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RNS
AFH Financial Group Plc   -  AFHP   

Full Year Results

Released 07:00 21-Jan-2019

RNS Number : 5551N
AFH Financial Group Plc
21 January 2019
 

21st January 2019

 

AFH Financial Group PLC

("AFH" or the "Group" or the "Company")

 

AUDITED FULL YEAR RESULTS FOR THE PERIOD ENDING 31st OCTOBER 2018

 

Strong growth driving improved margins and increased profits; earnings increased by 43%

 

AFH Financial Group PLC (AIM: AFHP), a leading financial planning led wealth management firm, today announces the Group's consolidated audited results for the period ending 31 October 2018 reflecting continued growth, an increase in Earnings per Share of 43% and a 50% increase in dividend per share.

 

Exceptional organic growth delivered through captive distribution model

 

·      Revenues up 51% to £50.7 million (2017: £33.6 million)

·      Underlying* EBITDA up 85% to £10.4 million (2017: £5.7 million)

·      Underlying* EBITDA margin increased to 21% from 17%

·      Profit after tax up 94% to £6.0 million (2017: £3.1 million)

·      Earnings per share up 43% to 16.0 pence (2017: 11.2 pence)

·      Underlying* Earnings per share up 34% to 22.7 pence (2017: 17.0 pence)

·      Dividend per share up 50% to 6.0 pence (2017: 4.0 pence)

·      Funds under Management up 58% to £4.4 billion (2017: £2.79 billion)

 

*Underlying excludes amortisation of intangible assets arising on business combinations and the non-cash charge for share based payment costs.

 

Significant growth potential

 

·      Increasing organic demand for financial planning led wealth management services

·      Proven track record of successful acquisitions and integration - the average deferred pay-out for acquisitions reaching a performance milestone exceeded 90% of the target deferred consideration during 2018

·      Well positioned to continue to take advantage of ongoing IFA market consolidation

·      Delivering operational efficiencies and improved experience to clients by investment in technology and infrastructure and reducing investment costs by leveraging the increased scale of AFH

·      New three to five year aspirational targets set: Funds under Management of £10 billion; revenues per annum of £140 million; and Underlying EBITDA margin of 25% on revenue

·      Strong balance sheet following successful £15 million placing completed in October 2018

·      Solid foundations in place to deliver on strategy to become the number one financial planning-led investment manager in the UK

 

 

Alan Hudson, Group Chief Executive, commented:

"I am encouraged by the strong progress we made in 2018 as we continue to deliver on our strategy of harnessing solid organic growth with value adding acquisitions, with the aim of becoming the leading financial planning-led investment manager in the UK. These excellent full year results have been driven by the continued increase in our recurring revenue and our underlying EBITDA margin exceeding 20%, the achievement of the first of three medium term financial aspirational targets that we set in 2017. As announced on 3 December 2018, the second of these targets, achieving Funds under Management in excess of £5 billion, was met following the year end and the Board is confident that the final aspirational target of revenues of £75 million per annum will be achieved ahead of our original expectations.

"Notably, the year under review produced our fifth consecutive year of growth and improved profitability since joining AIM in 2014. Increased revenues and improved margins resulted in a 43% increase in Earnings per share to 16.0p after considering the dilutive impact of our successful fundraisings in December 2017 and October 2018. Underlying Earnings per share, excluding amortisation of our acquired client portfolios increased by 34% to 22.7p.

"The Company strategy to increase shareholder value through the expansion of the AFH community remains at the heart of our growth. This strategy continues to be driven by a combination of organic growth through greater productivity of our advisers and by value accretive acquisitions.

"To this end and in light of the strong financial performance seen in 2018 and first three months of the new financial year, we have set three new three to five year aspirational targets, which if achieved will further cement our position as one of the leading financial planning led-investment management companies in the UK. These aspirational targets include achieving Funds under management of £10 billion, revenues per annum of £140 million and Underlying EBITDA margin of 25% on revenue.

"Looking to the year ahead, we strive to continue to deliver on this year's exceptional progress through continued organic growth and the integration of further acquisitions and look forward to updating shareholders on our developments and milestones as the year progresses."

 

Enquiries:

 

AFH Financial Group PLC                                                                                    +44 (0) 1527 577 775

Alan Hudson, Chief Executive Officer

Paul Wright, Chief Financial Officer

www.afhfinancialgroup.com

 

Liberum (Nominated Adviser and Broker)                                                             +44 (0) 20 3100 2000

John Fishley/Richard Bootle/Euan Brown                

 

Yellow Jersey PR Limited (Financial PR)                                                             +44 (0) 7748 843 871

Felicity Winkles/Tim Thompson/Annabel Atkins

 

 

This announcement is released by AFH Financial Group plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by Paul Wright, Chief Financial Officer.
 

Chairman's introduction

I am pleased to report a fifth consecutive year of profitable growth with increased margins complementing both organic and acquisitive growth. During a year in which equity markets have exhibited significant volatility driven by political and economic uncertainty, the Company undertook two successful fund raisings which enabled it to complete sixteen acquisitions and end the year with significant cash balances of £21.5 million with which to continue our expansion.

While the two fund raising exercises undertaken during the year raised £32.5 million, representing a 36% dilution to shareholders, AFH's focus on allocating capital and combining accretive acquisitions with organic growth generated an increase in Earnings per Share of 43% after dilution.

Acquisitions provide the Company with the mass to deliver the aspirations that the Chief Executive set out in his 2017 report to shareholders. However, it is a testament to the executive team's continued ability to successfully integrate multiple acquisitions that gives the Board confidence in the future. Once again, the Company delivered over 90% of its aggregate deferred consideration targets, each of which required profitable growth from the businesses acquired.

