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RNS

Final Results

Released 07:00 23-Jan-2019

RNS Number : 8157N
Harwood Wealth Management Group PLC
23 January 2019
 

 

23 January 2019

 

Harwood Wealth Management Group PLC

("HWMG", the "Company", or the "Group")

 

Full year results for the year ended 31 October 2018

 

Harwood Wealth Management Group (AIM:HW.), a leading UK-based financial planning and discretionary wealth management business, is pleased to announce its audited results for the year ended 31 October 2018.  The Group continues to pursue its strategy of acquisitive and organic growth and the 2018 results show continued progress in revenue, assets under management and adjusted EBITDA*.

 

HIGHLIGHTS

 

 

% change

Assets Under Influence ("AUI")

£4.8bn 

£3.8bn

+26%

Assets Under Management ("AUM")

£1.7bn

£1.2bn

+42%

 

Revenue

£32.7m

£25.9m

+26%

Gross profit

£15.1m

£11.2m

+35%

Adjusted EBITDA*

£6.1m

£4.3m

+42%

Profit before tax

£2.0m

£1.2m

+63%

Cash inflow from operating activities

£6.5m

£4.9m

+33%

 

 

 

 

Basic earnings per share

1.91p

1.19p

+61%

Adjusted earnings per share**

7.92p

5.87p

+35%

Dividend per share

3.50p

3.24p

+8%

 

 

·      Nine acquisitions completed in the period for consideration of £10.7m (£9.0m net of cash acquired)

·      Cash balance at year end £13.6m, £4.2m available for acquisitions

 

 

*Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation and separately disclosed items. It is a non-IFRS measure which the Group uses to assess its performance and it is also commonly used as a performance measure by market commentators.

**Adjusted earnings per share are calculated on post-tax adjusted EBITDA.

 

Commenting, Peter Mann, Chairman, said:

 

"It has been another year of strong growth for the Group, with EBITDA achieved ahead of the Board's expectations set at the start of the year. Our financial success demonstrates the efficacy of Harwood's three-pronged growth strategy and the benefits of building a recognised market position in a fast-consolidating industry.

 

The Group's growth in revenue was driven by the completion of nine acquisitions over the period, as well as the impact of prior year acquisitions. Acquisitions are a key part of our strategy. We remain very confident that a large pool of opportunities exists, many of which we expect to execute in 2019, continuing to grow the business in scale and capability.

 

We are confident in the Group's outlook, with Harwood well positioned to deliver further growth."

 

 

 

For further information please contact:

 

Harwood Wealth Management Group plc 

Alan Durrant, Chief Executive Officer 

Gillian Davies, Interim Chief Financial Officer

 

+44 (0)23 9355 2004 

N+1 Singer Advisory LLP 

Shaun Dobson 

James White 

Ben Farrow 

Rachel Hayes

 

+44 (0)20 7496 3000 

Alma PR 

Rebecca Sanders-Hewett 

Susie Hudson 

 

+44 (0)20 3405 0205

harwoodwealth@almapr.co.uk 

 

 

 

Chairman's statement

 

Strong growth momentum continues

I am very pleased to report on another year of strong growth with adjusted EBITDA having increased by 42% on the prior year. This is ahead of the Board's expectations set at the start of the year.

We have made nine acquisitions over the period, many of which were larger than those acquired in the previous year, spending a total of £10.7m. Alongside this, we continued to drive organic growth, growing the external investment mandates under our management and benefitting from investment in our fund management products by clients of the advisers who joined the Group as a result of previous years' acquisitions. This year, AUI increased by 26% to £4.8bn and AUM by 42% to £1.7bn, continuing to demonstrate the Group's increasing scale.

Continued delivery

Nearly three years on since listing, we are proud to have consistently delivered growth year-on-year of over 25% in revenue and over 40% in adjusted EBITDA. This performance has been driven by executing our simple, three-pronged strategy: driving organic growth, acquiring financial advisory or wealth management businesses and increasing operational efficiency. In line with our strategy, the Group has maintained a consistently high level of recurring revenue which in 2018 exceeded 70%.

Our consistency of delivery is Harwood's greatest strength. Similarly, we believe our longstanding reputation as a quality acquirer, which demands high standards, has led to Harwood being viewed as one of the leading consolidators in the industry. We have built our market presence further this year, in a sector which remains buoyant and has seen no significant new entrants.

Strengthened corporate governance

The changes made to the roles of certain board members in April this year were in line with our interpretation of the forthcoming changes to the Senior Managers and Certification Regime and were part of the Group's continuing evaluation of how best to organise its internal structure and reporting lines. I am pleased to say that the new reporting structure is working well and all members of the management team who were allocated new roles have excelled in them thus far. Alan Durrant, who took on the role of sole CEO, has continued to show strong leadership in corporate strategy, whilst Neil Dunkley remains key in driving growth in Financial Planning as Managing Director of Financial Planning and Network Services. We are delighted to have found an experienced interim CFO with the appointment of Gillian Davies and are very pleased that our former CFO, Nick Bravery, has continued to contribute to the strategic direction of the business as Company Secretary.

