REG - Kingswood Holdings - Kingswood sees record revenue and operating profit
30/06/2022 07:15
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RNS Number : 7473Q Kingswood Holdings Limited 30 June 2022
30(th) June 2022
KINGSWOOD HOLDINGS LIMITED
("Kingswood", the "Company" or the "Group")
2021 Results
- 2021: another transformational year for Kingswood with record
levels of revenue and operating profit
- Revenue of £149.7m increased by 488% compared to 2020 and
operating profit increased by £5.5m to £6.3m, reflecting the successful
integration of acquisitions in the UK and growth in the US
- Kingswood UK continues to build a leading international
integrated wealth and investment management business, completing 9 UK
acquisitions since August 2021 adding £5.1m annual operating profit and
c.£2.6bn Assets under Management and Advice (AUM/A) to the Group
- Kingswood US raised over $9.0bn capital for Investment Banking
clients in 2021 and increased the number of registered representatives in its
Registered Investment Adviser (RIA) and Independent Broker Dealer (IBD)
business by 21% to 211
Kingswood Holdings Limited (AIM: KWG), the international, fully integrated
wealth and investment management group, is pleased to announce its audited
financial results for the year ended 31 December 2021.
David Hudd, Kingswood Chairman, commented: "In my first year as Chair of
Kingswood I have been impressed by the strong progress we are making in
achieving our long-term strategy to become a leading international fully
integrated wealth and investment management business. I am immensely proud of
our dedicated team who have navigated the continued challenges of the COVID-19
pandemic throughout 2021, while delivering outstanding service to our clients
in the UK and US.
"Despite the challenges faced, I am pleased to report record levels of revenue
and operating profit with significant growth across Wealth Planning,
Investment Management, and the US. We have a strong, well-capitalised balance
sheet and have benefited from our partnership with Pollen Street Capital who
have now invested £77.4m to enable our acquisition and growth strategy."
Strategic Highlights
- Group AUM/A increased by 15% in the year to £6.8bn - 10% driven
by organic growth and 5% through acquisitions.
- Kingswood now comprises 292 people across the globe managing
£9.0bn of client assets.
- Completed 4 acquisitions in the UK during 2021, adding £2.4m annual
operating profit and c.£1.8bn Assets under Management and Advice (AUM/A) to
the Group
- A further 5 UK acquisitions completed during H1'22 - Allots
Financial Services, Joseph R Lamb Financial Advisers, DJ Cooke Life and
Pensions, AiM Independent Financial advisers and Vincent & Co Ltd.
Collectively these acquisitions add £2.7m of annual operating profit and
c.£0.8bn AUA to the Group.
- 8 UK acquisitions are currently in exclusive due diligence,
comprising a total of £7.7m annual operating profit, and are expected to
conclude in the third quarter of 2022.
- Kingswood US raised over $9.0bn capital for Investment Banking clients
in the year. Increased the number of registered representatives in its
Registered Investment Adviser (RIA) and Independent Broker Dealer (IBD)
business by 21% to 211, supporting growth in AUM by £0.5bn to c.$2.5bn.
- The strategic acquisition of IBOSS in the UK transforms our
Central Investment Proposition and gives us a long-term track record of high
performance and award-winning service proposition.
- Launch of 'Kingswood Go', providing clients with easier online
access to their investment portfolio
David Lawrence, Kingswood Chief Executive Officer, commented: "Kingswood
continues to demonstrate a strong track record in sourcing and securing
acquisitions and in doing so is quickly building scale. We have a
single-minded focus on both Financial Advice / Planning and Investment
Management activity, relying on leading market external expertise for other
aspects of the client value-chain.
"I believe to be a truly successful firm we must put the client at the heart
of the relationship, be highly accessible, have a clear proposition and most
importantly provide great value for money. Our staff and technology are key
enablers to deliver this success and will therefore be critical pillars of our
strategy today and moving forwards."
Mike Nessim, Kingswood US Chief Executive Officer, commented: "2021 was
another year of growth and business expansion for Kingswood US. We continue to
seek out strategic relationships, allowing advisers to expand their
infrastructure and technology ecosystem, and work with innovative investment
providers, in order to help meet the needs of our financial advisers and their
clients."
2021 Financial Highlights
- Group revenue for the year was £149.7m, a 488% increase on prior
year reflecting the impact of acquisitions and growth in the US.
- 87% of the UK's revenue is recurring in nature, providing a strong,
annuity-style fee stream. Investment Banking Fees are a larger portion of
Kingswood US revenues, and transactional in nature, which means that recurring
revenue in the US was 7.4%
- Operating Profit of £6.3m was £5.5m higher than 2020 largely
reflecting the additional contribution of acquisitions. The Kingswood Board
believes Operating Profit is the most appropriate indicator to explain the
underlying performance of the Group. The definition of Operating Profit is
profit before finance costs, amortisation and depreciation, gains and losses,
and exceptional costs (business re-positioning and transaction costs).
- The Group had £42.9m of cash as at December 2021, an increase of
£39.0m since 31 December 2020, largely driven by further investment from our
private equity partners at Pollen Street Capital.
Jon Millam, Kingswood Chief Financial Officer, commented: "Despite the
continued uncertainty resulting from periods of lockdown and economic
volatility the Group delivered material improvements in financial performance
across its operating segments, supported by strong asset inflows, both
organically and through acquisitions.
"Kingswood's financial strategy is to maintain a robust and disciplined
balance sheet to ensure no deferred liability remains uncovered from a funding
perspective, and we will continue to have a disciplined approach to expense
management.
"With a strong pipeline of activity our near-term target is to build our UK
AUM/A in excess of £10bn in the UK and £12.5bn globally. Our medium-term
target remains £20m Operating Profit and we believe that with our current
acquisition pipeline and organic growth trajectory this is achievable."
An abridged presentation of Kingswood's results and strategic direction is
available on the website https://www.kingswood-group.com/financial-reports/
(https://www.kingswood-group.com/financial-reports/)
The annual report will shortly be sent to shareholders and is available to be
viewed or downloaded from the Company's
website: https://www.kingswood-group.com/financial-reports/
ENDS
For further details, please contact:
Kingswood Holdings Limited +44 (0)20 7293 0730
David Lawrence www.kingswood-group.com (http://www.kingswood-group.com/)
finnCap Ltd (Nomad & Broker) +44 (0)20 7220 0500
Simon Hicks / Abigail Kelly
GreenTarget (for Kingswood media) +44 (0)20 7324 5498
Jamie Brownlee / Alice Gasson / Ellie Basle Jamie.Brownlee@greentarget.co.uk (mailto:Jamie.Brownlee@greentarget.co.uk)
About Kingswood
Kingswood Holdings Limited (trading as Kingswood) is an AIM-listed (AIM: KWG)
international fully integrated wealth management group with circa £9.0bn
billion of Assets under Advice and Management. It services circa 19,000
clients from a growing network of offices in the UK including Abingdon,
Beverley, Conisbrough, Darlington, Derby, Eastleigh, Grimsby, Harrogate,
Hull, Lincoln, London, Maidstone, Newcastle, Sheffield (2), Worcester and
York with overseas offices in Johannesburg, South Africa and Atlanta, New
York and San Diego in US.
Kingswood offers a range of trusted investment solutions to its clients, which
range from private individuals to some of the UK's largest universities and
institutions, including investment advice and management, personal and company
pensions and wealth planning. Kingswood is focused on becoming a leading
player in the wealth and investment management market through targeted
acquisitions in the UK and US, creating a global business through strategic
partnerships.
Registered office address: Mont Crevelt House, Bulwer Avenue, St. Sampson,
Guernsey, GY2 4LH
Company Registration No. 42316 (Guernsey)
KINGSWOOD HOLDINGS LIMITED
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
· Kingswood Holdings Limited and its subsidiaries (the "Group" or
"Kingswood") is an international, fully integrated wealth and investment
management business listed on the AIM market of the London Stock Exchange
under ticker symbol (AIM: KWG).
· Kingswood offers a range of wealth planning and investment
management solutions to its clients, which range from private individuals to
some of the UK's largest universities and institutions. Kingswood is
focussed on becoming a leading participant in its sector through targeted
acquisitions in the UK and US, complemented by strong organic growth to
create a global wealth management business.
· The Group's core proposition centres on primary offerings in
wealth planning and investment management to deliver best in class financial
solutions for clients.
2021 HIGHLIGHTS
Strategic Highlights
· Several key UK acquisitions were completed in 2021,
including Admiral Wealth Management Ltd, Smythe and Walter Ltd, Money
Matters (North-East) Ltd, contributing to an increase in Kingswood's reported
Assets under Management and Advice (AUM/A) balance to £6.8bn at 31 December
2021. Metnor Holdings Limited was acquired on 31 December 2021 with AUM of
£1.5bn, increasing the Group AUM/A to £8.3bn.
· A further five UK acquisitions have completed in 2022, as
outlined in note 33 of the Notes to the Financial Statements, contributing to
an increase in Group AUM/A to c.£9.0bn.
· In March 2022, we launched the 'Kingswood Go' app to provide
clients with easier access to their investments. The app consolidates
available financial data into one place to present a clear view of a client's
finances, provides safe storage of key documents and a secure messaging system
that allows clients to contact their investment manager and Kingswood adviser
directly.
· 2021 was a year of growth for the Kingswood US Registered
Investment Adviser (RIA) and Independent Broker Dealer (IBD) business. We
increased the number of registered representatives by 37 to 211 and grew our
total assets under management by $0.5bn to $2.5bn.
· The Kingswood US Investment Banking business completed over 100
transactions with over $9.0bn capital raised for clients.
· In January 2022, Kingswood Capital Partners and Skyway
Capital Markets LLC announced an exclusive partnership in which the Skyway
investment banking team will work closely with Kingswood advisors and their
clients to execute M&A transactions.
2021 Financial Highlights
· Group revenue was £149.7m, a 488% increase on prior year (2020:
£25.5m), reflecting growth in the US and the impact of 2020 and 2021 in-year
acquisitions in the UK.
· 87% of the UK's revenue is recurring in nature, providing a
strong, annuity-style fee stream. Investment Banking Fees are a larger
portion of Kingswood US revenues, and transactional in nature, which mean that
recurring revenue in the US was 7.4%. Combined, Group recurring revenue was
19.0%.
· Operating Profit of £6.3m was £5.5m higher compared to
2020. The Kingswood Board believes Operating Profit is the most appropriate
indicator to explain the underlying performance of the Group. The definition
of Operating Profit is profit before finance costs, amortisation and
depreciation, gains and losses, and exceptional costs (business re-positioning
and transaction costs).
£000's (Unless otherwise stated) 2021* 2020 2019
Total Revenue 149,716 25,477 10,053
Recurring Revenue % 19.0% 61.0% 83.0%
Operating Profit 6,327 862 211
Total Equity 76,898 50,152 28,201
AUM/A (£m) 6,772 5,912 2,471
# of Advisers - UK 70 64 40
# of Authorised Representatives - US 211 174 -
*AUM/A excludes the impact of Metnor Holdings Limited, which was acquired on
31 December 2021 with AUM of £1.5bn. Including Metnor 2021 AUM/A increases
to £8.3bn
CHAIRMAN'S STATEMENT
In my first year as Chair of Kingswood I have been impressed by the strong
progress we are making in achieving our long-term strategy to become a leading
international fully integrated wealth and investment management business. I am
immensely proud of our dedicated team who have navigated the continued
challenges of the pandemic in 2021, while delivering outstanding service to
our clients both in the UK and US.
2021 has been a transformational year for Kingswood. Despite the challenges
faced, I am pleased to report record levels of revenue and operating profit
with significant growth across Wealth Planning (WP), Investment Management
(IM), and the US. We have a strong, well-capitalised balance sheet and have
benefited from our partnership with Pollen Street Capital which has now
invested £77.4m to enable our acquisition and growth strategies. Through
investment and growth, at the time of writing this report we employ 292 people
across the globe and manage c.£9.0bn of client assets.
In the UK, Kingswood has completely transformed itself within the space of a
few years creating a highly successful, fast growing, vertically integrated
wealth and investment management business. The UK wealth management sector
continues to exhibit strong, long-term growth characteristics supported by
demographic trends, a complex regulatory environment, and ongoing
consolidation within a fragmented industry. Our acquisition strategy takes
advantage of this by providing a seamless transition process with a
centralised support service and investment proposition that allows advisers to
spend more of their time with their clients. Since 2018, the Group has
acquired 14 UK wealth management businesses which are projected to deliver
strong, sustainable revenues and operating profit. We now have over 85
financial advisers and investment managers operating across 18 regional
offices to support our retail and institutional client base. Under the
leadership of David Lawrence, growth is supported by a strong and unrelenting
focus on our client experience, supported by a progressive investment in
technology and an equal investment in our colleagues, all of which is
underpinned by strong integration and operational excellence.
Under the leadership of Mike Nessim, our US CEO, the US business has delivered
exceptional levels of growth in 2021 through three core divisions: Independent
Broker Dealers, Registered Investment Advisers, and Investment Banking. The
Investment Banking business completed over 100 transactions, raising
c.$9.0bn capital for clients. The RIA and IBD business increased its advisor
representatives to 211 by December 2021, managing c.$2.5bn of client assets.
With a strong business model and an exceptional leadership team playing in the
largest global wealth management market, the Kingswood US business is well set
for further growth in the coming years.
The Board places great importance on building a business with strong
governance and a culture that supports sustainable long-term success. With
that in mind we focus on where we can make the largest positive impact on the
environment, both in measuring and reducing our carbon footprint and offering
clients a suite of ESG portfolios which consider environmental social and
governance issues. We are committed to creating a workplace and culture that
is welcoming and inclusive for everyone and have taken steps to enhance this
in 2021 through the creation of an employee-led Diversity and Inclusion Forum.
We will continue to make a significant investment in Learning and
Development for all colleagues by launching career paths and supporting
colleagues with their professional and career development.
We are investing in our client experience through technology and other means.
We launched our client portal in 2021 in the UK, Kingswood Go, which allows
clients to have single sign-on single client view across multiple platforms
which has transformed our client experience. In the US we have invested in
technology infrastructure to provide advisors with a superior integrated
wealth management platform offering products such as Annuities, Equities,
Alternatives, and Mutual Funds. In addition, Kingswood US has integrated a
new fully automated alternative platform, a fully automated CRM and a leading
back-office processing system.
The Board continues to operate a robust risk management framework so that we
can maintain compliance with our regulatory responsibilities and ensure both
customers and suppliers are always treated fairly. Jonathan Freeman, in his
capacity as an independent Non-Executive Director, continues to assume
responsibility for ensuring that the Group has appropriate corporate
governance standards in place and that these standards are applied within the
Group as a whole.
We were delighted to have recently announced that David Lawrence has been
appointed to the Board as Chief Executive Officer. The Board is confident
David will take the business to another level over the coming years to fully
realise its potential. I would like to express huge thanks to Gary Wilder for
stepping into the Group CEO role over three years ago and having the vision
for what Kingswood can become both domestically and internationally. The
Board will continue to benefit from this as Gary steps back into a
non-executive role. Jon Millam was appointed to the role of Group Chief
Financial Officer in August 2021, joining us with the credentials to lead our
finance function through the next stage of our journey. I am also pleased to
welcome Richard Avery-Wright to the Boards of our UK regulated subsidiaries,
KW Wealth Planning Limited and KW Investment Management Limited. Richard will
be a strong addition to the Group's governance and brings a deep and highly
successful track record of building and creating value.
Turning to 2022, the terrible events unfolding in Ukraine, the re-emergence of
significant geopolitical risk and inflationary pressure have created a great
deal of uncertainty in the outlook for the year. Despite these
macro-economic pressures, however, I expect 2022 to be another
transformational year for the Group. We have already completed five UK
acquisitions this year and have a strong pipeline for future acquisitions. The
US has successfully recruited seven financial advisers who collectively
oversee $295m in client assets. The progress that David and Mike and their
respective teams have made in the last two years will ensure we continue to
deliver on our strategic priorities and remain well placed for growth as we
move forwards.
Finally, on behalf of the Board, I would like to thank our management team and
all our colleagues for their effort, focus and commitment to achieving our
goals in what has continued to be a challenging operating environment.
David Hudd
Chairman
Date: June 2022
GROUP CHIEF EXECUTIVE OFFICER STATEMENT
Introduction
I am delighted to present our financial results for 2021, my first full
financial year as UK Chief Executive Officer. 2021 was a year which saw
significant progress in the growth of both our UK and US businesses. Whilst I
joined the board of Kingswood Holdings Limited as Chief Executive Officer in
April 2022, for the purpose of these results I have focused my commentary on
the progress of the UK business, and am grateful to Mike Nessim, whose
exceptional leadership is delivering a great performance in the US, for his
separate commentary on the US.
Market Overview
Despite the general economic uncertainty, the UK wealth management sector
continues to exhibit strong, long-term growth characteristics as supported by
demographic trends, increasing complexity in laws and regulations and the
consolidation of what is a highly fragmented sector in financial services.
The so called "advice gap" represents a significant opportunity for firms to
provide accessible advice to clients that are either under-served or in many
cases unserved. The need for financial advice has never been greater and in
this sense firms such as Kingswood can help fulfil what I believe to be a
societal need.
Our clients want us to provide sound advice on some of the things that matter
most in life. They trust us to do this well and, in most cases, also want us
to manage their investments. This convergence of financial advice and
investment management is the cornerstone of Kingswood's strategy and business
model.
The resilience of the sector during Covid-19, the speed and scale of
regulatory change and higher sale multiples continues to drive high levels of
consolidation. Multiple numbers of acquirers are now also operating in the
sector making for a highly competitive environment. Despite this, Kingswood
continues to demonstrate a strong track record in sourcing and securing
acquisitions and in doing so is quickly building scale. The opportunity
remains strong with over 2,750 firms across UK with 2-50 advisers representing
potential targets.
Business overview
We have a single-minded focus on both Financial Advice / Planning and
Investment management activity, relying on leading market external expertise
for other aspects of the client value-chain.
Our Financial Advisers take time to understand our clients, their goals and
what is important to them. From this, we are then able to provide a
comprehensive range of solutions to meet their needs. By building enduring
relationships with clients, we can help realise the best of financial outcomes
for them. Our taglines of 'Advice Every Step of the Way' and 'Protect and
Grow' are perfect manifestations of this.
Our investment managers and research teams have deep capability in both the
manufacture and distribution of investment solutions, where we can exhibit a
strong long-term track record of high performance and low volatility and a
great level of client support and service.
For our Kingswood advisers, we operate a Central Investment Proposition (CIP)
which is Discretionary in nature and comprises a set of active risk rated core
Model Portfolios. Complementary models are also available such as Passive, ESG
and / or Income variants. These solutions are available on most of the
recognised third-party platforms. For some clients with more complex needs, we
also offer a more personalised, tailored approach, including the introduction
of an investment manager into the client relationship where appropriate.
Following the acquisition of IBOSS Asset Management (IBOSS AM) in December
2021, our new client CIP is now the IBOSS range of model portfolios. Work is
underway to align the Kingswood MPS to this during 2022. Through IBOSS, the
business now also distributes discretionary and advisory solutions to IFA
firms across the UK that complement our internal distribution.
For the institutional market, our long-standing Fixed Income business provides
a treasury service to institutional clients, typically UK Universities.
Delivering Business Growth
The UK strategy is focussed on building a leading business in the sector. Our
delivery of this is through the optimising of a series of value drivers:
1. Acquisition
I am delighted that we were able to purchase the businesses of Admiral Wealth
Management, Smythe and Walters, Money Matters (North East), and Metnor
Holdings (compromising Novus Financial Services and IBOSS AM) in 2021.
