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Hunters Property PLC

(“Hunters” or “the Group”)

Final Results 2019

Hunters Property Plc (“Hunters” or the “Company” or the “Group” (AIM: HUNT)), the UK’s largest franchised sales and lettings agency brand, is pleased to provide its final results for the year ended 31 December 2019.

Operational Headlines:

-           A strong finish to 2019, with Network Income¹ for the year up 7%

-           Opened 20 new branches which had an average Network Income £278,000 per branch (2018: £186,000)

-           Branches that have been with us for four years to Dec-19 have increased their income by 25%

-           Subsequent to the year-end, Covid-19 has disrupted the market. To address this risk, we have taken timely and significant steps to reduce operating costs whilst retaining flexible working arrangements to maintain core services

-           Latest indications are that the housing market is showing early signs of activity despite the disruption caused

Financial Headlines:

-           Network Income £42.3m (2018: £39.4m) +7%

-           EBITDA £2.76m* (2018: £2.28m) +21%

-           aPBT £2.06m (2018: £2.02m)

-           aEPS 5.86p (2018: 5.93p)

-           In the five years since flotation aEPS has risen to 5.86p (2014: 3.63p)

-           We have secured a further £3.5m facility

-           Customer satisfaction 96% (2018: 96%)

-           Since the year end extended banking facilities. As at 30 April retained cash of £1.6m. Banking facilities of £9.2m, of which £4.6m remain undrawn.

* aEBITDA excluding the impact of IFRS16 for 2019 was £2.24m

Kevin Hollinrake, Chairman, said:

“For a company that has increased aEPS over its five years since float to 5.86p (2014: 3.63p), at first glance 2019 was a disappointing year with EBITDA, excluding adjustments for IFRS16, falling back from £2.28m to £2.24m.  However, this must be seen in the context of the ban on tenant fees (which generated income of £0.43m in the equivalent period in 2018, a further 3.4%² reduction in sales transactions across the UK market and the underperformance in our ten group-owned sales offices – income here having dropped by £1.6m since 2016. It is particularly pleasing however to report overall across the network that Network Income increased by 7% to £42.3m (2018: £39.4m) and our mitigation against the tenant fee ban having been a success. In Franchising further our adding of 20 new branches, as well as in February 2020 the franchising off of the first of our group branches to limit our dependency and management focus on the group sales market. 

Our future is in providing technology and support services to our franchise network, which continues to grow and excel. In terms of 2019, we are pleased to be able to report a strong finish to the year across the network with Lettings rising by 12% and Sales rising by 5%. The new branches we recruited averaged before joining us £278,000 in Network Income (2018: 186,000) and the average Network Income per branch across the whole network for the year rose 3% to £205,000 (2018: 200,000). Branches that converted to Hunters and have been with us for the four years to December 2019 have seen an average increase in their income of 25%.  New franchisees generally join us due to the significant portal discounts we are able to pass on, strong national brand and inclusive marketing, support and training functions. We believe that the Government’s proposed regulation and licensing of agents will mean that more independent agents seek the benefits of these services. 

Adjusted profit before tax was £2.06m (2018: £2.02m). In the five years since flotation, Network Income has doubled, branch numbers have increased 63% and aEPS has risen to 5.86p (2014: 3.63p).  We have over this period increased average Network Income per Branch by 12% each year over and above the reported market activity. The Group’s continued expansion resulted in further progress towards our ambition to become the nation’s favourite estate agency brand and we are now the third largest brand in the UK for homes sold (subject to contract). Our Customer Satisfaction rating is 96% (2018: 96%) exceeding 90% for our eighth successive year. Our biggest strength, without doubt, is our executive team led by CEO, Glynis Frew and I would like to thank them for their passion, expertise and professionalism.

2020 had started very positively with sales valuations up 17% in the two months to February compared to the same period last year. Of course, the effects of Covid-19 are hard to predict but will certainly significantly impact on results. We took a timely decision to implement a range of cost savings, such as significant utilisation of Government support such as the Job Retention Scheme and securing an additional £3.5 million facility, whilst continuing our core operations. The short, medium and long-term effects of Covid-19 are impossible to predict accurately, however, we are confident that our mitigation measures will put us in a strong position to take advantage of the economic recovery.  

We have developed a practical, best–in–class social distancing strategy to reflect our assessment of the fallout from Covid-19 whilst at the same time safeguarding the well-being and safety of staff and customers. 

Our significant investment in our new bespoke software as a service technology, SKIPA, is proving timely. SKIPA will ensure that our customers and agents benefit from the latest technological experiences and capabilities and enhance productivity and efficiencies across our network. It will also facilitate a more flexible way of working and automate many normally labour-intensive processes, leaving our agents free to list, sell and let more homes. This is being led by our experienced Chief Operating Officer, Dan Rafferty, having previously built similar best-in-class systems for one of the UK’s leading estate agency brands.  The roll out of SKIPA to our network is scheduled to commence towards the end of this year.

We are pleased, as we expected, that our sector has been included in the first tranche of business types allowed back to work and to have recommenced viewings, valuations, lettings and sales. We are already seeing some positive early indications that the initial releases from national lockdown are releasing pent up property demand.

I look forward to updating you further in due course.”

For further information please contact:

Notes:

¹ Network Income is the gross sales and lettings revenue of the Franchisee and Owned branch network.

² Source: TwentCI, 14 January 2020

Chairman’s statement

As we report on our strong performance for 2019 and the beginning of 2020 Covid-19 has disrupted the market. To address this risk, we have taken timely and significant steps to reduce operating costs whilst retaining flexible working arrangements to maintain core services. We are pleased to have noted the initial lifting of the national lockdown as regards Covid-19 and to report that we have seen activity lift already.

We have we believe a best in class social distancing strategy to keep our staff and customers safe. We hope and expect that our sector will be included in the first tranche of business types allowed to recommence views, valuations, lets and sales. We continue to invest in new technologies that will enable our customers, franchise partners and those seeking new opportunities due to the crisis to trade in much more efficient, effective and productive ways without needing to work from an office.

