TIDMAFHP TIDMAFHB
RNS Number : 5551N
AFH Financial Group Plc
21 January 2019
21(st) January 2019
AFH Financial Group PLC
("AFH" or the "Group" or the "Company")
AUDITED FULL YEAR RESULTS FOR THE PERIODING 31(st) 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 GBP50.7 million (2017: GBP33.6 million)
-- Underlying* EBITDA up 85% to GBP10.4 million (2017: GBP5.7 million)
-- Underlying* EBITDA margin increased to 21% from 17%
-- Profit after tax up 94% to GBP6.0 million (2017: GBP3.1 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 GBP4.4 billion (2017: GBP2.79 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 GBP10 billion; revenues per annum of GBP140 million;
and Underlying EBITDA margin of 25% on revenue
-- Strong balance sheet following successful GBP15 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 GBP5 billion, was met following the year
end and the Board is confident that the final aspirational target
of revenues of GBP75 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 GBP10 billion, revenues per annum of GBP140 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 GBP21.5 million with which to
continue our expansion.
While the two fund raising exercises undertaken during the year
raised GBP32.5 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 GBP5 billion Funds
under Management.
At the period end AFH was managing funds on behalf of our
clients totalling GBP4.4 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
GBP50m revenues and GBP10m 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
GBP6.1 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 GBP34 million during the period, completed two
placings raising funds totalling GBP32.5 million and continued to
increase our profitability, as measured by Underlying EBITDA by 85%
for the year to GBP10.4 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 GBP5 billion, achieving the
second of our mid-term aspirational targets. Considering our
continued strong growth, we saw a sharp increase in our revenue to
GBP50.7 million and the Board is confident that the final
aspirational target of revenues totalling GBP75 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
GBP50.7m was over 50% above the corresponding period (2017:
GBP33.6m) and continues our progress to our aspirational revenue
target.
The growing requirement of our clients for financial advice
generated GBP20.4 million (2017: GBP12.2 million) of new business
revenues, while recurring income of GBP30.3 million (2017: GBP21.4
million) continued to strengthen our revenue base, driven by our
growing funds under management.
In addition to the organic funds invested, an additional
GBP1.5billion of funds was brought under management as the result
of acquisitions made during the year.
Funds under Management
GBP 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 GBP1.4 million. The
effective rate of tax based on Underlying EBITDA was 18%.
Profit after tax for the year of GBP6.0 million represents a 94%
increase in the year (2017: GBP3.1 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 GBP5 billion
-- Revenues of GBP75 million
-- Underlying EBITDA margin of 20% on revenue
In December 2018 we announced that the milestone of GBP5billion
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 GBP10 billion
-- Revenues of GBP140 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 GBP34
million, including two acquisitions with a target value in excess
of GBP5m (assuming performance criteria are satisfied). In addition
to the experience of the advisers who have joined through these
acquisitions we added almost GBP1.5 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 GBP200,000 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 GBP150 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
GBP12.2 million, an increase of GBP2.2 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 GBP29.3 million (2017:
GBP20.6 million), reflecting the increased funds under management
which, as noted above, grew to GBP4.4 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 GBP10.1 million (2017: GBP6.6
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 GBP9.1m 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 GBP28.5 million of
deferred consideration outstanding together with GBP2.9 million of
corporate bonds. Following the year end GBP2.1 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 GBP17.5 million and GBP15 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
GBP16 million was used for the purchase of sixteen businesses. A
further GBP7.6 million has been used for the acquisition of an
additional four businesses, with a potential value of GBP19
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 GBP530 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 YEARED 31 OCTOBER 2018
2018 2017
Note GBP'000 GBP'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 GBP'000 GBP'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-based
Share capital Share premium Merger reserve payment reserve Retained earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 YEARED 31 OCTOBER 2018
2018 2017
Note GBP'000 GBP'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 YEARED 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.
Financial Advice and Investment
Head Office Management Protection Total
2018 2018 2018 2018
GBP'000 GBP'000 GBP'000 GBP'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
Financial Advice and Investment
Head Office Management Protection Total
2017 2017 2017 2017
GBP'000 GBP'000 GBP'000 GBP'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 2017
GBP'000 GBP'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 2017
GBP'000 GBP'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 Acquired
client
Goodwill portfolios Total
GBP'000 GBP'000 GBP'000 GBP'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 GBP16.6m, of which GBP16.6m
related to client portfolios. Included within the total
consideration are amounts relating to contingent consideration of
GBP9.4m. 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
GBP21.4m of goodwill being recognised.
4. Property, plant and equipment
Freehold Computer Fixtures,
land and and office fittings
improvements equipment & equipment Total
GBP'000 GBP'000 GBP'000 GBP'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 GBP460,000 of land
that has an indefinite useful life. Included in the Computer and
Office Equipment is GBP105,322, net book value, of assets under
finance leases.
5. Trade and other receivables
2018 2017
GBP'000 GBP'000
Trade receivables 11,089 4,426
Other receivables 1,932 725
Prepayments 609 864
13,630 6,015
Included in Trade receivables is GBP3,678,111 of trade
receivables due in greater than 1 year.
6. Borrowings
2018 2017
GBP'000 GBP'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
GBP'000 GBP'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 GBP105k (2017: GBP207k) 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 GBP5,954,400
(2017 - GBP3,063,544) 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 GBP8,454,519 (2017 -
GBP4,575,450) 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 31 October
2018 2017
GBP'000 GBP'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 31 October
2018 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
GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'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.
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.
END
FR QVLFFKFFXBBL
(END) Dow Jones Newswires
January 21, 2019 02:00 ET (07:00 GMT)
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