Source - LSE Regulatory
RNS Number : 9356L
AFH Financial Group Plc
18 January 2021
 

18 January 2021

 

AFH Financial Group PLC

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

 

AUDITED FULL YEAR RESULTS FOR THE PERIOD ENDING 31st OCTOBER 2020

 

Seventh consecutive year of revenue growth and improved profitability

 

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 ended 31 October 2020.

 

Financial highlights:

 

·    Revenues up 4% to £77.1 million (2019: £74.3 million)

·    Underlying* EBITDA up 5% to £18.1 million (2019: £17.2 million)

·    Underlying* EBITDA margin increased to 23.4% from 23.2%

·    Profit after tax maintained at £10.7 million (2019: £10.8 million)

·    Earnings per share 25.0 pence (2019: 25.4 pence)

·    Underlying** Earnings per Share increased to 34.1 pence (2019: 32.8 pence)

·    Dividend per share maintained at 6.0 pence (2019: 6.0 pence)

·    Funds under Management of £6.2 billion (2019: £6.2 billion)

 

*Underlying EBITDA excludes the 2020 IFRS 16 adjustment and the non-cash charge for share based payment costs to provide a like-for-like comparison.

 

**Underlying Earnings represents Underlying EBITDA as adjusted for taxation.

 

Year of consolidation leaves AFH in strong position for 2021:

 

·    Both revenue and Underlying EBITDA growth achieved despite unprecedented market conditions

·    Reduced outstanding contingent consideration on past acquisitions from £37.9 million to £19.3 million

·    Continued investment in technology enabled staff and advisers to adapt quickly to the pandemic, maintaining contact with, and providing ongoing services to clients

·    The Board expects the pace of consolidation within the sector to increase

·    The Board believes demand for financial planning-led wealth management services will continue and towards the end of the reporting period saw a gradual increase in net inflows of client funds

·    The Company continues to be cash generative and maintains a strong cash position

·    Digital marketing expected to generate new opportunities for organic growth

·    Given the resilience shown in 2020 and the early months of the 2021 financial year the Board views the coming year with confidence and looks forward to continued success

 

Alan Hudson, Group Chief Executive, commented:

 

"I am pleased to report on another year of progress at AFH towards our goal of becoming the UK's leading advice-led wealth management company. Despite the disruption caused by COVID-19 and the impact that it has had on our clients, advisers and staff, the Company achieved both revenue and EBITDA growth whilst maintaining our EBITDA margin.

 

"The Company continues to focus on the long-term needs of its clients and on reducing their overall cost of investing. Our clients entrust us to help them meet their financial planning objectives and we recognise that over a period of 20 years or more the cost of investing can represent a material cost compared to the original investment. For this reason, the Company uses its size and buying power for the benefit of its clients.

 

"The AFH business model remains underpinned by the culture that is encapsulated in our values. The Board recognises the multitude of stakeholders served by the AFH community and seeks to balance the interests of all stakeholders when implementing its business strategy.

 

"In the coming months we expect our strong pipeline of employed advisers to join the firm, providing us with a significant boost to AFH's advisory capacity and geographical reach at a time when we see the demand for professional financial planning growing significantly.

 

"As reported, even prior to the pandemic's impact on global markets, 2020 was to be a year of consolidation for AFH and we are extremely pleased to have finished the period with a strengthened balance sheet, significantly reduced outstanding contingent considerations and strong cash balances.

 

"Trading remains in line with the Board's expectations and the resilience shown throughout 2020 and in the first months of the new financial year leaves us confident for the year ahead.

"I would like to personally thank all our staff and advisers for the way in which they reacted to the changes and for the exceptional contribution that they collectively made to the Company and our clients."

 

 

For further information, please contact:

 

AFH Financial Group PLC 

Alan Hudson, Chief Executive Officer

Paul Wright, Chief Financial Officer

 

01527 577 775

 

Shore Capital (Nominated Adviser and Broker)

Corporate Advisory: Hugh Morgan / Daniel Bush / Sarah Mather

Corporate Broking Henry Wilcocks

 

0207 408 4090

 

Yellow Jersey PR Limited (Financial PR)       

Joe Burgess / Georgia Colkin / Annabel Atkins

 

0776 93 25 254

 

This announcement is released by AFH Financial Group plc and contains inside information. The person responsible for arranging and authorising the release of this announcement is Paul Wright, Chief Financial Officer of AFH Financial Group plc.

 



 

 

Chairman's introduction

Dear Shareholder

The period under review was one of unprecedented uncertainty and it is a huge tribute to our staff, advisers and providers that we were able to maintain and, in many cases, enhance our service to clients throughout, whilst maintaining the profitability of the Group.

As I set out at the beginning of 2020, the Board viewed the year as one for consolidating the exceptional growth of previous periods, carefully managing capital allocation and reducing the contingent consideration outstanding on previous acquisitions. This approach left the Company well placed to react quickly to the COVID-19 crisis as it developed in the spring and enabled us to progress through the year without the need for a change in strategic direction. While 2020 may be seen as a year of consolidation rather than growth, the Company was able to strengthen its balance sheet and report increased revenues and Underlying EBITDA compared to previous years.

