KINGSWOOD HOLDINGS LIMITED
Formerly European Wealth Group Limited
Annual Report and Financial Statements
for the year ended 31 December 2018
Company Registration No. 42316 (Guernsey Company)
Kingswood Holdings Limited (the “Company” or “KHL”,
previously European Wealth Group Limited “EWG”)
and its subsidiaries (the “Group” or “Kingswood”) is a
growing and established wealth management business
listed on the AIM market of the London Stock Exchange
under ticker symbol (AIM:KWG).
£1.9bn
Assets under
management
and advice
7,000
Active clients
89
Employees
All figures as at publication date.
CONTENTS
Summary Information
Chairman and Group Chief
Executive Officer’s Statement
Strategic Report
The Board
Directors’ Report
Corporate Governance Statement
Directors’ Remuneration Report
Directors’ Responsibilities Statement
Independent Auditor’s Report
Financial Statements for the year
ended 31 December 2018
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2
6
12
14
18
26
27
29
34
Advisers and Company
Information
Inside
back cover
SUMMARY INFORMATION
The Kingswood core mission is to grow our clients’ wealth and protect it for the future. Client experience
and breadth of services are at the heart of Kingswood’s offering, granting access to industry-leading,
capital protected, yield-enhanced investment products and services. Managed by highly experienced
global investment managers, portfolios comprise equities, fixed income and alternative investments.
Kingswood services individuals, family-offices, charities, trusts, institutions and corporations by offering a
full suite of personalised financial services and access to high quality products on a cost-effective basis.
THE GROUP IS BUILT AROUND FOUR CORE PRINCIPLES
INTEGRITY
Trust is important when it comes to giving
advice. Kingswood’s people are committed
to acting with integrity, being fair, and acting
in the best interest of clients.
PURPOSE
Kingswood partners with clients to construct
a sustainable life plan together. Everyday at
Kingswood we help busy successful people
achieve their financial potential.
TEAMWORK
It is important to always apply understanding
to the situation. Kingswood believes in
loyalty and working as a team, allowing
lasting relationships of trust to build.
RIGOROUS CLIENT FOCUS
Facts are important, permitting
calculated decisions to be made, and
being tenacious to get it right
every time.
THE GROUP IS SPLIT INTO TWO OPERATING DIVISIONS
The Wealth Planning division operates through
its subsidiaries KW Wealth Planning Limited
(“KWWP”), previously European Financial Planning
Ltd and Marchant McKechnie Independent
Financial Advisers Limited (“Marchant McKechnie”)
which was acquired in October 2018 with assets
under management at the year end of £203m.
KWWP currently acts for over 5,400 private clients
(2017: 9,700) and 49 corporate pension schemes
ranging in size from 10 to 5,000 members, with
aggregate funds under advice of approximately
£439m (2017: £577m). The Wealth Planning
division provides advice to clients across three
core services – wealth planning, corporate pension
advisory and tax planning.
The Investment Management division
operates through its subsidiary KW Investment
Management Limited (“KWIM”), previously
European Investment Management Ltd and KW
Trading Services Limited (“KWTS”), previously
European Wealth Trading Limited. KWIM
provides bespoke institutional style investment
management for private clients, trusts, pension
funds, universities and charities. It also manages
money on behalf of third party independent
financial advisers. At year end KWIM had
approximately £1bn of assets under management
split between discretionary and equity investments
(£0.3bn) and fixed interest investments (£0.7bn).
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
1
CHAIRMAN AND
GROUP CHIEF
EXECUTIVE OFFICER’S
STATEMENT
We are pleased to inform you that after
a period of restructuring, the platform
is in a position to deliver sustained
earnings growth for investors. The Board
acknowledges that the last couple of years
have seen significant change within the
Group, with 2018 also impacted by a highly
uncertain market environment and weaker
investor sentiment resulting in an
industry-wide slowdown in net inflows.
Despite this backdrop, the Board believes
the strength of Kingswood’s business model
positions the Group well for improved
sentiment. A new management team and
organisation structure is now in place.
Gary Wilder took over as Group Chief
Executive Officer at the beginning of the year
and Patrick Goulding joined as Group CFO and
CEO of the operating platform. They have
day-to-day management control and have now
implemented the significant changes originally
planned. The three-year growth plan initiated
by the Board at the end of 2018 has solidified
a number of strategic initiatives designed to
enhance client yield and stimulate growth. The
Board and management’s key objective now is to
prove its model and execution capability.
Kingswood currently has approximately 7,000
active clients and assets under management and
advice of £1.9bn, and is focused on becoming
a leader in the UK wealth and investment
management market by building a listed brand
that is recognised internationally. We have
ambitious plans to be a global wealth and
investment management platform serving mass
affluent and private clients, with expansion
plans already activated in the US and Asia. Our
goal is to provide current and new clients with
a full suite of services and products designed to
protect their wealth and provide sustainable and
growing returns.
The Wealth Planning business has expanded
with the acquisition of Marchant McKechnie
in East Yorkshire which completed in Q4 2018,
and the acquisition in Q1 2019 of Oxford-based
Thomas & Co, which have further bolstered our
wealth planning foundation. The acquisitions
broaden Kingswood’s UK footprint, adding
to our existing office network in London,
Manchester, Cheltenham, East Malling,
Brighton and Worcester. We continue to pursue
additional accretive investments across the
UK and internationally with a pipeline in
excess of £100 million under evaluation.
In order to execute on this pipeline, we are
exploring opportunities to source additional
funding via institutional investors to meet our
requirements.
The investment management division has
embarked on an enhanced strategy to provide
existing and new clients unprecedented access
to best in class investment products across
equities, fixed income and alternatives, managed
by best in class global investment managers.
Many of these products are currently solely
available to institutional investors. The goal is to
provide clients with high quality products and
service on a cost-effective basis under the global
Kingswood brand.
We have a unique competitive advantage with
our integrated Wealth Planning and Investment
Management platform. We plan to leverage
this platform to its full potential and are looking
to expand our current product offering with
turnkey opportunities such as mortgages,
cash management, lending products, including
the launch of Kingswood labelled products in
partnership with best in class industry expertise.
To support delivery of our growth plans, we
recently announced the appointments of
Richard Jeffrey as Chairman of the Investment
Committee and Richard Klein as Head of
Alternatives and Distribution.
The Group is building a robust Investment
Committee process with a group of highly
experienced investment professionals, under
the stewardship of Richard Jeffrey who most
recently, was Chief Investment Officer and then
Chief Economist at Cazenove Capital, part of the
Schroders group.
2
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 We have ambitious plans
to be a global wealth and
investment management
platform serving mass
affluent and private clients,
with expansion plans already
activated in the US and Asia.
Richard Klein has joined to lead and expand
Kingswood’s best of breed product offerings
for distribution to our growing client base. His
principal focus will be on providing existing
and future clients with unprecedented
access to capital protected, yield-enhanced
strategies managed by independent best in
class asset managers with offerings in key asset
classes including Private Equity, Real Estate,
Infrastructure, Hedge Funds, Liquids & Credit.
Richard has spent the majority of his 30 plus
year investment banking career at Merrill Lynch,
specifically in a number of capital markets and
international distribution roles.
We have also launched our enhanced Managed
Portfolio Service (“MPS”) which is available via
industry platforms used by wealth planners
across the UK. The MPS offering provides
intermediaries with a discretionary managed,
risk-rated investment solution for their underlying
clients. These portfolios are mapped to industry
leading risk profiling tools, providing a streamlined
on-boarding process for financial advisers and
their clients, in addition to ensuring clients are
suitably mapped into an investment strategy.
Expanding our product offering in real estate,
Kingswood recently signed a cooperation
agreement with its affiliate Moor Park Capital
Partners LLP, a leading independent
pan-European real estate investment firm that
creates a partnership to broaden our alternative
investment product offering to clients.
We have also set our sights on US expansion
and growing investment distribution channels
there for our products. We see the US as a
major growth opportunity being the largest
global wealth management market. To support
these growth efforts, we recently appointed
Najib Canaan as US CEO. Najib, who also
joins the newly restructured Kingswood
Investment Committee, has more than 30 years
of experience at firms including GSO Capital,
a Blackstone Group affiliate; Brevan Howard;
Donaldson, Lufkin, and Jenrette, where he
established the Special Situations Group; and
3
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 Kenneth ‘Buzz’ West
Non-Executive
Chairman
Gary Wilder
Group Chief Executive
Officer
CHAIRMAN AND GROUP CHIEF EXECUTIVE OFFICER’S STATEMENT CONTINUED
Nomura Securities International where he
oversaw a fixed income, asset-backed, and real
estate balance sheet in excess of $100 billion.
Najib’s extensive knowledge and experience will
be invaluable as we grow in the US. We have
made huge strides in expanding and reinforcing
the Kingswood brand in the UK over the last 12
months and we view the US as a really exciting
market going forward.
We are committed to broadening our client
offering with a range of holistic, value added
client services through our affiliates including
the provision of personal taxation compliance
services, incorporating the preparation of annual
tax returns, tax planning and advisory support.
Via our affiliates, we now offer a range of
services for small and medium-sized businesses
including the provision of accounting and annual
tax compliance as well as corporate finance
offerings (e.g. advisory, working capital lines,
debt & financing structuring and broad-based
debt sourcing). Through our affiliate advisory
platform, we are able to provide corporate
finance support including large transaction
advisory services, fair value assessments and
independent accountant’s reports.
These additional value-added services available
to our expanding client base highlight the
breadth and depth of our offerings. By further
adding to and integrating our brand, Kingswood
is developing a strong competitive advantage
enabling us to drive growth initiatives under a
common brand.
We believe our people are fundamental to
the future success of the Group and we are
committed to an employee ownership model,
which in recent weeks led to the roll out
of a new organisational and title structure,
culminating in the creation of our first group of
Managing Directors and Partners in the Group.
Through the Group’s LTIP plan, Partners will
have a significant portion of their compensation
aligned with Group targets, with some subject
to Group target EBITDA and TSR performance
conditions, and some subject to Group target
EBITDA and individual portfolio targets. These
Partners also comprise Kingswood’s inaugural
Executive Committee, which will support
the Board and senior management team in
delivering the Group’s growth strategy.
The Board firmly believes this partnership
structure will be a defining feature of
Kingswood’s future success, with an annual
opportunity to achieve partner status subject to
meeting difficult, objective performance criteria
and an ability to perform at the highest level for
the benefit of the Group’s overall performance.
We are committed to delivering shareholders
and clients with high quality reporting and
information, and are focused on partnering with
best in class service providers to deliver
non-core operating functions. We recently
entered into an agreement with Global Prime
Partners (“GPP”) – a third party clearing, custody
and financial services provider - who will shortly
take over Kingswood’s investment management
operations. We believe partnerships such
as these are an efficient and effective way
of delivering back office services, enabling
Kingswood to focus on its core
revenue-generating business activities.
At Board level, Jonathan Massing has assumed
the role of Non-Executive Deputy Chairman,
given Gary Wilder’s installation as Group CEO
earlier this year.
In conclusion, we would like to reinforce our
commitment to growing our clients’ wealth and
protecting it for the future. Our clients’ needs
are at the heart of everything we do which is
why we take a holistic approach, building our
business and service around them. Our offering
is tailored using a wide range of services,
completely focused on meeting our long term
needs and achieving future goals. We are
committed to being authentic and providing
existing and new clients unprecedented access
to best in class advice and capital protected,
yield enhanced investment products.
We would like to express our personal
thanks and those of the Board to our clients,
shareholders and staff for their strong support
for the Group.
Kenneth ‘Buzz’ West
Chairman
12 April 2019
Gary Wilder
Group Chief
Executive Officer
4
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
We are committed to
delivering shareholders
and clients with high
quality reporting and
information, and are
focused on partnering
with best in class service
providers to deliver
non-core operating
functions.
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
5
STRATEGIC REPORT
This strategic report has been prepared for
the Group as a whole and therefore gives
greater emphasis to those matters which
are significant to Kingswood Holdings
Limited and its subsidiary undertakings,
when viewed as a whole.
The strategic report contains certain
forward-looking statements. These statements
are made by the Directors in good faith based
on the information available to them up to the
time of their approval of this report and such
statements should be treated with caution due
to the inherent uncertainties, including both
economic and business risk factors, underlying
any such forward-looking information.
CORE PRINCIPLES AND OBJECTIVES
Kingswood’s over-arching objective is to protect
and grow our clients’ wealth. Underpinning
this are four guiding principles that drive
that objective; these are integrity, purpose,
teamwork and rigorous client focus.
The Group’s mission is to provide existing and
new clients unprecedented access to best
in class, capital protected, yield enhanced
investment products across equities, fixed
income and alternatives managed by best
in class global investment managers. These
products are currently generally available only to
institutional investors.
The ultimate goal is to provide clients with high
quality products and service on a cost-effective
basis under the global Kingswood brand
resulting in consistent, stable and predictable
investment returns to our clients.
STRATEGY
The Group’s goal of becoming a leading provider
of wealth planning and investment management
services will be achieved organically and by
selective acquisitions. This strategy has resulted
in the Group increasing its total client assets
under management or advice to £1.9bn over the
last five years.
We are predominantly a private client business,
but also have a strong fixed income institutional
platform. We provide services in four main areas:
• Wealth planning and advice, including asset
protection, pensions and tax and succession
planning
• Private client investment management
• Institutional investment management
• Corporate solutions
Market growth in the UK remains strong, driven
both by increasing personal wealth and by
regulatory change, especially pension’s freedom,
which substantially drives demand for wealth
planning. There is a shortage of skilled advisors,
and many advice firms are too small to carry the
increasing compliance burden.
The Group launched a new growth strategy in
Q1 2019 and this is already bearing fruit; we
are successfully hiring quality advisors, in a
very tight market, and further investing in the
quality of our investment research and pensions
advisory compliance, to ensure we can provide
the robust, quality advice which is so needed in
the market. We have completed the acquisitions
of good quality target firms which fit our culture
and see the benefits of prospering within a
business that has critical mass and a strong
operating platform.
Our business structure is highly scalable;
incremental revenue growth will
disproportionately boost profitability, since
our platform is now fit for purpose and has
capacity. We are also looking to invest with
best-in-class service providers to enhance our
operating capabilities.
The Group today has 23 investment managers
and wealth planners. Our plan over the next
three years is to substantially grow this number,
both through organic growth and acquisition.
About 85% of our wealth planning assets
are currently served from external operating
platforms; we anticipate that the majority of this
will be handled in-house going forward, whether
under advisory or discretionary mandates.
We have a strong geographic base around the
UK; and we continue to explore opportunities
for the right acquisitions.
6
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 FINANCIAL OVERVIEW
A summary of the statement of comprehensive income for the financial year is set out below:
2018
£’000
2017
£’000
CONTINUING OPERATIONS
Revenue
Administrative and other expenses
Operating loss
Core adjusted loss
Other losses
Amortisation and depreciation
Internal restructuring
Operating loss
Finance costs, exceptionals and taxation
Loss for the year from continuing operations
DISCONTINUED OPERATIONS
(Loss) / profit from discontinued operations
Loss after tax for the year
A reconciliation of core adjusted loss is set out below:
Core adjusted loss
Acquisition costs1
Movement in deferred consideration2
Refinancing costs
Restructuring costs
Impairment of intangibles
Amortisation and depreciation
Operating loss
8,787
(12,542)
(3,755)
(3,051)
(106)
(598)
-
(3,755)
(18)
(3,773)
(945)
(4,718)
2018
£’000
(3,051)
(316)
210
-
-
-
(598)
(3,755)
9,267
(14,630)
(5,363)
(1,031)
(3,380)
(669)
(283)
(5,363)
(701)
(6,064)
116
(5,948)
2017
£’000
(1,031)
(492)
-
(204)
(637)
(2,330)
(669)
(5,363)
1 Costs relate to the fees associated with the aborted acquisition of Newbridge.
2 Movement in deferred consideration relating to the final Towry payment.
7
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 STRATEGIC REPORT CONTINUED
STATEMENT OF FINANCIAL POSITION
At 31 December 2017 the Group had drawn
£10.4m under its debt facilities. On 29 May
2018, £7.0m of the drawn facilities, inclusive
of interest and fees, were converted into KHL
ordinary shares further strengthening the
Group’s financial position.