In relation to our 2019 year, despite the tenant fee ban and a challenging market we are delighted to report a strong set of results for the year, outperforming market expectations and with an increase in average branch performance. The Group continued its expansion and progress towards becoming the nation’s favourite estate agency brand jumping to third this year for homes sold (subject to contract). We believe we are the fastest growing listed business in our sector in terms of organic expansion, which delivers a much better return on investment compared to growth through acquisition. Gross revenue for the Group’s network (‘Network Income’) reached £42.3m in 2019 (2018: £39.4m), a 7% increase on the previous year. Our total branch network at the year end numbered 206 branches. We continue to attract good quality independent businesses who see the benefits of a national brand, marketing and best-in-class training, business support, purchasing power, reduced operating costs, our investment in technology and opportunities to grow their income.

Our assisted acquisition strategy as well as our focus and systems helped the lettings side of the network grow by 12% last year. Sales in the network grew by 5%, our 5th year of market outperformance. Our average branch’s Network Income increased 3% to £205,000 (2018: £200,000). We are pleased with these achievements against the background of the tenant fee ban and the national market for residential sales having reduced by 3.4% for the year1. Our EBITDA reached £2.76m (2018: £2.28m) a record and an increase of 21% on the previous year, adopting this year IFRS 16. Adjusted EPS is 5.86p (2018: 5.93p).

A strong foundation

Our business model focuses on supporting independent agents and our success is measured by both the number we retain and the underlying performance of those branches. We invest a great deal of time and resource helping to improve each branch’s revenue and our outperformance against the market is testament to this approach. Our strategy works for the long term, as well as the short-term gains. Independent agents that converted to the Hunters brand during 2016, have grown their contribution to Network Income by 10% for the year to December 2019. Those in the four years to December 2019 have grown their revenue by 25%. This is confirmation of our ability to improve revenue for our network partners even in challenging markets. On top of this, our economies of scale and purchasing power significantly reduce branches’ key operating costs.

On behalf of the Board, I would very much like to thank everyone in the network who has worked so hard to meet these challenges. Their enthusiasm and drive were critical in the delivery of these excellent results in what has unquestionably been a challenging market. We would like to say thank you too, to our customers. We are, of course, delighted to secure record numbers of loyal customers and record customer service ratings from our sellers, landlords, buyers and renters right across the network. We look forward to continue being ‘here to get them there’.

Covid-19

In accordance with Government guidance we physically closed our branch network on 24 March but remained open for business through our capability to work remotely. We have been very pleased with the level of work we have been able to continue because of the quality of our network and the investment and quality in our systems and technology. We firmly believe the future of this business is based on professional, well served and technology-based solutions.

We have worked closely with our network and where they have needed additional help, I am pleased to report we have been able to step in and guide them through the myriad of complications this unprecedented situation has generated.

Current trading & outlook

The 2020 year and sales activity began ahead of the Board’s expectations and lettings was ahead and remains so against the full year effect of the tenant fee ban. This reflects well on the strategies we have adopted. The market will remain challenging whilst the fallout from Covid-19 unwinds and it is too early to assess the scale and timing of Covid-19’s impact. We are pleased to announce however the securing of a £3.5m Covid-19 facility to ensure we can continue driving the business through these unchartered times. We are working with our franchisees to make sure they, our customers and our respective staff remain safe and well.

The industry continues to be a focus for a Government drive to a more stringent regulatory approach including plans to license all sales and letting agencies. We believe that this should provide us with a rich vein of opportunities to expand our branch network as independent agents seek the shelter of a network that can provide a comprehensive, cost-effective and efficient training function.

Our pipeline of prospects remains healthy and I look forward to updating you as the year progresses.

Investing in profitable growth

Our main focus this year is in terms of our technology. For 2019 online valuations increased by 20% and traffic from social media directed to our website increased by over 60%. In 2019 we announced our intention to develop our new bespoke CRM system. Our investment is scheduled for completion later this year when we will commence rollout. We are excited about its potential in terms of this central service assisting our branches’ productivity. Essentially, it will allow our franchisees to do more business with less cost and resource. There is no competitor in this marketplace that is making such a strategic investment for the future. It reaffirms our commitment to independent businesses that want to excel in their local markets through their local relationships and expertise whilst simultaneously taking advantage of central support in technology and training. Today’s marketplace means agents and agencies need to embrace technology, digital marketing and social media and we will develop a package that incorporates all that and allows the local agent to do what they do best; talk to customers. We are confident that it will deliver an outstanding win-win solution for our franchise partners and their customers and I look forward to updating you as we develop.

Dividend

Taking into account the impact already experienced through Covid-19 and the unknown fallout of on the property market then the Board has taken the decision not to look to propose a dividend at this time, despite the strong performance of 2019.

On behalf of the Board

Kevin Hollinrake

Chairman

25 May 2020

1   Source: TwentyCI 14 January 2020.

Chief Executive’s statement

Our strong customer focus delivers its rewards with outstanding Customer Satisfaction results and a growing network of committed agents.

Customer satisfaction remains our primary focus and I am delighted to retain this year our 96% customer satisfaction rating over the entire year (2018: 96%), our eighth year in a row over 90%. We consider this rating underpins our core customer focus and it is very much our intention to remain significantly higher than the industry average. Our business and our network partners each commit to delivering for our customers. This understanding reinforces our belief that business owners paid on results will work harder and deliver better results than a network of employees or self-employed operatives on short-term contracts or those motivated to only list properties rather than actually selling or letting a home.

The Group has jumped to third in 2019 with regard to the brand with the largest number of sold properties, subject to contract, during the year. Despite market transaction volumes having reduced by 3.4%1, Network Income, EBITDA adjusted earnings and adjusted EPS have each increased.

