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Kingswood Holdings (KWG)

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Thursday 17 June, 2021

Kingswood Holdings

Results

RNS Number : 1685C
Kingswood Holdings Limited
17 June 2021
 

 


17th June 2021

 

Results

 

2020 represented a period of significant growth for Kingswood with several key acquisitions completed, significantly expanding Kingswood's UK and US footprints, supported by £44.8 million growth capital invested by Pollen Street Capital

The acquisition of Sterling Trust, a major regional IFA platform, and Regency Investment Services, a high-quality IFA in Greater London, added further breadth and scale to distribution network in 15 locations across the UK

 

A continued investment was made in the organisational structure of the business to create the capacity to further buy, build and grow which also saw a number of key senior leadership appointments with David Lawrence appointed as UK CEO in December 2020 to lead the business on the next stage of its growth journey

 

Completed the acquisition in the US of Chalice and completed the acquisition of a majority interest in Manhattan Harbor Capital platform, enabling the consolidation of Kingswood's US interests into a majority interest in a nationwide broker dealer, advisory and investment banking platform

 

In recent days, re-branded Kingswood Capital Markets to EF Hutton, a globally recognised name in investment banking

Kingswood now comprises 206 people across the globe managing £6.1 billion of client assets

 

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 2020.

It is also delighted to announce it has agreed to acquire, subject to regulatory approval, Admiral Wealth Management Limited (Admiral) a high quality, established Chartered Financial Planning firm based in North Lincolnshire which will add circa £100 million client assets from 600 relationships.

Buzz West, Kingswood Chairman, commented: "2020 was a challenging year and our resilience was tested on many fronts. It was a challenging year for business, especially one like ours which is built on personal relationships - those one on one, face to face connections with our clients. However, I have been delighted with how the business adapted and emerged from this difficult period.

 

"Despite the challenges, there are many positives to take from 2020 - most notably the many talented new colleagues who joined across the UK and US including through the Sterling, Regency, Chalice and Manhattan Harbor transactions. Our partnership with Pollen Street Capital grows in strength, and to date has provided growth equity of £44.8 million to support our current and future acquisition strategy. We now have 206 people across the globe managing £6.1 billion of client assets."

 

Market Update

 

Strategic Highlights

 

UK

David Lawrence joined in December 2020 as UK Chief Executive Officer with over 30 years' experience in financial services with Lloyds Banking Group where he held numerous senior roles in including a lead role in the establishment of Schroders Personal Wealth. David is an experienced industry leader who will focus on accelerating Kingswood's growth plans and driving synergies and efficiencies from integration efforts.

Completion of the Sterling Trust and Regency Investments acquisitions means the UK retail business now operates from four regional hubs and 11 branch offices, with 61 financial advisers and investment managers serving circa 8,000 active clients with £3.4 billion of retail Assets under Advice and Management.  The regional network and client base are the building blocks of future growth.

 

Investment in the organisational structure of the business, including several key senior leadership appointments, positions the business well to execute and integrate acquisitions for significant growth. 

Kingswood's DFM and MPS portfolios delivered excellent investment performance through the year, with strong client inflows now being seen, particularly into the MPS product selection.

UK Institutional business displays strong growth and this year saw the launch of the ESG Bond Fund, one of the few short-dated, Sterling-only investment grade ESG funds actively managed in the market.

 

US

 

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

 

Progressively increased investment in Manhattan Harbor Capital (now re-branded Kingswood US) to a 50.1% interest by November 2020, including the contribution of the Chalice businesses which were acquired in May 2020.

 

Mike Nessim is managing partner of Kingswood US and he and his team offer a full-service nationwide brokerage, investment advisory and investment banking proposition to clients across the US with key hubs in Atlanta, New York, and San Diego, with 206 Authorised Representatives managing £1.6 billion ($2.2 billion) of client assets.

 

Kingswood US also incorporates EF Hutton (formerly Kingswood Capital Markets), a national Investment Banking platform supported by significant regulatory capital to leverage expanding distribution channels and drive growth across equity and debt advisory, capital raising and M&A. EF Hutton, a brand that is globally recognised in investment banking, enhances overall market recognition and aligns future success with the incredible legacy of this powerhouse firm that was once synonymous with Wall Street.

 

Since the beginning of the year, EF Hutton (formerly Kingswood Capital Markets) has already successfully completed 41 transactions with an aggregate $1.8bn capital raised for its clients and its pipeline for the remainder of the year is very strong.

 

Enhanced US investment further cements a key, strategic foothold in the largest global wealth and investment management market, differentiates from peers and supports 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.

 

Non-US International

 

Kingswood continues to see strong growth opportunities in other international wealth management markets and is in exclusive due diligence on 2 potential transactions in 2 international markets that would deliver a further £1.3 billion of client assets and £3.2 million pro-forma Operating Profit on successful completion.  

 

Gary Wilder, Group CEO at Kingswood,  said: "Despite the challenges of Covid, Kingswood continues to make major forward steps in achieving its strategy to build a best in class international wealth management business for the mass affluent market.

 

"Kingswood is focussed on building its long term value strategy, centred around vertical complementary growth business lines in the independent retail wealth sector, from which we can create synergies and maximise our recurring fee streams and target double digit operating profit growth. Our overall differentiated value creation strategy is being achieved at pace through a combination of acquisitions in key international markets, organic growth, revenue cross-pollenisation across our business verticals, operational leverage, cost synergies, increasing the share of wallet through vertical integration and productivity enhancement through the use of best in class technology platforms and digitisation.

 

"This year we further progressed our ambitions with the acquisition of Sterling and Regency in the UK, and the creation of the Kingswood US in partnership with Mike Nessim, with integration of these and previous acquisitions into the Kingswood Group operating framework at an advanced stage.

 

"The UK wealth management sector continues to exhibit strong, long-term growth characteristics supported by demographic trends and Kingswood is in a unique position to take advantage through organic growth and by acquisition. We offer a seamless transition process, centralised support services (like HR, compliance, and finance), and a central investment proposition that frees advisers of the acquired firm to focus on their clients. We are thrilled that David Lawrence has joined the team to lead the UK business on this next stage of its growth journey.

 

"As previously stated, we see the US, the largest global wealth management market, as a major growth opportunity with 9% compound historical annual growth and have been keen to expand in that market for some time. In Mike Nessim and his team, we identified a quality partner with shared values to help implement and drive our US growth strategy, which is to position Kingswood as a top 3 US independent broker dealer and Registered Investment Advisor with national coverage.  We 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 platform providing clients access to investment products and services in major US and UK markets.

 

"With the financial and strategic support of Pollen Street Capital and KPI, Kingswood is in prime position to continue to capitalise on the numerous consolidation and acquisition opportunities available across international wealth and investment management markets.

 

"Disappointingly, Kingswood remains significantly undervalued relative to its fully integrated peer group and wealth managers in general, and a major focus of myself and the Board in the coming months is to develop and deepen our shareholder register and to remain completely focussed on executing our organic and inorganic growth strategy at pace and it is through this that we will maximise value and returns to shareholders.

