23 Jan 2018 07:00
23 January 2018
Harwood Wealth Management Group PLC
("HWMG", the "Company", or the "Group")
Full year results for the year ended 31 October 2017
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 2017. The Group continues to pursue its strategy of acquisitive and organic growth and the 2017 results show very positive progress in revenue, assets under management and adjusted EBITDA*.
Financial highlights:
· | Assets under influence (AUI) up 81% to £3.8bn (2016: £2.1bn) |
· | Revenue up 123% to £25.9m (2016: £11.6m) with the newly acquired Network Direct contributing £9.8m of this |
· | Gross margin of 43% (2016: 61%). Gross margin excluding Network Direct (a structurally lower margin business) was 65% |
· | Profit after tax of £0.7m (2016: £0.1m) |
· | Adjusted EBITDA* is up 59% to £4.3m (2016: £2.7m) |
· | Net cash generated by operations of £3.7m (2016: £2.4m) and total cash balances at the period end of £19.0m (2016: £10.5m) |
· | Seven acquisitions completed during the period for an aggregate consideration of £2.3m |
· | Successful placing in April 2017 raising £10.0m after expenses to continue the Group's acquisition strategy |
*Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation and exceptional costs. 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.
Commenting, Peter Mann, Chairman, said:
"Harwood has reported another strong year of progress, driven by both organic growth and the contributions of acquisitions, underpinning the strategy of strong financial services advice revenues, good quality investment performance and increasing assets, and completing further acquisitions.
"The Group is highly cash generative and I am pleased to announce that we are recommending the payment of a final dividend of 2.24 pence per share subject to shareholder approval at the Company Annual General meeting on the 18 April 2018. The final dividend will be paid on 11 May 2018 to shareholders on the register at the close of business on 27 April 2018.
"Overall, the progress made since the Company's IPO in March 2016 indicates a strong outlook for the next financial year."
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 / James Hopton / Alex Laughton-Scott
Alma PR +44 (0)20 8004 4218
Josh Royston / Rebecca Sanders-Hewitt / Susie Hudson
Website
www.harwoodwealth.co.uk
Chairman's statement
I am delighted to report another set of strong results, and look forward to building on our success.
Another successful year
I am pleased to say that, once again, the Group has performed ahead of expectations, and in the manner we said we would - by consistent execution of our strategy: strong financial services advice revenues, good quality investment performance and increasing assets, and further acquisitions.
I would particularly like to draw attention to the acquisition of Network Direct Limited ("NDL"). Not only did this bring a different geographical footprint to where Harwood has focused its activity, but, as the name implies, it is a network, which offers a different delivery structure for the Group. The network is responsible for the advice given by the advisers, who are registered individuals. They are often not employed, however, the network has a regulatory responsibility. The acquisition of NDL has diversified our route to market and has also widened the number of advisers to whom we can offer our centralised investment processes and in-house investment solutions.
In April 2017, the Company returned to the market to complete a secondary fundraise, raising £10.0m after expenses. We were delighted that this was well received by existing and new investors, and we raised the full amount anticipated. As communicated, we are deploying the proceeds by buying businesses that will generate revenue across our various offerings.
Favourable market drivers
This is a good time to be in the business of giving regulated financial advice, as there has been a favourable flow of regulation from both the government and the industry regulator. Since the introduction of pension liberalisation, we are seeing individuals be more creative and thinking more about their retirement funds. Previously, there were limited advice opportunities once the individual had purchased their mandatory annuity, but the pension freedoms have given the opportunity for a longer term and more intimate relationship with clients. For example, if you are buying an income draw down product where you're drawing down from your pension pot every year, there is almost a mandatory series of advice points.
The markets have also been buoyant, which is good for us as a business that derives a portion of our income from assets under management. Another trend has been the ongoing shift from defined benefit to defined contribution schemes. Some firms are heavily involved in that area, but we are choosing to participate judiciously in that market, in line with our risk appetite and clear governance frameworks. Moving a customer's pension pot from one environment to another is a major decision, and needs a high quality, rigorous and sustainable process such as ours. We do not expose ourselves to unnecessary risk, so we are availing ourselves of the opportunity but in a manner that the industry regulator would wish to see. Our advisers have the freedom to express themselves, but within very clear parameters around matching our sensible and well governed appetite for risk.
