Chairman's Statement

John Wheatley

Business Review

I am pleased to report another successful year. Following strong inflows to our funds under management, the Group has enjoyed significant organic growth, with increases in both revenue and profitability and continues to provide high quality services to our growing portfolio of clients nationwide.

The Group has again proven its ability to increase revenue with strong organic growth that has generated a double digit increase in funds under management during the period whilst improving gross margins. This year has seen the early realisation of the benefits of scale and the infrastructure investment made in previous periods.

Our success during the year has been driven by the captive distribution model afforded by our advisers, who have added over £200 million of assets to our discretionary portfolios. It supports our belief that a financial planning led approach to the management of our clients’ wealth, based on the highly personal face to face relationship between them and our advisers, is key to ensuring that their interests remain at the centre of our operations.

The Group completed two asset purchase acquisitions in 2016 as the focus remained on successfully integrating the businesses purchased in 2015. We continue to discerningly evaluate further opportunities in line with our strategy of making selective acquisitions that will enhance shareholder value. The success of this approach has been seen in the high level of retained clients and advisers from previous transactions and the level of earn out deferred payments made during the year. The Group paid £4.3 million in deferred consideration to the vendors of historical acquisitions, representing over 90% of the maximum consideration targeted at the time of each acquisition. As at 31 October 2016 the Group had generated a strong pipeline of acquisition opportunities that meet the Board’s financial and cultural criteria.

The success of our ability to integrate numerous acquisitions and confirmation of the robustness of our business model, which has demonstrated the financial strength of the Group and facilitated both revenue and earnings growth during a period without multiple acquisitions, gives the Board great confidence as it embarks on further acquisitions in 2017.

In spite of turbulent financial markets in 2016 and the political uncertainty caused by the EU Referendum and the US presidential elections, AFH’s range of portfolios has continued to perform well and during the year over 90% of new money invested by our clients was placed in our Discretionary funds.

In periods of uncertainty and at a time when people are being encouraged by the Government to take greater responsibility for their financial wellbeing, the Group believes that long-term demand for personal independent financial advice will continue to grow. AFH is well positioned to meet this increasing need and to benefit from the demographic and regulatory changes that have occurred in recent years. The ability of AFH to use its scale to provide competitively priced access to the investment market for the Mass Affluent strata of the UK, traditionally only enjoyed by High Net Worth individuals, is expected to enhance a growing client base whilst the use of technology will create efficiencies and provide our clients and advisers with greater access and tools to simplify the management of their investments.

In recognition of the technological opportunities identified by the Board, during 2016 the Group began investing in its digital transformation to open new business channels whilst enhancing the experience of our existing clients and advisers and providing further operational efficiencies within the business. This programme is budgeted to extend into 2018 during which period the Group will invest over £1 million in digital infrastructure projects as the business develops its captive distribution channels to provide tailored advice and investment management solutions to both advisers and clients.

Financial Review
During the year the Group enjoyed strong revenue growth in spite of economic and political uncertainty with double digit growth in our funds under management. This was reflected in a significant rise in recurring fee income, which reflected an increase in our average annualised gross revenue per adviser to above £165,000. Total revenue for the year increased by 15% to £24.1 million (2015: £21.0 million) whilst gross margins increased from 52% to 55% and EBITDA (net cash generation from trading) increased by 29% from £2.8 million to £3.6 million. Post tax earnings attributable to shareholders showed a similarly healthy increase of 42% from £1.2 million to £1.7 million.

During 2016, recurring revenue increased to £16.4 million (2015:£13.6 million) to represent 68% of total income for the year. The Directors believe this level of recurring revenue confirms the strength of the Group’s financial model. Over 90% of the Group’s total ongoing operating cost base is covered by the gross margin generated on our recurring fees, providing a sound basis for future growth.

Despite the 19% dilution that occurred in December 2015 as a result of the creation of 3.8 million new ordinary shares under the successful Placing and Subscription for new ordinary shares to raise £6.3 million, earnings per share (“EPS”) increased by 20% to 7.16 pence (2015: 5.95 pence) as the benefits of AFH’s centralised administration for supporting our growing business were recognised. As shown on the Consolidated Statement of Financial Position, the net proceeds of the December 2015 fundraising remain available for working capital and future acquisitions.

As at 31 October 2016, AFH held cash and cash equivalents of £6.7 million (2015: £3.7 million) after financing £5.0 million for initial and deferred payments for acquisitions purchased during the period 2013 to 2016. This cash position of the Group will enable it to take advantage of acquisition opportunities presently in its pipeline, as the industry continues to consolidate. The Board believes that all future deferred payments for acquisitions completed prior to the year-end will be financed from existing cash resources and revenue generated by those acquisitions during the earn-out periods.

The Directors intend to continue the progressive dividend policy set out in my previous reports, whilst recognising the requirement to maintain sufficient cash within the business to fund the Group’s growth strategy. Having considered this in the light of the strong performance during the year under review, the Directors propose a dividend of 3.0 pence per share, an increase of 33% over the 2016 dividend (2.25 pence per share). Subject to shareholder approval at AFH’s forthcoming Annual General Meeting, the dividend will be paid on 4 May 2017 to shareholders on the register of members at the close of business on 18 April 2017.

Employees and Advisors
The profitable growth of AFH is due to the hard work and professional approach of our staff and advisers. I would like to formally thank all the team for the contribution they have made to a highly successful year in which we have continued to grow our business profitably. It is our aim to become the employer of choice for staff and to maintain the alignment of interests between our staff and advisers with those of our 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 has allowed the Group to continue to deliver according to its strategy each year.

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

The Board believes that it has put in place the necessary infrastructure to support its growth plans for 2017 and beyond. Continued investment in technology, enabling a digitalised approach to our clients in the future, is expected to accelerate the benefits of scale and the infrastructure investment made in previous periods.

The Group continues to be cash generative, and maintains a strong balance sheet given the current size of its business. The Group will continue to actively seek appropriately priced opportunities during 2017 to expand its captive distribution throughout the financial sector, generate additional revenue and drive increased profitability.

Given the progress made in 2016 and the early months of the 2017 financial year, the Directors view the coming period as providing excellent prospects and look forward to extending AFH’s brand, reach and reputation.

John Wheatley


27 January 2017

Annual Report

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