Half-year Report

28th May 2019

AFH Financial Group PLC

("AFH" or the "Company")

Results for the six months ended 30 April 2019

AFH reports further strong revenue and earnings growth

AFH, a leading financial planning led wealth management firm, is pleased to announce its results for the six months ended 30 April 2019.

Strong growth

· Revenues up 61% to £36.6 million (H1 2018: £22.7 million)

· Underlying* EBITDA up 74% to £7.7million (H1 2018: £4.4 million)

· Underlying* EBITDA margin increased to 21.0% (H1 2018: 19.5%)

· Profit after tax up 80% to £4.5 million (H1 2018: £2.5 million)

· Statutory Earnings per share up 56% to 10.71 pence (H1 2018: 6.85 pence)

· Underlying* Earnings per share up 49% to 14.87 pence (H1 2018: 9.98 pence)

· Funds under Management of £5.4bn, up 68% (H1 2018: £3.2bn)

*Underlying excludes amortisation of intangible assets arising on business combinations and the non-cash charge/credit for share based payment costs.

Confident outlook

· Solid foundations in place to deliver on strategy to become number one financial planning-led wealth manager in the UK

· Increasing organic demand for financial planning led wealth management services

· Well positioned to continue to take advantage of ongoing IFA market consolidation supported by regulatory dynamics

· Strong pipeline of future acquisitions with a number of opportunities in due diligence and contract negotiations

· Proven acquisition and integration methodology

· Three to five-year aspirational targets re-confirmed - Funds under Management of £10 billion; revenues per annum of £140 million; and Underlying EBITDA margin of 25% on revenue

Alan Hudson, Group Chief Executive, commented:

"I am pleased to report another set of strong results for the first half of 2019 demonstrating our progress as we continue to build ourselves into the leading financial planning-led wealth manager in the UK. Despite turbulence in the equity markets and subdued investor confidence over the period, we have delivered increased revenues, reporting 61% growth from the previous period to £36.6 million and improved trading margins demonstrated by our underlying EBITDA* margin increasing to 21.0%.

"Our growth continues to be generated organically from new and existing clients together with the benefits of the four acquisitions made in the first half of FY 2019 as well as those acquisitions made towards the end of 2018. Our protection business, which is not aligned to the stock markets, continued the strong growth reported in 2018.

"Following the Company's success in meeting its strategic and financial aspirations set out in January 2017, the Board set new aspirational targets in January 2019 to be achieved within a three to five-year period.

"The overarching strategy of the Company continues to be to generate long term value for shareholders by driving revenue growth and margin expansion while providing exceptional value and service to our clients, using our increasing size to drive down platform and fund management charges aligned to an appropriate risk-based investment model.

"On the basis of our results and the opportunities identified, we look forward to continuing to deliver continued profitable growth in the second half of 2019 and beyond."

For further information please contact:

AFH Financial Group PLC 01527 577 775

Alan Hudson, Chief Executive Officer

Paul Wright, Chief Financial Officer

Liberum (Nominated Adviser and Joint Broker) 020 3100 2000

John Fishley / Richard Bootle / Euan Brown

Shore Capital (Joint Broker) 020 7408 4090

Hugh Morgan / Edward Mansfield / Daniel Bush

Yellow Jersey PR Limited (Financial PR) 077 4884 3871

Felicity Winkles / Tim Thompson / Annabel Atkins

Notes to Editors

AFH Financial Group (AIM: AFHP) is leading UK financial planning-led wealth management firm based in the Midlands. Founded in 1990 by CEO Alan Hudson, the Company provides wealth management and financial advisory services to over 20,000 clients in the UK. These services are delivered by over 450 professional advisers and 400 support staff.

The Company has a defined growth strategy focused on increasing shareholder value through the expansion of the AFH community. This strategy continues to be driven by a combination of organic growth through greater productivity of the Company's advisers and by value accretive acquisitions.

This announcement is released by AFH Financial Group plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by Paul Wright, Chief Financial Officer.

Chief Executive's Review

Business review

I am pleased to report increased profitability, turnover and trading margins during a period of turbulence in the equity markets and subdued investor confidence.