As a quoted company traded on the AIM market of the London Stock Exchange, we understand the importance of sound corporate governance and of adopting principles of good governance across the business. In September, the Board reaffirmed its commitment to good corporate governance by adopting and applying the Quoted Companies Alliance (QCA) Corporate Governance Code 2018.

A progressive dividend

In line with our progressive dividend policy, we paid an interim dividend of 1.08 pence per share and the Board will be recommending a final dividend of 2.42 pence per ordinary share, bringing the full year dividend pay-out to 3.50 pence, an increase of 8%.

WELL POSITIONED FOR THE YEAR AHEAD

Having successfully navigated through many periods of uncertainty since its inception, the Group is used to growing the business under sometimes difficult circumstances. We are in the strong position of benefitting from complexity and change, key factors which drive clients to use our services.

I would like to thank our management, staff and partner advisers for another successful year and our Shareholders for their continued support

We look forward to updating the market on our performance in 2019 in due course.

 

 

Peter Mann

Chairman

 

 

 

 

CHIEF EXECUTIVE'S STATEMENT

 

I am very pleased to be able to report another strong set of results this year. Revenue grew by 26% to £32.7m (2017: £25.9m) and we generated £6.1m of adjusted EBITDA (2017: £4.3m), an increase of 42%. At 31 October 2018, our Assets Under Influence ("AUI") were at £4.8bn (31 October 2017: £3.8bn) and Assets Under Management ("AUM") were at £1.7bn (31 October 2017: £1.2bn). These strong results were again driven by progress across all our three divisions.

 

Growth has been delivered against the backdrop of an unpredictable market which has been more volatile than previously seen since listing, prompted, in part, by the vagaries of the current political climate. These results are testament to both our expertise in our sector and unwavering focus on the execution of our strategy.

 

Below is a detailed review of the key drivers to delivering this strong performance in line with our stated strategy.

 

Performance against strategy: growth from acquisitions

This year we have continued to deliver on the acquisition of several high-quality businesses. We deployed £10.7m (£9.0m net of cash acquired) on nine acquisitions, a considerable acceleration compared with the £2.3m invested on seven acquisitions in the previous financial year.  With acquisitive growth, the Group benefits through both the immediate fee income for providing advice and the expectation that a proportion of these assets will come under our management in time, when our investment management solutions are right for the needs of clients.

 

Acquisitions made during the year accounted for 7% growth in revenue in the current year. Several of the acquisitions were larger than those completed during previous years, demonstrating the Group's growing scale and buying power. In addition, the full year impact of acquisitions (predominantly Network Services) completed during the prior year, contributed 12% growth in revenue in 2018. A key part of our business model is to ensure the successful integration of acquisitions following their purchase.  I am pleased with the integration progress that has been made during 2018, to make Harwood a professional, productive home to all our new employees, partner advisers and clients.

 

The Group has a proven acquisition process and we believe that this methodology is vital in the successful purchase, integration and management of acquisitions. 

 

We continue to look for small to medium sized financial advisory and wealth management businesses to acquire, with a view to completing as many as possible each year, whilst following our robust acquisition processes. The upper size limit of the prospective acquisitions we are looking at has increased as a positive consequence of the IPO and the number of businesses now approaching us as vendors demonstrates our strong position in the marketplace. The Group has signed heads of terms in respect of two acquisitions and has issued proposals or heads of terms for a further six. In addition, since the year end, the Group has exchanged contracts in relation to the acquisition of GD White for a total consideration of c£1.5m.

 

The pool of potential acquisition targets shows no sign of diminishing and the factors driving IFA consolidation remain. Smaller IFAs continue to face the challenges of an ever greater regulatory and compliance burden which now includes MiFiD II, GDPR and soon SMCR. For advisers approaching retirement, the opportunity to sell their business to someone with the established resources, technology and infrastructure to provide seamless operations, compliance and technical support for their clients is a compelling one.

 

Performance against strategy: organic growth

Net organic growth contributed 7% of the revenue growth in the year. We aim to deliver organic growth through: growing our AUI in the Financial Planning business by increasing the number of clients and advisers, as well as advising on a larger share of the clients' wealth; growing our AUM by increasing the proportion of our clients' wealth that we manage through our Investment Management businesses as well as winning external investment management mandates.

 

Growth from existing clients has been driven by continued trends seen in financial services and the ongoing need for professional financial advice. These include increased pension freedoms, an ageing population and the growing complexity of regulation and legislation. All these trends serve to cement and grow client relationships with advisers that they trust, underpinning Harwood's positive attitude towards change.