 

"An investor and analyst presentation outlining in detail Kingswood's results, its international strategy and business can be accessed at [insert link] for shareholders, investors and other interested parties to review. "

 

Financial Highlights

 

Year on year performance comparison is difficult given the impact of acquisitions during the year.

 

In the UK, two acquisitions were completed during the year, and in the US the Chalice businesses were acquired coupled with further investment in the Manhattan Harbor Capital platform culminating in Kingswood Group holding a 50.1% interest in the expanded and rebranded Kingswood US by mid- November 2020, resulting in the consolidation of the financial performance of Kingswood US into Group results from that date.

 

-  Group revenue for the year was £25.5 million, a 153% increase on prior year reflecting the impact of recent acquisitions.

 

-  84% of UK and 61% of Group revenue is recurring in nature providing a strong, annuity style fee stream.

 

-  Operating Profit for the year to December 2020 was £0.9 million, a 309% increase over 2019 reflecting the contribution of acquisitions, although impacted by the challenging business conditions as a result of Covid.

 

-  Operating Profit is one of the Group's primary measures of performance as it removes the impact of amortisation and depreciation, business re-positioning costs and acquisition related accounting treatments.

 

-  Despite the challenging environment, Kingswood continued to invest in people, process, and technology to build a robust foundation to support future growth and the ability to scale which is reflected in the current cost base.

 

-  2020 revenues and Operating Profit do not reflect the full year impact of Sterling Trust and Regency Investments in the UK acquired during the year, and the impact of the expansion of the US business through the Kingswood US investment including Chalice. The 12-month pro-forma Operating Profit run-rate incorporating the full impact of UK and US acquisitions is £7.0 million.

 

The US business delivered strong performance, largely driven by its active investment banking business which continues to provide advisory and underwriting support to its expanding client basis. A total of 28 transactions were completed in 2020, with 18 closed in the final quarter of the year.

 

-  Net equity at year end was £50.2 million and the company has no debt. The Group has deferred consideration obligations of £16.6 million on acquisitions, payable subject to underlying businesses meeting certain performance conditions.

 

Pollen Street Capital can subscribe for up to £80.0 million of capital through a convertible preference share structure and Kingswood draws on this facility as required to complete acquisitions, putting it in a strong position when negotiating potential transactions. The value sharing between Pollen Street Capital and Kingswood strongly aligns interests. In addition, the Pollen Street Capital board members bring significant experience and expertise to the execution of our strategy.

 

Kingswood is well capitalised today but remains focused on maintaining capital flexibility and balance within our funding structure. We have a pipeline of circa £200 million in UK and numerous possible targets in the US and feel there is a significant opportunity to deploy additional capital in the future. Based on our current acquisition pipeline, we are targeting a medium-term Operating Profit run-rate of c.£20m.

 

The b usiness is supported by a robust and disciplined balance sheet, ensuring no deferred liabilities from acquisition activities remain uncovered from a funding perspective.

 

Minimum returns on investment of 20% are targeted post integration into the Kingswood Group. The combination of revenue synergies, centralising certain functions and ensuring cost efficiency within the acquired businesses, drives return on invested capital. This takes time to be reflected in overall group results but demonstrates the potential for Kingswood going forward.

 

Application of Accounting Standards

Kingswood continues to balance the requirement to meet all relevant technical accounting standards with the need to provide shareholders with a clear, commercial view of underlying business performance. This is a particular challenge for a company like Kingswood which is actively growing its business through acquisitions.

 

Accounting standards require Kingswood to treat certain items differently to the underlying commercial aspects of the business or transaction. This is particularly an issue when it comes to accounting for acquisitions and related costs under IFRS3.

 

Kingswood commercially requires the principals of acquired businesses to remain with the business during the agreed earn out period to ensure there is an alignment of interest between both parties. To the extent principals leave prior to the end of the earn out period, this would result in them forgoing any deferred payments due, notwithstanding whether agreed financial metrics for the earn out have been met.

 

The current interpretation of IFRS 3 dictates any deferred payments subject to contingent employment are treated as 'remuneration' and expensed as paid as opposed to being capitalised as consideration paid for the acquired business.

 

In 2020 Kingswood therefore changed its existing accounting treatment regarding deferred consideration on acquisitions, and now treats such contingent deferred payments as 'remuneration' when paid, rather than capitalise into the value of the acquisition at completion.

 

For these reasons, Kingswood believes that Operating Profit gives a fairer reflection of the Group's profitability and underlying asset value.

 

Patrick Goulding, Group CFO , said: " The business is in a financially strong position and our large, existing client base proved highly resilient delivering robust cash flows. Operating Profit was strong for the year as we begin to see the impact of recent acquisitions flow through. Operating Profit is the most accurate measure of performance for our business removing the impact of amortisation and depreciation, business re-positioning costs and acquisition related accounting treatments, including the requirement to treat contingent deferred consideration as remuneration and to write off transaction related costs as incurred."

David Lawrence, UK CEO concluded: "We have a clear growth plan and with the investment made in 2020, now have the capability and capacity to deliver on this. Our immediate focus is to deliver operating margins in the UK more than 30% and a Cost to Income ratio of less than 70%.

 

"In the UK, organic growth will remain  a key pillar of our strategy, though we will also continue to actively acquire firms that have a great cultural fit for us, can help accelerate growth and bring greater scale and capability to our wealth planning, investment management businesses. We have a very healthy acquisition pipeline which includes:

 

5 targets where we have agreed Heads of Terms and are at various stages of due diligence. These will introduce an additional £1.9 billion of client assets and £2.7 million of Operating Profit on successful completion.  

A further 4 targets where we have made an offer and are in detailed negotiation. These will introduce an additional £1.25 billion of client assets and £4.5 million of Operating Profit if successfully concluded.

9 further opportunities where positive initial conversations have taken place and information is being exchanged.  

 

"Complementary focus is being given to developing client propositions that are clear, transparent and value for money utilising technology where helpful to enhance both the client experience and our operational efficiency."

 

An abridged presentation of Kingswood's results and strategic direction is available on the website 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/

 

 

 

For further details, please contact:

 

Kingswood Holdings Limited

+44 (0)20 7293 0730

Gary Wilder /David Lawrence/ Patrick Goulding

www.kingswood-group.com

 

 

Peel Hunt LLP (Nomad and Broker)

+44 (0)20 7418 8900

James Britton / Rishi Shah

 

 

 

Greentarget (for Kingswood media)

Jamie Brownlee / Alice Gasson / Ellie Basle 

+44 (0)20 7324 5498

[email protected]

 

 

About Kingswood

Kingswood Holdings Limited (trading as Kingswood) is an AIM-listed (AIM: KWG) international fully integrated wealth management group, and circa 6.1 billion of Assets under Advice and Management. It services circa 8,000 clients from 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 overseas 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company Registration No. 42316 (Guernsey)

 

 

 

 

KINGSWOOD HOLDINGS LIMITED

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2020

 

KINGSWOOD AT A GLANCE

Kingswood Holdings Limited (the "Company") 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 suite 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.

 

The Kingswood Board have identified six key components to the Group's strategy.