We have had a relatively interesting regulatory environment this past year with further things on the horizon. There is increased regulatory focus on value and transparency to the end client, and we believe we have robust processes and structures in both of these areas. Regarding the outcome of the FCA's Asset Management Market Study, the general consensus is that, for active management, there may be slight downward pressure on investment management margins. Certain larger asset managers have already made alterations to their pricing structure, which is positive for customer outcomes. This should make financial products and advice more affordable and therefore accessible to more people, which will benefit the Company. The other side to the argument is that it will push individuals towards passive products, which is also beneficial to the Company as we have passive products in our offerings. The regulator is now moving on to look into platforms. This is currently a work in progress so the outcome is unknown, but it's not unreasonable to assume that this will benefit customers in one way or another. We use platforms, so if there are benefits to customers then we stand to benefit there too.
MiFID II came into force in January 2018, and we have made sure that we comply with the procedural and disclosure changes required. As we outsource the business of fund management and also the business of platforms, the principal effect is on our suppliers, although we do have to be cognisant of how the regulations apply to us and make sure that we are compliant and that we work with companies that are also compliant. There is also the General Data Protection Regulation (GDPR), which is a requirement for individuals to have a better grasp of the data held about them by third party institutions, which has the potential to also impact procedures.
With regard to technological changes, these affect us to the degree that advancements should increase efficiency in fund management, from which we would benefit. We have reached a scale that we are an important client for the people we do business with, therefore if they differentiate their service propositions, they differentiate in our favour. We keep a close eye on automated wealth managers (robo-advisers), but it is currently too early in its development stage for us to commit significant capital.
The Harwood difference
We do what we say we're going to do. What makes Harwood a good aggregator in the market? We apply rigorous standards - it's a readily repeatable formula that we repeat readily! We know what return we need from a business, we know how to integrate a business into our systems and processes, and we know how to treat their customers fairly. We do this almost metronomically making it the DNA of our business. When we develop new offerings or services, we do it at the right time, for the right reason.
Harwood is a well governed institutionalised business that grows, but yet maintains that entrepreneurial, small business culture. It has a very unusual blend of the disciplines of an institutional business, while at the same time retaining the feel of a family business. Our staff and our advisers see us as a trusted partner, almost as a family. It's ingrained in the psyche and the culture, from Board level and throughout the Group. We are very much about customer, client, people centricity. It's just intuitive. We pay a fair market rate for businesses, and I would think that a high proportion of the firms that join us do so because of the people. We tend to align ourselves with likeminded businesses, and, when we choose not to acquire a business, often it's around cultural as well as financial fit.
As a Board, we are very active in the business and marketplace. I meet with clients and speak with potential new clients frequently. Christopher Mills is a seasoned investor and talks to the investment community daily. Paul Tuson is very in touch with the finances of the business.
A progressive dividend
In line with our progressive dividend policy, we paid an interim dividend of 1.00 pence per share, and the Board will be recommending a final dividend of 2.24 pence per ordinary share, subject to shareholder approval at the Annual General Meeting on 18 April 2018. The final dividend will be paid on 11 May 2018 to shareholders on the register at the close of business on 27 April 2018 bringing the full year dividend pay-out to 3.24 pence.
Well positioned for future growth
I wish to thank our shareholders for their continued support, and management, staff and advice partners for another successful year.
As ever, there are uncertainties ahead, with Brexit and its potential ramifications on the financial services sector a particularly difficult area to predict. However, uncertainty tends to drive the need for financial advice, and as we look to the year ahead and beyond, we remain confident that our simple, proven strategy will continue to provide plentiful opportunity for profitable organic and acquisitive growth.
Peter Mann
Chairman
Joint CEOs' statement
We delivered our strategy ahead of expectations, and the acquisition of Network Direct and £10m fund raise give us a sound platform for growth.