On 7 June 2018, the Group announced
its decision not to pursue the Newbridge
acquisition. The remainder of the drawn facilities
were repaid to the lender, leaving the Group
debt-free, with net assets and a strong cash
position. This allowed the business to continue
to restructure and pursue its stated growth
strategy.
On 2 August 2018, Astoria Investments
subscribed £1.3m cash for new ordinary shares
further strengthening the Group’s cash and
financial position.
KEY PERFORMANCE INDICATORS (“KPIs”)
A review of the Group’s business and an
indication of likely future developments are
contained in the Chairman and Group Chief
Executive Officer Statement. The Group’s
key performance indicators are highlighted
below.
Assets under
management
and advice
at 31 December
Revenue
(£’000)
Core adjusted loss
(£’000)
KWWP
recurring revenue
(percentage of total)
Number of
employees
2018
2017*
£1,649m
£1,641m
£8,787
£9,267
-£3,051
-£1,031
88%
79%
91
93
*Restated to exclude the results of discontinued
operations.
KEY RISKS AFFECTING THE BUSINESS
There are a number of potential risks and
uncertainties that could have an impact on the
performance of the Group and Company.
Whilst there are other risks identified (and
approved by the Board in terms of their
management through its systems and controls)
in the Company’s documented risk management
framework, the key risks include:
Operational risk
This is defined as the risk of loss arising from
inadequate or failed internal processes, people,
systems or external events. The Group has
embedded a risk management framework that
identifies and assesses risks in order to manage
and mitigate them in an efficient manner. The
management of these risks is disclosed in the
corporate governance statement in this report.
The Group in its current form is relatively young
and has been loss making since its inception,
which is a reflection of the cost of building a
team and infrastructure to support the business.
Consequently, the business expects its future
growth to enhance operating margins whilst
appreciating the risk that if this growth is not
delivered then the business strategy will need
to be reviewed.
Liquidity risk
The Group maintains a mixture of cash and
cash equivalents designed to meet the Group’s
operational and trading activities. On the basis
of its detailed forecasts and plans, the Group
is confident it has sufficient liquidity for the
foreseeable future.
Solvency risk
The Directors understand the risk of not being
able to meet the long term and short term
obligations of the business, especially with
regards to its capital requirements. In order
to mitigate this risk the Group’s finance team
analyses cash flow on a regular basis and has
implemented strong internal controls so that
all outgoings are budgeted for. The Company
itself has robust plans in place that will enable
it to bring in new capital and restructure the
existing capital base if forecasted targets are not
achieved and additional capital is required.
8
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
Key personnel dependency
The Group’s performance is largely dependent
on its current and future management team.
The loss of a significant number of existing
Directors or key employees or a failure to recruit
additional Directors and/or Senior Executives
could, therefore, significantly reduce the Group’s
ability to make successful acquisitions or
effectively manage the Group and its operations.
The Group manages this risk through the use
of standard contracts with relevant restrictive
covenants, where required, supported by an
experienced Human Resources department.
Future performance of the Group cannot be
guaranteed
There is no certainty and no representation or
warranty is given by any person that the Group
will be able to achieve any returns referred to
in this document. The financial operations of
the Group may be adversely affected by general
economic conditions, by conditions within the
UK financial services market generally or by the
particular financial condition of other parties
doing business with the Group. Historically, the
performance of the assets has been good and is
under constant review by the firms experienced
Investment Management Committee.
Prospective acquisitions may fail to deliver
expected performance
There can be no guarantee that suitable
companies or businesses will be available for
the Group to successfully identify and acquire in
the future. The wealth management sector has
a number of large businesses operating within
it, together with many of medium size and a
substantial number of small operations. The
Group therefore will face competition to acquire
other operations. A number of competitors
are larger and have greater resources than
Kingswood and may prevent the successful
implementation of the Group’s business
plan. The Group has a strong, experienced
management team, all of whom have experience
in working with growing acquisitive businesses,
which allows for robust post acquisition
integration plans to be implemented.
Future funding requirements
Funding may be required in the future to
implement the Group’s strategy. The Group
may attempt to raise additional funds through
equity or debt financings or from other sources
to implement this strategy. Any additional equity
financing may be dilutive to holders of ordinary
shares and any debt financing, if available, may
require restrictions to be placed on the Group’s
future financing and operating activities. The
Group may be unable to obtain additional
financing on acceptable terms or at all if market
and economic conditions, the financial condition
or operating performance of the Group or
investor sentiment (whether towards the Group
in particular or towards the market sector in
which the Group operates) are unfavourable.
The Group’s inability to raise additional funding
may hinder its ability to implement its strategy,
grow in the future or to maintain its existing
levels of operation. The Group’s experienced
management team and Board have been
successful in the past at raising equity and
debt finance. There are robust plans in place to
bring in new capital and restructure the existing
capital base if required.
Regulatory risk
Regulatory risk is the risk that the regulated
entities fail to comply with any of the
regulations set by the various regulatory bodies
that each company operates under. The Group
is engaged in activities which are regulated
by the Financial Conduct Authority (“FCA”) in
the UK and the Financial Services Conduct
Authority (“FSCA”) in South Africa. The Group
may, therefore, be required from time to time
to review and update its regulatory permissions
and the status of its authorised persons to
ensure that its existing and new activities, as
they develop, are consistent with the Group’s
regulatory permissions including complying
with Senior Managers Certification Regime as
it takes effect in 2019. Failure to do so could
lead to public reprimand, the imposition of fines,
the revocation of permissions or authorisations
and/or other regulatory sanctions, any of which
could lead to adverse publicity and reputational
damage and could have a material adverse
effect on the continued conduct of the Group’s
business. There may, in the future, be changes
to, or new laws and regulations that govern the
operations of the Group. Kingswood cannot
predict the full effect that any proposed or
future law or regulation may have on the
financial condition or results or operations of
the Group. It is possible that the Group may be
adversely affected by changes in the applicable
laws or regulations.
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
9
The Group today has
23 investment managers
and wealth planners.
Our plan over the
next three years is to
substantially grow
this number, both
organically and
through acquisition.
10
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
STRATEGIC REPORT CONTINUED
Key to managing this risk is:
1. Adopting a robust “top down” system of
risk management headed by the Risk and
Compliance committee which is chaired by a
highly experienced, Non-Executive Director.
The Committee meets in person every
quarter and on an ad-hoc basis in between.
The heads of each operating subsidiary
attend all Committee meetings along with
senior members of the Group’s finance
function.
2. A Board comprising five Non-Executive
Directors that bring significant business
expertise in the financial services sector,
enhancing an independent and balanced
decision-making process, particularly around
regulatory matters.
3. An effective risk and compliance team
handling day to day management of
regulatory risk for the Group and monitoring
of its business to ensure compliance with the
rules of the Financial Reporting Council, the
Financial Conduct Authority and the London
Stock Exchange.
Stock market conditions
The Group’s business will be partially dependent
on market conditions. Adverse market
conditions may have a significant negative effect
on the Group’s operations through reducing the
assets under management.
Impact of Brexit
The continuing Brexit uncertainty is being
closely monitored by Board and management.
From a regulatory viewpoint, minimal impact
is expected given the Group’s business and
client base is predominantly UK based. Market
uncertainty around Brexit continues to have an
impact on financial markets and consequently
client valuations and performance will likely
continue to experience volatility until a clear
Brexit plan is forthcoming. As a Group, we have
for over 18 months now adopted a conservative
approach, seeking to manage downside
protection across client portfolios in these
challenging markets.
Approved by the Board
Kenneth ‘Buzz’ West
Chairman
12 April 2019
11
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 THE BOARD
Kenneth ‘Buzz’ West
Non-Executive
Chairman
Gary Wilder
Group Chief Executive
Officer
Jonathan Massing
Non-Executive Deputy
Chairman
Patrick Goulding
Group Chief Financial
Officer & Chief
Executive Officer
(subsidiaries)
KENNETH ‘BUZZ’ WEST
Non-Executive Chairman
Buzz is Non-Executive Chairman of the Board
and is highly experienced in the financial
services arena having held numerous board
positions in addition to being Founder and
Chairman of the AIM-listed wealth manager
Ashcourt Rowan. Buzz sits on the Board of the
Toronto listed Auxico Canada Inc. He is currently
an advisor to several high-tech companies and
also holds the Chair at Blackmore Group Ltd.
With a strong entrepreneurial background,
Buzz brings a track record of achieving success
for shareholders and as Chairman he led major
loss adjustors GAB Robins from a management
buyout to successful trade sale. He uses his
experience in both wealth management and
the AIM market to lead the Board and drive
Kingswood’s strategic direction.
GARY WILDER
Group Chief Executive Officer
Gary is a Chartered Accountant and a graduate
of the Cass Business School, University of
London with over 30 years experience in
pan European private equity and real estate
particularly in the area of investment, capital
raising, structuring, debt financing and asset
management. He is the co founder of Kingswood
Property Finance Limited Partnership where he
made a series of long-term strategic investments
in financial services. Gary’s key responsibilities
include building strategic relationships with
new and existing investors, bankers, financial
advisers and directing capital raising efforts to
the growth and expansion of the platform.
JONATHAN MASSING
Non-Executive Deputy Chairman
Jonathan brings wide ranging experience
to the Board, in particular in the area of
corporate finance and acquisitions. A Chartered
Accountant, he has a strong background in the
provision of commercial and corporate finance
advice, including management buyouts; raising
venture capital; resolving shareholder disputes;
and advising on private business valuations.
He has extensive experience in the sale and
acquisition of private companies and also
provides advice on debt structures and working
capital facilities. He originally founded the
City-based advisory firm Kingswood in 1993,
and in 1998 he set up Kingswood Investment
Partners as a private equity investor. He is also a
founder partner of Kingswood Property Finance
Limited Partnership, which has developed a long
and successful track record in providing finance
to entrepreneurial and fast-growing businesses.
PATRICK GOULDING
Group Chief Financial Officer & Chief Executive
Officer (subsidiaries)
Patrick is a Chartered Accountant with more
than 25 years experience in strategy, finance
and operational roles in the global financial
services industry including senior roles at
Morgan Stanley, Lend Lease, ING and Schroders
in the US, Australia and Europe. Patrick works
with the senior executive team to manage the
business on a day to day basis to ensure financial
and other performance targets are met. Patrick
is a member of the Executive and Investment
Committees as well as serving on the Audit and
Risk & Compliance Committees.
12
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 Graydon Butler
Group Chief Operating
Officer
Jonathan Freeman
Non-Executive Director
David Hudd
Non-Executive Director
Darryl Kaplan
Non-Executive Director
GRAYDON BUTLER
Group Chief Operating Officer
Graydon graduated from Southampton
University and prior to joining Kingswood
served as head of operations for Moor
Park Capital Partners, a real estate private
equity business, with a mandate to build an
operations team which at its peak held over
£2.5bn of commercial real estate assets under
management. Graydon leads Kingswood’s
operations and support functions and is a
member of the Executive Committee.
JONATHAN FREEMAN
Non-Executive Director
Jonathan chairs the Risk & Compliance
Committee and the Audit Committee and is also
a member of the Remuneration Committee. He
is a seasoned corporate financier and company
director with extensive experience of listed
companies, financial services and FCA regulated
entities. This experience is important to the
Group as it is quoted on AIM and subsidiary
entities are regulated by the FCA in the UK.
Jonathan is also the senior independent
Non-Executive Director of Futura Medical
plc and chairs their Audit and Remuneration
Committees, is also Non-Executive Chairman of
PhotonStar LED Group plc and a Non-Executive
Director of Braveheart Investment Group plc.
DAVID HUDD
Non-Executive Director
David chairs the Remuneration Committee. He
is a capital markets specialist who brings to the
Board over 35 years’ experience of structuring
and advising on a wide range of financings. After
working at another City law firm and spending
over nine years in investment banking, David
joined global law firm Hogan Lovells as its first
dedicated capital markets partner in London in
1994. He currently serves as Deputy CEO of
Hogan Lovells.
DARRYL KAPLAN
Non-Executive Director
Darryl has experience across a range of
disciplines having worked in the fields of law,
corporate finance (including investor relations)
and investments in South Africa and Australia.
He has accumulated a broad range of experience
and expertise highly relevant to Kingswood’s
business and governance. Darryl serves as CEO
of Astoria Investments Limited, a significant
shareholder in the Company. Darryl was
educated in South Africa and holds Bachelor of
Business Science and Bachelor of Law degrees
from the University of Cape Town.
13
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 DIRECTORS’ REPORT
The Directors present their annual report
on the affairs of the Group, together with
the audited financial statements, for the
year to 31 December 2018. The Strategic
Report is on page 6 and the Corporate
Governance Statement is set out from
page 18 onwards. All financial information
given in this Directors’ Report is taken
solely from the statutory results prepared
in accordance with International Financial
Reporting Standards as adopted by the
EU (IFRS).
PRINCIPAL ACTIVITIES
The principal activities of the Group are the
operation of a wealth management business
providing wealth planning and investment
management services.
FINANCIAL RISK MANAGEMENT OBJECTIVES
AND POLICIES
Information about the Group’s risk management
is included in the Strategic Report.
RESULTS AND DIVIDENDS
The Group’s performance during the year is
discussed in the Strategic Report on pages 6 to
11. The results for the year are set out in the
audited Statement of Comprehensive Income on
page 34. The Directors do not recommend the
payment of a dividend for the year ended
31 December 2018 (31 December 2017: £nil).
CAPITAL STRUCTURE
Details of KHL’s issued share capital, together
with details of the movements in the number of
shares during the year, are shown in note 30.
On 29 May 2018, £7.0m of the Group’s drawn
debt facilities were converted into 42,801,341
Ordinary 5p shares and on 2 August 2018
£1.3m in cash was subscribed by Astoria
Investments Limited for 7,920,000 Ordinary
5p shares, further strengthening the Group’s
financial position.
CAPITAL MANAGEMENT
The primary objective of the Company’s
capital management strategy is to ensure that
it maintains a strong capital structure in order
to support the development of its business,
to maximise shareholder value and to provide
benefits for its other stakeholders. Details of
the management of this risk can be found in the
Strategic Report.
In addition, KW Investment Management,
KW Trading Services, KW Wealth Planning
and Marchant McKechnie Financial Advisers
(acquired 1 October 2018) are regulated by the
FCA and have to comply with the FCA capital
adequacy rules and regulations.
DIRECTORS
The names and a short biography of the
Directors of the Company are set out on
pages 12 and 13. Darryl Kaplan was appointed
on 1 February 2018, Jonathan Freeman on
18 June 2018, David Hudd on 29 June 2018,
Patrick Goulding on 8 January 2019 and
Graydon Butler on 28 February 2019, further
bolstering the quality and depth of the Board.
Marianne Ismail resigned effective 16 January
2019 and Gary Wilder, a serving Non-Executive
Director, was appointed Group Chief Executive
Officer effective 17 January 2019.
With regard to the appointment and
replacement of Directors, the Company
is governed by its Articles of Association,
The Companies (Guernsey) Law, 2008 and
related legislation. The Articles themselves
may be amended by special resolution of the
Company’s shareholders. The Group also applies
the Quoted Companies Alliance Corporate
Governance Code.
The Company’s Articles of Association provide
that generally one third (rounded down to the
nearest whole number) of the Board of Directors
are required to retire by rotation, save for
Directors who are appointed during the year,
who must stand down and offer themselves for
re-election at the next occurring Annual General
Meeting (“AGM”) of the Group. The Directors
who will offer themselves for re-election will
be announced in conjunction with the AGM
announcement, expected to be held in early
September.
14
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 DIRECTORS’ INTERESTS
The Directors who held office at 31 December 2018 had the following beneficial interests in the
ordinary shares of KHL as at 31 December 2018:
NAME OF DIRECTOR
Kenneth ‘Buzz’ West
Marianne Ismail
Gary Wilder*
Jonathan Massing*
Astoria Investments Limited**
Darryl Kaplan**
David Hudd
Jonathan Freeman
NUMBER OF
ORDINARY SHARES HELD
2018
NUMBER OF
ORDINARY SHARES HELD
2017
3,183,793
1,050,000
56,600,368
56,600,368
28,059,272
77,781
-
-
2,062,581
-
56,600,368
56,600,368
19,139,272
-
-
-
* Jonathan Massing and Gary Wilder’s shares relate to KPI (Nominees) Limited’s holding in which both have a
beneficial shareholding.
