Chairman’s Statement

John Wheatley

Business Review

I am extremely pleased to report another successful year with increased margins driven by the economies of scale predicated by our strategy of organic and acquisitive growth. New business and continued demand for financial advice from existing clients, together with a series of earnings accretive acquisitions during the year, enabled the Group to grow its funds under management by 39% to £2.79bn and increase revenues by 39% to £33.6m.

As highlighted in my previous reports, the Group has invested heavily to establish an infrastructure able to support a large national financial services business and this year we were able to build on this scale to achieve a double digit increase in our Underlying EBITDA margin to approximately 17%.

In line with our drive to increase shareholder value the Group has established a strategic aim of reducing investment costs for our clients by leveraging the increased scale of AFH for their benefit, while ensuring the long-term sustainability of the Group. We believe that this is not only in the spirit of sound commercial business but leads the way for future financial services models, as many  commentators predict that we approach a period of reduced gross market returns.

Organic revenue growth of £4.6m represented an increase of 19% on revenues generated in 2016 while gross margins from the core business was retained at 55%. During the year funds under management grew organically, with £250m gross in flows, representing a second consecutive year of double-digit organic growth. We continue to see demand for financial advice from our clients driven by legislative changes, including pension freedoms, and lifestyle needs. This has generated record levels of financial planning revenue to supplement our strong levels of recurring income.

During the year the Group completed 14 acquisitions with a combined value of £18.7 million, including two acquisitions with a target value in excess of £5m (assuming performance criteria are satisfied). It is equally fulfilling to be able to report that once again prior-year acquisitions have traded successfully. The average deferred pay-out for those acquisitions reaching a performance milestone has again exceeded 90% of the target set at the time of the transactions.

The acquisition of 13 IFA businesses during the year again encompassed retiring IFAs, whose client portfolios have been transitioned to existing AFH advisers, as well as larger organisations whose clients and advisers have been absorbed into the AFH model. This approach allows investments to be retained on existing platforms and products where appropriate but enables clients to move to our cost effective discretionary service where a clear benefit to the client can be demonstrated. Integration of acquisitions made during the year has been completed successfully and I am pleased to report that a number of the larger acquisitions are trading above  target.

In addition to the 13 IFA acquisitions, in June 2017 we announced the acquisition of Eunisure Ltd, a financial protection broker based in Newmarket, Suffolk. As we reported at the time, this acquisition provided an entrance into the protection sector, which we believe to be underserved currently by the financial community. It also opens an additional client community to our financial advisers and provides a strong catchment of financially aware advisers who we believe can form the basis of an in-house academy to train future IFAs. The business has performed in line with expectations since June, reporting increasing margins and improved rates of client persistency.

The strong revenue growth supported by a controlled fixed cost base has delivered a £2m (57%) increase in underlying EBITDA to £5.7m and a 56% rise in reported EPS to 11.22p (2016: 7.16p).

In my last report I commented on the digital transformation project. The Board has committed over £1m for the initial phase of digitising both the Group’s internal operations and its interaction with clients and advisers as the business develops its captive distribution channels to provide tailored advice and investment management solutions. Phase 1, which has already delivered improved communication, including video updates and digital information packs for advisers, staff and clients whilst generating clientfacing operational efficiencies, continues into the current financial year when it is expected to move to Phase 2. This will create personalised portals for both clients and our advisers in addition to embracing the wider mass affluent market.


The Market

The economic backdrop for financial markets was favourable during the year. Global equity markets hit fresh record highs, as the  recovery in the world economy broadened and gathered momentum. The improving growth picture meant that the withdrawal of emergency monetary stimulus put in place in the wake of the 2008-09 financial crisis was a dominant theme for investors. The US  Federal Reserve raised interest rates during the 12-month period and started winding down its balance sheet in October 2017. Given that ultra-low interest rates and quantitative easing (QE) have been key drivers of risk assets in recent years, the withdrawal of such stimulus has always represented a concern for financial markets. However, the markets took the moves in their stride, not least as belowtarget inflation reinforced expectations that any withdrawal of stimulus would be gradual. Moreover, with corporate earnings  improving, markets have become somewhat less dependent on support from central banks.

Although political developments had threatened to disrupt markets during the year, the influence of politicians proved generally benign. In Europe, the tide of populism was turned back, as voters in France rejected Marine Le Pen’s anti-euro campaign and elected the pro-euro candidate Emmanuel Macron. In turn, diminished political risk, along with improving business and consumer confidence, helped euro-area equity markets perform strongly during the period. In contrast, political risk in the UK increased after the government lost its majority following Prime Minister Theresa May’s decision to call a snap election in June. With Brexit negotiations ongoing, the surprise election result added to the uncertainty facing UK business. However, even in the UK, the backdrop of an improving global economic outlook more than compensated for political concerns, with both the FTSE100 and FTSE250 generating  double-digit returns over the period.



In April 2017 and December 2017, following the year end, two successful fundraisings enabled the Company to expand its institutional shareholder base while benefitting from the continued support of our existing institutional shareholders. I would like to welcome our new shareholders, who join at an exciting period of the Group’s development, and to thank existing shareholders for their continuing support. The Group has a strong Balance Sheet on which to execute its pipeline of acquisitions and, we believe, a strong shareholder base that can support its growth ambitions. The Directors’ believe that the most effective way to strengthen the relationship with all shareholders is through regular market updates but also welcome the opportunity to meet shareholders and to maintain an ongoing and constructive dialogue with them.



The Directors’ intend to continue the Group’s progressive dividend policy while recognising the requirement to maintain sufficient cash reserves within the business to fund its growth strategy. Having considered this in the light of the strong performance during the year under review, the Directors’ propose a dividend of 4.0 pence per share, an increase of 33% over the 2017 dividend. Subject to shareholder approval at AFH’s forthcoming Annual General Meeting, the dividend will be paid on 4 May 2018 to shareholders on the register of members at the close of business on 20 April 2018. The ex-dividend date is 19 April 2018.


Our people

The profitable growth of AFH is due to the hard work and professional approach of our staff and advisers. I would like to thank them for the contribution they have made to another highly successful year in which we have continued to grow our business profitably and improve our operating margins in line with the Board’s expectations. It is our ambition to become an employer of choice for staff and to maintain the alignment of interest between our staff and advisers with those of our clients and shareholders. It is in response to the support we receive from our staff that we continue to develop and promote our people from within the Group at every opportunity, so that many key positions are occupied by home-grown talent. It is the enthusiasm, dedication and creativity of our staff and advisers that allows the Group to continue to deliver according to its strategy each year.



The Directors believe there is a continuing requirement for a professional, financial planning-led approach to wealth management delivered by trusted personal advisers. They also recognise that the consolidation of the IFA market at many levels within the sector will continue.

The Board believes that it has put in place the necessary infrastructure to support its growth plans for 2018 and beyond. Continued investment in technology is expected to accelerate the benefits of scale and the infrastructure investment made in previous periods.

The Company continues to be cash generative and maintains a strong balance sheet. Following completion of the fundraising in December 2017, the Group has unrestricted cash assets in excess of £20m and will continue to actively seek appropriately priced opportunities to expand its captive distribution throughout the financial sector, generate additional revenue and drive increased profitability.

Given the progress made in 2017 and the early months of the 2018 financial year, the Directors view the coming period as providing excellent prospects and look forward to continuing our success in the future.

John Wheatley



29 January 2018

Annual Report

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