As set out in my report to shareholders in January 2019, following our success in 2018 and the initial months of the current financial year, the Board has set new aspirations to be achieved within a three to five-year timeframe:

1. Funds under Management of £10 billion

2. Revenues of £140 million per year

3. Underlying EBITDA margin of 25% of revenue

The institutional fundraising which closed in October 2018 provided the Company with the ability to undertake a number of acquisitions during the first half of this financial year and allow us to continue with our strategy and grow the business in a demonstrable way.

Gross Funds under Management continued to be invested at a rate of £36 million per month while, during the period, the Company completed four acquisitions which added a further £640 million of investment portfolios under service propositions. Funds under Management approached £5.4 billion at the period end, representing a 68% increase over the April 2018 level.

Our growth continues to be generated organically from new and existing clients together with the benefits of the four acquisitions made in the first half of 2019 as well as with those acquisitions made towards the end of 2018. Our protection business, which is not aligned to the stock markets, continued the strong growth reported in 2018.

The results for the period reflect our strong position as an IFA business acting as gate keeper to the wealth management sector through its primary position in the client relationship. Furthermore, the strategy undertaken over a ten-year period of using scale to reduce third party costs for our clients continues to provide a competitive advantage for our advisers, enabling the Company to grow nationally while maintaining its fee structure and gross margin.

Due to the number and size of acquisitions completed in the second half of 2018, regulatory approval and the subsequent business integration has taken longer than in previous periods. As a result, the level of new business written and ongoing management fees from these larger acquisitions was delayed during the period. These acquisitions have now been transitioned in line with our internal processes and this new business and recurring revenue is expected to accelerate during the second half of the current financial year.

Both operating divisions ('Financial Advisory and Investment Management' and 'Protection Broking') reported revenue growth during the period enabling the consolidated group to report a continued increase in underlying EBITDA to £7.7 million (H1 2018: £4.4 million) and to expand the underlying EBITDA margin to 21.0% (H1 2018: 19.5%).

I am also pleased to report an increase in underlying earnings per share of 49%. This has been achieved despite the challenging market conditions during the first half of the year and the dilution that resulted from our October 2018 fundraising. We are continuing to see opportunities to make further value enhancing acquisitions in the future.

Trading results

The business saw further organic growth during the period with profitability increasing at both EBITDA and EPS levels. Revenue for the period increased to £36.6 million (H1 2018: £22.7 million), underpinned by ongoing recurring fees representing 55% of the total income across the group.

Recurring fees increased by 69% against H1 2018; driven by new business in our Financial Advisory and Investment Management division from new and existing clients. Initial fees increased 61% period on period with the Protection division generating 20% of group income and reporting 87% growth against H1 2018.

Revenue from acquisitions reported during the current period totaled £3.22 million and represented 9% of total revenue for the period.

During the period the Company continued its expenditure on digital marketing campaigns to promote the AFH brand and generate new business leads. Further investment was also made in technology to improve efficiency and the customer experience for AFH's clients. All such costs were expensed during the period.

The increased revenue together with the economies of scale generated by the business enabled the Company to report an expansion of the underlying EBITDA margin from 19.5% to 21.0%, generating EBITDA of £7.7 million, an increase of 74%.

The group corporation tax rate of 24% (H1 2018: 23%) reflects the non-deductible nature of amortisation costs during the period.

I am pleased to report a further increase of 49% in underlying earnings per share to 14.87p per share (2018: 9.98p) whilst statutory earnings per share increased to 10.71p per share (2018: 6.85p).

Cash balances remain healthy at £8.8 million following the repayment of £2.2 million Unsecured loan Stock in December 2018, £7.9 million initial consideration paid in respect of the four acquisitions made in the first half of this year and £1.6 million of deferred consideration falling due in respect of acquisitions made in 2017 /18. As previously reported, in addition to financing the growth of the core business the non-indemnity protection revenue model, which continues to generate increased margins at both gross margin and EBITDA levels, has absorbed working capital. During the period this resulted in an increase in debtors of £5.2 million. The Board expects the model will continue to absorb working capital for the remainder of the current financial year before returning to a balanced position.

