Consolidated Statement of Cashflows for the Period ended 30June 2017

	6 months ended 30 June 2017	6 months ended 30 June 2016	Year ended 30 December 2016
	£'000s	£'000s	£'000s
Cash flow from operating activities
Operating profit	276	463	1,151
Adjustment for:
Depreciation of property, plant and equipment	71	70	134
Amortisation of intangible assets	350	294	597
(Gain)/Loss on disposal of property, plant and equipment	(1)	1	(17)
Profit on disposal of intangible assets	(8)	(7)	(13)
Share options fair value expense	63	87	192
(Released)/expensed element of provisions	(17)	2	(16)
Costs of acquisitions	49	15	30
Changes in working capital:
(Increase)/Decrease in trade and other receivables	(235)	(49)	177
Decrease in trade and other payables	(374)	(390)	(130)
Cash generated from/(used in) operations	174	486	2,105
Interest paid	(83)	(45)	(111)
Income tax paid	(68)	(30)	(292)
Net cash from operating activities	23	411	1,702
Cash flow from investing activities
Capital expenditure (tangible & intangible)	(311)	(411)	(1,011)
Proceeds from sale of tangible & intangible assets	20	26	62
Business combinations, net of cash acquired	(2,459)	(325)	(325)
Repayments for deferred consideration	(11)	(11)	(23)
Interest received	-	3	4
Net cash used in investing activities	(2,761)	(718)	(1,293)
Cash flow from financing activities
Dividends paid to shareholders	(412)	(283)	(453)
Repayment of borrowings	(45)	(275)	(1,807)
Issue of borrowings	1,617	570	2,175
Issue of share capital	1,305	-	68
Repayments for deferred consideration debentures	-	-	(375)
Repayment of capital element of finance lease contracts	(28)	(20)	(41)
Net cash from / (used in) investing activities	2,437	(8)	(433)
(Decrease) in cash and cash equivalents	(301)	(315)	(24)
Net cash and cash equivalents at beginning of the period	1,187	1,211	1,211
Net cash and cash equivalents at end of period	886	896	1,187

Notes to the Financial Statements for the Period ended 30 June 2017 

1.      Corporate information

 

Hunters Property Plc is a Company incorporated in the United Kingdom. The registered address of the Company is Apollo House, Eboracum Way, York, YO31 7RE. The consolidated financial statements (or "financial statements") incorporate the financial statements 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.

 

2.      Accounting policies

 

2.1.   Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

 

Basis of measurement

The financial statements have been prepared on the historical cost basis, modified to include the revaluation of certain financial instruments at fair value.

 

Functional and presentational currency

The financial statements are presented in sterling, which is the functional currency of the Parent Company. Monetary amounts in these financial statements are rounded to the nearest £1,000.

 

Use of estimates and judgments

The preparation of the financial statements in conformity with IFRS requires management to make judgments, 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 judgments 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.

 

Basis of preparation

The financial information set out in these interim consolidated financial statements for the six months ended 30 June 2017 is unaudited. The financial information presented are not statutory accounts prepared in accordance with the Companies Act 2006, and are prepared only to comply with AIM requirements for interim reporting.

 

Basis of consolidation

The Group financial information consolidates those of the Parent Company and the subsidiaries that the Parent has control of. Control is established when the Parent 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 is acquired/disposed of during the period, 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.

 

 

2.2.   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 below. The consideration transferred by the Group to obtain control of a subsidiary 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 the acquired subsidiary'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, without a loss of control, is accounted for as an equity transaction.

 

If the Group loses control over a subsidiary, 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.

 

The Group has 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, for the Group's comparative statement of financial position as at 30 June 2015, a merger reserve has been created which represents the difference between the net assets of the Group as at that date, and the retained profits recognised by the Group as at that date.

 

2.3.   Revenue

Revenue represents the amount receivable for the provision of services and the sale of goods during the period, excluding VAT and trade discounts. Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be measured reliably.

 

Revenue from residential, commercial, and land sales is recognised on the basis of exchange of contract. Financial services revenue is recognised at the later of the policy inception date or confirmation of entitlement to the commission.