Collectively these acquisitions add £2.4m of annual operating profit and
c.£1.8bn AUM/A. The acquisition of Metnor Holdings completed on 31 December
2021, which included c.£1.5bn of AUM/A.
In 2022, Kingswood has purchased a further five businesses - Allots Financial
Services, Joseph R Lamb Financial Advisers, DJ Cooke Life and Pensions, AiM
Independent Financial advisers and Vincent & Co Ltd. Collectively these
acquisitions have added £2.7m of annual operating profit and c.£0.8bn
AUA.
2. Integration
Effective integration is critical to an acquisitive business. We have built a
highly effective, collaborative and repeatable process for integration which
is both client and colleague centric and respectful of the business being
purchased. Ably led by our COO Harriet Griffin, we are now able to
substantially integrate a business within three months of purchase where so
desired.
3. Organic Growth
Kingswood is typically purchasing businesses where the principals remain
committed and, in many cases, have unfulfilled ambition but welcome a freeing
up of some of the bureaucracy that has crept in to allow them to get back to
advising clients. By creating the right environment for this and supporting
the business where needed, all Kingswood purchased businesses are showing
healthy organic growth. I was delighted to hire Hayley Burton to lead our
Midlands and South teams earlier this year and she will work alongside Jeff
Grantham in the North who both provide strong and purposeful leadership.
4. Investment Management
Kingswood's purchase of IBOSS AM has transformed its CIP by introducing an
investment solution that has a long-term track record of high performance and
low volatility, supported by an award-winning service proposition. Capably led
by our CIO Chris Metcalfe and Head of Investment Management, Paul Surguy, the
IBOSS proposition, alongside the Kingswood Personal Portfolio Service creates
a strong investment solution for our clients and enables high levels of asset
migration, where suitable, for the client.
The purchase of IBOSS also created an open market distribution for the
Kingswood Group to UK IFA's. We hope to build on this during 2022 and support
some of these firms with exit strategies as and when appropriate. The
combination of stronger asset flows originating from vertical integration and
a growth in the number of firms served by IBOSS will fuel this driver of
growth.
Nigel Davies continues to ably lead our Fixed Income business, serving the
treasury needs of some leading UK Universities, a business that each year
generates continued and sustainable growth.
5. Building a leading business
a. Under the capable leadership of Rachel Bailey (CPO), we are actively
investing in our colleague proposition with a clear aim to become a magnetic
people business. This includes a significant investment in Learning and
Development for all colleagues, the launch of career paths and supporting
colleagues with their professional and career development. We were delighted
to appoint Ellie Pilkington to lead this area in the latter part of 2021. We
have had two colleagues successfully graduate from our adviser academy and
have launched a new academy programme in 2022.
Diversity is a challenge in our sector. We are a significantly more effective
organisation for the diversity that exists across my leadership team and are
actively working to address imbalance elsewhere, not least in the adviser
community where currently only 15% of our advisers are female.
b. We are investing in our client experience through technology and other
means. We have been delighted to make two senior hires in this area over the
past twelve months - Lucy Whitehead as Chief Client Officer and Christopher
Calvocoressi as Head of Technology Transformation. We launched our client
portal 'Kingswood Go' in 2021 to transform our client experience by enabling a
single client investment view across multiple platforms. We have an ambitious
technology programme to deliver over the next 12-18 months which will digitise
the client journey and open up new propositions for existing and target
clients.
c. We have invested in our Finance and Compliance functions under the
leadership of Jon Millam and Richard Bernstein to create centres of excellence
to support our core and acquired businesses.
Dimensions
As at 31 December 2021, the UK business had 203 employees of which 70 were
client facing financial advisers and investment managers operating from 14
sites across the UK with £1.7bn Assets under Management (AUM) and a further
£3.2bn Asset under Advice (AUA). At time of writing this has increased to
c.270 employees of which 85 are client facing financial advisers and
investment managers operating from 18 sites across the UK with £3.0bn AUM and
£4.0bn AUA.
UK KPIs Now 2021* 2020 2019
Employees 272 203 185 121
Advisers 85 70 64 40
Locations 18 14 11 7
AUM (£bn) 3.0 1.7 1.4 1.0
AUA (£bn) 4.0 3.2 2.8 1.5
Total AUM/A (£bn) 7.0 4.9 4.2 2.5
*AUM/A excludes the impact of Metnor Holdings Limited, which was acquired on
31 December 2021 with AUM of £1.5bn. Including Metnor 2021 AUM/A increases
to £8.3bn
Outlook
Building on the 9 acquisitions completed under my leadership to date and those
that came before, we have a further 8 purchase transactions in exclusive due
diligence comprising a total annual operating profit of £7.7m. We expect to
conclude these transactions in the third quarter of 2022. In addition, we have
a healthy pipeline of future opportunities at various stage of study and
negotiation.
Organic growth is a core focus post integration where we can confidently
expect year on year growth in initial and ongoing fees from accretive assets
under influence.
The purchase of IBOSS is a game changer for Kingswood - it offers a stronger
central investment proposition, provides an independent open market
distribution channel to a growing number of IFA's across the UK and creates
exit strategies for wealth management businesses. All three business
development opportunities are gaining traction in 2022.
I believe to be a truly successful firm we must put the client at the heart of
the relationship, be highly accessible, have a clear proposition and most
importantly provide great value for money. Our staff and technology are key
enablers to deliver this success and will therefore be critical pillars of our
strategy today and moving forwards.
Key Performance Indicators
Jon Millam, Group CFO, presents the financial performance of the Group in his
section but total revenue for the UK was £21.9m in 2021, a £4.7m increase on
the prior year reflecting the impact of recent acquisitions. 87% of UK revenue
is recurring in nature providing a strong, annuity style fee stream which is
critical to delivering sustainable, long term returns to shareholders.
£000's (Unless otherwise stated) 2021 2020 2019
Total Revenue 21,889 17,155 10,053
Recurring Revenue % 87% 84% 83%
WP & IM Operating Profit 6,144 4,273 1,995
AUM/A (£m) 4,883 4,378 2,471
# of Advisers - UK 70 64 40
*AUM/A excludes the impact of Metnor Holdings Limited, which was acquired on
31 December 2021 with AUM of £1.5bn. Including Metnor 2021 AUM/A increases
to £8.3bn
To end, growing a sustainable business at the pace at which we are doing it
requires colleagues who are special individuals. I am proud, not only my
leadership team, but of what everyone at Kingswood does each and every day for
our clients and each other, without which the exciting story as outlined in
this report is not possible.
David Lawrence
Chief Executive Officer
June 2022
US CHIEF EXECUTIVE OFFICER STATEMENT
Introduction
Kingswood US is a premier wealth management firm with over $2.5bn AUM and
offices throughout the United States. With both an SEC-registered RIAs and a
FINRA-licensed broker/dealer in-house alongside an institutional-quality
product offering and a personal approach to service, Kingswood is an ideal
partner for independent financial advisors looking for a new place to call
home. The business also includes Kingwood Capital Markets, a national
investment banking platform that leverages our expanding distribution channels
and drives growth across equity and debt advisory, capital raising and
M&A.
2021 was another year of growth and business expansion for Kingswood US. We
added 37 new registered representatives, which further expanded our US
footprint and grew our AUM by $0.5bn. We continued to grow the team, seek out
strategic relationships to help these advisors expand their infrastructure and
technology ecosystem, and work with innovative investment providers to help
meet the needs of our financial advisors and their clients.
In June 2021, the banking division of Benchmark Investments changed their name
to EF Hutton. Over the course of 2021, EF Hutton completed over 100 deals -
including IPOs, SPACS, follow-on offerings, preferred stock offerings and debt
placements - raising over $9 billion for their clients across both debt and
equity markets.
Market Overview
The US retail wealth market is large and remains fragmented. The distribution
channels vary substantially in terms of business models and approaches to
client service. The market can be broken down into the broker-dealer channel
(commission-based) and the RIA channel (fee-based).
The total market size is estimated at over $26 trillion with close to 315,000
advisors, representing a 12% 5-year CAGR, with independent market channels
such as IBDs and RIAs experiencing the fastest growth relative to typical
wire-house channels.
The shift to independence by the financial advisor community has been
supported by a number of factors such as greater control of their books and
increased compensation. The overall retail wealth management sector is
experiencing substantial growth due to an aging population with excess
disposable income, overall wealth accumulation, and an increased demand for
financial advisors. Robo-advice is increasingly displacing advisors with
smaller productions at wire-houses, expanding the appeal of independent
platforms where they can continue to service their clients, and creating a
universe of advisors willing and able to move to independent platforms.
The changes in this and other protocols at wire-houses are driving Registered
Representatives to move to independent platforms like Kingswood US, who can
replicate most of the services whilst providing greater flexibility and
independence. Mergers & acquisitions in the independent channels
continued at a record pace due to ever-increasing regulatory costs,
competitive pressures and economies of scale.
Firms continue to look for ways to transition brokerage-based business to
fee-based advisory business (charging a fee based upon assets under
management) as means of generating higher levels of recurring revenue and
accessing greater valuation multiples than that placed on transaction-based
commissions.
Our Core Propositions
Our FINRA-supervised IBD platforms buy and sell securities on behalf of
clients on a commission basis, executing trades and custody of assets. We
offer a fast, smooth service with access to many investment products and
sectors including equities, fixed income, alternatives, and mutual funds. We
also offer insurance products and related services. Through our SEC-registered
RIAs, we provide ongoing wealth, estate, philanthropic, tax and succession
planning services. We generate predictable and recurring revenue streams from
advice and management of our client assets through these programs.
Our strategy for growth can be broken down into four key pillars:
1. Revenue growth
a. Enhanced advisor recruitment efforts supported by the continued
build-out of our in-house recruitment team and relationships with third party
recruiters.
b. Expansion of product offering for advisors with a particular focus on
alternative investments, which can deliver yield and diversification benefits
to investors.
c. Continued build-out of advisory services and the transition existing
commission-based assets to fee-based assets.
2. Margin Expansion
a. Recognise synergies across broker-dealers to drive down costs.
b. Expand upon shared services to enhance efficiency and provide more
product offerings to advisers.
c. Transition away from low margin investment banking and capital markets
revenue towards higher margin commission and fee-based revenue streams.
3. Lift-outs & Acquisitions
a. Expand advisor network via pipeline of potential lift-outs.
b. Continue to add scale through vertical and horizontal consolidation,
with a particular focus on the IBD and RIA channels where valuation multiples
are more attractive and where justification for consolidation is more
pressing.
4. Technology
a. Continue to build upon tech stack through modernisation and
digitisation.
b. Drive scale through technology products.
Key performance indicators
$000's (Unless otherwise stated) 2021 2020 Var. $ Var. %
Total Revenue 175,545 35,318 140,227 397%
Gross Profit 13,347 6,878 6,469 94%
Operating Profit 7,035 2,232 4,803 215%
AUM/A ($m) 2,545 2,071 474 23%
# of Authorised Representatives 211 174 37 21%
*A full year operating performance is presented for 2020 to
provide a like-for-like comparison
Responsible Business Practices
In the Autumn of 2021, Kingswood US announced a partnership with A Friend's
House (https://www.afriendshouse.org/) , a non-profit organization based in
Stockbridge, Georgia that serves as both a shelter and home to youth in
crisis in the Atlanta area. A Friend's House works with the Department of
Family and Children Services to create a permanency plan for each child, which
may include reunification with family or continued foster care
services. Kingswood US is proud to raise money for improvements to their
facility, including new washing machines, a lounge area and an outdoor
courtyard, hosted celebratory events to lift the children's spirits and
provided mentorships for residents seeking them.
Outlook
We remain optimistic about growth in 2022 despite recent turmoil in the US
markets and rising interest rates because we believe it will be driven by a
number of factors, including the recruitment of independent financial advisors
dislocated and frustrated with the challenges they face either in the large
wire-houses, or the rising costs of managing a small, sub-scale firm. We aim
to acquire such small to medium size IBD and RIA firms and support them in
driving sales growth by offering a superior wealth management platform and
supporting practice. We will take away the management and regulatory burden
and free the advisers to focus on growing their client base.
Mike Nessim
Kingswood US Chief Executive Officer
June 2022
GROUP CHIEF FINANCIAL OFFICER
Introduction
Despite the continued uncertainty resulting from periods of lockdown and
economic volatility, the Kingswood Group delivered record levels of Revenue
and Operating Profit in 2021. We have seen material improvements in financial
performance across our operating segments, Investment Management, Wealth
Planning and Kingswood US, which has been supported by strong asset inflows,
both organically and through acquisitions.
Recurring revenues as a percentage of total revenue increased during the year
and operating profit margins improved across both Investment Management and
Wealth Planning. We are now seeing the benefits of our buy, build and grow
strategy following the acquisitions of Sterling Trust and Regency Investment
Services in 2020 and have since completed a further 9 acquisitions in the UK
which will continue the growth trajectory into 2022 and beyond. The US
business exceeded all expectations in 2021, delivering significant amounts of
revenue and operating profit for the Group as a whole.
We continued to maintain cost discipline in 2021 as operating expenditure was
broadly flat year over year, excluding the impact of acquisitions. Our Balance
Sheet remains well capitalised, with strong support from Pollen Street
Capital. We continue to maintain an effective discipline in how we think
about the businesses we acquire, ensuring that the multiples we pay are within
our risk appetite and funding profile.
The UK business is a well-diversified proposition with an effective business
model, underpinned by organic growth in assets that generate recurring
revenues in excess of 85% and a predictable cost base. Our acquisitions
complement this and provide the opportunity to deliver both revenue and cost
synergies. Wealth Planning provides holistic financial advice to clients,
generating both initial and ongoing fees. Our tailored Investment Management
offering across a Managed Portfolio Service (MPS) and Personal Portfolio
Service (PPS) includes an open market advisory and discretionary portfolio
service to individuals and more than 100 IFA firms. The acquisition of IBOSS
at the end of 2021 will drive increased flows into Kingswood and further scale
the open market opportunity. Our Fixed Income business, included within
Investment Management, is a leading provider of liquidity and treasury
services to local councils and universities that continues to generate growth
in AUM.
Kingswood US operates across three core divisions; Investment Banking, RIA and
IBD. Investment Banking serves mid-market corporate clients and helped 100
public and private clients raise $9bn of capital in 2021. The IBD business
offers our clients investment opportunities across Alternatives, Mutual Funds
and Equities and our RIA business provides holistic financial advice to our
clients, with similar characteristics to our Wealth Management business in the
UK.
In our June 2021, "Positioned for Growth" investor presentation Kingswood
outlined its ambition to deliver £20m of Operating Profit over the
medium-term. Whilst we still have a way to go to get there, our 2021
financial results and trajectory demonstrate that the business has a strong
base and the right credentials to deliver.
Financial Performance
The Group's financial performance for the year was strong. AUM/A of £6.8bn
was 15% higher than 2020, 10% driven from organic growth and 5% through
acquisitions. Revenue was £149.7m, a 488% increase year over year, reflecting
growth in the US and the impact of 2020 in-year acquisitions in the UK.
Operating Profit increased by £5.5m, or 634%, to £6.3m in the year.
The UK business benefited from a full 12 months of trading following the
acquisitions of Sterling Trust and Regency Investment Services, being
consolidated into the Group's financial results for 6 months and 2 months
respectively in 2020, and the acquisitions of Admiral, Money Matters and
Smythe and Walters in 2021. In the US, having acquired 50.1% of Manhattan
Harbor Capital in November 2020, now rebranded Kingswood US, the US was
consolidated into Group results for 12 months in 2021 compared to 2 months in
2020.
Operating expenditure of £22.9m was £6.7m higher than the prior year largely
driven by acquisitions, with the existing cost base remaining broadly flat
compared to the prior year reflecting careful cost management.
Profit before Tax for the period to 31 December 2021 was a Loss of £14.5m
reflecting £7.0m of acquisition related deferred consideration expense,
£2.4m amortisation and depreciation, other losses of £3.0m, £4.9m finance
costs and £3.4m business re-positioning and transaction costs.
The Group's balance sheet reflects the growth of the business. The Group had
£42.9m of cash as at December 2021, an increase of £39.0m compared to 31
December 2020. This is largely driven by further investment from our private
equity partners at Pollen Street Capital, £27.9m net of acquisition related
payments, and £2.7m of cash acquired from acquisitions. Net cashflow
generated from operating activities of £1.7m was largely driven by the timing
of the settlement of Investment Banking commission payments, partially offset
by £8.5m of acquisition related contingent remuneration payments. Net Assets
were £76.9m, an increase of £26.7m compared to the prior year.
Segmental Analysis
The table below provides a breakdown of the annual financial performance of
the operating segments within the Kingswood Group: Investment Management,
Wealth Planning and Kingswood US. The Group separately reports on Central
Costs incurred to support the running of the Operating Segments and the PLC.
2021 (£k) Investment Management Wealth Planning US Central Costs Group Total
Revenue 4,652 17,214 127,827 23 149,716
Cost of Sales (1,476) (913) (118,108) 0 (120,497)
Gross Profit 3,176 16,301 9,719 23 29,219
Operating Costs (2,811) (10,522) (4,596) (4,963) (22,892)
Operating Profit 365 5,779 5,123 (4,940) 6,327
Recurring Revenue % 81.1% 88.1% 7.4% n/a 19.0%
Operating Profit Margin % 7.8% 33.6% 4.0% n/a 4.2%
AUM/A (£m)* 1,639 3,244 1,889 n/a 6,772
# Advisers / Authorised Representatives* 10 60 211 n/a 281
2020 (£k) Investment Management Wealth Planning US Central Costs Group Total
Revenue 4,240 12,915 8,322 - 25,477
Cost of Sales (1,158) (643) (6,670) - (8,471)
Gross Profit 3,082 12,272 1,652 - 17,006
Operating Costs & Other** (3,189) (7,892) (1,109) (3,954) (16,144)
Operating Profit (107) 4,380 543 (3,954) 862
Recurring Revenue % 74.7% 87.7% 12.3% n/a 60.9%
Operating Profit Margin % -2.5% 33.9% 6.5% n/a 3.4%
AUM/A (£m) 1,419 2,959 1,534 n/a 5,912
# Advisers / Authorised Representatives 11 53 174 n/a 238
*AUM/A excludes the impact of Metnor Holdings Limited, which was acquired on
31 December 2021 with AUM of £1.5bn. Including Metnor 2021 AUM/A increases to
£8.3bn
** 2021 'Other' includes £56k share of post-tax profits of equity accounted
associates
Investment Management
Revenue of £4.7m was £412k, or 9.7%, higher compared to 2020 largely
reflecting a £220m increase in AUM due to the migration of assets into the
Kingswood MPS product and further growth within the Fixed Income business,
with recurring revenue increasing to 81.1% (2020: 74.7%). Operating
expenditure of £2.8m decreased by 11.9% reflecting actions taken to improve
the profitability of the business, and Operating Profit was £365k compared to
an Operating Loss of £(107)k in the prior year.
Wealth Planning
Revenue of £17.2m was £4.3m, or 33.3%, higher year over year as in-year
acquisitions contributed to a £285m increase in AUA and we benefitted from a
full 12 months trading following the 2020 acquisitions of Sterling and
Regency. Recurring revenue increased to 88.1% (2020: 87.7%) and Operating
Profit of £5.8m was 31.9% higher compared to prior year.