Financial Advisory and Investment Management

Financial advisory and the subsequent management of client portfolios continued to represent the core business of AFH and 80% of revenues for the period. Our growing client base and strong record of retention is based on the simple and holistic philosophy that the most appropriate way to manage a client's portfolio is to fully understand their current and future financial aims, their attitude to risk and their lifestyle requirements before constructing appropriate personal models and finally managing their money to meet their objectives.

As noted above, the FCA dual approval of advisers under the AFH authority and the subsequent integration of the multiple large acquisitions undertaken at the end of 2018 and during the period took longer than has historically been the case for smaller acquisitions and as a result the level of new business and recurring revenue from several of these larger acquisitions is expected to accelerate in the second half of the year.

Together with the reduced level of investor confidence and the increased volatility of the financial markets during the period the addition of new investment portfolios remained at levels experienced during the second half of 2018. Notwithstanding this general reticence amongst investors, our position as the primary interface between clients and the wealth management market enabled the division to report annualised double digit organic growth in the inflow of funds.

During the period our initial financial planning fees totaled £7.5 million, an increase of £1.9 million (34%), reflecting the expanding client base and increasing client requirements for financial planning driven by pension legislation as well as changing lifestyle needs.

Ongoing management fees increased to £21.8 million (H1 2018: £13.2 million), reflecting the growing funds under management which, as set out below, increased to £5.4 billion as a result of net organic inflows together with assets attached to acquisitions during the year.

Annualised average revenue per adviser in our core business increased to £236,000 (H1 2018 £220,000).

Gross margins in our investment business were maintained at 54%, reflecting the stable level of business generated centrally relative to that self-generated by our advisers. During the period the impact of absorbing platform fees for discretionary clients on AFH Direct was reflected within this margin.

The division generated EBITDA of £6.4 million (H1 2018: £4.4 million) demonstrating the continuing benefits of scale that have been achieved by the strategy consistently adopted by the Company.

Protection Broking

The Protection Broking business continues to benefit from the gap in the market, estimated at £2.4trn, identified when we launched the division in 2017. The Protection Broking division continues to report strong growth in both revenues and margins. During the period a telephone-based operation was expanded and moved to new offices in Nottingham providing scope for this business to double in size in the future.

The increase in trade receivables of the Group was as a result of the continuing move from Indemnity to non-Indemnity business with key insurance providers during the period. It is expected that the non-Indemnity book will move towards a balanced position at the end of 2019. The benefits of this change were reflected in the gross margin of this business which has expanded from 35% to 51%.

During the period the division generated revenues of £7.3 million from which EBITDA of £2.8 million was derived.

Acquisitions

The market for acquisitions within the IFA sector continued to be buoyant and whilst some upward pressure on prices was seen in larger businesses, where competition from private equity and product providers has increased, we were able to close transactions at our traditional multiples and in line with our earn out model. Our pipeline remains strong with a number of opportunities in due diligence and contract negotiations at the period end.

During the period we completed four acquisitions for an initial consideration of £7.9 million, encompassing several large organisations, whose clients and advisers have been absorbed into the AFH model, alongside retiring IFAs whose client portfolios have been transitioned to existing AFH advisers. Future deferred consideration of up to £11.8 million is payable on these four acquisitions over the next two financial years depending on their achievement of financial targets.

Our model allows clients' portfolios to be retained on existing platforms and products where appropriate but enables them to move to our cost-effective discretionary service where a clear benefit to the client can be demonstrated.

Integration of acquisitions made during the period has been completed and I am pleased to report that businesses acquired in previous periods continue to trade in line with our expectations.

While AFH has seen an increase to the average size of its acquisitions, the Company also remains committed to providing an exit for retiring IFAs where our existing advisers can offer the full AFH service to the acquired client base. As a result, the Board expects to announce both strategic and tactical acquisitions in the future.

The Directors believe that the vertical and horizontal expansion of our business within the wealth management value chain is in the best interests of both our shareholders and clients. While maintaining a focus on the IFA market, the Company continues to actively seek appropriately priced acquisition opportunities in the wider advisory and wealth management sector with a comparable culture to AFH.

