Kingswood Holdings

Kingswood Half-year Report

RNS Number : 3662Z
Kingswood Holdings Limited
18 September 2020
 

Half-year Report

Kingswood Holdings Limited ("Kingswood") remains in a strong position with a robust foundation for growth in place

 

 

Acquisition of Regency Investments, a regional IFA platform and the fifth business acquired over the last 24 months, adding further breadth and scale across the UK network which increases to 15 locations

 

Jeff Grantham assumes a broader role of Head of Wealth Planning further solidifying UK business

 

Launched Kingswood Defensive Alpha (KDA), Kingswood's first in-house alternative investment strategy

 

Significant progress executing Kingswood's international strategy and in the US the infrastructure, management team and regulatory framework is now in place to expand and grow

 

Capital deployed expected to drive exceptional organic growth across the Kingswood US platform providing clients access to products across US and UK markets

 

 

Kingswood Holdings Limited (AIM: KWG), the international, fully integrated wealth and investment management group, is pleased to announce its unaudited interim financial results for the half year ended 30 June 2020.

 

It is also delighted to announce it has agreed to acquire, subject to regulatory approval,   Regency Investment Services Limited (Regency), a high-quality IFA business which operates from Egham, Surrey.

 

Buzz West, Kingswood Group Chairman said: "It has been a challenging and disruptive year so far with some uncertainty still ahead.  I feel thankful the Kingswood family have managed well through these challenges and are healthy, safe and adjusting to a new normal.

We look forward to completing the Regency acquisition and welcoming Dominique Vinecombe and her team to the Kingswood family. They will be a magnificent addition to our business."

 

Market Update

Strategic Highlights

This period saw the acquisition of Sterling Trust (Sterling), a high-quality IFA business which operates from headquarters in Hull, Yorkshire and four satellite offices in Darlington, Newcastle, Sheffield and York with 22 financial advisers advising/managing £1.2 billion AUA/AUM and servicing over 5,000 clients;

 -  Jeff Grantham, Sterling's founder, brings his considerable industry experience to the Kingswood Group in his new role of Head of Wealth Planning, further solidifying the Group's foundation for growth in UK Wealth;

 -  With immediate effect, Jeff will lead Kingswood's UK advisory network taking responsibility for wealth planning strategy and performance, revenue growth, adviser compensation, asset migration, new business initiatives, process improvement and service level enhancement;

 

Leigh Philpot as Head of Wealth Proposition will focus on expanding our client offering which in addition to investment management incorporates new product assessment, pricing and client delivery in addition to responsibility for marketing, business development and PR strategy.

 

 -  Leigh will also focus on the development of an enhanced proposition for existing and new high net worth clients (+£1 million of investable assets) and directly target new mandates from private clients, corporates, charities and trusts;

With the addition of the Regency business announced this morning, Kingswood will expand its UK regional network to 15 offices across the country boosting its client facing advisory team to 67 people and increasing assets under advice/management to £5.0 billion from over 16,000 active clients;

 

An extensive pipeline of potential UK M&A opportunities is under evaluation and in addition to the Regency acquisition, a further three transactions are currently under exclusive review including opportunities in key preferred markets across the Midlands, Scotland and the South West;

 

The selection process is rigorous - targets must be singularly dedicated to servicing their clients with the Kingswood model designed to free up adviser time to focus more on clients, and provide a centralised, efficient support infrastructure to manage the routine but time consuming tasks required across compliance, finance, human resources, risk and technology;

 

Sellers are also attracted to Kingswood's wealth proposition centred on strong investment performance from managed and bespoke portfolio strategies;

 

Kingswood's institutional business continues to deliver solid performance supporting university and other clients with cash management and treasury needs in a period of extreme volatility. The Group is awaiting regulatory approval in Ireland to launch a new ESG Enhanced Cash Fund which will target 'green' rated investments;

 -  Kingswood has just launched Kingswood Defensive Alpha (KDA), its first in-house alternative investment strategy demonstrating its ability to offer all clients access to previously exclusive alternative investment opportunities;

  -  KDA is a fund of funds, investing in best-of-breed hedge fund managers to deliver a return stream that is defensive and uncorrelated to equity and fixed income markets with an objective to produce an absolute return target of cash +4-5% (after fees) with a minimisation of capital loss;

 -  Significant progress has been made in executing Kingswood's international strategy and in the US the infrastructure, management team and regulatory framework is now in place to expand and grow;

 

In May, Kingswood completed the acquisition of Chalice (an IBD and RIA) based in San Diego which provides full service securities brokerage, advisory and investment banking services to broad client base and brings 96 authorized representatives managing assets of $1.1 billion (£0.9 billion);

 

In recent weeks Kingswood completed formal agreements and, subject to regulatory approval, will achieve a majority ownership in MHC later this year. Since half year end, MHC has been rebranded Kingswood US and provides the Group with a strong, robust and well-capitalised foundation to accelerate its US growth strategy;

 

The US team led by Mike Nessim and Derek Bruton have continually shown they are highly talented, best in class operators in the Independent Broker Dealer (IBD) and Registered Investment Adviser (RIA) space and the recently formed full-service Investment banking business, Kingswood Capital Markets. Kingswood intends to grow this business substantially, leveraging its growing US distribution franchise;

 

Capital deployed is expected to drive exceptional organic growth across the Kingswood US platform and support the development of a highly accretive global platform providing clients access to investment products and services in major US and UK markets.

 

Gary Wilder, Group CEO commented: " In many respects our pace and focus did not change over the last six months and with the backing of our partner, Pollen Street Capital, we remain firmly focused on enhancing the value of the business for our shareholders . We employ an ongoing evaluation process to ensure our cost base is set at an appropriate level for the business and the return on capital employed that we are seeking to achieve.

We continually look at our model and how to attract quality principals and their teams to the Kingswood Group in the UK and US. We tend to be the preferred bidder in sale processes because of our client focus, and the underlying proposition we offer. We want the acquired teams to stay and grow the business. We ensure they are aligned and incentivised through a compensation structure that rewards short and long term performance.

We are also focused on driving organic growth within every acquired business, and bring a 'whole of wallet' approach where Kingswood bring considerable additional products and services to the table for clients, generating revenue growth from the existing client base. In addition, we have just launched the Kingswood Defensive Alpha fund, an alternative investment strategy not historically available to retail investors."

 

Financial Highlights

Total revenue for the period was £ 8.25 million, a 96% increase on prior year reflecting the impact of recent acquisitions.

 

84% of the Group's revenue is recurring in nature providing a strong, annuity style fee stream.

 

Operating EBITDA for the period to 30 June 2020 was £ 0.14 million, an improvement of £0.48 million over the six months to 30 June 2019. The results reflect solid underlying business dynamics and the impact of acquisitions. However, Covid-19 restrictions did curtail new business revenue generation and profitability targets.

 

Kingswood believes Operating EBITDA is the most accurate measure of performance as it removes the impact of acquisitions and other non-operational costs which the company is required to write off for accounting purposes, and thus the statutory numbers give an inaccurate picture of sustainable business profitability, especially with the group engaged in significant acquisition activity.

 

First half 2020 revenues and Operating EBITDA do not reflect the impact of Sterling Trust which was acquired in late June 2020.

 

Net equity at 30 June 2020 was £ 39.93 million and the company has no debt. Equity reflects £ 18.35 million of irredeemable, convertible preference shares issued under the Pollen Street Capital subscription agreement.

 

Patrick Goulding, Group CFO , said: "The first half of 2020 was an unusual period. We came into the year on the back of the considerable investment made in people, process and technology since 2018 and strongly positioned to avail of the opportunities ahead. It is fair to say we are slightly disappointed with the results achieved, with Covid-19 impacting delivery of our revenue targets.   Whilst in the current environment it is difficult to project expected outcome for the full financial year, Kingswood has completed 3 acquisitions this year which will have a positive impact on FY2020 revenue and EBITDA.  

 

We are pleased with our ability to retain clients, with no material loss of assets. Market volatility in February through April did impact client asset values and recurring fee streams in those months, but these have since recovered. The biggest frustration was an inability to engage directly with clients thus impacting new business activity and sales. The industry also suffered from a general slowdown in the ability to get things done, with teams working remotely and what were previously simple tasks requiring much greater co-ordination to complete. The Kingswood team are now back in all offices and returning to some form of normality."

