Mortgage Advice Bureau : Investor Presentation - 2020 Interim Results

Investor and Analyst Presentation

Delivering,

Growing,

Innovating.

Mortgage Advice Bureau (Holdings) plc

Interim results - six months ended 30 June 2020

Contents

•	Highlights	2
•	Market backdrop	5
•	Financial review	9
•	Strategy	15
•	Summary and outlook	19
•	Appendices	21

1

Highlights

Financial Highlights

Revenue

£63.5m | +4%

(-6% excl. First Mortgage)

Adj. EPS1

13.2p | +7%

(-9% excl. First Mortgage)

Gross Profit

£17.2m | +22%

(-6% excl. First Mortgage)

Dividend

• The Board intends to only pay a final dividend in respect of the year ending 31 December 2020
• Intention to pay remaining 6.4p when the Board considers it prudent to do so

Adj. PBT1

£7.9m | +6%

(-8% excl. First Mortgage)

Cash conversion2

97%

1. In H1 2020, adjustments of £0.2m amortisation of acquired intangibles and £0.4m of additional non-cash operating expenses relating to the put and call option agreement to acquire the remaining 20% of First Mortgage, the loan write off and loan

provision totalling £1.7m, and £0.5m of Government grant income (resulting in a £1.8m net adjustment in H1 2020), and £0.2m of one-off costs relating to the acquisition of First Mortgage in H1 2019.

3

2. Adjusted cash conversion is cash generated from operating activities adjusted for movements in non-trading items, including loans to Appointed Representative firms ("ARs") and associates totalling £0.3m in H1 2020, £(0.2)m of Government grant income received, and increases in restricted cash balances of £0.3m in H1 2020, as a percentage of adjusted operating profit.

Operational Highlights

Mortgage completions1Market share2

£7.5bn | +8%	5.9% | +17%
(-3% excl. First Mortgage)	(+7% excl. First Mortgage)

Adviser numbers3Revenue per active Adviser4

1,470 | +14%	£45.5k | -7%
(+7% excl. First Mortgage)	(-11% excl. First Mortgage)

1. MAB's gross mortgage completions, including product transfers.
2. Market share of gross new mortgage lending (excluding product transfers).
3. At 30 June 2020, including 101 furloughed Advisers.
4. Based on average number of active advisers for the period. An active adviser is an adviser who has not been furloughed, and is therefore able to write business.

Strategic developments

• Meridian investment (40%) - MAB's leading new build AR
• Australia - Australia Finance Group Ltd as a new JV partner
• Launch of MAB Later Life

Technology platform

• Continued roll out following successful testing and pilot phases
• Many projects brought forward by the pandemic, e.g. new compliance platform

4

Market backdrop

Mortgage lending market

Gross new mortgage lending volumes1

25

20

15

£bn

10

5

0

Source: UK Finance

1. Chart excludes product transfers.
2. Includes further advances and lifetime mortgages, excludes product transfers.

Commentary

• Gross new mortgage lending of £109.7bn2 in H1, down 13%
• • Q1: £64.9bn (+5%)
  • Q2: £44.8bn (-30%)
• Purchase mortgage activity down c.45% in Q2
• Re-financingless adversely affected in Q2, driven by product transfers
• • Home-ownerre-mortgages down 15%
  • BTL re-mortgages down 21%
  • Product transfers: up 4% to c.£43bn

First time buyers		Home-owner movers
Home-owner remortgages		BTL purchases
BTL remortgages		Other (inc. lifetime and further advances)
	6

Property market

UK property transactions by volume

120

100

	80
'000s	60
	40

20

0

England		Wales		Scotland		Northern Ireland

Commentary

• Q1 broadly flat year-on-year(-1%)
• In England for Q2, volumes were down 56%, 50% and 29% in April, May and June respectively
• In Scotland for Q2, volumes were down 66%, 66% and 57% in April, May and June respectively
• Overall for H1, UK property transactions down 25%

7

Sources: UK Finance data and Land Registry.

2020 written purchase business

Q1: strong performance year-on-year

Q2: housing market shutdown1

Q3: exceptionally strong activity

Q3 AVG

Q1 AVG

Q2 AVG

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep2

Q1 2019

Q1 2020

Q2 2020

Q3 2020

• Purchase written volumes up 29% year- on-year in Q1 overall (+17% excl. FMD)
• Improved customer sentiment in Q1 post UK General Election/Brexit

• Purchase written volumes down 48% in Q2 vs. Q1 2020 due to housing market shutdown
• Increased focus on retention, including product transfers, and protection

• Purchase written volumes up 159% vs. Q2 2020, and 35% vs. Q1 2020
• Despite continued lending restrictions

1.	The housing market re-opened on 13 May 2020 in England, and then in Scotland, Wales and Northern Ireland at the end of June 2020.	8
2.	September purchase volumes extrapolated based on actual volumes as at 22 September 2020, and end of month historic trends.