Funds under Management

Funds under Management increased by £0.98 billion during the period, driven by new monies invested and acquired portfolios. The fall in the markets that occurred in the first quarter of our financial year was cushioned for our clients by the investment strategy of our funds and, following a strengthening of the market from January 2019, the net market movement impact on Funds under Management for the period was a positive 3.1%.

Inflows from existing business continued to be predominantly invested on a discretionary mandate and despite the reduced investor confidence showed annualised double digit growth.

Cash position

The Group remains free of bank or secured debt, except for a small property mortgage, and maintains healthy cash balances. In December 2018 the Company redeemed £2.14 million Unsecured Loan Notes on maturity. The remaining £0.75 million Unsecured Non-Convertible Bonds mature in 2020.

Outlook

The strategy of the Company continues to focus on generating long term value for shareholders by providing exceptional value and service to our clients and using our increasing size to drive down third party charges aligned to an appropriate risk based investment model. In FY18 we demonstrated the benefits of this strategy to our clients by introducing segregated mandates for our investment proposition, bringing institutional pricing to our clients, and in July 2018 announcing that our AFH Direct clients would no longer pay platform fees. Both initiatives have been delivered with the result that total fees paid by our clients using these services have been reduced. We believe that this is the most sustainable model for the future of the sector, aligning clients' interests with those of shareholders to secure long term growth and profitability, and in line with the current objectives of the regulator. We expect that this will continue to be an area of focus as we continue to grow and will emphasise our USP to both clients and to potential vendors, within the objective of accelerating our future rate of growth

Our marketing strategy continues to embrace the digital opportunities and challenges for the sector. The Company has invested heavily in establishing a marketing capability to support a growing national business and to extend beyond traditional IFA routes to market. While we believe that face to face advisory remains the most appropriate model to serve client's needs, our evolving digital approach is expected to expand our target market and to provide an improved experience for individuals and corporates who join the AFH community.

Our model remains to expand our distribution capacity through both organic and acquisitive growth whilst maintaining centralised investment, advice and compliance functions to drive increased profitability and shareholder value. The Company remains profitable and cash generative, and during the period further strengthened its balance sheet.

The progress made during the first half of the current financial year, combined with the growth dynamics of our market, allow the Directors to view the prospects of AFH for the full year and beyond with confidence and we look forward to continuing to update the market on our progress.

Alan Hudson

Chief Executive

28 May 2019 

Consolidated Statement of Comprehensive Income

All results derive from continuing operations

Notes to the Consolidated Financial Statements

1 General Information

AFH Financial Group Plc is a company incorporated in England and Wales. The Group is principally engaged in the provision of independent financial advice to the retail market.

2 Basis of preparation and accounting policies

2.1 Basis of preparation

The interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's financial statements for the year ended 31 October 2018, which were prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") of the IASB (together "IFRS") as adopted by the European Union, and in accordance with the requirements of the Companies Act applicable to companies reporting under IFRS.

The information relating to the six months ended 30 April 2019 and the six months ended 30 April 2018 is unaudited and does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 October 2018 have been reported on by its auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified and did not draw attention to any matters by way of emphasis or contain a statement under section 498(2) or (3) of the Companies Act 2006.

2.2 Significant accounting policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the six months ended 30 April 2019.

2.3 Basis of consolidation

The interim condensed consolidated financial statements consolidate the financial statements of the Company and its subsidiary undertakings as at 30 April and 31 October each year.

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 ceases. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

2.4 Key sources of judgements and estimation uncertainty

The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities. If in the future such estimates and assumptions, which are based on management's best judgement at the date of preparation of the financial statements, deviate from actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change. The areas where a higher degree of judgement or complexity arises, or where assumptions and estimates are significant to the consolidated financial statements, are discussed below.

Impairment of client portfolios

The Group reviews whether acquired client portfolios are impaired at least on an annual basis. This comprises an estimation of the fair value less cost to sell and the value in use of the acquired client portfolios. In assessing value in use, the estimated future cash flows expected to arise from the individual client portfolios are discounted to their present value over a finite period to calculate the fair value.

The key assumptions used in arriving at a fair value less cost of sale are those around valuations based on multiples of future earnings streams and values based on assets under management. These have been determined by looking at valuations of similar businesses and the consideration paid in comparable transactions.