 

We continue to bring new clients into our investment management businesses, primarily through two routes. The first route is those clients who migrate from solely seeking financial advice to also becoming clients of one of our investment management businesses. The increase in our AUM is testament to the quality of Harwood's fund management products and how well they suit our advisers' needs and those of our clients. We work very closely to partner with our advisers, building them a range of solutions appropriate for a broad range of client requirements. The second route is through external mandates, where customers come in immediately through the fund management division. The mandate won in February this year, to provide the portfolio research element of Frenkel Topping's investment management services, is a prime example of delivery on this element of the growth strategy. Our ability to deliver tailored investment solutions combined with a high level of personal service has led to continued strong growth in our external mandates.

 

Network Direct Ltd (which is our Network Services division) was acquired in February 2017 in order to leverage our investment solutions to the benefit of their advisers and clients, as well as expanding our reach across the UK. We have used our existing investment management resource to design bespoke investment management products specifically to tailor to the wants and needs of the Network Services advisers, dovetailing their well-established advice and operations processes. These new products have been supported by extensive training seminars and individual meetings with Network Services advisers to give them the tools and confidence they need to recommend the NDL Blended Solutions to their clients. Although uptake has taken somewhat longer than originally expected, we have been seeing steady monthly flows of new business over the last year and the fees from this flow straight through to our EBITDA as it utilises our existing investment management resources.

 

Historically, another factor in driving organic growth has been the rise in asset markets. With the volatility of the markets over the period this has been a headwind rather than a tailwind with the FTSE 100 falling during the period by 4.8%. However, it would be wrong to think of our clients' assets as being directly linked to the performance of the FTSE 100 and our revenue rising and falling in lock-step with a single benchmark. The vast majority of our clients are in Cautious, Balanced and Income portfolios which are diversified across different sizes of companies both in the UK and internationally, fixed income, property and absolute returns. This diversification, which is aimed at reducing volatility for our clients, also produces a smoother revenue stream for us.

 

Performance against strategy: efficiency in operations

We continue to work on improvements across our internal operations, making sure they are suitably efficient and robust for the next stage of growth. Due to the highly regulated nature of our industry we take a measured approach to internal change, gradually implementing new initiatives to bring out efficiency gains in a controlled manner. An important part of this strand of our strategy is the diligent and consistent review of processes to ensure they are in line with best practice.

 

Over the year we have restructured in line with the upcoming Senior Managers and Certification Regime, introduced to increase individual accountability within the banking sector. Across the business we have implemented leadership teams to pool resources and improve best practice. As part of this, Network Services has been brought under the leadership of Neil Dunkley as this will provide further support to the current management team. We are pleased with how the new management structure has performed since these changes were made and are confident that we now have the necessary corporate structures in place for further well-managed growth.

 

Outlook

In 2018, we have again delivered against all three elements of our strategy, growing from our existing clients and bringing in new clients, expanding via acquisition and driving efficiency in our operations.

 

Notwithstanding the recent weakness in the markets, in the early part of our 2019 financial year each division has shown growth compared to the same period in the prior year. We have a healthy pipeline of acquisitions at an advanced stage, including several potentially larger deals. As always, we will aim to buy businesses that present not only the best financial opportunity but also the best cultural fit. The Directors are continuing to review both debt and equity financing options.

 

Whilst the current political and economic climate, most noticeably Brexit, brings uncertainty, the senior management team has, between them, decades of experience in dealing with differing economic and political environments. As we have demonstrated historically, we believe we are well positioned to weather changes in the global economic landscape. We are confident in the Group's outlook with a strengthened management team and opportunities to continue to deliver growth both organically and through acquisition. I would like to thank all of our clients, partners, colleagues and stakeholders, who continue to support us in our journey.

 

 

Alan Durrant

Chief Executive Officer

 

 

FINANCIAL REVIEW

 

ASSETS UNDER INFLUENCE AND ASSETS UNDER MANAGEMENT

The Group's total Assets Under Influence ("AUI") in the financial year increased by 26% to £4.8bn (2017: £3.8bn).

 

Assets Under Management ("AUM"), (a component of AUI), increased by 42% to £1.7bn (2017: £1.2bn).  The discretionary fund management business, Wellian Investment Solutions, performed strongly and increased its AUM to £977m (2017: £627m). The advised investment management business, IMS Capital, increased its AUM to £698m (2017: £587m).