As highlighted in my previous reports AFH invested heavily during its initial years on AIM to establish an infrastructure able to support a large national financial services business and this year we were able to build on this scale to achieve a further double digit increase in our underlying EBITDA margin from 17% to 21%. This achieved the first of our three aspirational targets, comfortably ahead of the timeframe set by the Board, and following the acquisition of CTL3 in November 2018, after the period under review, the Company reached its second target of £5 billion Funds under Management.

At the period end AFH was managing funds on behalf of our clients totalling £4.4 billion, an increase of over 57% during the year at a time when market indices fell slightly. While this level of funds was boosted by our acquisitions, organic growth, net of redemptions, was 13.6%, representing our third successive year of double-digit growth, while gross organic inflows exceeded 17% during the year.

During the year the Company reached the dual milestones of £50m revenues and £10m underlying EBITDA. This represented an increase of 51% and 85% respectively and reflected the increased margins that have been achieved through economies of scale.

In line with our drive to increase shareholder value the Company has established a strategic aim of reducing investment costs for our clients by leveraging the increased scale of AFH for their benefit, while ensuring the long-term sustainability of the Group. We believe that this is not only in the spirit of sound commercial business but leads the way for future financial services models, as many commentators predict that we approach a period of reduced gross market returns. During the year we have been able to demonstrate the success of this strategy by introducing segregated mandates for our investment proposition, bringing institutional pricing to our clients, and in July announcing that our AFH Direct clients would no longer pay platform fees. Both of these initiatives have been delivered with the result that total fees paid by our clients using these services have been reduced.

Boosted by the protection division, organic revenue growth of £6.1 million represented an increase of 21% on revenue generated in 2017 while gross margins remained at 55%. We continue to see strong demand for financial advice from our clients driven by legislative changes, including pension freedoms and lifestyle needs. This has generated record levels of financial planning revenue to supplement our strong recurring income.

As in previous years we have augmented our organic growth with selected acquisitions, structured to ensure that shareholder value is enhanced through a fixed relationship between the profitability of an acquisition and the price paid to vendors. The success of this model has again been confirmed by the high level of deferred consideration, and therefore total price, paid for transactions reaching a milestone during the year and the associated increased return on capital for our shareholders. The synergies generated from acquisitions and the revenue growth that the advisers have achieved from the AFH proposition has been a contributing factor to the double digit increase in our Underlying EBITDA margin in 2018 and has allowed the Board to set its future aspirations with confidence.

Our people

The continued growth of AFH is due to the hard work and professional approach of our employees and advisers. I would like to thank them for the contribution they have made to another highly successful year in which we have continued to grow our business profitably and improve our operating margins in line with the Board's expectations.

It remains our ambition to maintain the alignment of interest between our employees and advisers with those of our clients and shareholders. It is in response to the support we receive from our staff that we continue to develop and promote our people from within the Group at every opportunity, so that many key positions are occupied by home-grown talent. It is the enthusiasm, dedication and creativity of our staff and advisers that allows the Company to continue to deliver according to its strategy each year.

Shareholders

In December 2017 and October 2018 two successful fundraisings enabled the Company to expand its institutional shareholder base while benefitting from the continued support of our existing institutional shareholders. I would like to welcome our new shareholders, who join at an exciting period of the Company's development, and to thank existing shareholders for their continuing support. At the year end the Company had a strong balance sheet on which to execute its pipeline of acquisitions and, we believe, a strong shareholder base that can support its growth ambitions.

AFH communicates with shareholders and the market generally using a Regulatory News Service provider for regulatory news releases which, in accordance with AIM Rule 26, are available on the Company's website along with interim and annual accounts, shareholder notifications and other corporate governance material for at least the last five years. Shareholder votes will be notified and kept on the website in a clear and transparent manner.

Shareholders will have the opportunity to meet Board members at general meetings and at other opportunities such as investor meetings, presentations and webcasts at which shareholders and stakeholders will be able to ask questions of management. The Company will update shareholders of such events when appropriate.

Dividend

The Directors intend to continue the Company's progressive dividend policy while recognising the requirement to maintain sufficient cash reserves within the business to fund its growth strategy. Having considered this in the light of the strong performance during the year under review, the Directors propose a dividend of 6.0 pence per share, an increase of 50% over the 2018 dividend. This dividend will be paid 2.0 pence on 15 February to shareholders on the register of members at the close of business on 1 February 2019, the ex-dividend date is 31 January 2019, and 4.0 pence on 5 July 2019 to shareholders on the register of members at the close of business on 14 June 2019 with an ex-dividend date of 13 June 2019. It is the intention of the Board to continue the bi-annual dividend in future years.

Outlook

The Directors believe there is a continuing requirement for a professional, financial planning-led approach to wealth management delivered by trusted personal advisers and supported by the effective use of technology.

The Board has worked to ensure that it has put in place the necessary infrastructure to support its growth plans for 2019 and beyond. Continued investment in technology is expected to accelerate the benefits of scale and the infrastructure investment made in previous periods.

The Company continues to be cash generative and maintains a strong balance sheet. The Board expect the consolidation within the investment and advice markets to continue in the future and will continue to seek appropriately priced opportunities to expand our captive distribution throughout the financial sector, to drive increased profitability.

Given the progress made in 2018 and the early months of the 2019 financial year, the Directors view the coming period as providing excellent prospects and look forward to continuing our success in the future.