2020 conditions had been widely declared as improving prior to Covid-19. Our activity reports for the three months to mid-March are ahead by between 14% and 51% as compared to the same period last year. We have had experience of what has widely been described as
a lift in sentiment following the uncertainties of most of last year with Brexit having moved on and with us being ahead as regards the full year impact of the tenant fee ban.

Whilst we were encouraged by property market conditions the situation regarding Covid-19 remains uncertain. We are monitoring its effect continually mindful that it may create headwinds that affect the residential property market. As and when the impact on the Group becomes clearer, we will provide updates as necessary.

Excluding tenant fees for the first 5 months of both years and adjusting out the effect of IFRS 16 on 2019, we increased aEBITDA by 21% to £2.24m (2018: £1.85m). The Group has grown aEPS at 10% pa since 2014.

Maintenance in the quality of the network remains key to our success. We started the year with 197 branch locations. A number of our franchisees have further consolidated branches this year, a pattern we again expect to continue as franchisees look to gain efficiencies. We received 166 (2018: 215) enquiries resulting in 20 (2018: 10) new openings under the Hunters brand. These openings consisted of 19 (2018: 10) conversions of existing independent estate agency businesses. The number must be taken in context with both average branch performance and improvement or otherwise against previous years and as against the market’s level of activities. Against a market down 3% in 2019 (2018: down 7%) I am delighted to be able to announce that the average revenue per branch increased by 3% to £205,000 (2018: £200,000). We were delighted that we have converted some noticeably stronger independents this year with the average of their incomes before conversion across at £278,000 (2018: £186,000) being a 82% increase on the £153,000 average in 2016, a strong sign of our increasing strength in attracting and supporting increasingly stronger businesses.

The Group implements a rigorous franchisee selection process. Approximately 80% are rejected at an early stage. This ensures, as far as possible, that new franchisees are committed to the Group’s high standards. For branches that joined in the four years to December 2019 are up, on average, by 25%. Improvement is not just short-term, those who have been converted for 8 years are up, on average, by 91%. All in, the Network Income has increased over the last ten-year period 2008 to 2019 on average at a Compound Annualised Growth Rate (‘CAGR’) of 20%. Against a market that, to 2019 has declined every year since 2014 we are proud of that achievement.

All business is about people and that is especially true of ours

It is our investment in our people as well as in our technology and marketing that delivers this success. We have devoted over £500,000 this year in training and have provided 142 courses, resulting in 340 people (2018: 261) completing the Hunters National Qualification, endorsed by Propertymark. We adopted a Branch Accreditation process only available to branches where every member of their team in both sales and lettings has already been accredited. We are delighted that over 100 have qualified already.

In terms of marketing, 2019 saw us secure the annual National Award for Marketing in recognition of a varied and successful programme of activity which included Hunters being showcased in Channel 4’s TV series ‘When I Grow Up’ which aired in May. Our digital paid advertising campaign broke previous year’s performances with 3,555 tracked conversions in the form of valuation bookings and calls and a strong campaign ROI of 293%. We escalated our activity on social media across our network through an enhanced delivery of materials, training and support for branches, resulting in a 60% increase in users to our website from social media channels. These channels allow us to reach even more people and campaigns of this type continue in 2024.

Technology: Enhances the customer experience and enables improvement efficiencies

We will never lose sight of local customer contact and local expertise so it’s important to Hunters that our investment in technology reflects customer needs and enhances our customers’ experience. We are committed to that approach. 2019 saw a continued uplift in our development in technology, including the roll out of the UK’s first property valuation tool driven by voice, available from Amazon Alexa. We also bolstered our technological offering through adopting a leading lettings software platform. This is a customer facing platform which enables the management of the lettings process and subsequent property management, efficiently and effectively by automating as much of the process as possible. It also enables landlords, tenants, guarantors and agents to interact and carry out processes 24/7 in a fully compliant environment.

However, I also echo the Chairman’s view of our positive investment in technology. The Company announced the appointment of Dan Rafferty in March 2019 as Chief Operating Officer, who leads this project. It includes the developments of a new, bespoke CRM system for the business with a roll out plan in place for 2020-2021. It is designed specifically to strengthen our customer offering and drive productivity for our branch network. It will facilitate strategic partnerships and integration with suppliers and enhance flexible working and therefore will provide a long term as well as short term advantage versus our competitors.

Looking forward

2020 started well in the two months to the end of February. Sales valuations were up 17% versus the prior year. Covid-19 has significantly altered our outlook for 2020 although, having said that we remain ahead of where we had expected to be in lettings and in mitigating the effect on tenant fees. Though it is pleasing to see the lockdown partially lifted it is too early to forecast the impact on the wider economy. We have however adopted plans to deal with the situation, taken advantage of a range of Government introduced schemes and secured a significant finance facility to allow us to look positively to the future. We continue to speak with good prospect enquiries and we look forward to welcoming them to the network in due course.

We have a truly outstanding and experienced team who are committed to Hunters and our quest to become the Nation’s Favourite Estate Agent. They are industry professionals and our results could not be achieved without their sterling efforts and we are grateful to them for their dedication.

Glynis Frew

Chief Executive

1   Source: TwentyCI 14 January 2020.

Financial review

Network income

Network Income is gross sales and lettings revenue of the franchisee and owned branch network. Network Income for the financial year ended 31 December 2019 increased by 7% to £42.3m (2018: £39.4m). Highlights included the following factors:

·      Full year equivalent of 10 new franchisee branches that joined the Group in 2018;

·      20 new franchisee branches that joined the Network in 2019;

·      Franchised lettings revenue grew despite the tenant fee ban, as we introduced lettings to new franchisees and continued to grow our existing lettings offices. Network Income for Lettings grew 12% (2018: 13%); and

·      Franchised sales revenue increased this year by 5%.

Average Network Income per branch increased by 3% to £205,000 (2016: £200,000).

