Notes to the Consolidated Financial Statements

Notes to the Consolidated Financial Statements
For the year ended 31 October 2018

1. General Information

AFH Financial Group is a company incorporated in England and Wales under the Companies Act 2006 and is registered at AFH House, Buntsford Drive, Stoke Heath, Bromsgrove, Worcestershire, B60 4JE.

The Company is principally engaged in the provision of independent financial advice and investment management to the retail market.

This financial information has been prepared for the year ended 31 October 2018.

1.1 Principal accounting policies

(a)   Basis of preparation

The consolidated financial information has been prepared in accordance with International Financial Reporting Standards (“IFRS”) and International Financial Reporting Standards Interpretation Committee Interpretations that are endorsed by the European Union, and with those parts of the Companies Act 2006 applicable to those companies reporting under IFRS.

The consolidated financial statements have been prepared under the historical cost convention.

The company financial statements have been prepared in accordance with Financial Reporting Standard 101 “Reduced Disclosure Framework” (“FRS 101”) and in accordance with the applicable provisions of the Companies Act 2006. Except for certain disclosure exemptions detailed below, the recognition, measurement and disclosure requirements of International Financial Reporting Standards as adopted by the EU (EU-adopted IFRSs) have been applied to these financial statements and, where necessary, amendments have been made in order to comply with the Companies Act 2006 and The Large and Medium-sized Companies and Groups Regulations 2008/410 (‘Regulations’).

The company financial statements have been prepared under the historic cost convention.

The financial information has been prepared in Sterling.

The principal accounting policies adopted are set out below and have been applied consistently.

The Company has taken advantage of the following exemptions in preparing these financial statements, as permitted by FRS101 paragraph 8.

(i)    The requirement of IFRS 7 ‘Financial Instruments Disclosures’ relating to the disclosure of financial instruments and the nature and extent of risks arising from such instruments;

(ii)   The requirement of IFRS 13 ‘Fair Value Measurement’ paragraph 91 to 99 relating to the fair value measurement disclosure of financial assets and financial liabilities that are measure at fair value;

(iii)  The requirements of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ paragraph 30 and 31 relating to the disclosure of standards, amendments and interpretations in issue but not yet effective;

(iv)  The requirement of IAS 1 ‘Presentation of Financial Statements’ paragraphs 134 to 136 relating to the disclosure of capital management policies and objectives;

(v)   The requirements of IAS 7 ‘Statement of Cash Flows’ and IAS 1 ‘Presentation of Financial Statements’ paragraph 10(d); 111 relating to the presentation of a Cash Flow Statement;

(vi)  The requirements of IAS 24 ‘Related Party Disclosures’ relating to the disclosure of key management personnel compensation and relating to the disclosure of related party transactions entered into between the company and other wholly-owned subsidiaries of the group.

(b)   Going Concern

The directors have considered the Company’s business activities, its cash flows and capital position for a period of 12 months from approval of these accounts. The current view is that even without the organic growth and expected acquisition trail in the new financial year the Company can continue to trade generating profits to cover its short term and long-term liabilities.

Therefore, the directors are satisfied that the Company has adequate resources to continue in business for the foreseeable future and for this reason continue to adopt the Going Concern basis in preparing the financial information.

 (c)   Basis of consolidation

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. All intra-Group balances, income and expenses and unrealised gains and losses resulting from intra-Group transactions are eliminated in full.

Control is achieved when the company has the power over the investee; is exposed or has rights to variable return from its involvement with the investee; and has the ability to use its power to affects its returns.

(d)   Business combinations

Business combinations are accounted for using the acquisition method except for group reorganisations where the combination is on a share for share basis and the resulting business remains unchanged. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

Any contingent consideration to be transferred, whether in cash or another financial instrument such as a convertible loan note, is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

(e)   Goodwill and Intangibles

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Company’s interest in the net fair value of the separable assets, liabilities and contingent liabilities of the subsidiary or an interest in an associate undertaking recognised at the date of acquisition.

Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses on an annual basis. Any impairment is recognised immediately in the Statement of Comprehensive Income and is not subsequently reversed.

The single cash generating unit to which Goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the cash generating unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the cash generating unit.

The cost of intangible assets, excluding goodwill acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets assessed as having finite lives are amortised over their useful economic life.

Intangible assets assessed as having finite lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year end.

Intangible assets are amortised over the following periods:

  • Other intangibles – 10 years from the month of acquisition unless otherwise impaired.
  • Acquired client portfolios – 20 years from the month of acquisition unless otherwise impaired.

The amortisation expense on intangible assets with finite lives is recognised within Administrative Expenses in the Statement of Comprehensive Income.

(f)    Property, plant and equipment

Property, plant and equipment is stated at cost, less accumulated depreciation and accumulated impairment in value. Depreciation is provided on all property, plant and equipment at rates calculated to write each asset down to its estimated residual value over its expected useful life as follows:

  • Computer and office equipment at 20-25% per annum on cost
  • Fixtures and fittings at 20% per annum on cost
  • Freehold land – no charge
  • Freehold land improvement at 12.5% per annum on cost

Any gain or loss arising on disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Statement of Comprehensive Income in the year the asset is disposed of. The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each financial year end.

(g)   Investments

Investments comprise investments in subsidiaries and joint ventures. These investments are stated at cost, less provision for impairment.

(h)   Borrowing costs

Borrowing costs are recognised as an expense when incurred.

(i)    Leases

Operating lease payments are recognised as an expense in the Statement of Comprehensive Income on a straight line basis over the lease term.

Lease incentives are recognised over the term of the lease that the incentive is attached to.

(j)    Cash and cash equivalents

Cash and cash equivalents in the Statement of Financial Position comprise cash at banks and in hand and short-term deposits with an original maturity of three months or less. For the purpose of the Statement of Cash Flow, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts.

(k)   Share based payments

Employees (including senior executives) of the Company receive remuneration in the form of share based payment transactions for services provided as consideration for equity instruments (“equity settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted and is recognised as an expense over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). Fair value is determined using the Black Scholes pricing model.

The cumulative expense recognised for equity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The Statement of Comprehensive Income charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

(l)    Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duty.

—    Fee income

Fees are recognised as earned at the point when financial advice is provided and when fees from the management of investments are earned.

—    Protection Income

Revenue is recognised as earned as the policy goes live and the fees from the policy are due.

 —    Interest income

Revenue is recognised as interest accrues (using the effective interest method that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset).

(m)  Taxation

The taxation expense represents the sum of the current tax and deferred tax.

Tax payable is measured at the amount expected to be paid to or recovered from the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Tax relating to items recognised directly in equity is recognised in equity and not in the Statement of Comprehensive Income.

(n)   Deferred tax

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax balances are recognised for all taxable temporary differences, except where the deferred tax balance arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred income tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

(o)   Sales tax

Revenues, expenses and assets are recognised net of the amount of sales tax, except:

  • Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense as applicable; and
  • Receivables and payables that are stated with the amount of sales tax included.

(p)   Dividend recognition

Dividend distributions to the Company’s shareholders are recognised in the accounting period in which the dividends are declared and paid, or if earlier, in the accounting period when the dividend is approved by the Company’s shareholders at the Annual General Meeting.

 

(q)   Changes in accounting policies

Standards, interpretations and amendments effective from 1 November 2017

The adoption of the following mentioned standards, amendments and interpretations in the current year have not had a material impact on the Company’s financial statements.

Standards, interpretations and amendments to published standards that are not yet effective

The adoption of the following mentioned standards, amendments and interpretations in future years are not expected to have a material impact on the Company’s financial statements.

The Company is continuing to assess the full impact that adopting IFRS16 will have on the future financial statements, and therefore the full effect is yet to be determined.

 (r)    Financial instruments

Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as `loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment.

Interest is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the debt instrument to the net carrying amount on initial recognition.

Impairment of financial assets

Financial assets, other than those at Fair value through profit and loss (FVTPL), are assessed for indicators of impairment at each reporting end date.

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

Derecognition of financial assets

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability to the net carrying amount on initial recognition.

Derecognition of financial liabilities

Financial liabilities are derecognised when, and only when, the Company’s obligations are discharged, cancelled or expired.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Capital risk management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a Going Concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The Company monitors capital by maintaining or adjusting the capital structure by adjusting the amount of dividends paid to shareholders, issuing new shares and unsecured securities or selling assets to maintain financial resources.

The capital employed by the Company is composed of equity attributable to the shareholders and long term unsecured corporate bonds, as detailed in the Statement of Changes in Equity.

The capital structure of the Company consists of debt, cash and cash equivalents and equity comprising share capital, reserves and retained earnings. The Company reviews the capital structure annually and as part of this review considers that cost of capital and the risks associated with each class of capital.

Fair value estimation

The net book amount less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Company for similar financial instruments.

(s)   Critical accounting judgements and key sources of estimation uncertainty

The application of the Company’s accounting policies requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about net book values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. If in the future such estimates and assumptions 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

An assessment is made at each reporting date as to whether there is any indication that the carrying value may be impaired. Where such an indication is identified the client portfolios are tested for impairment. This comprises an estimation of the fair value less cost to sell and the value in use of the acquired client portfolios. The key assumption used in arriving at a fair value less cost of sale is based on future expected earnings based on assets under management. Future earnings streams for each cash generating unit is then discounted over a finite period to calculate the fair value. The assumptions used by the Company have been determined by looking at valuations of similar businesses and the consideration paid in comparable transactions.

Impairment of goodwill

The Company determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating unit 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 Company’s weighted average cost of capital adjusted for tax. No impairments have been made during the year (2017: £nil) based upon the Directors’ review.

Contingent consideration

The Company has entered into certain acquisition agreements that provide for a contingent consideration to be paid. A provision is recognised for all amounts management anticipates will be paid under the relevant acquisition agreement taking into account the probability of meeting each performance target. This requires management to make an estimate of the expected future cash flows from the acquired client portfolio for the calculation of the present value of those cash flows.

The contingent consideration is subject to an earn-out based on future turnover of acquisitions over a period up to a four year period. The carrying amount of contingent consideration provided for at 31 October 2018 was £29m (2017 – £11.2m).

Acquisitions

The Company’s business model is to make acquisitions through the direct purchase of the customer contracts or via the acquisition of the share capital of legal entities.

Judgement is required by management in the interpretation of IFRS 3 for each share-based customer contract transaction.

The directors of the Company assess for each acquisition, in line with IFRS 3 Appendix B, whether the share transactions constitute business combinations’ or are in substance asset purchases. In making their judgement, the directors consider all factors within IFRS 3 Appendix B Paragraphs B7 through to B12.

After assessment, the directors conclude whether each transaction is an asset purchases or a business combination for financial reporting purposes. 

 2. Revenue and segmental analysis

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

Segmental statement of comprehensive income

The segments are set out within the strategic report on page 10. The following is an analysis of the Company’s revenue and results from continuing operations by reportable segment.

Segment revenue reported above represents revenue generated from external customers. There were no Inter-segment sales in the current year.

The Accounting policies of the reportable segments are the same as the Company’s accounting policies described in note 1.

Segmental Assets

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

Segmental Liabilities

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

The total revenue of the Company for the year has been derived from its activities wholly undertaken in the United Kingdom.

No customer is defined as a major customer by revenue, contributing more than 10% of the Company revenues (2017 – none).


3. Operating Profit

Services provided by the Company’s auditors:

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

4. Finance

 

5. Employees

Employee costs (including salaried directors) for the Company were as follows:

The average number of employees (including directors) during the year were as follows:

6. Income tax expense

Reconciliation of profit before tax to total tax expense for the year:

Changes in the applicable tax rates over the periods are due to the reduction in Corporation tax rates.


7. Dividends

The group is proposing an interim dividend based on the reported results of 6p per share, which equates £2,518,939.


8. Intangible assets

Goodwill and Acquired client portfolios

Goodwill believed to have an indefinite useful life is carried at cost. The determination of whether goodwill is impaired requires an assessment of the value in use. The recoverable amount of goodwill on a value in use calculation is based on the discounted cash flows expected from the intangible assets of each acquisition, assuming no future growth in revenue generated cash flows, discounted at an asset specific rate of 10%, for a period of 10 years with no annuity. On this basis the directors believe the value of goodwill is not impaired at 31 October 2018.

The Directors have assessed the sensitivity of the assumptions detailed above and consider that, due to the level of prudence already factored into these assumptions, it would require a significant adverse variance in any of these to reduce the fair value to a level where it matched the carrying value.

During the year ended 31 October 2018 12 asset purchases were undertaken relating to acquired client portfolios. Consideration for these acquisitions amounted to £16.6m, of which £16.6m related to client portfolios. Included within the total consideration are amounts relating to contingent consideration of £9.4m. The contingent consideration is subject to earn outs based on future turnover over a period up to a four-year period.

In addition, four share purchases, disclosed in note 11 were undertaken, resulting in £21.4m of goodwill being recognised.


9. Property, plant and equipment

Included in freehold land and improvements is £460,000 of land that has an indefinite useful life. Included in the Computer and Office Equipment is £105,322, net book value, of assets under finance leases.


10. Investments

The Shares in group undertakings represent certain subsidiary companies and joint ventures that have not been consolidated into the Company on the grounds of being immaterial.

In the opinion of the directors, the aggregate value of the company’s investment in subsidiary undertakings is not less than the amount included in the balance sheet.

11. Business Combinations

a. Acquisitions in the financial year ended 31 October 2018

The following business combinations have been reviewed to identify separable assets, liabilities and contingent liabilities of the entities or an interest in an associate undertaking, at the date of acquisition and the date of presenting these accounts. The difference between these and the purchase consideration has been defined as Goodwill. A review will also be completed at the 12 month anniversary and we will report any changes.

Acquisition of Arc Insure Ltd

Arc Insure Limited was acquired by AFH Protection Group Limited on 6 July 2018 and undertakes the trade of Protection Brokering to the retail market, 100% of the voting equity was acquired. The Board recognised a commercial opportunity to expand the protection sector of the Group via the acquisition of Arc Insure in line with the Company’s Acquisitive strategy of strengthening its presence within the Insurance Market. The acquisition has been accounted for using the acquisition method. The provisional fair value of the identifiable assets and liabilities of Arc Insure as at the date of acquisition was:

The contingent consideration is payable in four tranches on 6 July 2019, 6 July 2020, 6 July 2021 and 6 July 2022 and subject to an earn-out based on future turnover. The maximum amount payable is £3.8m. The Goodwill balance of £4m is deemed to be the assembled team and the internal processes used to operate the company. Acquisitions costs amounted to £16k and were recognised in the profit and loss.

The post-acquisition revenue for the period ended 31 October 2018 was £366k and the post-acquisition profit for the period ended 31 October 2018 was £46k. If the acquisition had taken place on 1 November 2018, management estimate that the revenue would have been £1.1m and there would have been a profit of £138k.

This acquisition will continue to trade independently from AFH Independent Financial Services Limited for the foreseeable future.

Acquisition of HTH (Group) Limited and subsidiaries

HTH (Group) Limited and Subsidiaries were acquired by AFH Group Limited on 24 August and undertakes the trade of Independent Financial Advice to the retail market, 100% of the voting equity was acquired. The Group has acquired this company in line with its acquisitive strategy in expanding the Company’s presence across the UK within the Financial services market. The acquisition has been accounted for using the acquisition method. The provisional fair value of the identifiable assets and liabilities of HTH (Group) Limited and Subsidiaries as at the date of acquisition was:

The contingent consideration is payable in two tranches on 28 October 2019 and 28 October 2020, subject to an earn-out based on future turnover. The maximum amount payable is £5.7m. The Goodwill balance of £5.2m is deemed to be the assembled team and the internal processes used to operate the company.

The post-acquisition revenue for the period ended 31 October 2018 was £471k and the post-acquisition profit for the period ended 31 October 2018 was £192k. If the acquisition had taken place on 1 November 2017, management estimate that the revenue would have been £2.8m and there would have been a profit of £1.2m.

 Acquisition of LFS & Partners Holdings Limited and subsidiaries

LFS & Partners Holdings Limited and Subsidiaries were acquired by AFH Group Limited on 31 August and undertakes the trade of Independent Financial Advice to the retail market, 100% of the voting equity was acquired. The Group has acquired this company in line with its acquisitive strategy in expanding the Company’s presence across the UK within the Financial services market. The acquisition has been accounted for using the acquisition method. The provisional fair value of the identifiable assets and liabilities of LFS & Partners Holdings Limited and Subsidiaries as at the date of acquisition was:

The contingent consideration is payable in two tranches on 31 October 2019 and 31 October 2020, subject to an earn-out based on future turnover. The maximum amount payable is £5.2m. The Goodwill balance of £4.1m is deemed to be the assembled team and the internal processes used to operate the company.

The post-acquisition revenue for the period ended 31 October 2018 was £533k and the post-acquisition profit for the period ended 31 October 2018 was £145k. If the acquisition had taken place on 1 November 2017, management estimate that the revenue would have been £3.2m and there would have been a profit of £870k.

Acquisition of Core Financial Holdings Limited and subsidiaries

Core Financial Holdings Limited and subsidiaries were acquired by AFH Group Limited on 28 September and undertakes the trade of Independent Financial Advice to the retail market, 100% of the voting equity was acquired. The Group has acquired this company in line with its acquisitive strategy in expanding the Company’s presence across the UK within the Financial services market. The acquisition has been accounted for using the acquisition method. The provisional fair value of the identifiable assets and liabilities of Core Financial Services and subsidiaries as at the date of acquisition was:

The contingent consideration is payable in two tranches on 28 November 2019 and 218 November 2020, subject to an earn-out based on future turnover. The maximum amount payable is £8.4m. The Goodwill balance of £7.9m is deemed to be the assembled team and the internal processes used to operate the company.

The post-acquisition revenue for the period ended 31 October 2018 was £364k and the post-acquisition profit for the period ended 31 October 2018 was £81k. If the acquisition had taken place on 1 November 2017, management estimate that the revenue would have been £4.4m and there would have been a profit of £972k.

b. Acquisitions in the financial year ended 31 October 2017

A review has been undertaken of the business combinations in the previous financial year to consider if any of the fair values or future deferred considerations need to be restated since the previous financial year. No adjustments have been identified in this financial year.


 12. Trade and other receivables

Included in Trade receivables is £3,678,111 of trade receivables due in greater than 1 year.

There are no bad or doubtful receivables.


13. Borrowings

The financial liabilities are recognised at amortised cost. There is no material difference between the fair value and the carrying value.

The 8% unsecured bond, issued in August 2013 is due in 2020. The 7.5% Unsecured bond, issued in December 2014 was settled in December 2018. See note 24.

The mortgage is repayable by instalments over an 8-year period with an interest rate of 2.9% over LIBOR.

14. Trade and other payables

Included in other payables is £105k (2017: £207k) of Finance Leases payable within 1 year.

15. Deferred tax

16. Provisions

Onerous lease

A provision is held for the lease premiums on the part of the head office not currently in use. The provision has been calculated based on the floor space and the monthly charge. The offices are expected to be in use during the next financial year.

Clawback provision

A provision is held within the protection division for projected cancelled policies ahead of the agreed terms. The provision is calculated on the actual run-rate of cancelled policies with 90% of clawbacks occurring in the first 12 months.

17. Share capital

On 1 November 2017, 10,000 Ordinary Shares were issued at £1.20 each to satisfy the exercise of share options with £1.10 per share transferred to the share premium account.

 

On 1 November 2017, 2,000 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 28 November 2017, 1,298 Ordinary Shares were issued at £1.54 each to satisfy the exercise of share options with £1.44 per share transferred to the share premium account.

 

On 5 December 2017, 7,000,000 Ordinary Shares were issued at £2.50 each with £2.40 per share transferred to the share premium account.

 

On 15 January 2018, 3,000 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 19 January 2018, 1,995 Ordinary Shares were issued at £1.505 each to satisfy the exercise of share options with £1.405 per share transferred to the share premium account.

 

On 19 January 2018, 15,215 Ordinary Shares were issued at £0.37 each to satisfy the exercise of share options with £0.27 per share transferred to the share premium account.

 

On 23 January 2018, 6,000 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 24 January 2018, 500 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 24 January 2018, 8,694 Ordinary Shares were issued at £0.37 each to satisfy the exercise of share options with £1.405 per share transferred to the share premium account.

 

On 26 January 2018, 665 Ordinary Shares were issued at £1.505 each to satisfy the exercise of share options with £1.405 per share transferred to the share premium account.

 

On 2 February 2018, 106,764 Ordinary Shares were issued at £2.48 each with £2.38 per share transferred to the share premium account.

 

On 13 April 2018, 67,925 Ordinary Shares were issued at £0.37 each to satisfy the exercise of share options with £0.27 per share transferred to the share premium account.

 

On 20 April 2018, 4,655 Ordinary Shares were issued at £1.505 each to satisfy the exercise of share options with £1.405 per share transferred to the share premium account.

 

On 20 April 2018, 10,000 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £1.405 per share transferred to the share premium account.

 

On 18 July 2018, 600 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 20 July 2018, 6,521 Ordinary Shares were issued at £0.37 each to satisfy the exercise of share options with £0.27 per share transferred to the share premium account.

 

On 20 July 2018, 2,000 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 23 July 2018, 6,896 Ordinary Shares were issued at £1.45 each to satisfy the exercise of share options with £1.35 per share transferred to the share premium account.

 

On 25 July 2018, 1,330 Ordinary Shares were issued at £1.505 each to satisfy the exercise of share options with £1.405 per share transferred to the share premium account.

 

On 31 July 2018, 36,094 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 31 July 2018, 35,000 Ordinary Shares were issued at £1.20 each to satisfy the exercise of share options with £1.10 per share transferred to the share premium account.

 

On 31 July 2018, 17,661 Ordinary Shares were issued at £0.37 each to satisfy the exercise of share options with £0.27 per share transferred to the share premium account.

 

On 24 September 2018, 3,000 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 11 October 2018, 2,500 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 18 October 2018, 400 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 19 October 2018, 4,054,055 Ordinary Shares were issued at £3.60 each with £3.50 per share transferred to the share premium account.

 

On 22 October 2018, 5,500 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 25 October 2018, 665 Ordinary Shares were issued at £1.505 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 29 October 2018, 5,000 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 29 October 2018, 22,279 Ordinary Shares were issued at £0.37 each to satisfy the exercise of share options with £0.27 per share transferred to the share premium account.

 

On 31 October 2018, 3,000 Ordinary Shares were issued at £1.00 each to satisfy the exercise of share options with £0.90 per share transferred to the share premium account.

 

On 31 October 2018, 655 Ordinary Shares were issued at £1.505 each to satisfy the exercise of share options with £1.405 per share transferred to the share premium account.

 

Earnings per share

 

The calculation of earnings per share is based on the profit attributable to the equity holders for the year of £5,954,400 (2017 – £3,063,544) and weighted average number of shares in issue during the period of 37,235,148 (2017 – 27,300,689).

 

The calculation of Underlying EBITDA per share is based on the Underlying EBITDA of £8,454,519 (2017 – £5,648,704) and weighted average number of shares in issue during the period of 37,235,148 (2017 – 27,300,689).

 

The diluted earnings per share has been adjusted for the potential share issue relating to the share-based payments. The number of shares has been increased by the difference between the 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.

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.

Share-based payment transactions

During the year ended 31 October 2018, the Company has had twenty nine share-based payment arrangements, which are described below.

All share-option schemes will vest after three years from the date of the grant subject to individual performance vesting conditions. However, options may be exercised early if the first of the vesting conditions described above occurs and will be exercised on a time apportioned basis. There are no cash settlement alternatives.

The provision for share-based payments has been calculated using a Black-Scholes pricing model. The variables used in the model throughout the four-year period to 31 October 2018 have been selected as follows:

Risk free rate of interest 2.5% based on 10-year UK Treasury Bonds. Dividend yield ranges between 1% and 1.3%.

Volatility 30% to 50% based on the actual volatility of AFH shares and comparatives with similar sized companies in the same industry.

The grant price of all options was equal to the market price of the Company’s ordinary shares on the date of grant.

The estimated weighted average fair value of share options granted in the year, as set our above, is £nil (2017 – nil).

139,109 of the options outstanding at 31 October 2018 have an exercise price of £0.37, and a weighted average remaining contractual life of 2.65 years.

481,400 of the options outstanding at 31 October 2018 have an exercise price of £1.00, and a weighted average remaining contractual life of 3.75 years.

479,102 of the options outstanding at 31 October 2018 have an exercise price of £1.47, and a weighted average remaining contractual life of 5.75 years.

51,863 of the options outstanding at 31 October 2018 have an exercise price of £1.51, and a weighted average remaining contractual life of 6.25 years.

3,322 of the options outstanding at 31 October 2018 have an exercise price of £1.51, and a weighted average remaining contractual life of 6.5 years.

98,221 of the options outstanding at 31 October 2018 have an exercise price of £1.69, and a weighted average remaining contractual life of 7.75 years.

95,751 of the options outstanding at 31 October 2018 have an exercise price of £1.65, and a weighted average remaining contractual life of 7.75 years.

50,755 of the options outstanding at 31 October 2018 have an exercise price of £1.30, and a weighted average remaining contractual life of 7.5 years.

35,000 of the options outstanding at 31 October 2018 have an exercise price of £1.72, and a weighted average remaining contractual life of 7.5 years.

5,830 of the options outstanding at 31 October 2018 have an exercise price of £1.72, and a weighted average remaining contractual life of 7.5 years.

18,867 of the options outstanding at 31 October 2018 have an exercise price of £1.59, and a weighted average remaining contractual life of 7.5 years

280,000 of the options outstanding at 31 October 2018 have an exercise price of £1.80, and a weighted average remaining contractual life of 7.5 years.

42,000 of the options outstanding at 31 October 2018 have an exercise price of £1.67, and a weighted average remaining contractual life of 7.5 years.

96,785 of the options outstanding at 31 October 2018 have an exercise price of £1.63, and a weighted average remaining contractual life of 8.25 years.

288,000 of the options outstanding at 31 October 2018 have an exercise price of £1.73, and a weighted average remaining contractual life of 8.25 years.

3,690 of the options outstanding at 31 October 2018 have an exercise price of £2.71, and a weighted average remaining contractual life of 8.75 years.

3,945 of the options outstanding at 31 October 2018 have an exercise price of £2.54, and a weighted average remaining contractual life of 8.75 years.

424,200 of the options outstanding at 31 October 2018 have an exercise price of £2.50, and a weighted average remaining contractual life of 9.00 years.

273,000 of the options outstanding at 31 October 2018 have an exercise price of £2.78, and a weighted average remaining contractual life of 9.25 years.

152,805 of the options outstanding at 31 October 2018 have an exercise price of £2.92, and a weighted average remaining contractual life of 9.50 years.

598,919 of the options outstanding at 31 October 2018 have an exercise price of £3.94, and a weighted average remaining contractual life of 9.75 years.

The share-based payment expensed recognised is set out below:

18. Reserves

The nature and purpose of each of the reserves included within equity is as follows:

Share premium

Share premium is the amount paid for shares issued in excess of the nominal value.

Merger reserve

The merger reserve was created when the Group was formed on 23 June 2010, bringing AFH Financial Group and AFH Group Limited under a common ownership structure. The shareholders of AFH Group Limited exchanged for shares in AFH Financial Group.

Share-based payment reserve

The share-based payment reserve is used to recognize the value of share-based payment transactions provided to employees, including key management personnel, as part of their remuneration.


19. Directors’ remuneration

Details of Directors’ remuneration including share based payments made to directors during the years ended 31 October 2018 and 31 October 2017 are disclosed in the Report of the Remuneration Committee on page 19.


20. Notes to the cash flow statement

21. Financial commitments

At the reporting dates, the Company has outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

The Company lease their head office and photocopiers. The head office lease has no break clause and expires in 5 years’ time.


22. Financial instruments

Interest rate risk management

The Company has an exposure to interest rate risk arising on interest-bearing deposits.

The Board monitors its treasury at least monthly and seeks to obtain a commercial rate of return from AA or above rated UK institutions whilst not impacting on cash flow.

The possible movement in UK interest rates would not have a significant profit or loss.

Liquidity risk management

The Board monitors forecasts of the Company’s liquidity comprising undrawn borrowing facilities and cash and cash equivalents on the basis of expected cash flows. This is carried out in accordance with recommended accounting practice and limits set by the Company.

The Board reviews the Company’s liquidity at its monthly meetings. Board policy involves projecting cash flows and considering the level of liquid assets necessary to meet these requirements.

An analysis of the Company’s contracted maturities of financial liabilities is as follows:

There is no material difference between the fair value and carrying value for those financial liabilities held at amortised cost.

Credit risk

The Company has no significant exposure to credit risk with no bad or doubtful receivables.

The Company’s maximum exposure to credit risk is represented by its trade receivables and cash balances, which are usually paid within 60 working days.

The Company operates different credit terms in different parts of the business. The balances represent number of days from the date of invoice. No impairments for bad or doubtful debts have been made. Given the credit terms across the different parts of the business, the balances outside of the current category are not deemed to be past due.


23. Related party transactions

During the year fees of £nil (2017 – £1,129) were paid to the partnership “A & F Hudson”. The director, Mr A Hudson, has a material interest in this partnership.


24. Events subsequent to the Statement of Financial Position

On 2 November 2018 the Company announced the acquisition of Premier Wealth Management Harrogate Limited, a York based IFA. Following the acquisition Richard Evans and Andre Huby, the vendors, joined AFH.

On 13 November 2018 the Company announced the acquisition of CWP Financial Services Limited, South East based IFA firm.

On 30 November 2018 the Company announced the acquisition of CTL Three Limited, South East based IFA firm.

On 12 December 2018 £2.14m of Unsecured Loan Notes issued in December 2014 matured and were repaid in full.

On 12 December 426,400 Warrants were exercised at a price of £2.00 per share.

On 11 January the Company announced the acquisition of Hayburn Rock Group Limited, West Midlands based IFA firm.

Additional information for all subsequent events listed above is included on our announcement pages via our website. http://www.afhfinancialgroup.com/html/announcements.html

The initial assessment of the above acquisitions has not been completed at the date of approval of the accounts.


25. Group Companies

Listed below are the companies which are owned by the Company and all have a registered office of AFH House, Buntsford Drive, Bromsgrove, B60 4JE, England:

Annual Report

Please click below to download the full annual report as a PDF file.