Half-year Report

REVIEW OF BUSINESS

We are pleased to report ongoing growth with revenues rising by 14% to £15.5m (2018: £13.6m). Acquisitions since 30 September 2018 contributed £0.9m or 7% of that revenue growth.

Reductions in a number of revenue lines that are more susceptible in this slower economic environment have however contributed to a £0.05m fall in earnings before interest, share based payments, amortisation and tax which are £1.07m for the six-month period (2018: £1.12m). While we have seen strong growth in some of our more resilient revenue lines, such as insurance which is up 15% on last year, others including pre-contract enquiries and surveying have not increased in line with the growth in our business generally.

HML has also experienced, as others in high employee cost sectors such as property services, a proportionately high increase in salary costs. This is contrary to the downward pressure typically associated with economic turndowns.  We have found that salary expectations in sectors with a comparatively high level of employment, like our own, have increased relative to the inflationary levels achievable in the fees for our services.

HML has however made significant progress both in further developing our back-office functions and our acquisitions integration methodology. While the value from these improvements is yet to truly flow to the bottom line our confidence in them has grown considerably.  Our processes for transferring portfolios on to our systems have improved and shortened the time in which acquisitions remain on legacy systems. This brings forward the time when we are able to offer our ancillary services to our new clients.

The much-anticipated implementation of changes to the regulatory environment governing property management and leasehold continue to be delayed. While this is understandable in our current political environment, it remains a frustration for those managing agents, like HML, which operate in the Residential Management Company market, who are striving for a greater professionalisation and standardisation of service standards. The polarisation of compliant and non-compliant agents in this competitive, but unregulated market, appears to have grown. The costs of conforming for those who adhere to professional standards are felt both in having to build the infrastructure to deliver a compliant service and in being at a competitive disadvantage when dealing with those who are prepared, for the sake of lower costs, to ignore their obligations as owners of communal properties.

There are several factors currently contributing to the growth of non-qualified players in the specialised area of block management. For example, the fall in property sales across the market has encouraged estate agents to enter, or re-enter, the property management market. This is something that has occurred in previous economic downturns and tends to reverse when transactional income is restored.  We also anticipate that greater regulation of the property management sector in the future will prevent this happening.

The ongoing restlessness in our fragmented market continues to create opportunities for those experienced in and capable of making acquisitions in the sector. The benefits of economy of scale and the revenue growth opportunities inherent in HML's full-service infrastructure continue to become more evident as we selectively acquire attractive businesses. Equally, despite the current circumstances in our market, we remain confident in the resilience and future benefits of our strategy and business model and look forward to delivering continued shareholder value as we build the Group.

Robert Plumb                                                                                                 

Chief Executive Officer                                                                                               

25 November 2019