 

John Wheatley

Chairman

 

 

 

Chief Executive's report

2018 marked an exceptional year of progress for the Company in the financial planning led wealth management market. We successfully completed and integrated 16 acquisitions with a combined value of £34 million during the period, completed two placings raising funds totalling £32.5 million and continued to increase our profitability, as measured by Underlying EBITDA by 85% for the year to £10.4 million.

Of our three aspirational targets set out at the beginning of 2017, we achieved the first of these targets during the period with our underlying EBITDA margin improving to 21%. Post period end we also reached Funds under Management of £5 billion, achieving the second of our mid-term aspirational targets. Considering our continued strong growth, we saw a sharp increase in our revenue to £50.7 million and the Board is confident that the final aspirational target of revenues totalling £75 million per annum will be achieved ahead of our original expectations.

Financial performance

As previously highlighted, the year under review produced our fifth consecutive year of growth and improved profitability since joining AIM in 2014. Increased revenues and improved margins resulted in a 43% increase in Earnings per share to 16.0p after considering the dilutive impact of our successful fundraisings in 2018. Underlying Earnings per share, excluding amortisation of our acquired client portfolios increased by 34% to 22.7p.

The success of integrating our acquisitions complemented double-digit organic growth with productivity per adviser reaching record levels. Revenue for the 12 months ended 31 October 2018 of £50.7m was over 50% above the corresponding period (2017: £33.6m) and continues our progress to our aspirational revenue target.

The growing requirement of our clients for financial advice generated £20.4 million (2017: £12.2 million) of new business revenues, while recurring income of £30.3 million  (2017: £21.4 million) continued to strengthen our revenue base, driven by our growing funds under management.

In addition to the organic funds invested, an additional £1.5billion of funds was brought under management as the result of acquisitions made during the year.

 

 

Funds under Management

£ billion

Reported as at 1 November 2017

2.79

Inflows through acquisitions

1.47

Gross Inflows from organic growth

0.44

Market impact

(0.14)

Outflows

(0.16)

Balance as at 31 October 2018

4.40

Gross margins remain strong at 54% (2017: 53%). The gross margin of our core business remained at 55% (2017: 55%) while we were again able to utilise our growing purchasing power for the benefit of our clients and reduce third-party costs for them for a fourth successive year.

2018 was a year of further investment in our technology and infrastructure, as we continued to seek operational efficiencies and offer a streamlined experience to our clients. We are building technology solutions to support our advisers and provide greater flexibility and personalisation in our interaction with existing and potential clients and expect this investment to continue into 2019 and beyond.

Our marketing strategy continues to embrace the digital opportunities and challenges for the sector. Since 2016 the Company has invested heavily in establishing a marketing capability to support a growing national business and to extend beyond the traditional IFA routes to market. While we believe that face to face advisory remains the best model to serve client's needs, our evolving digital approach is expected to significantly expand our target market and to provide greater benefits to individuals and corporates who join the AFH community.

The significant growth of the Group has made it possible to finance these marketing and IT projects, which we believe will provide clear commercial advantages for our clients and drive further consolidation in the market while generating significant shareholder and client value in the future.

During the period we reported an 85% increase in underlying EBITDA and a further improvement to our underlying EBITDA margin, as the efficiencies and economies of scale we continue to target were reflected in our results. I am particularly pleased by the achievement of increasing our EBITDA margin above 20% (2017: 17%) as this is one of our key internal metrics and the first of our financial aspirations to be met.

The effective rate of Corporation Tax increased to 23.5% in the year reflecting the loss of tax relief for the amortisation of intangible assets purchased after July 2015. This resulted in an ongoing disallowable non cash expense of £1.4 million. The effective rate of tax based on Underlying EBITDA was 18%.

Profit after tax for the year of £6.0 million represents a 94% increase in the year (2017: £3.1 million ) and after the dilution created by our successful fund raisings during the year has increased reported Earnings Per Share to 16.0p (2017: 11.2p). Underlying Earnings per Share, EBITDA plus non-cash share-based payments as adjusted for tax, is a key measure used by the Board as it reflects the cash Earnings per share generated by the business. As noted above, in 2018 this increased to 22.7p (2017: 17.0p), representing a 34% increase.

Strategy

The Company strategy to increase shareholder value through the expansion of the AFH community remains at the heart of our growth. This strategy continues to be driven by a combination of organic growth through greater productivity of our advisers and by value accretive acquisitions. At the start of the 2017 financial year the Board set itself three financial aspirations over a three-to-five-year timeframe:

·      Funds under management of £5 billion

·      Revenues of £75 million

·      Underlying EBITDA margin of 20% on revenue

In December 2018 we announced that the milestone of £5billion funds under management had been met and, in this report, I am pleased to confirm that the EBITDA margin for the 2018 financial year was also achieved. The Company remains on target to meet our revenue aspiration.

As a result of these achievements your Board has established its next milestones, on which it has set itself the objective of meeting within a three to five year timeframe.

·      Funds under management of £10 billion

·      Revenues of £140 million per annum

·      Underlying EBITDA margin of 25% on revenue

Culture is at the centre of any successful organisation and remains the driving force of both our internal growth and acquisitions. Our values and "brand pillars", are set out in our Annual Report. These have been documented to ensure that we are able to measure and achieve both our vision and financial aspirations.

Central to our strategy is to put clients' interests first to build a sustainable business that reflects our vision, including a drive to reduce the cost of ancillary services for our clients and to embrace them in the AFH community. During the year we continued to reduce fund-management fees while retaining our independent status, providing access for our clients to the whole of market and to drive down custody and administration costs. During the summer we announced that platform fees would no longer be charged to clients on the AFH Direct platform in what we believe to be a unique proposition for clients of IFA businesses and one that will drive further growth for the Company as new clients and potential acquisition targets recognise the benefits of joining the AFH community.