 

Kingswood's financial strategy is to maintain a robust and disciplined balance sheet, ensuring no deferred liabilities relating to acquisition activities remain uncovered from a funding perspective, and a disciplined approach to expense management. Kingswood has made significant investment in its team and platform, which is critical to positioning the company for future growth and the ability to scale. It is firmly focused on generating higher revenues to support this investment. Our focus is to maximise shareholder returns through EBITDA growth combined with minimising our weighted average cost of capital. We continuously evaluate new opportunities to raise additional permanent equity to achieve this.

The interim report will shortly be sent to shareholders and is available to be viewed or downloaded from the Company's website.

 

  For further details, please contact:

 

Kingswood Holdings Limited  

Gary Wilder / Patrick Goulding

+44 (0)20 7293 0730

www.kingswood-group.com

 

Peel Hunt LLP (Nomad and Broker)  

James Britton / Rishi Shah

+44 (0)20 7418 8900

 

Greentarget (for Kingswood media)

Jamie Brownlee / Alice Gasson / Ellie Basle 

+44 (0) 783 457 1183

[email protected]  

 

Stand Agency (for Pollen Street media)

Cait Dacey

+44 (0) 7973 596 503

[email protected]

 

About Kingswood

Kingswood Holdings Limited (trading as Kingswood) is an AIM-listed (AIM: KWG) international fully integrated wealth management group, with around 16,000 active clients and circa £5.0 billion of Assets under Advice and Management. It has a growing network of offices in the UK including Abingdon, Beverley, Darlington, Derby, Grimsby, Hull, Lincoln, London, Maidstone, Newcastle, Sheffield (2), Worcester and York with offices in Johannesburg, South Africa and Atlanta, New York and San Diego in the 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.

 

About Pollen Street Capital

Pollen Street Capital is an independent alternative asset investment management company focused on the financial and business services sectors across both private equity and credit strategies. The private equity strategy is focused on investing in lower middle market firms which have the capacity to become leaders in their field across Europe. Pollen Street have deployed over £1.2bn capital into this strategy over the last 14 years delivering strong returns throughout. It was established in 2013 and manages £2.8bn gross AUM on behalf of investors including leading pension funds, asset managers, banks and family offices from around the world. Pollen Street Capital has a team of 70+ professionals with offices in London and New York.

 

 

Group Chief Executive Officer's Statement

 

Introduction

 

It has been a challenging year on so many fronts, with considerable disruption to personal and professional lives, at an immeasurable economic cost to society as a whole. I feel thankful we here at Kingswood have still got our health, our families are safe and we are now beginning to return, albeit slowly, to some sense of 'new' normality.

 

We sadly lost one member of the Kingswood family to Covid-19 with the passing of our colleague Howard Moss from our affiliate Kingswood LLP. Howard supported us on many fronts and was a fountain of knowledge on all things financial; always keen to provide guidance and support across the team. We miss him greatly.

 

We also owe such a debt of gratitude to the amazing people in our health and support services and the sacrifices they continue to make to help us through this. And we will get through this and come out better, stronger.

 

In many respects our pace and focus did not change over the last six months and with the backing of our partner, Pollen Street Capital, we remained firmly focused on enhancing the value of the business for our shareholders. Covid-19 had some impact on revenues, as the lockdown made it challenging for advisers to write new business but we see this as only temporary.  With staff coming back to our offices and face to face meetings with clients now possible (while still observing social distancing protocols), we expect to see this trend reverse in the coming months.

 

As we move forward from lockdown, there is heightened debate regarding the impact on future work practices. Much is still to be assessed but at Kingswood we are convinced we will be successful and deliver for our shareholders and clients within a structured corporate environment. Of course greater work flexibility can and will happen, but recent experience convinces us that it is impossible to build culture, solve complex problems, learn from experienced team members and creatively plan for the future, in the longer term, if everyone is dispersed  and isolated away from the office.

 

Key highlights

 

The Kingswood Group is in a strong position with a robust foundation for growth in place.

 

January saw the re-launch of our wealth proposition under the leadership of Leigh Philpot. Through the half year period we began to see signs of real growth, despite the lockdown challenges, with clients attracted to our managed and bespoke portfolio services on the back of strong investment performance from our central investment proposition.

 

We are delighted we have been able to attract high quality, talented people to the Group and strive to ensure Kingswood is recognised as an employer of choice in global wealth management. In February Harriet Griffin joined us as Chief Operating Officer from Charles Stanley, with Richard Bernstein joining as Chief Risk Officer having spent the last eight years in senior risk and compliance roles at Close Brothers Asset Management.

 

March saw the re-launch of our website www.kingswood-group.com and this has already become a valuable marketing tool as we seek to expand and grow our business.

In April we announced the appointment of Peel Hunt as our Nominated Adviser and Broker, a crucial next step in Kingswood's strategy to broaden our market reach and attract institutional investors.

 

As a sign of our belief in our model and strategy, we committed in May to a new lease for expansion on the fourth floor at Austin Friars, our UK headquarters. We are in the process of building out the space with high quality meeting rooms to enable us to meet more clients, in a relaxed but professional setting.

 

On receipt of US regulatory approval, we also completed the formal closing of our acquisition of Chalice Capital Partners and Chalice Wealth Advisors (together "Chalice"), and announced our plan to combine Chalice into our existing investment in Manhattan Harbor Capital (MHC) and with further equity injection reach a majority interest in MHC. In recent weeks I am pleased to say we have completed formal agreements and, subject to regulatory approval, will achieve this majority ownership in MHC later this year. Since half year end, MHC has now been rebranded Kingswood US and provides the Group with a strong, robust and well-capitalised foundation to accelerate its US growth strategy including best in class, full service operational and technology infrastructure.

 

June saw completion of the acquisition of Sterling Trust (Sterling), a high-quality IFA business which operates from headquarters in Hull, Yorkshire and four satellite offices in Darlington, Newcastle, Sheffield and York. Sterling provides independent financial advice to individuals and corporates within the UK and currently employs 48 people, with 22 financial advisers advising/managing £1.2 billion AUA/AUM and servicing over 5,000 clients.

 

Sterling was an opportunity for Kingswood to acquire an established business built by Jeff Grantham, which over the last 20 years has grown to generate annual revenues of £6.8 million and EBITDA of £2.5 million from £1.2 billion of client assets. Jeff's success is built around developing and maintaining long-term client relationships, making their culture a perfect fit for Kingswood. The business has a highly qualified and experienced team of financial advisors supported by a dedicated administration team.

 

We are fortunate to have someone with Jeff's track record and experience as part of the Kingswood family, and in recent weeks Jeff has assumed a broader strategic role, and is now directly responsible for our UK wealth planning network. We believe Jeff's appointment further solidifies our foundation for growth across the UK Wealth business.

 

Our institutional business delivered a solid performance through the half year period, supporting our university and other clients with their cash management and treasury needs in a period of extreme volatility. The institutional team is awaiting regulatory approval in Ireland to launch its new ESG Enhanced Cash Fund which will target 'green' rated investments.

 

We have this week exchanged agreements to acquire, subject to regulatory approval, another quality IFA business - Regency Investments (Regency) in Egham, Surrey under the leadership of Dominique Vinecombe. Dominique is a third generation owner, and she and her family have built a business of six financial advisers servicing over 1,000 clients with £320 million of investable assets. We look forward to welcoming Dominique and the Regency team to the Kingswood Group.

 

We have an extensive pipeline of potential M&A opportunities under evaluation. In addition to the Regency acquisition a further four transactions are currently under exclusive due diligence including opportunities in key preferred markets across the Midlands, Scotland and the South West.

 

How we think about acquisitions

 

We are very pleased with the progress made in expanding the Kingswood network, with five regional businesses acquired over the last 18 months. We continually look at our model and how to attract quality principals and their teams to the Kingswood Group.

 

Our selection process is rigorous:

1)  We look firstly at culture - are the team a good fit within our organisation? Are they client focused? That is an absolute must have - they must be singularly dedicated to servicing their clients.