We have achieved a pleasing set of results this year. Revenue grew by 123% to £25.9m (2016: £11.6m), and we generated £4.3m of adjusted EBITDA (2016: £2.7m). As of 31 October 2017, our assets under influence (AUI) were £3.8bn (31 October 2016: £2.1bn).
Performance against strategy: growth from acquisitions
Looking back at the year, we have continued to execute our simple, proven business model: acquire businesses, raise capital to redeploy, integrate acquisitions and provide a good and reliable service to all of our stakeholders, whether shareholders, employees, partner advisers or clients. We are good at what we do, and are operating in a good space in terms of the fragmentation of the market, with regulatory demands serving to favour consolidation.
April 2017 saw a successful placing of 6,954,000 new ordinary shares at a price of 150 pence per share, raising £10.0m net of expenses to allow us to continue to pursue our acquisition-focused strategy. We made seven acquisitions during the year, the most notable being that of Network Direct Limited (NDL), which was acquired in February 2017 for an aggregate consideration of £0.9m. Adding approximately £1bn in AUI, the scale of the acquisition was unprecedented for the Group, and NDL's services provided to a network of appointed representatives have brought a new strategic dimension to Harwood, upon which we can build. We now have access to a far greater number of financial advisers, to whom we can speak about the investment solutions that we can offer - via them - to their clients. Building these relationships also positions us well should some of these financial advisers wish to sell their businesses in future.
Our main focus over the months since we acquired Network Direct has been to work closely with their advisers to understand their needs, and we have designed an investment solution accordingly. Rather than pushing an existing product at them, we involved Network Direct members in designing a product that they wanted to offer to their clients, that perhaps wasn't available elsewhere.
Although we are keen to benefit from efficiencies of scale where possible, we have structured the product suite to meet the individual needs of the individual businesses. It isn't about one size fits all. Where a particular type of adviser believes they need a particular type of product, that's fine and the investment management business is built on a modular basis. We already have all of the ingredients to meet different needs, with very little or no additional cost or work required. By offering solutions to meet the genuine wants and needs of clients, we make it easier for the adviser to understand and recommend to the client, easier for us to manage and there is far less chance of the client having an unsatisfactory outcome further down the line, because they have something that is right for them from the start.
The size of the prospective acquisitions we are looking at is getting larger, and a positive consequence of the IPO and our strong performance is that more businesses approach us meaning that our acquisition pipeline is very healthy. We are used to making acquisitions and are skilled at doing this. Vendors know we have the systems and processes in place, the financial ability to pay any upfront consideration and the reassurance that we can satisfy our obligations for any deferred payment we put in place.
Different vendors have different reasons for selling their businesses, but they know their clients will be looked after and see us as a good cultural fit.
Performance against strategy: organic growth
Our organic growth is underpinned by the ongoing need for the professional management of client assets, given structural factors such as the aging population and pension freedoms, now that consumers are no longer required to buy an annuity their needs have become more bespoke and complex and the requirement for advice also continues over a longer period.
The discretionary fund management business has had a successful year, with some good mandate wins. We are not trying to compete with the mass multi manager market, which is very well served. Instead we take a similar approach to how we deal with our internal clients. We show them the ingredients and work with them to develop a genuine partnership, by building a range of portfolios, a range of solutions, a range of funds that meets exactly the needs of their business. We sit down with the partners of the business and ask them what the fees need to look like, what the investment strategy needs to look like and what the margins need to look like. There are very few firms operating in that space as most design a product then go out to try to sell it. When we win mandates they tend to be sizeable, and our established cost base allows us to benefit from operating leverage.
Performance against strategy: efficiency in operations
When we think about operations, we think about how we can make these more efficient and more robust for the next stage of growth. We seek to put in place robust platforms on which we can build, and outsource to specialist providers where this is not a core activity.
For example, rather than having internal custody of client assets, which is a low margin and complex undertaking, we have outsourced this to a specialist provider, AJ Bell. We have largely completed the transition from holding client assets on our in-house administration onto the AJ Bell platform, and now have the potential to add new revenue streams to that platform.
As part of our on-going operational reviews, we also renegotiated a large contract with an IT provider that will generate economies of scale as we grow, and transferred our desktop IT to Microsoft 365 as this is more secure as well as more efficient.