 

High growth markets - Grow by acquisition in globally fragmented markets

Vertical integration - Holistic wealth and investment management drives revenue growth

Distribution network - Focus on creating regional 'Hubs' for personal advice

Scalable platform - Centralised proposition to support economies of scale and sales efficiency

Management team - Experienced & incentivised at every level

Global ambition - Growth equity enables execution of international growth plan

 

 

 

 

 

 

The Kingswood Group today comprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note: adviser and client figures disclosed are for UK-business only

 

It has a growing network of offices across the UK including Abingdon, Beverley, Darlington, Derby, Egham, Grimsby, Hull, Lincoln, London, Maidstone, Newcastle, Sheffield (two), Worcester and York along with offices in Johannesburg, South Africa and Atlanta, New York and San Diego in US.

 

2020 HIGHLIGHTS

> Several key acquisitions were completed in 2020, significantly expanding Kingswood's UK and US footprints

 

> In the UK

Sterling Trust was acquired in June 2020, a transformative transaction which added 22 financial planners advising/managing £1.2 billion of client assets from five locations across Yorkshire and the North East of England

In November, the Group acquired Regency Investment Services, a high-quality IFA business which operates from Egham, Surrey and provides independent financial advice to individuals and corporates with six IFAs advising/managing £320 million on behalf of circa 1,000 clients

 

In the US

Completed the acquisition of Chalice based in San Diego, CA, USA which provides full-service securities brokerage, advisory and investment banking services to a broad client base

 

Formalised a strategic partnership with Mike Nessim and his Manhattan Harbor Capital platform, enabling the consolidation of Kingswood's US interests - including Chalice - into a 50.1% share in a nationwide broker dealer, advisory and investment banking platform re-branded as Kingswood US

 

This investment is a major statement of intent regarding our US expansion supported by a commitment to contribute up to $8.0 million (£5.7 million) additional growth equity before December 2022 to further build US distribution channels

 

Kingswood continued to bolster its management team throughout the year and in December 2020 appointed David Lawrence as UK CEO to lead the business on the next stage of its growth journey

 

£44.8 million growth capital contributed by Pollen Street Capital to support Kingswood's acquisition and growth initiatives

 

Launch of the Kingswood Academy, a 24-month programme to nurture talented people and provide them with the skills needed to provide effective financial advice and develop a successful career in wealth management. The first 4 participants joined the academy in January 2021

 

 

Group financial highlights

 

 

£'000 (unless otherwise stated)

2020

2019

2018

Total Revenue

25,477

10,053

7,506

Recurring Revenue %

61%

83%

83%

Operating Profit

862

211

(1,597)

Total Equity

50,152

28,201

27,243

AUA/AUM (£ millions)

5,912

2,471

1,649

# of Advisers - UK

64

40

23

# of Authorised Representatives - US

206

-

-

 

CHAIRMAN AND GROUP CHIEF EXECUTIVE OFFICER STATEMENT

Dear Shareholders:

 

Your continued support over the past challenging year is much appreciated. Thankfully, there is now light at the end of the tunnel with the vaccination programme progressing well, both here in the UK and across the US. We can now begin to put the uncertainty and dislocation behind us and look forward to a brighter 2021 and beyond.

 

We are truly in awe of the sacrifices made by so many. By our healthcare workers to protect those impacted by COVID-19; by families unable to be with their loved ones in their hour of need; by workers who risked their health to keep essential services operating. We can never truly appreciate their immense sacrifice and the strength in adversity of the human spirit.

 

It was a difficult year for business, especially one like ours which is built on personal relationships - those one on one, face to face connections between our team and their clients. We all quickly adapted to Zoom or other means of communication, but it is still quite impersonal and makes it especially difficult to build new relationships.

 

It was also difficult for the Kingswood family, and we learned a lot over the past year about the power of resilience - tackling challenges by staying strong, maintaining belief in our vision and strategy, and focusing on the outcome. It drove the Kingswood family forward every day and we are eternally grateful to every member of the team for their endeavour and commitment in dealing with our clients' affairs in these difficult times. We are a better company for it.

 

Despite these challenges, there are many positives to take from 2020 - most notably the many talented new colleagues who joined across the UK and US including through the Sterling, Regency, Chalice and Manhattan Harbor transactions. We are delighted that David Lawrence joined us as UK Chief Executive Officer to lead the UK business on the next stage of its growth journey. Patrick Goulding has been an integral leader of our business over the last two years as we built a foundation for growth, and the Board is pleased he agreed to assume the Group Chief Financial Officer role on a full-time basis with the Kingswood business now of a size and scale that requires his full-time efforts in this critical function.

 

The UK wealth management sector continues to exhibit strong, long-term growth characteristics supported by demographic trends, a complex regulatory environment, and the ongoing consolidation within a very fragmented industry and Kingswood is actively seeking to take advantage of this through its acquisition strategy. We can offer a seamless transition process, centralised support services (like HR, compliance, and finance), and a central investment proposition that frees advisers of the acquired firm to focus on their clients. We are pleased to have developed and grown our UK platform in recent years with the acquisition of five financial planning businesses across the UK since 2018, including the acquisition of Sterling Trust and Regency Investment Services in 2020.

 

In the UK, Kingswood now has 64 financial advisers and investment managers operating across the country supporting our retail and institutional client base and are projected to deliver strong, sustainable EBITDA on an annual basis once acquisitions are fully integrated.

 

As the largest global wealth management market, the Board also sees the US as a major growth opportunity and a market where we can differentiate ourselves from our peers. The market is still significantly growing 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. We 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.

 

This enhanced US investment 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.

 

Our partnership with Pollen Street Capital grows in strength on many levels, and to date has provided growth equity of £44.8 million to support our strategy. We now have 206 people across the globe advising/managing £6.1 billion of client assets - all achieved during a global pandemic. We have come together by staying apart and are now ready to embark with renewed vigour on our forward journey.

 

We hope you enjoy reading our annual report and hearing from our business leaders. Thank you for your continued support and trust.

 

Kenneth 'Buzz' West  Gary Wilder

Chairman Group Chief Executive Officer

 

June 2021

 

UK CHIEF EXECUTIVE OFFICER REVIEW

Introduction

It has now been six months since I joined the Kingswood Group to lead the UK business and I am relishing every moment.

I'd like to firstly thank Patrick Goulding for his leadership of the business over the last two years and for his and the Kingswood team's efforts in creating such a solid foundation for future business growth. I look forward to building on this foundation and driving the next phase of Kingswood's growth both organically and through further acquisitions.

 

COVID-19 has meant that 2020 tested our resilience on so many levels, though I am delighted to see how colleagues at Kingswood responded to this including how they adapted their ways of working to ensure that our clients continue to receive a high-quality service. This client focus is an inherent strength of Kingswood and something that I am keen to build on.

 

It was pleasing to complete the acquisitions of Sterling Trust and Regency Investments in 2020. The UK retail business now operates from four regional hubs and 11 branch offices and has 61 financial planners and investment managers serving circa 8,000 active clients with £3.4 billion of retail Assets under Advice and Management. This regional network and client base are the building blocks of our future success.

