AFH Financial Group Plc - Proposed Conditional Placing



Proposed Conditional Placing of Convertible Unsecured Loan Stock

AFH Financial Group plc (AIM: AFHP), a leading financial planning led wealth management firm, announces that it proposes to raise up to £20 million through a conditional placing ("Placing") of 4.0 per cent. convertible unsecured loan stock 2024 ("CULS") in denominations of £5,000 nominal each and in integral multiples of £5,000 in excess thereof. The Company intends to apply for admission of the CULS to trading on the International Securities Market operated by the London Stock Exchange.


Summary of the Placing


·     Placing of CULS to raise up to £20 million for the Company, subject to Shareholder approval at a general meeting of the Company to be held on 29 July 2019 (the "General Meeting").


·      Net proceeds of the Placing to be used to execute the Company's acquisition pipeline and for general corporate purposes. The Company currently has a strong pipeline of potential acquisitions under consideration and due diligence.


·     Liberum Capital Limited ("Liberum") and Shore Capital Stockbrokers Limited ("Shore Capital") have been appointed as Joint Placing Agents in connection with the Placing.


·      The Placing will be conducted by way of a Bookbuild and is expected to close at 12.00 p.m. (London time) on 11 July 2019, but may be closed earlier or later at the discretion of the Company, Liberum and Shore Capital.


·      Books for the Placing are open with immediate effect.


Reasons for the Placing and Use of Proceeds


The Board considers that the issue of the CULS will provide:


·      long-term structural gearing at a fixed cost that is competitive with the cost of other forms of gearing that the Company might have employed and which has the potential to be converted into the permanent capital base of the Company;


·     additional funds available for investment which, as the initial Conversion Price is at a premium to the market price of Ordinary Shares, reduces the dilution of current Shareholders than would otherwise be the case on an equity fundraising at the existing market price;


·     relative to other forms of gearing, a close alignment of interests between CULS Holders and those of Shareholders, through being convertible into Ordinary Shares in the future and relatively long-term in nature; and


·      following any conversion of CULS:

o  an increased number of Ordinary Shares in issue, which should, in due course, enhance the liquidity in the market for the Ordinary Shares; and

o  a wider Shareholder base for the Company to support its growth ambitions.


Alongside its strategy to drive organic growth, the Board intends to continue to execute its strategy of making selective acquisitions within the Financial Planning and Wealth Management sector whilst providing a professional and cost-effective service to its clients. The Board believes that the Company remains well positioned to take advantage of consolidation opportunities in the sector and currently has a strong near-term pipeline, with five potential acquisitions currently at various stages of the due diligence process. The Company is undertaking the Placing to provide it with a strong platform to finance such acquisition opportunities as well as providing funds for general corporate purposes. The Company is also currently exploring options to access additional capital, including the use of bank debt, to enhance its ability to undertake value-adding acquisitions and for general corporate purposes.


The Company also considers that the Placing will provide CULS Holders with:


·      an attractive yield of 4.0 per cent. per annum;


·     capital protection through repayment at par (to the extent the CULS have not been redeemed, purchased or converted into Ordinary Shares); and


·    the potential to participate in further growth of the Company through the ability to convert the CULS into new Ordinary Shares over the next five years (to the extent the CULS have not already been converted into Ordinary Shares).


Summary of the terms of the CULS


The interest rate on the CULS will be 4.0 per cent. per annum (less any deduction or withholding required by law), payable semi annually in equal instalments in arrears on 30 June and 31 December in each year with the first interest payment on 31 December 2019 in respect of the period from Admission (expected to be 30 July 2019) to 31 December 2019.


CULS Holders will be able to convert their CULS into Ordinary Shares on a quarterly basis throughout the life of the CULS commencing on 31 December 2019 with the final conversion date being on 30 June 2024. All outstanding CULS will be repayable at par (plus any accrued interest) on 30 July 2024 ("Final Maturity Date"). The initial Conversion Price will be 420 pence ("Conversion Price"), representing a 16.67 per cent. premium to the Mid Market Price of the Ordinary Shares of 360 pence on 27 June 2019. Based on the initial Conversion Price, a holder of £5,000 nominal of CULS would be entitled to 1,190 Ordinary Shares on conversion of their CULS. Under the terms of the Trust Deed, the Conversion Price will be subject to subsequent adjustment on the occurrence of certain events.


At any time during the 30 day period commencing 40 days prior to the Final Maturity Date and expiring 10 days prior to the Final Maturity Date ("Compulsory Conversion Period") the Company will be entitled to require remaining CULS Holders to convert their outstanding CULS into Ordinary Shares by giving the CULS Holders notice in writing ("Compulsory Conversion Notice") provided that the Mid Market Price is, for at least 20 dealing days during the period of 30 consecutive dealing days immediately prior to the date of the Compulsory Conversion Notice, at least 20 per cent. above the Conversion Price prevailing at the start of such 30 day period. For the avoidance of doubt, the 30 dealing days referred to must expire during the Compulsory Conversion Period. In the event of such Compulsory Conversion Notice being given as aforesaid each CULS Holder shall be deemed to have exercised their Conversion Rights on the date of the Compulsory Conversion Notice at such Conversion Price prevailing at the start of such 30 dealing day period referred to above.


Any CULS not previously redeemed, purchased or converted will be repaid by the Company on the

Final Maturity Date at its nominal amount plus accrued interest.


A summary of the terms of the CULS is set out in Appendix I below.  


Outlook and current trading


On 28 May 2019, the Company released its interim results for the six month period ended 30 April 2019. In those results, the Chief Executive of the Company stated:


"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[1] 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."


The Board has also set new aspirations to be achieved within a three to five year timeframe:


·      funds under management of £10 billion;


·      revenues of £140 million per annum; and


·      underlying EBITDA margin of 25 per cent. of revenue.


There has been no material change in the outlook or trading of the Company since the release of its interim results.


Details of the Placing


Liberum and Shore Capital are acting as Joint Placing Agents in connection with the Placing.


The Placing is being conducted by way of a Bookbuild process and will be launched immediately following the release of this Announcement and will be made available to eligible new and existing institutional investors. The final number of CULS to be issued pursuant to the Placing will be agreed between the Company and the Joint Placing Agents following close of the Placing and will be announced shortly thereafter. The Placing size may be increased or decreased at the discretion of the Company and the Joint Placing Agents. The book will close at the sole discretion of the Joint Placing Agents.


The Placing is subject to the terms and conditions set out in Appendix II to this Announcement (which, together with the summary of the CULS set out in Appendix I and the definitions set out in Appendix III, forms part of this Announcement, such Announcement and Appendices together being, this "Announcement"). The Placing is not being underwritten. The Placing is subject, inter alia, to Shareholder approval at the General Meeting to issue the CULS and disapply statutory pre-emption rights in respect of the issue of the CULS.


By choosing to participate in the Placing and by making an oral and/or written legally binding offer to acquire CULS, investors will be deemed to have read and understood this Announcement in its entirety, including Appendix II, and to be making such offer on the terms and subject to the conditions contained herein and to be making the representations, warranties, undertakings and acknowledgements contained in Appendix II.


Appendix I sets out a summary of the terms of the CULS. Appendix II and Appendix III set out further information relating to the Placing and the terms and conditions of the Placing. Unless otherwise defined in the terms and conditions, capitalised terms used in this Announcement shall have the meaning given to them in Appendix III.


The Company intends, on or around 12 July 2019, to publish Admission Particulars in connection with the admission of the CULS to trading on the International Securities Market, a market operated by the London Stock Exchange. Those Admission Particulars will also include the notice of the General Meeting.