Our strategy has enabled the Group to enjoy annual double-digit organic growth in both Funds under Management and recurring revenue since we joined AIM in 2014 while maintaining gross margins and generating operating efficiencies to drive growth in Earnings per share.

The Board remains committed to maintaining our existing strategy to meet our clients' ongoing needs in order to fulfil our vision and expand our brand throughout the UK financial services sector.

Acquisitions

The Group maintains an in-house acquisitions and integration team that allows us to undertake multiple acquisitions and to integrate them fully into the AFH model. During the year the Company completed 16 acquisitions with a combined value of £34 million, including two acquisitions with a target value in excess of £5m (assuming performance criteria are satisfied). In addition to the experience of the advisers who have joined through these acquisitions we added almost £1.5 billion to our Funds under Management as a result of the combined transactions. It is equally fulfilling to be able to report that once again prior-year acquisitions have traded successfully. The average deferred pay-out for those acquisitions reaching a performance milestone has again exceeded 90% of the targets set at the time of the transactions, which as previously noted include growth expectations.

The acquisition of IFA businesses during the year again encompassed retiring IFAs, whose client portfolios have been transitioned to existing AFH advisers, as well as larger organisations whose clients and advisers have been absorbed into the AFH model. This approach allows investments to be retained on existing platforms and products where appropriate but enables clients to move to our cost-effective discretionary service where a clear benefit to the client can be demonstrated. Integration of acquisitions made during the year continues to be carried out successfully and I am pleased to report that overall the acquisitions are trading above target.

The market

The year proved to be a difficult one for financial markets, as investors grappled with the headwinds of rising interest rates and growing tensions over trade. At the beginning of the year, hopes were high for a continuation of the synchronised upswing in the global economy, but these were soon dashed. Growth in the US accelerated, fuelled by the Trump tax cuts. However, most of the rest of the world slowed, as Beijing sought to clamp down on leverage and rebalance the Chinese economy, while political uncertainty and softer external demand weighed on activity in Europe. 

The withdrawal of the emergency monetary stimulus put in place following the financial crisis was a key focus for investors. Buoyant domestic demand and a strong labour market emboldened the US Federal Reserve to continue to wind down its holdings of government bonds and gradually push up interest rates. In turn, tighter US monetary policy served to lift government bond yields, contributing to periodic bouts of volatility in global equity markets.

The trade policies of the Trump White House also unsettled markets during the period. President Trump's first year in office was characterised by the introduction of market-friendly policies, including tax reform and deregulation. However, moving into his second year, the focus shifted to trade, where the president's protectionist instincts are more contentious. In a bid to reduce the US trade deficit and safeguard American jobs, President Trump announced levies on imported steel and aluminium, and initiated a tariff war with China.

Against this backdrop, global equity markets struggled. US equities delivered positive returns, as a reduction in corporation tax ushered in double-digit earnings growth, and the relatively closed nature of the US economy provided some insulation from the slowdown in global trade. However, in most other regions, including the Euro-zone and Japan, equity markets fell back. Emerging markets underperformed as concerns over the Chinese economy grew, and an appreciation of the US dollar during the second half of the year put pressure on economies with high levels of external debt, notably Turkey.

In the UK, ongoing uncertainty regarding Brexit continued to dampen sentiment. This said, the fall in UK equity markets was not as severe as that witnessed in many other countries. UK large caps were supported by the depreciation of the pound during the second half of the year, which boosted the sterling value of overseas revenues. In addition, the recovery in the oil price helped lift the energy sector. By contrast, retailers suffered, as sales shifted online and the World Cup induced pick-up in spending over the summer proved fleeting.

The woes of the UK retail sector were also reflected in the commercial property market. Demand for retail property continued to ease, as a string of high-profile retailers either went in to administration or announced store closures. However, with manufacturers benefitting from the competitive exchange rate, buoyant demand for industrial property meant that the UK commercial property sector as a whole continued to provide income and capital growth during the period.

The performance of the UK bond market was negatively impacted by hikes in interest rates from the Bank of England during the year. Citing low unemployment and rising domestic inflation pressures the Bank of England hiked interest rates by 25 basis points in November 2017 - the first increase in 10 years - and followed up with a further rise in August 2018, taking the bank's policy rate to 0.75%.  This increase pushed up yields on short-term UK government bonds (Gilts) causing their price to fall back. The rise in Gilt yields weighed on sterling corporate bonds, although the sector did manage to eke out marginal positive returns.

Segmental review

Financial advisory and investment management

Financial advisory and the ongoing investment management of our client portfolios represent the core business of AFH. The ongoing management of our client's funds is driven by their attitude to risk on the basis of long-term investments that are measured against the equivalent ARC Private Client Index ("PCI") and reported regularly to our clients providing the opportunity for them to place our investment performance into the context of a range of discretionary investment managers. During the year revenue from our initial financial planning for clients and the ongoing management of their investments increased as a result of greater productivity and the increase in adviser numbers due to acquisitions that were made during the year.

The average discretionary client portfolio continues to be approximately £200,000 and based on their risk appetite is focussed on wealth preservation. However, for clients with larger portfolios who wish for a more traditional stockbroking service, AFH Private Wealth, with operations in Bromsgrove and Colwyn Bay, was established in 2016 and now manages over £150 million of client assets.

During the period the Company continued to invest in the strength of our investment team with additional senior appointments and in January 2018 AFH set up a series of segregated funds in a cost-efficient structure for our clients. During the year seven funds were established across a range of equity markets using independent fund management groups to manage the portfolios.