** Darryl Kaplan is Astoria Investment Limited’s representative on the Board.
No Directors who held office at 31 December 2018 had share options over the ordinary shares of
the Company.
EMPLOYEES
It is the Company’s policy to involve employees in the day to day operation of the Group’s business
and ensure that matters which could concern them, including the Group’s strategic objectives and
performance are communicated in an open and timely fashion. The Directors seek to achieve this
through Management Committee meetings, subsidiary board meetings, e-mail communication and
informal staff communication.
The Group is committed to an equal opportunity policy for all prospective and existing employees
such that selection takes place on the basis of ability, qualifications and suitability for the job,
irrespective of background, age, race, gender or sexual orientation. The Group’s executives, senior
management and employees are required to support and implement all such policies in their daily
work ethic in order to maximise the potential of its entire workforce.
Employees who become disabled during their employment with the Group will be retained and
retrained where possible.
FUTURE DEVELOPMENTS AND EVENTS AFTER THE STATEMENT OF FINANCIAL
POSITION DATE
A review of the Group’s business and an indication of likely future developments are contained in
the Strategic Report and the Chairman and Chief Executive Officer’s Statement.
15
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 DIRECTORS’ REPORT CONTINUED
SUBSTANTIAL SHAREHOLDINGS
On 26 February 2019, the Group had been notified, in accordance with Chapter 5 of the Disclosure
and Transparency Rules, of the following voting rights as a shareholder of KHL of 3% or more of the
issued share capital:
NAME OF SHAREHOLDER
KPI (Nominees) Limited
Astoria Investments Limited
Monecor (ETX Capital)
Anthony Lyons (Julius Baer PB)
Michael Mechas
All shareholdings stated above are beneficial.
PERCENTAGE OF VOTING
RIGHTS AND ISSUED
SHARE CAPITAL
36.55%
18.12%
6.26%
3.87%
3.67%
NUMBER OF
ORDINARY
SHARES
56,600,368
28,059,272
9,696,969
6,000,000
5,682,610
DIRECTORS’ INDEMNITIES
The Group has made qualifying third party indemnity provisions for the benefit of its Directors which
were made during the year and remain in force at the date of this report.
GOING CONCERN
The Financial Reporting Council issued a guidance note in April 2016 requiring all companies to
provide fuller disclosures regarding the Directors’ assessment of going concern. The Group’s business
activities, together with the factors likely to affect its future development and liquidity and capital
position, are reviewed under the key risks affecting the business section as set out in the Strategic
Report on page 6.
In the year ended 31 December 2018, the Group made a loss before tax on continuing operations of
£3.8m (2017: loss of £6.1m), had a net asset position of £25m (2017: £21m), with net cash used in
operating activities of £3.9m (2017: net cash used of £3.0m).
While the Group made further losses in 2018, a significant portion of the loss (£0.9m) was as a result
of discontinued operations. During the year, the Group converted £7.0m of its outstanding facilities
to equity and repaid the remaining outstanding balances. This has not only significantly strengthened
the Group’s financial position, but has the left the Group with cash reserves. The Group also has
access to £4.9m under its debt facility.
Given this, the Directors have reviewed the cash flow forecast for the next 12 months and
are satisfied that the Group can continue to prepare these financial statements on the going
concern basis.
16
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 AUDITOR
Each of the persons who are Directors of KHL
at the date of approval of this annual report
confirms that:
• So far as the Director is aware, there is no
relevant audit information of which the
Group’s auditor is unaware; and
• The Director has taken all the steps that he/
she ought to have taken as a Director in order
to make himself/herself aware of any relevant
audit information and to establish that the
Group’s auditor is aware of that information
This confirmation is given and should be
interpreted in accordance with the provisions of
s249 of The Companies (Guernsey) Law, 2008.
On 1 February 2019 Moore Stephens LLP
merged its practice with BDO LLP and resigned
as auditors with effect from that date. BDO LLP
was appointed as auditors with effect from
1 February 2019 and a resolution for their
re-appointment will be proposed at the AGM.
Approved by the Board of Directors and signed
on behalf of the Board on 12 April, 2019.
Kenneth ‘Buzz’ West
Chairman
Our goal is to provide current and
new clients with a full suite of
services and products designed to
protect their wealth and provide
sustainable and growing returns.
17
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 CORPORATE
GOVERNANCE
STATEMENT
The Directors of Kingswood Holdings
Limited recognise the importance of sound
corporate governance and have chosen
to apply the Quoted Companies Alliance
Corporate Governance Code (“the QCA
Code”). The QCA Code takes key elements
of good governance and applies them in a
manner that is workable for the different
needs of growing companies and was
developed by the Quoted Companies
Alliance as an alternative corporate
governance code applicable to AIM
companies.
Jonathan Freeman, in his capacity as a Non-
Executive Director, has assumed responsibility
for ensuring that the Group has appropriate
corporate governance standards in place and
that these requirements are followed and
applied within the Group as a whole. The QCA
Code corporate governance arrangements
that the Board has adopted are designed to
ensure that the Group delivers long term value
to its shareholders and that shareholders have
the opportunity to express their views and
expectations for the Group in a manner that
encourages open dialogue with the Kingswood
Holdings Limited Board.
The Directors have structured the relationship
between the Board of the Group Holding
Company, Kingswood Holdings Limited and the
individual subsidiary boards which represent KW
Investment Management Limited, KW Wealth
Planning Limited, KW Trading Services Limited
and Marchant McKechnie Independent Financial
Advisers Limited (the operational companies
which are regulated by the FCA).
The Company Board has the responsibility to
set strategy for the Group, and monitor the
performance of the operating subsidiaries. The
Subsidiary Boards have the responsibility to
oversee, govern and direct the operations of the
subsidiary entities in line with relevant rules and
regulations and overall Group strategy.
The respective Boards have established various
committees, each of which has written terms
of reference. The principal committees are the
Audit, Nomination & Remuneration, and Risk &
Compliance Committees.
The principal methods of communicating our
application of the QCA Code are this Annual
Report and through our website. The QCA Code
sets out 10 principles and more details on how
Kingswood Holdings Limited complies with the
principles and disclosures of the QCA Code
can be found at www.kingswood-group.com/
corporate-governance.
CORPORATE GOVERNANCE STRUCTURE
The post of Non-Executive Chairman is held by
Kenneth ‘Buzz’ West. The Board considers that
the Non-Executive Directors provide a strong
and consistent independence to the Executive
Board. None of the Non-Executive Directors
are involved with the day-to-day management
of the Group and are free from any business
or other relationship which could materially
interfere with their judgement. Biographies of
the Directors are contained on page 12 and 13.
During the year ended 31 December 2018, the
Non-Executive Chairman was responsible for
leadership of the Board, creating conditions
for overall Board and individual Director
effectiveness and developing the Group’s
strategy. The Group Chief Executive Officer was
responsible for running the Group’s business
day to day and, subject to Board agreement,
the implementation of strategy. After Marianne
Ismail’s resignation in January 2019, Gary Wilder
assumed the responsibilities of Group Chief
Executive Officer.
The minutes of scheduled meetings of the Board
are taken by the Group Chief Executive Officer’s
personal assistant. In addition to constituting
records of decisions taken, the minutes reflect
questions raised by the Board members in relation
to the Group’s business and, in particular, issues
raised from the reports included in the Board
or Committee papers circulated prior to the
relevant meeting. Unresolved issues (if any) are
recorded in the minutes.
18
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
Corporate Governance and the management of the Group’s resources is achieved by regular review
through meetings and conference calls, management meetings, monthly management accounts,
presentations and external consultant reports and briefings.
INDEPENDENCE OF BOARD DIRECTORS
The Board considers that all Non-Executive Directors bring an independent judgement. The QCA
code recommends there should be at least two independent Non-Executive Directors that sit on the
Board. Currently the Board has three such independent Directors, Jonathan Freeman, David Hudd
and Kenneth ‘Buzz’ West. The Directors commit the necessary time required to fulfil their duties.
BOARD COMPOSITION
During the year under review, the Board comprised:
• Kenneth ‘Buzz’ West (Non-Executive Chairman)
• Gary Wilder (appointed Group Chief Executive Officer effective 17 January 2019)
• Jonathan Massing (appointed Deputy Non-Executive Chairman effective 26 March 2019)
• Darryl Kaplan (Non-Executive Director appointed 1 February 2018)
• Jonathan Freeman (Non-Executive Director appointed 18 June 2018)
• David Hudd (Non-Executive Director appointed 29 June 2018)
Post year end, a number of further Board changes were made as follows:
• Patrick Goulding (Group Finance Director appointed 8 January 2019)
• Graydon Butler (Executive Director appointed 28 February 2019)
• Marianne Ismail (Group Chief Executive Officer resigned 16 January 2019)
The full Board meets for scheduled meetings bi-monthly. In the year under review the full Board
formally met seven times throughout the year.
Meetings of the full Board are held at the Group’s offices in London or via conference call. In person
meetings of the full subsidiary boards take place at least bi-monthly.
The number of meetings of the Board (excluding sub committees) together with individual Director
attendance is as follows:
DIRECTOR
Kenneth ‘Buzz’ West
Gary Wilder
Jonathan Massing
Darryl Kaplan
Jonathan Freeman
David Hudd
AUDIT
COMMITTEE
NOMINATION &
REMUNERATION
COMMITTEE
RISK
COMMITTEE
2/2
-
-
-
2/2
-
2/2
2/2
-
-
-
-
6/6
-
-
-
6/6
-
BOARD
7/7
6/7
5/7
5/7
3/3
3/3
The Board has approved a formal schedule of matters reserved for consideration and decision. These
can be divided into a number of key areas, including but not limited to:
• Group strategy and transactions
• Financial reporting (including approval of interim and final financial statements)
• The Group’s finance, banking and capital structure arrangements
• Regulatory matters (including the issue of shares, communication and announcements to the market)
19
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 CORPORATE GOVERNANCE STATEMENT CONTINUED
• Approval of the Group’s compliance and risk
management and control (as recommended
by the Audit and Risk and Compliance
Committees)
• Approval of policies on remuneration
(as recommended by the Nomination &
Remuneration Committee);
• The constitution of the Board, including its
various Committees, and succession planning
(as recommended by the Nomination &
Remuneration Committee)
• Approving the Group’s policies in
general in respect of, inter alia, Health &
Safety, Corporate Responsibility and the
environment; and
• Any Human Resource issues or concerns
Matters requiring Board and Committee
approval are generally the subject of a written
proposal by the Executive Directors to the
Board, together with supporting information,
as part of the Board or Committee papers
circulated prior to the relevant meeting. All
Directors receive appropriate information on
the Group comprising a financial report and
other relevant paperwork from each of the
responsible executives and other members of
senior management before each scheduled
Board meeting. The Executive Directors or
other invited members of senior management
present reports on key issues including strategy,
risk, compliance, finance, operations and legal
matters at each meeting.
The Board recognises the importance of
on-going professional development and
education, particularly in respect of new laws
and regulations to the business of the Group.
Such training may be obtained by the Directors
individually through the Group. Directors also
maintain their skillsets through their day-to-day
roles and may additionally obtain independent
professional advice at the Group’s expense.
Third party Directors’ and Officers’ liability
insurance at a level considered appropriate for
the size and nature of the Group’s business is
maintained.
The terms and conditions of appointment of
each Director are available for inspection at the
Group’s head office in London during normal
business hours. The letters of appointment of
each of the Non-Executive Directors specifies
the anticipated level of time and commitment
including, where relevant, additional
responsibilities in respect of the Audit, Risk &
Compliance and Nomination & Remuneration
Committees. Details of other material
commitments of the Non-Executive Directors
are disclosed to the Board and a register is
maintained by the Company Secretary.
SUBSIDIARY BOARDS
Each of the subsidiary companies in the Group
has its own independent board which meets
once a month to discuss key matters pertaining
to each individual company. The Group Chief
Executive Officer sits on each of these individual
boards.
BOARD COMMITTEES
The Board has established various committees,
each of which has written terms of
reference. These are the Audit, Nomination
& Remuneration, and Risk & Compliance
Committees. The terms of reference for each
Committee are available for viewing at the
Group’s London office.
AUDIT COMMITTEE
The Audit Committee is chaired by Jonathan
Freeman. The Audit Committee is responsible for
providing formal and transparent arrangements
for considering how to apply suitable financial
reporting and internal control principles having
regard to good corporate governance and for
monitoring the external audit function including
the cost-effectiveness, independence and
objectivity of the Group’s auditor.
The independence and effectiveness of the
external auditor is reviewed annually. The
possibility of undertaking an audit tender
process is considered on a regular basis.
The Audit Committee meets at least once a year
with the auditors to discuss their independence
and objectivity, the Annual Report, any audit
issues arising, internal control processes,
appointment and fee levels and any other
appropriate matters. The fees in respect of audit
services are set out in note 10 of the Notes
to the Group Financial Statements. Fees for
non-audit services paid to the auditors are not
deemed to be of such significance to them as
to impair their independence and therefore the
Audit Committee considers that the objectivity
and independence of the auditors
is safeguarded.
20
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 INTERNAL CONTROL
The Board is responsible for establishing and
maintaining the Group’s system of internal
control and for reviewing its effectiveness.
The system of internal controls is designed to
manage, rather than eliminate, the risk of failure
of the achievement of business objectives and
can only provide reasonable but not absolute
assurance against material misstatement or loss.
NOMINATION COMMITTEE
The Nomination Committee is chaired
by Kenneth ‘Buzz’ West. The Nomination
Committee is responsible for considering Board
appointments, reviewing Board structure, size
and composition and identifying the need for
Board appointments by reference to the balance
of skills, knowledge and experience on the
Board and the scale of the Group.
The Audit Committee continues to monitor
and review the effectiveness of the system
of internal control and report to the Board
when appropriate with recommendations. The
annual review of internal control and financial
reporting procedures did not highlight any issues
warranting the introduction of an internal audit
function. It was concluded, given the current
size and transparency of the operations of the
Group, that an internal audit function was not
required. The main features of the internal
control system are outlined below:
• A control environment exists through the
close management of the business by the
Executive Directors. The Group has a defined
organisational structure with delineated
approval limits. Controls are implemented and
monitored by the Executive Directors;
• The Board has a schedule of matters
expressly reserved for its consideration
and this schedule includes acquisitions and
disposals, major capital projects, treasury and
risk management and approval of budgets;
• The Group utilises a detailed budgeting and
forecasting system. Detailed budgets are
prepared annually by the Executive Directors
before submission to the Board for approval.
Forecasts are updated to reflect changes in
the business and are monitored by the Board
including future cash flow projections. Actual
results are monitored against annual budgets
in detail with variances highlighted to the
Board;
• Financial risks are identified and evaluated
for consideration by the Board and senior
management; and
• Standard financial control procedures are
operated throughout the Group to ensure
that the assets of the Group are safeguarded
and that proper accounting records are
maintained.
There was one Nomination Committee meeting
held during the financial year ended 31
December 2018.
REMUNERATION COMMITTEE
The Remuneration Committee is chaired by
David Hudd and also comprises Jonathan
Freeman. The Remuneration Committee is
responsible for establishing a formal and
transparent procedure for developing policy
on Executive remuneration and to set the
remuneration packages of individual Directors.
This includes agreeing with the Board the
framework for remuneration of the Group Chief
Executive Officer, all other Executive Directors,
the Company Secretary and such other members
of the executive management of the Group as it
is designated to consider.
It is also responsible for determining the total
individual remuneration packages of each
Director including, where appropriate, bonuses,
incentive payments and share options. No
Director will play a part in a decision regarding
their personal remuneration.
The Board considers the composition of the
Committee appropriate given the size of the
Group. No Director has a service contract for
longer than 12 months.
In March 2019, the Board approved combining
the Nomination and Remuneration Committees
into one to be chaired by David Hudd and also
comprising Jonathan Freeman.