The Board believes that its business model of advice-led investment management and its client proposition that shares the benefits of the AFH community through lower investment costs and no platform fees has proved resilient during 2020, with outflows of client funds remaining at prior year levels in contrast to the increased outflows experienced by many in the sector.

Whilst new business inflows were impacted by COVID-19, requiring our advisers to engage with clients and prospects remotely, the post summer period saw a gradual increase in new business, driven initially by mortgage work but latterly by investment advice.

Recurring revenues again tracked the major UK indices and, despite a downturn at mid-year following the significant falls in the equity markets, ended the year at a similar level to that recorded in Q1.

During the period the Company reduced its outstanding contingent consideration on past acquisitions from £37.9m to £19.3m and is expecting to reduce this further to below £10m during the first half of the 2021 financial year.

In March 2020, the Company repurchased a portion of its 4% convertible unsecured loan stock due 2024 ("CULS") at a discount of 13% to the nominal face value of the CULS. Following this repurchase, the aggregate outstanding nominal amount of the CULS remaining in issue is £13.6m. In September, the Company also repaid the outstanding 8% Unsecured Bonds at par as they matured.

The above transactions were carried out using the Company's cash resources and, while the HSBC facility of £12m was drawn down in March and April, this cash was unspent and remained on the Company balance sheet at the year end. On 15 January 2021 the HSBC facility was extended to £20m on unchanged terms. This additional facility has not been drawn.

Our people

The loyalty, professionalism and hard work of our employees and advisers has never been as evident as in 2020, when we introduced new processes and systems for remote working to facilitate the smooth operation of the business in the face of a global pandemic.

Despite the challenges of such a large scale shift, in March and April the Company was able to connect over 300 employees to our systems and infrastructure to enable remote working within a few weeks and staff were extremely quick to adapt to this new style of working. These changes have allowed us to maintain regular interaction both within AFH's departments and adviser group and externally with our clients. Since the start of the first national lockdown we were able to provide weekly updates on technical, regulatory and operational matters that were regularly attended by over 100 advisers and staff.

I would like to personally thank all our staff and advisers for the way in which they reacted to the changes and for the exceptional contribution that they collectively made to the Company and our clients.

It remains the Board's ambition to maintain the alignment of interest between our employees and advisers with those of our clients and shareholders. 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 Group to continue to deliver according to its strategy and to continue doing so even through times of adversity as we experienced in 2020.

Dividend

The Board intends to continue the Group's progressive dividend policy, while recognising the requirement to maintain sufficient cash reserves within the Company to fund its growth strategy. Having considered this, in light of the resilient performance during the year under review, it is the Board's intention to maintain the 2020 level of dividend and the Company will pay a first interim dividend of 3p on 16 February 2021 to shareholders on the register of members at the close of business on 29 January 2021, the ex-dividend date is 28 January 2021, and pay a second interim dividend in July 2021. This second interim dividend will be reviewed in light of the country being released from the current lockdown restrictions and the impact on trading during the period.

Outlook

The Board remains of the opinion that there is an increasing 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 the necessary infrastructure and management is in place to support its growth plans for 2021 and beyond and has been encouraged by the proven resilience of the business under challenging economic and social conditions. Continued investment in technology and digital media is expected to accelerate the benefits of scale and the infrastructure investment made in previous periods.

The Company continues to be cash generative and, during the last year, has strengthened its balance sheet. The Board expects the pace of consolidation within the sector to increase as commercial factors and regulatory requirements encourage a smaller number of larger businesses to dominate the sector and believes that AFH is well positioned to benefit from this opportunity. As in previous years, AFH will continue to focus on driving the organic growth of the business, providing professional and cost-effective services to clients while seeking appropriately priced opportunities to expand its captive distribution throughout the financial sector to drive increased profitability and shareholder return.

Given the resilience shown in 2020 and the early months of the 2021 financial year, which despite the current lockdown anticipates a positive outcome from the vaccines being rolled out, together with the anticipated acquisition opportunities, the Board views the coming year with confidence and looks forward to continued success.

 

 

John Wheatley

Chairman

 

15 January 2021

 

 

Chief Executive's report

 

I am pleased to report on another year of progress towards our goal of becoming the UK's leading advice-led wealth management company. Despite the disruption caused by COVID-19 and the impact that it has had on our clients, advisers and staff, the Company achieved both revenue and Underlying EBITDA growth whilst maintaining our Underlying EBITDA margin.

The Company continues to focus on the long-term needs of its clients and on reducing their overall cost of investing. Our clients entrust us to help them meet their financial planning objectives and we recognise that over a period of 20 years or more the cost of investing can represent a material cost compared to the original investment. For this reason, the Company uses its size and buying power for the benefit of its clients. This was evidenced during the period as the growth in our segregated mandates further reduced the fund management charges to our clients and consolidated our position of providing a market leading client proposition.

The AFH business model remains underpinned by the culture that is encapsulated in our values. The Board recognises the multitude of stakeholders served by the AFH community and seeks to balance the interests of all stakeholders when implementing its business strategy. This was particularly apparent in the Group's acquisition strategy, where an alignment of cultures has been proven to be fundamental to the integration and success of our acquired businesses.