 

GROUP RESULTS

 

2018

2017

 

Change %

 

 

£m

£m

 

 

 

Revenue

32.7

25.9

 

+26%

 

Gross profit

15.1

11.2

 

+35%

 

Gross profit %

46%

43%

 

 

 

Administrative expenses

(9.0)

(6.9)

 

-31%

 

  Pre-depreciation and amortisation

 

 

 

Adjusted EBITDA

6.1

4.3

 

+42%

 

EBITDA %

19%

17%

 

 

 

Depreciation and amortisation

(3.3)

(2.5)

 

     -32%

 

Separately disclosed items

(0.2)

-

 

n/a

 

Operating profit

2.6

1.8

 

+44%

 

Finance expense

(0.6)

(0.6)

 

0%

 

Profit before tax

2.0

1.2

 

+63%

 

               

 

REVENUE

Group revenue in the year increased by 26% to £32.7m (2017: £25.9m). As a result of following the Group's strategy the revenue growth derives from the following:

 

·      the full year effect of acquisitions that were completed in the 2017 financial year

·      the part year effect of acquisitions completed in this financial year

·      the growth in AUM

·      new business derived from newly acquired and existing client portfolios

·      any change in the number of financial advisers

·      any movement in market asset values

 

The divisional split of Group revenue is set out below:

 

2018

2017

Change

 

£m

£m

%

Financial Planning

14.6

12.9

+13%

Investment Management

4.5

3.2

+42%

Network Services

13.6

9.8

+39%

 

32.7

25.9

+26%

 

Each of the Group's three divisions achieved growth in the year. Financial Planning revenue increased by 13%, reflecting the impact of acquisitions made in the first half of the year. Investment Management revenue increased by 42% in line with the 42% increase in AUM during the year.  Network Services revenue increased by 39%, representing a full year of revenue from the business which was purchased in February 2017, as well as organic growth.

 

GROSS PROFIT

Gross profit in the year increased by 35% to £15.1m (2017: £11.2m) and the gross profit percentage increased to 46% from 43% in the prior year. This is analysed by division below: 

 

 

2018

2017

 

£m

GP%

£m

GP%

Financial Planning

9.6

66%

7.4

57%

Investment Management

4.2

92%

3.0

93%

Network Services

1.3

9%

0.8

8%

 

15.1

46%

11.2

43%

 

Financial Planning gross profit percentage increased to 66% from 57%. This was due to the higher gross profit from some acquisitions where clients are serviced through employed financial advisers, whose costs are included within administrative expenses. In addition, some retiring self-employed advisers have been replaced by employed advisers during the year. Investment Management and Network Services were at a similar level to the gross profit percentage achieved in the prior year.

 

ADMINISTRATIVE EXPENSES

Administrative expenses (excluding depreciation and amortisation) were £9.0m (2017: £6.9m), an increase of 31% compared to 2017. The increase predominantly represented an increase in employment costs of £1.6m to support growth. In addition, there were modest increases in IT, legal and professional and property costs.

 

FINANCIAL ADVISERS AND STAFF HEADCOUNT

The number of financial advisers (employed, self-employed and Network Services members) was 177 (2017: 179).

 

Staff headcount increased from an average of 113 to 136 across the Group (excluding self-employed advisers and Network Services Members).

 

ADJUSTED EBITDA

Adjusted EBITDA increased by 42% to £6.1m (2017: £4.3m) and the adjusted EBITDA percentage increased to 19% (2017: 17%).

 

OPERATING PROFIT

Operating profit increased by 44% to £2.6m (2017: £1.8m) after charging separately disclosed items of £0.2m (2017: no charge) and amortisation of £3.3m (2017: £2.5m). The separately disclosed items were in respect of increased deferred payments relating to acquisitions. The increase in amortisation reflected the impact of acquisitions (see note 7).

 

NET FINANCE EXPENSES

Net finance expense was £0.6m (2017: £0.6m). This related to the unwinding of discount on contingent consideration relating to acquisitions.

 

TAXATION

The current corporation tax charge in the period was £1.1m (2017: £0.8m), offset by a deferred tax credit of £0.3m (2017: £0.3m) related to intangible asset amortisation of acquired subsidiaries. The effective tax rate of 39% (2017: 41%) was significantly higher than the UK corporation tax rate at 19%, reflecting expenses which did not qualify for income tax deduction (principally amortisation). Tax paid was £1.1m (2017: £1.2m).

 

EARNINGS PER SHARE

Basic and diluted earnings per share were 1.91p (2017: 1.19p), an increase of 61%.

Adjusted earnings per share were 7.92p (2017: 5.87p), an increase of 35%. This is lower than the increase in adjusted EBITDA due to an increase in the average number of shares in issue.

 

DIVIDENDS

The Board has proposed a final dividend of 2.42p (2017: 2.24p), which together with the interim dividend of 1.08p (2017: 1.0p), gives a total paid and proposed dividend relating to 2018 of 3.50p (2017: 3.24p), an increase of 8%, in line with its progressive dividend policy. The final dividend is subject to the approval of the Company's Shareholders and will be paid on 10 May 2019 to Shareholders who are on the register at close of business on 26 April 2019.