The Group has a wide geographical coverage of the mainland UK market. While our acquisition strategy does not target specific areas, rather focussing on the quality of the business opportunity and the culture of that business, the acquisitions completed in the year encompass many regions and enable us to extend our service proposition across the UK.

During the year our initial financial planning fees totalled £12.2 million, an increase of £2.2 million (23%) above our 2017 results, reflecting the increasing client requirements for financial planning driven by changing legislation, the changes to the UK pension market, with its associated opportunities and risks, as well as developing lifestyle needs.

Ongoing management fees increased to £29.3 million (2017: £20.6 million), reflecting the increased funds under management which, as noted above, grew to £4.4 billion during the year as a result of net organic inflows together with assets attached to acquisitions completed during the year. This increase was reflected in the ratio of recurring income within this division which rose to 71% (2017: 69%).

Gross margins in our core business remained at 55%, reflecting the increased level of business generated centrally relative to that self-generated by our advisers.

The division generated EBITDA of £10.1 million (2017: £6.6 million), representing a 24% margin on revenue (2017: 22%), again demonstrating the benefits of scale that was highlighted in my last report.

 

Protection Broking

Our protection broking division, established in 2017, performed strongly during the year, generating £9.1m of revenue at a 45% gross margin (2017: 35%). The increase was due, in part, to a move from indemnified to a non-indemnified model with selected providers under which AFH receives revenue on a monthly basis, in line with the premium received by the providers rather than as an initial commission, in exchange for an increased share of the overall commission.

During the year the division extended its channels of distribution to a telephone-based operation which the directors believe to offer significant growth opportunity in the future. Further investment has been made in this operation after the year end to scale the business during 2019.

Capital structure

 

In assessing its appetite for financial gearing, the Board considers the deferred consideration outstanding on acquisitions as a material component of the Company's financing structuring, providing cost effective and unsecured leverage for the benefit of our shareholders.

 

The Company remains free of secured debt, with the exception of a mortgage held on the freehold property acquired in 2015 and maintains a capital structure that the Board believes provides an appropriate level of gearing through the deferred consideration outstanding on acquisitions and through Unsecured Corporate Bonds. The Group continues to maintain a net cash position and all regulated subsidiary companies reported significant margins above their regulatory and stress-tested capital requirements as at 31 October 2018. At the year end the Company had £28.5 million of deferred consideration outstanding together with £2.9 million of corporate bonds. Following the year end £2.1 million of the corporate bonds were redeemed in accordance with the relevant Trust Deed.

 

In December 2017 and October 2018, we concluded equity fund-raisings of £17.5 million and £15 million respectively. I thank our major institutional investors for their continuing support and was pleased to welcome a number of new institutional investors to our share register. The funds were raised to finance the initial cost of our acquisitions and during the financial year £16 million was used for the purchase of sixteen businesses. A further £7.6 million has been used for the acquisition of an additional four businesses, with a potential value of £19 million, since the year end.

Current year trading

 

Trading in the current year has continued to follow the trend set in 2018 with high levels of new business generated by our existing advisers and initial integration of our recent acquisitions proceeding in line with expectations. Since the beginning of the financial year we have acquired four businesses, including CTL3 which added 26 advisers and over £530 million of additional funds under management to the Company.

 

The turbulent markets since October 2018 have impacted our total Funds under Management, as noted above, but the balanced strategy that we adopt on behalf of our clients has mitigated the full effect of the equity market falls. Our outlook for the equity markets remains cautious.

 

The Company retains strong cash balances in excess of its regulatory requirements and our increasing adoption of technology and focus on digital marketing is generating new opportunities to deliver organic growth. The Directors believe that the demand for a professional financial planning-led investment service will continue to grow and that the scale of AFH will enable the Company to benefit from the regulatory and economic change anticipated in 2019.

 

While the Company continues to actively seek high quality businesses to acquire and enhance the Group, the Directors remain focussed on ensuring that only Earnings per share enhancing transactions are undertaken. While the commercial benefits of growth through acquisition are clear, the financial model is based on a suitable arbitrage differential being maintained though an effective public equity market. In view of the current uncertainty in the public markets, the Directors believe that the pace of additional acquisitions will be determined by the availability of additional equity funding at appropriate values.

 

Trading remains strong and in line with the Board's expectations and the activity of the first quarter of the year underpins the Directors' confidence for the continued progress of the Company in the current year and thereafter in line with its new aspirational targets.

 

 

 

Alan Hudson

Chief Executive Officer

 

 

 

AFH FINANCIAL GROUP PLC

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

FOR THE YEAR ENDED 31 OCTOBER 2018

 

 

 

 

 

 

 

2018

2017

 

Note

£'000

£'000

 

 

 

 

Revenue

2

50,664

33,639

Cost of sales

 

(23,099)

(15,672)

 

 

 

 

Gross profit

 

27,565

17,967

Administrative expenses before amortisation and depreciation and share based payments expenses

 

(17,126)

(12,320)

 

 

 

Underlying EBITDA

 

10,439

5,647

 

 

 

Amortisation and Depreciation

 

(2,415)

(1,778)

Non cash share based payments

 

(88)

(136)

 

 

 

 

Operating profit

 

7,936

3,733

 

 

 

 

Finance income

 

101

19

Finance costs

 

(250)

(245)

 

 

 

 

Profit before tax

 

7,787

3,507

Income tax expense

 

(1,833)

(444)

 

 

 

 

Profit for the year attributable to owners of the parent

 

5,954

3,063

Other comprehensive income

 

-

-

 

 

 

 

Total comprehensive income for the year attributable to owners of the parent

 

5,954

3,063

 

 

 

 

Earnings per share (in pence)

 

 

 

Basic

8

16.0

11.2

Diluted

8

14.6

10.3

 

 

 

 

Underlying EBITDA adjusted for tax per share (in pence)

 

 

 

Basic

8

22.7

17.0

Diluted

8

20.7

15.6

                                                                                                                                                                                                                                                                                                

 

 

 

 

All results derive from continuing operations.