New business revenues were significantly impacted during the second half of the year as uncertainty and the reduced opportunities for our advisers to meet and establish relationships with new clients combined to limit the amount of financial advice given and, in turn, the inflows of new portfolios. However, our continued investment in technology in prior years enabled our advisers to adapt quickly, maintaining contact with, and providing ongoing services to, existing clients. This was enhanced during the second half of the year by the roll-out of our client portal and wider dissemination of our technical and investment updates to our clients through digital media.

New business in the protection division benefitted from an initial surge in public interest in life and critical illness insurance. This was, however, tempered in the final quarter as cancellation of policies taken out at the height of the national lockdown was higher than usual as the perception of the likely spread and severity of COVID-19 changed following the government's relaxation of restrictions.

Notwithstanding the above, new business levels in the wealth management division slowly increased during the latter part of the year and, whilst not returning to pre COVID-19 levels, the trend gives us confidence for the new financial year and the anticipated need for professional financial planning as the economic and fiscal impact of the pandemic is transmitted through society.

Recurring revenues increased during the period in spite of the market downturn at mid-year and again proved our investment approach across the various attitude to risk investment models. Recurring revenue accounted for 78% of total revenue in the wealth management division, an increase from 72% in 2019.

Strategy

The Group strategy to increase shareholder value through the expansion of the AFH community remains at the heart of AFH's growth. While in 2020 the Company withdrew from the acquisition market in order to consolidate its previous growth and to strengthen its balance sheet through the reduction of outstanding debt and contingent consideration, our strategy of combining organic growth through greater productivity of our advisers together with value accretive acquisitions financed on an earn out model remains unchanged. The financial success of our strategy is monitored regularly by the Board against KPIs and is measured against the three key aspirational targets set by the Board in 2019.

Culture is at the centre of any successful organisation and remains the driving force of both our internal growth and acquisitions. Our values, which are detailed in the Annual Report, have been documented to ensure that we are able to measure our progress 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 third-party services for our clients and to embrace them in the AFH community. During the year, we continued to reduce third party fees to provide a market leading client proposition while retaining our status as independent financial advisers, providing access for our clients to the market at institutional prices.

 

Financial Performance

Despite the impact of COVID-19 on the business and the temporary withdrawal from the acquisition market, the year under review produced a seventh consecutive year of revenue growth and improved profitability since joining AIM in 2014. Increased revenues and tight control of our fixed cost base resulted in stable statutory Earnings Per Share of 25.0p while underlying Earnings Per Share, excluding the benefit of IFRS 16, increased by 4% to 34.1p.

Total revenue for the 12 months ended 31 October 2020 of £77.1 million was 4% above the corresponding period (2019: £74.3 million) reflecting the resilience of the business in extraordinary times.

The continuing requirement of our clients for financial advice and protection insurance generated £29.8m (2019: £28.3m) of new business revenues, while recurring income of £47.3m (2019 £46.0m) continued to demonstrate the strength of our revenue base and earnings quality.

Our retention of existing clients and their investment funds continued to be high with outflows, including pension drawdown, remaining at 3% of opening funds under management.

Gross margins declined in our protection business during the year following the strategic change in product mix. This reduced the divisional gross margin to 37%. While the gross margin of our Wealth Management division remained constant, at a consolidated level the protection division change reduced the overall gross margin from 53% to 50%.

 


Funds under Management

£ billion

Reported as at 1 November 2019

6.2

Gross Inflows from organic growth

0.35

Market impact

(0.2)

Outflows

(0.15)

Balance as at 31 October 2020

6.2

During the year we were able to increase our Underlying EBITDA and to maintain our Underlying EBITDA margin above 23% (2019: 23.2%) despite the reduction in the gross margin caused by the revised mix of business in the protection division and the impact of COVID-19.

Interest charges increased during the year as the 12-month impact of the 4% CULS was recognised and the Company drew down the HSBC facility at a net annualised cost to the business of 1.75%.

Profit after tax for the year of £10.7m (2019: £10.8m) confirmed the resilience of the business and enabled the Company to maintain its dividend during the year whilst maintaining appropriate cash reserves throughout the year. Statutory Earnings Per Share remained stable at 25.0p (2019:25.4p). Underlying EBITDA, adjusted for tax per share, being Underlying EBITDA less a current tax charge at 19%, is a key measure used by the Board which reflects the cash-based Earnings Per Share generated by the business. This increased slightly to 34.1p (2019: 32.8p).

For many years we have seen increased technology supporting our face-to-face advisory model as fundamental to the future of our business and have consistently invested in technology both operationally and for the benefit of our clients. The events of 2020 demonstrated the value of this strategy. 2020 was a year of further investment, with over £1.5m expensed as we targeted long term operational efficiencies and a streamlined experience for our clients in addition to supporting our staff and advisers working remotely.

In addition to supporting over 300 staff and our IFAs to work remotely from our offices, 2020 saw the launch of our client portal and an increased focus on digital marketing. We will continue to build on these and new technology solutions in the future in order to enhance the support provided to our advisers and services offered to clients. We are also currently looking at offering cyborg advisory services to provide greater flexibility in our interaction with existing and potential clients.

Our marketing strategy continues to embrace the digital opportunities for the sector. For a number of years, the Group has invested 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 clients' needs, our evolving digital approach has already started to expand our target market and to provide benefits to individuals and corporates who join the AFH community.

