TIDMAFHP TIDMAFHB
RNS Number : 1894A
AFH Financial Group Plc
28 May 2019
28(th) May 2019
AFH Financial Group PLC
("AFH" or the "Company")
Results for the six months ended 30 April 2019
AFH reports further strong revenue and earnings growth
AFH, a leading financial planning led wealth management firm, is
pleased to announce its results for the six months ended 30 April
2019.
Strong growth
-- Revenues up 61% to GBP36.6 million (H1 2018: GBP22.7 million)
-- Underlying* EBITDA up 74% to GBP7.7million (H1 2018: GBP4.4 million)
-- Underlying* EBITDA margin increased to 21.0% (H1 2018: 19.5%)
-- Profit after tax up 80% to GBP4.5 million (H1 2018: GBP2.5 million)
-- Statutory Earnings per share up 56% to 10.71 pence (H1 2018: 6.85 pence)
-- Underlying* Earnings per share up 49% to 14.87 pence (H1 2018: 9.98 pence)
-- Funds under Management of GBP5.4bn, up 68% (H1 2018: GBP3.2bn)
*Underlying excludes amortisation of intangible assets arising
on business combinations and the non-cash charge/credit for share
based payment costs.
Confident outlook
-- Solid foundations in place to deliver on strategy to become
number one financial planning-led wealth manager in the UK
-- Increasing organic demand for financial planning led wealth management services
-- Well positioned to continue to take advantage of ongoing IFA
market consolidation supported by regulatory dynamics
-- Strong pipeline of future acquisitions with a number of
opportunities in due diligence and contract negotiations
-- Proven acquisition and integration methodology
-- Three to five-year aspirational targets re-confirmed - Funds
under Management of GBP10 billion; revenues per annum of GBP140
million; and Underlying EBITDA margin of 25% on revenue
Alan Hudson, Group Chief Executive, commented:
"I am pleased to report another set of strong results for the
first half of 2019 demonstrating our progress as we continue to
build ourselves into the leading financial planning-led wealth
manager in the UK. Despite turbulence in the equity markets and
subdued investor confidence over the period, we have delivered
increased revenues, reporting 61% growth from the previous period
to GBP36.6 million and improved trading margins demonstrated by our
underlying EBITDA* margin increasing to 21.0%.
"Our growth continues to be generated organically from new and
existing clients together with the benefits of the four
acquisitions made in the first half of FY 2019 as well as those
acquisitions made towards the end of 2018. Our protection business,
which is not aligned to the stock markets, continued the strong
growth reported in 2018.
"Following the Company's success in meeting its strategic and
financial aspirations set out in January 2017, the Board set new
aspirational targets in January 2019 to be achieved within a three
to five-year period.
"The overarching strategy of the Company continues to be to
generate long term value for shareholders by driving revenue growth
and margin expansion while providing exceptional value and service
to our clients, using our increasing size to drive down platform
and fund management charges aligned to an appropriate risk-based
investment model.
"On the basis of our results and the opportunities identified,
we look forward to continuing to deliver continued profitable
growth in the second half of 2019 and beyond."
For further information please contact:
AFH Financial Group PLC 01527 577 775
Alan Hudson, Chief Executive Officer
Paul Wright, Chief Financial Officer
Liberum (Nominated Adviser and Joint Broker) 020 3100 2000
John Fishley / Richard Bootle / Euan Brown
Shore Capital (Joint Broker) 020 7408 4090
Hugh Morgan / Edward Mansfield / Daniel Bush
Yellow Jersey PR Limited (Financial PR) 077 4884 3871
Felicity Winkles / Tim Thompson / Annabel Atkins
Notes to Editors
AFH Financial Group (AIM: AFHP) is leading UK financial
planning-led wealth management firm based in the Midlands. Founded
in 1990 by CEO Alan Hudson, the Company provides wealth management
and financial advisory services to over 20,000 clients in the UK.
These services are delivered by over 450 professional advisers and
400 support staff.
The Company has a defined growth strategy focused on increasing
shareholder value through the expansion of the AFH community. This
strategy continues to be driven by a combination of organic growth
through greater productivity of the Company's advisers and by value
accretive acquisitions.
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.
Chief Executive's Review
Business review
I am pleased to report increased profitability, turnover and
trading margins during a period of turbulence in the equity markets
and subdued investor confidence.