Financial review

Financial KPIs

Number of advisers: 1,470

14.9% overheads1 as % of revenue

			87				3.3%
			1,383
		1,293
			12.0%			11.6%
	1,138			10.9%	11.2%
1,008
H1 2017	H1 2018	H1 2019	H1 2020	H1 2017	H1 2018	H1 2019	H1 2020

27.2% gross profit margin						MAB excl. FMD		12.4% adj. PBT margin
									2
								Impact of FMD
			3.9%							12.7%
24.1%		23.3%													0.6%
	23.3%
22.5%												12.2%
										12.0%
															11.8%

H1 2017	H1 2018	H1 2019	H1 2020	H1 2017	H1 2018	H1 2019	H1 2020
			10

1. Excl. £0.6m of non-cash operating expenses relating to the acquisition of First Mortgage in H1 2020 and £0.2m of one-off costs associated with the First Mortgage acquisition in H1 2019.
2. Adjusted for items in note (1) above, the loan write off and loan provision totalling £1.7m in H1 2020, and £0.5m of Government grant income.

Revenue

Q1	Q1 2020	Q1 2019	% change
Average advisers	1,457	1,221	+19%
Average revenue per adviser	£24.0k	£22.9k	+5%
Total Revenue	£35.0m	£27.9m	+25%
Q2	Q2 2020	Q2 2019	% change
Average active advisers	1,348	1,261	+7%
Average revenue per active adviser	£21.2k	£26.2k	-19%
Total Revenue	£28.5m	£33.0m	-14%
Q1 Total: £35.0m		Q2 Total: 27.9m
2%		2%
15%		10%
44%			43%
39%		45%

Income source	H1 2020	H1 2019	% change
Mortgage Procuration Fees	£27.6m	£26.7m	+3%
Protection and General	£26.3m	£23.6m	+11%
Insurance Commission
Client Fees	£8.1m	£9.7m	-16%
Other Income	£1.5m	£0.9m	+63%
Total	£63.5m	£60.9m	+4%

Commentary

• Continued growth across all income sources other than client fees as a result of positive contribution from First Mortgage, despite pandemic impact in Q2
• Client fees reduced by 16% due to considerable fall in attachment rate of client fees and change in mortgage mix towards re-financing in Q2
• 11% increase in protection and general insurance commission driven by First Mortgage acquisition, increased attachment rates and freestanding protection sales in Q2

Proc Fees		Insurance Commission		Client Fees		Other	11

Continued strong cash conversion

• Unrestricted net cash balance2 at 30 June 2020: £9.4m (31 December 2019: £7.5m)

97% cash conversion1

£15.6m excess capital

116%	108%
		99%	97%
H1 2017	H1 2018	H1 2019	H1 2020

FCA Requirement		Excess	£15.6m

£11.6m

£9.6m

£7.3m

£2.2m	£2.7m	£2.8m	£2.9m
30/06/2017	30/06/2018	30/06/2019	30/06/2020

• The Board remains committed to paying a further 6.4 pence per share when it considers it prudent to do so

1. Adjusted cash conversion is cash generated from operating activities adjusted for movements in non-trading items, including loans to Appointed Representative firms ("ARs") and associates totalling £0.3m in H1 2020, £(0.2)m of Government grant 12 income received, and increases in restricted cash balances of £0.3m in H1 2020, as a percentage of adjusted operating profit.

2. Unrestricted cash balances are for operational purposes; they exclude restricted balances (AR retained commission) and the £12m Natwest Revolving Credit Facility.

Income statement

£m
Average number of active advisers	2
Average revenue per active adviser (£)
Revenue
Cost of Sales
Gross Profit
Gross Profit margin
Government grant income
Administrative expenses
Impairment losses
Share of profit of associates, net of tax
Net finance income / (expense)
Reported PBT
Reported PBT margin
Add back: Exceptional items	1
Adjusted PBT
Adj. PBT margin
Tax
Reported PAT
Adjusted EPS
Basic EPS

H1 2020	H1 2019
1,396	1,242
45,461	49,028

63.5 60.9

(46.2)

(46.7)

17.2 14.2

27.2%

23.3%

0.50.0

(10.0)	(7.0)
(1.7)	0.0

0.1 (0.0)