We believe that our approach to technology, together with our focus on reducing third party costs for our clients, will provide clear commercial advantages for our clients and advisers and enable AFH to benefit from further consolidation in the market, generating significant shareholder and client value in the future.

Review of investment climate in 2020

The year was a rollercoaster ride for investors, dominated by the fallout from the COVID-19 pandemic and policymakers' responses to it. The period started well enough, with markets buoyed by a victory for the Conservative Party in the December 2019 UK general election, the avoidance of a 'no-deal' Brexit and the signing of the US-China 'phase-one' trade deal in January. However, as the pandemic spread from China to the rest of the world, the introduction of stringent lockdown restrictions resulted in an unprecedented contraction in the global economy during the spring. Although the lifting of lockdown measures ushered in a sharp rebound during the summer, most major economies - with the notable exception of China - ended the period with economic activity still well below pre-pandemic levels.

While the disruption wrought by the pandemic was unprecedented, global policymakers' response to it was also on a scale never seen before. Governments around the world spent in excess of US$10 trillion on various relief measures - such as furlough schemes, benefit top-ups and loans - to support households and businesses. Meanwhile, central banks cut interest rates, injected liquidity into markets and restarted quantitative easing (QE, or bond buying) programmes.

These interventions served to underpin financial markets. Despite the huge increase in borrowing, yields on developed market government bonds hit record lows as central banks committed to buy vast quantities of debt, and investors anticipated that official interest rates would stay close to zero for years to come. Amidst speculation that the Bank of England would at some stage take interest rates below zero (a fate which has so far been avoided), yields on short-dated UK government bonds spent much of the year in negative territory. As bond prices move inversely with yields, Gilts delivered solid single-digit returns over the period.

In turn, ultra-low government bond yields boosted the relative appeal of other assets. The combination of negative 'real' (i.e. after inflation) bond yields and the uncertainty created by COVID-19 helped push the gold price to a record high of just above US$2000 per ounce in early August. Despite a subsequent pull-back, gold still notched up a gain in excess of 20% over the year.

The liquidity injections from central banks also spurred a turnaround in global equity markets. After a positive start to 2020, the mood amongst equity investors turned sour towards the end of February as the ramifications of global COVID-19 lockdowns became clear. Between 19th February and 23rd March, global equities (as measured by the iShares MSCI ACWI ETF) fell nearly 34% - the fastest drop ever recorded. However, supported by record monetary and fiscal stimuli, the bounce back was also extraordinarily swift, with the broad global market regaining its prior peak at the end of August and recording a gain of around 4% over the 12-month period.

However, this headline performance masked a wide divergence between regions and market sectors. With lockdowns accelerating the move towards 'online living', the big tech companies that profited from this trend (e.g. Amazon, Microsoft, Netflix etc.) led the market higher. As a result, the US equity market, home to most of these tech titans, outperformed and returned nearly 10% during the year. Chinese equities benefited not only from a high exposure to the tech/online sector, but also from Beijing's relatively successful containment of the virus and the subsequent 'V-shaped' recovery in the Chinese economy. As a result, Chinese equities outshone other major markets during the period, rising more than 30%. 

A relatively high exposure to underperforming sectors and a low representation of companies in the tech sector meant that UK equities were one of the worst-performing markets during the year. Despite relatively generous government support for households and businesses, the UK experienced a worse economic contraction than its developed market peers. Deep cuts to dividends took a heavy toll on a market whose income-generating qualities have historically been a key attraction. By the end of the 12-month period, the broad UK equity market was down more than 20%. The disappointing performance of our domestic market highlighted the importance of a diversified portfolio, both in terms of asset class and geography.

Segmental review

Financial advisory and investment management

Financial advisory, and the ongoing investment management of our client portfolios, represents the core business of AFH. Likewise, the management of our clients' 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 measure our investment performance in the context of a range of discretionary investment managers.

The average discretionary portfolio managed on behalf of our clients continues to be approximately £200,000 of investable assets, the construction of which is primarily based on a client's risk appetite and focused on wealth preservation. However, for clients with larger portfolios who wish for a more traditional stockbroking service, AFH Private Wealth was established in 2016 and now manages over £250m of client assets, operating from Bromsgrove and Colwyn Bay.

During the period we have grown our employed adviser base to complement the already established self-employed adviser model. This strategy has allowed us to broaden our appeal in the IFA market and recruit in a challenging market where demand continues to exceed supply. While having no financial impact on the year under review, this strategy has enabled the Company to enter 2021 with a strong pipeline of employed advisers who are scheduled to join AFH in the first calendar quarter of 2021, providing a significant boost to our capacity and geographic penetration at a time when the need for professional financial planning is expected to be at exceptional levels.

During the year, our initial financial planning fees totalled £12.7m (2019: £15.1m), reflecting the challenges faced by our advisers during the year as highlighted above. Ongoing management fees increased to £47.3m (2019: £43.0m), in spite of the markets, which spent much of the year below prior year levels, and the modest levels of net inflows from new and existing clients. This increase was reflected in the ratio of recurring income to new business within this division, which increased to 78% for the period.