REMUNERATION
The Board retains responsibility for overall
remuneration policy. Executive remuneration
packages are designed to attract and retain
executives of the necessary skill and calibre to
run the Group. The Remuneration Committee
21
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 CORPORATE GOVERNANCE STATEMENT CONTINUED
recommends to the Board the remuneration
packages by reference to individual performance
and uses the knowledge and experience of
the Committee members, published surveys
relating to AIM companies, the financial services
industry and market changes generally. The
Nomination & Remuneration Committee has
responsibility for recommending any long-term
incentive schemes.
The Board determines whether or not Executive
Directors are permitted to serve in roles with
other companies. Such permission would only
be granted on a strictly limited basis, where
there are no conflicts of interest or competing
activities and providing there is not an adverse
impact on the commitments required to the
Group. Earnings from such roles would be
required to be disclosed to the Committee
Chairman.
There are four main elements of the
remuneration package for Executive Directors
and staff:
1. Basic salaries and benefits in kind
Basic salaries are recommended to the Board
by the Remuneration Committee, considering
the performance of the individual and the
rates for similar positions in comparable
companies. Benefits in kind, comprising death
in service cover are available to all staff and
Executive Directors. Benefits in kind are non-
pensionable.
2. Share options
KHL operates approved share option
schemes for key personnel to motivate those
individuals through equity participation.
Exercise of share options under the schemes
is subject to specified exercise periods
and compliance with the AIM Rules. The
schemes are overseen by the Remuneration
Committee which recommends to the Board
all grants of share options based on the
Nomination & Remuneration Committee’s
assessment of personal performance and
specifying the terms under which eligible
individuals may be invited to participate.
The Code refers to the requirement
for the performance related elements
of remuneration to form a significant
proportion of the total remuneration
package of Executive Directors and should
be designed to align their interests with
those of shareholders. In this re-structuring
and development phase of the Group the
Nomination & Remuneration Committee
currently considers that the best alignment of
these interests is through the continued use
of incentives for performance through the
award of share options.
3. Bonus scheme
The Group has a bonus scheme for staff and
Executive Directors which is specific to each
individual and the role performed by that
individual within the Group.
4. Pension contributions
The Group pays a defined contribution to
the pension schemes of Executive Directors
and other employees. The individual pension
schemes are private and their assets are held
separately from those of the Group.
POLICY ON NON-EXECUTIVE
REMUNERATION
Non-Executive Directors each receive a fee for
their services as a Director which is approved
by the Board, mindful of the time commitment
and responsibilities of their roles and of current
market rates for comparable organisations and
appointments. Non-Executive Directors are also
reimbursed for travelling and other incidental
expenses incurred on Group business.
The Board encourages the ownership of
shares in KHL by Executive and Non-Executive
Directors alike and in normal circumstances
does not allow Directors to undertake dealings
of a short term nature.
The Board considers ownership of KHL’s shares
by Non-Executive Directors as a positive
alignment of interest with shareholders. The
Board will periodically review the shareholdings
of the Non-Executive Directors and will seek
guidance from its advisors if, at any time, it is
concerned that the shareholding of any Non-
Executive Director may, or could appear to,
conflict with their duties as an independent
Non-Executive Director of KHL. Directors’
emoluments, including Directors’ interest in
share options over the Company’s share capital,
are set out in the Director’s Report (page 14)
and the Director’s Remuneration Report
(page 26).
22
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 Kingswood believes
in loyalty and working
as a team, allowing
lasting relationships
of trust to build.
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
23
CORPORATE GOVERNANCE STATEMENT CONTINUED
RISK AND COMPLIANCE COMMITTEE
The Board has appointed a Risk & Compliance
Committee comprising an independent Non-
Executive Director, the Executive Directors of
KHL, the FCA Compliance Oversight function
holder (CF10) and the FCA CASS Operational
Oversight function holder (CF10a) responsible
for the compliance of each operating subsidiary,
along with various Directors of the subsidiary
boards. The Committee’s Chairman is Jonathan
Freeman. The Committee generally convenes
every quarter and the Board considers the
composition of the Committee appropriate given
the size of the Group’s business. During the year
under review, the Committee met formally a
total of six times.
The Committee is authorised and empowered
by the Board to, inter alia, provide oversight and
advice to the Board in relation to current and
potential risk exposure and future compliance/
risk strategy, review the Group’s risk profile
relative to current and future risk appetite,
monitor risk and make recommendations
to the Board concerning all elements of the
Group’s compliance with the FCA’s rules and
those of the London Stock Exchange, make
recommendations to the Board in respect of
the Group’s risk appetite and any associated
authorities and limits and oversee the Group’s
risk management framework to ensure effective
risk identification and management throughout
the Group.
Certain subsidiaries in the Group are regulated
by the FCA Rules and as such are required to
ensure that they maintain sufficient regulatory
capital at all times. The Group has developed
a risk management framework that dovetails
into its Internal Capital Adequacy Assessment
Process (“ICAAP”). The ICAAP is used to ensure
that the Group has sufficient capital in place to
immediately cover risks identified. The ICAAP is
regularly reviewed and updated.
In addition, the Group utilises various other
means to ensure that it is in compliance with the
rules set out by the FCA and operates within the
appropriate risk limits set by the Board. These
include a compliance manual covering significant
business and operational activities, policies
covering conflicts of interest, insider dealing,
market abuse, personal account dealing and
client acceptance procedures as well as regular
monitoring of market and credit risk. These
matters are the subject of periodic review by the
Risk and Compliance Committee.
RE-ELECTION
Under the Company’s articles of association, all
Directors are subject to election by shareholders
at the AGM following appointment and all
Directors are subject to retirement by rotation
requiring re-election at intervals of no more than
three years.
PERFORMANCE EVALUATION
The Board regularly reviews the composition of
the Board to ensure it maintains the necessary
depth and breadth of skills to sustain the
delivery of the Group’s long-term strategy. The
Board is committed to ensuring it maintains the
necessary distribution of skill, experience and
gender balance.
Evaluations of the Board, the committees
and individual Directors’ are undertaken on
an annual basis in the form of peer appraisal,
questionnaires and discussions to determine
effectiveness and performance. This will include
a review of success in achieving objectives
set during the year and the Board may utilise
the results of the annual evaluation process to
identify training and development needs and
succession planning.
RELATIONSHIP WITH SHAREHOLDERS
AND DIALOGUE WITH INSTITUTIONAL
SHAREHOLDERS
The Non-Executive Chairman and the Group
Chief Executive Officer maintain dialogue
with key shareholders in relation to, inter alia,
strategy and corporate governance issues.
All shareholders will receive the Annual Report
and financial statements and are welcome to
attend the Company’s AGM. The Directors
attend the meeting and are available to answer
questions both formally during the meeting and
informally afterwards.
The collection and analysis of the proxy votes
will be handled independently by the Group’s
registrars. The Chairman of the meeting
announces the results of the proxy votes that
have been lodged after shareholders have voted
on a show of hands. Details of the AGM will
be set out in a notice of the meeting sent to
24
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 all shareholders and clearly displayed on the
Company’s website. All Committee chairmen are,
where possible, available at the AGM. The Non-
Executive Directors are available to shareholders
and may be contacted through the Group Chief
Executive Officer’s office.
The Group’s website at www.kingswood-group.
com is an important source of information for
investors, including information required in
compliance with AIM Rule 26, and is updated
regularly.
CORPORATE CULTURE AND SOCIAL
RESPONSIBILITY
The Board seeks to maintain the highest
standards of integrity in the conduct of
the Group’s operations. An open culture is
encouraged within the Group with regular
communications and meetings with staff
regarding progress where there is open dialogue
and feedback regularly sought.
The Group is committed to conducting its
business in a socially responsible manner and
to respect the needs of employees, investors,
customers, suppliers, regulators and other
stakeholders. The Group is also committed to
being a responsible employer and to promoting
values, standards and policies designed to assist
our employees in their conduct, working and
business relationships.
The most significant impact on the environment
resulting from the Group’s activities is the
emission of greenhouse gases as a result of
running the Group’s offices, associated travel
and the recycling of waste. The Group is
committed to minimising the amount of travel
that its employees undertake and to recycling
as much of the Group’s waste as possible. The
Group will continue to look at ways to act in a
socially responsible manner.
25
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 DIRECTORS’
REMUNERATION
REPORT
BASE SALARY
£
PENSION &
BENEFITS
£
2018
TOTAL
£
2017
TOTAL
£
EXECUTIVE
Marianne Ismail (resigned 16/1/19)
240,000
30,246
270,246
107,332
Gary Wilder
John Morton (resigned 18/9/17)
Simon Ray (resigned 31/12/17)
NON-EXECUTIVE
Kenneth ‘Buzz’ West
Jonathan Massing
Darryl Kaplan (appointed 19/2/18)
Jonathan Freeman (appointed 18/6/18)
David Hudd (appointed 29/6/18)
Kishore Gopaul (resigned 26/6/17)
25,000
-
-
70,927
25,000
25,000
22,385
21,600
-
-
-
-
-
-
-
-
-
-
25,000
5,069
-
-
421,939
401,756
70,927
25,000
25,000
22,385
21,600
69,500
5,069
-
-
-
-
8,800
Aggregate emoluments
429,912
30,246
460,158
1,019,465
Signed on behalf of the Board:
Kenneth ‘Buzz’ West
Chairman
12 April 2019
26
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 DIRECTORS’
RESPONSIBILITIES
STATEMENT
The Directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year.
Under that law the Directors have prepared the
Group Financial Statements in accordance with
International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Under company law the Directors must not
approve the financial statements unless they
are satisfied that they give a true and fair view
of the state of affairs of the Group and of
the Statement of Comprehensive Income of
the Group for that period. In preparing these
financial statements, International Accounting
Standard 1 requires that Directors:
• Properly select and apply accounting policies
• Present information, including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information
• Provide additional disclosures when
compliance with the specific requirements
in IFRSs are insufficient to enable users
to understand the impact of particular
transactions, other events and conditions on
the entity’s financial position and financial
performance; and
• Make an assessment of the Group’s ability to
continue as a going concern.
The Directors are responsible for keeping
proper accounting records that are sufficient to
show and explain the Group’s transactions and
disclose with reasonable accuracy at any time
the financial position of the Group and enable
them to ensure that the financial statements
comply with The Companies (Guernsey) Law,
2008. They are also responsible for safeguarding
the assets of the Group and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Group’s website www.kingswood-group.com.
Legislation in the United Kingdom and Guernsey
governing the preparation and dissemination of
financial statements may differ from legislation
in other jurisdictions.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
• The Financial Statements, prepared in
accordance with International Financial
Reporting Standards as adopted by the
European Union, give a true and fair view
of the assets, liabilities, financial position
and profit or loss of the Company and the
undertakings included in the consolidation
taken as a whole
• The Strategic Report includes a fair review
of the development and performance of the
business and the position of the Company
and the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks and
uncertainties that they face; and
• The Annual Report and Financial Statements,
taken as a whole, are fair, balanced and
understandable and provide the information
necessary for shareholders to assess the
Group’s performance, business model and
strategy.
Signed on behalf of the Board:
Kenneth ‘Buzz’ West
Chairman
12 April 2019
27
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 Facts are important,
permitting calculated
decisions to be made,
and being tenacious
to get it right every
time.
28
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
INDEPENDENT
AUDITOR’S REPORT
To the members of Kingswood
Holdings Limited
OPINION
We have audited the financial statements of
Kingswood Holdings Limited (the ‘Parent’)
and its subsidiaries (the ‘Group’) for the year
ended 31 December 2018 which comprise
the Consolidated statement of comprehensive
income, Consolidated statement of changes
in equity, Consolidated statement of financial
position, Consolidated statement of cash flows,
and notes to the financial statements, including
a summary of significant accounting policies.
The financial reporting framework that has
been applied in the preparation of the financial
statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted
by the European Union.
In our opinion the Group financial statements:
• give a true and fair view of the state of the
Group’s affairs as at 31 December 2018 and
of the Group’s loss for the year then ended;
• have been properly prepared in accordance
with IFRSs as adopted by the European
Union; and
• have been prepared in accordance with the
requirements of The Companies (Guernsey)
Law 2008.
BASIS FOR OPINION
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities
under those standards are further described
in the Auditor’s responsibilities for the audit
of the financial statements section of our
report. We are independent of the Group and
the Parent Company in accordance with the
ethical requirements that are relevant to our
audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied
to listed entities, and we have fulfilled our
other ethical responsibilities in accordance with
these requirements. We believe that the audit
evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
CONCLUSIONS RELATING TO GOING
CONCERN
We have nothing to report in respect of the
following matters in relation to which the ISAs
(UK) require us to report to you where:
• the Directors’ use of the going concern
basis of accounting in the preparation of the
financial statements is not appropriate; or
• the Directors have not disclosed in the
financial statements any identified material
uncertainties that may cast significant doubt
about the Group’s ability to continue to
adopt the going concern basis of accounting
for a period of at least twelve months from
the date when the financial statements are
authorised for issue.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our
professional judgment, were of most significance
in our audit of the financial statements of the
current period and include the most significant
assessed risks of material misstatement
(whether or not due to fraud) we identified,
including those which had the greatest effect
on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts
of the engagement team. These matters were
addressed in the context of our audit of the
financial statements as a whole, and in forming
our opinion thereon, and we do not provide a
separate opinion on these matters.
29
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 INDEPENDENT AUDITOR’S REPORT CONTINUED
KEY AUDIT MATTER
On acquisition of a subsidiary, goodwill arising is
allocated to each of the Group’s cash generating
units (CGUs) and recognised as an asset in the
consolidated statement of financial position.
The Group has determined that it has two
CGUs, being investment management and
wealth planning. The allocation of the goodwill
to the different CGUs requires management
judgement.
At the end of each financial period, the Group
assesses whether there is any indication of
impairment of the goodwill by comparing the
carrying amount, and the recoverable amount,
for each CGU. This assessment will impact the
overall valuation of goodwill.
There is also a risk that goodwill arising from the
acquisition in the year has not been allocated to
the correct CGU.
The recoverable amount of the CGUs
is determined using industry valuation
techniques. This requires management to
make key assumptions and judgements about
the expected return based on assets under
management or revenue multiples.
Because of the assumptions and judgements
that are required by management over this area,
valuation of goodwill has been identified as a
key audit matter.
HOW WE ADDRESSED THE KEY AUDIT MATTER
IN THE AUDIT
We performed the following procedures:
• We reviewed the assessment of the CGUs to
determine the appropriateness, as a whole, to
the Group’s business operations.
• For the newly purchased subsidiary Marchant
McKechnie, we checked the calculation of
goodwill and that it was allocated to the
correct CGU. This was done by applying our
understanding of the subsidiary’s business
and assessing the cash inflows generated
by that subsidiary. We checked that the
cash inflows generated aligned with the
identifiable group of assets of that particular
CGU.
• For the recoverable amount of the CGUs,
we checked that the inputs used in the
calculation were based on current industry
conditions, such as comparing to multiples
achieved by other similar acquisitions. In
addition, for acquisitions that happened
in the past, we challenged management
on whether there was any indication of
impairment by reviewing the client’s business
books acquired to identify if there had been
any drop in assets under management or
client numbers. If such conditions existed,
we obtained evidence and explanations from
management as to why no impairment was
recognised.
• We then considered the Group’s impairment
review, which compared the carrying amount
of goodwill with the recoverable amount
of the CGUs. We obtained a written report
of management’s assessment, checked the
inputs to supporting documentation and
reperformed the calculations.
30
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality in planning
and performing our audit, and in evaluating
the effect of misstatements and omissions
on our audit and on the financial statements.
For the purposes of determining whether the
financial statements are free from material
misstatement we define materiality as the
level of misstatement, including omissions that
could influence the economic decisions of a
reasonably knowledgeable user of the financial
statements.
We determined materiality for the Group
financial statements as a whole to be £754,000
(2017: £626,000) which was determined by
reference to a benchmark of approximately 3%
(2017: 3%) of the consolidated net assets of the
Group. Net assets have been considered the
most appropriate measure as we consider that
this will be of particular interest to the users of
the financial statements.