US
Revenue of £127.8m increased by £119.5m compared to 2020 and whilst the
Group benefited from consolidating the US for a full 12 months, the segment
performed exceptionally well. Investment Banking revenues were £103.9m in the
period and benefitted from strong capital market activity - the business
completed over 100 transactions with a total of over $9.0bn capital raised for
clients. The RIA and IBD business delivered revenues of £23.9m, reporting
healthy double-digit growth year over year on a like for like basis. AUM of
£1.9bn at December 2021 was 23.1% higher than 2020, supported by an increase
in the number of advisor representatives from 174 to 211.
Due to Investment Banking revenues being transactional in nature, recurring
revenues in the US (2021: 7.4%, 2020: 12.3%) are lower than the UK which
result in overall Group recurring revenues being 19.0% in 2021.
Group Central Costs were £4.9m in 2021 compared to £4.0m in 2020. The Group
continued to apply prudency to the management of its cost base in 2021,
however, costs increased year over year as a result of the strengthening of
the Executive Team and central functions to support a larger business and
continuing M&A activity, as well as higher audit fees.
Reconciliation between Operating Profits and Statutory Profits
Operating Profit is considered by the Board to be an accurate reflection of
the Group's performance when compared to the statutory results, as this
excludes income and expense categories which are deemed of a non-recurring
nature or a non-cash operating item. A reconciliation between operating and
statutory profit before tax for the year ended 31 December 2021 with
comparatives is shown in the table below:
£k 2021 2020
Operating Profit 6,327 862
Business Re-positioning Costs (1,564) (1,801)
Transaction Costs (1,836) (1,855)
Finance Costs (4,927) (554)
Amortisation and Depreciation (2,399) (1,822)
Remuneration Charge (Deferred Consideration) (7,009) (7,254)
Other Gains / (Losses) (3,056) 1,744
Profit / (Loss) before Tax (14,464) (10,680)
· 2021 £1.6m Business Re-positioning costs comprise of
restructuring costs related to organisational change to Central Function
departments and Investment Management. £1.8m Transaction costs are
acquisition related and include legal fees, due diligence, broker fees.
· Finance costs reflect a £3.9m cost related to dividends that
accrue on the Group's preference shares in issue. In 2021, it was agreed
that dividends earned on preference shares would be settled through the issue
of Kingswood shares rather than cash which has led to the extinguishing of the
£7.3m liability that was reported on the Balance Sheet as at 31 December
2020. As a result, and per accounting standard IFRS 9, £3.4m has been
re-classified as equity and £3.9m charged to finance costs. The remaining
£1.0m of finance costs charged to the profit and loss in 2021 comprise of
costs related to the cost of deferred consideration.
· Amortisation and Depreciation charges represent £1.5m from the
amortisation of intangible assets and £0.9m depreciation of Right of Use
Assets, property, and IT/office equipment.
· £10.1m Remuneration Charges and Other Gains / (Losses) reflect
deferred consideration payments resulting from acquisitions completed in 2019
and 2020. Under the treatment of deferred consideration per IFRS 3, in
circumstances where the payment of deferred consideration is contingent on the
seller remaining within the employment of the Group during the deferred
period, the contingent portion of deferred consideration is treated as
remuneration and accounted for as a charge against profits.
Balance Sheet Strength
As at 31 December 2021, Kingswood has issued 77.4m preference shares to Pollen
Street Capital in return for £77.4m of capital to provide funding for
acquisitions. £25.7m of this funding is included within cash at the balance
sheet date. The preference shares are convertible into ordinary shares at
16.5p in December 2023, or earlier under certain conditions. The Pollen Street
Capital board members bring significant experience and expertise to the
execution of our strategy.
Non-current assets of £83.9m were £32.2m higher than the prior year
reflecting higher intangible assets and goodwill following the acquisitions
completed in 2021. Current assets increased by £20.6m to £48.8m in the
year as a £39.0m increase in cash was partially offset by a £18.5m reduction
in trade and other receivables, mainly reflecting the £20m of cash paid
across to Kingwood during Q1 2021 in relation to the preference shares issued
to Pollen Street Capital in Q4 2020.
Current liabilities increased by £20.0m in the year to £33.8m largely
reflecting £9.5m of outstanding commissions payable to US Investment Bankers
at 2021 year-end, £1.9m outstanding distributions to partners in the US and a
£6.9m increase in deferred consideration payments due in 2022. Non-current
liabilities were £22.0m as at 31 December 2021 (2020: £15.9m). The
increase of £6.1m year over year largely reflects an increase of £11.3m in
deferred consideration payments due after 2023 and a £2.7m increase in
deferred tax liabilities partly offset by the £7.3m re-classification of
preference share dividends from a liability to equity (£3.4m re-classified to
equity and £3.9m expensed through the profit and loss).
Acquisitions
We are pleased with the progress made in expanding Kingswood in the UK and US,
with five regional businesses acquired in the UK between 2019 and 2021 and a
further 9 acquisitions between August 2021 and May 2022. In addition, during
this period, Kingswood acquired 50.1% of Manhattan Harbor Capital which has
now been re-branded Kingswood US. We have strong purchase transaction
experience across the senior management and have developed a strong internal
capability to complete transactions quickly and efficiently, with a
standardised documentation and process to simplify due diligence, execution,
and subsequent integration.
Our selection process is rigorous, and we look at many factors including
cultural fit, client focus and dedication, key personnel retention to preserve
and grow those client relationships. Our model is to free up adviser time to
focus on their clients, and provide a centralised, efficient support
infrastructure. We are committed to driving organic growth within every
acquired business and bring a 'whole of wallet' approach where Kingswood can
bring considerable additional products and services to the table for clients,
generating revenue growth from the existing client base.
Financially, we assess businesses on strict performance parameters, with a
focus not just on revenue and profit measures but also AUM/A and Return on
Investment (ROI). Post-acquisition, we create monthly performance reports
against these metrics and adjust strategy and implementation accordingly.
The table below confirms the price paid for the 9 acquisitions acquired
between August 2021 and May 2022.
Date Acquisition AUM/A £m No. of Advisers
Aug-21 Admiral Wealth Management 100 2
Nov-21 Money Matters (North East) Ltd 115 3
Dec-21 Metnor Holdings (IBOSS) Ltd 1,520 9
Feb-22 Allotts Financial Services Ltd 140 3
Feb-22 Joseph R Lamb Independent Financial Advisers Ltd 393 7
Feb-22 Aim Independent Ltd 217 5
Other 135 3
Total 2,620 32
Finncap
In October 2021 Kingswood announced the appointment of finnCap Ltd as its
Nominated Adviser and Broker.
Outlook
2021's financial performance has demonstrated the fundamental strengths of the
Kingswood business model and we continue to be well positioned for further
growth in 2022. As outlined in the Chairman's Statement, the terrible events
unfolding in Ukraine, the re-emergence of significant geopolitical risk and
inflationary pressure has created a great deal of uncertainty in the outlook
for the year and as a result we have seen negative market movements impact
AUM/A and revenues in the first half of 2022. Despite this, at time of
writing, AUM/A is now c.£9.0bn and we are seeing organic revenue growth in
the business which is complimented by inorganic growth from recent
acquisitions.
We continue to focus on integration, organic growth and to deliver against our
acquisition strategy. With a strong pipeline of activity, including 8
potential acquisitions in exclusive due diligence, our near-term target is to
build our UK AUM/A in excess of £10bn in the UK and £12.5bn globally.
Our medium-term target remains £20m Operating Profit and we believe that with
our current acquisition pipeline and organic growth trajectory this is
achievable. This medium-term target includes delivering Operating Profit
margins for the UK of c.30% and ongoing margin improvement in the US. With the
expected reduction in Restructuring, Remuneration and Finance Charges,
Kingswood forecasts to make a Profit before Tax in 2022. Kingswood's financial
strategy is to maintain a robust and disciplined balance sheet to ensure no
deferred liability remains uncovered from a funding perspective, and we will
continue to have a disciplined approach to expense management.
Jon Millam
Group Chief Financial Officer
June 2022
PRINCIPAL RISKS AND UNCERTAINTIES
Principal Risks and Uncertainties
The Board is ultimately responsible for the management of risk and regularly
considers the most significant and potential risks likely to impact delivery
of the Group's strategy. The Board also has responsibility for implementing
and maintaining a Group-wide system of internal controls and a robust risk
management framework, and to regularly review the efficiency and effectiveness
of those systems and frameworks.
Our risk assessment process considers both the likelihood and impact of risk
events which could prevent the implementation of Group strategy and have a
material impact on the performance of the Group. These risks can arise from
internal or external events. The principal risks identified as having a
potential material impact on the Kingswood Group are summarised below together
with our mitigation strategies. This list is by no means exhaustive and can
and will change over time.
Description Mitigation Outlook
Risk
Industry Risks
Regulatory Risk There remains a significant amount of regulatory change to be implemented · Professionally staffed compliance department monitoring, ^
and/or managed. Failure to correctly identify, interpret or implement interpreting and with business leaders implementing the latest FCA
regulatory change may result in an adverse impact for Kingswood developments.
· A Risk & Compliance Committee takes place on a monthly basis
which is attended by all Executive Committee members.
· Board level Audit & Risk Committee providers oversight and
challenge.
· A suite of mandatory compliance training modules is in place for all
staff
Market Risk Emergence from the COVID-19 global pandemic, macroeconomic pressures such as · Broad range of client solutions offered to clients enabling them to ^
inflation and ecopolitical tensions are impacting economic and financial protect assets through diversification, and continuing to generate revenues
markets and volatility. This may adversely affect advice and other services
provided in addition to trading volumes and the value of client assets under · Our Investment Committee governance structure closely monitors and
management from which we derive fee revenue manages market movements
· Many clients are invested in tax advantaged investment products with
a long-term focus and are unlikely to withdraw funds in short term and
jeopardise tax status
Description Mitigation Outlook
Risk
Operational Risks
Operational Resilience Risk of a negative impact on clients, firm profitability, staff, and other · Kingswood has benefited from robust cloud based operating systems <>
stakeholders because of operational disruption (e.g. due to internal or allowing staff to seamlessly transition to remote working
external factors)
· Core systems are cloud based allowing for ease of remote access
· The Company continues to invest in improved IT connectivity and
leading-edge systems to improve resilience and ensure continued service to
clients
Integration Risk Risk that we fail to deliver high-quality service to advisers and clients as · Senior management oversight and governance mechanisms in place <>
acquisitions are integrated
· Project management team in place to oversee integration
· Clear and transparent client communication ahead of any material
changes
· Continue to embed and enhance the processes required to
successfully integrate acquisitions into the Group's procedures and corporate
governance, including the acquisition of 50.1% of Kingswood US during 2020.
Suitability of Advice There is a risk of providing unsuitable advice or a failure to confirm ongoing · We maintain a skilled wealth planning workforce, trained to the <>
suitability highest industry standards
· A professional compliance team provides training, oversight, and
ongoing monitoring to ensure that high standards are maintained
· Additional assurance is provided through specialist third party
review
· Senior management provide direct oversight to ensure ongoing
suitability of advice to clients
Reliance on Third Party Service Providers Kingswood partners with best-in-class experts for certain key services- a · A third-party management framework is in place and overseen by <>
financial or operational failure of our strategic partners could result in an the Group COO and Group CRO. This framework ensures extensive financial and
adverse impact on our ability to service clients operational due diligence is undertaken at the outset of 3(rd) party
relationships and is continually monitored on an ongoing basis
· Contracts are in place with clear Service Level Agreements (SLAs)
for all key suppliers
Business Conduct The risk of poor business conduct resulting in · Training & Competence programme in place for all client <>
facing staff
client outcomes that do not meet their needs
· Kingswood culture is focused on client outcomes
and circumstances
· Professionally staffed compliance department providing additional
oversight
Description Mitigation Outlook
Risk
Operational Risks (continued)
Data Protection & Cyber Security External attacks on information technology systems could lead to loss of · Continual focus on data security, including penetration testing ^
client data and breaches of data protection laws likely, resulting in and 'phishing' exercises
regulatory fines, reputational damage, and financial remediation claims from
clients · IT security & awareness training regularly conducted for all
staff
· Senior management oversight of IT capability and resilience
People Risk Increasing workloads, key person risk or inability to adequately staff key · Competitive pay and benefits
roles could result in adverse business impact
· HR policies and procedures overseen by HR director <>
· Several HR initiatives aimed at improving employing wellbeing
· Training and development programme in place to help staff advance
their careers
· Investment in learning and development programmes for all staff
including training on culture and conduct
Financial Crime Risk of Fraud, Money Laundering, Bribery & Corruption, Sanctions, · The Money Laundering Reporting Officer (MLRO) oversees the <>
Terrorism Financing, Tax Evasion, Market Abuse, Insider Dealing implementation of financial crime prevention policies and procedures
· An MLRO report is reviewed annually by the Risk & Compliance
Committee. The number of high-risk clients is low
· An electronic ID verification system is in place for all new
clients
· Awareness of Financial Crime policies & procedures across the
Group is maintained through regular training
Investment Restrictions There is a risk of breaching regulatory, product or client driven investment · Mandate restrictions are well understood by experienced <>
restrictions. This could result in the need to compensate clients and/or lead investment management team
to regulatory censure
· Pre & Post trade alerts in place
· Investment Committee structure monitors ongoing adherence to
portfolio strategies
· Independent compliance monitoring in place
CORPORATE SOCIAL RESPONSIBILITY
Introduction
At Kingswood, we have a strong Environmental, Social and Governance (ESG)
focus and prioritise being a responsible corporate citizen. We are committed
to doing right by our stakeholders - our clients, shareholders, people,
suppliers and chosen charity partners.
ESG and CSR is a Board level agenda item, and we continue to progress our
annual group level audit of our ESG practices and our carbon footprint, where
we are able to build further action plans and measure progress to our ESG/ CSR
responsibilities. As an acquisitive and growing company, we use measurement
practices on our new acquisitions to ensure we have a clear benchmark upon
integration into the Group.
During the year we remained focused on becoming a more responsible corporate
citizen in the communities in which we operate, taking the following actions
across our different stakeholder groups:
· Enhanced our commitment to developing our people through
dedicated Learning and Development programmes that are available for all
colleagues at the varying stages of their careers.
· In January 2021 launched Kingswood Academy, providing a
structured programme to nurture and build the talent within our adviser
population.
· Initiated a work-life integration framework that promotes
flexible working across the business to make sure we support our people as
much as we can and developed a strong benefits package for all of our
colleagues.
· Continued investment in adviser frameworks and technology across
the organisation to better support the organic and inorganic growth goals,
enabling us to surpass our client's expectations.
· Created a robust client feedback mechanism to ensure that the
customer remains at the centre of our thinking, decision making and future
strategy. We regularly survey our clients and achieved a Net Promoter Score of
+35 in December 2021.
We were proud to increase the female representation in our UK leadership team
to over 40% during the year, however, our sector remains underserved in
respect of female advisors and this is a key focus are for us as we build a
business more representative of our society.
The business remains focussed on diversity and inclusion, actively supporting
a number of initiatives in 2021 including '10,000 Black Interns', an
organisation centred around transforming the horizons and prospects of young
black people in the community.
The environment
We are consciously focussing on where we can make the largest positive impacts
on the environment. We have a fully flexible working policy in place
allowing a mix of home, remote and office working, which has created a
positive impact on the reduction of travel, linking to our carbon footprint.
Through technology we have also bolstered our environmental principles through
enhanced use of video conferencing and collaboration communication tools for
colleagues to enable true cross geography collaboration, further reducing our
travel. Our new client portal, Kingswood Go, enables clients to view their
portfolios online and to hold documentation digitally, sign documents through
DocuSign (to replace a physical wet signature) and securely communicate to our
adviser teams. This is in turn is reducing reliance on our physical paper
resources.
We have recycling facilities in all offices and are continuing to push forward
with our responsible business agenda as well as reducing further our carbon
footprint. We are pleased to have further improved our environment impact,
saving over 293k sheets of paper, 32 trees, 117k litres of water, 11.2 tonnes
of CO(2) and 777kg waste between July 2019 and May 2022.
ESG
Within our client proposition we offer clients a suite of ESG portfolios which
consider environmental social and governance issues.
Our objective is not only to produce financial returns, but also to generate a
positive impact on the environment and society. We believe strong corporate
governance is of key importance to meeting these objectives.
We integrate the United Nations Sustainable Development Goals (UN SDGs) into
our process, using them as a framework to guide our idea generation. Whilst we
may invest in a fund to target one environmental or societal theme/goal, what
is common across each fund in our portfolios is an additional strict focus on
governance. We have also begun to integrate ESG into our core portfolios with
the environment being one of our core themes.
Our suppliers
As a financial services company, we do not manufacture goods, nor do we have a
complex supply chain. We believe in only engaging suppliers who align with our
values including for anti-Modern Slavery and Human Trafficking.
Charities and communities
We started a partnership with Matchable volunteering in 2021 where colleagues
can choose where they can best match their skills and passions within the
charity sector. We provide colleagues with 2 days per year additional leave
to be able to do this.
Kingswood US partnered with A Friend's House serving both as a shelter and
home to youth in crisis in the Atlanta area.
We are also increasingly looking at ways to enhance the levels of financial
education amongst communities and demographics. We are regularly sharing
financial education pieces through our social media channels and our
colleagues take time to visit their communities to aid discussions on
financial education. We will continue to do more of this on a structured
basis through 2022.
Workplace
We are committed to creating a workplace and culture that is welcoming and
inclusive for everyone, taking steps to enhance this over 2021. Diversity
and inclusion are a cornerstone of our philosophy and culture, and an
employee-led Diversity and Inclusion Forum is in place to encourage creative
ideas and action to further embed diversity and inclusion as a central tenet
of our business corporate culture. We are proud to be an equal opportunity
employer committed to recruiting and maintaining a diverse workforce
irrespective of race, religion, age, disability, gender or sexual orientation
or bias. We are also proud to be participating in the 10,000 black interns'
scheme for the second year. Both our UK and US business strongly operate
around core behavioural principles for colleagues ensuring there is a high
level of integrity, transparency, respect and trust.
Colleagues
We currently have 292 employees:
· Females - 137 (46.9%)
· Males - 155 (53.1%)
Ages:
· Under 30 - 59 (20.2%)
· 30-50 - 131 (44.9%)
· Over 50 - 102 (34.9%)
GOVERNANCE
BOARD OF DIRECTORS
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 an independent 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 and KW Wealth
Planning Limited, the operational companies regulated by the FCA, and KW
Wealth Group Limited which is the holding company for the Group's US
investments.
Kingswood Holdings Limited's Board has the responsibility to set strategy for
the Group and to monitor the performance of its 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 and Risk
Committee and the Nomination and Remuneration Committee.
The principal methods of communicating the application of the QCA Code are
this Annual Report and the Group's website which sets out the 10 QCA Code
principles and how Kingswood Holdings Limited complies with those principles
and the related disclosures: www.kingswood-group.com/corporate-governance. The
Group applies all the QCA principles in full.
Corporate governance structure
The role of Non-Executive Chairman is held by David Hudd. The Board considers
that the Non-Executive Directors provide a strong and consistent independence
to the Executive members. None of the Non-Executive Directors are involved in
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 Non-Executive Directors are contained on pages 26 to 27.
During the year ended 31 December 2021, the Non-Executive Chairman was
responsible for leadership of the Board, creating conditions for the
effectiveness of the Board and individual Directors and developing the Group's
strategy. The Group Chief Executive Officer (CEO), UK CEO and US CEO were
responsible for running the Group's business day to day and, subject to Board
agreement, the implementation of strategy.
The minutes of scheduled meetings of the Board are taken by the Company
Secretary. In addition to constituting records of decisions taken, the minutes
reflect questions raised by Board members in relation to the Group's business
and, in particular, issues arising 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.
Corporate governance and the management of the Group's resources is achieved
by regular review and discussion, through meetings and conference calls,
monthly management accounts, presentations and external consultant reports and
briefings.