Employment costs remain the major fixed cost of the division, accounting for over 80% of all fixed cash expenditure. During the year, all of our staff agreed to a temporary salary reduction in the light of the uncertainty as to how the business would be impacted by the COVID-19 pandemic. In asking staff to make this sacrifice the Board considered the short-term effect of the 2007 financial crisis when over 60% of new business was lost in the period following the initial crash and I echo the thanks of the Chairman to all of our staff for their action. I am also pleased to report that the full impact of the reduction was only applied for three months and all staff were returned to their original salaries in September 2020.

As noted above, the division invested heavily in IT and marketing initiatives during the year which enabled it to maintain a full service to our clients throughout the year. The digital marketing drive, which was launched in June 2020, showed significant promise with the cost per lead and conversion rates both in line with the Board's expectations, based on the marketing studies undertaken prior to launch. Whilst the project remains at an early stage and the full revenue benefits of this new channel to market are not apparent in the 2020 results, we are pleased with progress to date and the initial results and will continue to monitor closely. Notwithstanding this increased cost, the division generated an increased EBITDA of £16.5m, (2019: £14.2m), representing a 28% margin on revenue (2019: 24%).

Protection broking

As outlined in November 2019, during the period the focus of this division was on cash generation and the maintenance of the working capital requirements from the Company. This was anticipated to reduce the gross margin significantly from the 54% level reported in 2019 as the ratio of indemnified vs non-indemnified policies written moved significantly in favour of the former.

Our face-to-face protection broking business, Eunisure, enjoyed a strong first half continuing to perform well during the initial lockdown in spring 2020 when demand for protection products increased across the sector as the public became more aware of the dangers of remaining underinsured.

The fourth quarter of the year saw a fall in demand for new protection insurance and a number of policies taken out during the initial stages of the pandemic cancelled as public confidence increased with reduced government restrictions. Notwithstanding the somewhat turbulent nature of the year the division was able to increase revenues to £17.1 m (2019: £14.2m).

The division generated EBITDA of £4.6 m (2019: £5.4m), representing a 27% margin on revenue (2019: 38%), reflecting the decreased gross margin following the strategic change in the product mix of this division.

Capital structure

As reported in 2019, in assessing its financial gearing, the Board considers the structure of the AFH acquisition model with over 50% of the maximum consideration to be contingent and subject to performance criteria as a component of the Group's financing structure. In November 2019 the Board decided to reduce the overall level of gearing by the reduction of the contingent consideration balances, which at 31 October 2019 totalled £37.9m, and by using its trading cash surplus and banking facilities to repay the 8% Loan Notes that matured in September 2020.

The Group continues to maintain a strong cash position and, furthermore, all regulated subsidiary companies reported significant margins above their regulatory and stress-tested capital requirements as at 31 October 2020.

As noted in the Chairman's Statement, in March 2020 the Company repurchased a portion of the 4% CULS, issued in August 2019, at a discount of 13%. As at 31 October 20120 there remained £13.6m CULS outstanding, convertible at a price of £4.20 per share and maturing in August 2024.

At the year end, the Group had a maximum £19.3m of contingent consideration outstanding over the next three financial periods, subject to performance criteria, together with £13.6m of CULS. Based on past performance it is unlikely that all of the contingent consideration would become payable.

Current year trading

Trading in the initial months of the current year continued resiliently in the face of continued uncertainty. In the coming months we expect our strong pipeline of newly employed advisers to join the firm, providing us with a significant boost to AFH's advisory capacity and geographical reach at a time when we see the demand for professional financial planning growing significantly.

As reported, even prior to the pandemic's impact on global markets, 2020 was to be a year of consolidation for AFH and we are extremely pleased to have finished the period with a strengthened balance sheet, significantly reduced outstanding contingent considerations and strong cash balances.

Trading remains in line with the Board's expectations and the resilience shown throughout 2020 and in the first months of the new financial year leaves us confident about the year ahead.

 

 

 

Alan Hudson

Chief Executive Officer

 



 

AFH FINANCIAL GROUP PLC

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

FOR THE YEAR ENDED 31 OCTOBER 2020

 

 

 







2020

2019


Note

£'000

£'000





Revenue


77,128

74,337

Cost of sales


(38,827)

(34,657)



 

 

Gross profit


38,301

39,680

Other operating income


156

-

Administrative expenses


(19,620)

(22,452)





EBITDA


18,837

17,228









Right of use asset depreciation charge


(779)

-

Underlying EBITDA

1

18,058

17,228





Other amortisation and depreciation


(3,734)

(3,189)

Non cash share-based payments


(168)

(50)



 

 

Operating profit

3

14,156

13,989





Finance income


29

57

Finance costs


(1,024)

(332)



 

 

Profit before tax


13,161

13,714





Income tax expense


(2,446)

(2,901)



 

 

Profit for the year attributable to owners of the parent


10,715

10,813

Other comprehensive income


-

-



 

 

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


10,715

10,813



 

 

Earnings per share (in pence)




Basic

9

25.0

25.4

Diluted


23.0

23.5



 

 

Underlying EBITDA adjusted for tax per share (in pence)




Basic


34.1

32.8

Diluted


31.4

30.4

                                                                                                                                                                                                                                                                                                

 

 

 

 

All results derive from continuing operations.