As set out in my report to shareholders in January 2019,
following our success in 2018 and the initial months of the current
financial year, the Board has set new aspirations to be achieved
within a three to five-year timeframe:
1. Funds under Management of GBP10 billion
2. Revenues of GBP140 million per year
3. Underlying EBITDA margin of 25% of revenue
The institutional fundraising which closed in October 2018
provided the Company with the ability to undertake a number of
acquisitions during the first half of this financial year and allow
us to continue with our strategy and grow the business in a
demonstrable way.
Gross Funds under Management continued to be invested at a rate
of GBP36 million per month while, during the period, the Company
completed four acquisitions which added a further GBP640 million of
investment portfolios under service propositions. Funds under
Management approached GBP5.4 billion at the period end,
representing a 68% increase over the April 2018 level.
Our growth continues to be generated organically from new and
existing clients together with the benefits of the four
acquisitions made in the first half of 2019 as well as with those
acquisitions made towards the end of 2018. Our protection business,
which is not aligned to the stock markets, continued the strong
growth reported in 2018.
The results for the period reflect our strong position as an IFA
business acting as gate keeper to the wealth management sector
through its primary position in the client relationship.
Furthermore, the strategy undertaken over a ten-year period of
using scale to reduce third party costs for our clients continues
to provide a competitive advantage for our advisers, enabling the
Company to grow nationally while maintaining its fee structure and
gross margin.
Due to the number and size of acquisitions completed in the
second half of 2018, regulatory approval and the subsequent
business integration has taken longer than in previous periods. As
a result, the level of new business written and ongoing management
fees from these larger acquisitions was delayed during the period.
These acquisitions have now been transitioned in line with our
internal processes and this new business and recurring revenue is
expected to accelerate during the second half of the current
financial year.
Both operating divisions ('Financial Advisory and Investment
Management' and 'Protection Broking') reported revenue growth
during the period enabling the consolidated group to report a
continued increase in underlying EBITDA to GBP7.7 million (H1 2018:
GBP4.4 million) and to expand the underlying EBITDA margin to 21.0%
(H1 2018: 19.5%).
I am also pleased to report an increase in underlying earnings
per share of 49%. This has been achieved despite the challenging
market conditions during the first half of the year and the
dilution that resulted from our October 2018 fundraising. We are
continuing to see opportunities to make further value enhancing
acquisitions in the future.
Trading results
The business saw further organic growth during the period with
profitability increasing at both EBITDA and EPS levels. Revenue for
the period increased to GBP36.6 million (H1 2018: GBP22.7 million),
underpinned by ongoing recurring fees representing 55% of the total
income across the group.
Recurring fees increased by 69% against H1 2018; driven by new
business in our Financial Advisory and Investment Management
division from new and existing clients. Initial fees increased 61%
period on period with the Protection division generating 20% of
group income and reporting 87% growth against H1 2018.
Revenue from acquisitions reported during the current period
totaled GBP3.22 million and represented 9% of total revenue for the
period.
During the period the Company continued its expenditure on
digital marketing campaigns to promote the AFH brand and generate
new business leads. Further investment was also made in technology
to improve efficiency and the customer experience for AFH's
clients. All such costs were expensed during the period.
The increased revenue together with the economies of scale
generated by the business enabled the Company to report an
expansion of the underlying EBITDA margin from 19.5% to 21.0%,
generating EBITDA of GBP7.7 million, an increase of 74%.
The group corporation tax rate of 24% (H1 2018: 23%) reflects
the non-deductible nature of amortisation costs during the
period.
I am pleased to report a further increase of 49% in underlying
earnings per share to 14.87p per share (2018: 9.98p) whilst
statutory earnings per share increased to 10.71p per share (2018:
6.85p).
Cash balances remain healthy at GBP8.8 million following the
repayment of GBP2.2 million Unsecured loan Stock in December 2018,
GBP7.9 million initial consideration paid in respect of the four
acquisitions made in the first half of this year and GBP1.6 million
of deferred consideration falling due in respect of acquisitions
made in 2017 /18. As previously reported, in addition to financing
the growth of the core business the non-indemnity protection
revenue model, which continues to generate increased margins at
both gross margin and EBITDA levels, has absorbed working capital.
During the period this resulted in an increase in debtors of GBP5.2
million. The Board expects the model will continue to absorb
working capital for the remainder of the current financial year
before returning to a balanced position.
