HW..L Regulatory News (HW.)

23 January 2019

Harwood Wealth Management Group PLC

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

Full year results for the year ended 31 October 2018

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 2018. The Group continues to pursue its strategy of acquisitive and organic growth and the 2018 results show continued progress in revenue, assets under management and adjusted EBITDA*.

HIGHLIGHTS

· Nine acquisitions completed in the period for consideration of £10.7m (£9.0m net of cash acquired)

· Cash balance at year end £13.6m, £4.2m available for acquisitions

*Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation and separately disclosed items. It is a non-IFRS measure which the Group uses to assess its performance and it is also commonly used as a performance measure by market commentators.

**Adjusted earnings per share are calculated on post-tax adjusted EBITDA.

Commenting, Peter Mann, Chairman, said:

"It has been another year of strong growth for the Group, with EBITDA achieved ahead of the Board's expectations set at the start of the year. Our financial success demonstrates the efficacy of Harwood's three-pronged growth strategy and the benefits of building a recognised market position in a fast-consolidating industry.

The Group's growth in revenue was driven by the completion of nine acquisitions over the period, as well as the impact of prior year acquisitions. Acquisitions are a key part of our strategy. We remain very confident that a large pool of opportunities exists, many of which we expect to execute in 2019, continuing to grow the business in scale and capability.

We are confident in the Group's outlook, with Harwood well positioned to deliver further growth."

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Chairman's statement

Strong growth momentum continues

I am very pleased to report on another year of strong growth with adjusted EBITDA having increased by 42% on the prior year. This is ahead of the Board's expectations set at the start of the year.

We have made nine acquisitions over the period, many of which were larger than those acquired in the previous year, spending a total of £10.7m. Alongside this, we continued to drive organic growth, growing the external investment mandates under our management and benefitting from investment in our fund management products by clients of the advisers who joined the Group as a result of previous years' acquisitions. This year, AUI increased by 26% to £4.8bn and AUM by 42% to £1.7bn, continuing to demonstrate the Group's increasing scale.

Continued delivery

Nearly three years on since listing, we are proud to have consistently delivered growth year-on-year of over 25% in revenue and over 40% in adjusted EBITDA. This performance has been driven by executing our simple, three-pronged strategy: driving organic growth, acquiring financial advisory or wealth management businesses and increasing operational efficiency. In line with our strategy, the Group has maintained a consistently high level of recurring revenue which in 2018 exceeded 70%.

Our consistency of delivery is Harwood's greatest strength. Similarly, we believe our longstanding reputation as a quality acquirer, which demands high standards, has led to Harwood being viewed as one of the leading consolidators in the industry. We have built our market presence further this year, in a sector which remains buoyant and has seen no significant new entrants.

Strengthened corporate governance

The changes made to the roles of certain board members in April this year were in line with our interpretation of the forthcoming changes to the Senior Managers and Certification Regime and were part of the Group's continuing evaluation of how best to organise its internal structure and reporting lines. I am pleased to say that the new reporting structure is working well and all members of the management team who were allocated new roles have excelled in them thus far. Alan Durrant, who took on the role of sole CEO, has continued to show strong leadership in corporate strategy, whilst Neil Dunkley remains key in driving growth in Financial Planning as Managing Director of Financial Planning and Network Services. We are delighted to have found an experienced interim CFO with the appointment of Gillian Davies and are very pleased that our former CFO, Nick Bravery, has continued to contribute to the strategic direction of the business as Company Secretary.

As a quoted company traded on the AIM market of the London Stock Exchange, we understand the importance of sound corporate governance and of adopting principles of good governance across the business. In September, the Board reaffirmed its commitment to good corporate governance by adopting and applying the Quoted Companies Alliance (QCA) Corporate Governance Code 2018.

A progressive dividend

In line with our progressive dividend policy, we paid an interim dividend of 1.08 pence per share and the Board will be recommending a final dividend of 2.42 pence per ordinary share, bringing the full year dividend pay-out to 3.50 pence, an increase of 8%.