2)  It is also critical to us that key personnel remain with the business to preserve and grow those client relationships.

3)  Our model is to free up adviser time to focus on their clients, and provide a centralised, efficient support infrastructure to manage the routine but time consuming tasks required across compliance, finance, human resources, risk and technology. The team must have a strong appetite for this centralisation and the synergies it can bring.

4)  We focus on the ability to migrate assets onto our wealth proposition which is centred on strong investment performance from managed and bespoke portfolio strategies.

 

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. We are continually adding to our offering including cash deposits through Flagstone, foreign exchange services, mortgages, protection, with taxation and corporate finance expertise through our Kingswood affiliate. In addition, we have just launched the Kingswood Defensive Alpha fund, an alternative investment strategy not historically available to retail investors.

 

We tend to be the preferred bidder because of this client focus, and the underlying proposition we offer. We want the acquired teams to stay and grow the business. We ensure they are aligned and incentivised through a compensation structure that rewards short and long term performance, including a Long Term Incentive Plan (LTIP).

 

Financially, we assess businesses on strict performance parameters, with a focus not just on revenue and profit measures but also on Assets under Advice and Management (AUA/M), and Return on Capital Employed (ROCE). We seek to identify opportunities to enhance the revenue yield on AUA/M by providing enhanced services to clients. Post-acquisition, we benchmark quarterly performance against these metrics and adjust strategy and implementation accordingly.

 

Why U.S.?

 

I am often asked what attracts us to the US market. As the largest global wealth management market, the Board sees the US as a major growth opportunity and a market where we can differentiate ourselves from our peers. The market is still growing significantly year on year, with 9% compound historical annual growth.

 

We have therefore been keen to expand in that market for some time. In Mike Nessim we have identified a quality partner with shared values to help implement and drive our US growth strategy.  Mike and his team have continually shown they are highly talented, best in class operators in the Independent Broker Dealer (IBD) and Registered Investment Adviser (RIA) space and the recently formed full-service Investment banking business, Kingswood Capital Markets. We intend to grow this business substantially, leveraging our growing US distribution franchise.  I have no doubt the capital we deploy will drive exceptional organic growth across the Kingswood US platform and reflects the desire of both parties to develop a highly accretive global platform providing clients access to investment products and services in major US and UK markets.

 

Kingswood's enhanced investment in Kingswood US will further cement a key, strategic foothold in the largest global wealth and investment management market, differentiate us from our peers and support our aspirations of asset linking and cross-selling services. Mike and his team will oversee acquired entities and focus on delivering Kingswood US's full-service brokerage, investment advisory and investment banking proposition to clients. Combined with Derek Bruton, who joined our US business with the Chalice acquisition, we now have considerable industry knowledge and experience to deliver a successful US outcome for the Kingswood Group and I'm greatly looking forward to working with them.

 

Kingswood US comprises strong Independent IBD and RIA businesses across the US with key hubs in Atlanta, New York and San Diego. In addition it incorporates Kingwood Capital Markets, a national Investment Banking platform now supported by significant capital to leverage our expanding distribution channels and drive growth across equity and debt advisory, capital raising and M&A.

 

Kingswood Defensive Alpha Fund (KDA)

We have this week launched KDA, our first in-house alternative investment strategy.  One of our strengths is the ability to offer all our clients access to previously exclusive alternative investment opportunities. Institutional investors have traditionally enjoyed access to hedge funds, private equity and other diversified vehicles and we are committed to expanding these opportunities both to our clients and the broader UK market. We are partnering with MontLake, a leading player in the alternatives arena to provide access, hence the launch of KDA.

 

KDA is a fund of funds, investing in best-of-breed hedge fund managers to deliver a return stream that is defensive and uncorrelated to equity and fixed income markets.  Our objective is to produce an absolute-return target of cash +4-5% (after fees) with a minimisation of capital loss.  Hedge funds typically require capital to be tied up for a number of months but a key advantage of KDA is that investors benefit from daily liquidity should they wish to buy or sell.

KDA aims to provide portfolio stability with volatility of no more than 4-5%. This corresponds to the long term volatility profile of fixed income and to circa one-third of the long term volatility profile of equities. A further advantage for KDA investors is that through our MontLake partnership we gain access to institutional share classes unavailable to the retail market and otherwise subject to high minimum investment requirements.

 

We believe there is significantly increased demand for portfolio diversification in the post-Covid 19 world and hedge funds are often utilised to fill this role. Only low-correlated, alpha-generating funds can truly provide portfolio diversification and these represent a small proportion of the hedge fund market. KDA is constructed to produce high alpha (for return), low correlation (for diversification) with a defensive bias (for asset allocation benefits). This is achieved through targeted strategies only. KDA therefore provides a single solution for uncorrelated exposure in client portfolios.

 

We are incredibly excited to launch this product and over time look forward to adding further bespoke offerings to our client proposition.

 

 

Financial performance

 

We came into 2020 on the back of the considerable investment made in people, process and technology and strongly positioned to avail ourselves of the opportunities ahead notwithstanding the short term impact of Covid-19 on achievement of our revenue targets.

 

We are pleased with our ability to retain our clients, with no related loss of assets, reflecting the proactive client engagement programme put in place to reassure clients and answer questions about markets and individual financial plans. Market volatility in February through April did impact client asset values and recurring fee streams in those months, but these have since recovered. As mentioned previously, the biggest frustration was an inability to meet in person with clients thus impacting new business sales. The industry also suffered from a general slowdown in the ability to get things done, with teams working remotely and what were previously simple tasks requiring much greater co-ordination with external providers. The Kingswood team is now back in all offices with face to face client meetings again being held.

 

Total revenue for the half year reached £8.3 million, a 96% increase on the prior year period reflecting the impact of recent acquisitions. Over 80% of the Group's revenue is recurring in nature providing a strong, annuity style fee stream which is critical to deliver long-term, sustainable returns to shareholders.

 

The Board believes Operating EBITDA is the most accurate measure of performance as it removes the impact of acquisition, re-positioning, investment amortisation and other costs which the company is required to write off for accounting purposes, and thus the statutory numbers give an inaccurate picture of business profitability given, as a Group, we will continue to make significant acquisitions.

 

Operating EBITDA for the six months to 30 June 2020 was £0.1 million, an increase of £0.5 million over the six months to 30 June 2019. The result, although reflecting solid underlying business dynamics, was impacted by Covid-19 restrictions and its impact on business revenues, in addition to the significant investment in people and technology made by the group over the recent years, critical to positioning the company for future growth and the ability to scale.

 

Net equity at 30 June 2020 was £39.9 million and the company has no debt. Equity includes £18.4 million of irredeemable convertible preference shares issued under the Pollen Street Capital subscription agreement.

 

Backed by the growth equity commitment from Pollen Street Capital, we are fully conscious of the need to drive enhanced, organic financial performance from the up-scaled business. Under Jeff Grantham's leadership, we now have a united sense of purpose and direction across the wealth planning network. This, coupled with Leigh Philpot's focus on driving our re-launched wealth proposition enables us to deliver a co-ordinated wealth management strategy on a national scale.

 

Kingswood's financial strategy is to maintain a robust and disciplined balance sheet, ensuring no deferred liabilities relating to acquisition activities remain uncovered from a funding perspective, and a disciplined approach to expense management. Our focus is to maximise shareholder returns through EBITDA growth combined with minimising our weighted average cost of capital. We continuously evaluate new opportunities to raise additional permanent equity to achieve this.