 

ACQUISITIONS

During the year the Group completed a total of nine acquisitions, which included the client portfolios of four independent financial adviser businesses and a further five client portfolios through the purchase of the entire issued share capital of similar businesses. Aggregate consideration was £10.7m (£9.0m net of cash acquired). This consideration comprised £6.6m of cash due on completion and discounted deferred consideration of £4.1m which is due to be paid over the next two years. Deferred consideration is payable based upon the trail income from the client portfolio acquired and may be increased or decreased compared to the actual amounts provided. 

 

CASH

The Group had cash of £13.6m at 31 October 2018 (31 October 2017: £19.0m). The Group generated £6.5m of cash inflow from operating activities (2017: £4.9m), representing a strong adjusted EBITDA cash conversion rate for the year of 107%. Cash of £8.8m (2017: £4.0m) was paid in the year in respect of acquisitions: £4.9m (2017: £1.4m) initial consideration (net of cash acquired) and £3.9m (2017: £2.6m) deferred consideration. Dividends paid to Shareholders in the year totalled £2.0m (2017: £1.3m).

 

The Group has c£4.2m of cash available for acquisitions after excluding deferred consideration, dividends and capital adequacy requirements.

 

FINANCIAL POSITION

The Group had net assets at the end of 2018 of £25.9m (2017: £26.8m), including net cash as summarised above of £13.6m. The Group remains in a robust financial position to continue to pursue its strategy of organic growth and acquisitions.

 

EVENTS AFTER THE REPORTING DATE

2018 interim dividend

The 2018 interim dividend of 1.08p per share was paid to Shareholders on 9 November 2018, totalling £0.7m.

 

Acquisition of GD White (Independent Financial Advisers)

On 18 January 2019, the Group exchanged contracts to purchase the trade and assets of GD White (Independent Financial Advisers). The purchase price is expected to be c£1.5m, payable 50% on completion (expected to be on 1 May 2019) and a further two instalments of 25% and 25% which are due to be paid on the first and second anniversaries of completion, contingent upon results.

 

 

 

Gillian Davies

Interim Chief Financial Officer

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 OCTOBER 2018

 

 

 

 

2018

 

2017

 

Notes

 

£'000

 

£'000

 

 

 

 

 

 

Revenue

3

 

32,693

 

25,885

Cost of sales

 

 

(17,601)

 

(14,719)

Gross profit

3

 

15,092

 

11,166

 

 

 

 

 

 

Administrative expenses

 

 

(12,330)

 

(9,410)

Separately disclosed items

4

 

(174)

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit before depreciation, amortisation and separately disclosed items ("Adjusted EBITDA")

 

 

6,116

 

4,319

Depreciation

 

 

(12)

 

(11)

Amortisation

 

 

(3,342)

 

(2,552)

Separately disclosed items

4

 

(174)

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

2,588

 

1,756

 

 

 

 

 

 

Investment income

 

 

23

 

19

Finance expense

 

 

(653)

 

(577)

Profit before income tax

 

 

1,958

 

1,198

 

 

 

 

 

 

Income tax expense

5

 

(762)

 

(492)

Profit and total comprehensive income for the year attributable to equity owners of the parent

 

 

1,196

 

706

 

 

 

 

 

 

 

 

 

pence

 

pence

Earnings per share

 

 

 

 

 

Basic and fully diluted

6

 

1.91

 

1.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 OCTOBER 2018

 

 

 

 

2018

 

2017

 

 

 

£'000

 

£'000

Non-current assets

 

 

 

 

 

Intangible assets

 

 

20,803

 

15,033

Property, plant and equipment

 

 

31

 

24

 

 

 

 

 

 

 

 

 

20,834

 

15,057

 

 

 

 

 

 

Current assets

 

 

 

 

 

Trade and other receivables

 

 

1,553

 

1,075

Cash and cash equivalents

 

 

13,634

 

18,959

 

 

 

 

 

 

 

 

 

15,187

 

20,034

 

 

 

 

 

 

Total assets

 

 

36,021

 

35,091

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

 

3,916

 

5,160

Accruals and deferred income

 

 

1,405

 

1,284

Current tax liabilities

 

 

659

 

474

Provisions

 

 

766

 

-

 

 

 

 

 

 

 

 

 

6,746

 

6,918

 

 

 

 

 

 

Net current assets

 

 

8,441

 

13,116

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Trade and other payables

 

 

2,407

 

252

Deferred tax liabilities

 

 

829

 

1,161

Provisions

 

 

109

 

-

 

 

 

 

 

 

 

 

 

3,345

 

1,413

 