 

Revenue from commission earned as letting agents is recognised in the month in which the income is received and when there is fulfilment of all but inconsequential or perfunctory actions.

 

At inception of a franchisee contract, revenue is recognised upfront which matches to the estimated cost of time and knowledge to create the franchiser-franchisee contractual arrangement. No amounts are deferred as the directors are of the opinion that virtually all inception costs are incurred at the outset, and hence although contracts run for several years this policy is considered to be the fairest presentation to comply with the matching and accruals concepts.

 

Revenue from franchisee management service fees are recognised monthly in arrears, calculated by reference to the terms of the contract and the value of sales attributable to each franchisee.

 

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.

 

2.4.   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.

 

2.5.   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 period-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:

 

Software	3 - 7 years or over the life of the licence
Franchise development costs	Over the life of the franchise contract (typically 10-15 years)
Brands	10 years
Customer lists	2-12 years

 

2.6.   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 costs 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:

 

Leasehold land and buildings	Straight line over the period of the lease
Plant and machinery	25% reducing balance
Fixtures, fittings and equipment	25% reducing balance or 10-33% straight line
Motor vehicles	25% straight line

 

The residual value and the useful life of an asset are reviewed at least at each financial period-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.

 

2.7.   Impairment of goodwill, other intangible assets and property, plant and equipment

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 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.

 

2.8.   Investments

Investments in equity instruments that have a quoted market price in an active market and whose fair value can be reliably measured are measured at fair value; otherwise investments in equity instruments are measured at cost.

 

2.9.   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.

 

All financial assets excluding investments are classified as loans and receivables; these comprise trade and other receivables and cash and cash equivalents. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

 

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

 

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

 

If there is objective evidence that there is an impairment loss on loans and receivables, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account.

 

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 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. Discounting is omitted where the effect of discounting is immaterial.

 

A financial liability is derecognised only when the contractual obligation is extinguished, that is, when the obligation is discharged, cancelled or expires. 

 

2.10.   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 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.

 

2.11.   Employee benefits

The cost 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.

 

Payments to defined contribution retirement benefit schemes are expensed as they fall due.

 

2.12.   Leased assets

 

Finance leases

The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards of ownership of the leased asset. Where the Group is a lessee in this type of arrangement, the related asset is recognised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any. A corresponding amount is recognised as a finance lease liability.

 

This liability is reduced by lease payments net of finance charges. The interest element of lease payments represents a constant proportion of the outstanding capital balance and is charged to profit or loss, as finance costs over the period of the lease.

 

Operating leases

All other leases are treated as operating leases. Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.

 

2.13.   Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short term, highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value.

 

2.14.   Income tax

Current income tax assets and/or liabilities comprise obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid/due at the reporting date. Current tax is payable on taxable profits, which may differ from profit or loss in the financial statements. Calculation of current tax is based on the tax rates and tax laws that have been enacted or substantively enacted at the reporting period.

 

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.

 

2.15.   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.

 

2.16.   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.

 

The non-controlling interest reserve is the portion of equity ownership in subsidiaries which is not attributable to the owners of the Parent Company.

 

The merger reserve has arisen as described in note 2.2.

 3.    Intangible Fixed Assets

	Goodwill		Software		FDG's & Rebrands		Brands		Customer Lists		Total
	£'000s		£'000s		£'000s		£'000s		£'000s		£'000s
Cost
At 1 January 2017	4,008		620		1,939		637		2,040		9,244
Additions - separately acquired	-		28		257		-		-		285
Additions - business combinations	653		-		-		-		2,447		3,100
Disposals	-		-		(17)		-		-		(17)
At 30 June 2017	4,661		648		2,179		637		4,487		12,612
Amortisations and Impairment
At 1 January 2017	35		125		253		141		639		1,193
Amortisation charged for the year	-		47		87		64		152		350
Amortisation on disposal	-		-		(6)		-		-		(6)
At 30 June 2017	35		172		334		205		791		1,537
Carrying amount
At 30 June 2017	4,626		476		1,845		432		3,696		11,075
At 31 December 2016	3,973		495		1,686		496		1,401		8,051

 

Franchise Development Grants ("FDG's") and rebrand costs are externally incurred expenses 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.

