Directors are responsible for preparing the Strategic Report and
the Directors’ Report and the financial statements in accordance
with applicable law and regulations.

Company law requires the Directors to prepare Group and Company
financial statements for each financial year. The Directors are required
by the AIM Rules of the London Stock Exchange to prepare Group
financial statements in accordance with International Financial
Reporting Standards (“IFRS”) in conformity with requirements of
the Companies Act 2006 and have elected under company law to
prepare the Company financial statements in accordance with IFRS.

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— INDEpENDENt aUDItor’S rEport

to the members of The Property Franchise Group PLC

The Property Franchise Group PLC
annual report and accounts 2020

Opinion on the financial statements
In our opinion:
•

the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2020
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 international accounting standards in
conformity with the requirements of the Companies Act 2006 and as applied in accordance with the provisions of the Companies Act
2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

•

We have audited the financial statements of The Property Franchise Group plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the
year ended 31 December 2020 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial
Position, Company Statement of Financial Position, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity,
Consolidated Statement of Cash Flows, Company Statement of Cash Flows, and notes to the financial statements, including a summary of
significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and international
accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the Parent Company financial statements,
as applied in accordance with the provisions of the Companies Act 2006.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence
We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.

Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability to continue
to adopt the going concern basis of accounting included evaluating the following:
• The Directors’ method for assessing going concern including the relevance and reliability of underlying data used to make the assessment,
and whether assumptions and changes to assumptions from prior years are appropriate and where relevant consistent with each other.
The assessment has been made for the newly enlarged Group following the acquisition of Hunters Property plc (“Hunters”)

• The Directors’ plans for future actions in relation to the going concern assessment including whether such plans are feasible in the

circumstances. This included considering the accuracy of historic forecasting and carrying out sensitivity analysis

• The Directors’ stress-testing of the forecasts to the extent of reasonable worst-case scenarios, which included modelling significant

downturns in both the sales and lettings markets. We have assessed these assumptions against recent sector performance and the Group’s
results for the financial year to date

• The compliance with covenants relating to the financing obtained to fund the acquisition of Hunters, including checking the calculations

with reference to the loan agreement and determine if the calculations have been appropriately applied in the sensitised scenario

• The adequacy and appropriateness of disclosures in the financial statements regarding the going concern assessment.

We carried out the above procedures through using our understanding of the business model, objectives, strategies and related business risk,
the measurement and review of the entity’s financial performance, forecasting and budgeting processes and the entity’s risk assessment process.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the entity’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.

48 The Property Franchise Group PLC
annual report and accounts 2020

— INDEpENDENt aUDItor’S rEport CONTINUED

to the members of The Property Franchise Group PLC

Overview

Full-scope audit coverage by
the Group engagement team

Key audit matters

99% (2019: 100%) of Group profit before tax
99% (2019: 100%) of Group total assets

Goodwill and intangible asset
impairment risk – Ewemove CGU

2020


2019


Revenue recognition



Materiality

Group financial statements as a whole

£230,000 (2019: £190,000) based on 5% (2019: 5%) of profit before tax

An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control,
and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal
controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.

The Group’s operations are based solely in Bournemouth, United Kingdom.

We identified six components, five of which were considered significant and subject to full-scope audits by BDO LLP. The other non-significant
component was subject to a desktop review and specific-scope procedures in areas such as revenue, which was carried out by the Group
audit team.

Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified,
including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts
of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter

Goodwill and intangible asset
impairment risk – Ewemove CGU

The accounting policy in respect
of the accounting for intangible
assets is included within the
accounting policy on page 62; the
accounting estimate in respect of
the impairment of intangible assets
is included within the accounting
estimates and judgements note
on page 66.

As detailed in the accounting policies and
critical accounting estimates and judgements
and key sources of uncertainty and also note 15
to the financial statements, goodwill and other
intangible assets are tested for impairment
at least annually through comparing the
recoverable amount of the cash-generating
unit, based on a value-in-use calculation,
to the carrying value.

Furthermore, other intangible assets are
tested for impairment where an indicator
of impairment arises.

The risk that goodwill and intangible assets
may be impaired is considered to lie in
the Ewemove CGU – as the conclusion is
dependent on achieving forecast growth
– and is significant due to the level of
judgement involved in the impairment review
and the opportunity for management bias
within the impairment model assumptions.

Management’s review found no evidence of
impairment in the Ewemove or other cash-
generating units, nor indicators of impairment
in relation to other intangible assets.

How the scope of our audit addressed the key audit matter

We assessed the impairment review of the Group’s
goodwill and intangible assets prepared by management,
specifically checking the integrity of management’s value-
in-use model and, with the assistance of our valuation
specialists, we challenged the key inputs - being forecast
growth rates, operating cash flows and the discount
rate. We also checked if the CGU was appropriately
determined and the correct assets included in its carrying
value. Our audit procedures relating to the operating cash
flows and forecast growth rates included, amongst others,
comparing the forecast to recent financial performance
and budgets approved by the Board, including checking
for consistency with forecasts prepared for the purposes
of the going concern assessment. We used market data
to independently calculate a discount rate for comparison
and also performed our own sensitivity analysis upon
the key valuation inputs. We also considered whether
significant events during the year – such as the onset of
the COVID-19 pandemic - and comparing net assets to
market capitalisation have been appropriately considered
by management within the impairment assessment.

We evaluated the disclosures in the notes to the financial
statements against the requirements on IAS 36 and with a
particular focus on the disclosure of the sensitivities.

Key observations:
We found management’s judgements in this area to be
reasonable and found no evidence of management bias in
the assumptions used.

The Property Franchise Group PLC
annual report and accounts 2020

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Key audit matter

Revenue recognition

The accounting policy in respect
of the accounting for revenue
recognition is included within the
accounting policy on page 62.

As detailed in the accounting policies and
also note 7 to the financial statements, the
Group earns revenue principally in the form
of Managed Service Fees (“MSF”), which are
derived as a percentage of the franchisees’
income.

The Managed Service Fees are recorded in
separate sales systems based on information
uploaded by the franchisees and imported into
the accounting system on a monthly basis.

Due to the need to transfer data across the
systems, we consider there to be a significant
risk that revenue may not be accurately
recognised or recorded in the wrong period
due to error or manipulation. Through the
need to reconcile data between the two
systems and ensure that revenues had been
fully recorded in the nominal ledger, the
procedures on revenue recognition also
represented a significant part of our audit
strategy in terms of the level of direction
and supervision and allocation of resources
and so, consequently, revenue recognition
is considered a key audit matter.

How the scope of our audit addressed the key audit matter

We considered the appropriateness of the Group’s
accounting policies for revenue in the light of the revenue
recognition principles of the financial reporting framework.

We obtained and tested management’s reconciliation
between the underlying sales systems to which franchisees
upload their lettings/sales data and the MSF recorded in
the nominal ledger. We witnessed the data extraction from
the underlying systems and engaged our technology and
systems experts to reperform a full reconciliation of the two
data sets and investigated and corroborated any reconciling
items such as manual journals to revenue.

We tested the integrity of the data in the underlying sales
systems by tracing a sample from franchisee submission,
ensuring that the correct MSF rate had been applied in
accordance with the franchise agreement, through to
invoice issued and ultimately cash collection.

In considering the completeness of the data in the
underlying sales systems, we selected a sample of
franchise agreements and ensured that the MSF had
been appropriately included in the sales system and
at the appropriate rate.

Key observations:
Based on the procedures performed, we have not identified
any instances that may suggest that revenue has been
inappropriately recognised.

Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider
materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users
that are taken on the basis of the financial statements.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence,
when evaluating their effect on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:

Key audit matter

Group financial statements

Parent company financial statements

Materiality

Basis for determining
materiality

Rationale for the
benchmark applied

2020
£000

230

2019
£000

190

2020
£000

215

2019
£000

185

5% of the profit before tax

95% of Group materiality

Profit before tax is considered to be one of
the principal considerations for the users of
the financial statements in assessing the financial
performance of the Group.

Capped 95% (2019: 95%) of Group materiality given
the assessment of the components aggregation risk.

Performance materiality

173

143

161

139

Basis for determining
performance materiality

75% of materiality based on a low expected total value of known and likely misstatements.

Component materiality
We set materiality for each component of the Group based on a percentage of between 7% and 95% of Group materiality dependent on the
size and our assessment of the risk of material misstatement of that component. Component materiality ranged from £15,000 to £215,000.
In the audit of each component, we further applied performance materiality levels of 75% of the component materiality to our testing to
ensure that the risk of errors exceeding component materiality was appropriately mitigated.

50 The Property Franchise Group PLC
annual report and accounts 2020

— INDEpENDENt aUDItor’S rEport CONTINUED

to the members of The Property Franchise Group PLC

Reporting threshold
We agreed with the Audit and Risk Committee that we would report to them all individual audit differences in excess of £9,200 (2019: £7,600).
We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

Other information
The directors are responsible for the other information. The other information comprises the information included in the Annual Report and
Accounts other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in
the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.

We have nothing to report in this regard.

Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act
2006 and ISAs (UK) to report on certain opinions and matters as described below.

Strategic report and
Directors’ report

In our opinion, based on the work undertaken in the course of the audit:
•

the information given in the Strategic report and the Directors’ report for the financial year for which
the financial statements are prepared is consistent with the financial statements; and
the Strategic report and the Directors’ report have been prepared in accordance with applicable legal
requirements.

•

In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in
the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report.

Matters on which we
are required to report
by exception

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires
us to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit

have not been received from branches not visited by us; or
the Parent Company financial statements are not in agreement with the accounting records and returns; or

•
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Responsibilities of Directors
As explained more fully in the Statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.