 

We continued to build scale in our retail discretionary investment propositions where we are creating a strong track record. Additionally, we also launched our first investment product - Kingswood Defensive Alpha - a fund of funds investing in liquid, diversified, alternative investments that provides private clients access to hedge fund strategies typically only available to institutional investors.

 

We also continue to work with some of the UK's largest universities and institutions through our Fixed Income business where 3 investment managers deliver growth using our focussed offering that has gained strong traction in this highly competitive institutional sector. This year we are very pleased to have launched the ESG Bond Fund, one of the few short-dated, Sterling only, investment grade ESG funds that is actively managed in the market.

 

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 fragmented sector.

 

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 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 many 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.

 

I believe that successful firms will not only truly put the client at the heart of the relationship, but will also be highly accessible, have clear propositions and most importantly provide great value for money. This also requires firms to have higher levels of transparency than may have previously been the case.

 

Creating a frictionless client experience is also key when accessing advice or investments. At Kingswood we are looking to re-imagine the client experience, removing blockers and inefficiencies and progressively deploying technology to support this. These principles will become a cornerstone of our client proposition strategy.

 

Consolidation within the sector continues to gather pace and this provides a great opportunity for Kingswood to acquire firms that create a good strategic fit. A significant number of financial advisers are at or close to retirement age and looking to exit. In addition, the speed and scale of regulatory change is proving highly disruptive and professional indemnity insurance is increasingly problematic. This has led to a major aggregating opportunity, and after a lull in the latter part of 2020 due to COVID-19, deal activity across the UK wealth sector has increased considerably in recent months with a continued influx of private equity capital amid the accelerating pace of consolidation.

 

Kingswood has completed five strategic acquisitions over the last two years and continues to seek opportunities to create fully operational regional 'hubs' in geographies where we are not currently present and smaller acquisitions to complement an existing presence. There are over 2,750 firms across UK with 2-50 advisers representing potential targets.

 

We have a flexible acquisition model that can be tailored to the opportunity, though cultural fit is a critical consideration, closely followed by the target business sharing our hunger and passion for the client, having a synergistic proposition and importantly sharing our ambition for growth.

 

Our core propositions

Our goal for retail clients is to provide an integrated wealth management service that combines deep expertise across financial advice and planning with equally deep knowledge and experience in investment management.

 

 

We 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 advice proposition is best described as Restricted Whole of Market. This means that we maintain a core central investment proposition that we believe will be suitable for most clients but also provide other investment choices where it isn't. For non- investment and more specialist client needs, we maintain a whole of market approach.

 

Our retail investment proposition is discretionary and comprises a set of risk rated core model portfolios. Complementary models are also available such as ESG and/or income variants. These solutions are available on most of the recognised third- party platforms. For the more sophisticated investor we offer a more personalised approach, also including an investment manager where appropriate. Our portfolios are delivering increasingly strong investment performance versus ARC and risk benchmarks.

 

Key performance indicators

 

£'000 (unless otherwise stated)

2020

2019

2018

Total Revenue

17,155

10,053

7,506

Recurring Revenue %

84%

83%

83%

Operating Profit

319

211

(1,597)

Total Equity

47,897

28,201

27,243

AUA/AUM (£ millions)

4,378

2,471

1,649

# of Advisers

64

40

23

 

The Group CFO review discusses financial performance in further detail but total revenue for the year was £17.2 million, a 71% increase on the prior year reflecting the impact of recent acquisitions. 84% 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.

 

The UK business has developed and grown in recent years with the acquisition of five financial planning businesses since 2018, including the acquisition of Sterling Trust and Regency Investment Services in 2020 and now comprises 185 employees with teams operating from four regional and 11 branch offices across the UK. On a pro-forma basis, the UK business is projected to deliver strong, sustainable EBITDA on an annual basis once acquisitions are fully integrated with our discretionary investment management offering.

 

Delivering growth

Inorganic opportunities create additive scale, though it is through integration and then accelerated growth that we will fully deliver on our ambitions.

 

We have implemented processes to complete an integration of a typical target firm within three to six months following completion. However, these timescales are agreed on a case-by-case basis with the seller to ensure minimal disruption and client impact.

 

Organic growth in Revenue, AuM and EBITDA is then a function of firstly creating adviser capacity and then delivering an increase in adviser productivity from increased client demand. One way we will do this is by leveraging our local presence and relationships through our hub and satellite offices.

 

In the medium term, most of our Investment AuM and Revenue will be derived from wealth planning activity, though over time we aim to broaden our distribution channels.

 

The team at Kingswood care deeply about their clients and have great expertise. Continuing to apply a focussed approach to acquisitions will create immediate scale. When coupled with our organic growth strategy, an optimal client experience and the strengthening track record of our investment proposition, I am confident that we will deliver sustainable growth in 2021.

 

I am excited for the future and look forward to working with the UK team to further develop and deliver on our vision and strategy.

 

 

David Lawrence

UK Chief Executive Officer
June 2021

 

US CHIEF EXECUTIVE OFFICER REVIEW

Introduction

2020 was a transformative year for me and the Manhattan Harbor Capital (MHC) business. I am delighted to have created a long-term partnership with the Kingswood Group, and to now have the strategic and financial backing to deliver the next phase of our ambitious business plan. MHC has been re-named Kingswood US and we now have the capital, team, infrastructure, and technology in place to execute our ambitious US organic growth strategy. I am excited to drive this next stage of our growth journey and I have no doubt the capital we deploy will drive exceptional growth across the Kingswood US platform.

 

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

 

I am the Managing Partner of the enlarged Kingswood US business and we have an exceptionally talented and experienced team to deliver a successful US strategy. This team now comprises 206 Authorised Representatives managing $2.2 billion of client monies across the US.

 

Market overview

Currently, IBDs control ~$3 trillion in client assets with ~123,000 advisers across the US operating on a mostly self-employed basis. The IBD sector includes firms as large as LPL with close to 17,000 independent financial advisers and ~$950 billion AUA to small, local IBD firms with less than 20 advisers. Small and medium sized IBDs face many challenges today including an inability to achieve scale, rising regulatory and technology costs and a difficult recruiting environment making it difficult to attract good advisers as large competitors issue upfront cash incentives to attract talent. The independent channel has consequently seen significant consolidation, and we are a significant player in this market.

 

There are currently over 12,500 RIA firms with between $10 million and +$1 billion in AuM. The RIA marketplace is ripe for acquisition with aging ownership and no clear succession plans, rising operational costs and a slow pace of growth. The market is therefore active with pricing in a range of 6 - 8x EBITDA multiples for target firms especially those with strong value drivers such as a high-quality client base or a unique proprietary technology solution.

 

Our core propositions

Our FINRA authorized 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 supervised 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 programmes.

 

KCM continues to experience strong demand for its Investment Banking services with markets very active. We currently have 25 bankers and support staff based in NY, with a goal to increase to over 100 bankers in key locations across the US over the next two years. KCM generates high quality income via securities underwriting and placement, debt arrangement, advisory and M&A leveraging our growing advisor distribution network.

 

Key performance indicators

The Kingswood Group progressively increased its investment in MHC (now re-branded Kingswood US) to a 50.1% interest by November 2020, including the contribution of the Chalice businesses which were acquired in May 2020.

