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Harwood Wealth Management Group PLC Final Results

23/01/2019 7:00am

UK Regulatory (RNS & others)


Harwood Wealth (LSE:HW.)
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RNS Number : 8157N

Harwood Wealth Management Group PLC

23 January 2019

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

 
                                                  2018                   2017                   % change 
            Assets Under Influence 
             ("AUI")                              GBP4.8bn               GBP3.8bn               +26% 
            Assets Under Management 
             ("AUM")                              GBP1.7bn               GBP1.2bn               +42% 
 
 
            Revenue                                  GBP32.7m              GBP25.9m              +26% 
            Gross profit                             GBP15.1m              GBP11.2m              +35% 
            Adjusted EBITDA*                         GBP6.1m               GBP4.3m               +42% 
            Profit before tax                        GBP2.0m               GBP1.2m               +63% 
            Cash inflow from operating 
             activities                              GBP6.5m               GBP4.9m               +33% 
 
            Basic earnings per share                 1.91p                 1.19p                 +61% 
            Adjusted earnings per 
             share**                                 7.92p                 5.87p                 +35% 
            Dividend per share                       3.50p                 3.24p                 +8% 
 

-- Nine acquisitions completed in the period for consideration of GBP10.7m (GBP9.0m net of cash acquired)

   --      Cash balance at year end GBP13.6m, GBP4.2m 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."

For further information please contact:

 
Harwood Wealth Management Group plc 
 Alan Durrant, Chief Executive Officer 
 Gillian Davies, Interim Chief Financial 
 Officer                                   +44 (0)23 9355 2004 
N+1 Singer Advisory LLP 
 Shaun Dobson 
 James White 
 Ben Farrow 
 Rachel Hayes                              +44 (0)20 7496 3000 
Alma PR                                    +44 (0)20 3405 0205 
 Rebecca Sanders-Hewett                     harwoodwealth@almapr.co.uk 
 Susie Hudson 
 

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 GBP10.7m. 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 GBP4.8bn and AUM by 42% to GBP1.7bn, 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 GBP32.7m (2017: GBP25.9m) and we generated GBP6.1m of adjusted EBITDA (2017: GBP4.3m), an increase of 42%. At 31 October 2018, our Assets Under Influence ("AUI") were at GBP4.8bn (31 October 2017: GBP3.8bn) and Assets Under Management ("AUM") were at GBP1.7bn (31 October 2017: GBP1.2bn). 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 GBP10.7m (GBP9.0m net of cash acquired) on nine acquisitions, a considerable acceleration compared with the GBP2.3m 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 cGBP1.5m.

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 GBP4.8bn (2017: GBP3.8bn).

Assets Under Management ("AUM"), (a component of AUI), increased by 42% to GBP1.7bn (2017: GBP1.2bn). The discretionary fund management business, Wellian Investment Solutions, performed strongly and increased its AUM to GBP977m (2017: GBP627m). The advised investment management business, IMS Capital, increased its AUM to GBP698m (2017: GBP587m).

GROUP RESULTS

 
                                   2018    2017     Change 
                                                         % 
                                   GBPm    GBPm 
 Revenue                           32.7    25.9       +26% 
 Gross profit                      15.1    11.2       +35% 
 Gross profit %                     46%     43% 
 Administrative expenses          (9.0)   (6.9)       -31% 
  Pre-depreciation and amortisation 
                                         ------ 
 Adjusted EBITDA                    6.1     4.3       +42% 
 EBITDA %                           19%     17% 
 Depreciation and amortisation    (3.3)   (2.5)       -32% 
 Separately disclosed items       (0.2)       -        n/a 
                                 ------  ------ 
 Operating profit                   2.6     1.8       +44% 
 Finance expense                  (0.6)   (0.6)         0% 
                                 ------  ------ 
 Profit before tax                  2.0     1.2       +63% 
                                 ======  ====== 
 
 

REVENUE

Group revenue in the year increased by 26% to GBP32.7m (2017: GBP25.9m). 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:

 
                          2018   2017   Change 
                          GBPm   GBPm        % 
 Financial Planning       14.6   12.9     +13% 
 Investment Management     4.5    3.2     +42% 
 Network Services         13.6    9.8     +39% 
                          32.7   25.9     +26% 
                         =====  =====  ======= 
 