Performance materiality for the Group financial
statements as a whole was set at £527,800
(2017: £438,200), which was based on 70%
(2017: 70%) of financial statement materiality.
This lower level of materiality is applied in
performance of the audit when determining the
nature and extent of testing applied to individual
balances and classes of transactions. In setting
performance materiality, we had regard to the
financial statement materiality and the risk and
control environment. Where it is assessed that
the audit risk is high in relation to a specific
area or balances, a lower level of performance
materiality has been set ranging between
£176,000 and £527,800.
Whilst materiality for the Group financial
statements as whole was £754,000, each
significant component of the Group was
audited to a lower level of materiality. This gave
component materialities in the range of £20,205
to £754,000.
We agreed with the Audit Committee that we
would report all individual audit differences
identified during the course of our audit in
excess of £37,700 (2017: £38,000).
AN OVERVIEW OF THE SCOPE OF OUR
AUDIT
We tailored the scope of our audit to ensure
that we performed sufficient audit procedures
to be able to give an opinion on financial
statements as a whole, taking into consideration
the structure of the Group, the accounting
policies and controls and the wider industry in
which the Group operates.
The Group is structured into two divisions, being
Investment Management and Wealth Planning,
with each division being made up of a number
of components.
The Group consists of 8 components, of which
we identified 5 as significant components,
1 as a non-significant component based on
each individual component’s contribution to
the Group’s overall result and net assets and
2 nominee companies that were dormant
throughout the year. The 1 non-significant
component related to the Group’s newly
purchased subsidiary which represented less
than 5% of the Group’s result and less than 2%
of the Group’s net assets.
The 5 significant components identified, which
represent some 96% of the Group’s result
and 98% of the Group’s net assets, have all
been subjected to full statutory audits under
the International Standards of Auditing (UK).
These audits have all been conducted by BDO
LLP, with no use of any component auditors.
The non-significant component was subject
to analytical review procedures together with
substantive testing on Group audit risk areas
applicable to that component, carried out by the
Group audit team.
We gained an understanding of the legal and
regulatory framework applicable to the company
and the industry in which it operates, and
considered the risk of acts by the company
which were contrary to applicable laws and
regulations, including fraud. These included but
were not limited to compliance with Companies
(Guernsey) Law, 2008 and FCA regulations and
requirements.
We designed audit procedures to respond
to the risk, recognising that the risk of not
detecting a material misstatement due to
fraud is higher than the risk of not detecting
31
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
INDEPENDENT AUDITOR’S REPORT CONTINUED
one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery,
misrepresentations or through collusion.
We focused on laws and regulations that
could give rise to a material misstatement in
the company financial statements. Our tests
included, but were not limited to:
• agreement of the financial statement
disclosures to underlying supporting
documentation;
• enquiries of management;
• review of minutes of board meetings
throughout the period; and
• obtaining an understanding of the control
environment in monitoring compliance with
laws and regulations.
There are inherent limitations in the audit
procedures described above and the further
removed non-compliance with laws and
regulations is from the events and transactions
reflected in the financial statements, the less
likely we would become aware of it. As in all
of our audits we also addressed the risk of
management override of internal controls,
including testing journals and evaluating
whether there was evidence of bias by the
Directors that represented a risk of material
misstatement due to fraud.
OTHER INFORMATION
The Directors are responsible for the other
information. The other information comprises
the information included in the annual report
and financial statements, other than the financial
statements and our auditor’s report thereon.
Our opinion on the financial statements does
not cover the other information and, except
to the extent otherwise explicitly stated in our
report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify
such material inconsistencies or apparent
material misstatements, we are required
to determine whether there is a material
misstatement in the financial statements or a
material misstatement of the other information.
If, based on the work we have performed, we
conclude that there is a material misstatement
of this other information, we are required to
report that fact. We have nothing to report in
this regard.
MATTERS ON WHICH WE ARE REQUIRED TO
REPORT BY EXCEPTION BY THE COMPANIES
(GUERNSEY) LAW 2008
In the light of the knowledge and understanding
of the Group and its environment obtained in
the course of the audit, we have not identified
material misstatements in the Strategic Report
or the Directors’ Report.
We have nothing to report in respect of the
following matters in relation to which the
Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
• proper accounting records have not been
kept by the Parent Company; or
• the Parent Company financial statements
are not in agreement with the accounting
records; or
• we have failed to obtain all the information
and explanations, which, to the best of our
knowledge and belief, are necessary for the
purposes of our audit.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Directors’
responsibilities statement set out on page
27, the Directors are responsible for the
preparation of the financial statements and
for being satisfied that they give a true and
fair view, and for such internal control as the
Directors determine is necessary to enable the
preparation of financial statements that are free
from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the
Directors are responsible for assessing the
Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going
concern and using the going concern basis of
accounting unless the Directors either intend to
liquidate the Group or to cease operations, or
have no realistic alternative but to do so.
32
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 USE OF OUR REPORT
This report is made solely to the Parent
Company’s members, as a body, in accordance
with Section 262 of the Companies (Guernsey)
Law 2008. Our audit work has been undertaken
so that we might state to the Parent Company’s
members those matters we are required to state
to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to
anyone other than the Parent Company and the
Parent Company’s members as a body, for our
audit work, for this report, or for the opinions
we have formed.
Lorraine Bay (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
12 April 2019
BDO LLP is a limited liability partnership registered
in England and Wales (with registered number
OC305127).
AUDITOR’S RESPONSIBILITIES FOR THE
AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from material
misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will
always detect a material misstatement when
it exists.
Misstatements can arise from fraud or error and
are considered material if, individually or in the
aggregate, they could reasonably be expected to
influence the economic decisions of users taken
on the basis of these financial statements.
A further description of our responsibilities for
the audit of the financial statements is located
on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
OTHER MATTERS WHICH WE ARE REQUIRED
TO ADDRESS
Moore Stephens LLP were appointed as auditors
by the Directors on 12 January 2017, and
following the recommendation of the Directors,
we were re-appointed by the members on
28 June 2017 to audit the financial statements
for the year ending 31 December 2018 and
subsequent financial periods. On 1 February
2019 Moore Stephens LLP merged its business
with BDO LLP. As a result, Moore Stephens LLP
has resigned as auditor and the Directors have
appointed BDO LLP as auditor in their place.
The period of total uninterrupted engagement is
3 years, covering the years ending 31 December
2016, 31 December 2017 and 31 December 2018.
The non-audit services prohibited by the FRC’s
Ethical Standard were not provided to the
Group or the Parent Company and we remain
independent of the Group and the Parent
Company in conducting our audit.
Our audit opinion is consistent with the
additional report to the audit committee.
33
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2018
Revenue
Cost of sales
Gross profit
Administrative expenses
Amortisation and depreciation
Other (losses) / gains
Internal restructuring
Operating loss
Finance costs
Loss before tax
Tax
Loss after tax from continuing operations
(Loss) / profit from discontinued operations
Loss after tax for the year
Other comprehensive income
Items that may be reclassified subsequently to profit & loss:
Exchange difference on translation of foreign operations
Total comprehensive loss for the year
NOTE
8
12
13
14
15
16
2018
£’000
8,787
(833)
7,954
(11,005)
(598)
(106)
-
(3,755)
(18)
(3,773)
-
(3,773)
(945)
(4,718)
2017
RESTATED*
£’000
9,267
(1,076)
8,191
(9,222)
(669)
(3,380)
(283)
(5,363)
(701)
(6,064)
-
(6,064)
116
(5,948)
-
(22)
(4,718)
(5,970)
LOSS PER SHARE
Basic
Diluted
CONTINUING
OPERATIONS
2018
TOTAL LOSS
2018
CONTINUING
OPERATIONS
2017
TOTAL LOSS
2017
£(0.03)
£(0.03)
£(0.04)
£(0.04)
£(0.06)
£(0.06)
£(0.06)
£(0.06)
The operating loss and total comprehensive loss for the year are attributable to the equity holders.
* Prior periods have been restated to separate the results of discontinued operations, consistent with the
presentation in the current period. Refer to note 16 for further details of the results of the discontinued
operations.
34
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
AS AT 31 DECEMBER 2018
Non-current assets
Property, plant and equipment
Intangible assets and goodwill
Investments
Deferred tax asset
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Short term borrowings
Non-current liabilities
Other non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other equity
Other reserves
Retained earnings
Total equity
31 DECEMBER
2018
£’000
31 DECEMBER
2017
£’000
NOTE
19
21
22
23
24
26
27
28
29
30
30
148
68
25,536
23,019
-
428
-
428
26,112
23,515
1,156
2,410
3,566
29,678
3,331
-
3,331
1,204
4,535
1,114
9,799
10,913
34,428
3,165
10,367
13,532
32
13,564
25,143
20,864
7,743
6,274
106
(738)
11,758
25,143
5,016
-
106
(734)
16,476
20,864
The financial statements of Kingswood Holdings Limited (registered number 42316) were approved
and authorised for issue by the Board of Directors, and signed on its behalf by:
Kenneth ‘Buzz’ West
Chairman
12 April 2019
35
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018
SHARE CAPITAL
& PREMIUM
£’000
DEFERRED
SHARE CAPITAL
£’000
OTHER
RESERVES
£’000
RETAINED
EARNINGS
£’000
TOTAL
£’000
Balance at 1 January 2017
14,866
356
277
2,346
17,845
Loss for the year
Issue of share capital
-
9,205
-
-
Share based settlement of deferred
consideration
917
(250)
Transfer to retained earnings
(19,972)
Reversal of convertible loan note
Share based payments
Placing costs
Retranslation of overseas operations
-
-
-
-
-
-
-
-
-
-
-
-
(106)
(203)
10
(690)
(22)
(5,948)
(5,948)
-
-
20,078
-
-
-
-
9,205
667
-
(203)
10
(690)
(22)
Balance at 31 December 2017
5,016
106
(734)
16,476
20,864
Loss for the year
Issue of share capital
Share based payments
Retranslation of overseas operations
-
9,001
-
-
-
-
-
-
-
-
4
(8)
(4,718)
(4,718)
-
-
-
9,001
4
(8)
Balance at 31 December 2018
14,017
106
(738)
11,758
25,143
36
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 CONSOLIDATED STATEMENT OF
CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2018
Net cash used in operating activities
Investing activities
Property, plant & equipment purchased
Acquisition of investments
Proceeds from sale of investments
Deferred consideration
Cash acquired on acquisitions
Net cash used in investing activities
Financing activities
Net proceeds on issue of shares
Interest received
Interest paid
Loans repaid
New loans received
Net cash from financing activities
NOTE
31
2018
£’000
2017
£’000
(3,867)
(3,027)
(138)
(1,600)
234
(527)
106
(26)
(48)
-
(1,204)
-
(1,925)
(1,278)
1,939
9,213
555
-
-
(705)
(5,391)
(11,236)
1,300
(1,597)
16,451
13,723
Net increase / (decrease) in cash and cash equivalents
(7,389)
9,418
Cash and cash equivalents at beginning of year
9,799
375
Effects of movement in exchange rates on cash held by
foreign operations
-
6
Cash and cash equivalents at end of year
26
2,410
9,799
Refer to note 16 in respect of the cash flows from discontinued operations.
37
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
1. GENERAL INFORMATION
Kingswood Holdings Limited is a company incorporated in Guernsey under The Companies (Guernsey) Law,
2008. The shares of the Company are traded on AIM. The nature of the Group’s operations and its principal
activities are set out in the Strategic Report. Certain subsidiaries in the Group are subject to the FCA’s
regulatory capital requirements and therefore required to monitor their compliance with credit, market and
operational risk requirements, in addition to performing their own assessment of capital requirements as
part of the Individual Capital Adequacy Assessment Process (“ICAAP”).
Following the result of the AGM held on 4 September 2018, the Company changed its name from European
Wealth Group Limited to Kingswood Holdings Limited.
2. BASIS OF ACCOUNTING
The financial statements of the Group have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) adopted by the European Union and in line with Guernsey Company Law.
The financial statements have been prepared on the historical cost basis; except for the revaluation of
financial instruments (please refer to significant accounting policies note 5 for details). Historical cost
is generally based on the fair value of the consideration given in exchange for the assets. The principal
accounting policies adopted are set out below.
During the year, the Group disposed of its two overseas subsidiaries European Wealth (Switzerland) SA and
EW Gibraltar Limited (“discontinued operations”). As a result, prior periods have been restated to separate
the results of discontinued operations, consistent with the presentation in the current period. Refer to note
16 for details of discontinued operations.
3. BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of the Group made up to 31
December each year.
On 1 October 2018, KHL purchased the entire ordinary share capital of Marchant McKechnie Independent
Financial Advisers Limited.
The Group now consists of the following subsidiaries: KW Wealth Group Limited (formerly European
Wealth Management Group Limited), KW Investment Management Limited (formerly European Investment
Management Limited), KW Wealth Planning Limited (formerly European Financial Planning Limited),
KW Trading Services Limited (formerly European Wealth Trading Limited), EIM Nominees Limited, XCAP
Nominees Limited and Marchant McKechnie Independent Financial Advisers Limited.
All acquisitions are consolidated from the date of acquisition.
For the purpose of the consolidated financial statements, the results and financial position of each
subsidiary are expressed in pounds sterling, which is the functional and presentation currency for the
consolidated financial statements.
Marchant McKechnie has been consolidated into the consolidated statement of comprehensive income as
of 1 October 2018.
KW Wealth Group Limited, KW Investment Management Limited, KW Wealth Planning Limited, and KW
Trading Services Limited have been consolidated in to the consolidated statement of comprehensive income
since 7 May 2014.
38
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 3. BASIS OF CONSOLIDATION continued
EIM Nominees Limited has net assets of £21 and therefore that company’s information is not shown
separately. Under The Companies (Guernsey) Law, 2008, EIM Nominees Limited is exempt from the
requirement to present its own Statement of Comprehensive Income.
XCAP Nominees Limited is a non-trading entity and is exempt from the requirement to present its own
Statement of Comprehensive Income.
4. ADOPTION OF NEW AND REVISED STANDARDS
New accounting standards, amendments and interpretations adopted in the period
In the year ended 31 December 2018, the Group adopted the following new standards or amendments
issued by the IASB or interpretations issued by the IFRS Interpretations Committee (IFRS IC):
IFRS 15
IFRS 9
Revenue from Contracts with Customers
Financial Instruments
Details of the impact these two standards have had are given in note 7.
New accounting standards, amendments and interpretations not yet adopted
At the date of authorisation of these financial statements, the Group has not applied the following new and
revised IFRSs that have been issued but are not yet effective and in some cases had not yet been adopted
by the EU:
IFRS 16
IFRIC 23
IFRS 9 (Amendments)
IFRS 10 and IAS 28 (Amendments)
IFRS 14
IFRS 3 (Amendments)
IAS 1 and IAS 8 (Amendments)
IAS 28 (Amendments)
IAS 19 (Amendments)
Leases
Uncertainties over Income Tax Treatments
Prepayment Features with Negative Compensation
Sale or Contribution of Assets between an Investor and its Associate
or Joint Venture
Regulatory Deferral Accounts
Definition of a Business
Definition of Material
Long-term Interests in Associates and Joint Ventures
Plan Amendment, Curtailment or Settlement
IFRS 16 Leases
IFRS 16 replaces IAS 17 Leases. It eliminates the classification of leases as either operating leases or finance
leases for lessees. Any leases with more than 12 months’ term are to be recognised as a lease asset on
the Statement of Financial Position and the related future lease obligations as a liability. IFRS 16 is only
mandatorily effective for annual periods beginning on or after 1 January 2019. The Group did not apply
early adoption, and its effects are yet to be determined.
At 31 December 2018 operating lease commitments amounted to £943k (see note 32). However, further
work still needs to be carried out to determine whether and when extension and termination options are
likely to be exercised, which will result in the actual liability recognised being higher than this. Instead of
recognising an operating expense for its operating lease payments, the Group will instead recognise interest
on its lease liabilities and amortisation on its right-of-use assets.
The above standards have not had a significant impact on the Group in the current year, other than on
disclosures.