Financial Advisory and Investment Management
Financial advisory and the subsequent management of client
portfolios continued to represent the core business of AFH and 80%
of revenues for the period. Our growing client base and strong
record of retention is based on the simple and holistic philosophy
that the most appropriate way to manage a client's portfolio is to
fully understand their current and future financial aims, their
attitude to risk and their lifestyle requirements before
constructing appropriate personal models and finally managing their
money to meet their objectives.
As noted above, the FCA dual approval of advisers under the AFH
authority and the subsequent integration of the multiple large
acquisitions undertaken at the end of 2018 and during the period
took longer than has historically been the case for smaller
acquisitions and as a result the level of new business and
recurring revenue from several of these larger acquisitions is
expected to accelerate in the second half of the year.
Together with the reduced level of investor confidence and the
increased volatility of the financial markets during the period the
addition of new investment portfolios remained at levels
experienced during the second half of 2018. Notwithstanding this
general reticence amongst investors, our position as the primary
interface between clients and the wealth management market enabled
the division to report annualised double digit organic growth in
the inflow of funds.
During the period our initial financial planning fees totaled
GBP7.5 million, an increase of GBP1.9 million (34%), reflecting the
expanding client base and increasing client requirements for
financial planning driven by pension legislation as well as
changing lifestyle needs.
Ongoing management fees increased to GBP21.8 million (H1 2018:
GBP13.2 million), reflecting the growing funds under management
which, as set out below, increased to GBP5.4 billion as a result of
net organic inflows together with assets attached to acquisitions
during the year.
Annualised average revenue per adviser in our core business
increased to GBP236,000 (H1 2018 GBP220,000).
Gross margins in our investment business were maintained at 54%,
reflecting the stable level of business generated centrally
relative to that self-generated by our advisers. During the period
the impact of absorbing platform fees for discretionary clients on
AFH Direct was reflected within this margin.
The division generated EBITDA of GBP6.4 million (H1 2018: GBP4.4
million) demonstrating the continuing benefits of scale that have
been achieved by the strategy consistently adopted by the
Company.
Protection Broking
The Protection Broking business continues to benefit from the
gap in the market, estimated at GBP2.4trn, identified when we
launched the division in 2017. The Protection Broking division
continues to report strong growth in both revenues and margins.
During the period a telephone-based operation was expanded and
moved to new offices in Nottingham providing scope for this
business to double in size in the future.
The increase in trade receivables of the Group was as a result
of the continuing move from Indemnity to non-Indemnity business
with key insurance providers during the period. It is expected that
the non-Indemnity book will move towards a balanced position at the
end of 2019. The benefits of this change were reflected in the
gross margin of this business which has expanded from 35% to
51%.
During the period the division generated revenues of GBP7.3
million from which EBITDA of GBP2.8 million was derived.
Acquisitions
The market for acquisitions within the IFA sector continued to
be buoyant and whilst some upward pressure on prices was seen in
larger businesses, where competition from private equity and
product providers has increased, we were able to close transactions
at our traditional multiples and in line with our earn out model.
Our pipeline remains strong with a number of opportunities in due
diligence and contract negotiations at the period end.
During the period we completed four acquisitions for an initial
consideration of GBP7.9 million, encompassing several large
organisations, whose clients and advisers have been absorbed into
the AFH model, alongside retiring IFAs whose client portfolios have
been transitioned to existing AFH advisers. Future deferred
consideration of up to GBP11.8 million is payable on these four
acquisitions over the next two financial years depending on their
achievement of financial targets.
Our model allows clients' portfolios to be retained on existing
platforms and products where appropriate but enables them to move
to our cost-effective discretionary service where a clear benefit
to the client can be demonstrated.
Integration of acquisitions made during the period has been
completed and I am pleased to report that businesses acquired in
previous periods continue to trade in line with our
expectations.
While AFH has seen an increase to the average size of its
acquisitions, the Company also remains committed to providing an
exit for retiring IFAs where our existing advisers can offer the
full AFH service to the acquired client base. As a result, the
Board expects to announce both strategic and tactical acquisitions
in the future.
The Directors believe that the vertical and horizontal expansion
of our business within the wealth management value chain is in the
best interests of both our shareholders and clients. While
maintaining a focus on the IFA market, the Company continues to
actively seek appropriately priced acquisition opportunities in the
wider advisory and wealth management sector with a comparable
culture to AFH.