Market environment
The last 12 months have been interesting politically, yet equity and bond markets have behaved very resiliently over that period. Our own investment performance is testimony to the fact that we don't take bold asset allocation decisions based on which way politics and economies may go, rather we build portfolios that aim to deliver to their objectives and those of the clients over the long term, and that approach has stood us in good stead.
In terms of the regulatory landscape, MiFID II brings widespread changes to some areas of financial markets. Having spent much time looking at the potential impact on our business, we believe that the implications are minor compared with the impact on firms involved with stockbroking or direct securities, for example. We have to pay for a small amount of investment research, but this is not a material figure. The level of reporting will be onerous for some firms, but we believe this will be much less onerous for us. It is fair to say that some of the practical implications will remain unclear though, even after MiFID II's implementation.
Although they were introduced previously, last year saw the first significant take-up of pension freedoms. These reforms have unquestionably led to more complicated client needs and we have gained new business as a result with greater numbers of clients seeking advice, about an asset size that is typically larger and over a longer period of time than when they were forced to buy an annuity.
The FCA published a report on the consolidation and acquisition of client banks. As a result of this we have reviewed our acquisition processes, and recruited additional resource into our acquisition team to enhance our activity in respect of client communication and treating customers fairly.
The FCA's Asset Management Review came out in May. Following an internal review, we do not feel there are significant implications for our business. Also coming up is the Senior Managers and Certification regime change. This is at consultation stage, but the sector anticipates that in the last quarter of 2018 there will be a change to removing some controlled functions to a new regime of senior management roles and responsibilities.
Outlook
We have delivered against all three elements of our growth strategy - with existing clients, new clients and via acquisition - and all have contributed to our results. Our performance is testament to the expertise and strong relationships of our advice partners and our valued colleagues, whom we wish to thank.
Looking forward, in the context of what might happen to markets in light of external factors such as Brexit, we are in the fortunate position of being paid to deal with confusing things. One of the elements that drives customers to us and to our sector is that things are confusing, and change constantly to become yet more confusing. We know that there will be changes in forthcoming budgets to various elements, and that those will create a need for more advice.
In short, we see plenty of opportunity to continue working to our proven strategy, we have a robust pipeline of potential acquisitions and continue to seek additional advisers to join the Group to serve our growing client base. Coupled with our strong financial position and efficient operating model, we are confident that we will continue to deliver profitable growth.
Financial review
Assets under influence (AUI) and assets under management (AUM)
We are pleased to report that the Group's total AUI has shown very strong growth of 81% to £3.8bn (2016: £2.1bn). This includes approximately £1bn from the acquisition of Network Direct Ltd (NDL) that was completed in February 2017.
AUM (a component of AUI) increased by an impressive 71% to £1.2bn (2016: £0.7bn). The discretionary fund management business, Wellian Investment Solutions, performed strongly and increased its AUM to £627m (2016: £284m) including winning new mandates from third party businesses. The advised investment management business, IMS Capital, increased its AUM to £587m (2016: £409m) representing the capture of assets previously external to the Group (a key element to the Group's strategy).
Revenue
Group revenue for the financial year ended 31 October 2017 increased by 123% (2016: 47%) to £25.9m (2016: £11.6m). 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 2016 financial year
· the partial effect of acquisitions completed in this financial year
· the growth in assets under management (as highlighted above)
· new business derived from newly acquired and existing client portfolios
· the increase in the number of financial advisers
· any movement in market asset values
| 2017 |
|
|
| 2016 |
|
|
Source of revenues | £'ms |
|
|
| £'ms |
|
|
Financial Planning | 12.9 |
|
|
| 9.5 |
|
|
Investment Management | 3.2 |
|
|
| 2.1 |
|
|
Network | 9.8 |
|
|
| - |
|
|
| 25.9 |
|
|
| 11.6 |
|
|
All areas of the Group reported year on year growth in revenue. Investment Management showed strong growth of 52% as a direct result of the increased assets under management highlighted above. Financial Planning revenues increased by 36% as a result of acquisitions and organic growth. The acquisition of Network Direct in February contributed £9.8m to this year's revenue.