 

On a full year, 100% consolidated basis, Kingswood US delivered a strong 2020 financial result bolstered by strong revenue growth across all activities including broker-dealing, investment advisory and investment banking.

 

'000 (unless otherwise stated)

$

£

Total Revenue

35,318

27,513

Gross Profit

6,878

5,358

Operating Profit

2,232

1,739

AUA/AUM (£ millions)

2,071

1,534

# of Authorised Representatives

206

 

 

Delivering growth

Our core objective is to build a successful, scaled IBD and RIA platform across the US that delivers excellent client service from a best-in-class technology base. We are focused on the movement of clients and their assets towards the fee-based model, providing measurable, annuity-style fee streams. We also believe we can leverage our business through economies of scale as we avail of the consolidation opportunities available across the IBD and RIA landscape.

 

Growth will be driven by a number of factors including the recruitment of independent financial advisers dis-located 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.

 

We have a very active pipeline of organic and inorganic growth opportunities across the US. Our efforts are bolstered by Kingswood Group's committed contribution of up to $8.0 million (£5.7 million) of additional growth equity before 31 December 2022 to further build US distribution channels through active adviser recruitment and acquisitions.

 

I look forward to working with my Kingswood colleagues to deliver our US strategy.

 

 

Mike Nessim

Kingswood US Chief Executive Officer June 2021

 

GROUP CHIEF FINANCIAL OFFICER REVIEW

Introduction

Kingswood has experienced rapid growth and undergone significant change over the past few years to become the global, integrated wealth management business it is today. Within the last two years we have completed five acquisitions of UK financial advisory businesses, in addition to the creation of a significant US presence through acquisition and organic growth. On a global basis, Kingswood now has client assets under advice/management of £6.1 billion and continues to focus on taking advantage of consolidation opportunities in the UK and US wealth management sectors to build a larger, scaled business.

 

The overall performance of the business in 2020 was impacted by the challenging conditions COVID-19 presented. Continued restrictions prevented us fully engaging with existing and potential clients, but with conditions improving as the vaccination programme escalates we remain confident of the opportunity for growth this year and beyond.

 

Positioned for growth

A solid foundation is now in place and considerable work has been completed over the last couple of years to ensure we have the right infrastructure and cost framework to support growth. We are finalising the implementation of our change management programme to improve the Group's cost/income ratio and enhance margins.

 

Our ambition is supported by growth equity provided by Pollen Street Capital (Pollen Street). We are also keenly focused on driving organic growth from acquired firms, in addition to the enhancement of our investment management capability which should drive future incremental revenue. Our US presence is already taking advantage of the consolidation opportunities there, which should deliver an attractive return on capital.

 

In 2021 we are very focused on revenue enhancement and synergies as we integrate acquired firms and drive costs by centralising support services. Our greater scale enables previously independent firms deliver enhanced client service, which will support organic growth and the opportunity to drive additional revenue from clients through enhanced financial advice or from our expanded range of investment management solutions. Notwithstanding the lingering impact of COVID-19, this should put us in a strong position to deliver enhanced financial performance from an up-scaled business.

 

Balance sheet strength

Funds managed by Pollen Street can subscribe for up to £80.0m of capital through a convertible preference share structure and we draw on this facility as required to complete acquisitions, putting us in a strong position when negotiating potential transactions. The preference shares are convertible into ordinary shares at 16.5p in December 2023, or earlier under certain conditions. The value sharing between Pollen Street and Kingswood strongly aligns interests. In addition, the Pollen Street board members bring significant experience and expertise to the execution of our strategy.

 

£44.8 million of this facility has been drawn to date and on 31 December 2020 the Group had no debt. Deferred liabilities of

£4.1 million represent deferred consideration obligations on acquisitions, payable subject to underlying businesses meeting certain performance conditions.

 

Kingswood is well capitalised today but remains focused on maintaining capital flexibility and balance within our funding structure. We have a pipeline of circa £200 million in UK and numerous possible targets in the US and feel there is a significant opportunity to deploy additional capital in the future.

 

We target minimum returns on investment of 20% post integration into the Group. The combination of revenue synergies, centralising key support functions and ensuring cost efficiency within the acquired businesses, enables us to drive an enhanced return on invested capital. This takes time to be reflected in overall Group results but highlights the potential for the Kingswood Group going forward.

 

Application of accounting standards

Kingswood continues to balance the requirement to meet all relevant technical accounting standards with the need to provide shareholders with a clear, commercial view of underlying business performance. This is a particular challenge for a company which is actively growing its business through acquisitions where accounting for acquisitions and related costs under IFRS 3 requires Kingswood to treat certain items differently to the underlying commercial aspects of the business or transaction.

 

Kingswood commercially requires the principals of acquired businesses to remain with the business during the agreed earn out period to ensure there is an alignment of interest between both parties. To the extent principals leave prior to the end of the earn out period, this would result in them forgoing any deferred payments due, notwithstanding whether agreed financial metrics for the earn out have been met.

 

IFRS 3 currently dictates any deferred payments subject to contingent employment are treated as remuneration and expensed as paid as opposed to being capitalised as consideration paid for the acquired business.

 

In 2020 Kingswood therefore changed its existing accounting treatment regarding deferred consideration on acquisitions, and now treats such contingent deferred payments as 'remuneration' when paid, rather than capitalise into the value of the acquisition at completion. This results in the statutory financial statements delivering a result that is different to the underlying commercial reality of the acquisition.

 

For these reasons, Kingswood adopts Operating Profit as a key financial performance metric and believes it provides a fairer reflection of the Group's profitability and underlying asset value. Operating Profit measures underlying business performance

 

and removes the impact of amortisation and depreciation, business re-positioning costs and acquisition related accounting treatments.

 

Financial performance

The business is in a financially strong position and our large, existing client base proved highly resilient delivering robust cash flows.

 

Year on year performance comparison is difficult given the impact of acquisitions during the year. In the UK, two acquisitions were completed in 2020, and in the US we acquired the Chalice businesses and further invested in the Manhattan Harbor Capital platform culminating in the Kingswood Group holding a 50.1% interest in the expanded and rebranded Kingswood US in November 2020. Given we now hold a controlling interest in the US business, from mid-November 2020 we have consolidated the financial performance of Kingswood US into our Group results.

 

£'000 (unless otherwise stated)

UK

US

Group

Total Revenue

17,155

8,322

25,477

Recurring Revenue %

84%

12%

61%

Operating Profit

319

543

862

Total Equity

47,897

2,255

50,152

AUA/AUM (£ millions)

4,378

1,534

5,912

# of Advisers/Authorised Representatives

64

206

270

 

In the UK, total revenue for the year was £17.2 million, a 71% increase on the prior year reflecting the impact of recent acquisitions. 84% 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.

 

The US business delivered strong performance, largely driven by its active investment banking business which continues to provide advisory and underwriting support to its expanding client basis. A total of 28 transactions were completed in 2020, with 18 closed in the final quarter of the year.