Funds under Management
Funds under Management increased by GBP0.98 billion during the
period, driven by new monies invested and acquired portfolios. The
fall in the markets that occurred in the first quarter of our
financial year was cushioned for our clients by the investment
strategy of our funds and, following a strengthening of the market
from January 2019, the net market movement impact on Funds under
Management for the period was a positive 3.1%.
Funds under Management GBP
billions
Reported as at 1 November
2018 4.40
---------------------------
Inflows through acquisitions 0.64
---------------------------
Inflows from existing
business 0.22
---------------------------
Market impact 0.16
---------------------------
Outflows and drawdowns (0.04)
---------------------------
Balance as at 30 April
2019 5.38
---------------------------
Inflows from existing business continued to be predominantly
invested on a discretionary mandate and despite the reduced
investor confidence showed annualised double digit growth.
Cash position
The Group remains free of bank or secured debt, except for a
small property mortgage, and maintains healthy cash balances. In
December 2018 the Company redeemed GBP2.14 million Unsecured Loan
Notes on maturity. The remaining GBP0.75 million Unsecured
Non-Convertible Bonds mature in 2020.
Outlook
The strategy of the Company continues to focus on generating
long term value for shareholders by providing exceptional value and
service to our clients and using our increasing size to drive down
third party charges aligned to an appropriate risk based investment
model. In FY18 we demonstrated the benefits of this strategy to our
clients by introducing segregated mandates for our investment
proposition, bringing institutional pricing to our clients, and in
July 2018 announcing that our AFH Direct clients would no longer
pay platform fees. Both initiatives have been delivered with the
result that total fees paid by our clients using these services
have been reduced. We believe that this is the most sustainable
model for the future of the sector, aligning clients' interests
with those of shareholders to secure long term growth and
profitability, and in line with the current objectives of the
regulator. We expect that this will continue to be an area of focus
as we continue to grow and will emphasise our USP to both clients
and to potential vendors, within the objective of accelerating our
future rate of growth
Our marketing strategy continues to embrace the digital
opportunities and challenges for the sector. The Company has
invested heavily in establishing a marketing capability to support
a growing national business and to extend beyond traditional IFA
routes to market. While we believe that face to face advisory
remains the most appropriate model to serve client's needs, our
evolving digital approach is expected to expand our target market
and to provide an improved experience for individuals and
corporates who join the AFH community.
Our model remains to expand our distribution capacity through
both organic and acquisitive growth whilst maintaining centralised
investment, advice and compliance functions to drive increased
profitability and shareholder value. The Company remains profitable
and cash generative, and during the period further strengthened its
balance sheet.
The progress made during the first half of the current financial
year, combined with the growth dynamics of our market, allow the
Directors to view the prospects of AFH for the full year and beyond
with confidence and we look forward to continuing to update the
market on our progress.
Alan Hudson
Chief Executive
28 May 2019
Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
Six months Six months Twelve months
ending 30 ending ending 31
April 2019 30 April October 2018
2018
Note GBP'000 GBP'000 GBP'000
Revenue 3 36,581 22,706 50,664
Cost of sales (16,943) (10,625) (23,099)
-------------- -------------- --------------
Gross profit 19,638 12,081 27,565
Administrative expenses before
amortisation and depreciation
and share based payments
expenses (11,944) (7,655) (17,126)
-------------- -------------- --------------
Underlying EBITDA 7,694 4,426 10,439
Amortisation and Depreciation 1,568 1,048 2,415
Non cash share based payments 72 72 88
-------------- -------------- --------------
Operating profit 6,054 3,306 7,936
Finance income 28 40 101
Finance costs (113) (122) (250)
-------------- -------------- --------------
Profit before tax 5,969 3,224 7,787
Income tax expense (1,427) (733) (1,833)
-------------- -------------- --------------
Profit for the year attributable
to owners of the parent 4,542 2,491 5,954
Other comprehensive income - - -
-------------- -------------- --------------
Total comprehensive income
for the year attributable
to owners of the parent 4,542 2,491 5,954
Earnings per share (in pence) 9
Basic 10.71 6.85 16.0
Diluted 9.88 6.32 14.6
Underlying EBITDA adjusted
for tax per share (in pence) 9
Basic 14.87 9.98 22.7
Diluted 13.73 9.20 20.7
All results derive from continuing operations
Consolidated Statement of Financial Position
Unaudited Unaudited Audited
30 April 30 April 31 October
2019 2018 2018
Note GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Intangible assets 4 93,198 44,734 74,928