 

 

AFH FINANCIAL GROUP PLC

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

AS AT 31 OCTOBER 2020

 



2020

2019


Note

£'000

£'000

Assets




Non-current assets




Intangible assets

5

98,330

104,921

Property, plant and equipment


1,426

1,413

Right of use assets


4,528

-

Investments


1

1

Deferred tax asset


15

23



 

 



104,300

106,358

Current assets




Trade and other receivables

6

29,760

26,232

Cash and cash equivalents


13,111

11,955



 

 



42,871

38,187



 

 

Total assets


147,171

144,545



 

 

Liabilities




Current liabilities




Trade and other payables

8

22,661

23,373

Current tax liabilities


-

1,224

Provisions


1,923

1,448

Financial liabilities - Borrowings

7

81

832

Lease liabilities


760

-



 

 



25,425

26,877

Net current assets


17,446

11,310



 

 

Non-current liabilities




Trade and other payables

8

4,181

23,467

Financial liabilities - Borrowings

7

25,783

15,241

Provisions


249

161

Lease liabilities


3,907

-



 

 



34,120

38,869

Total liabilities


59,545

65,746



 

 

Net assets


87,626

78,799



 

 

Shareholders' equity




Share capital


4,298

4,279

Share premium account


56,280

55,986

Treasury shares


-

(204)

Merger reserve


(540)

(540)

Share-based payment reserve


936

768

Retained earnings


26,652

18,510



 

 

Total Shareholders' equity


87,626

78,799



 

 





 

 

Approved by the Board of Directors on 15 January 2021.

 

 

 

 

 

Mr P K Wright

Director

 

AFH FINANCIAL GROUP PLC

 

STATEMENT OF CHANGES IN EQUITY

 

AS AT 31 OCTOBER 2020

 


Share capital

Share premium

Treasury shares

Merger reserve

Share-based payment reserve

Retained earnings

Total

 


£'000

£'000

£'000

£'000

£'000

£'000

£'000

 









 

Balance at 1 November 2018

4,198

54,641

-

(540)

718

10,403

69,420

 









 

Profit for the year

-

-

-

-

-

10,813

10,813

 

Other comprehensive income

-

-

-

-

-

-

-

 


 

 

 

 

 

 

 

 

Total comprehensive income

-

-

-

-

-

10,813

10,813

 


 

 

 

 

 

 

 

 









 

Issue of share capital (net of issue costs)

81

1,345

-

-

-

-

1,426

 

Share based payment cost

-

-

-

-

50

-

50

 

Acquisition of treasury shares

-

-

(204)

-

-

-

(204)

 

Dividend

-

-

-

-

-

(2,706)

(2,706)

 









 









 

Balance at 31 October 2019

4,279

55,986

(204)

(540)

768

18,510

78,799

 









 

Profit for the year

-

-

-

-

-

10,715

10,715

 

Other comprehensive income

-

-

-

-

-

-

-

 

Total comprehensive income

-

-

-

-

-

10,715

10,715

 


 

 

 

 

 

 

 

 

 

Issue of share capital (net of issue costs)

19

294

-

-

-

-

313

 

Share based payment cost

-

-

-

-

168

-

168

 

Sale of treasury shares

-

-

204

-

-

-

204

 

Dividend

-

-

-

-

-

(2,573)

(2,573)

 









 









 

Balance at 31 October 2020

4,298

56,280

-

(540)

936

26,652

87,626

 









 


 

 

 

 

 

 

 

 










 

 

AFH FINANCIAL GROUP PLC

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

FOR THE YEAR ENDED 31 OCTOBER 2020

 


 

2020

2019


Note

£'000

£'000





Cash flows from operating activities




Cash generated from operations

10

14,498

5,787

Tax paid


(3,331)

(2,608)


 

 

 

Net cash inflow from operating activities


11,167

3,179


 

 

 

Cash flows from investing activities




Purchase of property, plant and equipment


(788)

(834)

Purchase of intangible assets, net of cash


(2,087)

(3,830)

Acquisition of subsidiaries, net of cash


-

(9,378)

Payment of contingent consideration


(13,611)

(8,007)

Interest received


29

57


 

 

 

Net cash outflow from investing activities


(16,457)

(21,992)


 

 

 

Cash flows from financing activities




Proceeds from issue of shares


-

-

Share issue costs


-

-

Proceeds from CULS


-

15,000

Proceeds from HSBC Facility agreement


12,000

-

Issue costs


-

(536)

Repayment of borrowings


(2,053)

(2,314)

Interest paid


(778)

(219)

Dividends


(2,723)

(2,706)


 

 

 

Net cash inflow from financing activities


6,446

9,225


 

 

 

Net increase in cash and cash equivalents


1,156

(9,588)

Cash and cash equivalents at the beginning of the year


11,955

21,543


 

 

 

Cash and cash equivalents at the end of the year


13,111

11,955


 

 

 





 

 

 

AFH FINANCIAL GROUP PLC

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 OCTOBER 2020

 

1.       General Information

AFH Financial Group PLC is a public limited company limited by shares 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 Group is principally engaged in the provision of independent financial advice and investment management to the retail market.

While the financial information has been prepared for the year ended 31 October 2020, this extract does not constitute statutory accounts under s455 of the Companies Act

 

2.       Revenue and segmental analysis

The Board of Directors is considered to be the chief operating decision maker of the Group.