Independence of Board of Directors
The Board considers that all Non-Executive Directors bring an independent
judgement. The QCA code recommends that at least two independent Non-Executive
Directors sit on the Board. At year-end, the Board had six members, with one
Executive and five Non-Executive Directors. David Hudd and Jonathan Freeman
are considered 'independent'. Jonathan Massing, Howard Garland and Lindsey
McMurray are not considered independent due to the size of shareholding they
are directly or indirectly associated with.
During the year under review, the Board comprised:
· Jonathan Freeman (Non-Executive Director)
· Howard Garland (Non-Executive Director)
· David Hudd (Non-Executive Chairman, Legal Consultant)*
· Jonathan Massing (Deputy Non-Executive Chairman)
· Lindsey McMurray (Non-Executive Director)
· Robert Suss (Non-Executive Director)*
· Kenneth 'Buzz' West (Non-Executive Chairman)*
· Gary Wilder (Group Chief Executive Officer)**
*Robert Suss resigned from the board 28 February 2022 and Kenneth 'Buzz' West
resigned as Non-Executive Chairman 26 July 2021. David Hudd became Chairman in
July 2021.
**In April 2022, Gary Wilder stepped back into a Non-Executive director role
and David Lawrence was appointed to the Board as Chief Executive Officer.
The Board has scheduled meetings on a quarterly basis. The Board formally met
four times throughout the year. Meetings of the Board are held at the Group's
offices in London or via conference call. In person meetings of the Subsidiary
Boards take place at least quarterly.
The number of main Board meetings and committees held in 2021 and individual
attendance was as follows:
Director Board Audit Committee Nomination & Remuneration Committee Risk & Compliance Committee
Jonathan Freeman 4/4 5/5 1/1 6/6
Howard Garland 4/4
David Hudd 4/4 2/2 1/1
Jonathan Massing 4/4 3/3
Lindsey McMurray 3/4
Robert Suss 2/4
Buzz West 2/4 3/3
Gary Wilder 4/4
The Board has approved a formal schedule of matters reserved for consideration
and decision. These are divided into several key areas, including but not
limited to:
· Constitution of the Board, including its various Committees, and
succession planning (as recommended by the Nomination and Remuneration
Committee).
· Group strategy and transactions.
· Financial reporting (including approval of interim and final
financial statements).
· Group finance, banking, and capital structure arrangements.
· Regulatory matters (including the issue of shares, communication,
and announcements to the market).
· Group compliance risk management and control processes and
decisions (as recommended by the Audit and Risk Committee).
· Approval of remuneration policies (as recommended by the
Nomination and Remuneration Committee).
· Approval of Group policies in respect of, inter alia, Health and
Safety, Corporate Responsibility, and the environment.
· 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 (or Committee) and
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 and
other invited members of senior management present reports to each meeting on
key issues including strategy, risk & compliance, finance, operations,
people, and legal matters.
The Board recognises the importance of on-going professional development and
education, particularly in relation to new laws and regulations potentially
impacting the business of the Group. Such training may be obtained by
Directors individually or through the Group. Directors also maintain knowledge
and skills 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 each Director's appointment are available for
inspection at the Group's head office in London during normal business hours.
The letters of appointment of each Non-Executive Director specifies the
anticipated level of time and commitment including, where relevant, additional
responsibilities in respect of the Audit and Risk, and the Nomination and
Remuneration Committees. Details of other material commitments of the
Non-Executive Directors are disclosed to the Board and maintained in a
register by the Company Secretary.
Subsidiary boards
Each of the Group's UK operating subsidiary companies has a separate Board
which meets at least quarterly to discuss key matters pertaining to the
subsidiaries' activities. The UK Chief Executive Officer, Group Chief
Financial Officer, Group Chief Risk officer and Howard Garland (Non-Executive
Director) sit on each of the operating subsidiary boards, with Howard Garland
chairing them.
The Group's US interests are ultimately held through its subsidiary company KW
Wealth Group Limited and to date US investments have been reviewed by the
Group Board. In addition, key KHL Board members sit on the US division's
advisory board.
Board committees
The Board has established committees including the Audit and Risk, and the
Nomination and Remuneration and, each with separate terms of reference. These
are available for viewing at Kingswood's London office.
Audit and Risk committee
The Audit Committee is chaired by Jonathan Freeman with David Hudd joining in
January 2020 and Jonathan Massing in January 2021. The Audit and Risk
Committee is responsible for providing formal, transparent arrangements to the
application of suitable financial reporting and internal control principles
having regard to good corporate governance. The committee is also responsible
for monitoring the external audit function including the independence,
objectivity, and cost-effectiveness of the Group's external auditor. The
meeting is attended by the Chief Executive Officer, Chief Finance Officer and
Chief Risk Officer.
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 twice a year with the
auditors to discuss their appointment, independence and objectivity, the
issuance of the Interim and Annual Reports and any audit issues arising,
internal control processes and any other appropriate matters. Fees in respect
of audit services are set out in note 5 of the Notes to the Financial
Statements. Fees for non-audit services paid to the auditors are not deemed to
be of such significance as to impair independence and therefore the Audit
Committee considers the objectivity and independence of the auditors
safeguarded.
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 control is designed to manage, rather than eliminate, the risk of
failure to achieve business objectives and can only provide reasonable, but
not absolute, assurance against material misstatement or loss.
The Audit Committee monitors and reviews the effectiveness of the system of
internal control and reports 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 at this time. The main features of the internal control
system are outlined below:
· A control environment exists through 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 reserved matters expressly for its
consideration and this includes approval of acquisitions and disposals, major
capital projects, treasury and risk management and approval of business plans
and budgets.
· The Group utilises a detailed budgeting and forecasting system.
Detailed budgets are prepared annually by the Executive Directors and senior
management and submitted to the Board for approval. Forecasts are regularly
updated to reflect changes in the business including cash flow projections and
are monitored by the Board. Actual results are monitored against budgets and
variances reviewed by 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 assets are safeguarded and proper accounting records
maintained.
Nomination and Remuneration committee
The Nomination and Remuneration Committee is responsible for the consideration
of Board appointments, the review of Board structure, its size and composition
and the identification of future Board requirements by reference to the
balance of skills, knowledge and experience present on the Board and the scale
and direction of the Group. It is chaired by Jonathan Freeman as an
independent Non-Executive Director and David Hudd, Group Chairman is also a
member.
The Committee is also responsible for establishing a formal and transparent
procedure for executive remuneration policy and to determine the remuneration
packages of individual Directors. This includes agreeing with the Board the
framework for remuneration of the Group Chief Executive Officer, 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 recommending to the Board the total individual
remuneration packages of each Director including, where appropriate, bonuses,
incentive payments and share options. No Director is involved in a decision
regarding their personal remuneration. The Board considers the current
composition of the Nomination and Remuneration Committee appropriate given the
size of the Group. There was one Nomination and Remuneration Committee
meetings held during the financial year ended 31 December 2021.
Remuneration policy
The Board retains responsibility for overall remuneration policy. Executive
remuneration packages are designed to attract and retain executives with the
necessary skill and experience to hold a senior management role in the Group.
The Committee 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 Committee has
responsibility for recommending any long-term incentive schemes.
The Board determines if Executive Directors are permitted to serve in roles
with other companies. Such permission would 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 executive staff:
1. Basic salaries and benefits in kind: Basic salaries are recommended to
the Board by the Committee, based on the performance of the individual and the
compensation for similar positions in comparable companies. Benefits in kind
including death in service cover are available to all staff and Executive
Directors. Benefits in kind are non-pensionable.
2. Share options: The Company operates approved share option schemes for
key personnel to incentivise performance through equity participation.
Exercise of share options under the schemes is subject to defined exercise
periods and compliance with the AIM Rules. The schemes are overseen by the
Nomination and Remuneration Committee which recommends to the Board all grants
of share options based on the Committee's assessment of personal performance
and specifying the terms under which eligible individuals may be invited to
participate. The AIM rules refer to the requirement for 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. The Nomination and Remuneration
Committee currently considers that the best alignment of these interests is
through the continued use of performance incentives through the award of share
options in the Company's existing LTIP awards scheme.
3. Bonus scheme: The Group has a discretionary bonus scheme for Executive
Directors and staff which is specific to each individual and their role within
the Group.
4. Pension contributions: The Group pays a defined contribution to the
pension schemes of Executive Directors and staff. The individual pension
schemes are private, and assets are held separately from those of the Group.
No Director has a service contract for longer than 12 months.
Policy on non-executive remuneration
All Non-Executive Directors, except Pollen Street Capital's representatives to
the Board, receive a fee for their services as a Director which is approved by
the Board, mindful of their time commitment and responsibilities and current
market rates for comparable organisations and roles. Non-Executive Directors
are also reimbursed for travelling and other incidental expenses incurred on
Group business.
The Board encourages the ownership of shares in the Company by Executive and
Non-Executive Directors and in normal circumstances does not allow Directors
to undertake dealings of a short-term nature.
Ownership of the Company's shares by Non-Executive Directors is considered a
positive alignment of interest with shareholders. The Board periodically
reviews the shareholdings of Non-Executive Directors and seeks 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 the Company. Directors' remuneration,
including Directors' interests in share options over the Company's share
capital, are set out in the Directors' Report (page 29) and the Directors'
Remuneration Report (page 31).
Re-election
Under the Company's articles of association, all Directors are subject to
election by shareholders at the AGM immediately following appointment. All
Directors formally retire by rotation at intervals of no more than three
years, requiring re-election by shareholders.
Performance evaluation
The composition of the Board is regularly reviewed 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 combination 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 includes a
review of success in achieving annual objectives set by the Board. 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 Chairman, the Group Chief Executive Officer and the Group Chief Financial
Officer maintain dialogue with key shareholders in relation to strategy and
corporate governance issues.
All shareholders receive the Annual Report incorporating audited 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 shareholder proxy votes is handled
independently by the Group's registrars. The Chairman announces the results of
the proxy votes lodged after shareholders have voted on a show of hands. 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 where open dialogue and
feedback is 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 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 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.
DAVID HUDD
Non-Executive Chairman and, Legal Consultant
David joined the executive team as Legal Consultant on 1 July 2020 having
previously been a non-executive director of the Company since June 2018. David
is responsible for all legal affairs of the Group. David trained as a
solicitor with Linklaters and after a successful career as an investment
banker in structured finance joined Hogan Lovells, the international law firm,
as a partner in 1994. He was consistently ranked as a market-leading lawyer
for over 25 years. From 2005 David led the firm's global finance practice
before assuming the role of Deputy CEO in 2014. He retired from this position
and as a partner in June 2020 but continues to serve as Senior Counsel at
Hogan Lovells. David earned his MA Jurisprudence (Oxon) in 1980 and qualified
as a solicitor in 1983.
David joined the Board in June 2018 as a non-executive director, became an
executive director on 1 July 2020 and subsequently became Chairman in July
2021.
JONATHAN MASSING
Non-Executive Deputy Chairman
Jonathan is Non-Executive Deputy Chairman and, since 1 January 2021, is a
member of the Audit Committee. He brings wide ranging experience to the Board,
in particular in corporate finance and acquisitions. He has a strong
background in commercial and corporate finance advisory, buyouts, venture
capital, shareholder dispute advisory, and private businesses valuation.
Jonathan is a Chartered Accountant and has extensive experience in the sale
and acquisition of private companies and provides advice on debt structures
and working capital facilities. In 1998 he set up Kingswood Investment
Partners Limited as a private equity investor. He is also a founder of
Kingswood Property Finance Limited Partnership and founded a City-based
advisory firm Kingswood in 1993.
Jonathan joined the Board in October 2017.
GARY WILDER
Non-Executive Director
Gary is a Chartered Accountant and a graduate of the Cass Business School,
University of London. He has over 30 years' experience in pan-European private
equity and real estate, particularly in 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.
Gary joined the Board in October 2017. In April 2022, Gary stepped back into a
Non-Executive director role.
JONATHAN FREEMAN
Non-Executive Director
Jonathan is a Non-Executive Director and chairs the Audit Committee and the
Risk and Compliance Committee. He is also a member of the Nomination and
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 Financial Conduct
Authority in the UK. Jonathan was also the senior independent non-executive
director of Futura Medical plc during the year under review.
Jonathan joined the Board in June 2018.
HOWARD GARLAND
Non-Executive Director
Howard holds a First-Class Honours degree in Mathematics from University
College London. Howard is a partner at Pollen Street Capital and a member of
its private equity and credit investment committees. Howard re-joined Pollen
Street Capital in 2015 having been a Principal at RBS until 2012. Prior to
re-joining Pollen Street Capital as Partner in 2015, Howard assisted the
Swedish credit institution Hoist Finance in entering the UK debt collecting
and NPL debt purchasing sector, supporting the acquisition of a number of UK
companies and debt portfolios in both structuring and operational roles.
Howard is also on the Board of Punkta.
Howard joined the Board in December 2019.
LINDSEY McMURRAY
Non-Executive Director
Lindsey holds a First-Class Honours degree in Accounting and Finance and holds
an MPhil in Finance from Strathclyde University. Lindsey has been a private
equity and credit investor for more than 26 years with a focus on the
financial and business services sector. Alongside Kingswood, Lindsey sits on
the Boards of Shawbrook Bank, CashFlows, 1st Stop Group and BidX1. Lindsey
co-founded Pollen Street Capital in 2013 and serves as Managing Partner.
Lindsey is the Chairman of the Pollen Street Capital's private equity and
credit investment committees. Prior to Pollen Street Capital, Lindsey worked
at RBS and spent six years at Cabot Square Capital, where she was a Partner
focused on investments in the financial services sector.
Lindsey joined the Board in December 2019.
DAVID LAWRENCE
Chief Executive Officer
David was appointed as UK CEO of Kingswood in December 2020 and has over
30 years' experience in financial services, predominantly with Lloyds Banking
Group where he held numerous executive leadership roles in distribution and
functional areas across its Retail, Commercial and Insurance divisions. In
2014, David became the Commercial Director and then Chief Operating Officer
for Lloyds' Private Banking and Wealth businesses with additional
responsibility for its Mass Affluent proposition and strategy. He played a
lead role in the establishment of Schroders Personal Wealth, a joint venture
wealth management business between Lloyds Banking Group and Schroders,
becoming Chief Commercial Officer for this business in March 2019.
David joined the Board in April 2022 as Chief Executive Officer.
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
2021. The Corporate Governance Statement is set out from page 20 onwards. All
financial information given in this Directors' Report is taken solely from the
statutory results prepared in accordance with UK adopted international
accounting standards.
Principal activities
The principal activities of the Group are the operation of a financial
planning and investment management business.
Financial risk management objectives and policies
Information about the Group's risk management is included in the Strategy
section under Risks & Uncertainties.
Results and dividends
The Group's performance during the year is discussed in the Strategy section
on pages 2 to 19. The results for the year are set out in the audited
Consolidated Statement of Comprehensive Income on page 41. The Directors do
not recommend the payment of a dividend for the year ended 31 December 2021
(31 December 2020: £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 notes 23 and 24.
Capital management
The primary objective of the Company's capital management strategy is to
maintain 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
Strategy section under Risks & Uncertainties.
All of the regulated entities within the Group must also comply with the FCA
capital adequacy rules.
Kingswood US has majority ownership interests in four US regulated entities -
two are subject to regulatory oversight by FINRA and two come under the SEC's
regulatory regime for Registered Investment Advisers (RIAs) - and must comply
with certain capital adequacy requirements.
Directors
The names and a short biography of the Directors of the Company are set out on
pages 26 to 27.
The appointment and replacement of Directors is governed by the Company's
Articles of Association, The Companies (Guernsey) Law, 2008 and related
legislation. The Company's Articles of Association 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 offer
themselves for re-election will be announced in conjunction with the AGM
announcement, which is expected to be held in the latter part of the year.
Directors' interests
Directors who held office during 2021 had the following beneficial interests
in the ordinary shares of the Company as of 31 December 2021:
No. Ordinary shares held
Director 2021 2020
Jonathan Freeman 87,750 87,780
Howard Garland - -
Patrick Goulding - -
David Hudd 500,000 500,000
Lindsey McMurray - -
Robert Suss - -
Buzz West 4,536,076 4,536,076
Gary Wilder 1,115,051 -
Gary Wilder and Jonathan Massing** 143,720,906 143,220,906
** Gary Wilder and Jonathan Massing's shares relate to KPI (Nominees)
Limited's holding as both have a beneficial interest in that entity.
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
executive 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 based on 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 to maximise the potential of its entire workforce. A
Diversity and Inclusion Forum comprising employees from across team has
recently been formed to further encourage diversity and inclusion across the
Group and make it a central tenet of Kingswood's culture.
Employees who become disabled during their employment with the Group will be
retained and re-trained 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 Strategy section of this report.
Substantial shareholdings
The Group had been notified, in accordance with Chapter 5 of the Disclosure
and Transparency Rules, of the following voting rights of shareholders holding
3% or more of the issued share capital of the Company as of 31 March 2022:
Name of Shareholder Percentage of voting rights and issues share capital No. of ordinary shares
KPI (Nominees) Limited 66.44% 144,125,262
Monecor (ETX Capital) 4.83% 10,476,969
All Shareholdings stated are beneficial. KPI (Nominees) Limited is owned and
controlled by Gary Wilder and Jonathan Massing
The Company had issued 77,428,443 irredeemable, convertible preference shares
at £1 per share to HSQ INVESTMENT LIMITED, a wholly owned indirect subsidiary
of funds managed and/or advised by Pollen Street Capital at 31 December 2021.
The preference shares are convertible into Kingswood Holdings Limited ordinary
shares at 16.5p per share on or before 31 December 2023.
Directors' indemnities
During the year the Group made qualifying third-party indemnity provisions for
the benefit of its Directors and these remain in force at the date of this
report.
Going concern
In accordance with Financial Reporting Council guidance all companies are
required 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 Strategy section on pages 15 to 17.
The Directors have reviewed the cash flow forecast for the next 12 months and
are satisfied that the Group can continue to prepare its financial statements
on the going concern basis. As part of the Directors' consideration of the
appropriateness of adopting the going concern basis in preparing the Annual
Report, a range of scenarios have been considered, including a central
scenario and a severe downside scenario, based on a number of macroeconomic
assumptions. The Company and Group continue to operate with sufficient levels
of liquidity and capital for the next 12 months in all modelled scenarios.
The Group operates centralised treasury arrangements and shares banking
arrangements between the parent and its subsidiaries.
The Directors, having made appropriate enquiries, have no reason to believe
that a material uncertainty exists that may cast significant doubt regarding
the ability of Kingswood Holdings Limited and its subsidiaries to continue as
a going concern or its ability to continue with the current banking
arrangements.
On the basis of their assessment of the Group's financial position and of the
enquiries made of the Directors of Kingswood Holdings Limited, the Directors
have a reasonable expectation that the Group will be able to continue in
operational existence for the foreseeable future. Thus, they continue to adopt
the going concern basis of accounting in preparing the annual financial
statements.
Auditor
Each of the persons who are Directors of Kingswood Holdings Limited 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 Section 249 of The Companies (Guernsey) Law, 2008.
Approved by the Board of Directors and signed on behalf of the Board.