Revenue

Group revenue for the financial year ended 31 December 2019 remained at £14.0m (2018: £14.0m). This included the following factors:

·      Franchise revenue increased to £5.7m (2018: £4.9m) as a result of Network Income increasing by 7% to £42.3m (2018: £39.4m);

·      Lettings revenue increasing to £3.5m (2018: £3.3m), despite the impact of the tenant fee ban since 1 June 2019 at Corporate branches;

·      Residential sales revenue reducing to £3.4m (2018: £3.9m) against a backdrop of a sales market that contracted by 3.4% during the year; and

·      Other income at £1.3m (2018: £1.9m) having reclassified £499,000 from other to franchising in respect of the reclassification of this revenue stream.

EBITDA (Operating profit before depreciation, amortisation, impairments and profit/loss on disposal
of non-current assets, acquisition, restructuring, and share-based payment expenses)

EBITDA provides a key measure of progress made. EBITDA for the year to December 2019 was £2.76m, an increase of 21% on the same period last year (2018: £2.28m) with the adoption of IFRS 16. Excluding the impact of IFRS 16, 2019 EBITDA would have been £2.24m.

Administrative expenses decreased by £0.5m during the year. Lower costs in 2019 were predominately due to the adoption of IFRS 16.

Adjusted EBITDA (EBITDA adjusted to exclude the impact of IFRS 16 and removing tenant fees for the same period in both years)

Adjusted Earnings (Profit after tax adjusted to exclude amortisation and profit/loss on disposal of intangibles, time-value interest costs (including lease interest under IFRS 16), business combination acquisition expenses, share-based payments, other gains and losses and finance income)

Adjusted earnings was £1.89m (2018 restated: £1.89m). Amortisation and disposal costs remained similar to last year, as the Group continued
its growth through the build and improve elements of its strategy.

Earnings per share

Basic earnings per share for the year ended 31 December 2019 was 2.27p (2018: 2.65p) based on a weighted average of 32,279,006 shares (2018: 31,822,604) in issue during the year.

Adjusted Earnings per share

Adjusted earnings per share was 5.86p (2018: 5.93p).

Dividends

The Board are not proposing a final dividend. The Board intends to retain a cautious approach to future dividends in the current environment.

Liquidity

The Group had cash balances of £1.3 million at 31 December 2019 (2018: £1.7 million). Total bank facilities available to the Group at 31 December 2019 stood at £5.7 million (2018: £5.8 million) of which £4.6 million (2018: £4.1 million) is drawn.

Subsequent to the year end the Group has extended its borrowing facilities by £3.5 million to support its plans. The Group retains facilities now of £9.2 million including quarterly repayments of £22,500 and from June 2021 annual repayments scheduled at £700,000 per year.

Financial position

The Group has generated cashflow from operations of £1.9 million (2018: £1.6 million). This bedrock together with our underlying business, our undrawn facilities and including the headroom provided by our Coronavirus Business Interruption Loan underpin the Group’s outlook. After consideration of the Group’s detailed forecasts, for further information see the Directors Report and Note 29 of the Financial Statements, the Board has concluded that the Group has the resources to continue as a going concern, meet its financial obligations and operate within its bank covenants for the foreseeable future.

Ed Jones

Chief Financial Officer

Consolidated statement of comprehensive income

For the year ended 31 December 2019

The Group’s results are derived entirely from continuing operations.

Consolidated statement of financial position

As at 31 December 2019

The financial statements were approved by the Board of Directors and authorised for issue on 25 May 2020 and are signed on its behalf by:

Mr E A Jones

Director

Company Registration No. 09448465

Company statement of financial position

As at 31 December 2019

As permitted by S408 Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income. The Company’s profit for the year was £839,000.

The financial statements were approved by the Board of Directors and authorised for issue on 25 May 2020 and are signed on its behalf by:

Mr E A Jones

Director

Company Registration No. 09448465

Consolidated statement of changes in equity

For the year ended 31 December 2019

Company statement of changes in equity

For the year ended 31 December 2019

Consolidated statement of cash flows

For the year ended 31 December 2019

Changes in liabilities arising from financing activities    

The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s Consolidated Statement of Cash Flows as cash flows from financing activities.

The other changes in bank loans represent the unwinding of bank loan establishment fees (refer to note 17).

Company Statement of Cash Flows

The Company has not held any cash and cash-equivalents during the year or the comparative year. During the year the Company entered into
a number of equity and Group reconstruction transactions which were enacted via intercompany accounts. Accordingly, the Directors have not presented a Company Statement of Cash Flows.

Restricted cash balances

Included within cash and cash equivalents are cash balances which the Group consider to be restricted due to delegation of control totalling £92,000 (2018: £69,000). The balance can be contractually withheld from the Group for a period of up to 5 years.

Major non-cash transactions

During the year the Group entered into a number of non-cash transactions as follows:

The Group recognised non-cash additions to its property, plant and equipment of £2,348,369 as a result of the adoption of IFRS 16, and an associated increase in its lease liability of £2,830,264. The Group also entered into new leases with an inception value of £860,670.

The Group undertook a swap of a loan note with value £15,000 for listed shares with comparable value.

In the prior year, the Group was issued 30,303 shares in a listed entity in settlement of a fee raised to a third party property portal entity whom the Group use as part of their trading

Notes to the financial statements

For the year ended 31 December 2019

1 Accounting policies

Company information

Hunters Property Plc (‘the Company’) is a public limited company domiciled and incorporated in England and Wales. The registered office is Apollo House, Eboracum Way, York, YO31 7RE. The consolidated financial information (or ‘financial statements’) incorporate the financial information of the Company and entities (its subsidiaries) controlled by the Company (collectively comprising the ‘Group’).

The principal activity of the Group is the provision of property services to consumers and businesses which include sales, lettings, franchising and related services.

1.1   Accounting convention

The financial information set out above does not constitute the Company’s statutory accounts for the years ended 31 December 2019 or 2018, but is derived from those accounts.  Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company’s Annual General Meeting.  The auditor has reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Sections 498(2) or (3) of the Companies Act 2006. 