WELL POSITIONED FOR THE YEAR AHEAD

Having successfully navigated through many periods of uncertainty since its inception, the Group is used to growing the business under sometimes difficult circumstances. We are in the strong position of benefitting from complexity and change, key factors which drive clients to use our services.

I would like to thank our management, staff and partner advisers for another successful year and our Shareholders for their continued support

We look forward to updating the market on our performance in 2019 in due course.

Peter Mann

Chairman

CHIEF EXECUTIVE'S STATEMENT

I am very pleased to be able to report another strong set of results this year. Revenue grew by 26% to £32.7m (2017: £25.9m) and we generated £6.1m of adjusted EBITDA (2017: £4.3m), an increase of 42%. At 31 October 2018, our Assets Under Influence ("AUI") were at £4.8bn (31 October 2017: £3.8bn) and Assets Under Management ("AUM") were at £1.7bn (31 October 2017: £1.2bn). These strong results were again driven by progress across all our three divisions.

Growth has been delivered against the backdrop of an unpredictable market which has been more volatile than previously seen since listing, prompted, in part, by the vagaries of the current political climate. These results are testament to both our expertise in our sector and unwavering focus on the execution of our strategy.

Below is a detailed review of the key drivers to delivering this strong performance in line with our stated strategy.

Performance against strategy: growth from acquisitions

This year we have continued to deliver on the acquisition of several high-quality businesses. We deployed £10.7m (£9.0m net of cash acquired) on nine acquisitions, a considerable acceleration compared with the £2.3m invested on seven acquisitions in the previous financial year. With acquisitive growth, the Group benefits through both the immediate fee income for providing advice and the expectation that a proportion of these assets will come under our management in time, when our investment management solutions are right for the needs of clients.

Acquisitions made during the year accounted for 7% growth in revenue in the current year. Several of the acquisitions were larger than those completed during previous years, demonstrating the Group's growing scale and buying power. In addition, the full year impact of acquisitions (predominantly Network Services) completed during the prior year, contributed 12% growth in revenue in 2018. A key part of our business model is to ensure the successful integration of acquisitions following their purchase. I am pleased with the integration progress that has been made during 2018, to make Harwood a professional, productive home to all our new employees, partner advisers and clients.

The Group has a proven acquisition process and we believe that this methodology is vital in the successful purchase, integration and management of acquisitions.

We continue to look for small to medium sized financial advisory and wealth management businesses to acquire, with a view to completing as many as possible each year, whilst following our robust acquisition processes. The upper size limit of the prospective acquisitions we are looking at has increased as a positive consequence of the IPO and the number of businesses now approaching us as vendors demonstrates our strong position in the marketplace. The Group has signed heads of terms in respect of two acquisitions and has issued proposals or heads of terms for a further six. In addition, since the year end, the Group has exchanged contracts in relation to the acquisition of GD White for a total consideration of c£1.5m.

The pool of potential acquisition targets shows no sign of diminishing and the factors driving IFA consolidation remain. Smaller IFAs continue to face the challenges of an ever greater regulatory and compliance burden which now includes MiFiD II, GDPR and soon SMCR. For advisers approaching retirement, the opportunity to sell their business to someone with the established resources, technology and infrastructure to provide seamless operations, compliance and technical support for their clients is a compelling one.

Performance against strategy: organic growth

Net organic growth contributed 7% of the revenue growth in the year. We aim to deliver organic growth through: growing our AUI in the Financial Planning business by increasing the number of clients and advisers, as well as advising on a larger share of the clients' wealth; growing our AUM by increasing the proportion of our clients' wealth that we manage through our Investment Management businesses as well as winning external investment management mandates.

Growth from existing clients has been driven by continued trends seen in financial services and the ongoing need for professional financial advice. These include increased pension freedoms, an ageing population and the growing complexity of regulation and legislation. All these trends serve to cement and grow client relationships with advisers that they trust, underpinning Harwood's positive attitude towards change.