 

 

AFH FINANCIAL GROUP PLC

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

AS AT 31 OCTOBER 2018

 

 

 

 

 

 

 

2018

2017

 

Note

£'000

£'000

Assets

 

 

 

Non-current assets

 

 

 

Intangible assets

3

74,928

38,930

Property, plant and equipment

4

1,230

1,195

Investments

 

1

1

Deferred tax asset

 

30

28

 

 

 

4,01

 

 

76,189

40,154

Current assets

 

 

 

Trade and other receivables

5

13,630

6,015

Cash and cash equivalents

 

21,543

9,275

 

 

 

 

 

 

35,173

15,290

 

 

 

 

Total assets

 

111,362

55,444

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

7

18,727

11,502

Current tax liabilities

2

1,049

468

Provision

 

1,570

-

Financial liabilities - Borrowings

6

2,221

77

 

 

 

 

 

 

23,567

12,047

Net current assets

 

11,606

3,243

 

 

 

 

Non-current liabilities

 

 

 

Trade and other payables

7

17,138

6,736

Financial liabilities - Borrowings

6

1,067

3,281

Provision

 

170

49

 

 

 

 

 

 

18,375

10,066

Total liabilities

 

41,942

22,113

 

 

 

 

Net assets

 

69,420

33,331

 

 

 

 

Shareholders' equity

 

 

 

Share capital

 

4,198

3,058

Share premium account

 

54,641

24,224

Merger reserve

 

(540)

(540)

Share-based payment reserve

 

718

630

Retained earnings

 

10,403

5,959

 

 

 

 

Total Shareholders' equity

 

69,420

33,331

 

 

 

 

 

 

 

 

 

 

Approved by the Board of Directors 18 January 2019

   

 

 

 

 

 

AFH FINANCIAL GROUP PLC

 

STATEMENT OF CHANGES IN EQUITY

 

AS AT 31 OCTOBER 2018

 

 

Consolidated Statement of Changes in Equity

 

Share capital

Share premium

Merger reserve

Share-based payment reserve

Retained earnings

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Balance at 1 November 2016

2,413

13,989

(540)

494

3,797

20,153

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

3,063

3,063

Other comprehensive income

-

-

-

-

-

-

 

 

 

 

 

 

 

Total comprehensive income

-

-

-

-

3,063

3,063

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital (net of Issue costs)

645

10,235

 

-

 

-

 

-

10,880

Share based payment cost -

-

-

-

136

-

136

Dividend

-

-

-

-

(901)

(901)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 October 2017

3,058

24,224

(540)

630

5,959

33,331

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

5,954

5,954

Other comprehensive income

-

-

-

-

-

-

 

 

 

 

 

 

 

 

-

-

-

-

-

-

Total comprehensive income

-

-

-

-

5,954

5,954

 

 

 

 

 

 

 

Issue of share capital (net of issue costs)

1,140

30,417

-

-

-

31,557

Share based payment cost -

-

-

-

88

-

88

Dividend

-

-

-

-

(1,510)

(1,510)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 October 2018

4,198

54,641

(540)

718

10,403

69,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AFH FINANCIAL GROUP PLC

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

FOR THE YEAR ENDED 31 OCTOBER 2018

 

 

 

 

 

 

 

2018

2017

 

Note

£'000

£'000

 

 

 

 

Cash flows from operating activities

 

 

 

Cash generated from operations

9

4,810

5,704

Tax paid

 

(1,311)

(351)

 

 

 

4,609

Net cash inflow from operating activities

 

3,499

5,353

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of property, plant and equipment

 

(278)

(265)

Purchase of intangible assets, net of cash

 

(15,822)

(9,134)

Payment of deferred consideration

 

(4,571)

(2,007)

Interest received

 

101

19

 

 

 

 

Net cash outflow from investing activities

 

(20,570)

(11,387)

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from issue of shares

 

32,602

10,022

Share issue costs

 

(1,324)

(412)

Proceeds from finance leasing

 

-

255

Repayment of borrowings

 

(172)

(121)

Interest paid

 

(257)

(251)

Dividends

 

(1,510)

(901)

 

 

 

 

Net cash inflow from financing activities

 

29,339

8,592

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

12,268

2,558

Cash and cash equivalents at the beginning of the year

 

9,275

6,717

 

 

 

 

Cash and cash equivalents at the end of the year

 

21,543

9,275

 

 

 

 

 

 

 

 

 

 

AFH FINANCIAL GROUP PLC

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 OCTOBER 2018

1.       General Information

AFH Financial Group Plc is a company incorporated in England and Wales under the Companies Act 2006 and is registered at AFH House, Buntsford Drive, Stoke Heath, Bromsgrove, Worcestershire, B60 4JE.

The Company is principally engaged in the provision of independent financial advice and investment management to the retail market.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 October 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts: their reports were 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.

2        Segmental statement of comprehensive income
 

The following is an analysis of the Company's revenue and results from continuing operations by reportable segment.