The Property Franchise Group PLC
annual report and accounts 2020

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Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below:

We focused on laws and regulations that could give rise to a material misstatement in the Group financial statements and the susceptibility
of the entity’s financial statements to material misstatement including fraud. Our procedures included, but were not limited to:
• Evaluation of management incentives, including the extent to which remuneration is influenced by reported results, and opportunities

for fraudulent manipulation of the financial statements such as management override;

• This evaluation involved a particular focus on the judgements and estimates inherent in the key audit matter and exercising professional
scepticism in considering the impact of those estimates and judgements on the reported results and key performance measures such
as the profit before tax;

• Discussions with Management and the Audit and Risk Committee regarding known or suspected instances of non-compliance with laws

and regulations;

• Obtaining and understanding of controls designed to prevent and detect irregularities, including the reconciliation of customer monies

held in client account balances;

• Review of board meeting minutes for any evidence of fraud or non-compliance with laws and regulations including health and safety

and taxation regulations; and

• Assessment of journal entries to accounts that were considered to carry a greater risk of fraud as part of our planned audit approach.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert
to any indications of fraud or non-compliance with laws and regulations throughout the audit.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed
and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the
less likely we are to become aware of it.

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

Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Malcolm Thixton
(Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Southampton
United Kingdom
26 April 2021

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

52 The Property Franchise Group PLC
annual report and accounts 2020

— coNSolIDatED StatEmENt oF comprEHENSIVE INcomE

for the year ended 31 December 2020

Revenue
Cost of sales

Gross profit
Administrative expenses
Share-based payments charge

Operating profit
Finance income
Finance costs

Profit before income tax expense
Income tax expense

Notes

8
9, 27

10
11
11

2020
£

2019
£

11,464,495
(932,501)

10,531,994
(5,666,475)
(68,023)

4,797,496
10,701
(3,328)

4,804,869
(1,013,107)

11,350,327
(1,066,849)

10,283,478
(5,820,277)
(441,709)

4,021,492
11,012
(38,310)

3,994,194
(761,788)

Profit and total comprehensive income for the year from continuing operations

3,791,762

3,232,406

Profit and total comprehensive income for the year attributable to:
Owners of the parent
Non-controlling interest

Earnings per share

Statutory

Earnings per share attributable to owners of parent

Diluted Earnings per share attributable to owners of parent

Adjusted

Earnings per share attributable to owners of parent

Diluted Earnings per share attributable to owners of parent

3,782,568
9,194

3,232,406
–

3,791,762

3,232,406

14.6p

14.4p

16.8p

16.5p

12.5p

12.1p

16.2p

15.6p

0
1

S
t
r
a
t
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G

c
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p
o
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0
2

G
o
V
E
r
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a
N
c
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0
3

F
I

N
a
N
c

a
l

S
t
a
t
E
m
E
N
t
S

— coNSolIDatED StatEmENt oF FINaNcIal poSItIoN

31 December 2020

The Property Franchise Group PLC
annual report and accounts 2020

Assets
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Prepaid assisted acquisitions support

Current assets
Trade and other receivables
Cash and cash equivalents

Total assets

Equity
Shareholders’ equity
Called up share capital
Share premium
Other reserves
Retained earnings

Non-controlling interest

Total equity attributable to owners

Liabilities
Non-current liabilities
Lease liabilities
Deferred tax

Current liabilities
Trade and other payables
Lease liabilities
Tax payable

Total liabilities

Total equity and liabilities

Notes

2020
£

2019
£

15
16
17
18

21
22
23

17
27

26
17

14,380,282
66,530
85,802
599,952

14,786,402
77,555
74,580
657,948

15,132,566

15,596,485

1,292,549
8,770,884

1,483,009
4,011,463

10,063,433

5,494,472

25,195,999

21,090,957

258,228
4,039,800
3,574,915
12,689,965

20,562,908
9,194

258,228
4,039,800
3,506,892
9,449,675

17,254,595
–

20,572,102

17,254,595

45,446
1,114,544

25,089
1,140,227

1,159,990

1,165,316

2,750,348
41,085
672,474

2,000,175
52,660
618,211

3,463,907

2,671,046

4,623,897

3,836,362

25,195,999

21,090,957

The financial statements were approved and authorised for issue by the Board of Directors on 26 April 2021 and were signed on its behalf by:

David Raggett
Chief Financial Officer

54 The Property Franchise Group PLC
annual report and accounts 2020

— compaNY StatEmENt oF FINaNcIal poSItIoN

31 December 2020
(Company No: 08721920)

Assets
Non-current assets
Investments
Deferred tax asset

Current assets
Trade and other receivables
Cash and cash equivalents

Total assets

Equity
Shareholders’ equity
Called up share capital
Share premium
Other reserves
Retained earnings

Total equity

Current liabilities
Trade and other payables

Total liabilities

Total equity and liabilities

Notes

2020
£

2019
£

19
25

21
22
23

34,082,997
228,217

33,899,664
215,293

34,311,214

34,114,957

221,125
4,600,718

421,903
1,073,774

4,821,843

1,495,677

39,133,057

35,610,634

258,228
4,039,800
21,564,815
13,123,373

258,228
4,039,800
21,496,792
9,640,327

38,986,216

35,435,147

146,841

175,487

39,133,057

35,610,634

As permitted by Section 408 of the Companies Act 2006, the income statement of the Parent Company is not presented as part of these
financial statements. The Parent Company’s profit for the financial year was £4,025,324 (2019: £3,323,903).

The financial statements were approved and authorised for issue by the Board of Directors on 26 April 2021 and were signed on its behalf by:

David Raggett
Chief Financial Officer

— coNSolIDatED StatEmENt oF cHaNGES IN EQUItY

for the year ended 31 December 2020

The Property Franchise Group PLC
annual report and accounts 2020

Called up share
capital
£

Retained earnings
£

Share premium
£

Other reserves
£

Total equity
£

Non-controlling
interest
£

Attributable to owners

Balance at 1 January 2019

258,228

8,438,027

4,039,800

2,983,861

15,719,916

Profit and total

comprehensive income

Dividends
Deferred tax on share-based

payments

Share-based payments charge

Total transactions with

owners

Balance at 31 December

2019

Profit and total

comprehensive income

Dividends
Share-based payments charge

Total transactions

with owners

Balance at 31 December

2020

–

–
–

3,232,405

(2,220,757)

–
–

(2,220,757)

–

–
–

–

3,232,405

(2,220,757)

81,322
441,709

523,031

(1,697,726)

258,228

9,449,675

4,039,800

3,506,892

17,254,595

–

–
–

–

3,782,568

(542,278)
–

(542,278)

–

–
–

–

3,782,568

9,194

3,791,762

–
68,023

(542,278)
68,023

68,023

(474,255)

–
–

–

(542,278)
68,023

(474,255)

258,228

12,689,965

4,039,800

3,574,915

20,562,908

9,194

20,572,102

0
1

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c
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Total equity
£

15,719,916

3,232,405

(2,220,757)

81,322
441,709

(1,697,726)

17,254,595

–

–
–

–

56 The Property Franchise Group PLC
annual report and accounts 2020

— compaNY StatEmENt oF cHaNGES IN EQUItY

for the year ended 31 December 2020

Balance as at 1 January 2019

Profit and total comprehensive income

Dividends
Deferred tax on share-based payments
Share-based payments charge

Total transactions with owners

Balance as at 31 December 2019

Profit and total comprehensive income

Dividends
Share-based payments charge

Total transactions with owners

Called up
share capital
£

Retained earnings
£

Share premium
£

Other reserves
£

Total equity
£

258,228

8,537,181

4,039,800

20,973,761

33,808,970

–

–
–
–

–

3,323,903

(2,220,757)
–
–

(2,220,757)

–

–
–
–

–

3,323,903

–
81,322
441,709

(2,220,757)
81,322
441,709

523,031

(1,697,726)

258,228

9,640,327

4,039,800

21,496,792

35,435,147

–

–
–

–

4,025,324

(542,278)
–

(542,278)

–

–
–

–

4,025,324

–
68,023

68,023

(542,278)
68,023

(474,255)

Balance as at 31 December 2020

258,228

13,123,373

4,039,800

21,564,815

38,986,216

— coNSolIDatED StatEmENt oF caSH FloWS

for the year ended 31 December 2020

Cash flows from operating activities
Cash generated from operations
Interest paid
Tax paid

Net cash from operating activities

Cash flows from investing activities
Purchase of subsidiary net of cash acquired
Purchase of intangible assets
Purchase of tangible assets
Assisted acquisitions support
Loan made
Loan repaid
Interest received

Net cash used in investing activities

Cash flows from financing activities
Repayment of bank loan
Equity dividends paid
Principal paid on lease liabilities
Interest paid on lease liabilities

Net cash used in financing activities

Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

The Property Franchise Group PLC
annual report and accounts 2020

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Notes

29
29

2020
£

2019
£

6,377,977
–
(971,869)

5,705,243
(41,380)
(973,361)

5,406,108

4,690,502

(81,250)
–
(17,259)
(155,034)
–
200,000
10,701

–
(73,467)
(7,960)
(386,332)
(200,000)
–
11,012

(42,842)

(656,747)

–
(542,278)
(58,239)
(3,328)

(1,600,000)
(2,220,757)
(56,533)
(2,990)

(603,845)

(3,880,280)

4,759,421
4,011,463

153,475
3,857,988

8,770,884

4,011,463

58 The Property Franchise Group PLC
annual report and accounts 2020

— NotES to tHE coNSolIDatED StatEmENt oF caSH FloWS

for the year ended 31 December 2020

A. Reconciliation of profit before income tax to cash generated from operations

Cash flows from operating activities
Profit before income tax
Depreciation of property, plant and equipment
Amortisation of intangibles
Amortisation of prepaid assisted acquisitions support
Amortisation of right-of-use assets
Share-based payments charge
Finance costs
Finance income

Operating cash flow before changes in working capital
Increase in trade and other receivables
Increase in trade and other payables

Cash generated from operations

2020
£

2019
£

4,804,869
28,284
590,546
213,030
55,799
68,023
3,328
(10,701)