| 2017 |
|
|
| 2016 |
|
|
Source of gross profits and margin | £'ms |
| % |
| £'ms |
| % |
Financial Planning | 7.4 |
| 57 |
| 5.2 |
| 55 |
Investment Management | 3.0 |
| 94 |
| 1.9 |
| 90 |
Network | 0.8 |
| 8 |
| - |
| - |
| 11.2 |
| 43 |
| 7.1 |
| 61 |
The gross margin reduced to 43% (2016: 61%). There was a four percentage point increase in the Investment Management business as a result of economies of scale and a two percentage point increase in the Financial Planning business as a result of the mix of acquisitions and new business. As in the previous year, there were no material changes to individual financial adviser commission arrangements. The addition of the newly acquired Network Direct business lowered the Group's weighted average gross margin as their margin was 8%. Overall gross profit grew by 58% to £11.2m (2016: £7.1m) and was more than double the 2015 result.
Administrative expenses
The total administrative expenses of the business increased to £9.4m (2016: £6.3m). The previous year included £0.3m of exceptional costs mainly associated with the IPO and the additional running costs associated with being a publicly listed company. Amortisation increased by 63% to £2.6m (2016: £1.6m). Administrative expenses excluding amortisation and exceptional items were £6.8m (2016: £4.4m) and represents 26% of revenue (2016: 38%) reflecting both economies of scale as the overall business grows and the impact of the acquisition of Network Direct.
Taxation
The current corporation tax charge for the period was £0.8m (2016: £0.5m). This was an effective tax rate of 18% (2016: 17%) compared with adjusted EBITDA as £0.5m of amortisation was an allowable expense against taxable profits as it related to asset acquisitions completed prior to July 2015.
Profitability
Profit before tax for the period was £1.2m (2016: £0.4m) after nil exceptional costs (2016: £0.3m), and £2.6m (2016: £1.6m) of depreciation and amortisation costs.
Adjusted EBITDA (adjusted to exclude exceptional costs)
Adjusted EBITDA for the period was £4.3m, an increase of 59% over the previous period (2016: £2.7m). As a consequence of the Group's accelerated acquisition growth strategy, amortisation costs increased significantly to £2.6m (2016: £1.6m) as did finance costs to £0.6m (2016: £0.5m).
Earnings per share
Basic and diluted earnings per share for the year ended 31 October 2017 was 1.19 pence (2015: 0.24 pence) based on a weighted average of 59,323,130 shares (2016: 49,242,615).
Adjusted EBITDA per share
The adjusted EBITDA per share, for the year ended 31 October 2017, was 7.28 pence (2016: 5.55 pence).
Dividends
The Board is proposing a final dividend of 2.24 pence per ordinary share for 2017, which is subject to shareholder approval at the AGM on 18 April 2018 and will be paid to shareholders on 11 May 2018 based on the register of shareholders at close of business on 27 April 2018 bringing the full year dividend pay-out to 3.24 pence.
Financial advisers and staff headcount
The number of financial advisers (employed, self-employed, and members of the network services business) increased by 96 to 179 (2016: 83). The acquisition of NDL added 89 network services members. Ten new advisers joined the financial planning business this year with four retirees and network services added one new adviser since February.
Staff headcount grew to 120 (2016: 92) incorporating 17 staff from the Network Direct transaction.
Acquisitions
The Group completed seven acquisitions during the period of which two were share acquisitions and five were asset acquisitions. The total aggregate consideration of £2.3m comprises £1.6m paid in cash on completion and discounted deferred consideration of £0.7m. In addition, the provisional value of acquisitions accounted for in the prior year were revised, resulting in a net increase in the total consideration for these acquisitions of £0.3m and an equivalent increase in deferred consideration and deferred tax liabilities.
Cash position
The Group had cash balances of £19.0m at 31 October (2016: £10.5m). Net cash generated by operations in the period increased by 54% to £3.7m (2016: £2.4m). Net cash generated from financing activities in the period was £8.7m (2016: £8.6m), derived from the net proceeds from the issue of shares of £10.0m less the final 2016 dividend payment of £1.3m. The net cash used in investing activities was £4.0m (2016: £4.4m).