5. SIGNIFICANT ACCOUNTING POLICIES
Going concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the
Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly
they continue to adopt the going concern basis of accounting in preparing the financial statements. Further
detail is contained in the Directors’ Report on page 14.
39
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5. SIGNIFICANT ACCOUNTING POLICIES continued
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts
receivable for services provided in the normal course of business.
Management fees
Investment management fees are based on funds under management and are
recognised over the period in which the related service is completed.
Commission income Commissions are recognised when the service is completed.
Fee income
Fees for consultancy services are recognised as the service is performed.
Other income
Other income is recognised as the services are provided.
Interest income
Interest income is recognised when it is probable that the economic benefits will
flow to the Group and the amount of revenue can be measured reliably. Interest
income is accrued on a time basis, by reference to the principal outstanding and
at the effective interest rate applicable, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial asset to that
asset’s net carrying amount on initial recognition.
The impact of adopting IFRS 15 is disclosed in note 7.
Operating lease payments
The rentals under operating leases are charged on a straight-line basis over the lease term, even if the
payments are not made on such a basis. Benefits received and receivable as an incentive to sign an
operating lease are similarly spread on a straight-line basis over the lease term.
Borrowing costs
All borrowing costs are charged to profit and loss in the period in which they are incurred.
Retirement benefit costs
The Group contributes to defined contribution pension schemes, held in separately administered funds.
Contributions to the schemes are charged as per employee contracts to the profit or loss as they fall due.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported
in the Statement of Comprehensive Income as it excludes items of income or expense that are taxable
or deductible in other years and it further excludes items that are never taxable or deductible. Tax is
recognised in the Statement of Comprehensive Income, except where a charge attributable to an item of
income and expense is recognised as other comprehensive income, or where an item recognised directly in
equity is also recognised in other comprehensive income or directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or
substantively enacted by the reporting date in the countries where the Group operates and generates income.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts
of assets and liabilities in the financial statements and the corresponding tax bases used in the computation
of taxable profit, and is accounted for using the Statement of Financial Position liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from the initial recognition of goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a transaction that affects neither the taxable profit
nor the accounting profit.
40
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 5. SIGNIFICANT ACCOUNTING POLICIES continued
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the
reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all
or part of the asset to be recovered. Detailed financial forecasts are in place to support the carrying value of
the deferred asset.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is
settled or the asset is realised. Deferred tax is charged or credited in the profit or loss, except when it
relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in
equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current
tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised
impairment loss. Depreciation is recognised so as to write off the cost or valuation of assets less their
residual values over their useful lives, using the straight-line basis, on the following bases:
Office equipment, fixtures and fittings:
IT equipment and software:
over 60 months on a straight-line basis
over 36 months on a straight-line basis.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between
the sales proceeds and the carrying amount of the asset and is recognised in income.
Business combinations
All business combinations are accounted for by applying the acquisition method. The acquisition method
involves recognition, at fair value, of all identifiable assets and liabilities, including contingent liabilities,
of the subsidiary at the acquisition date, regardless of whether or not they were recorded in the financial
statements of the subsidiary prior to acquisition. The cost of business combinations is measured based
on the fair value of the equity or debt instruments issued and cash or other consideration paid, plus any
directly attributable costs.
Goodwill arising on a business combination represents the excess of cost over the fair value of the Group’s
share of the identifiable net assets acquired and is stated at cost less any accumulated impairment losses.
Goodwill is tested annually for impairment. Any impairment is recognised immediately through the profit
and loss. Negative goodwill arising on an acquisition is recognised immediately through the profit and loss.
On disposal of a subsidiary, attributable goodwill that has not been subject to impairment is included in the
determination of the profit or loss on disposal.
Impairment
Goodwill and other intangible assets with an indefinite life are tested annually for impairment. For the
purposes of impairment testing, goodwill acquired in a business combination is allocated to each of the
Group’s CGUs that are expected to benefit from the combination, irrespective of whether other assets or
liabilities of the acquisition are assigned to those units. The carrying amount of each CGU is compared to
its recoverable amount, which is determined using an industry revenue multiple and percentage of assets
under management.
Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is
measured based on the relative values of the operation disposed of and the portion of the CGU retained.
41
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5. SIGNIFICANT ACCOUNTING POLICIES continued
Intangible assets
Client relationships
Client relationships acquired in a business combination are recognised at fair value at the acquisition date.
Relationships acquired outside of a business combination are initially recognised at cost. In assessing the
fair value of these relationships, the Group has estimated their finite life based on information about the
typical length of existing client relationships. Amortisation is calculated using the straight-line basis over
their useful lives, ranging from 10 to 20 years.
Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the
net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of
subsidiaries is included in ‘intangible assets’. Goodwill is tested annually for impairment and carried at cost
less accumulated impairment losses. Impairment losses on goodwill are not reversed.
Financial assets and liabilities
Financial assets and liabilities are recognised in the Group’s Statement of Financial Position when the Group
becomes a party to the contractual provisions of the instrument and are initially measured at fair value.
This is the first year the Group adopted IFRS 9 – Financial Instruments. The impact of adopting this new
standard is disclosed in note 7.
Classification and initial measurement of financial assets
Financial assets are derecognised when the contractual rights to the cash flows from the financial asset
expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial
liability is derecognised when it is extinguished, discharged, cancelled or expires.
IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available
for sale.
Financial assets are classified into the following categories:
• amortised cost
• fair value through profit or loss (FVTPL)
• fair value through other comprehensive income (FVOCI).
In the periods presented the Group did not have any financial assets categorised as FVTPL or FVOCI.
Subsequent measurement of financial assets
Financial assets are measured at amortised cost if the assets meet the following conditions (and
are not designated as FVTPL):
• they are held within a business model whose objective is to hold the financial assets and collect its
contractual cash flows
• the contractual terms of the financial assets give rise to cash flows that are solely payments of principal
and interest on the principal amount outstanding
After initial recognition, these are measured at amortised cost using the effective interest method.
Discounting is omitted where the effect of discounting is immaterial. The entire Group’s financial assets fall
into this category.
Classification and measurement of financial liabilities
As the accounting for financial liabilities remains largely the same under IFRS 9 compared to IAS 39, the
Group’s financial liabilities were not impacted by the adoption of IFRS 9. Under IFRS 9, the Group has
classified all financial liabilities at amortised cost.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs
unless the Group designated a financial liability at fair value through profit or loss. Subsequently, financial
liabilities are measured at amortised cost using the effective interest method.
42
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 5. SIGNIFICANT ACCOUNTING POLICIES continued
Impairment of financial assets
IFRS 9’s impairment requirements use more forward-looking information to recognise expected credit
losses – the ‘expected credit loss (“ECL”) model’. This replaces IAS 39’s ‘incurred loss model’ meaning there
no longer needs to be a triggering event in order to recognise impairment losses. A credit loss provision
must be made for the amount of any loss expected to arise, whereas under IAS 39, credit losses are
recognised when they are incurred.
Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event.
Instead the Group considers a broader range of information when assessing credit risk and measuring
expected credit losses, including past events, current conditions, reasonable and supportable forecasts that
affect the expected collectability of the future cash flows of the instrument.
In applying this forward-looking approach, IFRS 9 makes a distinction between:
• financial instruments that have not deteriorated significantly in credit quality since initial recognition or
that have low credit risk (‘Stage 1’) and
• financial instruments that have deteriorated significantly in credit quality since initial recognition and
whose credit risk is not low (‘Stage 2’).
• financial assets that have objective evidence of impairment at the reporting date (‘Stage 3’).
‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit
losses’ are recognised for the second category.
Under the ECL model, a dual measurement approach applies whereby a financial asset will attract an ECL
allowance equal to either:
12 month expected credit losses (losses resulting from possible defaults within the next 12 months);
or
lifetime expected credit losses (losses resulting from possible defaults over the remaining life of the
financial asset).
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit
losses over the expected life of the financial instrument.
Equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the
substance of the contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds
received, net of direct issue costs.
Effective interest rates
The effective interest method is a method of calculating the amortised cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments through the expected life of the financial liability, or, where
appropriate, a shorter period, to the net carrying amount on initial recognition.
Reclassification of equity
Under Guernsey Company law, KHL reserves the right to set movement from share premium into another
reserve.
Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of
financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of
recognition. Trade and other payables are presented as current liabilities unless payment is not due within
12 months after the reporting period. They are recognised initially at their fair value and subsequently
measured at amortised cost using the effective interest method.
43
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5. SIGNIFICANT ACCOUNTING POLICIES continued
Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are
subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs)
and the redemption amount is recognised in profit or loss over the period of the borrowings using the
effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction
costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this
case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity
services and amortised over the period of the facility to which it relates.
Borrowings are removed from the Statement of Financial Position when the obligation specified in the
contract is discharged, cancelled or expired. The difference between the carrying amount of a financial
liability that has been extinguished or transferred to another party and the consideration paid, including
any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or
finance costs.
Where the terms of a financial liability are renegotiated and the entity issues equity instruments to a
creditor to extinguish all or part of the liability (debt for equity swap), a gain or loss is recognised in profit or
loss, which is measured as the difference between the carrying amount of the financial liability and the fair
value of the equity instruments issued.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer
settlement of the liability for at least 12 months after the reporting period.
Client money
The Group holds money on behalf of clients in accordance with the client money rules of the Financial
Conduct Authority and other regulatory bodies. Such money and the corresponding liabilities to clients
are not shown on the face of the Statement of Financial Position, as the Group is not beneficially entitled
thereto. The amounts held on behalf of clients at the Statement of Financial Position date are stated in
note 26.
Deferred consideration
Deferred consideration, which is included within liabilities or equity depending on the form it takes, relates
to the Directors’ best estimate of amounts payable in the future in respect of certain client relationships
and subsidiary undertakings that were acquired by the Group. Deferred consideration is measured at its fair
value based on the discounted expected future cash flows. Deferred consideration is recognised in equity
when the amount payable is for a fixed amount of shares at a fixed price.
Share-based payments
Equity-settled share-based payments to employees and others providing similar services are measured at
the fair value of the equity instruments at the grant date. The fair value excludes the effect of non
market-based vesting conditions. Details regarding the determination of the fair value of equity-settled
share-based transactions are set out in note 33.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will
eventually vest. At each Statement of Financial Position date, the Group revises its estimate of the
number of equity instruments expected to vest as a result of the effect of non market-based vesting
conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such
that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the
equity-settled employee benefits reserve.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents include cash in hand, deposits held
at call with banks, and other short-term highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of change in value. Such investments are
normally those with original maturities of three months or less. Cash and cash equivalents are stated net of
bank overdrafts, if any.
44
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 6. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 5, the Directors are
required to make judgements, estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates and associated assumptions are
based on historical experience and other factors that are considered to be relevant. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the year in which the estimate is revised if the revision affects only that year or
in the year of the revision and future years if the revision affects both current and future years.
Critical judgements in applying the Group’s accounting policies
The following are the critical judgements that the Directors have made in the process of applying the
Group’s accounting policies and that have the most significant effect on the amounts recognised in financial
statements.
Share based payments
The calculation of the fair value of share based payments requires assumptions to be made regarding
market conditions and future events. These assumptions are based on historic knowledge and industry
standards. Changes to the assumptions used would materially impact the charge to the Statement of
Comprehensive Income. Details of the assumptions are set out in note 33.
Goodwill and intangible assets
The amount of goodwill initially recognised as a result of a business combination is dependent on the
allocation of the purchase price to the fair value of the identifiable assets acquired and the liabilities
assumed. The determination of the fair value of the assets and liabilities is based, to a considerable extent,
on management’s judgement. Goodwill is reviewed annually for impairment by comparing the carrying
amount of the CGUs to their expected recoverable amount, estimated on a value-in-use basis.
Recoverability of deferred tax assets
The amount of deferred tax assets recognised requires assumptions to be made to the financial forecasts
that probable sufficient taxable profits will be available to allow all or part of the asset to be recovered.
More information is disclosed in note 23 to the financial statements.
Estimates and assumptions
The Group makes estimates as to the expected duration of client relationships to determine the period
over which related intangible assets are amortised. The amortisation period is estimated with reference to
historical data on account closure rates and expectations for the future. During the year, client relationships
were amortised over a 10-20 year period.
7. EFFECT OF CHANGES IN ACCOUNTING POLICIES
This is the first time the Group has applied IFRS 9 - Financial Instruments and IFRS 15 - Revenue from
Contracts with Customers’ to its financial statements. These new standards were adopted from
1 January 2018.
The effect of applying IFRS 9 and IFRS 15 is discussed below.
(a) IFRS 9 – Financial instruments
In the current year, the Group has applied IFRS 9 Financial Instruments (as revised in July 2014) and
the related consequential amendments to other IFRS Standards that are effective for an annual period
that begins on or after 1 January 2018. The transition provisions of IFRS 9 allow an entity not to restate
comparatives.
Additionally, the Group adopted consequential amendments to IFRS 7 Financial Instruments:
Disclosures that were applied to the disclosures for 2018 and to the comparative period.
45
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7. EFFECT OF CHANGES IN ACCOUNTING POLICIES continued
The Group has applied IFRS 9 in accordance with the transition provisions set out in IFRS 9. IFRS 9 does
not require the Group to restate comparative information for prior periods with respect to classification
and measurement (including impairment) requirements. Any differences in the carrying amounts of
financial instruments as a result of adopting IFRS 9 are recognised in retained earnings as at 1 January
2018. Consequently, the comparative information presented for the year ended 31 December 2017
reflects the requirements of IAS 39 rather than IFRS 9.
Classification and measurement of financial assets and financial liabilities
The Group adopted IFRS 9 with a transition date of 1 January 2018. On the date of the initial
application, 1 January 2018, there were no reclassifications of measurement categories with all financial
assets and financial liabilities continued to be measured at amortised cost.
The Directors reviewed and assessed the group’s existing financial instruments and as at 1 January
2018 based on the facts and circumstances that existed at that date and concluded that the initial
application of IFRS 9 had no material impact on the Group’s financial instruments with regards to their
classification and measurement.
The original measurement categories under IAS 39 are compared with the new measurement categories
under IFRS 9 in the table below for each class of financial asset held by the Group as at 1 January 2018:
CLASS OF FINANCIAL ASSET
ORIGINAL CLASSIFICATION UNDER IAS 39
NEW CLASSIFICATION UNDER IFRS 9
Trade and other receivables
Loans and receivables
Cash and bank balances
Loans and receivables
Amortised cost
Amortised cost
There is no change in the basis of classification for financial liabilities under IFRS 9 and these remain
unchanged from under IAS 39. All financial liabilities are classified and measured as amortised cost with
no material impact on adoption of IFRS 9.
Overall, the Group has considered IFRS 9 impairment requirements using the incurred losses model
in relation to its financial assets and concluded there is no material impact to the Group’s financial
statements.
(b) IFRS 15 – Revenue from contracts with customers
TRANSITION
The Group adopted IFRS 15 Revenue from Contracts with Customers using the cumulative effect
method. Accordingly, the information presented for 2017 has not been restated – i.e. it is presented
as previously reported under IAS 18 Revenue. Under the cumulative effect method, transitional
adjustments are recognised in opening retaining earnings on 1 January 2018. Additionally, the
disclosure requirements in IFRS 15 have not generally been applied to comparative information.
An assessment was performed to quantify the impact of IFRS 15 on the Group’s financial statements.
The five-step model prescribed by IFRS 15 was applied, considering the types of contracts the group
has with its clients, the types of services provided and when the performance obligations arising from
these contracts are satisfied.
IMPACT ON FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018
Net fee and commission income
Included within net fee and commission income are initial fees, charged by a number of Group
companies in relation to certain business activities. Under IFRS 15, the Group has made an assessment
as to whether the work performed to earn such fees constitutes the transfer of services and, therefore,
fulfils any performance obligation(s). If so, then these fees can be recognised when the relevant
performance obligation has been satisfied; if not, then the fees can only be recognised in the period in
which the services are provided.
46
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 7. EFFECT OF CHANGES IN ACCOUNTING POLICIES continued
Capitalisation of incremental costs of obtaining customer contracts
IFRS 15 prescribes that the incremental costs of obtaining a contract with a customer shall be
recognised as an asset if the entity expects to recover those costs. The incremental costs of obtaining
a contract are those costs that an entity incurs to obtain a contract with a customer that it would not
have incurred if the contract had not been obtained.