 

Gary Wilder

Group Chief Executive Officer

 

17 September 2020

Independent Review Report

 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 which comprises of an interim consolidated statement of comprehensive income, interim consolidated statement of financial position, interim consolidated statement of changes in equity, interim consolidated statement of cash flows and related notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors.  The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose.  No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent.  Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability

 

 

 

BDO LLP

Chartered Accountants

London

17 September 2020

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Interim Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2020

 

 

 

 

Six months to 30 June 2020 (unaudited)

 

Six months to 30 June 2019 (unaudited)

 

Year ended31 December2019

(audited)

Note

£'000

 

£'000

 

£'000

 

Revenue

 

 

 

8,251

 

 

4,203

 

 

10,053

Direct expenses

 

 

(1,938)

 

(398)

 

(868)

Gross profit

 

 

6,313

 

3,805

 

9,185

Administrative expenses

 

 

(8,444)

 

(5,279)

 

(12,555)

Amortisation, depreciation

 

 

(1,065)

 

(523)

 

(1,426)

Other losses

 

7

(10)

 

(149)

 

(381)

Operating loss

 

 

(3,206)

 

(2,146)

 

(5,177)

Finance costs

 

 

(218)

 

(34)

 

(384)

Loss before tax

 

 

(3,424)

 

(2,180)

 

(5,561)

Tax

 

 

-

 

-

 

-

Loss after tax from continuing operations

 

 

(3,424)

 

(2,180)

 

(5,561)

Loss from discontinued operations

 

8

-

 

(140)

 

(155)

Loss after tax for the period

 

 

(3,424)

 

(2,320)

 

(5,716)

Other comprehensive income

 

 

-

 

-

 

-

Total comprehensive loss for the period

 

 

(3,424)

 

(2,320)

 

(5,716)

 

Loss per share - continuing operations:

 

 

 

 

 

 

 

Basic loss per share

 

9

£ (0.02)

 

£ (0.01)

 

£ (0.03)

Diluted loss per share

 

9

£ (0.02)

 

£ (0.01)

 

£ (0.03)

 

The operating loss and total comprehensive loss for the period are attributable to the equity holders.

 

Operating EBITDA is calculated as follows:

 

 

 

 

 

Operating loss

 

 

(3,206)

 

(2,146)

 

(5,177)

Add back :

 

 

 

 

 

 

 

Amortisation, depreciation and impairment

1,075

 

672

 

1,807

Business re-positioning costs

 

 

1,269

 

508

 

1,963

Transaction costs

 

 

656

 

436

 

1,618

Share based remuneration

 

 

350

 

189

 

442

Operating EBITDA

 

 

144

 

(340)

 

653

 

 

 

 

 

 

 

 

 

The notes on pages 13 to 33 form an integral part of the interim financial statements.

Interim Consolidated Statement of Financial Position

For the six months ended 30 June 2020

 

 

 

Six months to

 

Six months to

 

Year ended

 

 

 

30 June 2020

 

30 June 2019

 

31 December 2019

 

 

 

(unaudited)

 

(unaudited)

 

(audited)

 

 

 

 

 

 

 

 

 

 

Note

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

 

10

  3,162

 

  1,091

 

  1,322

Intangible assets and goodwill

 

11

  58,664

 

  27,999

 

  40,191

Investments

 

12

  406

 

  416

 

  416

Deferred tax asset

 

 

  387

 

  428

 

  428

 

 

 

  62,619

 

  29,934

 

  42,357

Current assets

 

 

 

 

 

 

 

Trade and other receivables

 

 

  2,764

 

  1,208

 

  2,274

Cash and cash equivalents

 

 

  1,945

 

  156

 

  2,006

 

 

 

  4,709

 

  1,364

 

  4,280

 

 

 

 

 

 

 

 

Total assets

 

 

  67,328

 

  31,298

 

  46,637

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

 

  4,801

 

  2,326

 

  2,329

Deferred liabilities

 

13

  10,006

 

  1,700

 

  5,168

Lease liabilities

 

14

  405

 

  184

 

  237

 

 

 

  15,212

 

  4,210

 

  7,734

Non-current liabilities

 

 

 

 

 

 

 

Deferred liabilities

 

13

  9,890

 

  2,200

 

  7,377

Lease liabilities

 

14

  2,294

 

  1,224

 

  914

 

 

 

 

 

 

 

 

Total liabilities

 

 

  27,396

 

  7,634

 

  16,025

 

 

 

 

 

 

 

 

Net assets

 

 

  39,932

 

  23,664

 

  30,612

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Share capital

 

15

  10,846

 

  8,117

 

  10,846

Share premium

 

15

  8,224

 

  6,552

 

  8,224

Preference share capital

 

16

  18,350

 

  -

 

  5,728

Deferred share capital

 

 

  -

 

  106

 

  -

Other reserves

 

 

  56

 

  (549)

 

  (296)

Retained earnings

 

 

  2,456

 

  9,438

 

  6,110

Total equity  

 

 

  39,932

 

  23,664

 

  30,612

 

 

 

 

 

 

 

 

The notes on pages 13 to 33 form an integral part of the interim financial statements.

The interim financial statements of Kingswood Holdings Limited (Guernsey registration number 42316) were approved by the Board of Directors and authorised for issue on 17 September 2020 and signed on its behalf by:

 

 

 

Kenneth 'Buzz' West

Chairman

 

Interim Consolidated Statement of Changes in Equity

For the six months ended 30 June 2020

 

Share capital & share premium

Deferred share capital

Preference share capital

Other reserves

Retained earnings

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Balance as at 1 January 2019 (audited)

  14,017

  106

  -

  (738)

  11,758

  25,143

 

 

 

 

 

 

 

Loss for the period

 -

 -

 -

 -

  (2,320)

  (2,320)

Issue of share capital

  652

 -

 -

 -

 -

  652

Share based remuneration

 -

 -

  -

  189

 -

  189

 

 

 

 

 

 

 

Balance as at 30 June 2019 (unaudited)

  14,669

  106

  -

  (549)

  9,438

  23,664

 

 

 

 

 

 

 

Loss for the period

  -

  -

  -

  -

  (3,396)

  (3,396)

Issue of share capital

  4,401

  -

  -

  -

  -

  4,401

Issue of preference share capital

  -

  -

  5,728

  -

  -

  5,728

Write back of deferred share capital

  -

  (106)

  -

  -

  106

  -

Share based remuneration

  -

  -

  -

  253

  -

  253

Preference dividends

  -

  -

  -

  -

  (38)

  (38)

 

 

 

 

 

 

 

Balance as at 31 December 2019 (audited)

  19,070

  -

  5,728

  (296)

  6,110

  30,612

 

 

 

 

 

 

 

Loss for the period

  -

  -

  -

  -

  (3,424)

  (3,424)

Issue of share capital

  -

  -

  -

  -

  -

  -

Issue of preference share capital

  -

  -

  12,622

  -

  -

  12,622

Foreign exchange gain

  -

  -

  -

  2

  -

  2

Share based remuneration

  -

  -

  -

  350

  -

  350

Preference dividends

  -

  -

  -

  -

  (230)

  (230)

 

 

 

 

 

 

 

Balance as at 30 June 2020 (unaudited)

  19,070

  -

  18,350

  56

  2,456

  39,932

 

 

 

 

 

 

 

Note 15 provides further details of share capital and share premium.

 

Other reserves consist of movement in foreign exchange translation amounts and share based remuneration expenses charged against reserves.

 

The notes on pages 13 to 33 form an integral part of the interim financial statements.

Interim Consolidated Statement of Cash Flows

For the six months ended 30 June 2020

 

 

 

 

 

 

Six months to

 

Six months to

 

Year ended

 

 

 

 

30 June 2020

 

30 June 2019

 

31 December 2019

 

 

 

 

(unaudited)

 

(unaudited)

 

(audited)

 

 

 

 

 

 

Restated*

 

 

 

 

Note

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

17

  (220)

 

  (1,418)

 

  (4,270)

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment purchased

  (394)

 

  (58)

 

  (133)

 

 

 

 

 

 

 

 

 

Acquisition of investments

 

 

 

  (13,134)

 

  (1,916)

 

  (6,616)

 

 

 

 

 

 

 

 

 

Cash acquired on acquisitions

 

 

 

  1,066

 

  -

 

  -

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

 

  (12,462)

 

  (1,974)

 

  (6,749)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net proceeds on issue of shares

 

 

 

  12,622

 

  653

 

  10,780

 

 

 

 

 

 

 

 

 

Interest paid

 

 

 

  (3)

 

  (15)

 

  (165)

 

 

 

 

 

 

 

 

 

Loans received

 

 

 

  -

 

  500

 

  -

 

 

 

 

 

 

 

 

 

Net cash from financing activities

  12,619

 

  1,138

 

  10,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

  (63)

 

  (2,254)

 

  (404)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

  2,006

 

  2,410

 

  2,410

 

 

 

 

 

 

 

 

 

Exchange gain on cash and cash equivalents

  2

 

  -

 

  -

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

  1,945

 

  156

 

  2,006

 

 

 

 

 

 

 

 

 

Notes to the Interim Financial Statements

For the six months ended 30 June 2020

 

1.  General information

Kingswood Holdings Limited ("KHL") is a company incorporated in Guernsey under The Companies (Guernsey) Law, 2008. The shares of the Company are traded on AIM. The nature of the Group's operations and its principal activities are set out in the Annual Report which is available at http://www.kingswood-group.com. Certain subsidiaries in the Group are subject to the FCA's regulatory capital requirements and therefore required to monitor their compliance with credit, market and operational risk requirements, in addition to performing their own assessment of capital requirements as part of the Individual Capital Adequacy Assessment Process ("ICAAP").