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 GBP15.1m (2017: GBP11.2m) and the gross profit percentage increased to 46% from 43% in the prior year. This is analysed by division below:

 
                             2018         2017 
                          GBPm   GP%   GBPm   GP% 
 Financial Planning        9.6   66%    7.4   57% 
 Investment Management     4.2   92%    3.0   93% 
 Network Services          1.3    9%    0.8    8% 
                          15.1   46%   11.2   43% 
                         =====  ====  =====  ==== 
 

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 GBP9.0m (2017: GBP6.9m), an increase of 31% compared to 2017. The increase predominantly represented an increase in employment costs of GBP1.6m 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 GBP6.1m (2017: GBP4.3m) and the adjusted EBITDA percentage increased to 19% (2017: 17%).

OPERATING PROFIT

Operating profit increased by 44% to GBP2.6m (2017: GBP1.8m) after charging separately disclosed items of GBP0.2m (2017: no charge) and amortisation of GBP3.3m (2017: GBP2.5m). 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 GBP0.6m (2017: GBP0.6m). This related to the unwinding of discount on contingent consideration relating to acquisitions.

TAXATION

The current corporation tax charge in the period was GBP1.1m (2017: GBP0.8m), offset by a deferred tax credit of GBP0.3m (2017: GBP0.3m) 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 GBP1.1m (2017: GBP1.2m).

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.

DIVIDS

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 GBP10.7m (GBP9.0m net of cash acquired). This consideration comprised GBP6.6m of cash due on completion and discounted deferred consideration of GBP4.1m 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 GBP13.6m at 31 October 2018 (31 October 2017: GBP19.0m). The Group generated GBP6.5m of cash inflow from operating activities (2017: GBP4.9m), representing a strong adjusted EBITDA cash conversion rate for the year of 107%. Cash of GBP8.8m (2017: GBP4.0m) was paid in the year in respect of acquisitions: GBP4.9m (2017: GBP1.4m) initial consideration (net of cash acquired) and GBP3.9m (2017: GBP2.6m) deferred consideration. Dividends paid to Shareholders in the year totalled GBP2.0m (2017: GBP1.3m).

The Group has cGBP4.2m 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 GBP25.9m (2017: GBP26.8m), including net cash as summarised above of GBP13.6m. 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 GBP0.7m.

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 cGBP1.5m, 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 YEARED 31 OCTOBER 2018

 
                                                      2018       2017 
                                          Notes    GBP'000    GBP'000 
 
 Revenue                                    3       32,693     25,885 
 Cost of sales                                    (17,601)   (14,719) 
                                                 ---------  --------- 
 Gross profit                               3       15,092     11,166 
 
 Administrative expenses                          (12,330)    (9,410) 
 Separately disclosed items                 4        (174)          - 
                                                 ---------  --------- 
 
 
 Operating profit before depreciation, 
  amortisation and separately 
  disclosed items ("Adjusted 
  EBITDA")                                           6,116      4,319 
 Depreciation                                         (12)       (11) 
 Amortisation                                      (3,342)    (2,552) 
 Separately disclosed items                 4        (174)          - 
 
 
 Operating profit                                    2,588      1,756 
 
 Investment income                                      23         19 
 Finance expense                                     (653)      (577) 
                                                 ---------  --------- 
 Profit before income tax                            1,958      1,198 
 
 Income tax expense                         5        (762)      (492) 
                                                 ---------  --------- 
 Profit and total comprehensive 
  income for the year attributable 
  to equity owners of the parent                     1,196        706 
                                                 =========  ========= 
 
                                                     pence      pence 
 Earnings per share 
 Basic and fully diluted                    6         1.91       1.19 
 
 
 
 
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 OCTOBER 2018

 
                                       2018      2017 
                                    GBP'000   GBP'000 
 Non-current assets 
 Intangible assets                   20,803    15,033 
 Property, plant and equipment           31        24 
                                   --------  -------- 
 
                                     20,834    15,057 
 
 Current assets 
 Trade and other receivables          1,553     1,075 
 Cash and cash equivalents           13,634    18,959 
                                   --------  -------- 
 