The adoption of IFRS 15 has not had a material impact on the Group’s accounting policies for revenue
recognition and consequently there has been no adjustment to opening reserves.
8. BUSINESS AND GEOGRAPHICAL SEGMENTS
Products and services from which reportable segments derive their revenues
Information reported to the Group’s Non-Executive Chairman for the purposes of resource allocation and
assessment of segment performance is focussed on the category of customer for each type of activity.
The Group’s reportable segments under IFRS 8 are as follows:
• Investment management; and
• Wealth planning
Information regarding the Group’s operating segments is reported below.
The following is an analysis of the Group’s revenue and results by reportable segment for the year to
31 December 2018. The table below details full year’s worth of revenue and results for the principal
business and geographical divisions, which has then reconciled to the results included in the Statement of
Comprehensive Income:
CONTINUING OPERATIONS
Revenue
External sales
INVESTMENT
MANAGEMENT
2018
£’000
WEALTH
PLANNING
2018
£’000
GROUP
2018
£’000
TOTAL
2018
£’000
5,762
3,025
-
8,787
Core adjusted profit/(loss)
509
455
(4,015)
(3,051)
Other losses
Finance costs
Amortisation and depreciation
Profit / (loss) before tax from continuing
operations
Tax
Profit / (loss) after tax from continuing
operations
DISCONTINUED OPERATIONS
Loss from discontinued operations
Profit / (loss) after tax
-
(3)
-
506
-
506
(945)
(439)
-
(2)
(73)
380
-
380
-
380
(106)
(13)
(525)
(106)
(18)
(598)
(4,659)
(3,773)
-
-
(4,659)
(3,773)
-
(4,659)
(945)
(4,718)
All revenue from continuing operations are generated in the United Kingdom.
47
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
8. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)
CONTINUING OPERATIONS
Revenue
External sales
Core adjusted profit/(loss)
Other losses
Exceptional items
Finance costs
Amortisation and depreciation
(Loss) / profit before tax from continuing
operations
Tax
(Loss) / profit after tax from continuing
operations
DISCONTINUED OPERATIONS
Profit from discontinued operations
(Loss) / Profit after tax
INVESTMENT
MANAGEMENT
2017
£’000
WEALTH
PLANNING
2017
£’000
GROUP
2017
£’000
TOTAL
2017
£’000
5,839
3,428
-
9,267
698
(1,875)
1
-
-
(1,176)
-
(1,176)
116
(1,060)
403
-
-
-
(32)
371
-
371
-
371
(2,132)
(1,505)
(284)
(701)
(637)
(1,031)
(3,380)
(283)
(701)
(669)
(5,259)
(6,064)
-
-
(5,259)
(6,064)
-
116
(5,259)
(5,948)
All revenue from continuing operations are generated in the United Kingdom.
9. LOSS FOR THE YEAR
The loss for year ended 31 December 2018 has been derived after charging:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Operating lease
Staff costs
2018
£’000
58
540
171
2017
£’000
117
553
127
6,219
6,273
See Directors’ remuneration report for details of Directors’ remuneration during the year (page 26).
48
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 10. AUDITOR’S REMUNERATION
The analysis of auditor’s remuneration is as follows:
Fees payable to the Group’s auditor
Audit of Company
Audit of Subsidiaries
Total audit fees
CASS audit
Total non-audit fees
11. STAFF COSTS
2018
£’000
39
44
83
32
32
2017
£’000
83
44
127
28
28
The average monthly number of employees (including Executive Directors, but excluding self employed
advisers) is as follows:
Management
Fee earning
Administration
Self employed
Average number of employees
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Pension costs
Other benefits
Share based payments
Total staff costs
12. OTHER (GAINS) AND LOSSES
Impairment of intangibles
Refinancing costs
Movements in deferred consideration
Restructuring costs
2018
2017
7
23
56
5
91
7
39
45
6
97
2018
£’000
2017
£’000
5,298
5,319
538
278
101
4
586
285
73
10
6,219
6,273
2018
£’000
-
316
(210)
-
106
2017
£’000
2,330
204
492
354
3,380
The impairment of intangibles for the year ended 31 December 2017 relates to the write-off of the goodwill
on acquisition of P&C and CIMCO.
49
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13. INTERNAL RESTRUCTURING COSTS
During the year, the Group incurred £nil of internal restructuring costs (2017: £283k), which were part of a
formal restructuring plan approved by the Board.
14. FINANCE COSTS
Bank and other finance charges
*Restated to exclude finance costs from discontinued operations.
15. TAX
Corporation tax
Current year on discontinued operations
Movement in Deferred tax (note 23)
2018
£’000
18
2017
RESTATED*
£’000
701
2018
£’000
2017
£’000
-
-
-
-
9
9
-
9
UK corporation tax is calculated at 19.00% (2017: 19.25%) of the estimated assessable profits for the year.
Loss before tax on continuing operations
(Loss) / profit before tax on discontinued operations
Loss before taxation
2018
£’000
(3,773)
(945)
(4,718)
2017
RESTATED*
£’000
(6,064)
125
(5,939)
Tax at the UK corporation tax rate of 19.00% (2017: 19.25%)
(896)
(1,143)
Expenses not deductible for tax purposes
Adjustments for Statement of Financial Position items
Unrelieved tax losses carried forward
Tax charge on profits ineligible for Group relief
Total tax charge for the year
109
27
760
-
-
227
11
905
9
9
*Restated to reflect loss before tax from continuing and discontinued operations.
50
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
16. DISCONTINUED OPERATIONS
The Group disposed of European Wealth (Switzerland) SA on 11 July 2018 and EW Gibraltar Limited on
30 June 2018. The loss from discontinued operations is disclosed separately in the Consolidated Statement
of Comprehensive Income, being the results of the two companies disposed of to the date of disposal and
the loss on disposal.
Profit of discontinued operations
Loss on disposal of discontinued operations
(Loss) / profit from discontinued operations
2018
£’000
-
(945)
(945)
Profit / (loss) of discontinued operations
The results of discontinued operations for the period prior to the disposal date are shown below:
Revenue
Cost of sales
Gross profit
Administrative expenses
Amortisation and depreciation
Operating profit
Finance costs
Profit before tax
Tax
Profit for the year
2018
£’000
308
(102)
206
(202)
(3)
1
(1)
-
-
-
2017
£’000
116
-
116
2017
£’000
762
(235)
527
(398)
(1)
128
(3)
125
(9)
116
Loss on disposal of discontinued operations
A loss of £938k arose on the disposal of European Wealth (Switzerland) SA and a loss of £7k arose on
the disposal of EW Gibraltar Limited. Gains / (losses) on disposals are the differences between total
consideration received and receivable less the carrying value of net assets of the disposal group.
Consideration received or receivable
Initial consideration received
Deferred consideration receivable
Total disposal consideration
Net assets on disposal
Carrying value of net assets
Carrying value of intangibles
Total net assets on disposal
Selling costs and foreign exchange differences
Loss on disposal of discontinued operations
£’000
£’000
234
149
(170)
(997)
383
(1,167)
(784)
(161)
(945)
Earnings per share from discontinued operations
The basic and diluted loss per share from discontinued operations for 2018 were £(0.007)
(2017: profit per share £0.002).
51
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
16. DISCONTINUED OPERATIONS continued
Earnings per share from discontinued operations
The basic and diluted loss per share from discontinued operations for 2018 were £(0.007)
(2017: profit per share £0.002).
Cash flows from discontinued operations
The net operating cash generated attributable to discontinued operations for 2018 was £61k
(2017: net cash used £144k). There were no cash flows from investing and financing activities.
17. DIVIDENDS
The Directors are not proposing to pay a dividend in respect of the year ended 31 December 2018
(year ended 31 December 2017: £nil).
18. EARNINGS PER SHARE
Loss from continuing operations for the purposes of basic loss
per share, being net loss attributable to owners of the Group
Number of shares
2018
£’000
2017
RESTATED*
£’000
(3,773)
(6,064)
Weighted average number of ordinary shares for the purposes
of basic loss per share
131,361,701 100,317,338
Effect of dilutive potential ordinary shares:
Share options
Convertible loan notes in issue
-
-
-
-
Weighted average number of ordinary shares for the purposes
of diluted loss per share
131,361,701 100,317,338
The basic loss per share is £(0.03) (2017: loss per share £(0.06)). The diluted loss per share is £(0.03)
(2017: loss per share £(0.06)).
*The basic and diluted loss per share for 2017 has been restated to reflect the loss for the year from continuing
operations only.
19. PROPERTY, PLANT & EQUIPMENT
GROUP FIXTURES AND EQUIPMENT
£’000
Cost
At 1 January 2018
Additions
At 31 December 2018
Accumulated depreciation
At 1 January 2018
Charge for the year
At 31 December 2018
Net book value
At 31 December 2017
At 31 December 2018
52
293
138
431
225
58
283
68
148
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
20. BUSINESS COMBINATIONS
Acquisition of Marchant McKechnie Independent Financial Advisers Limited
During the period under review, the Group completed one acquisition. On 1 October 2018, Kingswood
Holdings Limited purchased 100% of the ordinary share capital of Marchant McKechnie Independent
Financial Advisers Limited for a purchase price of £4m - a company offering a wide range of services to
its clients including personal and company pensions, investments, and tax planning. The purchase price
is payable on a deferred basis, with £1.6m paid on completion and £2.4m payable over a two year period
subject to the business meeting certain performance criteria.
The acquisition is part of the Group’s strategy to become a leader in the UK wealth management market
and represents the Group’s first acquisition since the rebrand from European Wealth in September 2018.
Property, plant and equipment
Goodwill
Receivables
Cash
Payables
Taxation
Total identifiable net assets*
Goodwill
Total expected consideration
Satisfied by:
Initial cash consideration
Deferred cash consideration
£’000
2
308
204
236
(224)
(243)
283
3,717
4,000
1,600
2,400
*On acquisition, the book value of the net assets acquired was equal to their fair value.
The goodwill arising on the acquisition of Marchant McKechnie is not deductible for tax purposes.
Acquisition costs in relation to this acquisition amounted to £221k. These costs were recognised in profit
and loss for the year.
The amount of revenue and profit after tax contributed by Marchant McKechnie from the acquisition date
of 1 October 2018 to 31 December 2018 included in these consolidated financial statements was £339k
and £179k respectively.
Assuming Marchant McKechnie was consolidated from 1 January 2018, the amount of revenue and profit
after tax that would have been contributed would be approximately £1.4m and £700k respectively.
53
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21. INTANGIBLE ASSETS AND GOODWILL
Cost
As at 1 January 2017
Additions
Disposals / impairment
As at 31 December 2017
Additions
Disposals
As at 31 December 2018
Accumulated amortisation
As at 1 January 2017
Impairment
Charge for year
As at 31 December 2017
Disposals
Charge for year
As at 31 December 2018
Net book value
As at 31 December 2017
As at 31 December 2018
GOODWILL
£’000
INTANGIBLE
ASSETS
£’000
TOTAL
£’000
16,457
10,546
27,003
-
-
84
(126)
84
(126)
16,457
10,504
26,961
308
-
3,717
(1,566)
4,025
(1,566)
16,765
12,655
29,420
-
1,059
1,971
-
1,971
-
46
2,017
359
553
1,971
(598)
494
1,867
1,059
2,330
553
3,942
(598)
540
3,884
14,486
14,748
8,533
10,788
23,019
25,536
Group Goodwill
Goodwill acquired in a business combination is allocated at acquisition to the CGUs that are expected to
benefit from that business combination. The Group has identified two CGUs: investment management and
wealth planning.
Goodwill
INVESTMENT
MANAGEMENT
£’000
WEALTH
PLANNING
£’000
TOTAL
£’000
8,965
5,783
14,748
A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of asset. The smallest identifiable group of
assets in Kingswood Holdings Limited are its two divisions, investment management and wealth planning.
All key management information is prepared and reviewed across these two divisions, and proposed
acquisitions are analysed in either of those divisions. The different groups of assets within those two
divisions do not generate independent cash flows enabling them to be classed as separate CGUs. This is the
sixth year in which the CGUs have been analysed in this format.
KHL acquired KW Wealth Group Limited (“KWWG” formerly European Wealth Management Group Limited)
in 2014. KWWG has been split between the two CGUs depending on which CGU the relevant assets are
allocated to.
54
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 21. INTANGIBLE ASSETS AND GOODWILL continued
The Group tests each CGU at least annually for goodwill impairment. The recoverable amount of a
CGU is determined as the higher of fair value less costs to sell and the value in use. For the investment
management and wealth planning CGUs, fair value less costs to sell is greater than the carrying value.
No further assessment of value in use has been performed.
The additions to the Group’s goodwill outlined in the table shown in Note 20 represents the acquired
goodwill arising on the acquisition of Marchant McKechnie.
Valuations are based on assets under management multiple (the investment management CGU) and
recurring revenue multiple (wealth planning CGU) and a review of industry standard valuation metrics in
order to analyse the individual CGUs.
Intangible assets
Intangible assets are valued based on underlying Assets under Management (i.e. the client lists). The assets
are assessed for their useful life on an asset by asset basis in order to determine amortisation rates. There
are currently £9.6m of intangible assets being amortised over 20 years (17 years remaining), £1.0m over
15 years (12 years remaining) and £0.2m over 10 years (7 years remaining).
The addition in 2018 to the Group’s intangible assets, represents the value of Marchant McKechnie’s
recurring revenue of their client book acquired.
The addition in 2017 to the Group’s intangible assets represents the value of the funds under management
and client base acquired as part of the acquisitions of Towry and Montpelier and their subsequent
impairment/disposal.
22. INVESTMENTS
Cost
At 1 January 2017
Acquisitions
Impairment
Disposals
As at 31 December 2017
Acquisitions
Impairment
Disposals
As at 31 December 2018
23. DEFERRED TAX ASSET
The following are the major deferred tax asset and liabilities recognised by the group and movements
thereon during the current and prior year.
At 1 January 2018
Addition / (reduction)
As at 31 December 2018
£’000
13
-
(13)
-
-
-
-
-
-
£’000
428
-
428
Deferred tax assets and liabilities may only be offset where the Group has a legally enforceable right to
do so.
55
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
23. DEFERRED TAX ASSET continued
The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
Deferred tax assets
31 DECEMBER
2018
£’000
31 DECEMBER
2017
£’000
428
428
At the Statement of Financial Position date, the Group has unused tax losses of £10.4m (2017: £4.6m)
available for offset against future profits. A deferred tax asset of £428,000 (2017: £428,000) has been
recognised as the Group expects to be able to restructure to utilise these losses. No deferred tax asset
has been recognised in respect of the remaining tax losses as there is some uncertainty as to the timing of
future expected profit.
24. TRADE AND OTHER RECEIVABLES
Prepayments
Other debtors
Trade receivables
31 DECEMBER
2018
£’000
31 DECEMBER
2017
£’000
187
369
600
213
343
558
1,156
1,114
The Directors consider that the carrying amount of trade and other receivables is approximately equal
to their fair value. All trade and other receivables represent current receivables which are due within
12 months.
25. SUBSIDIARIES
Kingswood Holdings Limited, a parent company incorporated in Guernsey, has the following subsidiaries as
at 31 December 2018:
KW Wealth Group Limited (“KWWG”) – formerly
European Wealth Management Group Limited
(“EWMG”) (UK Company)
KW Investment Management Limited (“KWIM”) –
formerly European Investment Management Limited
(“EIM”) (UK Company)
KW Wealth Planning Limited (“KWWP”) – formerly
European Financial Planning Limited (UK Company)
KW Trading Services Limited (“KWTS”) – formerly
European Wealth Trading Limited (UK Company)
EIM Nominees Limited (UK Company)
XCAP Nominees Limited (UK Company)
Marchant McKechnie Independent Financial
Advisers Limited (UK Company)
(acquired 1 October 2018)
100% owned subsidiary
100% owned by KWWG
100% owned by KWWG
100% owned by KWWG
100% owned by KWIM –
non trading company
100% owned by KWIM –
non trading company
100% owned subsidiary
Holding
Company
Investment
management
Wealth
planning
Investment
management
Nominee
Company
Nominee
Company
Wealth
planning
56
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
26. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
31 DECEMBER
2018
£’000
31 DECEMBER
2017
£’000
2,410
9,799
Client money
Client money held in segregated accounts but not included in the Statement of Financial Position was
£26.4m at 31 December 2018 (31 December 2017: £32.8m).