 

 

 

 

 

 

 

 Head Office

2018

£'000

 

Financial Advice and Investment Management

2018
£'000

   Protection

2018
£'000

Total

2018
£'000

 

 

 

 

 

Revenue

-

41,541

9,123

50,664

Cost of sales

-

(18,032)

(5,067)

(23,099)

 

 

 

 

 

Gross profit

-

23,509

4,056

27,565

Administrative expenses before amortisation and depreciation and share based payments expenses

(2,344)

(13,396)

(1,386)

(17,126)

 

 

 

 

 

Underlying EBITDA

(2,344)

10,113

2,670

10,439

 

 

 

 

 

Amortisation and Depreciation

-

(2,374)

(41)

(2,415)

Non cash share based payments

(88)

-

-

(88)

 

 

 

 

 

Operating profit

(2,432)

7,739

2,629

7,936

 

 

 

 

 

Finance income

90

9

2

101

Finance costs

(228)

(22)

-

(250)

 

 

 

 

 

Profit before tax

(2,570)

7,726

2,631

7,787

 

 

 

 

 

Head Office

2017

£'000

 

Financial Advice and Investment Management

2017
£'000

Protection

2017
£'000

Total

2017
£'000

 

 

 

 

 

Revenue

-

30,671

2,968

33,639

Cost of sales

-

(13,750)

(1,922)

(15,672)

 

 

 

 

 

Gross profit

-

16,921

1,046

17,967

Administrative expenses before amortisation and depreciation and share based payments expenses

(1,620)

(10,314)

(386)

(12,320)

 

 

 

 

 

Underlying EBITDA

(1,620)

6,607

660

5,647

 

 

 

 

 

Amortisation and Depreciation

-

(1,766)

(12)

(1,778)

Non cash share based payments

(136)

-

-

(136)

 

 

 

 

 

Operating profit

(1,756)

4,841

648

3,733

 

 

 

 

 

Finance income

17

2

-

19

Finance costs

(228)

(17)

-

(245)

 

 

4,827

 

 

Profit before tax

(1,967)

4,826

648

3,507

 

Segment revenue reported above represents revenue generated from external customers. There were no Inter-segment sales in the current year.

 

The Accounting policies of the reportable segments are the same as the Company's accounting policies.

Segmental Assets

The following is an analysis of the Company's Assets from continuing operations by reportable segment.

 

 

 

2018
£'000

 

2017
£'000

 

 

 

Head Office

16,324

4,073

Financial Advice and Investment Management

11,325

8,622

Protection

7,524

 2,595

 

 

 

 

35,173

 15,290

Segmental Liabilities

The following is an analysis of the Company's Assets from continuing operations by reportable segment.

 

 

 

2018
£'000

 

2017
£'000

 

 

 

Head Office

2,799

1,317

Financial Advice and Investment Management

16,333

8,224

Protection

4,435

2,506

 

 

 

 

23,567

 12,047

 

The total revenue of the Company for the year has been derived from its activities wholly undertaken in the United Kingdom.

No customer is defined as a major customer by revenue, contributing more than 10% of the Company revenues (2017 - none).

 

3.       Intangible assets

 

 

 

 

 

 

 

 

 

Other intangibles

Goodwill

Acquired client portfolios

Total

 

£'000

£'000

£'000

£'000

Cost

 

 

 

 

At 1 November 2016

-

2,465

21,543

24,008

Additions, separately acquired

401

-

14,203

14,604

Additions, through business combination

-

4,500

-

4,500

 

 

 

 

 

At 31 October 2017

401

6,965

35,746

43,112

Additions, separately acquired

145

-

16,585

16,730

Additions, through business combination

-

21,440

-

21,440

 

 

 

 

 

At 31 October 2018

 

 

 

 

 

546

28,405

52,331

81,282

Amortisation and impairment

 

 

 

 

At 1 November 2016

 

 

 

 

Charge for the year

-

375

2,274

2,649

 

16

-

1,517

1,533

At 31 October 2017

 

 

 

 

Charge for the year

16

375

3,791

4,182

 

41

-

2,131

2,172

At 31 October 2018

 

 

 

 

 

57

375

5,922

6,354

Net book value

 

 

 

 

 

 

 

 

 

At 31 October 2018

 

 

 

 

 

489

28,030

46,409

74,928

At 31 October 2017

 

 

 

 

 

385

6,590

31,955

38,930

 

 

 

 

 

 

Goodwill and Acquired client portfolios

Goodwill believed to have an indefinite useful life is carried at cost. The determination of whether goodwill is impaired requires an assessment of the value in use. The recoverable amount of goodwill on a value in use calculation is based on the discounted cash flows expected from the intangible assets of each acquisition, assuming no future growth in revenue generated cash flows, discounted at an asset specific rate 10%, for a period of 10 years with no annuity. On this basis the directors believe the value of goodwill is not impaired at 31 October 2018.

The Directors have assessed the sensitivity of the assumptions detailed above and consider that, due to the level of prudence already factored into these assumptions, it would require a significant adverse variance in any of these to reduce the fair value to a level where it matched the carrying value.

During the year ended 31 October 2018 12 asset purchases were undertaken relating to acquired client portfolios. Consideration for these acquisitions amounted to £16.6m, of which £16.6m related to client portfolios. Included within the total consideration are amounts relating to contingent consideration of £9.4m. The contingent consideration is subject to earn outs based on future turnover over a period up to four year period.

In addition, four share purchases were undertaken, resulting in £21.4m of goodwill being recognised.