We continue to bring new clients into our investment management businesses, primarily through two routes. The first route is those clients who migrate from solely seeking financial advice to also becoming clients of one of our investment management businesses. The increase in our AUM is testament to the quality of Harwood's fund management products and how well they suit our advisers' needs and those of our clients. We work very closely to partner with our advisers, building them a range of solutions appropriate for a broad range of client requirements. The second route is through external mandates, where customers come in immediately through the fund management division. The mandate won in February this year, to provide the portfolio research element of Frenkel Topping's investment management services, is a prime example of delivery on this element of the growth strategy. Our ability to deliver tailored investment solutions combined with a high level of personal service has led to continued strong growth in our external mandates.

Network Direct Ltd (which is our Network Services division) was acquired in February 2017 in order to leverage our investment solutions to the benefit of their advisers and clients, as well as expanding our reach across the UK. We have used our existing investment management resource to design bespoke investment management products specifically to tailor to the wants and needs of the Network Services advisers, dovetailing their well-established advice and operations processes. These new products have been supported by extensive training seminars and individual meetings with Network Services advisers to give them the tools and confidence they need to recommend the NDL Blended Solutions to their clients. Although uptake has taken somewhat longer than originally expected, we have been seeing steady monthly flows of new business over the last year and the fees from this flow straight through to our EBITDA as it utilises our existing investment management resources.

Historically, another factor in driving organic growth has been the rise in asset markets. With the volatility of the markets over the period this has been a headwind rather than a tailwind with the FTSE 100 falling during the period by 4.8%. However, it would be wrong to think of our clients' assets as being directly linked to the performance of the FTSE 100 and our revenue rising and falling in lock-step with a single benchmark. The vast majority of our clients are in Cautious, Balanced and Income portfolios which are diversified across different sizes of companies both in the UK and internationally, fixed income, property and absolute returns. This diversification, which is aimed at reducing volatility for our clients, also produces a smoother revenue stream for us.

Performance against strategy: efficiency in operations

We continue to work on improvements across our internal operations, making sure they are suitably efficient and robust for the next stage of growth. Due to the highly regulated nature of our industry we take a measured approach to internal change, gradually implementing new initiatives to bring out efficiency gains in a controlled manner. An important part of this strand of our strategy is the diligent and consistent review of processes to ensure they are in line with best practice.

Over the year we have restructured in line with the upcoming Senior Managers and Certification Regime, introduced to increase individual accountability within the banking sector. Across the business we have implemented leadership teams to pool resources and improve best practice. As part of this, Network Services has been brought under the leadership of Neil Dunkley as this will provide further support to the current management team. We are pleased with how the new management structure has performed since these changes were made and are confident that we now have the necessary corporate structures in place for further well-managed growth.

Outlook

In 2018, we have again delivered against all three elements of our strategy, growing from our existing clients and bringing in new clients, expanding via acquisition and driving efficiency in our operations.

Notwithstanding the recent weakness in the markets, in the early part of our 2019 financial year each division has shown growth compared to the same period in the prior year. We have a healthy pipeline of acquisitions at an advanced stage, including several potentially larger deals. As always, we will aim to buy businesses that present not only the best financial opportunity but also the best cultural fit. The Directors are continuing to review both debt and equity financing options.

Whilst the current political and economic climate, most noticeably Brexit, brings uncertainty, the senior management team has, between them, decades of experience in dealing with differing economic and political environments. As we have demonstrated historically, we believe we are well positioned to weather changes in the global economic landscape. We are confident in the Group's outlook with a strengthened management team and opportunities to continue to deliver growth both organically and through acquisition. I would like to thank all of our clients, partners, colleagues and stakeholders, who continue to support us in our journey.

Alan Durrant

Chief Executive Officer

FINANCIAL REVIEW

ASSETS UNDER INFLUENCE AND ASSETS UNDER MANAGEMENT

The Group's total Assets Under Influence ("AUI") in the financial year increased by 26% to £4.8bn (2017: £3.8bn).

Assets Under Management ("AUM"), (a component of AUI), increased by 42% to £1.7bn (2017: £1.2bn). The discretionary fund management business, Wellian Investment Solutions, performed strongly and increased its AUM to £977m (2017: £627m). The advised investment management business, IMS Capital, increased its AUM to £698m (2017: £587m).