                                     15,187    20,034 
                                   --------  -------- 
 
 Total assets                        36,021    35,091 
                                   --------  -------- 
 
 Current liabilities 
 Trade and other payables             3,916     5,160 
 Accruals and deferred income         1,405     1,284 
 Current tax liabilities                659       474 
 Provisions                             766         - 
                                   --------  -------- 
 
                                      6,746     6,918 
                                   --------  -------- 
 
 Net current assets                   8,441    13,116 
                                   --------  -------- 
 
 Non-current liabilities 
 Trade and other payables             2,407       252 
 Deferred tax liabilities               829     1,161 
 Provisions                             109         - 
                                   --------  -------- 
 
                                      3,345     1,413 
                                   --------  -------- 
 
 Total liabilities                   10,091     8,331 
                                   --------  -------- 
 
 Net assets                          25,930    26,760 
                                   ========  ======== 
 
 Equity 
 Called up share capital                156       156 
 Share premium account               25,500    25,500 
 Retained earnings                      274     1,104 
                                   --------  -------- 
 
 Total equity attributable to 
  the owners of the parent           25,930    26,760 
                                   ========  ======== 
 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEARED 31 OCTOBER 2018

 
                                       Attributable to the owners of the parent 
                                              Share      Share    Retained     Total 
                                            capital    premium    earnings 
                                                       account 
                                   Notes    GBP'000    GBP'000     GBP'000   GBP'000 
 
 Balance at 1 November 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) 
 Costs 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 
                                          ---------  ---------  ----------  -------- 
 
 Year ended 31 October 2018: 
 Profit and total comprehensive 
  income for the year                             -          -       1,196     1,196 
                                          ---------  ---------  ----------  -------- 
 
 Dividends                           8            -          -     (2,026)   (2,026) 
 
 
 Total transactions with owners 
  recognised directly in equity                   -          -     (2,026)   (2,026) 
                                          ---------  ---------  ----------  -------- 
 
 Balance at 31 October 2018                     156     25,500         274    25,930 
                                          =========  =========  ==========  ======== 
 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARED 31 OCTOBER 2018

 
                                             2018                2017 
                                       GBP'000   GBP'000   GBP'000   GBP'000 
 Cash flows from operating 
  activities 
 Profit before income tax                          1,958               1,198 
 
 Non-cash adjustments 
 Depreciation, amortisation 
  and impairment                         3,354               2,563 
 Separately disclosed items                174                   - 
 Net finance expense                       630                 558 
                                      --------            -------- 
                                                   4,158               3,121 
 Working capital adjustments 
 (Increase) in trade and other 
  receivables                            (414)               (316) 
 Increase in trade, other payables 
  and provisions                           828                 917 
                                      --------            -------- 
                                                     414                 601 
                                                --------            -------- 
 
 Cash inflow from operating 
  activities                                       6,530               4,920 
 
 Income tax paid                       (1,063)             (1,212) 
                                      --------            -------- 
                                                 (1,063)             (1,212) 
                                                --------            -------- 
 
 Net cash generated by operations                  5,467               3,708 
 
 Investing activities 
 Payment of deferred consideration     (3,865)             (2,578) 
 Purchase of intangible assets         (1,005)               (583) 
 Interest received                          23                  19 
 Acquisition of subsidiaries 
  net of cash acquired                 (3,905)               (846) 
 Purchase of property, plant 
  and equipment                           (14)                (12) 
                                      --------            -------- 
 Net cash used in investing 
  activities                                     (8,766)             (4,000) 
 
 Financing activities 
 Proceeds from issue of shares 
  (net of costs)                             -               9,976 
 Dividends paid                        (2,026)             (1,251) 
                                      --------            -------- 
 
 Net cash (used in)/generated 
  from financing activities                      (2,026)               8,725 
                                                --------            -------- 
 
 Net (decrease)/increase in 
  cash and cash equivalents                      (5,325)               8,433 
 Cash and cash equivalents 
  at beginning of year                            18,959              10,526 
                                                --------            -------- 
 
 Cash and cash equivalents 
  at end of year                                  13,634              18,959 
                                                ========            ======== 
 
 

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:

 
 