 

We have progressively expanded our US interests as we become more familiar with the market and put in a place a best in class infrastructure and management team. Our initial move into the US was in May 2019, with the acquisition of an initial 7% interest in Manhattan Harbor Capital (MHC), a holding company that acquires, consolidates and manages IBDs and RIAs across the US. A further step was made in May 2020 with the acquisition of Chalice Capital Partners and Chalice Wealth Advisors which provide full-service securities brokerage, advisory and investment banking services to a range of individuals and corporate clients.

 

The next stage was completed in November 2020 and saw Kingswood consolidate its US investments into a 50.1% interest in MHC which has been rebranded Kingswood US, with the intention to contribute up to US$8m of additional growth equity to build out the US distribution channels through adviser recruitment and acquisitions. This would take the total investment to circa US$15m.

 

Kingswood also continues to expand its investment banking operation, Kingswood Capital Markets (KCM). KCM is a full- service investment bank that provides companies with access to capital necessary to build thriving and profitable enterprises and has well-established relationships that provide a steady stream of deal flow which they then match with their global investor base. This access to transcontinental capital is a strong differentiator that sets KCM apart from its peers.

 

Group Operating Profit for the year was £0.9 million, an improvement of £0.7 million over 2019, while also noting 2020 performance does not reflect a full year profitability impact from Sterling Trust, Regency Investment Services and the acquisition in the US of the Chalice businesses which were completed during the year.

 

M&A activity

We are pleased with the progress made in expanding the Kingswood network in the UK and US, with five regional businesses acquired in the UK over the last 2 years, in addition to the progressive increase since May 2019 of our US interests which are now combined within Kingswood US.

 

We have strong private equity 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 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.

 

The table below summarises UK acquisitions completed to date. The average multiple paid is 6.8x EBITDA, or 1.9% of AuM/AuA.

 

 

 

Date

 

 

Acquisition

 

 

Price

 

 

AUM/A

 

 

P/AUM

 

 

Advisers

 

Current Annual Operating

Profit

 

Target Post-

Synergy Operating

Profit

 

 

Target

ROI

Oct-18

Marchant McKechnie

£4.0m

£200m

2.0%

4

£0.9m

£1.1m

28%

Feb-19

Thomas & Co

£3.3m

£150m

2.2%

4

£0.5m

£0.7m

21%

Sep-19

WFI Financial

£14.0m

£550m

2.5%

16

£2.0m

£2.2m

19%

Jun-20

Sterling Trust

£17.8m

£1,200m

1.5%

22

£2.5m

£2.8m

18%

Sep-20

Regency

£3.5m

£320m

1.1%

6

£0.5m

£0.7m

20%

Total

 

£42.6m

£2,420m

1.8%

52

£6.4m

£7.5m

19%

Source: Internal investment memorandums / external due diligence reports

 

The US market is financially attractive from an investment perspective given the relatively high returns generated from a low capital commitment. Our intention is to move as many of the broker-dealer assets to the RIA model, which over time will enhance quality of earnings given the recurring fee-based nature of the RIA structure.

 

Peel Hunt

In April 2020 we were pleased to appoint Peel Hunt as our Nominated Adviser (Nomad) and broker as we continue our growth journey. Peel Hunt are market leading in the UK mid and small cap sector, providing Kingswood with expanded access to investors as we seek to strengthen and deep our institutional investor base.

 

Looking forward

We have an active transaction pipeline in UK and US, and a strategy that provides a hedge against UK centric businesses and enhances quality of earnings. Kingswood's financial strategy is to maintain a robust and disciplined balance sheet, underpinned by Pollen Street's growth equity commitment and ensuring no deferred liabilities remain uncovered from a funding perspective, and a disciplined approach to expense management.

 

The implementation of our change management programme to improve the cost/income ratio and enhance margins is beginning to bear fruit. Our focus is to maximise shareholder returns through EBITDA growth combined with minimising our weighted average cost of capital and closing the current market valuation gap to reflect our true underlying valuation.

 

 

 

 

Patrick Goulding

Group Chief Financial Officer June 2021

 

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.

 

Daily, 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.

 

 

 

Risk

 

Description

 

Mitigation

 

Outlook

 

Industry Risks

 

 

 

 

 

 

 

 

Regulatory Risk

There remains a significant amount of regulatory change to be implemented and/or managed.

Failure to correctly identify, interpret or implement regulatory change may result in an adverse impact for Kingswood

· Professionally staffed compliance department monitoring, interpreting and with business leaders implementing the latest FCA development.

· A Risk & Compliance Committee is in place and chaired by an independent Non- Executive Director and includes participation by UK CEO, Group CRO, Group CFO and other senior staff

· A suite of mandatory compliance training modules is in place for all staff

 

 

 

 

 

 

 

Market Risk

The COVID-19 global pandemic is impacting economic and financial markets and volatility may adversely affect advice and other services provided in addition to trading volumes and the value of client assets under management from

which we derive fee revenue

 

 

· Broad range of client solutions offered to clients enabling them to protect assets through diversification, and continuing to generate revenues

· Our Investment Committee closely monitors and 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

 

 

 

 

Risk

 

Description

 

Mitigation

 

Outlook

 

Operational Risks

 

 

 

 

 

 

 

Operational Resilience

 

Risk of a negative impact on clients, firm profitability, staff, and other stakeholders because of operational disruption (e.g. due to internal or external factors)

· Throughout the COVID-19 pandemic, Kingswood has benefited from robust cloud based operating systems allowing staff to seamlessly transition to remote working

· 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

 

 

 

 

 

Suitability of Advice

 

 

There is a risk of providing unsuitable advice or a failure to confirm ongoing suitability

· We maintain a skilled wealth planning workforce, trained to the highest industry standards

· A professional compliance team provides training, oversight, and ongoing monitoring to ensure that high standards are maintained

· 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 financial or operational failure of our strategic partners could result in an adverse impact on our ability to service clients.

· A third-party management framework is in place and overseen by the Group COO and Group CRO. This framework ensures extensive financial and operational due diligence is undertaken at the outset of 3rd 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 client outcomes that do not meet their needs

and circumstances.

· Training & Competence programme in place for all client facing staff

· Kingswood culture is focused on client outcomes

· Professionally staffed compliance department providing additional oversight

 

 

 

 

Risk

 

Description

 

Mitigation

 

Outlook

 

Operational Risks (continued)

 

 

 

 

 

 

 

Data Protection & Cyber Security

External attacks on information technology systems could lead to loss of client data and breaches of data protection laws likely, resulting in regulatory fines, reputational damage, and financial remediation claims from

clients.

 

 

· Continual focus on data security, including penetration testing and 'phishing' exercises.

· 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 roles could result in adverse business impact

 

 

 

 

 

 

· Competitive pay and benefits

· 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.

 

 

 

 

 

 

 

Financial Crime

 

 

 

Risk of Fraud, Money Laundering, Bribery & Corruption, Sanctions, Terrorism Financing, Tax Evasion, Market Abuse, Insider Dealing

· The Money Laundering Reporting Officer (MLRO) oversees the 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 restrictions. This could result in the need to compensate clients and/or lead to regulatory censure.