David Hudd
Chairman
Date: 29 June 2022
DIRECTORS' REMUNERATION REPORT
Base salary incl. NIC Pension and benefits Termination Option value of LTIP shares 2021 2020
Total Total
£'000 £'000 £'000 £'000 £'000 £'000
Executive
*Graydon Butler (resigned 31/12/2020) - - - - - 151
*Patrick Goulding (resigned 31/12/2020) - - - - - 435
Gary Wilder 100 - - - 100 112
Non-Executive
Jonathan Freeman 61 - - - 61 79
David Hudd 73 - - - 73 40
Jonathan Massing 38 - - - 38 37
Robert Suss (resigned 28/02/2022) 27 - - - 27 33
Kenneth 'Buzz' West (resigned 26/07/2021) 41 - - - 41 79
Aggregate emoluments 340 - - - 340 966
Signed on behalf of the Board:
David Hudd
Chairman
Date: 29 June 2022
DIRECTORS' RESPONSIBILITY STATEMENT
Responsibility Statement
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
The Companies (Guernsey) Law, 2008 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 UK adopted international
accounting standards. The Directors must not approve the annual 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 Consolidated Statement of
Comprehensive Income for the year. 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 annual financial statements, prepared in accordance with UK
adopted international accounting standards, 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 Strategy 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 position and performance, business model
and strategy.
Signed on behalf of the Board:
David Hudd
Chairman
Date: 29 June 2022
KINGSWOOD HOLDINGS LIMITED
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF KINGSWOOD HOLDINGS LIMITED
FOR THE YEAR ENDED 31 DECEMBER 2021
Opinion on the financial statements
In our opinion the financial statements:
· give a true and fair view of the state of the Group's affairs as
at 31 December 2021 and of the Group's loss for the year then ended;
· have been properly prepared in accordance with UK adopted
international accounting standards; and
· have been properly prepared in accordance with the requirements
of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of Kingswood Holdings Limited (the
'Parent Company') and its subsidiaries (the 'Group') for the year ended 31
December 2021 which comprise the Consolidated statement of comprehensive
income, the Consolidated statement of financial position, the Consolidated
statement of changes in equity, the 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 their preparation is applicable law and UK adopted international accounting
standards.
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 believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence
We remain independent of the Group 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.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the Directors'
assessment of the Group's ability to continue to adopt the going concern basis
of accounting included:
· Assessing and challenging the inputs and assumptions within the
forecast that forms the basis of the Directors' assessment of the going
concern by agreeing to supporting documentation, historical results and our
knowledge of the Group and the industry;
· Performing sensitivity analysis and stress testing considering
downside scenarios and assessing the impact on the Company's liquidity
position;
· Reviewing the future commitments of the Group and checking they
have been appropriately incorporated into the forecast; and
· Reviewing the amount of headroom in the forecasts of both base
case and downside scenarios.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's ability to continue as
a going concern for a period of at least twelve months from when the financial
statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Overview
Coverage
These are the key areas which have been subject to a full scope audit. 85% of Group loss before tax (calculated on an absolute basis)
90% of Group revenue
86% of Group total assets
2021 2020
Revenue recognition P P
Accounting for business combinations P P
Carrying value of intangible assets and goodwill P P
Key audit matters
Materiality Group financial statements as a whole
£2,230,000 (2020: £1,577,000) based on 1.5% of revenue (2020: 2.5% of net
assets)
Materiality
Group financial statements as a whole
£2,230,000 (2020: £1,577,000) based on 1.5% of revenue (2020: 2.5% of net
assets)
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its
environment, including the Group's system of internal control, and assessing
the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements. In particular, we
looked at where the Directors made subjective judgements.
We performed an assessment to determine which components were significant to
the Group. All components which financially contributed greater than 15% of
the Group's and UK's revenue were identified as significant and subject to a
full scope of their complete financial information.
Five components were considered to be financially significant to the Group,
with four being located in the United Kingdom and one located in the United
States of America. All audit work was performed by the Group audit team.
For components that we considered to be non-significant, these components were
principally subject to analytical review procedures performed by the Group
audit team, together with additional testing over audit risk areas.
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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) that 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.
Key audit matter How the scope of our audit addressed the key audit matter
Revenue recognition Revenue was identified as a key audit matter as it is a key performance Our audit strategy for the US Operations segment was solely reliant on
indicator to the users of the financial statements and because of the fraud substantive testing.
risk surrounding the existence of revenue, therefore requiring a significant
amount of auditor's attention
As disclosed in Note 3, the Group recognised revenue of £149.7m for the year
ended 31 December 2021. For the UK revenue streams, wealth planning and investment management, we took
a blended audit strategy using test of controls and substantive testing.
Due to the quantum and growth of US Operations revenue during the year
including the introduction of various material sub-streams, there is a
Refer to Note 1 for related accounting policy. significant risk over the existence of revenue.
Our procedures for all revenue streams, amongst others, included:
· Considering whether the revenue recognition policies are in
accordance with UK adopted international accounting standards;
· Reconciling revenue recorded per the general ledger to underlying
reports from systems;
· Selecting a sample of revenue transactions throughout the year
and tracing to supporting documentation such as /reports/agreements with
third parties and performing recalculation where possible, as well as vouching
to cash receipts and verifying whether revenue was accounted for
appropriately; and
Based on our assessment of the relevant control environment of the UK wealth
planning and investment management segments, we adopted a different audit
strategy which included the following procedures:
· For wealth planning and investment management revenue, selecting
a sample of revenue transactions throughout the year and testing the design,
implementation, and operating effectiveness of controls in place; and
· For investment management revenue, performed a substantive
analytical review based on underlying off-balance sheet assets under
management/ advice and fee percentage rates, a sample of which were agreed to
supporting documentation such as contracts with clients.
Key observations:
Based on procedures performed, revenue is appropriately stated and classified.
Key audit matter How the scope of our audit addressed the key audit matter
Accounting for the business combinations of: The accounting and disclosure for these acquisitions is a key audit matter due Our procedures, amongst others, included:
to the significant judgement and complexity involved in assessing whether the
control has passed, the fair value of identifiable assets and liabilities and
the final consideration which included contingent deferred consideration
· Admiral Wealth Management Limited (based on earn-outs). In addition, the assessment of whether any elements of · Reviewing the acquisition agreements to understand the key terms
deferred and contingent consideration would need to be treated as and conditions, and confirming our understanding of the transaction with
· Money Matters (North East) Limited post-combination remuneration has a significant impact to the financial management.
statements.
· Metnor Holdings · Assessing whether control is established per IFRS 10 Consolidated
Financial Statements.
· Assessing whether a business combination has been accounted forin
As disclosed in Note 28 of the financial report, on 18 August 2021, accordance with IFRS 3.
Kingswood Holdings Limited acquired 100% of the membership interests in
Admiral Wealth Management Limited. · Assessing the various elements of consideration due, together
with estimation of the contingent consideration by assessing the
reasonableness of management's forecasts by comparison to historical results
and reviewing key assumptions around probability of achievement of earn-outs;
As disclosed in Note 28 of the financial report, on 30 November 2021,
Kingswood Holdings Limited acquired 100% of the membership interests in Money · Assessing the acquisition agreements to determine if any elements
Matters (North East) Limited. of deferred and contingent consideration would need to be treated as
post-combination remuneration;
· Comparing the assets and liabilities recognised on acquisition
As disclosed in Note 28 of the financial report, on 31 December 2021, against the completion accounts of the acquired businesses;
Kingswood Holdings Limited acquired 100% of the membership interests in Metnor
Holdings Ltd. · Evaluating the assumptions and methodology in management's
determination of the fair value of assets and liabilities acquired which
included:
Refer to Note 1 for related accounting policy.
o Obtaining a copy of the management's expert's external valuation report
and engaging of internal valuations expert to critically assess the
determination of fair values of identifiable assets and liabilities associated
with the acquisitions.
Key observations:
Based on procedures performed, acquisition accounting for the above listed
transactions is appropriately stated and classified.
Key audit matter How the scope of our audit addressed the key audit matter
Carrying value of intangible assets and goodwill The assessment of the carrying value of intangible assets and goodwill Our procedures, amongst others, included:
requires management to make significant accounting judgements and estimates in
producing the value in use models used to determine whether the assets are
appropriately recognised.
At 31 December 2021, the carrying value of intangible assets and goodwill was
· Reviewing the reasonableness of management's assessment in
£80.3m, as disclosed in Note 14. establishing cash generating units by comparison to management information and
our understanding of the Group's operations and requirements of the accounting
Upon acquisition, goodwill has been allocated to a cash generating unit. standards
Management has determined that four cash generating units exist, being
Refer to Note 1 and 2 for detailed disclosures, which include the related investment management, wealth planning and US operations. · Analysing management's key assumptions used in the value in use
accounting policies and critical accounting judgements and estimates.
models to determine their reasonableness including:
An annual impairment test for intangible assets is required for indefinite
life assets or where there are indications of impairment under IAS 36 o Challenging the appropriateness of management's discount rates used in the
Impairment of Assets. value in use models with the assistance of internal valuations experts;
o Challenging assumptions around timing of future cash flows by comparison
to post-year end management information and Directors' cashflow forecasts;
The carrying value of intangible assets and goodwill is a key audit matter due
to the o Checking the mathematical accuracy of the value in use models;
significant accounting judgements and estimates applied in supporting the · Performing sensitivity analysis on key assumptions to determine
carrying values. if there would be significant change to the carrying value of the asset; and
· Considering any additional impairment indicators and the impact
on management's assumptions.
Key observations:
Based on procedures performed, valuation of goodwill and intangibles is
appropriately stated.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when
evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole and performance materiality as follows:
Group financial statements
2021 2020
£ £
Materiality 2,230,000 1,577,000
Basis for determining materiality 1.5% of Revenue 2.5% of Net assets
Rationale for the benchmark applied The expansion of the Group towards the end of 2020 has resulted in a shift of Net assets is of particular interest to the users of the financial statements.
user focus to revenue, with users considered to be most interested in a return We do not consider profit to be an appropriate benchmark as the Group is
to positive EBITDA, aimed to be driven by increased revenues. loss-making.
Performance materiality 1,450,000 (65% of Materiality) 1,103,000 (70% of Materiality)
Basis for determining performance materiality We considered the risk and control environment and the history of We considered the risk and control environment of the Group
misstatements of the Group.
Component materiality
We set materiality for each component of the Group at a lower level of
materiality, dependent on the size and our assessment of the risk of material
misstatement of that component. Component materiality ranged from £85,000
to £2,084,000 (2020: £84,000 to £1,261,000). In the audit of each
component, we further applied performance materiality levels of 65% or 70% of
the component materiality to our testing to ensure that the risk of errors
exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of £44,000 (2020: £31,000). We also agreed to
report differences below this threshold that, in our view, warranted reporting
on qualitative grounds.
Other information
The Directors are responsible for the other information. The other information
comprises the information included in the annual report 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. 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 course of 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 this gives rise to a
material misstatement in the financial statements themselves. 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.
Other Companies (Guernsey) Law, 2008 reporting
Matters on which we are required to report by exception We have nothing to report in respect of the following matters where 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 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 Responsibility statement, 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.
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.
Extent to which the audit was capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
· We gained an understanding of the legal and regulatory framework
applicable to the Group and considered the risk of acts by the Group which
were contrary to applicable laws and regulations, including fraud. These laws
and regulations included but were not limited to compliance with the Companies
(Guernsey) Law, 2008, AIM Rules for Companies, those resulting from being
authorised by the Financial Conduct Authority to undertake regulated
activities and UK adopted international accounting standards.
· We considered compliance with laws and regulations that could
give rise to a material misstatement in the Group's financial statements. Our
tests included, but were not limited to:
o Agreement of the financial statement disclosures to underlying supporting
documentation;
o Enquiries of management;
o Sample testing of journal postings made during the year and post year end
to identify potential management override of controls;
o Review of meeting minutes throughout the period; and
o Assessment of the susceptibility of the financial statements to material
misstatement, including how fraud might occur. This includes areas that are
subject to a high degree of management's estimates and judgements as covered
by the key audit matters above.
· We communicated relevant identified laws and regulations and
potential fraud risks to all engagement team members and discussed how and
where these might occur and remained alert to any indications of fraud or
non-compliance with laws and regulations throughout the audit.
Our audit procedures were designed to respond to risks of material
misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed 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 are
to become aware of it.
A further description of our responsibilities is available on the Financial
Reporting Council's website at:
https://www.frc.org.uk/auditorsresponsibilities
(https://www.frc.org.uk/auditorsresponsibilities) . This description forms
part of our auditor's report.
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.
BDO LLP
Chartered Accountants
London, UK
29 June 2022
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
2021 2020
Notes £'000 £'000
Revenue 3 149,716 25,477
Direct expenses (120,497) (8,471)
Gross profit 29,219 17,006
Operating staff costs 6 (15,157) (11,148)
Other operating costs (7,735) (5,052)
Total operating costs (22,892) (16,200)
Share of post-tax profits of equity accounted associates - 56
Operating profit 6,327 862
Non-operating costs:
Business re-positioning costs 4 (1,564) (1,801)
Finance costs 7 (4,927) (554)
Amortisation and depreciation 4 (2,399) (1,822)
Acquisition-related items:
Other (losses) / gains 8 (3,056) 1,744
Remuneration charge (deferred consideration) 21 (7,009) (7,254)
Transaction costs 4 (1,836) (1,855)
Loss before tax (14,464) (10,680)
Tax 9 (761) (60)
Loss after tax (15,225) (10,740)
Other comprehensive income / (loss)
Items that may not be reclassified to profit or loss
Exchange differences on translation of foreign operations 367 (855)
Total comprehensive loss (14,858) (11,595)
Loss after tax is attributable to:
- Owners of the parent company (17,432) (11,000)
- Non-controlling interests 2,207 260
Total comprehensive loss is attributable to:
- Owners of the parent company (17,065) (11,855)
- Non-controlling interests 2,207 260
Loss per share:
- Basic loss per share 11 £ (0.08) £ (0.05)
- Diluted loss per share 11 £ (0.08) £ (0.05)
The notes on pages 48 to 93 form an integral part of the financial statements
2021 2020
Notes £'000 £'000
Non-current assets
Property, plant and equipment 12 941 927
Right-of-use assets 13 2,719 2,828
Goodwill and other intangible assets 14 80,255 47,616
Deferred tax asset 15 - 392
83,915 51,763
Current assets
Short term investments 65 -
Trade and other receivables 16 5,749 24,204
Cash and cash equivalents 18 42,933 3,899
48,747 28,103
Total assets 132,662 79,866
Current liabilities
Trade and other payables 19 26,084 12,955
Deferred consideration payable 21 7,706 836
33,790 13,791
Non-current liabilities
Deferred consideration payable 21 14,482 3,232
Other non-current liabilities 22 2,915 10,802
Deferred tax liability 15 4,577 1,889
Total liabilities 55,764 29,714
Net assets 76,898 50,152
Equity
Share capital 23 10,846 10,846
Share premium 23 8,224 8,224
Preference share capital 24 70,150 37,550
Other reserves 11,041 (519)
Foreign exchange reserve (488) (855)
Retained (loss) (23,800) (6,159)
Equity attributable to the owners of the Parent Company 75,973 49,087
Non-controlling interests 925 1,065
Total equity 76,898 50,152
The notes on pages 48 to 93 form an integral part of the financial statements
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:
David Hudd
Chairman
Date: 29 June 2022
Share capital and share premium Preference share capital Other reserves Foreign exchange reserve Retained earnings Equity attributable to the owners of the parent Company Non-controlling interests Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2020 19,070 4,586 (296) - 4,841 28,201 - 28,201
Loss for the year - - - - (11,000) (11,000) 260 (10,740)
Amounts attributable to non-controlling interests - - - - - - 805 805
Issue of preference share capital - 32,964 - - - 32,964 - 32,964
Share based remuneration - - (223) - - (223) - (223)
Foreign exchange loss - - - (855) - (855) - (855)
Balance at 31 December 2020 19,070 37,550 (519) (855) (6,159) 49,087 1,065 50,152
Loss for the year - - - - (17,432) (17,432) 2,207 (15,225)
Dividends due to non-controlling interests - - - - - - (2,402) (2,402)
Other adjustment - - - - (209) (209) - (209)
Issue of share capital - - - - - - - -
Issue of preference share capital - 32,600 - - - 32,600 - 32,600
Share based remuneration - - 94 - - 94 - 94
Preference share capital reserve - - 11,466 - - 11,466 - 11,466
Foreign exchange gain - - - 367 - 367 55 422
Balance at 31 December 2021 19,070 70,150 11,041 (488) (23,800) 75,973 925 76,898
Note 23 provides further details of, and the split between, Share Capital and
Share Premium.
Additional reserves consist of foreign exchange translation, other reserves
including share-based remuneration and expenses charged against reserves.
The notes on pages 48 to 93 form an integral part of the financial statements
2021 2020
(restated)
Notes £'000 £'000
Net cash from/(used in) operating activities 25 1,741 (6,728)
Investing activities
Property, plant and equipment purchased (127) (796)
Business Combinations (12,720) (10,579)
Deferred consideration (738) -
Net cash used in investing activities (13,585) (11,375)
Financing activities
Proceeds from issue of shares 52,600 20,243
Interest paid (58) (17)
Lease payments (650) (421)
Dividends paid to non-controlling interests (1,272) -
New loans received / loans repaid 18 255
Net cash generated from financing activities 50,638 20,060
Net increase/(decrease) in cash and cash equivalents 38,794 1,957
Cash and cash equivalents at beginning of year 3,899 2,006
Effect of foreign exchange rates 240 (64)
Cash and cash equivalents at end of year 18 42,933 3,899
Prior period financials have been restated to correctly recognise contingent
deferred consideration payments, linked to the continued employment of the
acquiree's employees, as an operating cash outflow in the Consolidated
Statement of Cash Flows. Previously all deferred consideration payments
related to acquisitions were included in the deferred consideration line
within net cash used in investing activities.
In 2020, the cash outflow reclassified from investing activities to operating
activities was £5,153,000.
The notes on pages 48 to 93 form an integral part of the financial statements
1 Accounting policies
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 the
AIM market of the London Stock Exchange (ticker symbol: KWG). 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
ICAAP.
1.1 Basis of accounting
The financial statements of the Group have been prepared in accordance with UK
adopted international accounting standards and in line with the 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 1.3 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.
1.2 Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Group made up to 31 December each year.
The subsidiaries of the Group are detailed in note 17.
All businesses 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.
1.3 Significant accounting policies
Going concern
The Directors review the going concern position of the Group on a regular
basis as part of the monthly reporting process which includes consolidated
management accounts and cash flow projections and 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, the Directors continue to adopt the going
concern basis of accounting in preparing the financial statements.
Revenue recognition
Performance obligations and timing of revenue recognition
The majority of the Group's UK revenue, being investment management fees and
ongoing wealth advisory, is derived from the value of funds under management /
advice, with revenue recognised over the period in which the related service
is rendered. This method reflects the ongoing portfolio servicing required to
ensure the Group's contractual obligations to its clients are met. This also
applies to the Group's US Registered Investment Advisor ("RIA") business.
For certain commission, fee-based and initial wealth advisory income, revenue
is recognised at the point the service is completed. This applies in
particular to the Group's US Independent Broker Dealer ("IBD") services, and
its execution-only UK investment management. There is limited judgement needed
in identifying the point such a service has been provided, owing to the
necessity of evidencing, typically via third-party support, a discharge of
pre-agreed duties.
1 Accounting policies
The US division also has significant Investment Banking operations, where
commission is recognised on successful completion of the underlying
transaction.
Determining the transaction price
Most of the Group's UK revenue is charged as a percentage of the total value
of assets under management or advice. For revenue earned on a commission
basis, such as the US broker dealing business, a set percentage of the trade
value will be charged. In the case of one-off or ad hoc engagements, a fixed
fee may be agreed.