5,753,178
(18,142)
642,941

3,994,194
33,989
611,820
174,149
54,769
441,709
38,310
(11,012)

5,337,928
(186,734)
554,049

6,377,977

5,705,243

— compaNY StatEmENt oF caSH FloWS

for the year ended 31 December 2020

Cash flows from operating activities
Cash generated from operations
Interest paid

Net cash used in operating activities

Cash flows from investing activities
Purchase of subsidiary net of cash acquired
Interest received
Loan made
Loan repaid
Equity dividends received

Net cash generated from investing activities

Cash flows from financing activities
Repayment of bank loan
Equity dividend paid

Net cash used in financing activities

Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

The Property Franchise Group PLC
annual report and accounts 2020

0
1

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E
G

c
r
E
p
o
r
t

0
2

G
o
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E
r
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c
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I

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Notes

29
29

2020
£

2019
£

(659,534)
–

(812,137)
(41,380)

(659,534)

(853,517)

(81,250)
6
–
200,000
4,610,000

–
22
(200,000)
–
4,670,000

4,728,756

4,470,022

–
(542,278)

(1,600,000)
(2,220,757)

(542,278)

(3,820,757)

3,526,944
1,073,774

(204,252)
1,278,026

4,600,718

1,073,774

60 The Property Franchise Group PLC
annual report and accounts 2020

— NotES to tHE compaNY StatEmENt oF caSH FloWS

for the year ended 31 December 2020

C. Reconciliation of profit before income tax to cash generated from operations

Cash flows from operating activities
Profit before income tax
Share-based payments charge
Finance costs
Finance income
Equity dividend received

Operating cash flow before changes in working capital
Increase in trade and other receivables
Increase in trade and other payables

Cash used in operations

2020
£

2019
£

3,898,029
84,690
–
(6)
(4,610,000)

(627.287)
(162,520)
130,273

3,390,952
345,931
35,320
(22)
(4,670,000)

(897,819)
(25,241)
110,923

(659,534)

(812,137)

0
1

S
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c
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2

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o
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I

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— NotES to tHE coNSolIDatED aND compaNY
FINaNcIal StatEmENtS

for the year ended 31 December 2020

The Property Franchise Group PLC
annual report and accounts 2020

1. General information
The principal activity of The Property Franchise Group PLC and its Subsidiaries is that of a UK residential property franchise business.
The Group operates in the UK. The Company is a public limited company incorporated and domiciled in the UK and listed on AIM.
The address of its head office and registered office is 2 St Stephen’s Court, St Stephen’s Road, Bournemouth, Dorset, UK.

2. Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”)
in conformity with the requirements of the Companies Act 2006 and, as regards the Parent Company financial statements, as applied in
accordance with the provisions of the Companies Act 2006. The consolidated financial statements have been prepared under the historical
cost convention.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed
in note 5.

The presentational currency of the financial statements is in British pounds and amounts are rounded to the nearest pound.

Going concern
The Group has produced detailed budgets, projections and cash flow forecasts which incorporate the recently acquired Hunters Property PLC
business. These have been stress tested to understand the impacts of reductions in revenue and costs. The Directors have concluded after
reviewing these budgets, projections and forecasts, making appropriate enquiries of the business and having considered uncertainties under
the current economic environment as a result of the Covid-19 pandemic, that there is a reasonable expectation that the Group has adequate
resources to continue in operation for the foreseeable future. Accordingly, they have adopted the going concern basis in preparing the
financial statements.

Changes in accounting policies
a) New standards, amendments and interpretations effective from 1 January 2020
The following new or amended standards are mandatory for the first time for the period beginning 1 January 2020 and have been adopted
in the annual financial statements for the year ended 31 December 2020:

Standard

IAS 1

IAS 8

IFRS 3

Key requirements

Presentation of Financial Statements
(Amendment –Definition of Material)

Accounting Policies, Changes in Accounting Estimates and Errors
(Amendment – Definition of Material)

Business Combinations
(Amendment – Definition of Business)

Revised Conceptual Framework for Financial Reporting

b) New standards, amendments and interpretations not yet effective
We do not consider there to be any relevant new standards, amendments to standards or interpretations that have been issued, but are
not effective for the financial year beginning on 1 January 2020, which would have a material impact on the financial statements.

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.

3. Basis of consolidation
The Group financial statements include those of the Parent Company and its Subsidiaries, drawn up to 31 December 2020. Subsidiaries are all
entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a
subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquire and the equity interests issued
by the Group. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at
their fair values at the acquisition date. Acquisition-related costs are expensed as incurred.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are
also eliminated. When necessary, amounts reported by Subsidiaries have been adjusted to conform to the Group’s accounting policies.

62 The Property Franchise Group PLC
annual report and accounts 2020

— NotES to tHE coNSolIDatED aND compaNY
FINaNcIal StatEmENtS CONTINUED

for the year ended 31 December 2020

4. Significant accounting policies
Revenue recognition
Performance obligations and the timing of revenue recognition
Revenue represents income, net of VAT, from the sale of franchise agreements, resale fees and Management Service Fees levied to franchisees
monthly based on their turnover, and other income being the provision of ad hoc services and ongoing support to franchisees.

Traditional brands:
Fees from the sale of franchise agreements are not refundable. These fees are for the use of the brand along with initial training and support
and promotion during the opening phase of the new office. As such the Group has some initial obligations that extend beyond the receipt
of funds and signing of the franchise agreement so an element of the fee is deferred and released as the obligations are discharged, usually
between 1 to 4 months after receipt of funds, which is the typical period of on-boarding for new franchisees.

Resale fees are recognised in the month that a contract for the resale of a franchise is signed. Upon signing of the contract all obligations have
been completed.

Management Service Fees are recognised on a monthly basis and other income is recognised when the services and support is provided to
the franchisee. There are no performance obligations associated with levying the Management Service Fees. For ad hoc services and support
all performance obligations have been fulfilled at the time of revenue recognition.

EweMove:
Fees from the sale of franchise agreements for the EweMove brand are not refundable. Some new franchisees pay a higher fee to include
the first 12 months’ licence fee, in this scenario the licence fee element of the initial fee is deferred and released over the first 12 months of
trading of the franchise where no monthly licence fees are payable. The franchise fee is for the use of the brand along with initial support and
promotion during the opening phase of the new franchise. As such the Group has some initial obligations that extend beyond the receipt
of funds and signing of the franchise agreement so an element of the fee is deferred and released as the obligations are discharged, usually
between 1 to 4 months after receipt of funds, which is the typical period of on-boarding for new franchisees.

Management Service Fees consist of monthly licence fees and completion fees. Licence fees are recognised on a monthly basis, completion
fees are recognised when sales or lettings transactions complete and other income is recognised when the services and support are provided
to the franchisee. There are no additional performance obligations associated with levying the licence fee and completion fees beyond
providing access to the systems, brand and marketing support. For ad hoc services and support all performance obligations have been
fulfilled at the time of revenue recognition.

Financial services commissions:
Financial services commissions received by Auxilium Partnership Limited are recognised upon receipt, being a point in time when the Group
has met its obligations in delivering a customer to the insurance partners. A provision is made for the best estimate of future clawbacks
resulting from policies being subsequently cancelled, however this is not material to the financial statements. There is no vat applicable
to financial services commissions.

Operating profit
Profit from operations is stated before finance income, finance costs and tax expense.

Business combinations
On the acquisition of a business, fair values are attributed to the identifiable assets and liabilities and contingent liabilities unless the fair value
cannot be measured reliably in which case the value is subsumed into goodwill. Where the fair values of acquired contingent liabilities cannot
be measured reliably, the assumed contingent liability is not recognised but is disclosed in the same manner as other contingent liabilities.

Goodwill is the difference between the fair value of the consideration and the fair value of identifiable assets acquired. Goodwill arising on
acquisitions is capitalised and subject to an impairment review, both annually and when there is an indication that the carrying value may
not be recoverable.

Intangible assets
Intangible assets with a finite life are carried at cost less amortisation and any impairment losses. Intangible assets represent items which meet
the recognition criteria of IAS 38, in that it is probable that future economic benefits attributable to the assets will flow to the entity and the
cost can be measured reliably.

In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the
Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that
the future economic benefits embodied in the asset will flow to the Group.

The Property Franchise Group PLC
annual report and accounts 2020

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Amortisation charges are included in administrative expenses in the Statement of Comprehensive Income. Amortisation begins when the
intangible asset is first available for use and is provided at rates calculated to write-off the cost of each intangible asset over its expected
useful life, on a straight-line basis, as follows:

Brands – CJ Hole, Parkers, Ellis & Co
Brands – EweMove
Customer lists
Master franchise agreements – Whitegates, CJ Hole, Parkers, Ellis & Co
Master franchise agreements – EweMove
Technology – Ewereka
Technology – Websites and CRM system

Indefinite life
21 years
5 years
25 years
15 years
5 years
3 years

Acquired trade names are identified as separate intangible assets where they can be reliably measured by valuation of future cash flows.
The trade names CJ Hole, Parkers and Ellis & Co are assessed as having indefinite lives due to their long trading histories.

Acquired customer lists are identified as a separate intangible asset as they are separable and can be reliably measured by valuation of
future cash flows. This valuation also assesses the life of the particular relationship. The life of the relationship is assessed annually.

Customer lists are being written off over a remaining life of 5 years.

Acquired master franchise agreements are identified as a separate intangible asset as they are separable and can be reliably measured by
valuation of future cash flows. The life of the relationship is assessed annually. Master franchise agreements are being written off over a
remaining life of 15-25 years as historical analyses shows that, on average, 4% – 10% of franchises will change ownership per annum.

The cost of the new brand websites launched in 2017 have been capitalised and are being amortised over 3 years from launch date, being
the expected period over which the websites are expected to generate economic benefit.