The Group had discounted deferred consideration commitments of £4.3m at 31 October (2016: £5.4m).
Financial position
The Group has generated strong cashflow from operations which is expected to continue into 2018. 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.
Events after the reporting date
Acquisition of Finance For Life Limited
On 3 November 2017 the Company acquired the entire share capital of Finance For Life Ltd for a total consideration of £0.9m of which £0.5m was paid on completion, with the balance based on future revenue over the next two years.
2017 Interim dividend
On 10 November 2017 the Company paid an interim dividend of 1.00 pence per ordinary share based on the register of shareholders at close of business on 27 October 2017 totalling £0.6m.
Acquisition of the business and assets of Peter John Vickery
On 7 November 2017 the Group agreed to buy the financial advisory business carried on by Peter John Vickery. Following an initial payment of £0.1m the transaction completed on 12 December 2017. In addition, further amounts totalling £0.06m are to be paid on the first and second anniversaries of completion contingent upon results.
Acquisition of Anthony Harding & Partners Ltd
On 10 January 2018 the Company acquired the entire share capital of Anthony Harding & Partners Ltd for a total consideration of £1.1m of which £0.6m was paid on completion, with the balance based on future revenue over the next two years.
Current trading
Early indications are that the new financial year has started well. AUI is encouraging and together with the current market asset values and the events after the reporting date (highlighted above), this reinforces the confidence expressed earlier by the Chairman.
Consolidated Statement of Comprehensive Income |
| ||
|
|
|
|
|
| 2017 | 2016 |
| Note | £'000s | £'000s |
|
|
|
|
Revenue |
| 25,885 | 11,605 |
|
|
|
|
Cost of sales |
| (14,719) | (4,513) |
|
|
|
|
Gross profit |
| 11,166 | 7,092 |
|
|
|
|
Administrative expenses |
| (9,410) | (5,940) |
|
|
|
|
Exceptional items | 4 | - | (336) |
|
|
|
|
Operating profit |
| 1,756 | 816 |
|
|
|
|
Investment income |
| 19 | 18 |
|
|
|
|
Finance costs |
| (577) | (463) |
|
|
|
|
Profit before taxation |
| 1,198 | 371 |
|
|
|
|
Income tax expense | 5 | (492) | (253) |
|
|
|
|
Total comprehensive income for the period attributable to equity owners of the parent |
| 706 | 118 |
|
|
|
|
|
| pence | pence |
Earnings per share |
|
|
|
Basic and fully diluted | 7 | 1.19 | 0.24 |
Consolidated Statement of Financial Position |
| |
|
|
|
| 2017 | 2016 |
| £'000s | £'000s |
|
|
|
Non-current assets |
|
|
Intangible assets | 15,033 | 14,749 |
Property, plant and equipment | 24 | 20 |
| 15,057 | 14,769 |
|
|
|
Current assets |
|
|
Trade and other receivables | 1,075 | 621 |
Cash and cash equivalents | 18,959 | 10,526 |
| 20,034 | 11,147 |
|
|
|
Total assets | 35,091 | 25,916 |
|
|
|
Current liabilities |
|
|
Trade and other payables | 5,160 | 3,879 |
Accruals and deferred income | 1,284 | 341 |
Current tax liabilities | 474 | 882 |
| 6,918 | 5,102 |
Net current assets | 13,116 | 6,045 |
|
|
|
Non-current liabilities |
|
|
Trade and other payables | 252 | 2,219 |
Deferred tax liabilities | 1,161 | 1,266 |
| 1,413 | 3,485 |
Total liabilities | 8,331 | 8,587 |
Net assets | 26,760 | 17,329 |
|
|
|
Equity |
|
|
Called up share capital | 156 | 139 |
Share premium account | 25,500 | 15,541 |
Retained earnings | 1,104 | 1,649 |