Allocating amounts to performance obligations
Owing to the way in which the Group earns its revenue, which is largely either
percentage-based or fixed for discrete services rendered, there is no
judgement required in determining the allocation of amounts received. Where
clients benefit from the provision of both investment management and wealth
advisory services, the Group is able to separately determine the quantum of
fees payable for each business stream.
Further details on revenue, including disaggregation by operating segment and
the timing of transfer of service(s), are provided in note 3 below.
Borrowing costs
All borrowing costs are measured at the present value of the contractual
payments due to the lender over the loan term, with the discount rate
determined by reference to the interest rate inherent in the loan.
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 through the profit or loss as they fall due.
Taxation
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.
1 Accounting policies
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.
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
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
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 method, on the following basis:
· Office equipment, fixtures and fittings:
· IT equipment and software:
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.
Depreciation periods for newly-acquired businesses may vary, however the Group
aims to harmonise such accounting estimates within 12 months.
1 Accounting policies
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.
Where a full assessment of fair values is not practicable at the signing of
these financial statements, provisional accounting has been adopted. 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. The consideration liability is contingent on
performance requirements during the deferred consideration period. The value
of the contingent consideration is determined by EBITDA and/or revenue targets
agreed on the acquisition of each asset, as defined under the respective
Purchase Agreements. As at the reporting date, the Group is expecting to pay
the full value of its deferred consideration as all acquisitions are on target
to meet the requirements.
Where the payment of deferred consideration is contingent on the continued
employment of the seller(s) of a business post-acquisition during the deferred
payment period, such contingent consideration is treated as remuneration in
accordance with IFRS 3, and accounted for as a charge against profits as
incurred. No deferred liability is created for this portion of consideration
at the time of acquisition.
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.
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. For
more detail refer to note 14.
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.
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 method 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.
1 Accounting policies
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.
As required under IFRS 9, financial assets are classified into the following
categories:
· amortised cost;
· fair value through profit or loss (FVTPL); and
· fair value through other comprehensive income (FVOCI).
In the periods presented the Group did not have any financial assets
categorised as 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; and
· 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.
Classification and measurement of financial liabilities
Financial liabilities are initially measured at amortised cost or 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.
Impairment of financial assets
Impairment provisions for current and non-current trade receivables are
recognised based on the simplified approach within IFRS 9 using a provision
matrix in the determination of the lifetime expected credit losses. During
this process the probability of the non-payment of the trade receivables is
assessed. This probability is then multiplied by the amount of the expected
loss arising from default to determine the lifetime expected credit loss for
the trade receivables. For trade receivables, which are reported net, such
provisions are recorded in a separate provision account with the loss being
recognised within cost of sales in the consolidated statement of comprehensive
income. On confirmation that the trade receivable will not be collectable, the
gross carrying value of the asset is written off against the associated
provision.
Impairment provisions for receivables from related parties and loans to
related parties are recognised based on a forward looking expected credit loss
model. The methodology used to determine the amount of the provision is based
on whether there has been a significant increase in credit risk since initial
recognition of the financial asset, twelve month expected credit losses along
with gross interest income are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses along with the gross
interest income are recognised. For those that are determined to be credit
impaired, lifetime expected credit losses along with interest income on a net
basis are recognised.
The Group considers a broad 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.
1 Accounting policies
In applying this 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); and
· 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 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 the Guernsey Company law, Kingswood Holdings Limited 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.
1 Accounting policies
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 18.
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.
The amount recognised as deferred consideration is dependent on the
acquisition structure, specifically the employment terms of the seller(s) post
acquisition. If payment of deferred consideration is contingent on the
continued employment of the seller(s) during the deferred payment period, such
contingent payment is treated as remuneration, not deferred consideration, and
accounted for as a charge against profits as incurred over the deferred
period.
Remuneration payable on business combinations
Payments due in relation to share or business purchase agreements, but which
remain linked to the continued employment of the acquiree's employees, are
recognised as a remuneration expense through the Consolidated Statement of
Comprehensive Income. These costs are excluded from Operating Profit on the
basis these costs relate to acquisitions and do not reflect the ongoing
underlying business performance, and will cease when the earnout period on a
given deal concludes.
Non-operating costs and other acquisition-related items
In addition to the above, certain other costs have been excluded from
Operating Profit, on the basis these costs primarily relate to acquisitions or
other non-recurring expenditure. The retained Operating Profit figure
represents the Directors' assessment of the ongoing underlying performance of
the core business.
Share based remuneration
Equity-settled share-based remuneration 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 26.
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 the Statement of Comprehensive
Income such that the cumulative expense reflects the revised estimate, with a
corresponding adjustment to the equity-settled share based payments reserve.
1 Accounting policies
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.
Leases
Under IFRS 16, a contract is, or contains, a lease if the contract conveys a
right to control the use of an identified asset for a period of time in
exchange for consideration.
The Group leases a number of assets, including properties and printers.
The Group initially records a lease liability reflecting the present value of
the future contractual cash flows to be made over the lease term, discounted
using the Group's incremental borrowing rate. This is the rate payable by the
Group on a loan of a similar term, and with similar security to obtain an
asset of similar value. A right-of-use asset is also recorded at the value of
the lease liability plus any directly related costs and estimated dilapidation
expenses.
Subsequent to initial measurement lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right-of-use assets are amortised on a straight-line
basis over the remaining term of the lease or over the remaining economic life
of the asset if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease (because, for
example, it re-assesses the probability of a lessee extension or termination
option being exercised), it adjusts the carrying amount of the lease liability
to reflect the payments to make over the revised term, which are discounted
using a revised discount rate. An equivalent adjustment is made to the
carrying value of the right-of-use asset, with the revised carrying amount
being amortised over the remaining (revised) lease term. If the carrying
amount of the right-of-use asset is adjusted to zero, any further reduction is
recognised in profit or loss.
All leases are accounted for by recognising a right-of-use asset and a lease
liability except for leases of low value assets and leases with a duration of
12 months or less. The Group recognises the lease payments associated with
such leases as an expense on a straight-line basis over the lease term.
2 Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in
note 1, 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.
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 that had the most
significant effect on the amounts recognised in the financial statements.
2 Critical accounting judgements and key sources of estimation uncertainty
Assessment of control
Control is considered to exist where an investor has power over an investee,
or else is exposed, and has rights, to variable returns. The Group determines
control to exist where its own direct and implicit voting rights relative to
other investors afford KHL - via its board and senior management - the
practical ability to direct, or as the case may be veto, the actions of its
investees. KHL holds 50.1% of voting rights in MHC and its subsidiaries, as
well as having representation on the US division's advisory board by key KHL
Board members. The Group has thus determined that the Company has the
practical ability to direct the relevant activities of MHC and its
subsidiaries and has consolidated the sub-group as subsidiaries with a 49.9%
non-controlling interest.
Assessment of equity accounting of associates
Where the Group has the power to participate in, but not control, the
financial and operating policy decisions of another entity, it is classified
as an associate. Associates are initially recognised in the consolidated
statement of financial position at cost. Subsequently associates are accounted
for using the equity method.
Estimates and Assumptions
Intangible assets:
Expected duration of client relationships
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 as detailed in note 14.
Goodwill
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.
Share-based remuneration:
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 26.
Deferred tax:
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 15 to the financial statements.
2 Critical accounting judgements and key sources of estimation uncertainty
Leases:
Estimating the incremental borrowing rate
The Group cannot readily determine the interest rate implicit in leases where
it is the lessee, therefore, it uses its incremental borrowing rate to measure
lease liabilities. This is the rate of interest that the Group would have to
pay to borrow over a similar term, and with a similar security, the funds
necessary to obtain an asset of a similar value to the right-of-use asset in a
similar economic environment.
The incremental borrowing rate therefore reflects what the Group 'would have
to pay', which requires estimation when no observable rates are available or
when they need to be adjusted to reflect the terms and conditions of the lease
(for example, when leases are not in the subsidiary's functional currency).
The Group estimates the incremental borrowing rate using observable inputs
(such as market interest rates) when available and is required to make certain
entity-specific estimates (such as the subsidiary's stand-alone credit
rating).
Deferred consideration:
Payment of deferred consideration
The Group structures acquisitions such that consideration is split between
initial cash or equity settlements and deferred payments. The initial value of
the contingent consideration is determined by EBITDA and/or revenue targets
agreed on the acquisition of each asset. It is subsequently remeasured at its
fair value through the Statement of Comprehensive Income, based on the
Directors' best estimate of amounts payable at a future point in time, as
determined with reference to expected future performance. Forecasts are used
to assist in the assumed settlement amount.
3 Business and geographical segments
Information reported to the Group's Non-Executive Chairman for the purposes of
resource allocation and assessment of segment performance is focused on the
category of customer for each type of activity.
The Group's reportable segments under IFRS 8 are as follows: investment
management, wealth planning and US operations.
The Group has disaggregated revenue into various categories in the following
table which is intended to depict how the nature, amount, timing and
uncertainty of revenue and cash flows are affected by economic date and enable
users to understand the relationship with revenue segment information provided
below.
The following is an analysis of the Group's revenue and results by reportable
segment for the year to 31 December 2021. The table below details a 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:
Investment management Wealth planning US operations Group Total
2021 2021 2021 2021 2021
Continuing operations: £'000 £'000 £'000 £'000 £'000
Revenue (disaggregated by timing):
Point in time 881 2,045 118,396 - 121,322
Over time 3,771 15,169 9,431 23 28,394
External sales 4,652 17,214 127,827 23 149,716
Direct expenses (1,476) (913) (118,108) - (120,497)
Gross profit 3,176 16,301 9,719 23 29,219
Operating profit / (loss) 365 5,779 5,123 (4,940) 6,327
Business re-positioning costs (177) (239) (263) (885) (1,564)
Finance costs - (72) 2 (4,857) (4,927)
Amortisation and depreciation - (1,197) (212) (990) (2,399)
Other gains / (losses) - - - (3,056) (3,056)
Remuneration charge (deferred consideration) - (3,691) - (3,318) (7,009)
Transaction costs (4) (1,832) (1,836)
Profit / (loss) before tax from continuing operations 188 576 4,650 (19,878) (14,464)
Tax - (16) (317) (428) (761)
Profit / (loss) after tax from continuing operations 188 560 4,333 (20,306) (15,225)
3 Business and geographical segments
Investment management Wealth planning US operations Group Total
2020 2020 2020 2020 2020
Continuing operations: £'000 £'000 £'000 £'000 £'000
Revenue (disaggregated by timing):
Point in time 1,071 1,595 7,299 - 9,965
Over time 3,169 11,320 1,023 15,512
External sales 4,240 12,915 8,322 - 25,477
Direct expenses (1,158) (643) (6,670) - (8,471)
Gross profit 3,082 12,272 1,652 - 17,006
Operating (loss) / profit (107) 4,380 543 (3,954) 862
Business re-positioning costs - - - (1,801) (1,801)
Finance costs (3) (48) (3) (500) (554)
Amortisation and depreciation (10) (835) (3) (974) (1,822)
Other gains - - - 1,744 1,744
Remuneration charge (deferred consideration) - - - (7,254) (7,254)
Transaction costs - - - (1,855) (1,855)
Share of profit from associates - - - - -
(Loss) / profit before tax from continuing operations (120) 3,497 537 (14,594) (10,680)
Tax - (2) (101) 43 (60)
(Loss) / profit after tax from continuing operations (120) 3,495 436 (14,551) (10,740)
3 Business and geographical segments
Investment management Wealth planning US operations Group Total
2021 2021 2021 2021 2021
£'000 £'000 £'000 £'000 £'000
Additions to non-current assets 2,113 839 3,995 27,994 34,941
Reportable segment assets 6,581 41,819 26,653 57,609 132,662
Tax assets -
Total Group assets 132,662
Reportable segment liabilities 2,560 13,694 19,516 19,994 55,764
Total Group liabilities 55,764
Investment management Wealth planning US operations Group Total
2020 2020 2020 2020 2020
£'000 £'000 £'000 £'000 £'000
Additions to non-current assets - 15,653 5,324 1,654 22,631
Reportable segment assets 2,665 46,793 11,497 18,519 79,474
Tax assets 392
Total Group assets 79,866
Reportable segment liabilities 1,483 13,125 7,761 7,345 29,714
Total Group liabilities 29,714
4 Loss after tax
2021 2020
Loss after tax for the year is stated after charging £'000 £'000
Depreciation of property, plant and equipment (incl right of use asset) 925 617
Amortisation of intangible assets 1,474 1,205
Staff costs 15,953 12,081
See Directors' Remuneration Report on page 31 for details of Directors'
remuneration during the year.
Included in the loss after tax are business re-positioning and transaction
costs. Business re-positioning costs include restructuring costs in relation
to staff and third-party suppliers. Transaction costs are primarily
deal-related and driven by the acquisitions entered into by the Group.
5 Auditor's remuneration
2021 2020
£'000 £'000
The analysis of fees payable to the Group's auditor is as follows:
Audit of Company 200 211
Audit of Subsidiaries 200 56
CASS audit 25 20
Total auditor's remuneration 425 287
6 Staff costs
The average monthly number of persons (including Executive Directors) is as
follows:
2021 2020
Management 6 8
Client advisers 49 50
Operations 99 79
Finance 13 7
Human Resources 4 4
Risk and Compliance 10 9
Average number of employees 181 157
6 Staff costs
Aggregate staff remuneration comprised:
2021 2020
£'000 £'000
Wages and salaries 13,199 10,442
Social security costs 1,400 1,198
Pension costs 602 454
Other benefits 658 210
Share-based remuneration 94 (223)
Total staff costs 15,953 12,081
Operating staff costs 15,157 11,148
Business re-positioning costs 739 592
Acquisition team costs 57 341
Total staff costs 15,953 12,081
7 Finance costs
2021 2020
£'000 £'000
Bank and other finance charges 4,927 554
8 Other (losses) / gains
2021 2020
£'000 £'000
Net unrealised (loss) / gain on investments - 1,744
Additional payments due on acquired businesses (2,983) -
Unrealised gain/(loss) on stock (73) -
(3,056) 1,744
9 Taxation
2021 2020
£'000 £'000
Current year tax expense 317 (101)
Write off of historical corporation tax balance (17) -
Movement in deferred tax (note 15) 461 41
761 (60)
UK corporation tax is calculated at 19.00% (2020: 19.00%) of the estimated
assessable profits for the year. The reasons for the difference between the
actual tax charge for the year and the standard rate of corporation tax
applied to profits for the year are as follows:
Loss before tax on continuing operations (14,464) (10,680)
Loss before taxation (14,464) (10,680)
Tax at the UK corporation tax rate of 19.00% (2020:19.00%) (2,748) (2,029)
Expenses not deductible for tax purposes 3,531 1,687
Adjustments for Statement of Financial Position items 133 400
Benefit of superdeduction (2) -
Prior year true-up (17) -
Adjustment for revenue ineligible for tax purposes (250) (329)
Unrelieved tax losses carried forward 202 376
Movement in deferred tax 461 (41)
Different tax rates applied in overseas jurisdictions (549) (4)
Taxation charge in the financial statements 761 60
10 Dividends
The Directors are not proposing to pay a dividend to ordinary shareholders in
respect of the year ended 31 December 2021 (year ended 31 December 2020:
£nil).
11 Earnings per share
2021 2020
£'000 £'000
Loss from continuing operations for the purposes of basic loss per share, (17,432) (11,000)
being net loss attributable to owners of the Group
Number of shares
2021 2020
Weighted average number of ordinary shares assuming above conversion events 216,920,724 216,920,724
Effect of potential ordinary conversion:
Convertible preference shares in issue 271,986,413 70,965,175
Share options 5,702,567 14,178,963
Weighted average number of ordinary shares assuming conversion 494,609,704 302,064,862
Owing to the Group being in a loss-making position for the years ending 31
December 2020 and 2021, the effect of any conversion events would be
antidilutive to the loss per share. Therefore the diluted loss per share has
not been restated from the basic loss per share of £0.08 (2020: loss per
share £(0.05)).
12 Property, plant and equipment
Fixtures and equipment
£'000
Cost
At 1 January 2021 1,380
Additions 275
At 31 December 2021 1,655
Accumulated depreciation
At 1 January 2021 453
Depreciation charged in the year 261
At 31 December 2021 714
Net book value
At 31 December 2021 941
12 Property, plant and equipment
Fixtures and equipment
£'000
Cost
At 1 January 2020 564
Additions 816
At 31 December 2020 1,380
Accumulated depreciation
At 1 January 2020 343
Depreciation charged in the year 110
At 31 December 2020 453
Net book value
At 31 December 2020 927
13 Right-of-use assets
Land and buildings
£'000
Cost
At 1 January 2021 3,569
Prior year reclassification (35)
Additions 555
At 31 December 2021 4,089
Accumulated depreciation
At 1 January 2021 741
Prior year reclassification (35)
Depreciation charged in the year 664
At 31 December 2021 1,370
Net book value
At 31 December 2021 2,719
Land and buildings
£'000
Cost
At 1 January 2020 1,335
Additions 2,234
At 31 December 2020 3,569
Accumulated depreciation
At 1 January 2020 234
Depreciation charged in the year 507
At 31 December 2020 741
Net book value
At 31 December 2020 2,828
14 Goodwill and other intangible assets
Goodwill Other intangible assets Total
£'000 £'000 £'000
Cost
At 1 January 2021 25,684 27,968 53,652
Additions 19,439 14,647 34,086
Disposals (40) - (40)
Exchange adjustments 67 - 67
At 31 December 2021 45,150 42,615 87,765
Accumulated amortisation
At 1 January 2021 2,279 3,757 6,036
Amortisation charged for the year - 1,474 1,474
At 31 December 2021 2,279 5,231 7,510
Net book value
At 31 December 2021 42,871 37,384 80,255
Goodwill Other intangible assets Total
£'000 £'000 £'000
Cost
At 1 January 2020 16,384 17,655 34,039
Additions 9,300 10,313 19,613
At 31 December 2020 25,684 27,968 53,652
Accumulated amortisation
At 1 January 2020 2,202 2,629 4,831
Amortisation charged for the year 77 1,128 1,205
At 31 December 2020 2,279 3,757 6,036
Net book value
At 31 December 2020 23,405 24,211 47,616
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 four CGUs at 31 December 2021 analysed between
Investment Management, Wealth Planning and its US operations split between RIA
and IBD operations and the Investment Banking business. 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.
Key management information is prepared and reviewed across the Group's
operating segments, and proposed acquisitions are analysed in one of those
segments.
14 Goodwill and other intangible assets
This is the eighth year in which the investment management and wealth planning
CGUs have been analysed in this format. As the goodwill recognised on US
acquisitions is not considered to be allocable on a non-arbitrary basis to
individual CGUs, the carrying value of goodwill recognised on US acquisitions
in 2020 is attributed to the combined US operating segment, made up of the
RIA/IBD and Investment Banking CGUs. KHL acquired KW Wealth Group Limited
(KWWG) in 2014. KWWG has been split between investment management and wealth
planning CGUs depending on which CGU the relevant assets are allocated to.
The carrying value of goodwill at 31 December 2021 is allocated as follows:
Investment Management Wealth Planning US operations Total
£'000 £'000 £'000 £'000
Goodwill 20,404 17,187 5,280 42,871
The Group tests each CGU, or groups of CGUs, 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. Valuations are based on
the discounted cash flow method. Projected cash flows are based on the most
recent budget, with a terminal growth rate of 2%, which is considered prudent
in the context of the long-term average growth rate for the investment
management and financial planning industries in which the CGUs operate. The
discount rates used were 14.7% for the investment management and wealth
planning CGUs and 14.6% for the two US CGUs, reflecting the risk-free rate of
interest and specific risks relating to each of the CGUs. The value of the CGU
related to Level 3 fair value measurements.