 

2.  Accounting policies

Basis of preparation

 

The Group's interim condensed consolidated financial statements are prepared and presented in accordance with IAS 34 'Interim Financial Reporting'. The accounting policies adopted by the Group in the preparation of its 2020 interim report are consistent with those disclosed in the annual financial statements for the year ended 31 December 2019 except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2020, and will be adopted in the 2020 annual financial statements.

 

The information relating to the six months ended 30 June 2020 and the six months ended 30 June 2019 do not constitute statutory financial statements and has not been audited. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's most recent annual financial statements for the year ended 31 December 2019.

 

Going concern

 

The Directors are satisfied that the Group has sufficient resources to continue in operation for a period of not less than 12 months. Accordingly, the Group continues to prepare the condensed consolidated interim financial statements on a going concern basis.

 

Revenue recognition

 

Performance obligations and timing of revenue recognition

 

The majority of the Group's 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.

 

For certain commission, fee-based and initial wealth advisory income, revenue is recognised over the period in which the service was completed. 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.

 

2.  Accounting policies (continued)

 

Determining the transaction price

 

Most of the Group's revenue is charged as a percentage of the total value of assets under management or advice. For revenue earned on a commission basis, 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 primarily percentage-based, 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.

 

Costs of obtaining long-term contracts and costs of fulfilling contracts

 

The Group aims to retain its clients indefinitely, and will thus enter into a contractual relationship that may hold for a number of years. However, as rolling month-by-month agreements are the norm, there is no obligation binding either party for periods greater than one year, which would thus be classified as 'long-term' contracts.

 

The cost of fulfilling contracts, such as they are, are either charged per transaction, such that no judgement is needed to measure the cost to the Group of fulfilling its obligations, or else not directly linked to any one client or agreement.

 

 

3.  Changes in significant accounting policies

 

The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2019 annual financial statements.

 

There are a number of standards and interpretations which have been issued by the International Accounting Standards Board that are effective for periods beginning subsequent to 31 December 2020 (the date on which the company's next annual financial statements will be prepared up to) that the Group has decided not to adopt early. The Group does not believe these standards and interpretations will have a material impact on the financial statements once adopted.

 

4.  Critical accounting judgements and key sources of estimation uncertainty

 

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

 

The following are the critical judgements that the Directors have made in the process of applying the Group's accounting policies and that has the most significant effect on the amounts recognised in financial statements.

 

Share based remuneration

 

The calculation of the fair value of share based remuneration 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.

 

Goodwill and intangible assets

 

The amount of goodwill initially recognised as a result of a business combination is dependent on the allocation of the purchase price to the fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair value of the assets and liabilities is based, to a considerable extent, on management's judgement. Goodwill is reviewed annually for impairment by comparing the carrying amount of the cash generating units (CGUs) to their expected recoverable amount, estimated on a value-in-use basis.

 

Recoverability of deferred tax assets

 

The amount of deferred tax assets recognised requires assumptions to be made to the financial forecasts that probable sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

Estimates and assumptions

 

The Group makes estimates as to the expected duration of client relationships to determine the period over which related intangible assets are amortised. The amortisation period is estimated with reference to historical data on account closure rates and expectations for the future. During the year, client relationships were amortised over a 10-20 year period.

 

A discount rate has been used to calculate fair value of deferred consideration to reflect the time value of money. The fair value of deferred consideration is classified as level 3 in fair value hierarchy, as their valuation techniques incorporate unobservable inputs. The valuation technique used is disclosed in note 19.

 

4.  Critical accounting judgements and key sources of estimation uncertainty (continued)

 

The methodology used to estimate the fair value of equity instruments is classified as level 3 in fair value hierarchy, as their valuation techniques incorporate unobservable inputs. The valuation technique used in disclosed in note 12.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and future years if the revision affects both current and future years.

 

There have been no material revisions to the nature and amount of estimates of amounts reported in prior periods. However, as discussed in Note 5, the effects of Covid-19 have required significant judgments and estimates to be made, including:

 

(a)  Calculating the recoverable amount for cash generating units that exhibit indicators of impairment as at the period end, and determining the amount of goodwill impairment attributable to the cash generating units; and

(b)  Determining which information obtained subsequent to period end provides evidence of conditions that existed as at the end of the reporting period ('adjusting events after the reporting period') and which do not ('non-adjusting events after the reporting period'). For disclosure of non-adjusting events after the reporting period, refer to Note 23.

 

5.  Significant events and transactions

 

Significant events and transactions that have occurred since 31 December 2019 can be summarised as follows:

 

Covid-19

 

The World Health Organisation declared coronavirus and Covid-19 a global health emergency on 30 January 2020.

 

Covid-19 had some impact on revenues, as the lockdown made it challenging for advisers to write new business with a consequent impact on revenues, but we see this as only temporary.  With staff coming back to our offices and face to face meetings with clients now possible (while still observing social distancing protocols) we expect to see this trend reverse in the coming months

 

Acquisition of Chalice

 

The Group formally closed the acquisition of Chalice Capital Partners, LLC and Chalice Wealth Advisors, LLC (together "Chalice"), on 30 April 2020 on receipt of US regulatory approval. Chalice provides full service securities brokerage, advisory and investment banking services to a broad-based group of individuals and corporate clients with 96 authorised representatives managing assets of $1.1 billion (circa £0.9 billion). The total consideration of $4.0 million (£3.2 million) consists of an initial payment of $2.0 million (£1.5 million) and two future payments of $1.0 million (£0.8 million) each, conditional on adviser retention and EBITDA targets.

 

5.  Significant events and transactions (continued)

Acquisition of Sterling Trust

 

On 24 June 2020 Kingswood acquired a 100% interest in the shares of the Sterling Trust Group of companies, a high-quality IFA business which operates from headquarters in Hull, Yorkshire with four satellite offices in Darlington, Newcastle, Sheffield and York. Sterling Trust provides independent financial advice to individuals and corporates within the UK and currently employs 48 people, with 22 financial advisers advising/managing £1.2 billion AUA/AUM and servicing over 5,000 clients. The total consideration of £17.75 million consists of an initial payment of £7.25 million and deferred consideration of £10.5 million payable in 3 instalments on the first, second and third anniversary of the transaction.

 

6.  Business and geographical segments

 

For management purposes, the Group was organised into three operating divisions; Investment Management, Wealth Planning and US during the period under review. All head office costs have been included in a separate column, Group, alongside the information presented for internal reporting to the Board of Directors. Therefore the Group's reportable segments under IFRS 8 are Investment Management, Wealth Planning and US. Information regarding the Group's operating segments is reported below.