Equity attributable to the owners of the parent | 26,760 | 17,329 |
Consolidated Statement of Changes in Equity |
|
|
| |
|
|
|
|
|
| Attributable to the owners of the parent |
| ||
|
| Share |
|
|
| Share | premium | Retained |
|
| capital | account | earnings | Total |
| £'000s | £'000s | £'000s | £'000s |
Balance at 1 November 2015 | 100 | 3,979 | 1,885 | 5,964 |
|
|
|
|
|
Year ended 31 October 2016: |
|
|
|
|
Profit and total comprehensive income for the year | - | - | 118 | 118 |
|
|
|
|
|
Issue of share capital | 39 | 12,558 | - | 12,597 |
|
|
|
|
|
Dividends | - | - | (354) | (354) |
|
|
|
|
|
Costs of share issue | - | (996) | - | (996) |
|
|
|
|
|
Total transactions with owners recognised directly in equity | 39 | 11,562 | (354) | 11,247 |
|
|
|
|
|
Balance at 31 October 2016 | 139 | 15,541 | 1,649 | 17,329 |
|
|
|
|
|
|
|
|
|
|
Year ended 31 October 2017: |
|
|
|
|
Profit and total comprehensive income for the year | - | - | 706 | 706 |
|
|
|
|
|
Issue of share capital | 17 | 10,414 | - | 10,431 |
|
|
|
|
|
Dividends | - | - | (1,251) | (1,251) |
|
|
|
|
|
Cost of share issue | - | (455) | - | (455) |
|
|
|
|
|
Total transactions with owners recognised directly in equity | 17 | 9,959 | (1,251) | 8,725 |
|
|
|
|
|
Balance at 31 October 2017 | 156 | 25,500 | 1,104 | 26,760 |
Consolidated Statement of Cash Flows |
|
|
|
|
|
| 2017 | 2016 |
| £'000s | £'000s |
Cash flows from operating activities |
|
|
Profit before income tax | 1,198 | 371 |
|
|
|
Non-cash adjustments |
|
|
Depreciation and amortisation | 2,563 | 1,581 |
Net finance costs | 558 | 445 |
|
|
|
Working capital adjustments |
|
|
(Increase) in trade and other receivables | (316) | (12) |
Increase in trade and other payables | 917 | 78 |
Cash inflow from operating activities | 4,920 | 2,463 |
Income tax paid | (1,212) | (63) |
Interest paid | - | - |
Net cash generated by operations | 3,708 | 2,400 |
|
|
|
Investing activities |
|
|
Purchase of intangible assets | (1,690) | (3,601) |
Interest received | 19 | 18 |
Acquisition of subsidiaries net of cash acquired | (2,317) | (802) |
Purchase of tangible assets | (12) | - |
Net cash used in investing activities | (4,000) | (4,385) |
|
|
|
Financing activities |
|
|
Proceeds from issue of shares (net of costs) | 9,976 | 8,974 |
Repayment of borrowings | - | (12) |
Dividends paid | (1,251) | (354) |
Net cash generated from financing activities | 8,725 | 8,608 |
|
|
|
Net increase in cash and cash equivalents | 8,433 | 6,623 |
Cash and equivalents at beginning of year | 10,526 | 3,903 |
Cash and equivalents at end of year | 18,959 | 10,526 |
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 2017 and 31 October 2016. The figures for the year ended 31 October 2017 are audited. The preliminary announcement is prepared on the same basis as set out in the statutory accounts for the year ended 31 October 2017. 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 2016 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 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 statement. 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 2017. 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.
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 are three operating segments 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
There were no exceptional costs in the year (2016: £0.3m). The 2016 total comprised mainly the non-recurring costs associated with the listing on AIM in that year.
