Chairman’s Statement

John Wheatley

I am pleased to report a fifth consecutive year of profitable growth with increased margins complementing both organic and acquisitive growth. During a year in which equity markets  have exhibited significant volatility driven by political and economic uncertainty, the Company undertook two successful fund raisings which enabled it to complete sixteen acquisitions and end the year with significant cash balances of £21.5 million with which to continue our expansion. 

While the two fund raising exercises undertaken during the year raised £32.5 million, representing a 36% dilution to shareholders, AFH’s focus on allocating capital and combining accretive cquisitions with organic growth generated an increase in Earnings per Share of 43% after dilution.

Acquisitions provide the Company with the mass to deliver the aspirations that the Chief Executive set out in his 2017 report to shareholders. However, it is a testament to the executive team’s continued ability to successfully integrate multiple acquisitions that gives the Board confidence in the future. Once again, the Company delivered over 90% of its aggregate deferred consideration targets, each of which required profitable growth from the businesses acquired.

As highlighted in my previous reports AFH invested heavily during its initial years on AIM to establish an infrastructure able to support a large national financial services business and this year we were able to build on this scale to achieve a further double digit increase in our underlying EBITDA margin from 17% to 21%. This achieved the first of our three aspirational targets, comfortably ahead of the timeframe set by the Board.

Following the acquisition of CTL3 in November 2018, after the period under review, the Company reached its second target of £5 billion Funds under Management.

At the period end AFH was managing funds on behalf of our clients totalling £4.4 billion, an increase of over 57% during the year at a time when market indices fell slightly. While this level of funds was boosted by our acquisitions, organic growth, net of redemptions, was 13.6%, representing our third successive year of doubledigit growth, while gross organic inflows exceeded 17% during the year.

During the year the Company reached the dual milestones of £50 million revenues and £10 million underlying EBITDA. This represented an increase of 51% and 85% over the prior year respectively and reflected the increased margins that have been achieved through economies of scale.

In line with our drive to increase shareholder value the Company has established a strategic aim of reducing investment costs for our clients by leveraging the increased scale of AFH for their benefit, while ensuring the long-term sustainability of the Company. We believe that this is not only in the spirit of sound commercial business but leads the way for future financial services models, as many commentators predict that we approach a period of reduced gross market returns. During the year we have been able to demonstrate the success of this strategy by introducing segregated mandates for our investment proposition, bringing institutional pricing to our clients, and in July announcing that our AFH Direct clients would no longer pay platform fees. Both of these initiatives have been delivered with the result that total fees paid by our clients using these services have been reduced.

Organic revenue growth of £6.1 million represented an increase of 21% on revenue generated in 2017 while gross margins increased to 54%. We continue to see strong demand for financial advice from our clients driven by legislative changes, including pension freedoms and lifestyle needs. This has generated record levels of financial planning revenue to supplement our strong recurring income.

As in previous years we have augmented our organic growth with selected acquisitions, structured to ensure that shareholder value is enhanced through a fixed relationship between the profitability of an acquisition and the price paid to vendors. The success of this model has again been confirmed by the high level of deferred consideration, and therefore total price, paid for transactions reaching a milestone during the year and the associated increased return on capital for our shareholders. The synergies generated from acquisitions and the revenue growth that the advisers have achieved from the AFH proposition has been a contributing factor to the double digit increase in our Underlying EBITDA margin in 2018 and has allowed the Board to set its future aspirations with confidence.

Our people
The continued growth of AFH is due to the hard work and professional approach of our employees and advisers. I would like to thank them for the contribution they have made to  another highly successful year in which we have continued to grow ur business profitably and improve our operating margins in line with the Board’s expectations.

It remains our  ambition to maintain the alignment of interest between our employees and advisers with those of our clients and shareholders. It is in response to the support we receive from our staff that we continue to develop and promote our people from within the Company at every opportunity, so that many key positions are occupied by homegrown talent. It is the enthusiasm, dedication and creativity of our staff and advisers that allows the Company to continue to deliver according to its strategy each year.

In December 2017 and October 2018 two successful fundraisings enabled the Company to expand its institutional shareholder base while benefitting from the continued support of our existing institutional shareholders. I would like to welcome our new shareholders, who join at an exciting period of the Company’s development, and to thank existing shareholders for their continuing support. At the year end the Company had a strong balance sheet on which to execute its pipeline of acquisitions and, we believe, a strong shareholder base that can support its growth ambitions.

AFH communicates with shareholders and the market generally using a Regulatory News Service provider for regulatory news releases which, in accordance with AIM Rule 26, are available on the Company’s website along with interim and annual accounts, shareholder notifications and other corporate governance material for at least the last five years. Shareholder votes will be notified and kept on the website in a clear and transparent manner.

Shareholders will have the opportunity to meet Board members at general meetings and at other opportunities such as investor meetings, presentations and webcasts at which shareholders and stakeholders will be able to ask questions of management. The Company will update shareholders of such events when appropriate.

The Directors intend to continue the Company’s progressive dividend policy while recognising the requirement to maintain sufficient cash reserves within the business to fund its growth strategy. Having considered this in the light of the strong performance during the year under review, the Directors propose a dividend of 6.0 pence per share, an increase of 50% over the 2018 dividend. This dividend will be paid 2.0 pence on 15 February 2019 to shareholders on the register of members at the close of business on 1 February 2019, the ex-dividend date is 31 January 2019, 4.0 pence on 5 July 2019 to shareholders on the register of members at the close of business on 14 June 2019 with an ex-dividend date of 13 June 2019. It is the intention of the Board to continue the bi-annual dividend in future years.

The Directors believe there is a continuing requirement for a professional, financial planning-led approach to wealth management delivered by trusted personal advisers and supported by the effective use of technology.

The Board has worked to ensure that it has put in place the necessary infrastructure to support its growth plans for 2019 and beyond. Continued investment in technology is expected to accelerate the benefits of scale and the infrastructure investment made in previous periods.

The Company continues to be cash generative and maintains a strong balance sheet. The Board expect the consolidation within the investment and advice markets to continue in the future and will seek appropriately priced opportunities to expand our captive distribution throughout the financial sector, to drive increased profitability.

Given the progress made in 2018 and the first quarter of the 2019 financial year, the Directors view the coming period as providing excellent prospects and look forward to continuing our success in the future.

John Wheatley

18 January 2019

Annual Report

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