The cost of the CRM system was capitalised in 2019 and is being amortised over 3 years from launch date, being the expected period over
which the CRM system is expected to generate economic benefit.

Subsequent to initial recognition, intangible assets are stated at deemed cost less accumulated amortisation and impairment charges, with
the exception of indefinite life intangibles.

Impairment of non-financial assets
In respect of goodwill and intangible assets that have an indefinite useful lives, management are required to assess whether the recoverable
amount of each exceeds their respective carrying values at the end of each accounting period.

In respect of intangible assets with definite lives, management are required to assess whether the recoverable amount exceeds the carrying
value where an indicator of impairment exists at the end of each accounting period.

The recoverable amount is the higher of fair value less costs to sell and value in use.

Impairment losses represent the amount by which the carrying value exceeds the recoverable amount; they are recognised in profit or loss.
Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated
to the cash generating unit and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. Where an indicator of
impairment exists against a definite life asset and a subsequent valuation determines there to be impairment, the intangible asset to which it
relates is impaired by the amount determined.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.

The master franchise agreement is assessed separately for impairment as an independent asset that generates cash inflows that are largely
independent of those from other assets.

Investment in subsidiaries
Investments in subsidiaries are stated in the Parent Company’s balance sheet at cost less any provisions for impairments.

Property, plant and equipment
Items of property, plant and equipment are stated at cost of acquisition less accumulated depreciation and impairment losses. Depreciation is
charged so as to write-off the cost of assets over their estimated useful lives on the following bases:

Fixtures, fittings and office equipment
Computer equipment
Short leasehold improvements

15% reducing balance
over 3 years
over the lease term

64 The Property Franchise Group PLC
annual report and accounts 2020

— NotES to tHE coNSolIDatED aND compaNY
FINaNcIal StatEmENtS CONTINUED

for the year ended 31 December 2020

4. Significant accounting policies continued
Right-of-use assets
Right of use assets relate to operating leases that have been brought onto the balance sheet under IFRS 16. They are initially measured
at the amount of the lease liability, reduced for any lease incentives received, and increased for:
•
•
•

lease payments made at or before commencement of the lease;
initial direct costs incurred; and
the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset

Subsequent to initial measurement right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over
the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.

Lease liabilities
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the
Group’s incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement
of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element
will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

On initial recognition, the carrying value of the lease liability also includes:
• amounts expected to be payable under any residual value guarantee;
•
• any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.

the exercise price of any purchase option granted in favour of the group if it is reasonable certain to assess that option;

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and
are reduced for lease payments made.

Prepaid assisted acquisitions support
Prepaid assisted acquisitions support represents amounts payable to franchisees in relation to their acquisition of qualifying managed property
portfolios and amounts payable to brokers for assisting with the acquisition of those portfolios. The payments are recognised as an asset and
amortised to the profit and loss account over 5 years. The amounts payable to franchisees are amortised as a reduction in revenue, whereas
amounts payable to brokers are amortised through cost of sales.

Income taxes
Income tax currently payable is calculated using the tax rates in force or substantively enacted at the reporting date. Taxable profit differs from
accounting profit either because some income and expenses are never taxable or deductible, or because the time pattern that they are taxable
or deductible differs between tax law and their accounting treatment.

The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except if it arises from transactions or
events that are recognised in other comprehensive income or directly in equity.

Deferred tax
Deferred income taxes are calculated using the liability method on temporary differences, at the tax rate that is substantively enacted at the
balance sheet date. Deferred tax is generally provided on the difference between the carrying amount of assets and liabilities and their tax
bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless
the related transaction is a business combination or affects tax or accounting profit. Tax losses available to be carried forward as well as other
income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that
the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets
and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or
substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense
in the income statement. For share-based payments the deferred tax credit is recognised in the income statement to the extent that it offsets
the share-based charge, with any remaining element after offset being shown in the statement of changes in equity.

Cash and cash equivalents
Cash and cash equivalents are defined as cash balances in hand and in the bank (including short-term cash deposits).

Financial assets
The Group and Company only have financial assets comprising trade and other receivables and cash and cash equivalents in the Consolidated
Statement of Financial Position.

These assets arise principally from the provision of goods and services to customers (eg. trade receivables), but also incorporate other types
of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are
solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their
acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

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Impairment of financial assets
Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using
a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the
trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the
lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate
provision account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income.
On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated
provision.

Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward looking expected
credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase
in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition
of the financial asset, 12 month expected credit losses along with gross interest income are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined
to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

Financial liabilities
Financial liabilities are comprised of trade and other payables, borrowings and other short-term monetary liabilities, which are recognised
at amortised cost.

Trade payables, other payables and other short-term monetary liabilities, are initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method.

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period
of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or
all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is
probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over
the period of the facility to which it relates.

Share-based payments
The Company issues equity-settled share-based payments to employees. Equity-settled share-based payments are measured at fair value
at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments are amortised through the
Consolidated Statement of Comprehensive Income over the vesting period of the options, together with a corresponding increase in equity,
based upon the Company’s estimate of the shares that will eventually vest.

Fair value is measured using the Black-Scholes option pricing model taking into account the following inputs:
•
•
•
•
•
•

the exercise price of the option;
the life of the option;
the market price on the date of the grant of the option;
the expected volatility of the share price;
the dividends expected on the shares; and
the risk free interest rate for the life of the option.

The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations.

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-
market conditions and recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding
adjustment to equity.

66 The Property Franchise Group PLC
annual report and accounts 2020

— NotES to tHE coNSolIDatED aND compaNY
FINaNcIal StatEmENtS CONTINUED

for the year ended 31 December 2020

5. Critical accounting estimates and judgements and key sources of estimation uncertainty
The Company makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Impairment of intangible assets
The Group is required to test, where indicators of impairment exist or there are intangible assets with indefinite lives, whether intangible assets
have suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the
estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Key assumptions
for the value in use calculation are described in note 15.

Share-based payment charge (“SBPC”)
The aggregate fair value expense of each grant is determined through using the Black-Scholes model detailed above and an estimate for
the attainment of the non-market based performance conditions in FY20, FY21 and FY22. The estimate of earnings per share (“EPS”), the
non-market based performance measure, in FY20 was based on actual financial performance, FY21 was based on budget and FY22 relies
on a projection of earnings taking into account available market data and performance trends.

At this juncture 68% of the options based on FY21 performance are expected to vest and 65% of the options based on the FY22 performance
are expected to vest.

6. Segmental reporting
Following the acquisition of a majority share in Auxilium Partnership Limited on 7 January 2020 the directors consider there now to be two
operating segments, being Property Franchising and Other.

For the year ended 31 December 2020:

Revenue
Segment profit before tax

For the year ended 31 December 2019:

Revenue
Segment profit before tax

Property
Franchising
£

Other
£

Total
£

11,016,921
4,766,843

447,574
38,026

11,464,495
4,804,869

Property
Franchising
£

11,350,327
3,994,194

Other
£

Total
£

–
–

11,350,327
3,994,194

The Other segment related to Financial Services. There was no inter-segment revenue in any period.

7. Revenue

Property Franchising segment:
Management Service Fees
Franchise sales
Other

Other segment:
Financial Services commissions

2020
£

2019
£

9,364,702
145,068
1,507,151

9,661,737
194,702
1,493,888

11,016,921

11,350,327

447,574

–

11,464,495

11,350,327

All revenue is earned in the UK and no customer represents greater than 10% of total revenue in either of the years reported.

Other revenue relates to ad hoc services and ongoing support to franchisees.

See note 20 for details of accrued income and note 24 for details of deferred income.

See note 18 for the value of prepaid assisted acquisitions support amortised as a deduction from Management Service Fees.

The Property Franchise Group PLC
annual report and accounts 2020

8. Administrative expenses
Administrative expenses relate to those expenses that are not directly attributable to any specific sales activity.

Administrative expenses for the year were as follows:

Employee costs (see note 9)
Marketing and digital costs
Property costs
General administrative costs
Amortisation

9. Employees and Directors
Average numbers of employees (including Directors), employed during the year:

Administration
Management

Employee costs (including Directors) during the year amounted to:

Wages and salaries
Social security costs
Pension costs

Share-based payments charge

2020
£

2019
£

3,737,457
334,459
130,271
817,943
646,345

3,097,124
571,931
129,082
1,355,551
666,589

5,666,475

5,820,277

2019

39
9

Company

2020

2019

–
2

Company

2020
£

580,482
66,863
15,166

662,511

84,960

2019
£

554,213
62,245
10,544

627,002

345,931

Group

2020

41
10

Group

2020
£

3,267,477
398,013
71,967

2019
£

2,711,683
328,693
56,748

3,737,457

3,097,124

68,023

441,709

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Key management personnel are defined as Directors and executives of the Group. Details of the remuneration of the key management
personnel are shown below:

Wages and salaries
Social security costs
Pension costs

Share-based payments charge

2020
£

1,953,378
251,191
42,625

2019
£

1,497,467
193,729
30,513

2,247,194

1,721,709

71,954

402,498

Details of the Directors’ emoluments are disclosed in the Directors’ remuneration report on pages 42 to 44. The share-based payments charge
for the current year has been charged to the Statement of Comprehensive Income, of this £85,451 (2019: £340,697) relates to Directors.