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, modified to include the revaluation of certain financial instruments at fair value.

1.2   Basis of consolidation

The Group financial information consolidates those of the Company and the subsidiaries that the Company has control of. Control is established when the Company is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

Where a subsidiary undertaking, or unincorporated business, is acquired/disposed of during the year, the consolidated profits or losses are recognised from/until the effective date of the acquisition/disposal.

All inter-company balances and transactions between Group companies have been eliminated on consolidation.

Where necessary, adjustments are made to the financial information of subsidiaries to bring the accounting policies used into line with those used by the Group.

Business combinations

The Group applies the acquisition method of accounting for business combinations enacted after the date of creation of the Group following incorporation of Hunters Property Plc, as detailed further in note 1.12. The consideration transferred by the Group to obtain control of a subsidiary or unincorporated business is calculated as the sum of the acquisition-date fair value of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group. Acquisition costs are expensed as incurred.

The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in an acquired subsidiary’s (or unincorporated business’s) financial information prior to the acquisition. Assets acquired and liabilities assumed are measured at their acquisition-date fair values.

Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the fair value of consideration transferred, over the Group’s share of the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.

A change in the ownership interest of a subsidiary or unincorporated business, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary or unincorporated business, it derecognises the related assets (including goodwill), liabilities, non‑controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

1.3   Going concern

As at the year-end the Group has net current assets and unused facilities in its bank financing as disclosed in note 17. The Directors have considered the ongoing post balance sheet impact of Covid-19 and its uncertainties and potential impact on trading activities in the UK, as detailed further in the Strategic Report. The housing market is expected to be broadly resistant to the worst financial downturn, whilst operationally the Group can run through the use of home-working staff and video conferencing. As set out in note 29, the Group has also secured an additional £3.5m Covid-19 funding facility. At a Group level, the Directors have explored a range of cash-flow forecast scenarios caused by Covid-19, covering the next 12 months and beyond . The Directors have run a range of scenarios up to 100% reduction in sales and 80% reduction in franchising for six months and a 30% reduction in lettings for four months, each from April 2020 and each then recovering over 12 months. Taking all these factors into account, as at the date of approving these financial statements, the Board has a reasonable expectation that the Group has the resources it requires to continue in operational existence for the foreseeable future. Accordingly, the financial statements are prepared on a going concern basis.

1.4   Revenue

Under IFRS 15, the Group applies the 5-step method to identify contracts with its customers, determine performance obligations arising under those contracts, set an expected transaction price, allocate that price to the performance obligations, and then recognises revenues as and when those obligations are satisfied.

Revenue from residential, commercial and land sales

This represents revenue from the sale of residential property, sale of commercial property or the sale of land. The revenue is recognised at the point the Group has performed its performance obligation to see the transaction through to the exchange of contracts between a buyer and a vendor.

Lettings revenue

This represents revenue from commission earned as letting agents. The Group’s performance obligations under these contracts are to provide services to manage the letting of properties. Where the performance obligation relates to letting of a property the revenue is recognised at the point the property has been let. Where the performance obligation relates to the management of a lettings property, revenue is recognised over the period the property is managed.

Franchise revenue

Upfront fees – This represents revenue at the inception of a Franchisee contract. The Group’s performance obligation is to provide time, knowledge and expertise required to be able to set up a functioning franchised branch. This involves but is not limited to; finding and assessing suitable premises, providing support and training to the new Franchisee prior to launching the new office, providing branding services and marketing materials.

Management service fees – This represents revenue from Franchisee management service fees charged for operating a Group’s franchise. Revenue is recognised monthly in arrears, calculated by reference to the terms of the contract and the value of sales attributable to each Franchisee.

Central marketing fund – This represents revenue from Franchisees for providing marketing services. The Group’s performance obligation is to arrange for the provision of services to promote the Franchisees businesses through national marketing campaigns. The Group does not control the specified service provided to the Franchisees so is considered an agent under IFRS 15. As such the balance is recognised net of the cost of the services provided.

Software sales – This represents revenue from the provision of estate agency software. The Group’s obligation is to provide the Franchisees with access to the software throughout the term of the agreement. Revenue is recognised in the month the service is provided.

Other

Financial services revenue represents commission receivable from partner customers from the sale financial products associated with the sale or let of a property. The Group’s performance obligation under the contract is to provide an introduction of prospective policyholders to partners. The performance obligation has been satisfied at the point of successful placement or renewal of a financial product.

Survey revenue represents fees earned from survey and valuation work. The Group’s obligation is to provide a professional survey or valuation by
a surveyor. Revenue is recognised when the professional survey or valuation has been completed.

Rental income represents rent received from short term lease or licensing arrangements, entered into to make use of vacant office space. The Group’s obligation is to provide office accommodation throughout the period of the contract. Revenue is recognised over the period of the lease or licence.

Deferred income arises where services are invoiced in advance of performance. The amount is released to the profit or loss in subsequent periods in reference to the stage of completion of the transaction at the reporting date.

Where the Group identifies rights to the economic benefits of other sources of income through fulfilment of certain performance criteria, the income is recognised in the relevant accounting period when those conditions are fulfilled, net of VAT.

1.5   Intangible fixed assets – goodwill

Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identifiable and separately recognised. After initial recognition, goodwill is measured at cost less accumulated impairment losses. See note 1.10 for a description of impairment testing procedures.

1.6   Intangible fixed assets other than goodwill

Intangible assets are initially measured at cost. Where intangible assets are acquired as part of a business combination, cost is determined by reference to a fair value estimation technique. After initial recognition, intangible assets are recognised at cost less any accumulated amortisation and any accumulated impairment losses.

The depreciable amount of an intangible asset with a finite useful life is allocated on a systematic basis over its useful life. Amortisation begins when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

The amortisation period and the amortisation method for intangible assets with a finite useful life is reviewed each financial year-end. If the expected useful life of the asset is different from previous estimates, the amortisation period is changed accordingly.