The US group of CGUs exceeded its carrying amount by £32.5m and sensitivity
analysis has not been performed given the vast headroom the recoverable amount
provides over the goodwill balance. The value of the investment management and
the wealth planning CGUs exceeded their carrying value by £145,000 and £1.3m
respectively. The projected cashflows prepared by management are considered to
be prudent with natural sensitivities already built into the model, as such no
further sensitivity analysis has been performed.
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 a client
by client basis in order to determine amortisation rates. There are currently
£36.2m of intangible assets being amortised over 20 years, £1.1m over 15
years and £0.1m over 10 years.
The addition in 2021 to intangible assets represents the value of assets under
management and associated client lists acquired from Admiral, Money Matters
and Metnor.
The addition in 2020 to intangible assets represents the value of assets under
management and associated client lists acquired from Sterling Trust and
Regency.
15 Deferred tax
The following are the major deferred tax assets and liabilities recognised by
the Group and movements thereon during the current and prior year:
Liabilities Liabilities Assets Assets
2021 2020 2021 2020
Balances: £'000 £'000 £'000 £'000
At 1 January (1,889) - 392 428
Reductions due to acquisitions - - - (38)
Intangibles - customer relationships and brand recognised upon acquisition of (2,619) (1,932) - -
subsidiaries
Movement in year (69) 43 (392) 2
At 31 December (4,577) (1,889) - 392
Deferred tax assets and liabilities may only be offset where the Group has a
legally enforceable right to do so.
At the Statement of Financial Position date, the Group has unused tax losses
of £19.3m (2020: £15.2m) available for offset against future profits. No
deferred tax asset has been recognised in respect of tax losses for the year
ended 31st Dec 2021 (2020: £392,000 was recognised) as there is some
uncertainty as to the timing of future expected profit.
The UK Government announced in its budget on 3 March 2021, a rise in the rate
of Corporation Tax from 19% to 25% from 1 April 2023, which was substantially
enacted during the year. The increase is reflected within deferred tax in the
accounts, the impact recognised being £42k.
16 Trade and other receivables
2021 2020
£'000 £'000
Trade receivables 1,844 837
Prepayments 1,307 1,060
Other debtors 2,598 22,307
5,749 24,204
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.
Included within other debtors at 31 December 2020 is £20 million due from HSQ
INVESTMENT LIMITED, a wholly owned indirect subsidiary of funds managed and/or
advised by Pollen Street Capital Limited (Pollen Street) in consideration for
the issue of 20 million convertible preference shares on 31 December 2020.
This debtor was settled in full on 19 March 2021.
17 Subsidiaries
Kingswood Holdings Limited, the parent company incorporated in Guernsey, has
the following subsidiaries as at 31 December 2021:
Name of subsidiary Ownership Activity
KW Wealth Group Limited ("KWWG") 100% owned by KHL Management services
(UK company)
KW Investment Management Limited ("KWIM") (UK company) 100% owned by KHL Investment management
KW Wealth Planning Limited ("KWWP") 100% owned by KHL Wealth planning
(UK company)
Sterling Trust Financial Consulting Limited ("STFC") (UK company) 100% owned by KHL Holding company
STP Wealth Management Limited ("STPWM") (UK company) 100% owned by STFC Wealth planning
- non trading company
NHA Financial Services Limited ("NHA") 100% owned by STFC Holding company
(UK company)
Sterling Trust Professional (York) Limited ("STY") (UK company) 100% owned by NHA Wealth planning
Sterling Trust Professional Limited ("STP") 100% owned by STFC Wealth planning
(UK company)
Sterling Trust Professional (North East) Limited ("STPNE") (UK company) 100% owned by STFC Wealth planning
Sterling Trust Professional (Sheffield) Limited ("STPS") (UK company) 100% owned by STFC Wealth planning
Money Matters (North East) Limited (UK company) 100% owned by KHL Wealth planning
Regency Investment Services Limited ("Regency") (UK company) 100% owned by KHL Wealth planning
Admiral Wealth Management Limited (UK company) 100% owned by KHL Wealth planning
Metnor Holdings Limited (UK company) 100% owned by KHL Holding company
IPN Partners Limited (UK company) 100% owned by Management services
Metnor Holdings
IBOSS Asset Management Limited (UK company) 100% owned by Investment management
Metnor Holdings
Novus Financial Services Limited (UK company) 100% owned by Wealth planning
IPN Partners
IBOSS Limited (UK company) 100% owned by Investment management
IPN Partners
17 Subsidiaries
Name of subsidiary Ownership Activity
EIM Nominees Limited (UK company) 100% owned by KWIM Nominee company
- non trading company
XCAP Nominees Limited (UK company) 100% owned by KWIM Nominee company
- non trading company
Kingswood US Holdings Inc ("KUSH") 100% owned by KWWG Holding company
(US company) - non trading company
Kingswood Investments, LLC ("KINV") 100% owned by KUSH Holding company
(US company) - non trading company
Kingswood U.S., LLC ("KW US") (US company) Formally Manhattan Harbor Capital 50.1% owned by KUSH Holding company
Kingswood Capital Partners, LLC ("KCP") 100% owned by MHC Independent broker dealer
(US company)
Benchmark Investments, Inc ("BINV") 100% owned by MHC Independent broker dealer
(US company)
Benchmark Advisory Services, LLC ("BAS") 100% owned by MHC Registered investment adviser
(US company)
S.A.G. Marketing Group, LLC ("SAG") 100% owned by MHC Management services
(US company)
Kingswood Capital Markets, LLC ("KCM") 100% owned by MHC Investment banking
(US company)
Kingswood Wealth Advisors, LLC ("KWA") 100% owned by MHC Registered investment adviser
(US company)
Marchant McKechnie Independent Financial Advisers Limited ("MMK") (UK company) Dissolved on 16 March 2021 Wealth planning
Profits attributable to non-controlling interests in KW US (formally MHC) and
its subsidiaries as at 31 December 2021 were £2,206,889 (US$3,030,793) and
between 23 November 2020, when Kingswood acquired control, and the 31 December
2020 year-end were £435,740 (US$559,359). Dividends paid to non-controlling
interest in the year were £1,271,724 (US$1,746,459) (period post-acquisition
to 31 December 2020 were £160,106 (US$216,608))
Accumulated non-controlling interest of KW US and its subsidiaries as at 31
December 2021 were £924,858 (US$1,246,431). (as at 31 December 2020:
£1,063,924 (US$1,452,150)).
17 Subsidiaries
Summarised financial information (material subsidiaries with non-controlling
interests) before intra-group adjustments:
As at 31 December: 2021 2021 2020 2020
$'000 £'000 $'000 £'000
Current assets 21,318 15,818 6,278 4,600
Non-current assets 204 151 153 112
Current liabilities (19,049) (14,135) (3,019) (2,212)
Non-current liabilities (59) (44) (24) (17)
12 months ended 31 December: 2021 2021 2020 2020
$'000 £'000 $'000 £'000
Revenue 174,367 126,967 24,487 19,076
Profit after tax 5,740 4,180 2,132 1,661
Other comprehensive income - - - -
Total comprehensive income 5,740 4,180 2,132 1,661
18 Cash and cash equivalents
2021 2020
£'000 £'000
Cash at bank and in hand 42,933 3,899
Client money
In November 2020, the Group's subsidiary KWIM moved to a Model B structure and
transferred its CASS obligations to a third party service provider.
Consequently, no client money was held in segregated bank accounts at 31
December 2021 (31 December 2020: £20,000).
19 Trade and other payables
2021 2020
£'000 £'000
Trade payables 789 1,094
Accruals and other creditors 22,967 9,348
Lease liability and dilapidations provision 677 590
Other taxation and social security 1,581 1,882
Other borrowings 70 41
26,084 12,955
The Directors consider that the carrying amount of trade payables approximates
their fair value.
20 Lease liabilities
The lease liabilities are included in trade and other payables and other
non-current liabilities in the statement of financial position.
Land and buildings
£'000
At 1 January 2020 1,151
Additions 2,394
Interest expense 110
Lease payments (421)
At 31 December 2020 3,234
Additions 582
Interest expense 108
Lease payments (650)
At 31 December 2021 3,274
The Group recognises a right-of-use asset and a lease liability at the lease
commencement date. The right-of-use asset is initially measured at cost, and
subsequently at cost less any accumulated depreciation and impairment losses
and adjusted for certain re-measurements of the lease liability.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
Group's incremental borrowing rate.
The lease liability is subsequently increased by the interest cost on the
lease liability and decreased by lease payment made.
The Group has applied judgement to determine the lease term for some lease
contracts in which it is a lessee that includes renewal options. The
assessment of whether the Group is reasonably certain to exercise such options
impacts the lease term, which significantly affects the amount of lease
liabilities and right-of-use assets recognised.
Carrying amount of lease liabilities: £'000
At 1 January 2021 3,234
At 31 December 2021 3,274
Due within one year 677
Due after more than one year 2,597
2021 2020
£'000 £'000
Short-term lease expense 10 16
Low value lease expense 96 92
20 Lease liabilities
2021 2020
Dilapidations provisions relating to lease liabilities £'000 £'000
Carrying amount:
At 1 January 2021 508 -
At 31 December 2021 566 508
Due within one year 28 12
Due after more than one year 538 496
21 Deferred consideration payable
2021 2020
£'000 £'000
Deferred consideration payable on acquisitions: 22,188 4,068
- falling due within one year 7,706 836
- due after more than one year 14,482 3,232
The deferred consideration payable on acquisitions is due to be paid in cash.
The deferred consideration liability is contingent on performance requirements
during the deferred consideration period. The value of the contingent
consideration is determined by EBITDA and/or revenue targets agreed on the
acquisition of each asset, as defined under the respective Share or Business
Purchase Agreement. As at the reporting date, the Group is expecting to pay
the full value of its deferred consideration as all acquisitions are on target
to meet the requirements, and there were additional payments for Sterling and
Regency due to the Sellers achieving these contractual requirements (part of
Note 8).
Previously all deferred consideration payable on acquisitions was recorded as
a deferred liability and included in the fair value of assets. However, in
circumstances where the payment of deferred consideration is contingent on the
seller remaining within the employment of the Group during the deferred
period, the contingent portion of deferred consideration is not included in
the fair value of consideration paid, rather is treated as remuneration and
accounted for as a charge against profits over the deferred period.
During the year, deferred consideration expensed as remuneration through
profit or loss was £7,008,600 (2020: £7,253,510).
22 Other non-current liabilities
2021 2020
£'000 £'000
Lease liability and dilapidations provision 2,597 2,644
Preference share liability - 7,365
Other taxation and social security - 579
Other borrowings 318 214
2,915 10,802
23 Share capital
2021 2020 2021 2020
Shares Shares £'000 £'000
Ordinary shares issued:
Fully paid 216,920,719 216,920,719 10,846 10,846
216,920,719 216,920,719 10,846 10,846
Share capital and share premium
Number of ordinary shares Par value Share premium Total
'000 £'000 £'000 £'000
At 1 January 2020 216,921 10,846 8,224 19,070
Issued during year - - - -
At 31 December 2020 216,921 10,846 8,224 19,070
Issued during year - - - -
At 31 December 2021 216,921 10,846 8,224 19,070
Ordinary shares have a par value of £0.05 per share. 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.
Kingswood Holdings Limited does not have a limit on the amount of authorised
capital.
As at 31 December 2021, KPI (Nominees) Limited held 143,720,906 Ordinary
Shares, representing 66.3 per cent of ordinary shares in issue at year end.
24 Preference share capital
2021 2020 2021 2020
Shares Shares £'000 £'000
Convertible preference shares issued:
Fully paid 77,428,443 44,828,443 70,150 37,550
77,428,443 44,828,443 70,150 37,550
Preference share capital movements are as follows:
Number of shares Par value
'000 £'000
At 1 January 2020 5,728 5,728
Issued during year 39,100 39,100
At 31 December 2020 44,828 44,828
Issued during year 32,600 32,600
At 31 December 2021 77,428 77,428
2021 2020
£'000 £'000
Equity component 70,150 37,550
Liability component - 7,278
70,150 44,828
On 12 September 2019, Kingswood Holdings Limited entered into a subscription
agreement with HSQ INVESTMENT LIMITED, a wholly owned indirect subsidiary of
funds managed and/or advised by Pollen Street, to subscribe for up to 80
million irredeemable convertible preference shares, at a subscription price of
£1 each (the Subscription). Pollen Street is a global, independent
alternative asset investment management company, established in 2013 with
currently £3.2 billion gross AUM across private equity and credit strategies,
focused on the financial and business services sectors, with significant
experience in speciality finance.
All irredeemable convertible preference shares convert into new ordinary
shares at Pollen Street Capital's option at any time from the earlier of an
early conversion trigger or a fundraising, or automatically on 31 December
2023. Preferential dividends on the irredeemable convertible preference shares
accrue daily at a fixed rate of five per cent per annum from the date of
issue. Effective 17 December 2021 onwards, these
will be settled via the issue of additional ordinary shares, thereby
extinguishing the liability component.
25 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 18.
2021 2020
£'000 £'000
Loss before tax (14,464) (10,680)
Adjustments for:
Depreciation and amortisation 2,399 1,822
Finance costs 4,927 554
Remuneration charge (deferred consideration) 234 2,101
Share-based payment expense 94 (223)
Other losses / (gains) 1,281 (1,744)
Foreign exchange gain (6) (22)
Tax paid (318) (103)
Share of post-tax profits of equity accounted associates - (56)
Operating cash flows before movements in working capital (5,853) (8,351)
(Increase)/decrease in receivables (449) (1,893)
Increase/(decrease) in payables 8,043 3,516
Net cash inflow / (outflow) from operating activities 1,741 (6,728)
26 Share based remuneration
Employee Option Plan
The Group has the following share option schemes established for employees and
Directors:
· 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.
· The 2019 Kingswood Group LTIP scheme under which options are
granted over ordinary shares of the Group to employees and Directors.
39,750,000 options were issued with an exercise price of 5p. The vesting date
of these share options is 31 December 2021. Vesting conditions include a
mixture of performance and market-based conditions, tailored to the employee
or director.
· The 2021 Kingswood Group LTIP scheme under which options are
granted over ordinary shares of the Group to employees and Directors.
15,708,333 options were issued with an exercise price of 16.5p. The vesting
date of these share options is 31 December 2023. Vesting conditions include a
mixture of performance and market-based conditions, tailored to the employee
or director.
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 Number of options Average exercise price per share option Number of options
2021 2021 2020 2020
Pence Pence
Outstanding at 1 January 5.87 19,949,167 5.50 34,607,500
Granted during the year 16.50 15,708,333 - -
Exercised during the year - - - -
Forfeited during the year 5.50 (18,858,333) 5.00 (14,658,333)
Outstanding at 31 December 16.78 16,799,167 5.87 19,949,167
Vested and exercisable at 31 December 20.85 1,090,833 72.17 257,500
26 Share based remuneration
Share options outstanding at the end of the year have the following expiry
date and exercise prices:
Grant date Expiry date Exercise price Share Share
options options
Pence 2021 2020
4 August 2014 3 August 2024 100.00 105,000 105,000
1 August 2016 31 July 2026 53.00 152,500 152,500
15 February 2019 31 December 2029 5.00 833,334 5,466,667
9 May 2019 31 December 2029 5.00 - 12,125,000
28 June 2019 31 December 2029 5.00 - 2,000,000
1 July 2019 1 July 2029 5.00 - 100,000
12 April 2021 31 December 2024 16.50 4,775,000 -
25 June 2021 31 December 2024 16.50 5,000,000 -
5 July 2021 31 December 2024 16.50 4,933,333 -
6 September 2021 31 December 2024 16.50 1,000,000 -
Total 16,799,167 19,949,167
Weighted average contractual life of options outstanding at end of period 3.22 years 8.26 years
The following information is relevant to the determination of the fair value
of options granted during the year under equity settled share based
remuneration schemes operated by the Group.
2021
Option pricing model used Monte Carlo
Weighted average share price at grant date (p) 25
Exercise price (p) 16.5
Weighted average contractual life (in days) 1,174
Expected volatility (15 February 2019 tranche) -
Expected volatility (9 May 2019 tranche) -
Expected volatility (28 June 2019 tranche) -
Expected volatility (1 July 2019 tranche) -
Expected volatility (12 April 2021 tranche) 75.96%
Expected volatility (25 June 2021 tranche) 75.96%
Expected volatility (5 July 2021 tranche) 71.40%
Expected volatility (6 September 2021 tranche) 75.96%
Expected dividend growth rate N/A
Risk-free interest rate 0.87%
The volatility assumption, measured at the standard deviation of expected
share price returns, is based on a statistical analysis of daily share prices
over the last three years.
The dividend growth rate has been assumed to be 0% as no dividends have been
paid.
26 Share based remuneration
Total (expense) / gain arising from share-based transactions recognised during
the period as part of employee benefit expense is as follows:
2021 2020
£'000 £'000
Options issued under employee option plan (94) 223
27 Financial instruments
The following table states the classification of financial instruments and is
reconciled to the Statement of Financial Position:
2021 2020
Carrying amount Carrying amount
£'000 £'000
Financial assets measured at amortised cost
Trade and other receivables 4,308 23,048
Cash and cash equivalents 42,933 3,899
Financial liabilities measured at amortised cost
Trade and other payables (23,826) (10,483)
Other non-current liabilities (318) (794)
Lease liability (3,274) (3,234)
Preference share liability - (7,365)
Financial liabilities measured at fair value through profit and loss
Deferred consideration payable (22,188) (4,068)
(2,365) 1,003
Financial instruments not measured at fair value includes cash and cash
equivalents, trade and other receivables, trade and other payables, and other
non-current liabilities.
Due to their short-term nature, the carrying value of cash and cash
equivalents, trade and other receivables, and trade and other payables
approximates fair value.
27 Financial instruments
Item Fair value Valuation technique Fair value hierarchy level
£'000
Deferred consideration payable 22,188 Fair value of deferred consideration payable is estimated by discounting the Level 3
future cash flows using the IRR inherent in the company's acquisition price.
There have been no transfers between levels during the period.
The potential profit or loss impact in relation to deferred consideration
payable of a reasonably possible change to the discount rate is as follows:
Profit or (loss) impact
Assumption Reasonably possible Increase Decrease
£'000 £'000
Discount rate change (+ / - 5%) (138) 167
Credit risk
Credit risk represents the potential 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:
2021 2020
£'000 £'000
Cash 42,933 3,899
Trade and other receivables 4,308 23,048
47,241 26,947
The Group's exposure to credit risk on cash and cash equivalents is considered
by the Directors to be low as the Group holds accounts at banks with strong
credit ratings. The majority of funds are held with A rated (S&P)
institutions, with a minimum rating of BBB+. See note 18 for further detail on
cash and cash equivalents.
27 Financial instruments
Liquidity risk
Liquidity risk represents the potential 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 table below illustrates the
maturity profile of all financial liabilities outstanding at 31 December 2021.
Repayable on demand Repayable between 0-12 months Repayable after more than 12 months Total
£'000 £'000 £'000 £'000
At 31 December 2021
Trade payables - 789 - 789
Other payables - 23,037 318 23,355
Deferred consideration payable - 8,466 19,430 27,896
Lease liabilities - 725 2,248 2,973
- 33,017 21,996 55,013
At 31 December 2020
Trade payables - 1,094 - 1,094
Other payables - 9,388 8,158 17,546
Deferred consideration payable - 873 4,545 5,418
Lease liabilities - 779 3,366 4,145
- 12,134 16,069 28,203
Market risk
Market risk arises from the Group's use of interest bearing, tradable and
foreign currency financial instruments. It is the risk that the fair value or
future cash flows of a financial instrument will fluctuate because of changes
in interest rates (interest rate risk), foreign exchange rates (currency risk)
or other market factors (other price risk).