68 The Property Franchise Group PLC
annual report and accounts 2020

— NotES to tHE coNSolIDatED aND compaNY
FINaNcIal StatEmENtS CONTINUED

for the year ended 31 December 2020

10. Operating profit

The operating profit is stated after charging:
Depreciation
Amortisation – intangibles
Amortisation – prepaid assisted acquisitions support
Amortisation – leases
Share-based payments charge
Auditor’s remuneration (see below)
Staff costs (note 9)

Audit services
– Audit of the Company and consolidated accounts

11. Finance income and costs

Finance income:
Bank interest
Other similar income

Finance costs:
Bank interest
Interest expense on lease liabilities

12. Taxation

Current tax
Adjustments in respect of previous periods

Current tax total

Deferred tax credit on acquired business combinations
Deferred tax credit on share-based payments

Deferred tax total

2020
£

2019
£

28,284
590,546
213,030
55,799
68,023
58,000
3,737,457

33,989
611,820
174,149
54,769
441,709
50,000
3,097,124

58,000

50,000

2020
£

6,227
4,474

10,701

2020
£

–
3,328

3,328

2019
£

5,696
5,316

11,012

2019
£

35,320
2,990

38,310

2020
£

1,035,649
3,141

1,038,790

(12,759)
(12,924)

(25,683)

2019
£

943,765
(31,329)

912,436

(75,557)
(75,091)

(150,648)

Total tax charge in statement of comprehensive income

1,013,107

761,788

The tax assessed for the period is higher (2019: higher) than the standard rate of corporation tax in the UK. The difference is explained below.

Profit on ordinary activities before tax
Profit on ordinary activities multiplied by the effective standard rate of corporation tax in the UK of 19%
Effects of:
Expenses not deductible for tax purposes
Depreciation in excess of capital allowances
Effect of change in deferred tax rate from 17% to 19%
Adjustments in respect of previous periods

Total tax charge in respect of continuing activities

2020
£

2019
£

4,804,869
912,925

3,994,194
758,897

2,053
12,420
82,568
3,141

10,344
23,876
–
(31,329)

1,013,107

761,788

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annual report and accounts 2020

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13. Earnings per share
Earnings per share is calculated by dividing the profit for the financial year by the weighted average number of shares during the year.

Profit for the financial year attributable to owners of the parent
Amortisation on acquired intangibles
Share-based payments charge

Adjusted profit for the financial year

Weighted average number of shares
Number used in basic earnings per share
Dilutive effect of share options on ordinary shares

Number used in diluted earnings per share

Basic earnings per share
Diluted earnings per share

Adjusted basic earnings per share
Adjusted diluted earnings per share

2020
£

3,782,568
498,441
68,023

2019
£

3,232,406
498,441
441,709

4,349,032

4,172,556

25,822,750
519,817

25,822,750
870,179

26,342,567

26,692,929

14.6p
14.4p

16.8p
16.5p

12.5p
12.1p

16.2p
15.6p

There were options over 2,379,800 ordinary shares outstanding at 31 December 2020; 300,000 had not yet vested and have performance
conditions which will determine whether they vest or not in the future; 64,800 vested in a previous year and were exercisable at 31 December
2020, and it can be determined that 503,750 of the remaining 2,015,000 options (25%) will vest based on these financial statements. The
average share price during the year ended 31 December 2020 was above exercise price of the options that had either vested or were due
to vest based on these financial statements. For these reasons in 2020 there is a dilutive effect of share options on the earnings per share
calculation.

In 2019 there were options over 2,209,800 ordinary shares outstanding at 31 December 2019; 2,145,000 had not yet vested and had
performance conditions which would determine whether they vest or not in the future. The remaining option over 64,800 ordinary shares
was exercisable at 31 December 2019 and the average share price during the year ended 31 December 2019 was above the exercise price.
For these reasons in 2019 there is a dilutive effect of share options on the earnings per share calculation.

The charge relating to share-based payments that have a dilutive effect is immaterial and therefore the earnings used in the diluted earnings
per ordinary share calculation are the earning per ordinary share calculation before dilution.

14. Dividends

Final dividend for 2019
No dividend paid (2019: 6.0p per share paid 28 May 2019)
Interim dividend for 2020
2.1p per share paid 23 September 2020 (2019: 2.6p per share paid 1 October 2019)

Total dividend paid

2020
£

2019
£

–

1,549,365

542,278

671,392

542,278

2,220,757

A dividend of 6.6p per share was paid in lieu of a final dividend for 2020 on 23 February 2021, the total amount paid was £1,704,302.

70 The Property Franchise Group PLC
annual report and accounts 2020

— NotES to tHE coNSolIDatED aND compaNY
FINaNcIal StatEmENtS CONTINUED

for the year ended 31 December 2020

15. Intangible assets

Master Franchise
Agreement
£

Brands
£

Technology
£

Customer lists
£

Goodwill
£

Total
£

Cost
Brought forward 1 January 2019
Additions
Carried forward 31 December 2019
Additions (note 29)

7,803,436
–
7,803,436
–

1,972,239
–
1,972,239
–

Carried forward 31 December 2020

7,803,436

1,972,239

Amortisation & Impairment
Brought forward at 1 January 2019
Charge for year

Carried forward 31 December 2019
Charge for year

Carried forward 31 December 2020

Net book value
At 31 December 2020

At 31 December 2019

1,738,702
413,174

2,151,876
413,174

2,565,050

155,694
66,726

222,420
66,726

289,146

5,238,386

1,683,093

5,651,560

1,749,819

274,210
63,467
337,677
–

337,677

128,155
109,642

237,797
75,810

313,607

24,070

99,880

214,940
10,000
224,940
–

7,226,160
–
7,226,160
184,426

17,490,985
73,467
17,564,452
184,426

224,940

7,410,586

17,748,878

143,679
22,278

165,957
34,836

200,793

–
–

–

2,166,230
611,820

2,778,050
590,546

3,368,596

24,147

58,983

7,410,586

14,380,282

7,226,160

14,786,402

The carrying amount of goodwill relates to 5 (2019: 4) cash generating units and reflects the difference between the fair value of consideration
transferred and the fair value of assets and liabilities purchased.

Business combinations completed in October 2014
Goodwill is assessed for impairment by comparing the carrying value to the value in use calculations. The value in use of the goodwill arising
on the acquisitions of Xperience Franchising Limited (“XFL”) and Whitegates Estate Agency Limited (“WEAL”) is based on the cash flows derived
from the actual revenues and operating margins for 2020 and projections through to 31 December 2022. Thereafter projected revenue
growth was assumed to decline linearly to a long-term growth rate of 2.2%.

The cash flows arising were discounted by the weighted average cost of capital which included a small companies’ risk premium to allow for
factors such as illiquidity in the shares. These discount rates were 13.5% for XFL and 15.0% for WEAL, the latter higher rate reflecting WEAL’s
smaller size and more volatile earnings. This resulted in a total value for each company of the identifiable intangible assets that exceeded the
carrying values of the respective companies’ goodwill.

The Directors do not consider goodwill to be impaired. The Directors believe that no reasonably possible change in assumptions at the year
end will cause the value in use to fall below the carrying value and hence impair the goodwill.

The master franchise agreements are being amortised over 25 years. The period of amortisation remaining at 31 December 2020 was 18 years
10 months.

The brand names under which XFL trades of C J Hole, Parkers and Ellis & Co have been in existence for between 72 years and 170 years.
Management see them as strong brands with significant future value and has deemed them to have indefinite useful lives as there is
no foreseeable limit to the period over which the assets are expected to generate net cash inflows for the Group. As a consequence,
management annually assess whether the carrying value of these brands have been impaired.

The Relief-from-Royalty-Method was used to value the brand names. Looking at independent research of royalty rates, management selected
pre-tax royalty rates of between 3% and 5% for the above brand names.

The after tax royalty rates were then applied to the projected cash flows of each brand. The projected cash flows being the forecast growth
in current revenues using market data through to 31 December 2022. Thereafter projected revenue growth was assumed to decline linearly
to a long-term growth rate of 2.2%. The after tax cash flows determined through this process were then discounted at 13.5% to determine
a value for each brand name. This discount rate approximated the Company’s WACC as the risk profile of the brand names was seen as
commensurate with that of the overall Company. The values derived exceeded their carrying values.

The Directors believe that no reasonably possible change in assumptions at the year end will cause the value in use of the brands names
CJ Hole, Parkers and Ellis & Co to fall below their carrying values and hence impair their intangible values.

The Whitegates brand was valued in a similar manner and deemed to have an immaterial value when the acquisition was made principally
due to its lack of profitability over preceding years. It is therefore not recognised separately.

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Business combination completed in September 2016
Goodwill is assessed for impairment by comparing the carrying value to the value in use calculations. The value in use of the goodwill arising
on the acquisition of EweMove Sales & Lettings Ltd (“ESL”) is based on the cash flows derived from the actual revenues and operating margins
for 2020 and projections through to 31 December 2025. Thereafter projected revenue growth was assumed to be 2.2% per annum.

A period of projected cash flows exceeding 5 years was deemed appropriate because the business has only been operating for 7 years, is
continuing to recruit relatively high levels of new franchisees, each new franchisee should grow significantly in the first 5 years of operation
and it has yet to develop the operational efficiencies of a mature franchisor.

The revenue growth rates used in the valuation range from 28% in FY21 to 4% in FY25.The growth rate in FY21 is high because revenue was
lower in FY20 as a result of Covid-19.

The cash flows arising were discounted by the weighted average cost of capital being 15,35% which included a small companies’ risk premium
to allow for factors such as illiquidity in the shares. This resulted in the value in use exceeding the carrying value of the goodwill and separately
identifiable intangible assets. The enterprise’s overall value exceeds the cash generating unit’s carrying value.

The useful life of the master franchise agreement was assessed as 15 years and remains unchanged. The period of amortisation remaining
at 31 December 2020 was 10 years 8 months.

The remaining useful life of the brand name was also reviewed. It continues to attract and recruit the same level of franchisees as in previous
years and to attract higher numbers of customers. Given these 2 factors the remaining useful life of the brand was considered to be unaltered
at 21 years. The period of amortisation remaining at 31 December 2020 was 16 years and 8 months.

The carrying value of EweMove the identified cash generating unit, was £9.1m at 31 December 2020 whereas the recoverable amount was
assessed to be £11.5m at the same date. Headroom of £2.4m therefore existed at the year end.