Research expenditure is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised to the extent that the technical, commercial and financial feasibility can be demonstrated.

Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

1.7   Property, plant and equipment

Property, plant and equipment are recognised as an asset only if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

An item of property, plant and equipment that qualifies for recognition as an asset is measured at its cost. Cost of an item of property, plant and equipment comprises the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

After recognition, all property, plant and equipment are carried at cost less any accumulated depreciation and any accumulated impairment losses.

Depreciation is provided at rates calculated to write down the cost of assets, less estimated residual value, over their expected useful lives on the following basis:

The residual value and the useful life of an asset are reviewed at least at each financial year-end and if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying value of the asset and are recognised in profit or loss.

1.8   Investment properties

Investment property, which is property held to earn rentals and/or for capital appreciation, is initially recognised at cost, which includes the purchase cost and any directly attributable expenditure. Subsequently it is measured at historical cost less accumulated depreciation at the reporting end date.

Investment property comprises a property held under a lease within Hunters Property Group Limited which is subleased to an independent third party. The investment property is held at historical cost as permitted by IAS 40, ‘Investment Properties’ as an accounting policy choice.

1.9   Non-current investments

A subsidiary is an entity controlled by the Group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

Other investments in equity instruments that have a quoted market price in an active market and other equity instruments whose fair value can be reliably measured are measured at fair value; otherwise investments in equity instruments are measured at cost less accumulated impairment losses.

1.10 Impairment of non-current assets

For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash flows. As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill.

Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash‑generating units are tested for impairment whenever events or changes in circumstances to the year end date indicate that the carrying amount may not be recoverable.

An asset or cash-generating unit is impaired when its carrying amount exceeds its recoverable amount. The recoverable amount is measured
as the higher of fair value less cost of disposal and value in use. The value in use is calculated as being net projected cash flows based on financial forecasts discounted back to present value.

The impairment loss is allocated to reduce the carrying amount of the asset, first against the carrying amount of any goodwill allocated to the cash-generating unit, and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed if the asset’s or cash-generating unit’s recoverable amount exceeds its carrying amount.

1.11 Financial instruments

Financial assets

Financial assets are recognised in the statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the instrument.

Financial assets are initially recognised at fair value plus directly attributable transaction costs.

After initial recognition, financial assets are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial.

Charges to the Income Statement are recognised on trade receivables where applicable, being measured based on estimated expected credit losses.

A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred.

Financial assets held for trading

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. The Company has not designated any financial assets upon initial recognition as at fair value through profit or loss.

Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments.

Financial assets at fair value through profit and loss are carried in the Statement of Financial Position at fair value with changes in fair value recognised in finance revenue or finance expense in the Statement of Comprehensive Income.

Impairment of financial assets

Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.

The Group applies a forward-looking model of IFRS 9 to create an estimation of the expected credit losses arising in the next year on its financial assets, using an expectation derived from historical irrecoverable percentages as adjusted for predicted credit risk adjustments arising through forecast market changes.

If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss. If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.

Derecognition of financial assets

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the Group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Classification of financial liabilities

Financial liabilities include borrowings and trade and other payables.

Financial liabilities are obligations to pay cash or other financial assets and are recognised in the statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the instrument.

Financial liabilities are initially recognised at fair value adjusted for any directly attributable transaction costs.

After initial recognition, financial liabilities are measured at amortised cost using the effective interest method, with the effective interest recognised as an expense in finance costs.

Derecognition of financial liabilities

Financial liabilities are derecognised when the Group’s contractual obligations expire or are discharged or cancelled.

1.12 Equity instruments

Share capital represents the nominal value of shares that have been issued.

Share premium represents the excess consideration received over share capital upon the sale of shares, less any incidental costs of issue.

Retained earnings include all current and prior period retained profits.

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the Group.

The share option reserve is recognised in respect of the cumulative fair value of share options recognised, net of issues made, where the benefit of the services received under the share option are recognised within subsidiaries of the Group. Once the share option is exercised, the element included within this reserve for fair values expensed is transferred to the share premium account. Full details on share options existing as at the year end is given in note 25.

In the current year the Directors have reclassified to the share option reserve, as an adjustment to opening reserves, the amounts held within Group retained profits which represent cumulative amounts expensed in respect of share-based payments not yet exercised as equity instruments. The adjustment is to align the Group accounting policy in respect of this with the policy applied to the Parent Company’s own financial statements.

The Group applied the principles of merger accounting in consolidating the results, as control was only acquired by Hunters Property Plc via a share-for-share exchange on 27 March 2015. Merger accounting requires that the results of the Group are presented as if the Group has always been in its present form, and does not require a re-evaluation of fair values as at the point of acquisition. Accordingly, as a result of this merger accounting a merger reserve is recognised within equity which represents the difference between the net assets of the Group and the retained profits recognised by the Group as at 27 March 2015.

1.13 Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax

Deferred taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases.

A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). However, for deductible temporary differences associated with investments in subsidiaries a deferred tax asset is recognised when the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.

1.14 Provisions

Provisions are recognised when the Group has a legal or constructive present obligation as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting end date, taking into account the risks and uncertainties surrounding the obligation.

Where the effect of the time value of money is material, the amount expected to be required to settle the obligation is recognised at present value. When a provision is measured at present value the unwinding of the discount is recognised as a finance cost in profit or loss in the period it arises.

1.15 Employee benefits

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or non-current assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the Company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

1.16 Retirement benefits

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

1.17 Share-based payments

The fair value of equity-settled share based payments to employees is determined at the date of grant and is expensed on a straight-line basis over the vesting period based on the Group’s estimate of shares or options that will eventually vest, with this estimation of ultimate vesting being revised each year. Full disclosure of the calculation models is given in note 25.