 

 

· Mandate restrictions are well understood by experienced investment management team

· Pre & Post trade alerts in place

· Investment Oversight Committee monitors ongoing adherence to portfolio strategies

 

 

CORPORATE RESPONSIBILITY STATEMENT

 

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, staff, suppliers and chosen charity partners. Through 2020, we continued as a team, where possible, to participate in volunteer work. We launched a new career development programme - the Kingswood Academy - to nurture talented people and provide them with the skills needed to provide effective financial advice and develop a successful career in wealth management. We also strived to continue to reduce our carbon footprint, whether at the office or working from home.

 

ESG / CSR has been added as a Board agenda item and for the second year we have initiated a group wide audit on how Kingswood is addressing and responding to ESG issues - this includes not only how we operate as a company but how our actions impact our service offering to clients.

 

All steps and actions we take as a growing company are moving us in the right direction to be a responsible corporate citizen in the communities in which we operate.

 

The environment

The main environmental impacts centre around employee travel to and from the office and the consumption of resources within our offices. To reduce this impact, we offer all staff the opportunity to participate in a cycle to work scheme and a flexible working policy whereby staff can choose to work a portion of their time from home. We have also introduced recycling and compost bins in most offices and encourage minimal printing and consumption of paper. We plan to roll this out to all offices in 2021.

 

We continue to enhance client communications through the effective use of technology, including the use of DocuSign (an electronic signature system eliminating the need for wet signatures on hard paper copies) and a new online client portal to enable clients to directly access information, eliminating the need to mail paper reports. All these steps are to support our goal of a paperless environment.

 

We partner with Trees for Life and plant a tree for every client who registers on the portal and goes paperless. Our goal is to have 95% of clients accessing the online portal by June 2022 and simultaneously re-wilding the Scottish Highlands.

 

In the last 6 months we estimate to have saved at least 2,375 kg of wood, 58,364 litres of water, 5,575 kg of carbon and 386 kg of waste.

 

 

 

 

 

 

 

 

 

 

 

 

Ethical investments

Within our client proposition we offer clients a suite of ESG portfolios which consider environmental and ethical matters.

Our objective is to not only generate financial returns, but to also generate a positive impact on the environment and society. We believe strong corporate governance is imperative to sustainably meet this objective.

 

To help target the world's salient environmental and societal issues, 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.

 

In addition, in 2020 we launched the Kingswood ESG Bond Fund, which provides institutional clients access to "ESG responsible" investment solutions.

 

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

In recent years we have partnered with Benefacto.org and grant all staff 2 days per year to volunteer in the community. Unfortunately, during COVID-19, community work couldn't happen but some of our teams volunteered virtually by donating food and old mobile phones to those in need. We have also pledged to donate £25,000 to charity on behalf of staff in lieu of a day's annual leave.

 

Earlier this year we launched Kingswood Community Week, which will take place in September 2021, when as a firm employees will take a day away from the office apply their experience and skills to make a meaningful and positive contribution to their local communities.

 

Employees will work alongside colleagues, community partners, family members and suppliers to make a difference. Kingswood Community Week is driven by team members with projects sourced and initiated by staff around the country, giving them the ability to choose where they want to lend a hand and can be most helpful.

 

Kingswood Community Week will be an annual event and is designed to create shared value by driving community engagement, employee wellbeing and development for the Kingswood team, their families, and the communities we interact with on a day-to-day basis.

 

Workplace

We are committed to creating a workplace and culture that is welcoming and inclusive for everyone. We currently have 206 employees in total across the Group:

· Females - 94 (45.6%)

· Males - 112 (54.4%)

 

Ages:

 

· Under 30 - 39 people (18.9%)

· 30 to 50 - 106 people (51.5%)

· Over 50 - 61 people (29.6%)

 

Diversity and inclusion are a cornerstone of our philosophy and culture and during the year an employee-led Diversity and Inclusion Forum was launched 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GOVERNANCE

 

CORPORATE GOVERNANCE STATEMENT

The Directors of Kingswood Holdings Limited recognise the importance of sound corporate governance and have chosen to apply the Quoted Companies Alliance Corporate Governance Code (the QCA Code). The QCA Code takes key elements of good governance and applies them in a manner that is workable for the different needs of growing companies and was developed by the Quoted Companies Alliance as an alternative corporate governance code applicable to AIM companies.

 

Jonathan Freeman, in his capacity as 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, Nomination and Remuneration, and Risk & Compliance Committees.

 

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 Kenneth 'Buzz' West. The Board considers that the Non-Executive Directors provide a strong and consistent independence to the Executive members. None of the Non-Executive Directors is 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 25 to 26.

 

During the year ended 31 December 2020, 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 was 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. The Board currently has eight members, with two Executive and six Non-Executive Directors. Kenneth 'Buzz' West, Jonathan Freeman and Robert Suss 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.

 

BOARD COMPOSITION

 

During the year under review, the Board comprised:

 

· Graydon Butler (Executive Director, resigned 31 December 2020)

· Jonathan Freeman (Non-Executive Director)

· Howard Garland (Non-Executive Director)

· Patrick Goulding (Executive Director, resigned 31 December 2020)

· David Hudd (Executive Director, 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)

 

The Board has scheduled meetings on a bi-monthly basis. The Board formally met six 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 2020 and individual attendance was as follows:

 

Director

Board

Audit

Nomination &

Risk & Compliance

 

 

Committee

Remuneration

Committee

 

 

 

Committee

 

 

Graydon Butler

 

5/6

 

 

 

Jonathan Freeman

6/6

4/4

2/2

9/9

Howard Garland

6/6

 

 

 

Patrick Goulding

6/6

4/4

 

9/9

David Hudd

5/6

 

1/1

 

Jonathan Massing

5/6

 

 

 

Lindsey McMurray

4/6

 

 

 

Robert Suss

5/6

 

 

 

Buzz West

6/6

2/2

1/1

 

Gary Wilder

6/6

 

 

 

 

 

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 and Compliance Committees)

· 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; and

· 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, Nomination and Remuneration and Risk and Compliance 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, Jonathan Freeman (Non-Executive Director) and Howard Garland (Non-Executive Director) sit on each of the operating subsidiary boards, with Jonathan Freeman 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. However, now that the US business is being consolidated into the Group accounts, there will be a separate subsidiary Board which will meet at least quarterly to review and discuss key matters relating to Kingswood's US activities, and include updates from key US executives as necessary.

 

Board committees

The Board has established committees including Audit, Nomination and Remuneration and Risk & Compliance, each with separate terms of reference. These are available for viewing at Kingswood's London office and on the Group's website: www.kingswood-group.com.

 

Audit committee

The Audit Committee is chaired by Jonathan Freeman with Buzz West joining in January 2020 and Jonathan Massing in January 2021. The Audit 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 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

In March 2019, the Board approved combining the then separate Nomination and Remuneration Committees into one Committee. This Committee was chaired by David Hudd until he became an Executive Director in July 2020 at which time Buzz West joined the Nomination and Remuneration Committee as Chairman. Jonathan Freeman is also on the 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.

 

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 determining 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 were two Nomination and Remuneration Committee meetings held during the financial year ended 31 December 2020.