4.       Property, plant and equipment

 

 

Freehold land and improvements

Computer and office equipment

Fixtures, fittings & equipment

Total

 

£'000

£'000

£'000

£'000

Cost

 

 

 

 

At 1 November 2016

711

547

462

1,720

Additions through acquisitions

-

-

3

3

Additions

-

202

47

249

Disposals

-

(52)

(88)

(140)

 

 

 

 

 

At 31 October 2017

711

697

424

1,832

Additions through acquisitions

-

-

-

-

Additions

-

119

159

278

Disposals

-

-

-

-

 

 

 

 

 

At 31 October 2018

711

816

583

2,110

 

 

 

 

 

Depreciation

 

 

 

 

At 1 November 2016

31

253

234

518

Charge for the year

31

156

58

245

Disposals

-

(38)

(88)

(126)

 

 

 

 

 

At 31 October 2017

62

371

204

637

Charge for the year

31

146

66

243

Disposals

-

-

-

-

 

 

39

 

 

At 31 October 2018

93

517

270

880

 

 

 

 

 

Net book value

 

 

 

 

At 31 October 2018

618

299

313

1,230

 

 

 

 

 

At 31 October 2017

649

326

220

1,195

 

 

 

 

 

 

 

 

           

 

Included in freehold land and improvements is £460,000 of land that has an indefinite useful life.  Included in the Computer and Office Equipment is £105,322, net book value, of assets under finance leases.

5.       Trade and other receivables

 

 

 

 

 

2018

2017

 

£'000

£'000

 

 

 

Trade receivables

11,089

4,426

Other receivables

1,932

725

Prepayments

609

864

 

 

 

 

13,630

6,015

 

 

 

 

 

 

 

Included in Trade receivables is £3,678,111 of trade receivables due in greater than 1 year.

 

6.       Borrowings

 

 

2018

2017

 

£'000

£'000

 

 

 

8% Unsecured bonds

752

752

7.5% Unsecured bonds

2,142

2,142

Mortgage on freehold property

394

464

 

 

3

 

3,288

3,358

 

 

 

 

Analysis of borrowings

 

 

 

Current borrowings

 

 

8% Unsecured bonds

-

-

7.5% Unsecured bonds

2,142

-

Mortgage on freehold property

79

77

 

 

 

 

 

 

 

2,221

77

 

 

 

Non-current borrowings

 

 

8% Unsecured bonds

752

752

7.5% Unsecured bonds

-

2,142

Mortgage on freehold property

315

387

 

 

 

 

1,067

3,281

 

 

 

 

 

 

 

The financial liabilities are recognised at amortised cost. There is no material difference between the fair value and the carrying value.

The 8% unsecured bond, issued in August 2013 is due in 2020. The 7.5% Unsecured bond, issued in December 2014 is due in December 2018.

The mortgage is repayable by instalments over an 8-year period with an interest rate of 2.9% over LIBOR.

7.       Trade and other payables

 

 

 

 

 

2018

2017

 

£'000

£'000

Current

 

 

Trade payables

1,240

1,373

Contingent consideration

11,323

4,637

Commissions payable

4,466

4,076

Other payables

762

599

Accruals

936

817

 

 

 

 

18,727

11,502

 

 

 

Non-current

 

 

Contingent consideration

17,138

6,736

 

 

 

 

 

 

Included in other payables is £105k (2017: £207k) of Finance Leases payable within 1 year.

 

8.       Earnings per share

The calculation of Earnings per share is based on the profit attributable to the equity holders for the year of £5,954,400 (2017 - £3,063,544) and weighted average number of shares in issue during the period of 37,235,148 (2017 - 27,300,689).

The calculation of Underlying EBITDA per share is based on the Underlying EBITDA, after adjusting for tax, of £8,454,519 (2017 - £4,575,450) and weighted average number of shares in issue during the period of 37,235,148 (2017 - 27,300,689).

The diluted Earnings per share has been adjusted for the potential share issue relating to the share-based payments. The number of shares has been increased by the difference between the number of shares that will be issued if all options are exercised and the number of shares that could be purchased for the same consideration at average market price.

 

 

31 October 2018

 

31 October 2017

 

£'000

£'000

 

 

 

 

 

 

Earnings for the purpose of basic Earnings per share being net profit attributable to shareholders

5,954

 

3,063

Effect of dilutive potential ordinary shares

-

-

 

 

 

Earnings for the purpose of diluted Earnings per share

5,954

3,063

 

 

 

 

 

 

 

 

 

31 October 2018

 

 

 

31 October 2017

 

 

 

 

 

 

Weighted average number of ordinary shares for the purpose of basic Earnings per share

37,235,148

27,300,689

Effect of dilutive potential ordinary shares

3,622,564

 2,420,417

 

 

 

Weighted average number of ordinary shares for the purpose of diluted Earnings per share

40,857,712

 

29,721,106

 

 

 

 

 

 

 

9.       Notes to the cash flow statement

Cash generated from operations

 

 

 

 

 

2018

2017

 

£'000

£'000

 

 

 

Profit before tax

7,787

3,507

Adjustments for:

 

 

Interest and dividend income

(101)

(19)

Interest expenses

250

245

Depreciation, amortisation and impairment

2,415

1,778

Equity settled share based payment expense

88

136

Movements in working capital:

 

-

- Trade and other receivables

(7,646)

(1,195)

- Trade and other payables

2,017

1,252

 

 

 

Cash generated from operations

4,810

5,704

 

 

 

 

 

 

 

 

10.     Financial commitments

At the reporting dates, the Company has outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 

 

 

 

 

 

 

Land & buildings

Other

Land & buildings

Other

 

2018

2018

2017

2017

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Due within one year

559

31

418

55

Between one and two years

466

13

418

16

Between two and five years

1,344

3

1,254

-

In over five years

-

 

413

-

 

 

 

 

 

Total

2,369

47

2,503

71

 

 

 

 

 

 

 

 

 

 

The Company lease their head office and photocopiers.  The head office lease has no break clause and expires in 5 years' time.


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