The following table reflects the level of movements required in revenue or costs which could result in a potential impairment per the
value in use calculation of goodwill. A further percentage (fall)/increase, of the magnitude indicated in the table below, in any one of the
key assumptions set out above would result in a removal of the headroom in the value in use calculation for goodwill in 2020. Thus, if the
discount rate increased by 24% to 19%, an impairment change would result against goodwill, all other assumptions remaining unchanged.

Assumption

Discount rate
Revenue – FY21 to FY25
Direct costs – all years
Indirect costs – all years

Direct and indirect costs – all years

Judgement

As indicated above the rate used is 15.35%
The range of growth rates for FY21 to FY25 are stated above
Assumed to be 23% of revenue for all years
Assumed to be 45% of revenue in FY21 and then decline

linearly to 38% of revenue in FY24 onwards
As indicated above for direct and indirect costs

Sensitivity

24%
(60%)
36%

23%
14%

Business combination completed in January 2020
Details of the Acquisition of Auxilium Partnership Limited can be found in note 29.

Goodwill and indefinite life intangible assets have been allocated for impairment testing purposes to the following cash generating units.

The carrying values are as follows:

Xperience Franchising Limited
Whitegates Estate Agency Limited
Martin & Co (UK) Limited
EweMove Sales & Lettings Ltd
Auxilium Partnership Limited

Goodwill

2020
£

912,716
400,501
75,000
5,837,943
184,426

2019
£

912,716
400,501
75,000
5,837,943
–

7,410,586

7,226,160

Brands

2020
£

571,000
–
–
–
–

571,000

2019
£

571,000
–
–
–
–

571,000

Website costs included in technology
In 2017 new websites were launched for each of the 5 traditional brands. The costs associated with these websites have been capitalised
as intangible assets as the purpose of the websites is to generate leads and revenue for the network.

Company
No goodwill or customer lists exist in the Parent Company.

72 The Property Franchise Group PLC
annual report and accounts 2020

— NotES to tHE coNSolIDatED aND compaNY
FINaNcIal StatEmENtS CONTINUED

for the year ended 31 December 2020

16. Property, plant and equipment
Group

Cost
Brought forward 1 January 2019
Additions

Carried forward 31 December 2019

Acquisitions
Additions

Carried forward 31 December 2020

Depreciation
Brought forward 1 January 2019
Charge for year

Carried forward 31 December 2019
Charge for year

Carried forward 31 December 2020

Net book value
At 31 December 2020

At 31 December 2019

Short leasehold
improvements
£

Office equipment
£

Fixtures & fittings
£

Total
£

37,034
–

37,034

–
–

130,340
7,380

137,720

1,613
14,564

161,107
580

161,687

1,082
–

328,481
7,960

336,441

2,695
14,564

37,034

153,897

162,769

353,700

25,575
3,703

29,278
3,702

32,980

4,054

7,756

71,383
20,688

92,071
19,774

127,939
9,598

137,537
4,808

224,897
33,989

258,886
28,284

111,845

142,345

287,170

42,052

45,649

20,424

24,150

66,530

77,555

17. Leases
The Group’s has operating leases for its office premises in Bournemouth and Cleckheaton. Under IFRS16, which was adopted on 1 January 2019
these operating leases are accounted for by recognising a right-of-use asset and a lease liability,

Right-of-use assets

At 1 January 2019
Additions
Amortisation

Carried forward 31 December 2019
Additions
Amortisation

Carried forward 31 December 2020

Lease liabilities

At 1 January 2019
Additions
Interest expenses
Lease payments

Carried forward 31 December 2019

Additions
Interest expenses
Lease payments

Carried forward 31 December 2020

Land and Buildings
£

74,523
54,826
(54,769)

74,580
67,021
(55,799)

85,802

Land and Buildings
£

79,456
54,133
2,990
(58,830)

77,749

67,021
3,328
(61,567)

86,531

Total
£

74,523
54,826
(54,769)

74,580
67,021
(55,799)

85,802

Total
£

79,456
54,133
2,990
(58,830)

77,749

67,021
3,328
(61,567)

86,531

Maturity analysis of lease liabilities as at 31 December 2020:

Lease liabilities

Up to
3 months
£

10,271

Between
3 and 12 months
£

Between
1 and 2 years
£

Between
2 and 5 years
£

30,814

29,556

15,890

18. Prepaid assisted acquisitions support
Group

Cost
Brought forward 1 January 2019
Additions
Disposals

Carried forward 31 December 2019
Additions

Carried forward 31 December 2020

Amortisation
Brought forward 1 January 2019
Charge for year – to revenue
Charge for year – to cost of sales

Carried forward 31 December 2019
Charge for year – to revenue
Charge for year – to cost of sales

Carried forward 31 December 2020

Net book value
At 31 December 2020

At 31 December 2019

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£

575,877
386,332
(8,071)

954,138
155,034

1,109,172

122,041
119,457
54,692

296,190
168,510
44,520

509,220

599,952

657,948

Cashback and broker’s commission is presented as prepaid assisted acquisitions support
The additions represent sums provided to franchisees that have made qualifying acquisitions to grow their lettings’ portfolios. The cashback sum
provided is based on a calculation of the estimated increase in MSF as a result of the acquisition and the sum provided for broker’s commission
is based on the charge payable to the broker. In providing these sums the Group ensures that franchisees are contractually bound to the
relevant franchisor for a period in excess of that required for the economic benefits to exceed the sums provided.

Company
No prepaid assisted acquisitions support exists in the Parent Company.

19. Investments
Company

Cost
At 1 January 2019
Capital contribution to subsidiaries – share options

At 31 December 2019
Acquisition of Auxilium Partnership Limited
Capital contribution to subsidiaries – share options

At 31 December 2020

Net book value
At 31 December 2020

At 31 December 2019

Shares in Group
undertakings
£

33,803,886
95,778

33,899,664
200,000
(16,667)

34,082,997

33,899,664

The Property Franchise Group PLC was incorporated on 7 October 2013. On the 10 December 2013 a share for share exchange acquisition
took place with Martin & Co (UK) Limited; 17,990,000 ordinary shares in The Property Franchise Group PLC were exchanged for 100% of
the issued share capital in Martin & Co (UK) Limited.

On 31 October 2014 the Company acquired the entire issued share capital of Xperience Franchising Limited and Whitegates Estate Agency
Limited for a consideration of £6,110,284.

On 5 September 2016 the Company acquired the entire issued share capital of EweMove Sales & Lettings Ltd, and its dormant subsidiary
Ewesheep Ltd, for an initial consideration of £8m. Of the total consideration, £2.1m represented contingent consideration, of which
£0.5m was paid out on 30 July 2017 and £0.5m was paid out on 31 December 2017. No further sums are due.

74 The Property Franchise Group PLC
annual report and accounts 2020

— NotES to tHE coNSolIDatED aND compaNY
FINaNcIal StatEmENtS CONTINUED

for the year ended 31 December 2020

19. Investments continued
On 7 January 2020 the Company acquired the entire issued share capital of Auxilium Partnership Limited for a total cash consideration of £0.2m.

Martin & Co (UK) Limited, Xperience Franchising Limited, Whitegates Estate Agency Limited, EweMove Sales & Lettings Ltd and Ewesheep Ltd
are exempt from the requirements of the Companies Act 2006 relating to the audit of accounts under section 479A of the Companies Act 2006.

At the year-end The Property Franchise Group PLC has guaranteed all liabilities of Martin & Co (UK) Limited, Xperience Franchising Limited,
Whitegates Estate Agency Limited and EweMove Sales & Lettings Ltd. The value of the contingent liability resulting from this guarantee is
unknown at the year-end.

The carrying value of the investment in EweMove has been considered for impairment through value in use calculations and it was
determined that no impairment was required in the year ended 31 December 2020.

The carrying values of the other investments (all companies except for EweMove) have been considered for impairment and it has been
determined that the value of the discounted future cash inflows exceeds the carrying value. Thus, there is no impairment charge.

The Company’s investments at the balance sheet date in the share capital of companies include the following, which all have their registered
offices at the same address as the Company:

Subsidiaries

Martin & Co (UK) Limited
Xperience Franchising Limited
Whitegates Estate Agency Limited
EweMove Sales & Lettings Ltd
Ewesheep Ltd*
MartinCo Limited
Aux Group Limited
Auxilium Partnership Limited*

indirectly owned

20. Trade and other receivables

Share class

Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary

Trade receivables
Less: provision for impairment of trade receivables

Trade receivables – net of impairment provisions
Loans to franchisees
Other receivables
Amounts due from Group undertakings
Prepayments and accrued income
Tax receivable

% ownership and voting rights

Country of incorporation

100
100
100
100
100
100
85
72

England
England
England
England
England
England
England
England

Group

2020
£

212,262
(155,668)

56,594
49,058
5,287
–
1,181,610
–

2019
£

233,601
(153,814)

79,787
78,411
202,607
–
1,122,204
–

1,292,549

1,483,009

Company

2020
£

3,192
–

3,192
–
137
45,413
34,979
137,404

221,125

2019
£

2,172
–

2,172
–
200,137
–
29,609
189,985

421,903

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision
for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk
and aging. The expected loss rates are based on the Group’s historical credit losses experienced over the previous year. Forward looking
factors are considered to the extent that they are deemed material.

The Group is entitled to the revenue by virtue of the terms in the franchise agreements and can force the sale of a franchise to recover
a debt if necessary.

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Ageing of trade receivables
The following is an analysis of trade receivables that are past due date but not impaired. These relate to a number of customers for whom
there is no recent history of defaults. The ageing analysis of these trade receivables is as follows:

Group
Not more than 3 months
More than 3 months but not more than 6 months
More than 6 months but not more than 1 year

2020
£

2019
£

31.834
–
–

31,834

33,634
–
–

33,634

The Directors consider that the carrying value of trade and other receivables represents their fair value.

The Group does not hold any collateral as security for its trade and other receivables.