 

Six months ended 30 June 2020

(unaudited)

Investment

Management

Wealth Planning

US

Group

Total

 

£'000

£'000

£'000

£'000

£'000

Continuing operations :

 

 

 

 

 

Revenue

External sales

 

2,135

 

4,678

 

1,438

 

-

 

8,251

Core adjusted profit/(loss)

(329)

1,364

28

(3,194)

(2,131)

Other losses

-

-

-

(10)

(10)

Finance costs

(1)

(175)

-

(42)

(218)

Amortisation and depreciation

-

(81)

-

(984)

(1,065)

Profit / (loss) before tax from continuing operations

(330)

1,108

28

(4,230)

(3,424)

Tax

-

-

-

-

-

Profit / (loss) after tax from continuing operations

(330)

1,108

28

(4,230)

(3,424)

Discontinued operations:

 

 

 

 

 

Loss from discontinued operations

-

-

-

-

-

Profit / (loss) after tax

(330)

1,108

28

(4,230)

(3,424)

               

 

 

6.  Business and geographical segments (continued)

 

 

Six months ended 30 June 2019

(unaudited)

Investment

Management

Wealth Planning

US

Group

Total

 

 

£'000

£'000

£'000

£'000

£'000

Continuing operations:

 

 

 

 

 

Revenue

 

 

 

 

 

External sales

2,059

2,144

-

-

4,203

Core adjusted profit/(loss)

239

487

-

(2,200)

(1,474)

Other losses

-

-

-

(149)

(149)

Finance costs

(8)

(1)

-

(25)

(34)

Amortisation and depreciation

-

(76)

-

(447)

(523)

Profit / (loss) before tax from continuing operations

231

410

-

(2,821)

(2,180)

Tax

-

-

-

-

-

Profit / (loss) after tax from continuing operations

231

410

-

(2,821)

(2,180)

Discontinued operations:

 

 

 

 

 

Loss from discontinued operations

(140)

-

-

-

(140)

Profit / (loss) after tax

91

410

-

(2,821)

(2,320)

               

 

 

Year ended 31 December 2019

(audited)

Investment

Management

Wealth Planning

US

Group

Total

 

 

£'000

£'000

£'000

£'000

£'000

Continuing operations :

 

 

 

 

 

Revenue

 

 

 

 

 

External sales

4,187

5,854

-

12

10,053

Core adjusted profit/(loss)

90

1,905

-

(5,365)

(3,370)

Other losses

-

-

-

(381)

(381)

Finance costs

(2)

(180)

-

(202)

(384)

Amortisation and depreciation

-

(513)

-

(913)

(1,426)

Profit / (loss) before tax from continuing operations

88

1,212

-

(6,861)

(5,561)

Tax

-

-

-

-

-

Profit / (loss) after tax from continuing operations

88

1,212

-

(6,861)

(5,561)

Discontinued operations:

 

 

 

 

 

Loss from discontinued operations

(155)

-

-

-

(155)

Profit / (loss) after tax

(67)

1,212

-

(6,861)

(5,716)

 

As part of a restructure, which is currently in progress, the Group is being re-organised into three operating businesses: UK Wealth and Investment Management, UK Institutional and Kingswood US, which will be effective for future reporting and consolidated financial statements.

 

 

7.  Other losses

 

 

Six months to 30 June 2020 (unaudited)

 

Six months to

30 June 2019 (unaudited)

 

Yearended

 31 December2019

(audited)

 

 

£'000

 

£'000

 

£'000

Net unrealised loss on investments Impairment of intangibles

10

-

 

-

149

 

-

381

 

10

 

149

 

381

 

8.  Discontinued operations

 

In June 2019, the Group discontinued the activities of its subsidiary KW Trading Services Limited. This is disclosed in note 15 of the audited financial statements for the year ended 31 December 2019.

 

The results of discontinued operations for the period prior to the disposal date are shown below:

 

 

Six months to   30 June 2020 (unaudited)

 

Six months to   30 June 2019 (unaudited)

 

Yearended   31 December2019

(audited)

 

£'000

 

£'000

 

£'000

Loss from discontinued operations

-

 

 

(140)

 

 

(155)

 

Loss from discontinued operations

-

 

(140)

 

(155)

 

 

Loss from discontinued operations

 

 

 

 

 

 

The results of discontinued operations for the period prior to the disposal date are shown below:

 

 

Six months to 30 June 2020 (unaudited)

 

Six months to 30 June 2019 (unaudited)

 

Yearended 31 December2019

(audited)

 

£'000

 

£'000

 

£'000

Revenue

-

 

279

 

279

Cost of sales

-

 

(109)

 

(134)

Gross profit

-

 

170

 

145

Administrative expenses

Amortisation and depreciation

-

-

 

(308)

-

 

(300)

-

Operating loss

-

 

(138)

 

(155)

Finance costs

-

 

(2)

 

-

Loss before tax

Tax

-

-

 

(140)

-

 

(155)

-

Loss from discontinued operations

-

 

(140)

 

(155)

9.  Earnings per share

 

 

Six months to

Six months to

Year ended

30 June 2020

30 June 2019

31 December 2019

(unaudited)

(unaudited)

(audited)

 

£'000

£'000

£'000

Loss from continuing operations for the purposes of basic loss per share, being net loss attributable

 

(3,424)

 

(2,180) 

 

(5,561)

to owners of the Group

   

   

   

Number of shares

 

 

 

Weighted average number of ordinary shares for the purposes of basic loss per share

 

216,920,724

 

156,886,656

 

178,875,353

 

Effect of dilutive potential ordinary shares:

 

 

 

Share options

 -

 -

 -

Convertible loan notes in issue

 -

 -

 -

 

 

 

 

Weighted average number of ordinary shares

for the purposes of diluted loss per share

 

 

216,920,724

 

 

 

156,886,656

 

 

 

178,875,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations:

 

 

 

 

 

 

Basic loss per share

 

£(0.02)

 

£(0.01)

 

£(0.03)

Diluted loss per share

 

£(0.02)

 

£(0.01)

 

£(0.03)

 

 

 

 

 

 

 

Total loss:

 

 

 

 

 

 

Basic loss per share

 

£(0.02)

 

£(0.01)

 

£(0.03)

Diluted loss per share

 

£(0.02)

 

£(0.01)

 

£(0.03)

 

10.  Property, plant and equipment

 

 

 

Land and Buildings

 

Fixtures and equipment

 

Total

 

 

£'000

 

£'000

 

£'000

Cost

 

 

 

 

 

 

At 1 January 2019

 

-

 

431

 

431

Transitional adjustment due to adoption of IFRS 16

 

778

 

-

 

778

Additions

 

-

 

57

 

57

Additions due to adoption of IFRS 16

 

243

 

-

 

243

 

 

 

 

 

 

 

At 30 June 2019

 

1,021

 

488

 

1,509

Additions

 

-

 

76

 

76

Additions due to adoption of IFRS 16

 

314

 

-

 

314

 

 

 

 

 

 

 

At 31 December 2019

 

1,335

 

564

 

1,899

Additions

 

-

 

146

 

146

Additions due to IFRS 16

 

1,705

 

-

 

1,705

Additions due to acquisition of Sterling

 

-

 

247

 

247

 

 

 

 

 

 

 

At 30 June 2020

 

3,040

 

957

 

3,997

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

At 1 January 2019

 

-

 

283

 

283

Charge for the period

 

110

 

25

 

135

 

 

 

 

 

 

 

At 30 June 2019

 

110

 

308

 

418

Charge for the period

 

124

 

35

 

159

 

 

 

 

 

 

 

At 31 December 2019

 

234

 

343

 

577

Charge for the period

 

220

 

38

 

258

 

 

 

 

 

 

 

At 30 June 2020

 

454

 

381

 

835

 

 

 

 

 

 

 

Net Book Value as at 30 June 2019

 

911

 

180

 

1,091

 

 

 

 

 

 

 

Net Book Value as at 31 December 2019

 

1,101

 

221

 

1,322

 

 

 

 

 

 

 

Net Book Value as at 30 June 2020

 

2,586

 

576

 

3,162

 

11.  Intangible assets and goodwill

 

 

 

Goodwill

 

Intangible

 

 Total

 

 

 

 

assets

 

 

 

 

£'000

 

£'000

 

£'000

Cost

 

 

 

 

 

 

As at 1 January 2019

 

16,765

 

12,655

 

29,420

Additions

 

-

 

3,000

 

3,000

Disposals

 

-

 

-

 

-

Impairment

 

(149)

 

-

 

(149)

As at 30 June 2019

 

16,616

 

15,655

 

32,271

Additions

 

-

 

13,168

 

13,168

Disposals

 

-

 

-

 

-

Impairment

 

(232)

 

-

 

(232)

As at 31 December 2019

 

16,384

 

28,823

 

45,207

Additions

 

4,904

 

14,376

 

19,280

Disposals

 

-

 

-

 

-

Impairment

 

-

 

-

 