Segmental statement of comprehensive income

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

 


 

 

 

 

 

 Head Office

2020

£'000

 

Financial Advice and Investment Management

2020
£'000

   Protection

2020
£'000

Total

2020
£'000






Revenue

-

59,995

17,133

77,128

Cost of sales

(23)

(28,091)

(10,713)

(38,827)


 

 

 

 

Gross profit

(23)

31,904

6,420

38,301

Other operating income

156

-

-

156

Administrative expenses before amortisation and depreciation and share based payments expenses

(2,391)

(15,405)

(1,824)

(19,620)






EBITDA

(2,258)

16,499

4,596

18,837






Amortisation and Depreciation

-

(4,486)

(27)

(4,513)

Non cash share based payments

(168)

-

-

(168)


 

 

 

 

Operating profit

(2,426)

12,013

4,569

14,156






Finance income

29

-

-

29

Finance costs

(1,024)

-

-

(1,024)


 

 

 

 

Profit before tax

(3,421)

12,013

4,569

13,161

 


 

 

 

 

 

 Head Office

2019

£'000

 

Financial Advice and Investment Management

2019
£'000

   Protection

2019
£'000

Total

2019
£'000






Revenue

-

60,114

14,223

74,337

Cost of sales

-

(28,099)

(6,558)

(34,657)


 

 

 

 

Gross profit

-

32,015

7,665

39,680

Administrative expenses before amortisation and depreciation and share based payments expenses

(2,374)

(17,784)

(2,294)

(22,452)






Underlying EBITDA

(2,374)

14,231

5,371

17,228






Amortisation and Depreciation

-

(3,119)

(70)

(3,189)

Non cash share based payments

(50)

-

-

(50)


 

 

 

 

Operating profit

(2,424)

11,112

5,301

13,989






Finance income

41

16

-

57

Finance costs

(317)

(15)

-

(332)


 

 

 

 

Profit before tax

(2,700)

11,113

5,301

13,714

 

Segment revenue reported above represents only revenue generated from external customers. Intersegmental sales in the financial year were £1,272,986 (2019: £1,093,343) for management recharges from head office to the Financial Advisory and Protection Divisions.  There were also £571,373 (2019: £497,333) of intersegmental sales for the introduction of business between the Financial Advisory and Protection Divisions.  These intersegmental revenues and costs have been removed on consolidation.

 

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

Segmental Assets

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

 

 

 

2020
£'000

 

 

2019
£'000




Head Office

6,250

6,638

Financial Advice and Investment Management

16,958

13,120

Protection

19,663

18,429

 

 

 

 

42,871

38,187

Segmental Liabilities

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

 

 

 

2020
£'000

 

2019
£'000




Head Office

1,793

546

Financial Advice and Investment Management

21,240

18,335

Protection

2,392

7,996

 

 

 

 

25,425

26,887

 

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 (2019 - none).

 

3.       Operating Profit

 






 

2020

2019


 

£'000

£'000

Operating profit is stated after charging:




Employee benefit expenses


18,760

19,741

Amortisation and impairment of intangible assets


3,205

2,820

Depreciation of Property, plant & equipment


529

369

Depreciation of Right of use assets


779

-

Operating lease rentals


-

826









Services provided by the Group's auditors:

A summary of the audit and non-audit fees in respect of services provided by the Group's auditors charged to operating profit is set out below:

 





2020

2019


£'000

£'000

Fees payable to the Group's auditor for the audit of the Group's annual accounts

23

23

Audit of accounts of subsidiaries

70

70


 

 

Total Audit Fees

93

93


 

 




 




Other assurance services

2

2

Taxation services *

-

7


 

 

Total Non-Audit Fees

2

9


 

 




 

* Taxation services no longer fall into scope of the Group's auditors.

 

4.       Dividends - Company

 





2020

2019


£'000

£'000




Ordinary interim paid

2,573

2,555


 

 

Dividend per share

6p

6p


 

 




                               

 

It is the Board's intention to maintain the 2020 level of dividend and will pay a first interim dividend of 3p on 16 February 2021 to shareholders on the register of members at the close of business on 29 January 2021, the ex-dividend date is 28 January 2021, and pay a second interim dividend in July 2021. This second interim dividend will be reviewed in the light of the country being released from the current lockdown restrictions and the impact on trading during the first half of 2021.

 

The group is proposing, pending AGM approval, an interim dividend based on the reported results of 3p per share, which equates £1,289,445 based on the current shares in circulation.

 

 

5.       Intangible assets

 







 

 

Other intangibles

Goodwill

Acquired client portfolios

Total


£'000

£'000

£'000

£'000

Cost

 




At 1 November 2018

546

28,405

52,331

81,282

Additions, separately acquired

336

-

11,038

11,374

Additions, through business combination

31

22,428

-

22, 459

Remeasurement

-

(1,020)

-

(1,020)


 

 

 

 

At 31 October 2019

913

49,813

63,369

114,095

Additions, separately acquired

220

-

1,498

1,718

Additions, through business combination

-

-

-

-

Remeasurement

-

(3,000)

-

(3,000)

Impairment

-

(2,104)

-

(2,104)


 

 

 

 

At 31 October 2020

1,133

44,709

64,867

110,709


 

 

 

 

Amortisation and impairment





At 1 November 2018

57

375

5,922

6,354

Charge for the year

60

-

2,760

2,820






At 31 October 2019

117

375

8,682

9,174

Charge for the year

127

-

3,078

3,205






At 31 October 2020

244

375

11,760

12,379






Net book value

 

 

 

 






At 31 October 2020

889

44,334

53,107

98,330






At 31 October 2019

796

49,438

54,687

104,921






 

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 a future growth rate of 3% in revenue generated cash flows, discounted at an asset specific rate of 3%, 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 2020.