Included within “Prepayments and accrued income” is accrued income of £841k (2019: £704k) in relation to Management Service Fees for
some of our brands that are invoiced at the beginning of the month following the month to which they relate and EweMove license fees.

21. Called up share capital

Group
Authorised, allotted issued and fully paid ordinary shares of 1p each

Company
Authorised, allotted issued and fully paid ordinary shares of 1p each

2020

2019

Number

25,822,750

258,228

25,822,750

258,228

25,822,750

258,228

25,822,750

258,228

22. Share premium

At 31 December 2019 and 31 December 2020

23. Other reserves

Group
1 January 2019
Share-based payment charge
Deferred tax on share-based payments

1 January 2020
Share-based payment charge
Deferred tax on share-based payments

31 December 2020

Company
1 January 2019
Share-based payment charge
Deferred tax on share-based payments

1 January 2020
Share-based payment charge
Deferred tax on share-based payments

31 December 2020

Number of shares

Share capital
£

Share premium
£

25,822,750

258,228

4,039,800

Merger reserve
£

Share-based
payment reserve
£

Other reserve
£

Total
£

2,796,984
–
–

186,877
441,709
–

628,586
68,023
–

–
–
81,322

81,322
–
–

2,983,861
441,709
81,322

3,506,892
68,023
–

2,796,984

696,609

81,322

3,574,915

20,786,884
–
–

186,877
441,709
–

628,586
68,023
–

–
–
81,322

81,322
–
–

20,973,761
441,709
81,322

21,496,792
68,023
–

20,786,884

696,609

81,322

21,564,815

76 The Property Franchise Group PLC
annual report and accounts 2020

— NotES to tHE coNSolIDatED aND compaNY
FINaNcIal StatEmENtS CONTINUED

for the year ended 31 December 2020

23. Other reserves continued
Merger reserve
Acquisition of Martin & Co (UK) Limited
The acquisition of Martin & Co (UK) Limited by The Property Franchise Group PLC did not meet the definition of a business combination
and therefore, falls outside of the scope of IFRS 3. This transaction was in 2013 and accounted for in accordance with the principles of
merger accounting.

The consideration paid to the shareholders of the subsidiary was £17,990,000 (the value of the investment). As these shares had a nominal
value of £179,900, the merger reserve in the Company is £17,810,000.

On consolidation the investment value of £17,990,000 is eliminated so that the nominal value of the shares remaining is £179,900 and, as
there is a difference between the Company value of the investment and the nominal value of the shares purchased in the subsidiary of £100,
this is also eliminated, to generate a merger reserve in the Group of £179,800.

Acquisition of EweMove Sales & Lettings Ltd
The consideration for the acquisition of EweMove Sales & Lettings Ltd included the issue of 2,321,550 shares to the vendors at market price.
A merger reserve of £2,796,984 is recognised in the Group and the Company being the difference between the value of the consideration
and the nominal value of the shares issued as consideration.

Share-based payment reserve
The share-based payments reserve comprises charges made to the income statement in respect of share-based payments and related
deferred tax impacts under the Group’s equity compensation scheme.

24. Trade and other payables

Trade payables
Other taxes and social security
Other payables
Accruals and deferred income

Group

2020
£

176,389
1,274,002
248,229
1,051,728

2019
£

741,576
575,600
118,546
564,453

2,750,348

2,000,175

Company

2020
£

36,870
–
–
109,971

146,841

2019
£

38,659
–
–
22,839

175,487

The Directors consider that the carrying value of trade and other payables approximates their fair value.

Included in “Accruals and deferred income” is deferred income of £nil (2019: £7k) in relation to charges levied on franchisees in advance and
EweMove licence fees.

25. Deferred tax

Balance at beginning of year
Movement during the year:
Statement of changes in equity
Statement of comprehensive income
Other

Balance at end of year

Deferred taxation has been provided as follows:

Accelerated capital allowances
Share-based payments
Acquired business combinations

Group

2020
£

2019
£

Company

2020
£

2019
£

(1,140,227)

(1,372,196)

215,293

30,101

–
25,683
–

81,322
150,647
–

–
12,924
–

81,322
75,091
28,779

(1,114,544)

(1,140,227)

228,217

215,293

Group

2020
£

2019
£

Company

2020
£

6,951
199,438
(1,320,933)

(18,956)
186,514
(1,307,785)

(1,114,544)

(1,140,227)

28,779
199,438
–

228,217

2019
£

28,779
186,514
–

215,293

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26. Financial instruments
Financial instruments – risk management
The Group is exposed through its operations to the following financial risks:
• Credit risk
• Liquidity risk
•

Interest rate risk

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes
the Group’s objectives, policies and processes for managing those risks and the methods used to measure them.

There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes
for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

Principal financial instruments
The principal financial instruments used by the Group and Company, from which financial instrument risk arises, are as follows:
• Receivables
• Loans to franchisees
• Cash at bank
• Trade and other payables
• Borrowings

Financial assets
Financial assets measured at amortised cost:

Loans and receivables:
Trade receivables
Loans to franchisees
Other receivables
Cash and cash equivalents
Accrued income
Amount owed by Group undertakings

Financial liabilities
Financial liabilities measured at amortised cost:

Other financial liabilities:
Trade payables
Other payables
Accruals
Amounts owed to Group undertakings

Group

2020
£

2019
£

Company

2020
£

2019
£

56,594
49,058
5,287
8,770,884
840,619
–

79,787
78,411
202,607
4,011,463
703,774
–

3,192
–
137
4,600,718
–
45,413

2,172
–
200,137
1,073,774
–
–

9,722,442

5,076,042

4,649,460

1,276,083

Group

2020
£

176,389
248,229
1,051,984
–

2019
£

741,576
118,546
557,951
–

1,476,602

1,418,073

Company

2020
£

2019
£

36,870
–
109,971
–

146,841

38,659
–
22,839
113,989

175,487

All of the financial assets and liabilities above are recorded in the statement of financial position at amortised cost.

General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining
ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation
of the objectives and policies to the finance function. The Board receives monthly reports from the finance function through which it reviews
the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s
competitiveness and flexibility. Further details regarding these policies are set out below:

Capital management policy
The Board considers capital to be the carrying amount of equity and debt. Its capital objective is to maintain a strong and efficient capital base
to support the Group’s strategic objectives, provide progressive returns for shareholders and safeguard the Group’s status as a going concern.
The principal financial risks faced by the Group are liquidity risk and interest rate risk. The Directors review and agree policies for managing
each of these risks. These policies remain unchanged from previous years.

78 The Property Franchise Group PLC
annual report and accounts 2020

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for the year ended 31 December 2020

26. Financial instruments continued
The Board monitors a broad range of financial metrics including growth in MSF, operating margin, EBITDA, return on capital employed, and
balance sheet gearing.

It manages the capital structure and makes changes in light of changes in economic conditions. In order to maintain or adjust the capital
structure, it may adjust the amount of dividends paid to shareholders.

Credit risk
Credit risk is the risk of financial loss to the Group if a franchisee or counterparty to a financial instrument fails to meet its contractual
obligations. It is Group policy to assess the credit risk of new franchisees before entering contracts and to obtain credit information during
the franchise agreement to highlight potential credit risks.

The highest risk exposure is in relation to loans to franchises and their ability to service their debt. The Directors have established a credit
policy under which franchisees are analysed for creditworthiness before a loan is offered. The Group’s review includes external ratings, when
available, and in some cases bank references. The Group does not consider that it currently has significant concentration of credit risk with
loans extended to franchisees of £49k.

Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments.
It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future development, the Group monitors
forecast cash inflows and outflows on a monthly basis.

Interest rate risk
The Group’s exposure to changes in interest rate risk relates solely to interest earning financial assets as the Group has repaid all it’s borrowings
in the year.

Fair values of financial instruments
The fair value of financial assets and liabilities is considered the same as the carrying values.

27. Share-based payments
Enterprise Management Incentive (“EMI”) Share Option Scheme 2017 and (“EMI”) Share Option Scheme 2018
During the year ended 31 December 2017 the Company implemented an Enterprise Management Incentive scheme as part of the
remuneration for all staff and granted options over 2,290,000 ordinary shares at an exercise price of £0.01 each.

The options over 2,290,000 ordinary shares were granted to different classes of employees at different times as follows:

1. Executive Directors were granted options over 1,500,000 ordinary shares on 9 June 2017
2. Staff were granted options over 185,000 ordinary shares on 20 July 2017
3. Leadership team recruits in FY17 were granted options over 605,000 ordinary shares on 14 September 2017

During the year ended 31 December 2017 an option was forfeited over 150,000 shares following the departure of an employee.
At 31 December 2017 options over 2,140,000 ordinary shares existed.

During the year ended 31 December 2018 options over 175,000 shares were forfeited following the departure of employees.
At 31 December 2018 options over 1,965,000 ordinary shares existed.

These options have a vesting condition based on EPS targets for the year ended 31 December 2019. The share-based payment charge
recognised in the year ended 31 December 2017 in respect of these options was reversed in the year ended 31 December 2018 because
none of these options were expected to vest because performance of the parallel options (see below) was expected to be better.

On 1 August 2018 employees with options in the EMI Share Option Scheme 2017 were granted options in a parallel scheme, over the same
number of shares, and with the same EPS target, but these are exercisable 1 year later, after the approval of the financial statements for the
year ending 2020. Participants will only be able to exercise one of their options. The total number of parallel options granted was 1,965,000.

On 1 August 2018 new employees who did not have options in the EMI Share Option Scheme 2017 were granted options over 155,000
shares at an exercise price of £0.01 each.

During the year ended 31 December 2020 options over 30,000 shares were forfeited (2019: 170,000) and no options were granted
(2019: 95,000).

At 31 December 2020 options over 2,015,000 (2019: 2,045,000) ordinary shares existed.

These options have a vesting condition based on an EPS target for the year ended 31 December 2020.