GROUP RESULTS

REVENUE

Group revenue in the year increased by 26% to £32.7m (2017: £25.9m). As a result of following the Group's strategy the revenue growth derives from the following:

· the full year effect of acquisitions that were completed in the 2017 financial year

· the part year effect of acquisitions completed in this financial year

· the growth in AUM

· new business derived from newly acquired and existing client portfolios

· any change in the number of financial advisers

· any movement in market asset values

The divisional split of Group revenue is set out below:

Each of the Group's three divisions achieved growth in the year. Financial Planning revenue increased by 13%, reflecting the impact of acquisitions made in the first half of the year. Investment Management revenue increased by 42% in line with the 42% increase in AUM during the year. Network Services revenue increased by 39%, representing a full year of revenue from the business which was purchased in February 2017, as well as organic growth.

GROSS PROFIT

Gross profit in the year increased by 35% to £15.1m (2017: £11.2m) and the gross profit percentage increased to 46% from 43% in the prior year. This is analysed by division below:

Financial Planning gross profit percentage increased to 66% from 57%. This was due to the higher gross profit from some acquisitions where clients are serviced through employed financial advisers, whose costs are included within administrative expenses. In addition, some retiring self-employed advisers have been replaced by employed advisers during the year. Investment Management and Network Services were at a similar level to the gross profit percentage achieved in the prior year.

ADMINISTRATIVE EXPENSES

Administrative expenses (excluding depreciation and amortisation) were £9.0m (2017: £6.9m), an increase of 31% compared to 2017. The increase predominantly represented an increase in employment costs of £1.6m to support growth. In addition, there were modest increases in IT, legal and professional and property costs.

FINANCIAL ADVISERS AND STAFF HEADCOUNT

The number of financial advisers (employed, self-employed and Network Services members) was 177 (2017: 179).

Staff headcount increased from an average of 113 to 136 across the Group (excluding self-employed advisers and Network Services Members).

ADJUSTED EBITDA

Adjusted EBITDA increased by 42% to £6.1m (2017: £4.3m) and the adjusted EBITDA percentage increased to 19% (2017: 17%).

OPERATING PROFIT

Operating profit increased by 44% to £2.6m (2017: £1.8m) after charging separately disclosed items of £0.2m (2017: no charge) and amortisation of £3.3m (2017: £2.5m). The separately disclosed items were in respect of increased deferred payments relating to acquisitions. The increase in amortisation reflected the impact of acquisitions (see note 7).

NET FINANCE EXPENSES

Net finance expense was £0.6m (2017: £0.6m). This related to the unwinding of discount on contingent consideration relating to acquisitions.

TAXATION

The current corporation tax charge in the period was £1.1m (2017: £0.8m), offset by a deferred tax credit of £0.3m (2017: £0.3m) related to intangible asset amortisation of acquired subsidiaries. The effective tax rate of 39% (2017: 41%) was significantly higher than the UK corporation tax rate at 19%, reflecting expenses which did not qualify for income tax deduction (principally amortisation). Tax paid was £1.1m (2017: £1.2m).

EARNINGS PER SHARE

Basic and diluted earnings per share were 1.91p (2017: 1.19p), an increase of 61%.

Adjusted earnings per share were 7.92p (2017: 5.87p), an increase of 35%. This is lower than the increase in adjusted EBITDA due to an increase in the average number of shares in issue.

DIVIDENDS

The Board has proposed a final dividend of 2.42p (2017: 2.24p), which together with the interim dividend of 1.08p (2017: 1.0p), gives a total paid and proposed dividend relating to 2018 of 3.50p (2017: 3.24p), an increase of 8%, in line with its progressive dividend policy. The final dividend is subject to the approval of the Company's Shareholders and will be paid on 10 May 2019 to Shareholders who are on the register at close of business on 26 April 2019.

ACQUISITIONS

During the year the Group completed a total of nine acquisitions, which included the client portfolios of four independent financial adviser businesses and a further five client portfolios through the purchase of the entire issued share capital of similar businesses. Aggregate consideration was £10.7m (£9.0m net of cash acquired). This consideration comprised £6.6m of cash due on completion and discounted deferred consideration of £4.1m which is due to be paid over the next two years. Deferred consideration is payable based upon the trail income from the client portfolio acquired and may be increased or decreased compared to the actual amounts provided.