The Directors have assessed those assets where an indicator of impairment is raised and applied appropriate sensitivity of the assumptions detailed above and consider that the indicator only exists due to the level of prudence already factored into these assumptions. The impairment charge of £2.1m is offset against a £2.1m reduction is contingent consideration. The impairment is based on the directors detailed review of expected future cashflows of relevant CGU's.

 

Due to the level of prudence already factored into the 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 2020 two acquisitions were undertaken relating to acquired client portfolios. Consideration for these acquisitions amounted to £1.5m. Included within the total consideration are amounts relating to contingent consideration of £1.3m. The contingent consideration is subject to earn outs based on future turnover over a period up to a four-year period.

 

6.       Trade and other receivables

 





2020

2019


£'000

£'000




Trade receivables net of allowance for impairment

25,184

21,592

Other receivables

2,763

3,087

Prepayments

1,813

1,553


 

 


29,760

26,232


 

 




Included in trade receivables is £8,068,824 of debtors due in relation to non-indemnified income earnt collectable over a 4 year term (2019: £10,278,822) which is net of a £314,003 allowance for impairment (2019: £1,412,368).  £6,271,614 of this trade receivable is due in greater than 1 year and collected over the life of the policy (2019: £7,033,971).  The effect of discounting the trade receivable due in greater than 1 year would be a reduction of £380,004 to net assets (2019: £440,418).

 

7.       Borrowings


2020

2019


£'000

£'000




8% Unsecured bonds

-

752

4% Convertible Unsecured Loan Stock

13,600

15,000

HSBC Facility agreement

12,000

-

Mortgage on freehold property

264

321


 

 


25,864

16,073


 

 

 

Analysis of borrowings

 



Current borrowings



8% Unsecured bonds

-

752

Mortgage on freehold property

81

80


 

 





81

832


 

 

Non-current borrowings



4% Convertible Unsecured Loan Stock

13,600

15,000

HSBC Facility agreement

12,000

-

Mortgage on freehold property

183

241


25,783

15,241


 

 




 

The borrowings 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 was settled in the year.

The mortgage is repayable by instalments over an 8-year period with an interest rate of 2.9% over LIBOR.  £460,000 of Freehold Land is secured against this liability.

The 4% Convertible Unsecured Loan Stocks (CULS) were issued in July 2019 and are due for redemption or conversion in 5 years.

During the year, CULS with a value of £1.4m were purchased by the Company, resulting in a profit of £155,512 recognised under Other operating income in the Statement of Profit & Loss.

The HSBC Facility agreement has a cap of £12m of which interest is charged at 2.75% over LIBOR. Covenant reporting is undertaken quarterly with the Group adhering to these.

 

8.       Trade and other payables

Group





2020

2019


£'000

£'000

Current



Trade payables

978

1,853

Contingent consideration

15,212

14,433

Commissions payable

5,556

5,357

Other payables

401

745

Accruals

514

985


 

 


22,661

23,373


 

 

Non-current



Contingent consideration

4,181

23,467


 

 




The effect off discounting the non-current contingent consideration would be a reduction in the carrying value of £121,036.

A remeasurement of contingent consideration was recorded within the year against the appropriate Goodwill/Intangible.

 

 

9.       Earnings per share

The calculation of earnings per share is based on the profit attributable to the equity holders for the year of £10,714,744 (2019 - £10,813,160) and weighted average number of shares in issue during the period of 42,894,332 (2019 - 42,495,124).

The calculation of Underlying EBITDA adjusted for tax per share is based on the Underlying EBITDA adjusted for tax of £15,258,227 (2019 - £13,954,788) and weighted average number of shares in issue during the period of 42,894,332 (2019 - 42,495,124).

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 amount 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 2020

31 October 2019


£'000

£'000







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

10,715

10,813

Effect of dilutive potential ordinary shares

-

-


 

 

Earnings for the purpose of diluted earnings per share

10,715

10,813


 

 




 

 

 

31 October 2020

31 October 2019







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

42,894,332

42,495,124

Effect of dilutive potential ordinary shares

3,729,143

3,453,911


 

 

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

46,623,475

45,949,035


 

 




 

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.

 

10.     Notes to the cash flow statement

Cash generated from operations

 





2020

2019


£'000

£'000




Profit before tax

13,161

13,714

Adjustments for:



Interest and dividend income

(29)

(57)

Interest expenses

1,024

332

Depreciation, amortisation and impairment

4,514

3,189

Equity settled share-based payment expense

168

50

Movements in working capital:



- Trade and other receivables

(3,587)

(12,627)

- Trade and other payables

(753)

1,186


 

 

Cash generated from operations

14,498

5,787


 

 




 

 

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