The weighted average contractual life remaining of these options is 4 months.

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Management has used the actual performance for FY20 to determine that 25% options will vest based the achievement of the EPS condition.
It is expected that with an exercise price of £0.01 all holders will exercise as soon as the options vest. The Group announced its results on
27 April 2021.

The estimated fair value of the options over 2,015,000 ordinary shares at 31 December 2020 was £308,792. This fair value, moderated for
the extent to which the options are expected to vest, is spread as a charge between grant and the assumed vesting date. Accordingly, a share-
based payments charge of £6,038 has been recognised in the Statement of Comprehensive Income in the year ended 31 December 2020,
which is the cumulative share-based payments charge at 31 December 2020 of £611,410 less the cumulative share-based payments charge
recognised at 31 December 2019 of £605,372.

Enterprise Management Incentive (“EMI”) Share Option Scheme 2019
On 6 August 2019 a new EMI Share Option Scheme 2019 was introduced and an option over 100,000 ordinary shares at an exercise price
of £0.01 each was granted to a director under this scheme.

This option has a vesting condition based on an EPS target for the year ended 31 December 2021.

The weighted average contractual life remaining of this option is 1 year and 4 months.

It is expected that with an exercise price of £0.01, should the EPS condition be met, the holder will exercise as soon as the option vests. The
Group announces its results usually within the first 10 days of April. So, it has been assumed that the options will be exercised on 30 April 2022.

Management has used the budget for FY21, the market outlook and projections for FY22 to determine, at 31 December 2020, the achievement
of the EPS condition.

The estimated fair value of the option over 100,000 ordinary shares at 31 December 2020 was £102,296. This fair value, moderated for the
extent to which the option is expected to vest, is spread as a charge between grant and the assumed vesting date. Accordingly, a share-based
payments charge of £29,369 has been recognised in the Statement of Comprehensive Income in the year ended 31 December 2020 being
the difference between the cumulative share based payments charge at 31 December 2020 of £52,583 and the cumulative charge recognised
at 31 December 2019 of £23,214.

Enterprise Management Incentive (“EMI”) Share Option Scheme 2020
On 23 July 2020 a new EMI Share Option Scheme 2020 was introduced and an option over 100,000 ordinary shares each at an exercise price
of £0.01 each was granted to two directors under this scheme.

This option has a vesting condition based on two performance conditions; basic earnings per share adjusted for exceptional income/costs and
share based payments ("adjusted EPS") and total shareholder return over the 3 years to 31 December 2022. Each performance condition will
apply to 50% of the award being made. In respect of both performance conditions, growth of 15% over the three year period will be required
for threshold vesting of the awards, with growth of 35% or higher required for all of the awards to vest. The shares will be awarded on a sliding
scale for growth between 15% and 35%. None of the awards will vest for adjusted EPS growth below 15% over the period.

The following principal assumptions were used in the valuation of the grant made in the year ended 31 December 2020 using the Black-Scholes
option pricing model:

Assumptions

Date of vesting
Share price at grant
Exercise price
Risk free rate
Dividend yield
Expected life
Share price volatility

30/04/2023
£1.80
£0.01
0.1%
4.90%
2.77 years
31.00%

The weighted average contractual life remaining of this option is 2 year and 4 months.

Expected volatility is a measure of the amount by which a share price is expected to fluctuate during a period. The assumptions used in valuing
each grant are based on the daily historical volatility of the share price over a period commensurate with the expected term assumption.

The risk free rate of return is the implied yield at the date of grant for a zero coupon UK government bond with a remaining term equal to the
expected term of the options.

It’s expected that with an exercise price of £0.01, should the EPS condition be met, the holder will exercise as soon as the option vests. The
Group announces its results usually within the first 10 days of April. So, it has been assumed that the options will be exercised on 30 April 2023.

EPS is measured as the basic earnings per share excluding any exceptional income/costs and any share-based payments charges. Further details
can be found in the Directors’ remuneration report on pages 42 to 44.

Management has used the budget for FY21, the market outlook and projections for FY22 to determine, at 31 December 2020, the achievement
of the EPS condition.

80 The Property Franchise Group PLC
annual report and accounts 2020

— NotES to tHE coNSolIDatED aND compaNY
FINaNcIal StatEmENtS CONTINUED

for the year ended 31 December 2020

27. Share-based payments continued
The estimated fair value of the option over 200,000 ordinary shares at 31 December 2020 was £137,016. This fair value, moderated for the
extent to which the option is expected to vest, is spread as a charge between grant and the assumed vesting date. Accordingly, a share-based
payments charge of £32,616 has been recognised in the Statement of Comprehensive Income in the year ended 31 December 2020.

Enterprise Management Incentive (“EMI”) Share Option Scheme 2013
At 31 December 2019 all the conditions for the scheme had been fulfilled.

The maximum term of the vested but unexercised option granted is 10 years from the grant date. The option allows the holder to purchase
64,800 ordinary shares at an exercise price stated of £1.385.

Movement in the number of ordinary shares under options for all schemes was as follows:

Number of share options
Outstanding at the beginning of the year
Forfeited
Granted

Outstanding at the end of the year

2020
£

2019
£

Weighted average
exercise price

2,209,800
(30,000)
200,000

£0.0503
£0.01
£0.01

2,184,800
(170,000)
195,000

2,379,800

£0.0474

2,209,800

£0.0508
£0.01
£0.01

£0.0503

The outstanding options at 31 December 2020 comprised 2,315,000 options with an exercise price of £0.01 and 64,800 options with an
exercise price of £1.385. The 64,800 options were exercisable at 31 December 2020, 2,015,000 are exercisable on the announcement
of these financial statements for the year ended 31 December 2020 and the remaining 300,000 options were not yet exercisable.

The outstanding options at 31 December 2019 comprised 2,145,000 options with an exercise price of £0.01 and 64,800 options with an
exercise price of £1.385. The 64,800 options were exercisable at 31 December 2019 and the remaining options were not yet exercisable.

The weighted average remaining contractual life of options is 0.39 years (2019: 1.5 years).

28. Related party disclosures
Transactions with Directors
Dividends
During the year the total interim and final dividends paid to the Directors and their spouses were as follows:

Interim and final dividend (ordinary shares of £0.01 each)
Richard Martin
Ian Wilson (retired 30 April 2020)
Paul Latham
David Raggett

2020
£

2019
£

168,839
–
1,050
4,755

174,644

842,536
127,221
4,300
19,556

993,613

Directors’ emoluments
Included within the remuneration of key management and personnel detailed in note 9, the following amounts were paid to the Directors:

Wages and salaries
Social security costs
Pension contribution

2020
£

1,040,413
132,923
19,230

1,192,566

2019
£

729,624
92,363
20,000

841,987

Details of Directors’ interests in share options are disclosed in the Directors’ remuneration report on pages 42 to 44.

The Property Franchise Group PLC
annual report and accounts 2020

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29. Acquisitions
The Board are pursuing a strategy to develop financial services as a revenue stream to complement lettings and sales MSF. In 2019 the
opportunity arose to buy a majority share in a Auxilium Partnership Limited, a life assurance buyers club, headed up by Mark Graves, who has
a wealth of knowledge and contacts in the financial services industry. The intention was for Mark to help develop a financial services franchise.

On 7 January 2020 the Group took an 85% share in Aux Group Limited, a newly incorporated holding company, which on the same date
bought a 85% of the share capital of Auxilium Partnership Limited. The minority shareholder of each of these companies is Mark Graves.

The consideration was £200,000.

The fair value of the identifiable assets and liabilities acquired and the consideration paid and payable are set out below:

Office and computer equipment
Trade and other receivables
Cash
Trade and other payables

Net assets acquired

Goodwill

Consideration

Satisfied by:
Repayment of loan made to Mark Graves in 2019

Total

Post acquisition results

Revenue
Profit before tax since acquisition included in the Consolidated statement of comprehensive income

30. Events after the reporting date

2,695
8,600
118,750
(114,471)

15,574

184,426

200,000

Total
£

447,574
38,026

Effective 19 March 2021 the Group acquired the entire issued share capital of Hunters Property PLC, a competitor property franchisor with a
network of 200 offices across the UK. Consideration of £26.1m was paid which comprised of each Hunters shareholder receiving 0.1655 New
shares in The Property Franchise Group PLC and 43.2 pence in cash. It is likely that the majority of consideration will be attributed to intangible
fixed assets including master franchise agreements, brands, technology and goodwill.

Due to the proximity of the acquisition to the date the financial statements were authorised for issue by the Board, it has not been possible
to provide all of the information required for disclosure in accordance with IFRS 3 ‘Business Combinations’. The main areas of non-disclosure
include a qualitative description of the factors which make up goodwill and a fair value of the amounts recognised as of the acquisition date
for each major class of assets acquired and liabilities assumed. Further disclosure of the items required under IFRS 3 will be included in the
June 2021 half year report.

On 25 March 2021 the Board decided to sell Auxilium Partnership Limited back to Mark Graves (a director and minority shareholder of this
company). The business was bought in January 2020, just before the arrival of the new CEO, and the Group has now decided to pursue
a different approach to its financial services strategy.

82 The Property Franchise Group PLC
annual report and accounts 2020

— SHarEHolDEr INFormatIoN

Financial calendar
Announcement of Preliminary results – 27 April 2021
Annual General Meeting – 15 June 2021
Half year results – 30 September 2021
Interim dividend – October 2021

Registered office address
The Property Franchise Group PLC
2 St Stephen’s Court
St Stephen’s Road
Bournemouth
BH2 6LA

Company No. 08721920
01202 614 614
www.propertyfranchise.co.uk

Auditors
BDO LLP
Arcadia House
Maritime Walk – Ocean Village
Southampton
SO14 3TL

Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE

The Property Franchise Group PLC

2 St. Stephen's Court
St. Stephen's Road
Bournemouth
Dorset
BH2 6LA