Property, plant and equipment 1,516 1,206 1,230
Investments 1 1 1
Deferred tax asset 27 28 30
-------------- -------------- --------------
94,742 45,969 76,189
Current assets
Trade and other receivables 5 22,134 7,903 13,630
Cash and cash equivalents 8,777 23,725 21,543
-------------- -------------- --------------
30,911 31,628 35,173
-------------- -------------- --------------
Total assets 125,653 77,597 111,362
Liabilities
Current liabilities
Trade and other payables 7 25,146 12,059 18,727
Current tax liabilities 1,599 922 1,049
Provisions 1,253 - 1,570
Financial liabilities -
Borrowings 6 80 2,220 2,221
-------------- -------------- --------------
28,078 15,201 23,567
Net current assets 2,833 16,427 11,606
-------------- -------------- --------------
Non-current liabilities
Trade and other payables 7 22,248 7,996 17,138
Financial liabilities -
Borrowings 6 1,030 1,103 1,067
Provision 102 297 170
-------------- -------------- --------------
23,380 9,396 18,375
Total liabilities 51,458 24,597 41,942
-------------- -------------- --------------
Net assets 74,195 53,000 69,420
Shareholders' equity
Share capital 8 4,259 3,782 4,198
Share premium account 8 55,740 40,605 54,641
Treasury Shares 8 (149) - -
Merger reserve (540) (540) (540)
Share-based payment reserve 790 703 718
Retained earnings 14,095 8,450 10,403
-------------- -------------- --------------
Total Shareholders' equity 74,195 53,000 69,420
Consolidated Statement of Changes in Equity
Share Share Treasury Merger Share-based Retained Total
capital premium Shares reserve payment earnings
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Audited balance
at 31 October
2017 3,058 24,224 - (540) 630 5,959 33,331
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit for the
period - - - - 73 2,491 2,564
Other
comprehensive
income - - - - - - -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total
comprehensive
income - - - - 73 2,491 2,564
------------ ------------ ------------ ------------ ------------ ------------ ------------
Issue of share
capital 724 16,381 - - - - 17,105
Dividend
------------ ------------ ------------ ------------ ------------ ------------ ------------
Unaudited
balance
at 30 April
2018 3,782 40,605 - (540) 703 8,450 53,000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit for the
period - - - - 15 3,463 3,478
Other
comprehensive
income - - - - - - -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total
comprehensive
income - - - - 15 3,463 3,478
------------ ------------ ------------ ------------ ------------ ------------ ------------
Issue of share
capital 416 14,038 - - - - 14,452
Dividend - - - - - (1,510) (1,510)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Audited balance
at 31 October
2018 4,198 54,641 - (540) 718 10,403 69,420
------------ ------------ ------------ ------------ ------------ ------------ ------------
Profit for the
period - - - - 72 4,542 4,614
Other
comprehensive
income - - - - - - -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total
comprehensive
income - - - - 72 4,542 4,614
------------ ------------ ------------ ------------ ------------ ------------ ------------
Issue of share
capital 61 1,099 (149) - - - 1,011
Dividend - - - - - (850) (850)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Unaudited
balance
at 30 April
2019 4,259 55,740 (149) (540) 790 14,095 74,195
------------ ------------ ------------ ------------ ------------ ------------ ------------
Consolidated Statement of Cash Flows
Unaudited Unaudited Audited
Six months Six months Twelve months
ending 30 ending 30 ending 31
April April October
2019 2018 2018
Note GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 10 765 3,518 4,810
Tax paid (1,329) (337) (1,311)
-------------- -------------- --------------
Net cash (outflow)/inflow from operating
activities (564) 3,181 3,499
-------------- -------------- --------------
Cash flows from investing activities
Purchase of property, plant and
equipment (434) (151) (278)
Purchase of other intangible assets,
net of cash (7,947) (1,595) (15,822)
Payment of deferred consideration (1,578) (3,656) (4,571)
Interest received 28 40 101
-------------- -------------- --------------
Net cash outflow from investing
activities (9,931) (5,362) (20,570)
-------------- -------------- --------------
Cash flows from financing activities
Proceeds from issue of shares 911 17,552 32,602
Share issue costs - (712) (1,324)
Repayment of borrowings (2,222) (85) (172)
Interest paid (110) (124) (257)
Dividends (850) - (1,510)
-------------- -------------- --------------
Net cash (outflow)/inflow from financing
activities (2,271) 16,631 29,339
-------------- -------------- --------------
Net (decrease)/increase in cash
and cash equivalents (12,766) 14,450 12,268
Cash and cash equivalents at the
beginning of the period 21,543 9,275 9,275
-------------- -------------- --------------
Cash and cash equivalents at the
end of the period 8,777 23,725 21,543
Notes to the Consolidated Financial Statements
1 General Information
AFH Financial Group Plc is a company incorporated in England and
Wales. The Group is principally engaged in the provision of
independent financial advice to the retail market.
2 Basis of preparation and accounting policies
2.1 Basis of preparation
The interim condensed consolidated financial statements have
been prepared in accordance with IAS 34 Interim Financial
Reporting. The interim condensed consolidated financial statements
do not include all the information and disclosures required in the
annual financial statements and should be read in conjunction with
the Group's financial statements for the year ended 31 October
2018, which were prepared in accordance with International
Financial Reporting Standards adopted by the International
Accounting Standards Board ("IASB") and interpretations issued by
the International Financial Reporting Interpretations Committee
("IFRIC") of the IASB (together "IFRS") as adopted by the European
Union, and in accordance with the requirements of the Companies Act
applicable to companies reporting under IFRS.
The information relating to the six months ended 30 April 2019
and the six months ended 30 April 2018 is unaudited and does not
constitute statutory financial statements within the meaning of
section 434 of the Companies Act 2006. The Group's statutory
financial statements for the year ended 31 October 2018 have been
reported on by its auditor and delivered to the Registrar of
Companies. The report of the auditor was unqualified and did not
draw attention to any matters by way of emphasis or contain a
statement under section 498(2) or (3) of the Companies Act
2006.
2.2 Significant accounting policies
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's annual
financial statements for the six months ended 30 April 2019.
2.3 Basis of consolidation
The interim condensed consolidated financial statements
consolidate the financial statements of the Company and its
subsidiary undertakings as at 30 April and 31 October each
year.
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
ceases. The financial statements of subsidiaries are prepared for
the same reporting period as the parent company, using consistent
accounting policies.
2.4 Key sources of judgements and estimation uncertainty
The preparation of the condensed consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amount of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities. If in the
future such estimates and assumptions, which are based on
management's best judgement at the date of preparation of the
financial statements, deviate from actual circumstances, the
original estimates and assumptions will be modified as appropriate
in the period in which the circumstances change. The areas where a
higher degree of judgement or complexity arises, or where
assumptions and estimates are significant to the consolidated
financial statements, are discussed below.
Impairment of client portfolios
The Group reviews whether acquired client portfolios are
impaired at least on an annual basis. This comprises an estimation
of the fair value less cost to sell and the value in use of the
acquired client portfolios. In assessing value in use, the
estimated future cash flows expected to arise from the individual
client portfolios are discounted to their present value over a
finite period to calculate the fair value.
The key assumptions used in arriving at a fair value less cost
of sale are those around valuations based on multiples of future
earnings streams and values based on assets under management. These
have been determined by looking at valuations of similar businesses
and the consideration paid in comparable transactions.
The carrying amount of client portfolios at 30 April 2019 was
GBP50.5m (2018 HY: GBP37.8m). No impairments have been made during
the period (2018 HY: nil).
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an
annual basis. This requires an estimation of the value in use of
the cash-generating units to which the goodwill has been allocated.
In assessing value in use, the estimated future cash flows expected
to arise from the cash-generating unit are discounted to their
present value using the Group's weighted average cost of capital
adjusted for tax.
The carrying amount of goodwill at 30 April 2019 was GBP42.1m
(2018 HY: GBP6.6m). No impairments have been made during the period
(2018 HY: GBP nil).
3 Revenue and segmental Analysis
The following is an analysis of the Group's revenue and results
from continuing operations by reportable segment.
