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AFH Fin Group Plc (AFHP)

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Tuesday 28 May, 2019

AFH Fin Group Plc

Half-year Report

RNS Number : 1894A
AFH Financial Group Plc
28 May 2019
 

 

 

28th 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 £36.6 million (H1 2018: £22.7 million)

·    Underlying* EBITDA up 74% to £7.7million (H1 2018: £4.4 million)

·    Underlying* EBITDA margin increased to 21.0% (H1 2018: 19.5%)

·    Profit after tax up 80% to £4.5 million (H1 2018: £2.5 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 £5.4bn, up 68% (H1 2018: £3.2bn)

 

*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 £10 billion; revenues per annum of £140 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 £36.6 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 £10 billion

2.   Revenues of £140 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 £36 million per month while, during the period, the Company completed four acquisitions which added a further £640 million of investment portfolios under service propositions. Funds under Management approached £5.4 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 £7.7 million (H1 2018: £4.4 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 £36.6 million (H1 2018: £22.7 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 £3.22 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 £7.7 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 £8.8 million following the repayment of £2.2 million Unsecured loan Stock in December 2018, £7.9 million initial consideration paid in respect of the four acquisitions made in the first half of this year and £1.6 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 £5.2 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 £7.5 million, an increase of £1.9 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 £21.8 million (H1 2018: £13.2 million), reflecting the growing funds under management which, as set out below, increased to £5.4 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 £236,000 (H1 2018 £220,000).

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 £6.4 million (H1 2018: £4.4 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 £2.4trn, 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 £7.3 million from which EBITDA of £2.8 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 £7.9 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 £11.8 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 £0.98 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 £ 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 £2.14 million Unsecured Loan Notes on maturity. The remaining £0.75 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

Six months ending 30 April 2019

Unaudited

Six months ending

30 April 2018

Audited

Twelve months ending 31 October 2018

 

Note

£'000

£'000

£'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

30 April

Unaudited

30 April

Audited

31 October

 

 

 

2019

2018

2018

 

 

 

 

 

 

 

 

Note

£'000

£'000

£'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

 

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

capital

Share premium

Treasury Shares

Merger reserve

Share-based payment reserve

Retained earnings

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'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

Six months ending 30 April

Unaudited

Six months ending 30 April

Audited

Twelve months ending 31 October

 

 

 

2019

2018

2018

 

 

Note

£'000

£'000

£'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 £50.5m (2018 HY:  £37.8m). 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 £42.1m (2018 HY: £6.6m). No impairments have been made during the period (2018 HY: £ nil).

3 Revenue and segmental Analysis

Unaudited Six months ending 30 April 2019

 

 

 

Head Office

2019

£'000

 

Financial Advice and Investment Management

2019
£'000

Protection

2019
£'000

Total

2019
£'000

Cost of sales

 

 

 

 

 

Administrative expenses before amortisation and depreciation and share based payments expenses

 

 

 

 

 

 

Underlying EBITDA

 

 

 

 

 

Amortisation and Depreciation

 

Non cash share based payments

 

 

 

 

 

Finance income

Finance costs

 

 

 

 

 

 

 

Unaudited Six months ending 30 April 2018

 

 

 

Head office

2018

£'000

 

Financial Advice and Investment Management

2018
£'000

Protection

2018
£'000

Total

2018
£'000

Cost of sales

 

 

 

 

 

Administrative expenses before amortisation and depreciation and share based payments expenses

 

 

 

 

Underlying EBITDA

 

 

 

 

 

Amortisation and Depreciation

Non cash share based payments

 

 

 

 

 

Finance income

Finance costs

 

 

 

 

 

 

 

 

4.   Intangible Assets

 

Other intangibles

Goodwill

Acquired client portfolios

Total

 

£'000

£'000

£'000

£'000

 

 

 

 

 

 

At 31 October 2017

401

 

Additions

-

 

Disposals

-

 

Revaluations

-

 

 

                  

 

 

 

 

At 30 April 2018

401

 

Additions

145

 

Disposals

-

 

Revaluations

-

 

 

 

 

 

 

 

At 31 October 2018

546

 

Additions

164

 

Disposals

-

 

Revaluations

-

 

 

 

 

 

 

 

At 30 April 2019 

710

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 October 2017

16

 

Charge for the period

20

 

 

 

 

 

 

 

At 30 April 2018

36

 

Charge for the period

21

 

 

 

 

 

 

 

At 31 October 2018

57

 

Charge for the period

29

 

 

 

 

 

 

 

At 30 April 2019

86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 April 2019

 

 

 

At 31 October 2018

 

 

 

At 30 April 2018

 

 

 

At 31 October 2017

 

             

 

Goodwill and Acquired client portfolios

5.   Trade and other receivables

Group

 

Unaudited

Six months ending 30 April 2019

Unaudited

Six months ending 30 April 2018

Audited

Twelve months ending 31 October 2018 (restated)

 

£'000

£'000

£'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

609

 

22,134

7,903

13,630

 

 

 

 

 

 

 

 

6.   Analysis of borrowings

 

 

 

 

 

 

Unaudited

Six months ending 30 April

Unaudited

Six months ending 30 April

Audited

Twelve months ending 31 October

 

 

2019

2018

2018

 

 

£'000

£'000

£'000

 

 

 

 

 

Current borrowings

 

 

 

 

Mortgage on freehold property

 

80

78

77

7.5% Unsecured bonds

 

-

2,142

-

 

 

 

 

 

 

 

 

 

 

 

 

Non-current borrowings

 

 

 

 

8% Unsecured bonds

 

752

752

752

Mortgage on freehold property

 

278

351

315

 

 

 

 

 

 

 

 

 

 

 

 

               

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

Six months ending 30 April

Unaudited

Six months ending 30 April

Audited

Twelve months ending 31 October

 

 

2019

2018

2018

 

 

£'000

£'000

£'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

Six months ending 30 April

Unaudited

Six months ending 30 April

Audited

Twelve months ending 31 October

 

2019

2018

2018

 

£'000

£'000

£'000

 

 

 

 

42,591,061 authorised, issued and fully paid 10p ordinary shares

 

4,259

 

3,782

 

4,198

 

 

 

 

 

 

 

 

 

42,931 authorised, issued and fully paid 10p treasury shares

 

 

 

 

 

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 £3.40 per Ordinary share. The shares do not carry any voting rights.

 

 

9.     Earnings per share

 

 

Unaudited

Unaudited

Audited

Twelve months ending 31 October

 

 

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

 

 

 

 

10. Reconciliation of Operating profit to Net Cash inflow from Operating Activities

 

 

Unaudited

Six months ending 30 April

Unaudited

Six months ending 30 April

Audited

Twelve months ending 31 October

 

 

2019

2018

2018

(restated)

 

 

£'000

£'000

£'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

 

 

═══════

═══════

═══════

 


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