1.18 Leases

The Group has initially adopted IFRS 16 Leases from 1 January 2019, replacing the current lease guidance including IAS 17. Previously all of the Company’s leases were accounted for as operating leases with the relatively minor exception of a few hire purchase contract arrangements.

Under IFRS 16 leases are accounted for on the right of use model. The Income Statement presentation and expense recognition pattern is similar to that required for finance leases by IAS 17 previously adopted by the Group. At inception, the Group assesses whether a contract contains a lease. This assessment involved the exercise of judgement about whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to direct the use of the asset.

1.19 Standards, amendments and interpretations adopted in the year

The current standards, amendments and interpretations have been adopted in the year and have not had a material impact on the reported results in the Group’s financial statements:

·      Amendments to IFRS 9 ‘Financial Instruments’ for prepayment features with negative compensation

·      Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’ for long term interests in associates and joint ventures

·      Amendments to IAS 19 ‘Employee benefits’ for plan amendments, curtailments and settlements

·      Amendments to IFRS 3 ‘Business combinations’ for previously held interests in a joint operation

·      Amendments to IFRS 11 ‘Joint arrangements’ for previously held interests in a joint operation

·      Amendments to IAS 12 ‘Income taxes’ for the income tax consequences of payments on financial instruments classified as equity

·      Amendments to IAS 23 ‘Borrowing costs’ around borrowing costs eligible for capitalisation

·      IFRIC 23 ‘Uncertainty over Income Tax Treatments’

1.20 Standards, amendments and interpretations in issue but not yet effective

The following mentioned standards, amendments and interpretations will be adopted in future years:

*  These standards, amendments and interpretations have not yet been endorsed by the EU and the dates shown are the expected dates.

The Directors have undertaken a project to review the above standards, amendments and interpretations. The impact of the amendments
to IFRS 3 are likely to result in a simplified asset that would apply to future intangible asset acquisitions previously accounted for as business combinations, however there will be no transitional impact to the Group’s reported results as these would apply before the date of transition
to the revised standard. Except for this, management do not expect these standards to materially impact the financial statements.

2 Judgements and key sources of estimation uncertainty

The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Critical judgements

Franchisee revenue and intangible assets

Franchisee sign up fees are recognised upfront at the inception of a Franchisee contract, which in the Directors’ opinion matches to the estimated cost of time and knowledge to create the franchiser-Franchisee contractual arrangement.

Franchisee Development Grants (‘FDG’s’) are recognised at the inception of certain contracts with Franchisees, and are provided in order
to assist with the transition of Franchisees to the Hunters brand name. These intangibles are amortised over the life of the franchise contract, typically 10-15 years. FDGs are considered to meet the definition of intangible assets under IAS 38 and are therefore accounted for under this accounting standard.

At each reporting period end date the Directors assess the recoverability of the intangible assets on a value in use basis, or if there are indications of trading risks underlying with the Franchisee the expected contractually recoverable value of that FDG as discounted in accordance with the expected credit loss model that is applied to trade receivables, which is explained in the Key sources of estimation uncertainty.

Capitalised development costs

In the current year the Group has commenced a new software development project. As part of this project, management have assessed whether this meets the criteria for recognition under IAS 38, in particular on the percentage of completion and likely associated success, and the future benefits which are expected to flow to the Group. As the project is under development as at the year end, the asset is classified as under construction and therefore is not amortised until the project has been substantially completed and brought into use.

Key sources of estimation uncertainty

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows:

Provisions

The amount recognised as a provision, either for liabilities or against receivables, is the best estimate of the consideration required to settle the present obligation at the reporting date or the expected credit loss that the Group is projected to incur on that receivable. Each period the Directors assess the risks and uncertainties surrounding balances and review the discount rates applied when calculating the present value. When reviewing the discount rates the Directors refer to the Group weighted average cost of capital. Further details on the assumptions made for specific provisions are disclosed in notes 16 and 22.

Goodwill

The Directors test annually for impairment of the Group’s intangible assets and goodwill, details of which are given in note 12.

IFRS 16

As part of the Group’s first time adoption of IFRS 16, the liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 January 2019. All leases were discounted using an estimated implicit rate
of 4.50%, with almost all leases by value relating to properties.

All other estimates and judgements involved in applying IFRS 16 are explained in note 33.

3 Revenue

IFRS 8, Operating Segments, requires operating segments to be identified on the basis of internal reports of the Group that are regularly reviewed by the Group’s chief operating decision maker. The chief operating decision maker of the Group is considered to be the Board of Directors.

The Group’s principal operating segments are Residential Sales, Lettings, and Franchising. The Group has a further segment, Other, containing individual insignificant items. The operating segments are monitored by the Group’s chief operating decision maker and strategic decisions are made on the basis of adjusted segment operating results. All assets, liabilities and revenues are located in, or derived in, the United Kingdom.

The Group does not have any major customers which account for 10% or more of revenues.

Segmental analysis of revenue

Revenue analysed by geographical market

The comparative segmental analysis includes a transfer of £499,000 from ‘Other’ to ‘Franchising’ in respect of a revenue stream that management have reclassified in the current year.

Further disclosure of the segmental analysis of goodwill is made in note 12. Due to the nature of operations, the Directors, as the chief operating decision-making body, review financial information for the Group’s overall business and have identified a single operating segment at cost and asset/liability levels. Accordingly, further disclosure has not been made of these elements.

All of the above revenue has arisen from contracts with customers. The revenue presented above has been disaggregated to provide revenue amounts for material categories of services provided by the Group in accordance with the disclosure requirements of IFRS 15 ‘Revenue from Contracts with Customers’.

4 Operating profit

The Group’s subsidiary Realcube Limited has undertaken Research & Development activities on which tax credits were received totalling £24,000 (2018: £48,000). Expenses in relation to this are included within employment costs.

5 Auditor’s remuneration

In addition to the above, there were £1,000 of non-audit fees paid to the Group’s auditors for a review of compliance with financing covenants in each of the current and comparative years.