Unaudited Six months ending 30
April 2019
Financial Advice and
Head Office Investment Management Protection Total
2019 2019 2019 2019
GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------------------------------- --------------- ---------------
Revenue - 29,323 7,258 36,581
Cost of sales - (13,435) (3,508) (16,943)
Gross profit - 15,888 3,750 19,638
Administrative expenses before
amortisation and depreciation
and share based payments
expenses (1,429) (9,525) (990) (11,944)
__________ ____________ __________ __________
Underlying EBITDA (1,429) 6,363 2,760 7,694
Amortisation and Depreciation (1,545) (23) (1,568)
Non cash share based payments (72) - - (72)
Operating profit (1,501) 4,818 2,737 6,054
Finance income 20 8 - 28
Finance costs (100) (13) - (113)
Profit before tax (1,581) 4,813 2,737 5,969
----__________ ----____________ ----__________ ----__________
Unaudited Six months ending 30
April 2018 Financial Advice and
Head office Investment Management Protection Total
2018 2018 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------------------------------- --------------- ---------------
Revenue - 18,829 3,877 22,706
Cost of sales - (8,555) (2,070) (10,625)
Gross profit - 10,274 1,807 12,081
Administrative expenses before
amortisation and depreciation
and share based payments
expenses (1,237) (5,883) (535) (7,655)
4,426
--------------- -------------------------------- --------------- ---------------
Underlying EBITDA (1,237) 4,391 1,272 4,426
Amortisation and Depreciation - (1,031) (17) (1,048)
Non cash share based payments (72) - - (72)
Operating profit (1,309) 3,360 1,255 3,306
Finance income 35 3 2 40
Finance costs (122) - - (122)
Profit before tax (1,396) 3,363 1,257 3,224
----__________ ----____________ ----__________ ----__________
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 Group's accounting policies.
The total revenue of the Group 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 Group revenues (2018 -
GBPnil)
4. Intangible Assets
Acquired
client
Other intangibles Goodwill portfolios Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 31 October 2017 401 6,965 35,746 43,112
Additions - - 6,732 6,732
Disposals - - - -
Revaluations - - - -
At 30 April 2018 401 6,965 42,478 49,844
Additions 145 21,440 9,853 31,438
Disposals - - - -
Revaluations - - - -
At 31 October 2018 546 28,405 52,331 81,282
Additions 164 14,041 5,486 19,691
Disposals - - - -
Revaluations - - - -
At 30 April 2019 710 42,446 57,817 100,973
Amortisation
At 31 October 2017 16 375 3,791 4,182
Charge for the period 20 - 908 928
At 30 April 2018 36 375 4,699 5,110
Charge for the period 21 - 1,223 1,244
At 31 October 2018 57 375 5,922 6,354
Charge for the period 29 - 1,392 1,421
At 30 April 2019 86 375 7,314 7,775
Net book value
At 30 April 2019 624 42,071 50,503 93,198
------------------ --------- ------------ ---------
At 31 October 2018 489 28,030 46,409 74,928
------------------ --------- ------------ ---------
At 30 April 2018 365 6,590 37,779 44,734
------------------ --------- ------------ ---------
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 of 10%, for a period of 10
years with no annuity. On this basis the directors believe the
value of goodwill is not impaired at 30 April 2019.
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 period ended 30 April 2019, no asset purchases were
undertaken relating to acquired client portfolios. Four share
purchases were undertaken from which GBP14.0m of goodwill was
recognised. Of these share purchases, GBP5.5m related to client
portfolios. Included within the total consideration are amounts
relating to contingent consideration of GBP11.8m. The contingent
consideration is subject to earn outs based on future profitability
over a period of up to four years.
5. Trade and other receivables
Group
Unaudited Unaudited Audited
Six months Six months Twelve
ending 30 ending 30 months
April 2019 April 2018 ending
31 October
2018 (restated)
GBP'000 GBP'000 GBP'000
Trade receivables 10,322 6,037 7,232
Non-indemnified commission receivable 7,897 - 3,857
Other receivables 2,659 1,065 1,932
Prepayments 1,256 801 609
---------------- ------------ -----------------
22,134 7,903 13,630
The non-indemnified commission is stated net of GBP1.2m doubtful
debt provision relating to commission on policies that may lapse
before term. This balance has been shown separately from trade
receivables in the note above and the cashflow statement, note 10
for the year ended 31 October 2018 to be consistent with its
current disclosure.