27 Financial instruments
Price 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 and adverse movements may have a
significant negative effect on the Group's operations through reducing
off-Balance Sheet assets under management, given its fees are largely
calculated at a percentage of these client assets.
It is not practicable to quantify the price risk to our business, owing to
variability in how fees are charged.
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 the Group's only
interest-bearing instrument is at a fixed rate until maturity. As such, a 10%
movement in interest rates would have no impact on the financial statements.
Foreign exchange risk
Foreign exchange risk is the risk that the fair value or future cash flows of
financial instruments will fluctuate because of changes in foreign exchange
rates. The Group has minimal exposure to foreign exchange risk, operating as
it does in stable currencies - namely Sterling, US dollar, and the Euro
The Group aims to fund expenses and investments in the respective currency and
to manage foreign exchange risk at a local level by matching the currency in
which revenue is generated and expenses are incurred.
The effect of a 5% strengthening of the US dollar against Sterling, based on
2021 figures, would have increased the US division's overall profit as
recognised in the Statement of Comprehensive Income by £208,987. A 5%
weakening of the US dollar, conversely, would have decreased the profit
contribution by £199,035.
Assessment of exposure to foreign exchange risk
Individual Group companies infrequently enter into transactions denominated in
a currency other than their functional currencies, and these are typically
immaterial in value. The primary risk is foreign currency rates will move
adversely, reducing on consolidation the carrying value of financial assets or
increasing the financial liabilities recognised by the US division. The Group
does not consider this risk to be material.
28 Business combinations
1. Acquisition of Metnor Holdings Ltd
On 31 December 2021, the Company completed the acquisition of Metnor Holdings
Ltd and its subsidiaries (IBOSS Asset Management Limited and Novus Financial
Services Limited, a high quality Investment Management business which operates
from headquarters in Harrogate, Yorkshire. IBOSS is a leading provider of
Managed Portfolio Services (MPS) and other investment solutions on both an
advisory and discretionary basis to UK independent financial advisers. IBOSS
has developed a leading service proposition, as recognised by a five-star
rating in the FT Adviser service awards and an enviable, long term track
record of high performance with low volatility. Novus is a reputable regional
IFA meeting the needs of clients based largely in the North of England.
28 Business combinations
The business was acquired for a cash consideration of £16.0 million. plus any
excess cash held by the business on completion, payable over a 2-year period.
£9.6m was paid at closing and the £6.4 million will be paid on a deferred
basis - £3.2m of which is contingent, subject to IBOSS meeting pre-agreed
EBITDA hurdles over a 2-year year period. The final deferred payments are due
in Q1 2024. An additional growth earn-out deferred consideration exists
(£12.8 million), payable over the 3-year period subject to achievement of an
excess EBITDA target over that period.
On an underlying basis to the twelve months to 31 October 2021 the IBOSS Group
delivered EBITDA of £1.331 million through strong and consistent revenue
growth and a keen focus on driving high levels of recurring revenue. IBOSS had
total assets of £1.4 billion at 31 December 2021.
Initial consideration of £9.6 million was funded by the issue of new
convertible preference shares, under the terms of the Company's convertible
preference Share subscription agreement with HSQ Investment Limited, a wholly
owned indirect subsidiary of funds managed and/or advised by Pollen Street.
Details of the fair value of identifiable assets and liabilities acquired, the
purchase consideration and goodwill are as follows. Provisional accounting has
been adopted, subject to finalising completion accounts in 2022:
Book value Adjustment Fair value
£'000 £'000 £'000
Property, plant and equipment 13 - 13
Goodwill & Intangibles - 9,044 9,044
Investments in subsidiaries 1,948 (1,948) -
Receivables 1,179 - 1,179
Cash 1,532 - 1,532
Payables (1,570) - (1,570)
Taxation - - -
Deferred tax liability - (1,718) (1,718)
Total identifiable net assets 3,102 5,378 8,480
The trade and other receivables were recognised at fair value, being the gross
contractual amounts.
Fair value of consideration paid
The acquisition has been accounted for using the acquisition method and
details of the purchase consideration are as follows:
£'000
Initial cash paid 10,598
Deferred consideration 5,288
Growth Earn-Out 9,490
Total purchase consideration 25,376
Goodwill recognised on acquisition 16,896
28 Business combinations
The main factors leading to the recognition of goodwill are:
· the strategic foothold the Metnor team and business gives the
Company in the Yorkshire market; and
· the ability to leverage the Metnor platform and achieve economies
of scale.
Revenue and profit contribution
From the acquisition date to 30 April 2022, the IBOSS Group has contributed
£1.156 million to Group revenues and £0.422 million to Group profit before
tax.
Net cash outflow arising on acquisition: Cash outflows
£'000
Total purchase consideration 25,376
Less:
Deferred consideration (14,778)
Cash paid to acquire Metnor Holdings 10,598
Less: cash held by Metnor Holdings (1,532)
Net cash outflow 9,066
2. Acquisition of Money Matters
On 30 November 2021, the Company completed the acquisition of Money Matters
(North East) Ltd, a high-quality IFA business which operates from Redcar,
North Yorkshire.
MMNE Limited is an independent financial adviser firm and they advise on all
aspects of personal financial planning with clients that range from private
individuals to small/medium sized businesses. MMNE employs 13 people,
including three financial advisers, managing c.£115m AUA on behalf of c.600
active clients. In the year to 31 March 2021, MMNE generated profit before tax
of £425k and had net assets of £499k as at that date.
The business will be acquired for total cash consideration of up to £3.4m,
plus any excess cash held by the business on completion, payable over a two
year period. £1.7m was paid at closing and the balance paid on a deferred
basis, some of which is subject to the achievement of pre-agreed performance
targets.
The acquisition was funded by the issue of new convertible preference shares,
under the terms of the Company's convertible preference Share subscription
agreement with HSQ Investment Limited, a wholly owned indirect subsidiary of
funds managed and/or advised by Pollen Street.
28 Business combinations
Details of the fair value of identifiable assets and liabilities acquired, the
purchase consideration and goodwill are as follows. Provisional accounting has
been adopted, subject to finalising completion accounts in 2022:
Book value Adjustment Fair value
£'000 £'000 £'000
Property, plant and equipment 116 - 116
Goodwill and intangibles - 2,478 2,478
Investment 10 - 10
Receivables 139 - 139
Cash 693 - 693
Payables (89) - (89)
Taxation (87) - (87)
Deferred tax liability - (471) (471)
Total identifiable net assets 782 2,007 2,789
The trade and other receivables were recognised at fair value, being the gross
contractual amounts.
Fair value of consideration paid
The acquisition has been accounted for using the acquisition method and
details of the purchase consideration are as follows:
£'000
Initial cash paid 2,299
Deferred cash consideration 1,410
Total purchase consideration 3,709
Goodwill recognised on acquisition 920
Acquisition costs have been recognised as transaction costs under
acquisition-related adjustments in the Consolidated Statement of Comprehensive
Income.
The main factors leading to the recognition of goodwill are:
· the strategic foothold Money Matters team and business gives the
Company in the Yorkshire market; and
· the ability to leverage Money Matters platform and achieve
economies of scale.
Revenue and profit contribution
From the acquisition date to 30 April 2022, Money Matters has contributed
£579,200 to Group revenues and £284,500 to Group profit before tax.
28 Business combinations
Net cash outflow arising on acquisition:
£'000
Total purchase consideration 3,709
Less:
Deferred consideration (1,410)
Initial cash paid to acquire Money Matters 2,299
Less: cash held by Money Matters (693)
Net cash outflow 1,606
3. Acquisition of Admiral
On 18 August 2021, the Company completed the acquisition of Admiral Wealth
Management, a North Lincolnshire based Chartered Financial Planning firm,
consolidating, and adding scale to its existing presence across North
Lincolnshire and Yorkshire.
Admiral provides independent financial advice to individuals and corporates
primarily in Lincolnshire and Yorkshire. It currently employs 7 people,
including 2 advisers managing c.£100 million AuA on behalf of c.600 active
clients.
Admiral will be acquired for a cash consideration of £4.0 million, plus any
excess cash held by the business on completion, payable over a 2-year period.
£2.0 million was paid at completion and the balance will be paid on a
deferred basis. Admiral have the option to request the deferred consideration
be paid in either cash or in ordinary shares of Kingswood Holdings Ltd.
In the twelve months to 31 January 2021 it delivered EBITDA of £0.66 million
through strong and consistent revenue delivery and a keen focus on driving
high levels of recurring revenue. As of 31 January 2021 it had total assets of
£103k and net assets of £41k.
The acquisition was funded by the issue of new convertible preference shares,
under the terms of the Company's convertible preference Share subscription
agreement with HSQ Investment Limited, a wholly owned indirect subsidiary of
funds managed and/or advised by Pollen Street.
28 Business combinations
Details of the fair value of identifiable assets and liabilities acquired, the
purchase consideration and goodwill are as follows. Provisional accounting has
been adopted, subject to finalising completion accounts in 2022:
Book value Adjustment Fair value
£'000 £'000 £'000
Property, plant and equipment 18 - 18
Goodwill and intangibles - 2,364 2,364
Receivables 56 - 56
Cash 478 - 478
Payables (175) - (175)
Deferred tax liability - (449) (449)
Total identifiable net assets 377 1,915 2,292
The trade and other receivables were recognised at fair value, being the gross
contractual amounts.
Fair value of consideration paid
The acquisition has been accounted for using the acquisition method and
details of the purchase consideration are as follows:
£'000
Initial cash paid 2,244
Deferred consideration 1,653
Total purchase consideration 3,897
Goodwill recognised on acquisition 1,605
The main factors leading to the recognition of goodwill are:
· the strategic foothold the Admiral team and business gives the
Company in the Lincolnshire and Yorkshire market; and
· the ability to leverage the Admiral platform and achieve
economies of scale.
Revenue and profit contribution
From the acquisition date to 30 April 2022, Admiral has contributed £874,000
to Group revenues and £586,600 to Group profit before tax.
28 Business combinations
Net cash outflow arising on acquisition:
£'000
Total purchase consideration 3,896
Less:
Deferred consideration (1,652)
Cash paid to acquire Admiral 2,244
Less: cash held by Admiral (478)
Net cash outflow 1,766
29 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.
2021 2020
£'000 £'000
Short-term employee benefits 340 898
Share based payments - 68
340 966
Other related parties
KHL incurred fees of £137,500 (2020: £125,000) from KPI (Nominees) Limited
in relation to Non-Executive Director remuneration. At 31 December 2021, £nil
of these fees remained unpaid (2020: £125,000).
Fees received from Moor Park Capital Partners LLP, in which Gary Wilder and
Jonathan Massing hold a beneficial interest through one of the members, KPI
(Nominees) Limited, relating to property related services provided by KHL
totalled £23,090 for the year ended 31 December 2021 (2020: £20,000), of
which £nil (2020: £nil) was outstanding at 31 December 2021.
Fees paid for financial and due diligence services to Kingswood LLP and
Kingswood Corporate Finance Limited, in which Gary Wilder and Jonathan Massing
hold a beneficial interest as LLP members, totalled £384,750 for the year to
31 December 2021 (2020: £184,426).
30 Capital management
The Group considers all of its equity to be capital, and sets the amount of
capital it requires in proportion to risk. The Group manages its capital
structure and makes adjustments in light of changes in economic conditions and
the risk characteristics of the underlying assets. In order to maintain or
adjust the capital structure, the Group may adjust the amount of dividends
paid to shareholders, return capital to shareholders, issue new shares, or
sell assets to reduce debt, if any exists.
The primary objective of the Group's capital management plan is to ensure that
it maintains a strong capital structure in order to protect clients'
interests, meet regulatory requirements, protect creditors' interests, support
the development of its business and maximise shareholder value. Each
subsidiary manages its own capital, to maintain regulatory solvency. Details
of the management of this risk can be found in the Strategic Report.
The Group's capital management policy is, for each subsidiary, to hold the
higher of:
· the capital required by any relevant supervisory body; or
· the capital required based on each subsidiary's internal
assessment.
The following entities are subject to regulatory supervision and must comply
with capital adequacy rules and regulations:
Entity Regulatory body and jurisdiction
KW Investment Management Limited FCA Investment Firm
KW Investment Management Limited FSCA South Africa: Financial Services Provider
KW Wealth Planning Limited FCA Personal Investment Firm
STP Wealth Management Limited FCA Personal Investment Firm
Sterling Trust (York) Limited FCA Personal Investment Firm
Sterling Trust Professional Limited FCA Personal Investment Firm
Sterling Trust Professional (North East) Limited FCA Personal Investment Firm
Sterling Trust Professional (Sheffield) Limited FCA Personal Investment Firm
Regency Investment Services Limited FCA Personal Investment Firm
Admiral Wealth Management Limited FCA Personal Investment Firm
Money Matters (North East) Limited FCA Personal Investment Firm
IBOSS Asset Management FCA Investment Firm
Novus Financial Services Limited FCA Personal Investment Firm
(De-registered on 8 March 2022)
Benchmark Investments, Inc FINRA-regulated brokerage firm (USA)
Kingswood Capital Partners, LLC FINRA-regulated brokerage firm (USA)
Benchmark Advisory Services, LLC SEC-regulated advisory firm (USA)
Kingswood Wealth Advisors, LLC SEC-regulated advisory firm (USA)
The regulatory capital requirements of companies within the Group, and the
associated solvency of the Group, are assessed and monitored by the Board of
Directors. Ultimate responsibility for an individual company's regulatory
capital lies with the relevant subsidiary Board. There has been no material
change in the level of capital requirements of individual companies during the
year, nor in the Group's management of capital. All regulated entities
exceeded the minimum solvency requirements at the reporting date and during
the year.
30 Capital management
The debt-to-equity ratios at 31 December 2021 and 31 December 2020 were as
follows:
2021 2020
£'000 £'000
Loans and borrowings 388 255
Lease liabilities 3,274 3,234
Less: cash and cash equivalents (42,933) (3,899)
Net debt - -
Total equity 76,898 50,512
Debt to equity ratio (%) 0% 0%
31 Financial commitments
Subject to conditions being met, Kingswood Holdings Limited has committed to
contribute £5.9m (US$8.0m) of additional growth equity to the Kingswood US
Holdings Inc group before 31 December 2022 to further build US distribution
channels through active adviser recruitment and acquisitions.
2021 2020
£'000 £'000
Commitments 5,936 5,861
32 Ultimate controlling party
As at the date of approving the financial statements, the ultimate controlling
party of the Group was KPI (Nominees) Limited.
33 Events after the reporting date
Several acquisitions have taken place since the 2021 year end. At the date of
authorising these financial statements the initial accounting for the business
combinations listed below was incomplete. It has not been possible therefore
to finalise the value of the assets acquired and liabilities - contingent or
otherwise - assumed, nor, therefore, the value and composition of goodwill.
Acquisition of D.J. Cooke (Life & Pensions) Limited
On 26th January 2022, Kingswood Holdings Limited agreed to acquire, the
business assets of DJ Cooke Financial Planning Limited, an independent
financial planning business, servicing clients across South Yorkshire.
DJ Cooke Limited was a long-established independent financial advice firm
specialising in retirement and investment planning. David Cooke, CEO, was the
sole adviser looking after c.340 client households with around £70m AuA. On
an underlying basis for the 12 month period up to the end of December 2021, D
J Cooke Limited generated unaudited revenue of approximately £474k and
unaudited EBITDA of approximately £227k.
Following Completion, around £1.5m is payable over a 2 year period. £749k
will be paid at closing and the balance paid on a deferred basis, some of
which is subject to the achievement of pre-agreed performance targets.
Acquisition of Allotts Financial Services Limited
On 1st February 2022, Kingswood Holdings Limited agreed to acquire, the
business assets of Allotts Financial Services Limited ("AFS"). AFS was a high
quality, long established financial advisory firm based in Rotherham and
serves clients covering primarily in South Yorkshire. Set up in 1998, AFS
provided independent financial advice to over 400 active clients and employs
three advisers, with five support staff covering clients primarily in South
Yorkshire with approximately £140m AUA.
In the year ended 31 March 2021, AFS generated revenue of £791k and profit
before tax of £355k. Following regulatory approval, the business was acquired
for total cash consideration of up to £2.5m, payable over a two year period,
£1.25m will be paid at closing and the balance paid on a deferred basis, some
of which is subject to the achievement of pre-agreed performance targets.
Acquisition of Joseph R Lamb Independent Financial Advisers Ltd
On 7th February 2022, Kingswood Holdings Limited exchanged and completed on an
acquisition of Joseph R Lamb Independent Financial Advisers Ltd ("Joseph
Lamb"). Established in 1970, Joseph Lamb provided financial advice to over
1930 active clients and employs seven advisers, with eighteen support staff
covering clients primarily in Essex with approximately £393m AUA.
On an underlying basis for the 12 month period to 30 June 2021, Joseph Lamb
generated revenue of £3.8m and EBITDA of £1.545m. Following regulatory
approval, the business was acquired for total cash consideration of up to
£15.3m, payable over a two year period, £7.65m will be paid at closing and
the balance paid on a deferred basis, some of which is subject to the
achievement of pre-agreed performance targets.
Acquisition of Aim Independent Limited
On 16th February 2022, Kingswood Holdings Limited exchanged and completed on
an acquisition of Aim Independent Limited ("Aim") an independent financial
advice business based in Eastleigh serving clients throughout Hampshire. Aim
provide financial advice to over 750 clients. Alongside Phil Watson and Andy
Davies, they have three other advisers and six support colleagues looking
after clients mainly based in Hampshire, holding around £217m AUM/A.
33 Events after the reporting date
In the year ending 31 July 2021, Aim generated revenue of £1.2m and profit
before tax of £479k. Following regulatory approval, the business was acquired
for total cash consideration of up to £3.6m, payable over a two-year
period, £1.8m will be paid at closing and the balance paid on a deferred
basis.
Acquisition of Vincent & Co Ltd
On 12th May 2022, Kingswood Holdings Limited exchanged on the acquisition of
Vincent & Co Ltd, a privately owned independent financial adviser firm
based near Market Rasen in Lincolnshire.
The acquisition is subject to regulatory approval. Vincent & Co, ran by
Mark Vincent, provides financial advice to over 130 clients in the
Lincolnshire area. They hold £25m AuA and in the year ending 31 October 2021
generated revenue of £135k, and profit before tax of £83k.
Following regulatory approval, the business will be acquired for total cash
consideration of up to £421k, payable over a two-year period, £211k will be
paid upon completion of the transaction and the balance paid on a deferred
basis.
Evolution of geopolitical situation
As a result of recent events in Ukraine we have decided not to take on any
further business from Russian clients. The Wealth and Asset Management and
Investment Banking businesses will not accept any new Russian clients. We will
continue to comply fully with the expanding list of sanctions arising from
this conflict. Overall, the direct impact of this geopolitical situation on
the Group is very limited as there is limited exposure in terms of number of
clients, assets under management, or revenue.
Deferred Consideration
As at 31st December 2021 Kingswood reported a £7.7m Deferred Consideration
Payable current liability on the Balance Sheet. This contains amounts due to
businesses acquired in 2021 and prior to 2021. At time of writing, Kingswood
and the Principals of a business acquired prior to 2021 continue an ongoing
dialogue to agree a final Year 3 Contractual EBITDA (for the period ended 31
December 2021) to determine the amount of the Year 3 deferred consideration
payment due in 2022.
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