                Financial Planning     Investment Management     Network Services           Total 
                    2018       2017         2018         2017       2018      2017       2018       2017 
                 GBP'000    GBP'000      GBP'000      GBP'000    GBP'000   GBP'000    GBP'000    GBP'000 
 
 Revenue          14,589     12,913        4,544        3,197     13,560     9,775     32,693     25,885 
 Cost of 
  sales          (4,971)    (5,553)        (351)        (206)   (12,279)   (8,960)   (17,601)   (14,719) 
              ----------  ---------  -----------  -----------  ---------  --------  ---------  --------- 
 
 Gross 
  profit           9,618      7,360        4,193        2,991      1,281       815     15,092     11,166 
              ==========  =========  ===========  ===========  =========  ========  =========  ========= 
 
   4.    Separately disclosed items 
 
                                                    2018        2017 
                                                 GBP'000     GBP'000 
 Additional consideration on past acquisitions       174           - 
                                                ========    ======== 
 

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:

 
                                                              2018      2017 
                                                           GBP'000   GBP'000 
 Current tax 
 Current year taxation                                       1,094       769 
                                                          ========  ======== 
 Deferred tax 
 Origination and reversal of temporary differences           (332)     (210) 
 Effect of change in tax rate                                    -      (67) 
                                                          --------  -------- 
                                                             (332)     (277) 
                                                          ========  ======== 
 Income tax expense                                            762       492 
                                                          ========  ======== 
 The charge for the year can be reconciled to the profit per the income 
  statement as follows: 
 
                                                              2018      2017 
                                                           GBP'000   GBP'000 
 Profit before taxation                                      1,958     1,198 
                                                          ========  ======== 
 Expected tax charge based on a corporation tax rate 
  of 19.00% (2017: 19.41%)                                     372       232 
 Expenses not deductible in determining taxable profit         390       260 
                                                          --------  -------- 
 Income tax expense                                            762       492 
                                                          ========  ======== 
 
   6.    Earnings per share 
 
 Basic and diluted earnings per share are calculated by dividing the 
  profit attributable to equity Shareholders of the Company by the weighted 
  average number of ordinary shares in issue during the year. There 
  are no dilutive or potential shares. 
                                                                     2018      2017 
                                                                     '000      '000 
 Number of shares 
 Weighted average number of ordinary shares for basic 
  earnings per share                                               62,543    59,323 
                                                                  GBP'000   GBP'000 
 Earnings 
 Profit for the period from continuing operations                   1,196       706 
                                                                 --------  -------- 
 Earnings for basic and diluted earnings per share being 
  net profit attributable to equity Shareholders of the 
  Company for continuing operations                                 1,196       706 
                                                                 ========  ======== 
 
                                                                    pence     pence 
 Basic and diluted earnings per share                                1.91      1.19 
                                                                 ========  ======== 
 
 Adjusted earnings per share 
 The adjusted earnings per share are based on: 
                                                                     2018      2017 
                                                                  GBP'000   GBP'000 
 
 Profit before taxation                                             1,958     1,198 
 
 Add:              Net finance expense                                630       558 
  Depreciation                                                         12        11 
  Amortisation                                                      3,342     2,552 
                   Separately disclosed items                         174         - 
                                                                 --------  -------- 
 Adjusted EBITDA                                                    6,116     4,319 
 
 Tax charge on adjusted EBITDA                                    (1,162)     (839) 
                                                                 --------  -------- 
 
 Adjusted earnings for basic and diluted earnings per 
  share                                                             4,954     3,480 
                                                                 --------  -------- 
 
                                                                    pence     pence 
 Adjusted basic and diluted earnings per share                       7.92      5.87 
                                                                 ========  ======== 
 
 The adjusted earnings per share is calculated before the after-tax 
  effect of amortisation, depreciation and separately disclosed items 
  and is included because the Directors consider this gives a measure 
  of the underlying performance of the business. 
  The basis for the presentation of the adjusted earnings per share 
  is different to the previous year as it is post tax. Adjusted earnings 
  per share were previously reported before tax. An estimate of the 
  tax charge on the adjusted EBITDA is now incorporated and the 2017 
  comparatives have been restated. 
 