 

 

 

 

 

Total liabilities

 

 

10,091

 

8,331

 

 

 

 

 

 

Net assets

 

 

25,930

 

26,760

 

 

 

 

 

 

Equity

 

 

 

 

 

Called up share capital

 

 

156

 

156

Share premium account

 

 

25,500

 

25,500

Retained earnings

 

 

274

 

1,104

 

 

 

 

 

 

Total equity attributable to the owners of the parent

 

 

25,930

 

26,760

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 OCTOBER 2018

 

Attributable to the owners of the parent

 

 

Share capital

 

Share premium account

 

Retained earnings

 

Total

 

Notes

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

Balance at 1 November 2016

 

139

 

15,541

 

1,649

 

17,329

 

 

 

 

 

 

 

 

 

Year ended 31 October 2017:

 

 

 

 

 

 

 

 

Profit and total comprehensive income for the year

 

-

 

-

 

706

 

706

 

 

 

 

 

 

 

 

 

Issue of share capital

 

17

 

10,414

 

-

 

10,431

Dividends

 

-

 

-

 

(1,251)

 

(1,251)

Costs of share issue

 

-

 

(455)

 

-

 

(455)

 

 

 

 

 

 

 

 

 

Total transactions with owners recognised directly in equity

 

17

 

9,959

 

(1,251)

 

8,725

 

 

 

 

 

 

 

 

 

Balance at 31 October 2017

 

156

 

25,500

 

1,104

 

26,760

 

 

 

 

 

 

 

 

 

Year ended 31 October 2018:

 

 

 

 

 

 

 

 

Profit and total comprehensive income for the year

 

-

 

-

 

1,196

 

1,196

 

 

 

 

 

 

 

 

 

Dividends

8

-

 

-

 

(2,026)

 

(2,026)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total transactions with owners recognised directly in equity

 

-

 

-

 

(2,026)

 

(2,026)

 

 

 

 

 

 

 

 

 

Balance at 31 October 2018

 

156

 

25,500

 

274

 

25,930

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 OCTOBER 2018

 

 

2018

 

2017

 

 

£'000

 

£'000

 

£'000

 

£'000

Cash flows from operating activities

 

 

 

 

 

 

 

 

Profit before income tax

 

 

 

1,958

 

 

 

1,198

 

 

 

 

 

 

 

 

 

Non-cash adjustments

 

 

 

 

 

 

 

 

Depreciation, amortisation and impairment

 

3,354

 

 

 

2,563

 

 

Separately disclosed items

 

174

 

 

 

-

 

 

Net finance expense

 

630

 

 

 

558

 

 

 

 

 

 

4,158

 

 

 

3,121

Working capital adjustments

 

 

 

 

 

 

 

 

(Increase) in trade and other receivables

 

(414)

 

 

 

(316)

 

 

Increase in trade, other payables and provisions

 

828

 

 

 

917

 

 

 

 

 

 

414

 

 

 

601

 

 

 

 

 

 

 

 

 

Cash inflow from operating activities

 

 

 

6,530

 

 

 

4,920

 

 

 

 

 

 

 

 

 

Income tax paid

 

(1,063)

 

 

 

(1,212)

 

 

 

 

 

 

(1,063)

 

 

 

(1,212)

 

 

 

 

 

 

 

 

 

Net cash generated by operations

 

 

 

5,467

 

 

 

3,708

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Payment of deferred consideration

 

(3,865)

 

 

 

(2,578)

 

 

Purchase of intangible assets

 

(1,005)

 

 

 

(583)

 

 

Interest received

 

23

 

 

 

19

 

 

Acquisition of subsidiaries net of cash acquired

 

(3,905)

 

 

 

(846)

 

 

Purchase of property, plant and equipment

 

(14)

 

 

 

(12)

 

 

Net cash used in investing activities

 

 

 

(8,766)

 

 

 

(4,000)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issue of shares (net of costs)

 

-

 

 

 

9,976

 

 

Dividends paid

 

(2,026)

 

 

 

(1,251)

 

 

 

 

 

 

 

 

 

 

 

Net cash (used in)/generated from financing activities

 

 

 

(2,026)

 

 

 

8,725

 

 

 

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

 

 

(5,325)

 

 

 

8,433

Cash and cash equivalents at beginning of year

 

 

 

18,959

 

 

 

10,526

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

 

 

13,634

 

 

 

18,959

 

 

 

 

 

 

 

 

 

 

 

 

NOTES TO THE FINANCIAL INFORMATION

 

1.    General Information

 

Harwood Wealth Management Group plc is a public limited liability company incorporated and domiciled in England and Wales. The Group's business activities are principally the provision of financial advice, investment management and network services. The address of the registered office is 5 Lancer House, Hussar Court, Westside View, Waterlooville, Hampshire, PO7 7SE. The company is listed on the AIM market of the London Stock Exchange.