-

As at 30 June 2020

 

21,288

 

43,199

 

64,487

 

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

 

 

As at 1 January 2019

 

2,017

 

1,867

 

3,884

Disposals

 

-

 

-

 

-

Charge for period

 

-

 

388

 

388

As at 30 June 2019

 

2,017

 

2,255

 

4,272

Disposals

 

-

 

-

 

-

Charge for period

 

185

 

559

 

744

As at 31 December 2019

 

2,202

 

2,814

 

5,016

Disposals

 

-

 

-

 

-

Charge for period

 

77

 

730

 

807

As at 30 June 2020

 

2,279

 

3,544

 

5,823

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

As at 30 June 2019

 

14,599

 

13,400

 

27,999

 

 

 

 

 

 

 

As at 31 December 2019

 

14,182

 

26,009

 

40,191

 

 

 

 

 

 

 

As at 30 June 2020

 

19,008

 

39,656

 

58,664

 

 

12.  Investments

 

 

 

 

 

£'000

Cost

 

 

 

 

At 1 January 2019

 

 

 

  -

Acquisitions

 

 

 

  416

Net unrealised gain/(loss) recognised during the period

 

  -

At 30 June 2019

 

 

 

  416

Acquisitions

 

 

 

  -

Net unrealised gain/(loss) recognised during the period

 

  -

As at 31 December 2019

 

 

 

  416

Acquisitions

 

 

 

  -

Net unrealised gain/(loss) recognised during the period

 

  (10)

At 30 June 2020

 

 

 

  406

 

 

On 25 May 2019, Kingswood acquired a 7% interest in US based Manhattan Harbor Capital Inc. for an initial consideration of  $525,000 (£416,435), comprising a cash payment of $332,500 (£263,742) and a share element of $192,500 (£152,693) which was satisfied through the issuance of 1,654,787 new ordinary shares in KHL.

 

Item

Fair Value £'000

Valuation technique

Fair value hierarchy level

 

Investments

 

406

 

Fair value of investments is estimated by using a valuation multiple of 5.1x EBITDA

 

Level 3

 

13.  Deferred liabilities

 

Six months to

 

Six months to

 

Year ended

30 June 2020

 

30 June 2019

 

31 December 2019

 

(unaudited)

 

 

(unaudited)

 

 

(audited)

 

 

£'000

 

£'000

 

£'000

 

Deferred consideration payable on acquisitions

19,896

 

3,900

 

12,545

 

- falling due within one year

 

10,006

 

 

1,700

 

5,168

- due after more than one year

9,890

 

2,200

 

7,377

 

The deferred consideration payable on acquisitions is due to be paid in cash.

 

13. Deferred liabilities (continued)

 

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 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 therefore no gains or losses have arisen from this during the six month period.

 

14.  Lease liabilities

 

The Group presents right-of-use assets in 'property, plant and equipment', the same line item as it presents underlying assets of the same nature that it owns. The carrying amounts of right-of-use assets are as below:

 

 

 

 

 

Property, plant and equipment

Carrying amounts of right-of-use assets

 

 

£'000

Balance at 1 January 2020

 

 

  1,101

Additions

 

 

  1,705

Depreciation

 

 

  (220)

Balance at 30 June 2020

 

 

2,586

 

 

 

 

 

 

 

Lease liabilities

Carrying amounts of lease liabilities

 

 

£'000

 

 

 

 

Balance at 1 January 2020

 

 

1,151

 

 

 

 

Balance at 30 June 2020

 

 

2,699

 

 

 

 

-  Due within one year

 

 

405

-  Due after more than one year

 

 

2,294

 

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.

 

14. Lease liabilities (continued)

 

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.

 

15.  Share capital and share premium

 

 

Six months to

 

Six months to

 

Year ended 31

 

Six months to

 

Six months to

 

Year ended 31

 

30 June 2020

 

30 June 2019

 

December 2019

 

30 June 2020

 

30 June 2019

 

December 2019

 

(unaudited)

 

(unaudited)

 

(audited)

 

(unaudited)

 

(unaudited)

 

(audited)

 

Shares

 

Shares

 

Shares

 

£'000

 

£'000

 

£'000

Ordinary shares issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully paid

  216,920,719

 

  162,348,684

 

  216,920,719

 

  10,846

 

  8,117

 

  10,846

 

 

 

 

 

 

 

 

 

 

 

 

 

Share capital and share premium movements:

 

 

 

 

 

 

 

 

 

 

 

Number of ordinary shares

 

Par Value

 

Share Premium

 

Total

 

 

 

'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

Opening balance at 1 January 2019

 

 

  154,871

 

  7,743

 

  6,274

 

  14,017

Issued during period

 

 

  7,478

 

  374

 

  278

 

  652

As at 30 June 2019

 

 

  162,349

 

  8,117

 

  6,552

 

  14,669

Issued during period

 

 

  54,572

 

  2,729

 

  1,672

 

  4,401

As at 31 December 2019

 

 

  216,921

 

  10,846

 

  8,224

 

  19,070

Issued during period

 

 

  -

 

  -

 

  -

 

  -

As at 30 June 2020

 

 

216,921

 

10,846

 

8,224

 

19,070

 

 

 

 

 

 

 

 

 

 

 

On 17th September 2020, KHL had 216,920,719 fully paid 5 pence ordinary shares in issue.

 

16. Preference share capital

 

 

Six months to

 

Six months to

 

Year ended 31

 

Six months to

 

Six months to

 

Year ended 31

 

30 June 2020

 

30 June 2019

 

December 2019

 

30 June 2020

 

30 June 2019

 

December 2019

 

(unaudited)

 

(unaudited)

 

(audited)

 

(unaudited)

 

(unaudited)

 

(audited)

 

Shares

 

Shares

 

Shares

 

£'000

 

£'000

 

£'000

Convertible preference shares issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully paid

18,350,043

 

-

 

5,727,655

 

18,350

 

-

 

5,728

 

 

 

 

 

 

 

 

 

 

 

 

                             

 

Preference share capital movements:

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

Par Value

 

 

 

 

 

'000

 

£'000

Opening balance at 1 January 2019

 

 

 

 

  -

 

  -

Issued during period

 

 

 

 

  -

 

  -

As at 30 June 2019

 

 

 

 

  -

 

  -

Issued during period

 

 

 

 

5,728

 

5,728

As at 31 December 2019

 

 

 

 

5,728

 

5,728

Issued during period

 

 

 

 

12,622

 

12,622

As at 30 June 2020

 

 

 

 

18,350

 

18,350

 

 

 

 

 

 

 

 

 

On 17th September 2020, KHL had 21,000,043 Preference shares in issue.

 

17.  Notes to the statement of cash flows

 

 

 

 

Six months to

 

Six months to

 

Year ended

 

 

 

 

30 June 2020

 

30 June 2019

 

31 December 2019

 

 

 

 

(unaudited)

 

(unaudited)

 

(audited)

 

 

 

 

 

 

Restated*

 

 

 

 

 

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

Loss before tax

 

 

 

(3,424)

 

(2,180)

 

(5,561)

Adjustments for:

 

 

 

 

 

 

 

 

Finance costs

 

 

 

190

 

34

 

341

Foreign exchange

 

 

 

(47)

 

-

 

-

Depreciation and amortisation

 

 

 

845

 

523

 

1,192

Share-based remuneration expense

 

350

 

189

 

442

Loss from discontinued operations

 

 

 

-

 

(140)

 

(155)

Impairment of goodwill / subsidiaries

 

10

 

149

 

382

Impact of adjustment for IFRS 16 - Leases

 

37

 

(215)

 

(67)

 

 

 

 

 

 

 

 

 

Operating cash flows before movements in working capital

(2,039)

 

(1,640)

 

(3,426)

 

 

 

 

 

 

 

 

 

Increase in receivables

 

 

 

(449)

 

(51)

 

(1,115)

Increase in payables

 

 

 

2,268

 

273

 

271

 

 

 

 

 

 

 

 

 

Net cash outflow from operating activities

 

(220)

 

(1,418)

 

(4,270)

                       

 

* The results for the six months ended 30 June 2019 were r estated to reflect the loss before tax from continuing and discontinued operations.