5. Taxation
An analysis of the income tax charge is detailed below:
| 2017 | 2016 |
| £'000s | £'000s |
Current tax |
|
|
Current year taxation | 769 | 463 |
Adjustments in respect of prior periods | - | 81 |
Total current tax charge | 769 | 544 |
|
|
|
Deferred tax |
|
|
Origination and reversal of temporary differences | (210) | (271) |
Effect of change in tax rate | (67) | (20) |
| (277) | (291) |
|
|
|
Total tax charge | 492 | 253 |
|
|
|
|
|
|
The charge for the year can be reconciled to the profit per income statement as follows: | ||
|
|
|
| 2017 | 2016 |
| £'000s | £'000s |
|
|
|
Profit before taxation | 1,198 | 371 |
|
|
|
Expected tax charge based on a corporation tax rate of 20% | - | 74 |
Expected tax charge based on a corporation tax rate of 19.4% | 232 | - |
Expenses not deductible in determining taxable profit | 260 | 179 |
Tax charge for the period | 492 | 253 |
6. Business combinations
In the period the Group completed the acquisitions of the entire share capital of Network Direct Ltd (NDL) and WT Financial Ltd (WT Fin) for a total consideration of £1.2m. The assets and liabilities acquired were as follows:
| NDL | WT Fin | Total |
| £'000s | £'000s | £'000s |
|
|
|
|
Acquired client portfolios | - | 371 | 371 |
Adviser relationships | 315 | - | 315 |
Tangible assets | 3 | - | 3 |
Receivables | 125 | 14 | 139 |
Cash & equivalents | 262 | 4 | 266 |
Payables | (493) | (18) | (511) |
Deferred tax | (53) | (63) | (116) |
| 159 | 308 | 467 |
|
|
|
|
The business combination has been recognised as follows: |
|
|
|
Cash on completion | 900 | 176 | 1,076 |
Contingent cash consideration | - | 132 | 132 |
| 900 | 308 | 1,208 |
|
|
|
|
Net assets acquired as above | (159) | (308) | (467) |
|
|
|
|
Goodwill arising | 741 | - | 741 |
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, five acquired client portfolios have been purchased in the period for a consideration of £1.1m, payable in cash on completion (£0.6m) and the balance (£0.5m) on deferred terms.
7. Earnings per share
On 19 April 2017 6,954,000 ordinary shares of 0.25 pence each were issued at a placing price of 150 pence per share.
Basic earnings per share are calculated using a weighted average number of shares of 59,323,130 for the period (2016: 49,242,615). Adjusted EBITDA has been shown as it is a common metric used by the market to monitor similar businesses.
|
| 2017 | 2016 |
|
| £'000s | £'000s |
Net Profit |
| 706 | 118 |
Income tax |
| 492 | 253 |
Net finance expense |
| 558 | 445 |
Depreciation |
| 11 | 9 |
Amortisation |
| 2,552 | 1,572 |
Exceptional items |
| - | 336 |
Adjusted EBITDA |
| 4,319 | 2,733 |
|
|
|
|
Basic adjusted EBITDA per share - pence |
| 7.28 | 5.55 |
|
|
|
|
Statutory EPS - pence |
| 1.19 | 0.24 |
8. Dividends
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 2.24 pence per share subject to shareholder approval at the Company Annual General meeting on the 18 April 2018. The final dividend will be paid on the 11 May 2018 to shareholders on the register at the close of business on 27 April 2018.
9. Events after the reporting date
Acquisition of Finance For Life Limited
On 3 November 2017 the Company acquired the entire share capital of Finance For Life Ltd for a total consideration of £0.9m of which £0.5m was paid on completion, with the balance based on future revenue over the next two years.
2017 Interim dividend
On 10 November 2017 the Company paid an interim dividend of 1.00 pence per ordinary share based on the register of shareholders at close of business on 27 October 2017 totalling £0.6m.
Acquisition of the business and assets of Peter John Vickery
On 7 November 2017 the Group agreed to buy the financial advisory business carried on by Peter John Vickery. Following an initial payment of £0.1m the transaction completed on 12 December 2017. In addition, further amounts totalling £0.06m are to be paid on the first and second anniversaries of completion contingent upon results.
Acquisition of Anthony Harding & Partners Ltd
On 10 January 2018 the Company acquired the entire share capital of Anthony Harding & Partners Ltd for a total consideration of £1.1m of which £0.6m was paid on completion, with the balance based on future revenue over the next two years.
10. Annual General Meeting
The Annual General Meeting will be held on the 18 April 2018 at 3.00pm at the office of Harwood Capital LLP at 6 Stratton Street London W1J 8LD.