Risk management

As with all businesses, we face a wide range of risks and uncertainties on a daily basis.

Principal risks and uncertainties

The Board has determined the most significant risks to achieving the business objectives, including those that would threaten its business model, future performance, solvency or liquidity. The table opposite summarises these principal risks and how they are managed or mitigated. The risks listed do not comprise all those associated with the Group and are not set out in any order of priority. There could be additional risks and uncertainties that are not presently known to management or currently deemed to be less material, which may also have an adverse effect on the business.

Going concern statement

The Group’s business model as set out on pages 8 and 9 has proved to be a robust and successful model for over 25 years. The Group’s corporate strategy has been clearly set out to investors since flotation in 2012 and has resulted in Belvoir becoming the largest franchise property group within the UK. We continue to open new agencies across the UK and to support growth by assisting our franchisees to make local portfolio acquisitions and by making corporate-level acquisitions of other property franchise networks and property services-related companies. The Group has demonstrated strong growth from a mixture of like-for-like and acquisition-based growth as evidenced by increasing revenue and profitability over many years.

At the year end, the Group had cash at bank of £3.6m and a bank term loan of £10.5m.

Covid-19

The impact of the Covid-19 pandemic has been considered by the Directors and the Group forecasts have been revised to take into account the impact on trading over the twelve months from the date of signing the financial statements. The forecasts have been assessed against a range of possible outcomes significantly lower levels of income in line with lower lettings, sales and mortgage activity, reduced headcount, a lower cost base and extended payment terms to franchisees. The base case model reflects these sensitivities for the rest of this financial year. After consideration of these forecasts and making appropriate enquiries, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due.

Potential impact

Covid-19 is likely to have a short-term negative impact on our ability to grow as planned.

Mitigating activities

The risks associated with Covid-19 are being regularly reviewed by the Board and mitigating action taken wherever possible. Given the Covid-19 risks to our business arises due to extraneous factors, there may be limits to the level of direct action that can be taken. However, the Board will be prioritising the work of our business development managers to address how franchisees and advisers can minimise their costs, access Government aid and continue to trade. A number of financial measures have been put in place to support franchisees through the crisis.

Potential impact

The ability of the Group to attract new franchisees and advisers with the appropriate expertise and skills, in available and suitable locations, cannot be guaranteed. This is likely to be adversely affected by the outbreak of Covid-19, and any difficulties in finding appropriate individuals will have a detrimental effect on the growth of our networks.

Mitigating activities

The Board continually monitors the performance of the recruitment team and is focused on identifying innovative ways of attracting successful new joiners.

Potential impact

The Group’s reputation, in terms of the service it and its franchisees/advisers provide, the way in which it and its franchisees/advisers conduct their business, and the financial results which they achieve are central to the Group’s future success. Failure by the franchisees/advisers to meet the expectations of their customers may have a material impact on the reputation of the brands within the Group.

Mitigating activities

New joiners are subject to an intensive training programme and subsequent monitoring and support from a dedicated business development mentor. The Group also offers ongoing training courses to ensure continuing professional development.

Potential impact

The Group needs to continue to identify suitable acquisition targets for its franchisees and help to source the necessary funding through its assisted acquisitions programme. The downturn in the property market caused by Covid-19 will adversely affect the appetite of franchisees to make a portfolio acquisition in the short term but might lead to a greater number of portfolios available to our franchisees as we emerge from the crisis.

Mitigating activities

In 2019 the deals executed on behalf of franchisees were broadly level with the previous year with Belvoir providing 10% of the deal value in loans to franchisees. The year ended with a strong pipeline of potential acquisitions for 2020. The Board will continue to operate the assisted acquisitions programme so as to put our franchisees in the strongest position to capitalise on such opportunities once trading recovers.

Potential impact

The introduction of a ban on tenant fees in June 2019 had an estimated potential adverse annualised impact on letting revenues for our franchisees of 10%.

The Government has clearly signalled that it intends to professionalise the sector with recommendations made within the RoPA report. This will introduce qualifications for property agents with no ‘get out’ clause for experienced agents, licensing of agents and a new code of practice for the sector.

Mitigating activities

The Group worked closely with each franchisee to build a new business plan to mitigate the impact of the tenant fee ban.

The Board welcomes the proposed changes aimed at professionalising the sector. Our support system already covers in-depth upfront and ongoing training of all our franchisees and financial advisers. We also have a comprehensive system of audit and compliance to ensure best practise.

Potential impact

The market share for online agencies offering a low-cost solution has plateaued at around 7%, with some online organisations failing or being closed down. The Group needs to ensure that it can meet the demands of a new generation of landlords, tenants, buyers and sellers for whom a technical platform is second nature, and for whom a physical office presence is less critical.

Mitigating activities

The Board is pursuing a strategy of improving the customer journey via its traditional agency service through a better technology platform to give landlords, tenants, buyers and sellers greater online visibility and interaction.