 

4.    Business combinations

 

Acquisition of Besley Hill:

On 24 March 2017 the Group acquired Besley Hill. The consideration paid totalled £2,500,000, being settled by £2,250,000 paid in cash, and an issue of £250,000 worth of Ordinary shares in Hunters Property Plc.

 

As part of the acquisition, the Directors have identified an intangible asset, being the franchisee contracts, including a renewal expectation, being determined by using the average value of the contracts, growing at 2% per annum and discounted at 12% per annum to determine the present value.

 

From the date of acquisition Besley Hill has contributed £105,090 of revenue and £70,335 of profit before tax and amortisation.

 

Acquisition of Besley Hill:	Carrying value		Fair value adjustments		Fair value recognised on acquisition
	£'000s		£'000s		£'000s
Assets
Intangible assets	-		2,253		2,253
Total assets	-		2,253		2,253
Liabilities
Deferred tax liability	-		(406)		(406)
Total liabilities	-		(406)		(406)
Total identifiable net assets	-		1,847		1,847
Goodwill arising on acquisition					653
Purchase consideration transferred					2,500

 

In addition, there were costs of acquisition of £44,818 relating to the acquisition which have been included on the face of the Consolidated Statement of Comprehensive Income, and costs of acquisition of £15,000 were recognised in the year to 31 December 2016 in respect of the pre-completion expenses incurred on this combination.

 

Acquisition of a lettings book:

In March 2017 the Group acquired a lettings book. The consideration paid totalled £160,000, being settled in cash.

 

As part of the acquisition, the Directors have identified an intangible asset, being the lettings book. This was determined to be equal to the amount paid for the book, after adjustment for deferred tax. Historical data and forecasts have been used, together with the 10% group discount rate and an assumption of a useful life of 12 years for the lettings book to estimate the fair value of this intangible. Due to the small size of the lettings book, the Directors have been unable to quantify the direct impact on results arising from this acquisition.

 

Acquisition of a lettings book:	Carrying value		Fair value adjustments		Fair value recognised on acquisition
	£'000s		£'000s		£'000s
Assets
Intangible assets	-		194		194
Total assets	-		194		194
Liabilities
Deferred tax liability	-		(34)		(34)
Total liabilities	-		(34)		(34)
Total identifiable net (assets)	-		-		160
Goodwill arising on acquisition					-
Purchase consideration transferred					160

In addition, there were costs of acquisition of £4,660 relating to the acquisition which have been included on the face of the Consolidated Statement of Comprehensive Income.

5.      Earnings per share

 

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

 

Earnings			30 June 2017		30 June    2016
			£'000s		£'000s
Earnings for the purpose of basic earnings per share being net profit attributable to owners of the parent			157		294
Effects of dilutive potential ordinary shares			-		-
Earnings for the purposes of diluted earnings per share			157		294

 

 

Number of shares			30 June 2017		30 June    2016
			£		£
Weighted average number of ordinary shares for the purposes of basic earnings per share			30,241,422		28,286,992
Effects of dilutive potential ordinary shares			1,076,661		1,475,988
Weighted average number of ordinary shares for the purposes of diluted earnings per share			31,318,083		29,762,980

 

Earnings per share

 

Pence per weighted average shares		0.52p		1.04p
Pence per weighted average diluted shares		0.50p		0.99p

 

The Directors use adjusted earnings before time-value interest, investment revenue, amortisation, and costs of acquisition ("Adjusted Earnings") as a measure of ongoing profitability and performance. The calculated Adjusted Earnings for the current period of accounts is as follows:

 

 

Adjusted Earnings per Share			30 June 2017		30 June 2016
			£'000s		£'000s
Profit after taxation			157		294
Adjusted for:
Time-value interest costs			13		31
Investment revenues			-		(3)
Amortisation			349		287
Costs of acquisition			49		15
Share-based payment expense			63		87
Adjusted Earnings			631		711

 

 

Adjusted Earnings per share

 

Pence per weighted average shares		2.09p		2.52p
Pence per weighted average diluted shares		2.02p		2.39p