(0.0)

0.1

6.17.2

9.6%

11.8%

1.80.2

7.97.4

12.4%	12.2%
(0.8)	(1.1)

5.46.1

13.2p	12.3p
10.1p	11.9p

Commentary

• Revenue up 4%, including £6.1m from First Mortgage
• Gross Profit margin and ratio of Overheads as % of revenue increases reflect shift between Cost of Sales and Admin expense as a result of the FMD acquisition
• Adjusted Profit Before Tax1 up 6%
• Adjusted Profit Before Tax1 Margin of 12.4% (H1 2019: 12.2%)
• Adjusted EPS1 up 7% to 13.2p

1.	Adjustments of £0.2m amortisation of acquired intangibles and £0.4m of additional non-cash operating expenses relating to the put and call option agreement to acquire the remaining 20% of First Mortgage, the loan write off and loan provision	13
	totalling £1.7m, and £0.5m of Government grant income.
2.	An active adviser is an adviser who has not been furloughed, and is therefore able to write business.

Cash Balance Waterfall Unrestricted net cash balances1

£m

16.0
			£0.6m		£0.1m	£3.4m
		£7.5m
14.0
						£2.0m
12.0

10.0		£0.2m	£0.2m	£9.4m

8.0

£7.0m

6.0

4.0

2.0

-

Unrestricted balances at	Cash generated from	Issue of shares	Dividends received from	Dividends paid	Tax paid	Capital expenditure	Net interest paid and	Unrestricted net
1 January 2020 1	operations excl.		associates				principal element of	balances at 30 June
	associates and						lease payments3	2020
	movement in restricted
	balances2

1. Unrestricted net cash balances are for operational purposes; they exclude restricted balances (AR retained commission in case of clawback) and £12m Natwest Revolving Credit Facility loan.

2.	Cash generated from operating activities of £7.9m, less dividends received from associates of £0.1m and movements in restricted balances of £0.3m.	14
3.	Principal elements of lease payments of £0.2m. Interest received of £0.05m, less interest paid of £0.03m.

Strategy

Good progress delivering on all our initiatives

Adviser Growth

Adviser Productivity

Lead Generation

Addressable Market	New Products & Services		Customer Experience

Underpinned by a Strong Management Team, Technology and Culture

16

Strategic developments

New build sector: Meridian		MAB Later Life

•	Key part of our strategy in the specialist new	•	Broadens our addressable market
	build sector	•
		Exclusive strategic alliance with Key Group
•	MAB's leading new build AR	•
		Unique broker proposition, with Key Group
•	40% investment		providing market leading infrastructure
•	Track record of growth and profitability, led by	•	Comprises a panel of 4 lenders including
	a strong management team		more2Life, Key Group's lifetime mortgage lender
•	Close links with builders nationwide	•	Extends our opportunity for adviser growth

• >50 advisers

Australia: new JV partner

• International growth
• Australian Finance Group Ltd (ASX:AFG) our new JV partner in Australia
• Leading Australian mortgage network
• Extensive distribution channels and strong broker proposition
• Allows us to attract the best brokers across Australia into our differentiated business model
• Real step change in our growth plans in this strategic market

17

Transformation programme

Customers

Lead Generation

Advisers

MAB / AR Firms

Customer Portal - live and generating volume mortgage leads. Quote Generation - all MAB branded businesses live.

Affinity partner integration capability completed. Integrations with partners now commenced.

Platform rollout - commenced.

Features - new lead management and distribution capabilities.

Early customer capture and nurture capability completed. Priority focus - customer retention / repeat business.

Additional capabilities being deployed:

• Contact Centre solution
• API's for use by partners
• Enhanced Business Intelligence capabilities
• Reporting Suite and Data Science Tools
• Risk & Compliance - utilising robotics

Lenders	Lender integration progressing.

18

Summary and outlook

Summary and outlook

• Strong performance in the period illustrates the resilience of our operating model
• Continued growth in market share in all market conditions
• Good progress on strategic initiatives
• Group currently trading strongly, with number of mortgage applications across the network reaching record levels
• Sharp resumption of recruitment activity, both in terms of organic growth and new ARs
• Financial resilience: strong balance sheet, regulatory capital position and cash conversion
• Absent any significant restrictions on the housing market, we expect adjusted PBT for the full year to be significantly ahead of market's current expectations