 

The preliminary financial information does not constitute full accounts within the meaning of section 434 of the Companies Act 2006 but is derived from accounts for the years ended 31 October 2018 and 31 October 2017. The accounts for the year ended 31 October 2018 are audited. The preliminary announcement is prepared on the same basis as set out in the statutory accounts for the year ended 31 October 2018. Those accounts, upon which the auditors issued an unqualified opinion, did not include a reference to any matters to which the auditors drew attention by way of emphasis, without qualifying their report, and made no statement under section 498(2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies following the Annual General Meeting.

 

Statutory accounts for the year ended 31 October 2017 have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis, without qualifying their report, and made no statement under section 498 (2) or (3) of the Companies Act 2006.

 

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), this announcement does not in itself contain sufficient information to comply with IFRS.

 

2.    Significant Accounting Policies

 

Basis of consolidation

These consolidated financial statements consolidate the financial statements of the Company and its subsidiary undertakings as at 31 October 2018. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control and continue to be consolidated until the date that such control may cease. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

 

Definition of a business (Amendments to IFRS 3) (October 2018)

The Group has adopted early the provisions of this amendment, which clarify the definition of a business with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. In particular the amendment adds an optional 'concentration test' which permits a simplified assessment of whether an acquired set of activities and assets is not a business. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. The Group has adopted the amendment and applied the concentration test to its acquisitions with effect from the commencement of this accounting period. All the acquisitions in the year have met the test and have been treated as asset purchases.

 

Going concern

After a review, the Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue to operate for a period of at least twelve months from the date these financial statements were approved. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements.

 

3.    Operating segments

 

For management purposes the following information by segment is provided to the chief operating decision maker, which is considered to be the Group Board and best describes the way the Group is managed. This provides a meaningful insight into the operations of the Group.

 

 

An analysis of the Group's operating segments is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Planning

 

Investment Management

 

Network Services

 

Total

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

14,589

 

12,913

 

4,544

 

3,197

 

13,560

 

9,775

 

32,693

 

25,885

Cost of sales

(4,971)

 

(5,553)

 

(351)

 

(206)

 

(12,279)

 

(8,960)

 

(17,601)

 

(14,719)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

9,618

7,360

 

4,193

 

2,991

 

1,281

 

815

 

15,092

 

11,166

 

4.    Separately disclosed items

 

 

2018

 

2017

 

£'000

 

£'000

Additional consideration on past acquisitions

174

 

-

 

The additional consideration on past acquisitions is the difference between the final contingent consideration payable on acquisitions and the deferred consideration previously provided in the statement of financial position. The difference is due to actual revenues being higher than expected at the time of acquisition.

 

5.    Taxation

 

An analysis of the income tax charge is detailed below:

 

2018

 

2017

 

£'000

 

£'000

Current tax

 

 

 

Current year taxation

1,094

 

769

Deferred tax

 

 

 

Origination and reversal of temporary differences

(332)

 

(210)

Effect of change in tax rate

-

 

(67)

 

(332)

 

(277)

Income tax expense

762

 

492

The charge for the year can be reconciled to the profit per the income statement as follows:

 

 

 

 

 

2018

 

2017

 

£'000

 

£'000

Profit before taxation

1,958

 

1,198

Expected tax charge based on a corporation tax rate of 19.00% (2017: 19.41%)

372

 

232

Expenses not deductible in determining taxable profit

390

 

260

Income tax expense

762

 

492

 

 

6.    Earnings per share

 

Basic and diluted earnings per share are calculated by dividing the profit attributable to equity Shareholders of the Company by the weighted average number of ordinary shares in issue during the year. There are no dilutive or potential shares.

 

 

 

2018

 

2017

 

 

'000

 

'000

Number of shares

 

 

 

Weighted average number of ordinary shares for basic earnings per share

62,543

 

59,323

 

 

£'000

 

£'000

Earnings

 

 

 

 

Profit for the period from continuing operations

1,196

 

706

Earnings for basic and diluted earnings per share being net profit attributable to equity Shareholders of the Company for continuing operations

1,196

 

706

 

 

 

 

 

 

 

pence

 

pence

Basic and diluted earnings per share

1.91

 

1.19

 

 

 

 

 

Adjusted earnings per share

 

 

 

The adjusted earnings per share are based on:

 

 

 

 

 

2018

 

2017

 

 

£'000

 

£'000

 

 

 

 

 

Profit before taxation

1,958

 

1,198

 

 

 

 

 

Add:

Net finance expense

630

 

558

 

Depreciation

12

 

11

 

Amortisation

3,342

 

2,552

 

Separately disclosed items

174

 

-

Adjusted EBITDA

6,116

 

4,319

 

 

 

 

 

Tax charge on adjusted EBITDA

(1,162)

 

(839)

 

 

 

 

 

Adjusted earnings for basic and diluted earnings per share

4,954

 

3,480

 

 

 

 

 

 

 

pence

 

pence

Adjusted basic and diluted earnings per share

7.92

 

5.87

 

 

 

 

 

The adjusted earnings per share is calculated before the after-tax effect of amortisation, depreciation and separately disclosed items and is included because the Directors consider this gives a measure of the underlying performance of the business.