 

18.  Share based remuneration

The Group recognised total expenses of £349,559 (30 June 2019: £188,833; 31 December 2019: £442,301) in relation to directors' and employees' share-based remuneration in the period.

 

No options were granted during the six months ended 30 June 2020.

 

19.  Financial instruments

The following table details the classification of financial instruments:

 

 

Six months to

Six months to

Year ended 31

30 June 2020

30 June 2019

December 2019

(unaudited)

(unaudited)

(audited)

Carrying amount

Carrying amount

Carrying amount

£'000

£'000

£'000

Financial assets measured at amortised cost

Trade and other receivables

 

889

 

816

 

501

Cash and bank balances

1,945

156

2,006

Financial assets measured at fair value through profit and loss

Investments

 

 

406

 

 

416

 

 

416

Financial liabilities measured at amortised cost

Trade and other payables

 

 

(3,214)

 

 

(2,510)

 

 

(2,303)

Other non-current liabilities

(2,294)

(1,224)

(914)

 

Financial liabilities measured at fair value through profit and loss

 

 

 

Deferred consideration

(3,900)

(12,545)

 

(22,164)

(6,246)

(12,839)

 

Item

Fair Value £'000

Valuation Technique

Fair Value hierarchy level

 

Deferred Consideration

 

19,896

 

Fair value of deferred consideration is estimated by discounting the future contractual cash flows at an interest rate of 5%

 

Level 3

 

The impact to the value of deferred consideration of a reasonably possible change to the discount is presented in the table below:

 

Assumption

Reasonably

 

Deferred Consideration £'000

 

Possible Change

 

Increase

 

Decrease

 

 

 

 

 

 

Discount rate

( + / - 1.00%)

 

(257)

 

264

 

 

 

 

 

 

 

 

20.  Business combinations

 

Acquisition of Chalice

 

On 30 April 2020 the Group purchased 100% of the equity of Chalice Capital Partners, LLC and Chalice Wealth Advisors, LLC. The total consideration of $4.0 million (£3.2 million) consists of an initial payment of $2.0 million (£1.5 million) and two future payments of $1.0 million (£0.8 million) each conditional on retention of advisers and EBITDA targets.

 

The acquisition is part of the Group's strategy to create a foothold in the US wealth and investment management market.

 

 

 

£'000

 

 

 

Property, plant and equipment

 

  -

Goodwill

 

  -

Receivables

 

  337

Cash

 

  116

Payables

 

  (244)

Taxation

 

  -

 

 

 

Total identifiable net assets

 

  209

 

 

 

Goodwill

 

  2,945

 

 

 

Total expected consideration

 

  3,154

 

 

 

Satisfied by:

 

 

Initial cash consideration

 

  1,520

Deferred cash consideration

 

  1,634

 

 

On acquisition, the book value of the net assets acquired was equal to their fair value.

 

The goodwill arising on the acquisition of Chalice Capital Partners, LLC and Chalice Wealth Advisors, LLC is not deductible for tax purposes.

 

The amount of revenue and losses contributed by Chalice from the acquisition date 30 April 2020 to 30 June 2020 included in these interim consolidated financial statements is £1,369,012 and £41,791 respectively.

 

 

20. Business combinations (continued)

 

Acquisition of Sterling Trust Group

 

On 24 June 2020, Kingswood Holdings Limited purchased a 100% interest in the Sterling Trust Group for a total purchase consideration of £17.75 million. The total consideration is payable on a deferred basis, with £7.25 million paid at completion, and £10.5 million payable over a three year period subject to certain minimum performance criteria being achieved.

 

The acquisition is part of the Group's strategy to become a leader in the UK wealth management market.

 

 

 

£'000

 

 

 

Property, plant and equipment

 

  247

Goodwill

 

  3,276

Receivables

 

  194

Cash

 

  949

Payables

 

  (404)

Taxation

 

  (539)

 

 

 

Total identifiable net assets

 

  3,723

 

 

 

Goodwill

 

  13,059

 

 

 

Total expected consideration

 

  16,782

 

 

 

Satisfied by:

 

 

Initial cash consideration

 

  7,250

Deferred cash consideration

 

  9,532

 

 

On acquisition, the book value of the net assets acquired was equal to their fair value.

 

The goodwill arising on the acquisition of Sterling Trust is not deductible for tax purposes.

 

No revenue or profit contribution from Sterling Trust from the acquisition date 24 June 2020 to 30 June 2020 is included in these interim consolidated financial statements, as the amounts involved are not material.

 

 

21.  Related party transactions

 

Remuneration of key management personnel

 

The remuneration of the Board of 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.

 

 

Six months to

 

Six months to

 

Year ended 31

 

30 June 2020

 

30 June 2019

 

December 2019

 

(unaudited)

 

(unaudited)

 

(audited)

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

Short-term employee benefits

  338

 

  412

 

  2,317

Termination benefits

  -

 

  250 

 

  272

Share based remuneration

  260

 

  124

 

  371

 

  598

 

  786

 

  2,960

 

Other related party transactions

 

At 30 June 2020 outstanding borrowings from KPI (Nominees) Limited, KHL's major shareholder and related party, had been fully repaid. (30 Jun 2019: £500,000; 31 Dec 2019: nil).

 

22.  Ultimate controlling party

 

As at the date of approving the interim consolidated financial statements, the ultimate controlling party of the Group was KPI (Nominees) Limited. 

 

23.  Events after the reporting period

 

On 12 August 2020, Kingswood announced that, subject to FINRA regulatory approval, the Group will achieve majority ownership in Manhattan Harbor Capital ("MHC") by exercising its call option and increasing its interest in MHC from an existing 7% to 20% and acquiring a further 4% of MHC prior to contemporaneously folding Chalice into MHC, as announced on 5 May 2020, taking the pre-combination holding to 24%. Kingswood has agreed to contribute its existing Chalice platform (with its businesses now renamed Kingswood Capital Partners and Kingswood Wealth Advisors) into MHC at a valuation of $4.0 million (£3.2 million). A minimum of $1.1 million (£0.9 million) additional capital will be funded into MHC at closing taking Kingswood's interest to 50.1%.

 

MHC has been rebranded Kingswood US and provides the Kingswood Group with a strong, robust and well-capitalised foundation to accelerate its US growth strategy including best in class, full service operational and technology infrastructure.

 

 

 

 

23. Events after the reporting period (continued)

 

Kingswood intends to contribute up to $8.0 million (£6.1 million) of additional growth equity to further build US distribution channels through active adviser recruitment and acquisitions. Once all capital is fully deployed, the Kingswood Group is projected to own approximately 67% of the integrated Kingswood US financial services platform.

 

Kingswood has exchanged agreements to acquire, subject to regulatory approval, another wealth planning business, Regency Investments (Regency), for a maximum cash consideration of £3.45million, which will be payable over a 3 year period; £1.38 million will be payable at closing and the balance on a deferred basis subject to Regency meeting pre-agreed asset migration, recurring revenue and EBITDA hurdles, with the final deferred payment due at the end of the three year period. An additional deferred payment of maximum £1.2 million is potentially payable at the end of the 3-year period subject to achievement of an excess EBITDA target over that period.

 

Regency is based in Egham, Surrey and brings six financial advisers servicing over 1,000 clients with £320 million of investable assets. The transaction is expected to be completed in September 2020.

Advisors and Company Information

 

Auditor

BDO LLP

Chartered Accountants and Statutory Auditor

55 Baker Street

London

W1U 7EU

 

Nominated Adviser and Broker (effective 20 April 2020)

Peel Hunt LLP

Moor House

120 London Wall

London

EC2Y 5ET

 

Registrars

Link Asset Services

The Registry

34 Beckenham Road

Beckenham

Kent

BR3 4TU

 

Company's Registered Office 

Regency Court

Glategny Esplanade

St Peter Port

Guernsey

GY1 1WW

 

Company's Registration Number

42316

 

 

For further details, please contact:  

 

Kingswood Holdings Limited   +44 (0) 20 7293 0733

Gary Wilder / Patrick Goulding  www.kingswood-group.com      

 

Peel Hunt LLP (Nomad and Broker)

+44 (0)20 7418 8900

James Britton / Rishi Shah

 

 

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