27. TRADE AND OTHER PAYABLES
Trade payables
Accruals and other creditors
Deferred consideration
Other taxation and social security
31 DECEMBER
2018
£’000
31 DECEMBER
2017
£’000
263
1,353
1,200
515
3,331
891
1,529
527
218
3,165
The Directors consider that the carrying amount of trade payables approximates to their fair value.
The deferred consideration payable is due to be paid in cash.
28. SHORT TERM BORROWINGS
Short term borrowings
31 DECEMBER
2018
£’000
31 DECEMBER
2017
£’000
-
10,367
In March 2017, KHL entered into two facility agreements, each for £250,000, with Phoenix Investments Inc
and Michael Mechas. At 31 December 2018 these had both been repaid (2017: £250,000 and £221,688
was outstanding respectively).
On 7 November 2017, KHL entered into a Convertible Facilities Agreement with KPI (Nominees) Limited.
As part of this agreement, KHL had access to two facilities as follows:
1. £10m term facility loan
2. $5m term facility loan
Each facility had a duration of three years, an interest rate of 7.5%, an underwriting fee of 1%, an
arrangement fee of 0.75% and a non-utilisation fee of 0.5%.
In the year ended 31 December 2018, £7m was converted into equity. See note 30 for further details.
At 31 December 2018, £4.9 million of borrowing capacity remained under the facilities.
57
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29. OTHER NON-CURRENT LIABILITIES
Hire purchase creditor
Deferred consideration
30. SHARE CAPITAL AND SHARE PREMIUM
31 DECEMBER
2018
£’000
31 DECEMBER
2017
£’000
4
1,200
1,204
32
-
32
Ordinary shares issued:
Fully paid
Share capital and premium movements:
Opening balance as at
1 January 2017
Issued during year
Transferred to Retained Earnings
As at 31 December 2017
Issued during year
As at 31 December 2018
2018
SHARES
2017
SHARES
2018
£’000
2017
£’000
154,870,667
100,317,338
7,743
5,016
NUMBER OF
ORDINARY SHARES
IN THOUSANDS
PAR VALUE
£’000
SHARE
PREMIUM
£’000
TOTAL
£’000
25,187
75,130
-
100,317
54,554
154,871
1,270
3,746
13,596
6,376
14,866
10,122
-
(19,972)
(19,972)
5,016
2,727
7,743
-
6,274
6,274
5,016
9,001
14,017
Ordinary shares have a par value of £0.05. They entitle the holder to participate in dividends, and to share
in the proceeds of winding up the company in proportion to the number of, and amounts paid on, shares
held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is
entitled to one vote and upon a poll each share is entitled to one vote.
KHL does not have a limit on the amount of authorised capital.
Movements in ordinary shares can be summarised as follows:
On 17 January 2017, KHL issued 854,735 ordinary shares of 5p each at an issue price of 51.6p per share as
part of the consideration for the acquisition of ISM.
On 1 March 2017, KHL issued 626,808 ordinary shares of 5p each at an issue price of 53.4p per share as
part of the consideration for the acquisition of Compass.
On 27 July 2017, KHL announced the completion of a placing of 72,786,620 ordinary shares of 5p each at
an issue price of 12.8p per share to raise £9,196,078.
On 21 September 2017, KHL issued 78,886 ordinary shares of 5p each at an issue price of 21p per share as
part of the consideration for the acquisition of Bells.
58
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
30. SHARE CAPITAL AND SHARE PREMIUM continued
On 13 October 2017, KHL issued 637,158 ordinary shares of 5p each at an issue price of 19.6p per share as
part of the consideration for the acquisition of CIMCO.
On 31 December 2017, KHL issued 146,023 ordinary shares of 5p each in settlement of share options.
On 29 May 2018, KPI (Nominees) Limited converted £7,062,221 under the Convertible Facilities
Agreement into 42,801,341 ordinary shares of 5p each at the conversion price of 16.5p.
On 29 May 2018, KHL issued 3,831,988 ordinary shares of 5p each at the conversion price of 16.5p per
share as part of a staff share issue.
On 2 August 2018, Astoria Investments Limited subscribed for 7,920,000 new ordinary shares of 5p each at
an issue price of 16.5p raising proceeds of £1,306,800.
31. NOTES TO THE CASH FLOW STATEMENT
Cash and cash equivalents comprise cash and cash equivalents with an original maturity of three months
or less. The carrying amount of these assets is approximately equal to their fair value. Cash and cash
equivalents are detailed in note 26.
(Loss)/profit before tax
Adjustments for:
Finance costs
Forex
Expenses charged to capital
CLS redemption charge
Depreciation and amortisation
Share-based payment expense
Loss on disposal of subsidiary
Impairment of goodwill / subsidiaries
Other gains / (losses)
Bad debt expense
Exceptional items
Movements in deferred consideration
Operating cash flows before movements in working capital
Decrease/(Increase) in receivables
(Decrease)/Increase in payables
2018
£’000
2017
£’000
(4,718)
(5,939)
18
(70)
-
-
598
4
945
-
316
-
-
-
(2,907)
(42)
(918)
704
4
(1,043)
(203)
670
10
-
(2,330)
-
200
3,380
(1,865)
(6,412)
(177)
3,562
Net cash in/(out) flow from operating activities
(3,867)
(3,027)
59
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
31. NOTES TO THE CASH FLOW STATEMENT continued
Changes in liabilities arising from financing activities, including both changes arising from cash flows and
non-cash changes are shown below:
As at 1 January 2018
Cash flows
Non-cash flows:
Deferred consideration
Hire purchase creditor
Conversion of term and working capital
Facility and amortised loan costs
As at 31 December 2018
NON-CURRENT
LIABILITIES
£’000
SHORT-TERM
BORROWINGS
£’000
TOTAL
£’000
32
-
1,200
(28)
-
-
1,204
10,367
10,399
(3,867)
(3,867)
-
-
1,200
(28)
(6,700)
(6,700)
200
-
200
(1,204)
32. OPERATING LEASE ARRANGEMENTS
At the Statement of Financial Position date, the Group had outstanding commitments for future minimum
lease payments under non-cancellable operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
Minimum lease payments under operating leases recognised
as an expense in the year
31 DECEMBER
2018
£’000
31 DECEMBER
2017
£’000
187
756
943
224
239
463
31 DECEMBER
2018
£’000
31 DECEMBER
2017
£’000
171
306
Operating lease payments represent rentals payable by the Group on office leases which are generally
negotiated for an average five year term.
60
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018
33. SHARE BASED PAYMENTS
Employee Option Plan
The Group has one share option scheme established for the Group’s employees or consultants (as
appropriate):
• The European Wealth Group Limited EMI Scheme 2014, an HMRC approved scheme under Schedule
4 of the Income Tax (Earnings and Pensions) Act 2003 pursuant to which options over ordinary shares
of the Group may be granted to individuals (as selected by and in amounts determined by the Group’s
Remuneration Committee) who are employees of the Group.
If options granted under any of the schemes remain unexercised for a period of 10 years from the date of
grant then the options expire. In certain circumstances, options may be exercised earlier than the vesting
date if the option holder ceases to be an employee of the relevant Group company. In particular, options
may be exercised for a period of six months after the option holder ceases to be employed within the Group
by reason of injury, ill health or disability (evidenced to the satisfaction of the Remuneration Committee),
redundancy or retirement on or after reaching the age of 55 or upon the sale or transfer out of the Group of
the relevant Group member or undertaking employing or contracting with him/her.
In the event of cessation of employment or engagement of the option holder by reason of his/her death,
his/her personal representatives will be entitled to exercise the option within twelve months following
the date of his/her death. Where an option holder ceases to be employed within the Group for any other
reason, options may also become exercisable for a limited period at the discretion of the Remuneration
Committee. There are no additional performance conditions attached to the share options presently issued.
AVERAGE
EXERCISE PRICE
PER SHARE
OPTION
2018
PENCE
NUMBER OF
OPTIONS
2018
AVERAGE
EXERCISE PRICE
PER SHARE
OPTION
2017
PENCE
NUMBER OF
OPTIONS
2017
Outstanding as at 1 January
71.98
436,440
42.28
1,352,940
Granted during the year
Exercised during the year *
Forfeited during the year
Outstanding as at 31 December
Vested and exercisable at 31 December
-
-
58.49
77.21
-
-
(121,940)
314,500
162,000
-
0.02
28.90
71.98
-
(146,018)
(770,482)
436,440
238,940
*The weighted average share price at the date of exercise of options exercised during the year ended
31 December 2018 was nil (2017 – 34.75p).
No options expired in 2018 or 2017.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
GRANT DATE
1 April 2012
4 August 2014
1 August 2016
Total
EXPIRY DATE
EXERCISE
PRICE
PENCE
SHARE OPTIONS
31 DECEMBER
2018
SHARE OPTIONS
31 DECEMBER
2017
31 March 22
25.30
-
39,440
3 August 24
100.00
162,000
199,500
31 July 26
53.00
152,500
197,500
314,500
436,440
Weighted average contractual life of
options outstanding at end of period
6.56 years
7.28 years
61
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
33. SHARE BASED PAYMENTS continued
Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of
employee benefit expense were as follows:
Options issued under employee option plan
34. FINANCIAL INSTRUMENTS
2018
£’000
4
2017
£’000
10
The following table states the classification of financial instruments and is reconciled to the Statement of
Financial Position:
Financial assets measured at amortised cost
Trade and other receivables
Cash and bank balances
Financial liabilities measured at amortised cost
Trade and other payables
Short term borrowing
Other non-current liabilities
2018
CARRYING
AMOUNT
£’000
2017
CARRYING
AMOUNT
£’000
969
2,410
901
9,799
(3,331)
(3,165)
-
(10,367)
(1,204)
(1,156)
(32)
(2,864)
Credit Risk
Credit risk represents the risk that a counterparty to a financial instrument will fail to discharge an
obligation or commitment that it has entered into with the Group. Credit risk is monitored on a regular basis
by the finance team along with support from back office functions with the respective business divisions.
The carrying amounts of financial assets best represent the maximum credit risk exposure at the Statement
of Financial Position date.
At the reporting date, the Group’s financial assets exposed to credit risk were as follows:
Cash
Trade and other receivables
31 DECEMBER
2018
£’000
31 DECEMBER
2017
£’000
2,410
1,156
3,566
9,799
1,114
10,913
The Group’s exposure to credit risk on cash and bank balances is considered by the Directors to be low as
the Group holds accounts at banks with strong credit ratings.
Trade and other receivables were neither impaired nor past due on the reporting date.
62
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 34. FINANCIAL INSTRUMENTS continued
Liquidity Risk
Liquidity risk represents the risk that the Group will be unable to meet its financial obligations as they fall
due. The controls and limits surrounding the Group’s credit risk together with cash monitoring processes
ensure that liquidity risk is minimised.
The below table illustrates the maturity profile of all financial liabilities outstanding as at 31 December
2018.
As at 31 December 2018
Trade payables
Other payables
Finance lease liabilities
As at 31 December 2017
Trade payables
Other payables
Borrowings
Finance lease liabilities
REPAYABLE
ON DEMAND
£’000
REPAYABLE
BETWEEN
0 AND 6
MONTHS
£’000
REPAYABLE
BETWEEN
6 AND 12
MONTHS
£’000
REPAYABLE
AFTER MORE
THAN 12
MONTHS
£’000
-
-
-
-
-
-
-
-
-
263
3,068
4
3,335
891
2,207
10,367
32
13,497
-
-
-
-
-
67
-
-
67
-
1,200
-
1,200
-
-
-
-
-
TOTAL
£’000
263
4,268
4
4,535
891
2,274
10,367
32
13,564
Market Risk
As with other firms in our sector, the Group is vulnerable to adverse movements in the value of financial
instruments. The Group’s business will be partially dependent on market conditions. Adverse market
conditions may have a significant negative effect on the Group’s operations through reducing the assets
under management. Market conditions may be affected by Brexit decisions.
Interest Rate Risk
Interest rate risk is the risk of financial loss as a result of an increase in interest rates on borrowings.
Sensitivity analysis has not been performed on the Group as all of the Group’s interest bearing instruments
are at fixed rates. As such, a 10% movement in interest rates would have an immaterial impact on the
financial statements.
63
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
35. RELATED PARTY TRANSACTIONS
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out
below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further
information about the remuneration of individual Directors is provided in the audited part of the Directors’
Remuneration Report on page 26.
Short-term employee benefits
Post-employment benefits
Termination benefits
YEAR ENDED
31 DECEMBER
2018
£’000
YEAR ENDED
31 DECEMBER
2017
£’000
430
30
-
460
566
107
346
1,019
During the year ended 31 December 2018, KWIM charged fees totalling £442 (2017: £1,802) to related
parties who have assets managed by KWIM. In addition, KWTS charged commission on trades for related
parties of £18,436 (2017: £2,571). This cash was managed at the standard rate for staff and related parties.
During the year, KHL incurred fees of £20,242 from KPI (Nominees) Ltd, the Group’s major shareholder
(2017: £735,014). At 31 December 2018 of this, £nil was outstanding (2017: £385,697). The majority of the
2017 balance related to fees charged in relation to the June 2017 refinancing in and to the financing of the
aborted Newbridge acquisition.
Fees paid to Moor Park Capital Partners LLP, of which Gary Wilder is a partner, totalled £167,428 for the
year to 31 December 2018 (2017: £41,250), of which £nil (2017: £41,250) was outstanding at
31 December 2018.
Fees paid to Kingswood LLP, of which Jonathan Massing is a partner, totalled £25,038 for the year to
31 December 2018 (2017: £nil), of which £nil (2017: £nil) was outstanding at 31 December 2018.
Fees paid to Kingswood Corporate Finance Limited of which Jonathan Massing is a director, totalled
£85,812 for the year to 31 December 2018 (2017: £nil), of which £85,812 (2017: £nil) was outstanding at
31 December 2018.
36. CAPITAL MANAGEMENT
The primary objective of the Group’s capital management is to ensure that it maintains a strong capital
structure in order to support the development of its business and maximise shareholder value. Details of
the management of this risk can be found in the Strategic Report and the Directors’ Report.
In addition, KWIM, KWTS, KWWP and Marchant McKechnie are regulated by the FCA and must comply
with the FCA capital adequacy rules and regulations.
37. ULTIMATE CONTROLLING PARTY
The Directors do not consider there to be an ultimate controlling party for the Group.
38. EVENTS AFTER THE REPORTING PERIOD
On 1 February 2019, KHL acquired the Thomas & Co book of business for a maximum cash consideration
payable of £3.3m. The consideration comprises an initial cash payment of £1.5m and a further deferred sum
of maximum £1.8m which is subject to the achievement of revenue and profitability metrics over a
three-year period. The acquisition is expected to be immediately earnings accretive to the Group, with
future income growth anticipated from additional revenue enhancement and cost synergies.
In Q1 2019, a Group LTIP plan was announced for its key employees. Through this scheme the Partners will
have a significant portion of their compensation aligned with Group targets, with some subject to Group
target EBITDA and TSR performance conditions, and some subject to Group target EBITDA and individual
portfolio targets.
64
KINGSWOOD HOLDINGS LIMITED Annual Report and Financial Statements for the year ended 31 December 2018 ADVISERS AND
COMPANY INFORMATION
Auditor
BDO LLP
Chartered Accountants and Statutory Auditor
150 Aldersgate Street
London
EC1A 4AB
Nominated Adviser and Broker
finnCap
60 New Broad Street
London
EC2M 1JJ
Registrars
Link Asset Services
Corporate Actions
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Company’s Registered Office
Regency Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 1WW
Company’s Registered Number
42316
Kingswood Holdings Limited
13 Austin Friars
London
EC2N 2HE
info@kingswood-group.com
020 7293 0730
kingswood-group.com