Included in the Non-indemnified receivable is GBP5.3m of
commissions receivable from insurance companies on life and other
protection policies brokered by the protection division due in
greater than 1 year.
6. Analysis of borrowings
Unaudited Unaudited Audited
Six months Six months Twelve months
ending 30 ending 30 ending 31
April April October
2019 2018 2018
GBP'000 GBP'000 GBP'000
Current borrowings
Mortgage on freehold property 80 78 77
7.5% Unsecured bonds - 2,142 -
80 2,220 77
----------------- ----------------- -----------------
Non-current borrowings
8% Unsecured bonds 752 752 752
Mortgage on freehold property 278 351 315
1,030 1,103 1,067
----------------- ----------------- -----------------
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 is due in 2020. The 7.5% unsecured bond
was repaid in December 2018.
The mortgage is repayable by instalments over an 8-year period,
ending October 2023, with an interest rate of 2.9% over LIBOR.
7. Trade and other payables
Unaudited Unaudited Audited
Six months Six months Twelve months
ending 30 ending 30 ending 31
April April October
2019 2018 2018
GBP'000 GBP'000 GBP'000
Current
Trade payables 1,673 1,587 1,240
Contingent consideration 17,257 4,869 11,323
Commissions payable 4,664 4,604 4,466
Other payables 780 664 762
Accruals 772 335 936
25,146 12,059 18,727
Non-current
Contingent consideration 22,248 7,996 17,138
8. Share Capital
Unaudited Unaudited Audited
Six months Six months Twelve months
ending 30 ending 30 ending 31
April April October
2019 2018 2018
GBP'000 GBP'000 GBP'000
42,591,061 authorised, issued
and fully paid 10p ordinary
shares 4,259 3,782 4,198
4,259 3,782 4,198
---------------- ---------------- ---------------
42,931 authorised, issued and
fully paid 10p treasury shares 4 - -
---------------- ---------------- ---------------
4 - -
---------------- ---------------- ---------------
On 5 March 2019, the company purchased 43,931 ordinary shares at
10p each in the company into its treasury holdings at a price of
GBP3.40 per Ordinary share. The shares do not carry any voting
rights.
9. Earnings per share
The calculation of earnings per share is based on the profit
attributable to the equity holders for the period of GBP4,542,000
(HY: 2018 - GBP2,491,000) and weighted average number of shares in
issue during the period of 42,422,946 (HY: 2018 - 36,352,925).
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.
Unaudited Unaudited Audited
Six months Six months Twelve months
ending 30 ending 30 ending 31
April April October
2019 2018 2018
GBP'000 GBP'000 GBP'000
Weighted average number of ordinary
shares for the purpose of basic
earnings per share 42,449,632 36,352,925 37,235,148
Effect of dilutive potential ordinary
shares 3,524,766 3,089,690 3,622,564
Weighted average number of ordinary
shares for the purpose of diluted
earnings per share 45,974,398 39,442,615 40,857,712
There are no adjustments between the Earnings for the purpose of
basic earnings per share being net profit attributable to
shareholders and the Earnings for the purpose of diluted earnings
per share.
There are no adjustments between the Net profit attributable to
equity holders of the parent and the Earnings from continued
operations for the purpose of diluted earnings per share excluding
discontinued operation.
Underlying earnings per share of 14.87p (HY2018 - 9.98p) have
been calculated on the profit attributable to the equity holders
for the period after adding back Amortisation, Depreciation and
non-cash share based payments after adjusting the tax provision
accordingly.
10. Reconciliation of Operating profit to Net Cash inflow from
Operating Activities
Unaudited Unaudited Audited
Six months Six months Twelve months
ending 30 ending 30 ending 31
April April October
2019 2018 2018
(restated)
GBP'000 GBP'000 GBP'000
Profit before tax for the period 5,969 3,224 7,787
Adjustments for
Interest and other investment income (28) (40) (101)
Interest expense 113 122 250
Depreciation and amortisation 1,568 1,048 2,415
Equity settled share-based expense 72 72 88
Movements in working capital
Increase in core trade and other receivables (3,198) (1,529) (3,789)
Increase in non-indemnified commission
receivable (4,040) - (3,857)
Increase in trade and other payables 309 621 2,017
Cash generated from operations 765 3,518 4,810
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
IR SELFLLFUSEII
(END) Dow Jones Newswires
May 28, 2019 02:01 ET (06:01 GMT)
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