6 Employees

The average monthly number of persons (including Directors) employed by the Group during the year was:

Their aggregate remuneration comprised:

Details of Directors’ remuneration is provided in note 30.

7 Finance income

8 Finance costs

9 Taxation

The charge for the year can be reconciled to the profit per the Consolidated Statement of Comprehensive Income as follows:

In addition to the amount charged to the Consolidated Statement of Comprehensive Income, the following amounts relating to tax have been recognised directly in equity:

The UK corporation tax rate was 19% throughout the year.

A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was enacted in March 2017. Deferred tax balances at the reporting date are measured at 17% (2018: 17%).

10 Dividends

The proposed final dividend for the year ended 31 December 2019 is:

11 Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

In each period there were share options outstanding. As at 31 December 2019, 95% of these options were in the money, and are due to expire at various stages over the next 9 years.

The Directors use adjusted earnings before time-value interest, interest income, amortisation, costs of acquisition, and share-based payment expenses (‘Adjusted Earnings’) as a measure of ongoing profitability and performance.

The calculation of these Adjusted Earnings now takes into account the impact of all lease interest with the comparative lease interest of £7,000 restated to reflect this. The previously reported Adjusted Earnings for the year ended 31 December 2018 were £1.881m and reported Basic Adjusted Earnings per Share was 5.91p.

The calculated Adjusted Earnings for the current period is as follows:

During the year, the Group adopted IFRS 16 and applied the standard prospectively from 1 January 2019. If IFRS 16 had not been adopted in the current year, then the comparable adjusted earnings per share would be 5.36p.

12 Goodwill and other intangible assets

The Company had no intangible assets as at 31 December 2019 or 31 December 2018.

Franchise Development Grants (‘FDG’s’) and rebrand costs are expenses incurred at the inception of certain contracts with Franchisees in order to assist with the transition to using the Hunters brand name. The amounts invested are amortised over the minimum life of the underlying franchise contract, typically 10 to 15 years. The Group recognises an impairment as provision against impairment losses arising from early terminations of franchise agreements, where at the year end there exists financial or non-financial indicators that franchisees are reasonably certain to terminate within the near future and the Group expects to recover less than the net book amount of the relevant FDG.

Software additions of £118,718 have not been amortised during the year as they had not been put into use by the Group.

The Group tests goodwill annually for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is assessed for impairment by comparing the carrying values with the value-in-use calculation, which is determined by calculating the net present value (NPV) of future cash flows arising from the original acquired business.

The NPV of future cash flows is based on budgets and forecasts for the next 5 years to 2024, using growth rates of 0% – 3% based on past experience and outlook. Thereafter growth is assumed to be 0-3% in to perpetuity based on long term housing sector growth rates and current housing transaction volumes. A discount rate of between 10% and 11% has been used based on the Group’s estimated cost of capital, and varied based on the risk profile of the underlying asset.

The key sensitivities in assessing the value in use of goodwill are forecast cashflows and the discount rate applied as follows:

A 1% reduction in long term growth rates would have no impact on carrying values; and

A 2% increase in the discount applied would have no impact on carrying values.

The Group carries exposure to two significant uncertainties, being political uncertainties around the ultimate outcome of Brexit after 31 December 2020, and the ongoing market and operational risks arising from the Covid-19 outbreak, neither of which are unique to
the Group. In light of these the Group has applied further sensitivities in assessing the value in use in the short to medium term. A 5% reduction
against Brexit sensitivities compared to the base case revenues over each year of the 5 year forecast horizon period have no impact on the assessment of impairment. Whilst undertaking these sensitivities for risk assessment purposes, Covid-19 is considered a non-adjusting
subsequent event as set out in Note 29.

The carrying amounts of goodwill have been assigned to the following cash-generating units:              

13 Property, plant and equipment

The Company had no property, plant and equipment assets at 31 December 2019 or 31 December 2018.

Bank borrowings are secured by a fixed and floating charge over the current and future assets of the Group that include the property plant and equipment, as disclosed further in note 17.

14 Investment property

Investment property comprises a property held under operating lease within Hunters Property Group Limited which is subleased under an arrangement of less than 5 years to an independent third party. The investment property is held at historical cost less accumulated depreciation.

The fair value of the investment property is estimated to be £800,000 based on a rental yield of 8%.

15 Investments

Movements in non-current investments           

Movements in non-current investments

16 Trade and other receivables

Trade receivables at the reporting date are shown above net of provisions. Expected lifetime credit losses have been estimated in accordance with IFRS 9 across the entire population of trade receivables, all of which have been recognised as a result of contracts with customers as defined in IFRS 15, with no material financing element embedded within these contracts.

Trade receivables are stated net of impairment for estimated irrecoverable amounts of £153,681 (2018: £143,805). To measure the expected credit losses that comprise the irrecoverable amounts, trade receivables have been grouped based on shared credit risk characteristics, typically limited to the number of days past due.

The expected loss rates are then applied to this ageing profile using the simplified approach to expected credit losses as prescribed by IFRS 9, which permits the Group to use a provision matrix to measure the lifetime expected losses. These losses are based on historical loss rates for similar aged debts, assuming that these are representative of the days past due. These historical rates are adjusted, where appropriate, to reflect the current and forward-looking information affecting the ability of the customers to settle the receivables, unless a receivable is already provided for in full as a specific credit loss. The rates used in this provision matrix are shown in the table below.

Included within prepayments and accrued income is an amount of £33,122 (2018: £35,904) relating to accrued revenues, calculated in accordance with IFRS 15. Also included in prepayments and accrued income are staged payments of £321,000 for R&D qualifying expenditure in relation to the construction of a software intangible asset.

Movement on the allowance for irrecoverable amounts on trade receivables are as follows:

An analysis of the trade receivables:

The Directors consider the credit quality of trade and other receivables that are neither past due nor impaired to be good.

The ageing analysis of the trade receivables and related specific provisions for impairment as at 31 March 2019 were as follows: