HW..L Regulatory News (HW.)

24 January 2017

Harwood Wealth Management Group PLC

("HWMG", the "Company", or the "Group")

Full year results for the year ended 31 October 2016

Harwood Wealth Management Group (AIM:HW.), a leading UK-based financial planning and discretionary wealth management business, is pleased to announce its audited results for the year ended 31 October 2016. Following the Group's successful admission to AIM in March 2016, this is its maiden set of full year financial results. This was a year of growth in clients, assets under management and revenue as a result of the strategy of acquisitive and organic growth and created increased opportunity for further growth.

Financial highlights:

· Assets under influence (AUI) up 75% to £2.1bn (2015: £1.2bn)

· Revenue up 47% to £11.6m (2015: £7.9m) of which more than 75% is recurring

· Gross margin of 61% (2015: 56%)

· Adjusted EBITDA* is up 42% to £2.7m (2015: £1.9m)

· Net cash generated by operations of £2.4m (2015: £1.8m) and total cash balances at the period end of £10.5m (2015: £3.9m)

· Seventeen acquisitions completed during the period for an aggregate consideration of £11.7m (or 1.9% of AUI)

· Launch of own investment platform in partnership with AJ Bell

· IPO on AIM in March 2016 raising £10m of capital before expenses

*Earnings before interest, taxation, depreciation and amortisation (EBITDA) is a non IFRS measure which the Group uses to assess its performance.

*Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation and exceptional costs.

Commenting, Peter Mann, Chairman, said:

"I am delighted to be able to report our maiden set of results since our successful IPO on AIM at the end of March last year. It has only been 10 months since we listed and we have made considerable progress, as demonstrated by this strong set of results.

"We listed in order to be able to access capital to facilitate the next stage of our development through acquisitions and it is extremely pleasing to be able to report that we completed 17 acquisitions during the period.

"The various political and macro events of 2016 highlight the need for good quality financial planning which presents us with a fantastic opportunity to grow our business. This, coupled with the various structural changes that have been taking place within our industry which result in a numerous potential acquisition targets, leaves us looking to the future with confidence.

The Group is highly cash generative and I am pleased to announce that we are recommending the payment of a final dividend of 2.00 pence per share subject to shareholder approval at the Company Annual General meeting on the 19 April 2017. The final dividend will be paid on the 12 May 2017 to shareholders on the register at the close of business on 28 April 2017."

For further information please contact:

Harwood Wealth Management Group plc +44 (0) 2393 552004

Neil Dunkley, Joint Chief Executive Officer

Alan Durrant, Joint Chief Executive Officer

N+1 Singer Advisory LLP +44 (0)20 7496 3000

(Nominated Adviser and Broker)

Alex Price / Aubrey Powell / Alex Laughton-Scott

Alma PR +44 (0)20 8004 4218

Josh Royston/Robyn McConnachie/John Coles

Website

www.harwoodwealth.co.uk

Chairman's statement

We are using the proceeds of our IPO to pursue our proven strategy. Our increased scale enhances our ability to grow, both organically and through our successful, acquisition-led model.

Strategy

This is my first full year statement following our listing on AIM in March 2016. I am delighted to report on a year of achievements for the Group, not least of which was the IPO. We are using the net proceeds of this judiciously to build shareholder value by furthering our clear, consistent and well-managed strategy namely to grow our business by acquiring likeminded firms, integrate them successfully and provide innovative investment solutions for clients. Network Direct Limited (NDL) is a good example of this and with c.100 advisers is a larger acquisition than we would have been able to make historically. We have received consent from the FCA to acquire NDL and anticipate the acquisition will be complete by March 2017.

We have also enjoyed organic growth. Our registered individuals are not only growing in number, but their per capita production is increasing as a result of organic opportunities that have presented themselves in the market, notably pension freedoms legislation. This has been a great boost to the advisory industry as larger numbers of investors are considering their retirement more seriously, both in terms of asset accumulation and also taking advice close to the point of decumulation.

We believe that our rigorous, vertically integrated process, coupled with our high quality investment management, delivers good quality client outcomes in an efficient manner. Prospective vendors feel confident selling to us, because they know their clients will be treated fairly.

The confidence we have seen from shareholders and the market underlines our view that our model - and sticking to our model - works, which is in line with what we told the market at the time of the IPO. We are excited to be taking the business to the next stage of its development.

Performance

2016 was a successful year for the Group. We added 17 acquisitions, and delivered an adjusted EBITDA of £2.7 million (2015: £1.9 million). Assets under influence (AUI) increased to £2.1bn (2015: £1.2bn) and we estimate that about two thirds of this increase is attributable to acquisitions and one third is from organic growth. The net cash generated by operating activities was £2.4m (2015: £1.8m) closely matching EBITDA.

Performance has been delivered against a favourable market backdrop. Post the Retail Distribution Review (RDR) we see a continued appetite for small and medium sized enterprises in the financial services sector to seek buyers - and if anything, we have seen an acceleration in the interest of people wishing to sell. We have stuck rigidly to our model, with the businesses we choose not to acquire almost as notable as those that we do!

In addition to the higher demand for advisory services from pension reforms mentioned above, the market itself has been very buoyant. The quality of our investment processes has delivered good performance through uncertain times.

Market environment

We see sound long-term prospects for investment management and financial advisory services, underpinned by structural forces that are driving demand, as well as shaping the provision of advice. The need for advice is increasing and several fundamental trends are driving consumers' need for financial advice:

Ageing population

The requirement for financial advice is supported by favourable demographics, as individuals enjoy higher life expectancy than previous generations. Those approaching or in retirement are of a cohort with substantial personal wealth, accumulated in an era of generous employer pension contributions and rising house prices. Total investable assets of the UK population are estimated to total approximately £3.5 trillion. These have grown steadily, and are forecast to reach around £4 trillion by 20181.

Pension freedoms

In April 2015, pension reforms were introduced that aimed to provide those approaching retirement with greater flexibility in when and how they use their pension pots. Previously, pensioners over the age of 75 were required to purchase annuities, and their pension funds were therefore lost to the investment industry. Pensioners now have the option of remaining invested during retirement and, in so doing, continue to generate investment, advice and administration fees for wealth management professionals. Statistics from the Association of British Insurers for the year to April 20162 show:

· £4.2 billion was invested in 80,000 annuities, with an average fund of £52,500.

· £6.1 billion was invested in 90,700 drawdown products, making the average fund invested nearly £67,500.

_______________

Increasing need for financial self-reliance

Historically, individuals were able to rely on the government and employers to provide their pensions. As the State Pension Age has been pushed back and defined benefit schemes have become a thing of the past, society has had to become increasingly self-reliant, with private provision for retirement and care costs becoming a major consideration in financial planning.

Low interest rates

Against a backdrop of a sustained period of low interest rates, clients are requiring greater guidance to generate returns on their savings and investments.

There have been major structural changes to the provision of advice

At the same time that these demand dynamics have been at work, the firms supplying financial services have faced new challenges. At the forefront of these has been the regulatory environment, notably the Retail Distribution Review (RDR).

Historically, the majority of investment distribution in the UK was through a combination of smaller advisory firms and the advisory arms of larger organisations such as banks, building societies and insurers. Typically, advisers were paid for their services via commission from the providers of the products they recommended. Consumers therefore did not pay for the advice directly. This approach was not transparent for consumers, however, as it was unclear whether they were receiving impartial advice or simply being sold the product which paid the highest commission to the adviser.

Effective from 1 January 2013, the RDR aimed to improve professional standards within the intermediary sector, introducing greater clarity between the different types of service available, and making the charges associated with advice and services clearer. Changes included the manner in which regulated financial and other advisers are remunerated, the minimum levels of qualification required to be obtained by regulated financial advisers and the minimum level of regulatory capital they must maintain.

This drive to higher standards, has, however, contributed to a reduction in adviser numbers3. Many larger institutions, such as banks and insurance companies, exited the market, leaving a fragmented base of smaller advisory firms. As at 31 December 2015, there were 14,491 firms offering financial advice as their main regulated activity registered with the FCA, with an average of 4.5 advising staff per firm3.

The end of commission paid by product providers to advisers (which is how many people had previously paid for their advice), has also contributed to a reported 'advice gap' for customers who seek to make investments but who do not access advice for reasons including cost, trust or awareness of the benefits of advice4. Concerns over this led to HMRC and the FCA launching the Financial Advice Market Review in August 2015. Published in March 2016, the report set out 26 recommendations aimed to stimulate the development of a market that provides affordable and accessible financial advice and guidance for everyone at all stages of their lives. The FCA is working with HM Treasury to develop an appropriate baseline and indicators to monitor the development of the advice market.

Further changes to the sector may result from the FCA's investigation into competition in the asset management industry, whose results are due for publication in early 2017. The Asset Management Review is examining fees and profitability in asset management, as well as the investment consulting market.

Aside from the regulatory landscape, technology is another factor driving change in the sector. Solutions such as 'robo advice' are being launched by some firms to cater for clients currently falling in the 'advice gap', whereby consumers are offered risk-related portfolios, but without a full discretionary service.

All of these developments contribute to a favourable environment for acquisitions in the regulated financial advisory sector. In 2015, 124 mergers took place in the sector, an increase from 83 the previous year5, and it was reported that up to one third of regulated financial advisers would consider selling their book6. Many small advisers and wealth managers lack the scale to continually invest in the information technology, compliance and operational support needed in order to remain in business. These factors, coupled with the increase in the minimum capital reserve requirements for advisory firms, leave the sector well positioned for further consolidation and rationalisation.

People

Our team has worked hard to deliver this robust financial performance, which is very much underpinned by our strong corporate culture and commitment to great client outcomes. Testament to the quality of the management team is that they were not distracted by the IPO process, with the financial results through that period largely uninterrupted. On your behalf and that of the Board, I wish to formally record our thanks.

Board changes

The Board was strengthened at IPO by the appointment of two new Non-executive Directors, Christopher Mills and Paul Tuson, both of whom bring a wealth of relevant experience. Nick Bravery was also appointed to the role of Chief Financial Officer in October 2016. The strength of our Board has been praised by the market as one of the most experienced and industry recognised in our arena. This is particularly notable for a business of our size.

Dividend

The Board is recommending a final dividend of 2.00 pence per share subject to shareholder approval at the Company Annual General meeting on 19 April 2017. The final dividend will be paid on 12 May 2017 to shareholders on the register at the close of business on 28 April 2017.

Outlook

We believe that our simple, clear strategy, combined with the proven capabilities of the Company, will enable Harwood Wealth Management Group to continue to deliver value to our stakeholders in the current year and beyond. The value from recent acquisitions will contribute to our results in our 2017 financial year, and we will continue to seek to add further client books to our stable. As for external factors, we await greater clarity on Brexit and its implications for the regulatory imperatives the financial services sector will face but are confident that whatever the outcomes our clients will still require good quality financial advice.

We go into the year with a good degree of confidence, a very sound business, and look forward to capitalising on further opportunities for growth.

Peter Mann

Chairman

Joint CEOs' statement

Summary

We are pleased to report revenue growth of 47% during the period, driven in part by organic growth but primarily through the completion of 17 acquisitions which added approximately £616m of AUI. Total AUI at 31 October 2016 was £2.1bn (2015: £1.2bn) including £693m (2015: £276m) assets under management (AUM). Adjusted EBITDA grew by 42% to £2.7m (2015: £1.9m). The adjusted EBITDA per share of 5.55 pence (2015: 4.68 pence) increased by 19% compared with 2015.

The IPO was clearly a highlight of the year, as was implementing all of the things we said we would do during the listing process. All  of the acquisitions we have completed  have been embedded into the business.

Another key highlight of the year was the launch of our own investment platform in partnership with AJ Bell. This was the result of an extensive selection and implementation process and allows us to offer our clients and advisers the opportunity to use an in-house solution from which we also generate incremental revenue that otherwise would go to a third party. It's about providing clients with something that they need to have anyway but, rather than having to use another external provider's platform, we can offer them something which is at least as good but probably cheaper. When we find a way of raising our revenues, cutting our costs and delivering added value to our clients it feels like a classic win-win for all.

A key achievement is that we have created a vertically integrated business. We started, pre listing, with a business that was wholly focused on distribution and advice. Post listing, we have a business that is advice-driven but with a discretionary investment management function and also a range of unitised managed funds, adding to the stable of products that we can offer to our advisers.

Financial review

Assets under influence (AUI) and assets under management (AUM)

It is pleasing that AUI has grown by 75% to £2.1bn (2015: £1.2bn) and AUM by 151% to £693m (2015: £276m). We estimate that two thirds of this growth has been achieved through the successful implementation of the acquisition strategy and one third through organic growth. £284m of the growth in AUM is attributable to the acquisition of Wellian Investment Solutions, a discretionary fund and investment manager, with the balance of £133m representing the capture of assets previously external to the Group (another key element to the Group's strategy).

Revenue

Group revenue for the financial year ended 31 October 2016 increased by 47% to £11.6m (2015: £7.9m) of which approximately 75% is recurring. The growth was driven by the following factors:

· the full-year effect of acquisitions completed in the previous financial year

· the partial effect of acquisitions completed in this financial year

· the growth in assets under management

· new business derived from acquired client portfolios

· the increase in the number of financial advisers

· the movement in market asset values

Gross margin

The gross margin increased to 61% (2015: 56%) as a result of the higher levels of acquisition activity in the year and because there were no material changes to individual financial adviser commission arrangements. Gross profit grew by 58% to £7.1m (2015: £4.5m).

Operating expenses

The total operating expenses of the business increased to £6.3m (2015: £3.2m). These included the exceptional costs associated with the admission to AIM, the additional running costs associated with being a publicly listed company, and the costs associated with the acquisitions, in particular Wellian.

Profitability

The primary measure of profitability in the sector is adjusted EBITDA, being earnings before interest, taxation, depreciation and amortisation and exceptional costs. Adjusted EBITDA for the period showed growth of 42% to £2.7m (2015: £1.9m).

Profit before tax for the period was £371,000 (2015: £1,150,000) after the £336,000 (2015: nil) of exceptional costs of the IPO and acquisition costs, and £1,581,000 (2015: £596,000) of depreciation and amortisation costs.

Financial advisers and staff headcount

The number of financial advisers (employed and self-employed) increased by five to 83 and staff headcount grew to 92 incorporating 11 staff from the Wellian transaction.

Acquisitions

The Group completed 17 acquisitions during the period of which 12 were asset acquisitions and 5 were share acquisitions. The total aggregate consideration of £11.7m comprises £4.5m paid in cash on completion, £2.6m paid by the issue of shares, and discounted deferred consideration of £4.6m.

Adjusted EBITDA (adjusted to exclude exceptional costs of the IPO and acquisition costs)

Adjusted EBITDA for the period was £2.7m, an increase of 42% over the previous period (2015: £1.9m). As a consequence of the Group's accelerated acquisition growth strategy, amortisation costs increased significantly to £1.6m (2015: £0.6m) as did the amortised finance costs to £0.5m (2015: £0.1m).

Earnings per share

Basic earnings per share for the year ended 31 October 2016 was 0.24p (2015: 2.16p) based on a weighted average of 49,242,615 shares (2015: 40,000,000).

Adjusted EBITDA per share

The adjusted EBITDA per share, for the year ended 31 October 2016, was 5.55p (2015: 4.68p).

Dividends

The Board is proposing a final dividend of 2.00p per share for 2016, which is subject to shareholder approval at the AGM on 19 April 2017, which will be paid to shareholders on 12 May 2017 based on the register of shareholders at close of business on 28 April 2017. 

Cash position

The Group had cash balances of £10.5m at 31 October (2015: £3.9m). Net cash generated from financing activities in the period was £8.6m (2015: net cash used £1.1m). The Group had discounted deferred consideration commitments of £5.4m at 31 October (2015: £1.6m).

Financial position

The Group has generated strong cashflow from operations which is expected to continue into 2017. These cashflows, together with available cash, ensure the Group is in a robust financial position from which to continue its strategy to grow the business both organically and through acquisition in the next trading period.

Post-period end

Network Direct Ltd

On the 30 August 2016 the Company announced the acquisition of Network Direct Ltd subject to Financial Conduct Authority approval. This approval was received on 13 December 2016 and the Board expects this acquisition to complete by March 2017. The total initial consideration is £4m of which £1m is payable at completion, with the balance based on performance of NDL over the next five years. NDL has a network of 107 financial advisers with assets under influence of £1bn.

WT Financial Ltd

The Company agreed, subject to the Financial Conduct Authority approval which was received on 13 December 2016, to acquire the entire share capital of WT Financial Ltd for a total initial consideration of £315,000 of which £157,500 is payable at completion, with the balance based on future revenue over the next two years. WT Financial has £16m of assets under influence. This acquisition was completed on 19 January 2017.

Current trading

Early indications are that the new financial year has started strongly. AUI is also performing well, and coupled with the recent rise in market asset values reinforces the confidence expressed earlier by the Chairman.

Notes to the financial information

1. General Information

Harwood Wealth Management Group plc is a public limited liability company incorporated and domiciled in England and Wales. The Group's business activities are principally the provision of financial advice and investment management to the retail market. The company changed its name from Compass Wealth Management Group plc on 15 March 2016. The address of the registered office is 5 Lancer House Hussar Court, Westside View, Waterlooville, Hampshire, PO7 7SE. The company is listed on the AIM market of the London Stock Exchange.

The preliminary financial information does not constitute full accounts within the meaning of section 434 of the Companies Act 2006 but is derived from accounts for the years ended 31 October 2016 and 31 October 2015. The figures for the year ended 31 October 2016 are audited. The preliminary announcement is prepared on the same basis as set out in the statutory accounts for the year ended 31 October 2016. Those accounts, upon which the auditors issued an unqualified opinion, did not include a reference to any matters to which the auditors drew attention by way of emphasis, without qualifying their report, and made no statement under section 498(2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies following the Annual General Meeting.

Statutory accounts for the year ended 31 October 2015 have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis, without qualifying their report, and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), this announcement does not in itself contain sufficient information to comply with IFRSs.

2. Significant Accounting Policies

Going concern

The Group's business activities, together with the factors likely to affect its future development and performance, the financial position of the Group, its cash flows and liquidity position are set out in the Chairman's and other statements in this announcement. Based on this assessment, the directors have, at the time of approving the financial statements, a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements

Basis of consolidation

These consolidated financial statements consolidate the financial statements of the Company and its subsidiary undertakings as at 31 October 2016. 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 may cease. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

Intangible assets other than goodwill

Other than goodwill, intangible assets with finite useful lives that are acquired externally are carried at cost less accumulated amortisation and impairment losses.

Expenditure on acquired client portfolios, which may be recognised either by way of a business combination or as an asset purchase, is capitalised in the period in which the acquisition is completed.

The cost of a purchased intangible asset acquired other than in a business combination is the purchase price plus any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended.

Client portfolios acquired in a business combination are valued at cost, which is the fair value at the date of acquisition, which generally equates to cost; no other intangibles arise (including goodwill).

Amortisation is recognised on a combined reducing balance / straight line method basis starting from the month of acquisition, over the estimated useful lives of the assets as below. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Acquired client portfolios are amortised over their expected useful lives of 15 years, calculated at 17.5% on the reducing balance for eight years, and the remainder straight line over the remaining seven years.

3. Segmental Analysis

The Board of Directors is considered to be the chief operating decision making body for the Group. The Board has determined that there is one operating segment based on reports reviewed by the Board that are used to make strategic decisions. The total revenue for the Group for the period has been derived from its principal activity wholly undertaken in the United Kingdom.

4. Exceptional costs

The £336,000 of exceptional costs comprises £263,000 of non-recurring costs connected to the AIM admission (not deducted from the Share Premium account) and £73,000 of non-operational costs associated with the acquisition activity throughout the year.

5. Taxation

An analysis of the income tax charge is detailed below:

6. Business combinations

In the period the Group completed the acquisition of the entire share capital of five businesses for a total consideration of £7.0m. Goodwill arising from the acquisitions is the difference between the fair value of consideration, less the fair value of the separable assets and liabilities acquired:

The initial accounting has not yet been completed in respect of all acquisitions and therefore the fair values are provisional.

In addition, 12 acquired client portfolios have been purchased in the period for a consideration of £4.8m, payable in cash on completion (£2.6m) and the balance (£2.2m) on deferred terms.

7. Earnings per share

On 15 March 2016 every 100,000 existing ordinary share of £1 each was sub-divided into 40 million new shares of 0.25 pence each.

On 29 March 2016 3,243,243 ordinary shares of 0.25 pence each were issued in part consideration of the entire share capital of Wellian Investment Solutions limited.

On 29 March 2016 12,345,684 ordinary shares of 0.25 pence each were issued on admission to AIM at the placing price of 81 pence per share.

Basic earnings per share are calculated using a weighted average number of shares of 49,242,615 for the period (2015: 40,000,000). Adjusted EBITDA has been shown as it is a common metric used by the market to monitor similar businesses.

8. Dividends

On 10 November 2015, prior to admission to AIM, a dividend was declared and paid of £354,000 (£3.54 per share). All Ordinary Shares carry equal dividend rights. As a holding company, the ability of the Group to pay dividends will principally depend upon dividends paid to it by its operating subsidiaries. The Board has recommended a final dividend of 2.00 pence subject to shareholder approval at the Company Annual General meeting on the 19 April 2017. The final dividend will be paid on the 12 May 2017 to shareholders on the register at the close of business on 28 April 2017. The ex-dividend date is the 27 April 2017.

9. Subsequent events

Acquisition of Network Direct Limited

On the 30 August 2016 the Company announced the acquisition of Network Direct Ltd subject to Financial Conduct Authority approval. This approval was received on 13 December 2016 and the Board expect this acquisition to complete by March 2017. The total consideration is £4m of which £1m is payable at completion, with the balance based on performance of NDL over the next five years. NDL has a network of 107 financial advisers with assets under influence of £1bn.

Acquisition of WT Financial Ltd

The Company agreed, subject to the Financial Conduct Authority approval which was received on 13 December 2016, to acquire the entire share capital of WT Financial Ltd for a total consideration of £315,000 of which £157,500 is payable at completion, with the balance based on future revenue over the next two years. WT Financial has £16m of assets under influence. This acquisition was completed on 19 January 2017.

10. Annual General Meeting

The Annual General Meeting will be held on the 19 April 2017 at 3.00pm at the office of Harwood Capital LLP at 6 Stratton Street London W1J 8LD.