The carrying amount of client portfolios at 30 April 2019 was £50.5m (2018 HY: £37.8m). No impairments have been made during the period (2018 HY: nil).

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill has been allocated. In assessing value in use, the estimated future cash flows expected to arise from the cash-generating unit are discounted to their present value using the Group's weighted average cost of capital adjusted for tax.

The carrying amount of goodwill at 30 April 2019 was £42.1m (2018 HY: £6.6m). No impairments have been made during the period (2018 HY: £ nil).

3 Revenue and segmental Analysis

The following is an analysis of the Group's revenue and results from continuing operations by reportable segment.

Segment revenue reported above represents revenue generated from external customers. There were no Inter-segment sales in the current year.

The Accounting policies of the reportable segments are the same as the Group's accounting policies.

The total revenue of the Group for the year has been derived from its activities wholly undertaken in the United Kingdom.

No customer is defined as a major customer by revenue, contributing more than 10% of the Group revenues (2018 - £nil)

4. Intangible Assets

Goodwill and Acquired client portfolios

Goodwill believed to have an indefinite useful life is carried at cost. The determination of whether goodwill is impaired requires an assessment of the value in use. The recoverable amount of goodwill on a value in use calculation is based on the discounted cash flows expected from the intangible assets of each acquisition, assuming no future growth in revenue generated cash flows, discounted at an asset specific rate of 10%, for a period of 10 years with no annuity. On this basis the directors believe the value of goodwill is not impaired at 30 April 2019.

The Directors have assessed the sensitivity of the assumptions detailed above and consider that, due to the level of prudence already factored into these assumptions, it would require a significant adverse variance in any of these to reduce the fair value to a level where it matched the carrying value.

During the period ended 30 April 2019, no asset purchases were undertaken relating to acquired client portfolios. Four share purchases were undertaken from which £14.0m of goodwill was recognised. Of these share purchases, £5.5m related to client portfolios. Included within the total consideration are amounts relating to contingent consideration of £11.8m. The contingent consideration is subject to earn outs based on future profitability over a period of up to four years.

5. Trade and other receivables

Group

The non-indemnified commission is stated net of £1.2m doubtful debt provision relating to commission on policies that may lapse before term. This balance has been shown separately from trade receivables in the note above and the cashflow statement, note 10 for the year ended 31 October 2018 to be consistent with its current disclosure.

Included in the Non-indemnified receivable is £5.3m of commissions receivable from insurance companies on life and other protection policies brokered by the protection division due in greater than 1 year.

The financial liabilities are recognised at amortised cost. There is no material difference between the fair value and the carrying value.

The 8% unsecured bond is due in 2020. The 7.5% unsecured bond was repaid in December 2018.

The mortgage is repayable by instalments over an 8-year period, ending October 2023, with an interest rate of 2.9% over LIBOR.

7. Trade and other payables

8. Share Capital

On 5 March 2019, the company purchased 43,931 ordinary shares at 10p each in the company into its treasury holdings at a price of £3.40 per Ordinary share. The shares do not carry any voting rights.

9. Earnings per share

The calculation of earnings per share is based on the profit attributable to the equity holders for the period of £4,542,000 (HY: 2018 - £2,491,000) and weighted average number of shares in issue during the period of 42,422,946 (HY: 2018 - 36,352,925).

The diluted earnings per share has been adjusted for the potential share issue relating to the share-based payments. The number of shares has been increased by the difference between the number of shares that will be issued if all options are exercised and the number of shares that could be purchased for the same consideration at average market price.

There are no adjustments between the Earnings for the purpose of basic earnings per share being net profit attributable to shareholders and the Earnings for the purpose of diluted earnings per share.

There are no adjustments between the Net profit attributable to equity holders of the parent and the Earnings from continued operations for the purpose of diluted earnings per share excluding discontinued operation.

Underlying earnings per share of 14.87p (HY2018 - 9.98p) have been calculated on the profit attributable to the equity holders for the period after adding back Amortisation, Depreciation and non-cash share based payments after adjusting the tax provision accordingly.

10. Reconciliation of Operating profit to Net Cash inflow from Operating Activities