The basis for the presentation of the adjusted earnings per share is different to the previous year as it is post tax. Adjusted earnings per share were previously reported before tax. An estimate of the tax charge on the adjusted EBITDA is now incorporated and the 2017 comparatives have been restated.

 

 

7.    Acquisitions

A number of client portfolios were acquired as follows:

 

 

 

 

 

2018

 

 

 

 

 

Number

Portfolios acquired

 

 

 

 

9

 

 

 

 

 

£'000

Total consideration payable

 

 

 

 

10,701

Cash acquired

 

 

 

 

(1,705)

Net liabilities acquired

 

 

 

 

116

Total portfolio value

 

 

 

 

9,112

Immediate cash consideration (net of cash acquired)

 

 

 

 

4,910

Contingent cash consideration

 

 

 

 

4,086

 

 

 

 

 

8,996

Net liabilities acquired

 

 

 

 

116

 

 

 

 

 

9,112

 

Within the above, four of the nine portfolios were trade and asset purchases, totalling £1,801,000 with £1,005,000 immediate cash payable and a further £796,000 contingent cash consideration. A further five entities were acquired through acquisition of share capital, as set out below:

 

 

Finance for Life Ltd

Anthony Harding & Partners Ltd

Wealth Planning Services Ltd

AE Financial Services Ltd

Fund Management Ltd

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Receivables

-

-

-

69

-

69

Cash

9

-

-

1,660

36

1,705

Payables

(8)

-

-

(23)

-

(31)

Corporation tax payable

(1)

-

-

(137)

(16)

(154)

Net assets acquired

-

-

-

1,569

20

1,589

Client portfolios acquired

860

923

301

4,202

1,025

7,311

Fair value of acquisition

860

923

301

5,771

1,045

8,900

Settled by:

 

 

 

 

 

 

Immediate cash consideration (net of cash acquired)

441

527

170

2,237

530

3,905

Contingent cash consideration

410

396

131

1,874

479

3,290

Total (net of cash acquired)

851

923

301

4,111

1,009

7,195

 

The contingent consideration is payable on the first and second anniversaries of each acquisition and is based on actual trail income from the portfolios with no cap, with the exception of AE Financial Services Ltd, which has a cap of £5,922,000 on the total consideration payable.

The contingent consideration is discounted to present value and adjusted annually when forecasts are updated or when payments become certain. Adjustments go through the income statement.

 

 

8.    Dividends

 

 

 

 

 

 

 

2018

 

2017

 

 

 

 

 

 

£'000

 

£'000

Amounts recognised as distributions to equity holders:

 

 

 

 

 

 

 

 

 

Ordinary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interim dividend paid: 1.00p per ordinary share (2017: nil)

625

 

-

Final dividend paid: 2.24p per ordinary share (2017: 2.00p per ordinary share)

1,401

 

1,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,026

 

1,251

 

 

 

 

 

 

 

 

 

An interim dividend for the year ended 31 October 2018 of 1.08 pence per ordinary share was declared on 3 July 2018 and paid on 9 November 2018 totalling £675,464 (2017: £625,429). The interim dividend was still at the discretion of the Directors at 31 October 2018 and has not therefore been included as a liability in these financial statements.

 

 

 

 

 

 

 

 

 

The proposed final dividend for the year ended 31 October 2018 is:

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

£'000

Proposed final dividend: 2.42 pence per ordinary share of 0.25 pence

 

 

1,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The proposed final dividend is subject to approval by Shareholders and has not been included as a liability in these financial statements. The dividend will be paid on 10 May 2019 to Shareholders on the register at close of business on 26 April 2019.

 

9.    Events after the reporting date

 

2018 Interim dividend

On 9 November 2018, the Company paid an interim dividend of 1.08 pence per ordinary share based on the register of Shareholders at close of business on 27 October 2018 totalling £675,464.

 

Acquisition of GD White (Independent Financial Advisers)

On 18 January 2019, the Group exchanged contracts to purchase the trade and assets of GD White (Independent Financial Advisers). The purchase price is expected to be c£1.5m, payable 50% on completion (expected to be on 1 May 2019) and a further two instalments of 25% and 25% which are due to be paid on the first and second anniversaries of completion, contingent upon results.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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