CASH

The Group had cash of £13.6m at 31 October 2018 (31 October 2017: £19.0m). The Group generated £6.5m of cash inflow from operating activities (2017: £4.9m), representing a strong adjusted EBITDA cash conversion rate for the year of 107%. Cash of £8.8m (2017: £4.0m) was paid in the year in respect of acquisitions: £4.9m (2017: £1.4m) initial consideration (net of cash acquired) and £3.9m (2017: £2.6m) deferred consideration. Dividends paid to Shareholders in the year totalled £2.0m (2017: £1.3m).

The Group has c£4.2m of cash available for acquisitions after excluding deferred consideration, dividends and capital adequacy requirements.

FINANCIAL POSITION

The Group had net assets at the end of 2018 of £25.9m (2017: £26.8m), including net cash as summarised above of £13.6m. The Group remains in a robust financial position to continue to pursue its strategy of organic growth and acquisitions.

EVENTS AFTER THE REPORTING DATE

2018 interim dividend

The 2018 interim dividend of 1.08p per share was paid to Shareholders on 9 November 2018, totalling £0.7m.

Acquisition of GD White (Independent Financial Advisers)

On 18 January 2019, the Group exchanged contracts to purchase the trade and assets of GD White (Independent Financial Advisers). The purchase price is expected to be c£1.5m, payable 50% on completion (expected to be on 1 May 2019) and a further two instalments of 25% and 25% which are due to be paid on the first and second anniversaries of completion, contingent upon results.

Gillian Davies

Interim Chief Financial Officer

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 OCTOBER 2018

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 OCTOBER 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 OCTOBER 2018

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 OCTOBER 2018

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, investment management and network services. 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 2018 and 31 October 2017. The accounts for the year ended 31 October 2018 are audited. The preliminary announcement is prepared on the same basis as set out in the statutory accounts for the year ended 31 October 2018. 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 2017 have been filed with the Registrar of Companies. The auditor's 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 made no 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 IFRS.

2. Significant Accounting Policies

Basis of consolidation

These consolidated financial statements consolidate the financial statements of the Company and its subsidiary undertakings as at 31 October 2018. 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.

Definition of a business (Amendments to IFRS 3) (October 2018)

The Group has adopted early the provisions of this amendment, which clarify the definition of a business with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. In particular the amendment adds an optional 'concentration test' which permits a simplified assessment of whether an acquired set of activities and assets is not a business. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. The Group has adopted the amendment and applied the concentration test to its acquisitions with effect from the commencement of this accounting period. All the acquisitions in the year have met the test and have been treated as asset purchases.

Going concern

After a review, the Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue to operate for a period of at least twelve months from the date these financial statements were approved. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements.

3. Operating segments

For management purposes the following information by segment is provided to the chief operating decision maker, which is considered to be the Group Board and best describes the way the Group is managed. This provides a meaningful insight into the operations of the Group.

An analysis of the Group's operating segments is as follows:

4. Separately disclosed items

The additional consideration on past acquisitions is the difference between the final contingent consideration payable on acquisitions and the deferred consideration previously provided in the statement of financial position. The difference is due to actual revenues being higher than expected at the time of acquisition.

5. Taxation

An analysis of the income tax charge is detailed below:

6. Earnings per share

7. Acquisitions

8. Dividends

9. Events after the reporting date

2018 Interim dividend

On 9 November 2018, the Company paid an interim dividend of 1.08 pence per ordinary share based on the register of Shareholders at close of business on 27 October 2018 totalling £675,464.

Acquisition of GD White (Independent Financial Advisers)

On 18 January 2019, the Group exchanged contracts to purchase the trade and assets of GD White (Independent Financial Advisers). The purchase price is expected to be c£1.5m, payable 50% on completion (expected to be on 1 May 2019) and a further two instalments of 25% and 25% which are due to be paid on the first and second anniversaries of completion, contingent upon results.