   7.    Acquisitions 
 
 A number of client portfolios were acquired as follows: 
                                                           2018 
                                                         Number 
 Portfolios acquired                                          9 
                                                        GBP'000 
 Total consideration payable                             10,701 
 Cash acquired                                          (1,705) 
 Net liabilities acquired                                   116 
                                                    ----------- 
 Total portfolio value                                    9,112 
                                                    =========== 
 Immediate cash consideration 
  (net of cash acquired)                                  4,910 
 Contingent cash consideration                            4,086 
                                                    ----------- 
                                                          8,996 
 Net liabilities acquired                                   116 
                                                    ----------- 
                                                          9,112 
                                                    =========== 
 
 
 Within the above, four of the nine portfolios were trade and asset 
  purchases, totalling GBP1,801,000 with GBP1,005,000 immediate cash 
  payable and a further GBP796,000 contingent cash consideration. 
  A further five entities were acquired through acquisition of share 
  capital, as set out below: 
 
 
                                                  Anthony      Wealth 
                                    Finance       Harding    Planning   AE Financial 
                                   for Life    & Partners    Services       Services   Fund Management 
                                        Ltd           Ltd         Ltd            Ltd               Ltd     Total 
                                    GBP'000       GBP'000     GBP'000        GBP'000           GBP'000   GBP'000 
 Receivables                              -             -           -             69                 -        69 
 Cash                                     9             -           -          1,660                36     1,705 
 Payables                               (8)             -           -           (23)                 -      (31) 
 Corporation tax payable                (1)             -           -          (137)              (16)     (154) 
                                 ----------  ------------  ----------  -------------  ----------------  -------- 
 Net assets acquired                      -             -           -          1,569                20     1,589 
 Client portfolios acquired             860           923         301          4,202             1,025     7,311 
                                 ----------  ------------  ----------  -------------  ----------------  -------- 
 Fair value of acquisition              860           923         301          5,771             1,045     8,900 
 Settled by: 
 Immediate cash consideration 
  (net of cash acquired)                441           527         170          2,237               530     3,905 
 Contingent cash consideration          410           396         131          1,874               479     3,290 
                                 ----------  ------------  ----------  -------------  ----------------  -------- 
 Total (net of cash acquired)           851           923         301          4,111             1,009     7,195 
                                 ----------  ------------  ----------  -------------  ----------------  -------- 
 
 
 The contingent consideration is payable on the first and second 
  anniversaries of each acquisition and is based on actual trail income 
  from the portfolios with no cap, with the exception of AE Financial 
  Services Ltd, which has a cap of GBP5,922,000 on the total consideration 
  payable. 
 The contingent consideration is discounted to present value and 
  adjusted annually when forecasts are updated or when payments become 
  certain. Adjustments go through the income statement. 
 
   8.    Dividends 
 
                                                                     2018      2017 
                                                                  GBP'000   GBP'000 
 Amounts recognised as distributions to equity holders: 
 
 Ordinary 
 
 Interim dividend paid: 1.00p per ordinary share 
  (2017: nil)                                                         625         - 
 Final dividend paid: 2.24p per ordinary share 
  (2017: 2.00p per ordinary share)                                  1,401     1,251 
 
                                                                    2,026     1,251 
                                                                =========  ======== 
 
 An interim dividend for the year ended 31 October 2018 of 1.08 
  pence per ordinary share was declared on 3 July 2018 and paid on 
  9 November 2018 totalling GBP675,464 (2017: GBP625,429). The interim 
  dividend was still at the discretion of the Directors at 31 October 
  2018 and has not therefore been included as a liability in these 
  financial statements. 
 
 The proposed final dividend for the year ended 31 October 2018 
  is: 
                                                                              Total 
                                                                            GBP'000 
 Proposed final dividend: 2.42 pence per ordinary 
  share of 0.25 pence                                                         1,514 
                                                                           ======== 
 
 
 The proposed final dividend is subject to approval by Shareholders 
  and has not been included as a liability in these financial statements. 
  The dividend will be paid on 10 May 2019 to Shareholders on the 
  register at close of business on 26 April 2019. 
 
   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 GBP675,464.

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 cGBP1.5m, 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.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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January 23, 2019 02:00 ET (07:00 GMT)

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