20

Appendices

Over 150 awards in the last 5 years

22

Company Overview

• Mortgage Advice Bureau ("MAB") is a leading UK mortgage intermediary network
• Directly authorised by FCA, MAB operates an Appointed Representative (AR) network which specialises in providing mortgage advice to customers as well as advice on protection and general insurance
• Over 1,400 Advisers, almost all employed or engaged by ARs
• All compliance supervision undertaken by MAB employees
• Broad geographical spread across the UK, with just 7% of the
  Group's revenue derived from the London market
• Developed leading in-house proprietary trading platform called MIDAS Pro
• Won over 150 awards in last 5 years

23

Our Business Model

Lenders

Appointed

Representatives

Customers"ARs"Insurers

(over 1,400

Advisers) *

FCA	Other
services

* Including First Mortgage advisers.	24

Our Business Model

• One of UK's leading independent networks for mortgage intermediaries, with over
  170 ARs and over 1,400 Advisers* nationwide
• Operates two models: (i) MAB-branded mortgage franchise and (ii) non-branded mortgage network
• Strong reputation for business quality, innovation and support
• Very low attrition rates of ARs
• 90% of ARs have contracts for duration of 5 years or more from commencement

* Including First Mortgage advisers.

25

Revenue and Cash Flow

• Highly cash generative
• All income is paid directly to MAB, from which it deducts its share of income
• Before paying the AR, MAB also retains typically 5% of the total amount due to the AR to protect the AR and MAB against potential future clawbacks of protection commission
• This retention is held in MAB's name and is segregated through the use of a separate bank account for each AR
• MAB pays the AR weekly
• AR pays its Advisers
• Materially MAB's profits = cash

Lenders	Insurers	Client
Fees

AR

ClawbackMIDAS

Fund

c.5%

ARs

(over 1,400

Advisers)

Advisers

26

Growth Focus - broadening our addressable market

TENANTS/RENTAL	LATER LIFE LENDING (£65BN OF OUTSTANDING
- using technology to fully leverage our significant estate agency	LENDING IN 2017 TO £142BN BY 2027)
and letting distribution.	- growth in this market will be driven by intermediaries, not providers.
- help tenants to become FTBs.
- intergenerational linkage with aspiring FTBs ('Bank of Mum & Dad').
- protect tenants against inability to pay rent.
- interest only mortgages/roll-off.
	- shortfall in pensions/longer living & working.
	- older FTBs = later mortgage maturity.

20

35

60

80

RENTERS	MAB CORE CURRENT MARKET	LATER LIFE LENDING
	BUYING	RETIREMENT		LIFETIME
PREPARING TO BUY		MORTGAGES
REMORTGAGING	INTEREST ONLY
RENTING FOR LIFE		(EQUITY RELEASE)
PRODUCT TRANSFERS

INTERGENERATIONAL (BANK OF MUM & DAD)		27

Growth Focus - early customer capture / nurture

-24 months

-12 months

Completion

+12 months

+36 months

+60 months

-18

months

-6 months

+24 months

+48 months

Property Search

Estate Agents

Remo / Product Transfer

Mortgage

Builders

Protection Reviews

Platforms

Lettings Agents

Mortgage Shops

Financial Planning

Workplace/employees

Home Services

Online

Capture / Nurture	Nurture / Financial Reviews	28

Growth Focus - strengthening our proposition

Omnichannel	Technology	Lead Generation
Distribution
1,5231 / 2482	Customer	B2B
Full Postcode Coverage	Broker
6 Tel. Based Advice Centres	Lead Sources	B2C

Sector	Home	Protection	MAB's Investments
Specialisation	Moving Services
Estate Agents	Surveys	Home Owners	Distribution
New Build	Conveyancing	Tenants	Leads
Employers	Utilities	Strategic

Lending Specialisation	Multi Brand Strategy
Buy-To-Let	B2B Mortgages
Later Life	B2C Mortgages
Other Specialist	B2C Home Ownership

Key:

• What we have today.
• What we are piloting and/or considering for the future.

Financial Planning	Manufacturing Margin
Pensions	Mortgages
Investments	Protection

29

1. Adviser numbers as at 25 September 2020. 2. Advisers in AR firm where MAB has a shareholding as at 25 September 2020 (includes Meridian).

Growth Focus - our investments

Distribution		Strategic
Clear	Clear
Freedom 365	Freedom 365
-		Mortgage Focus
Vita	Vita
-
-
-		MAB Australia

SpecialismShareholding1

New Build	80%	100%
Telephony / Network	25%	49%
Telephony	25%	49%
Telephony	35%
Online Leads	49%
Specialist New Build	25%
Protection	20%	49%
Conveyancing	39%
Surveys	49%
International	48%
New build	40%	49%

30

1. InitialMaximum

Balance Sheet: strong financial position

31