 

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 27) and the Directors' Remuneration Report (page 30).

 

Risk and Compliance committee

The Board has established a Risk and Compliance Committee comprising an independent Non-Executive Director, senior management and the FCA Compliance Oversight function holder (was CF10, now SMF16 and SMF17). The Committee Chairman is Jonathan Freeman, a Non-Executive Director of the Company. The Committee generally convenes monthly and the Board considers the composition of the Committee appropriate given the size of the Group's business. During the year under review, the Committee formally met 9 times.

 

The Risk and Compliance Committee is authorised and empowered by the Board to, inter alia, provide oversight and advice to the Board in relation to current and potential risk exposure and future compliance and risk strategy to review the Group's risk profile relative to current and future risk appetite, to monitor risk and make recommendations to the Board concerning all elements of the Group's compliance with the FCA's rules and those of the London Stock Exchange, and to make recommendations to the Board in respect of the Group's risk appetite. The Risk and Compliance Committee also oversees the Group's risk management framework to ensure effective risk identification and management throughout the Group.

 

Certain subsidiaries in the Group are regulated by the FCA and are always therefore required to maintain adequate regulatory capital. An Internal Capital Adequacy Assessment Process (ICAAP) is used to ensure there is sufficient capital in place to immediately cover risks identified through its risk management framework. The ICAAP is regularly updated and reviewed and approved by the Risk and Compliance Committee and the Board on an annual basis.

 

In addition, the Group utilises various other means to ensure compliance with the rules and guidelines set by the FCA and that it operates within the appropriate risk limits set by the Board. These include a compliance manual covering significant business and operational activities, policies covering conflicts of interest, insider dealing, market abuse, personal account dealing and client acceptance procedures as well as regular monitoring of market and credit risk. These matters are the subject of regular review by the Risk and Compliance Committee.

 

Re-election

Under the Company's articles of association, all Directors are subject to election by shareholders at the AGM 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.

 

The Group has recently launched a Diversity and Inclusion Forum, run by employees, to encourage creative ideas and action to further embed diversity and inclusion as a central tenet of its corporate culture. Kingswood is 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.

 

BOARD OF DIRECTORS

KENNETH 'BUZZ' WEST

Non-Executive Chairman

Buzz is Non-Executive Chairman of the Board, Chairman, and a member of the Audit Committee. He is also Chairman of the Nomination and Remuneration Committee. He is highly experienced in the financial services arena having held numerous Board positions in addition to being Founder and Chairman of the AIM-listed wealth manager Ashcourt Rowan. Buzz sits on the Board of the Toronto listed Auxico Resources Canada Inc. He is currently an advisor to several high-tech companies including the Cyber training and qualification company, Qufaro. With a strong entrepreneurial background, Buzz brings a track record of achieving success for shareholders and as Chairman he led the loss adjustors, GAB Robins, from a management buyout (MBO) to successful trade sale. He uses his experience in both wealth management and the AIM market to lead the Board and drive Kingswood's strategic direction.

 

Buzz joined the Board in January 2014.

 

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

Group Chief Executive Officer

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.

 

DAVID HUDD

Executive Director, 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 and became an executive director on 1 July 2020.

 

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 is also the senior independent non-executive director of Futura Medical plc.

 

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 BIK Brokers Group.

 

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 2005 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.

 

ROBERT SUSS

Non-Executive Director

Robert Suss is a Non-Executive Director and sits on the Board to advise on wealth management strategy. Robert is the Co- Chief Executive Officer of UK Agricultural Finance, a specialist lender in the UK serving the agricultural community as well as the founder of Global Tower Solutions, focused on delivering renewable solutions globally. Robert Chairs the Advisory Board for EG Capital an Emerging Market Debt Manager and he serves as a director for TPG Pace Holdings and B. Riley Principal Merger Corp. Rob Suss retired from his position as a Managing Director of Goldman Sachs where he spent 18 years building and turning around a number of businesses in their Investment Management Division. His last role was as Head of Private Wealth Management in London from 2012 to 2015.

 

Robert joined the Board in June 2019.

 

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 2020. The Corporate Governance Statement is set out from page 19 onwards. All financial information given in this Directors' Report is taken solely from the statutory results prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRS).

 

Principal activities

The principal activities of the Group are the operation of a 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 3 to 17. The results for the year are set out in the audited Consolidated Statement of Comprehensive Income on page 40. The Directors do not recommend the payment of a dividend for the year ended 31 December 2020 (31 December 2019: £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 25 and 26.

 

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.

 

KW Investment Management, KW Wealth Planning, Marchant McKechnie Financial Advisers (acquired 1 October 2018), Sterling Trust Financial Consulting Limited (acquired on 25 June 2020) and Regency Investment Services Limited (acquired on 17 November 2020), which were regulated by the FCA at year end, 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 25 to 26. Graydon Butler and Patrick Goulding resigned from the Board on 31 December 2020.

 

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 2020 had the following beneficial interests in the ordinary shares of the Company as of 31 December 2020:

 

Name of director  Number of Ordinary Shares held

 

2020

2019

Graydon Butler *

1,050,000

1,050,000

Jonathan Freeman

87,780

60,606

Howard Garland

-

-

Patrick Goulding*

-

-

David Hudd

500,000

-

Lindsey McMurray

-

-

Robert Suss

-

-

Kenneth 'Buzz' West

4,536,076

4,536,076

Gary Wilder and Jonathan Massing**

143,220,906

142,944,905

 

* Resigned 31 December 2020

 

** 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 2021:

 

 

Name of shareholder  Percentage of voting rights and issued share capital

 

        No. of ordinary shares

 

 

KPI (Nominees) Limited                                                                 66.26%                                      143,720,906

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 has issued 44,828,443 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 on 31 December 2020. 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 page 13.

 

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. This includes an assessment of the COVID-19 pandemic and any potential impact on the Group and its business.

 

Whilst the outbreak and the response of Governments in dealing with the pandemic is interfering with general activity levels within the community, the economy and the operations of our business, the Group is expected to generate positive cash flows on its own account for the foreseeable future. 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 on 16 June 2021.

 

 

 

 

 

 

Kenneth 'Buzz' West Chairman

 

DIRECTORS' REMUNERATION REPORT

 

Base salary incl. NIC

Pension

and benefits

Termination

Option value of LTIP shares

2020

2019

 

Total

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Executive

 

 

 

 

 

 

*Graydon Butler (appointed 28/2/19)

150

1

-

-

151

137

*Patrick Goulding (appointed 8/1/19)

349

58

-

28

435

462

Marianne Ismail (resigned 16/1/19)

-

-

-

-

-

286

Gary Wilder

100

-

-

12

112

108

 

Non-Executive

 

 

 

 

 

 

Jonathan Freeman

79

-

-

-

79

54

David Hudd

36

-

-

4

40

38

Darryl Kaplan (resigned 8/5/19)

-

-

-

-

-

6

Jonathan Massing

25

-

-

12

37

33

Robert Suss (appointed 10/6/19)

28

-

-

5

33

18

Kenneth 'Buzz' West

72

-

-

7

79

77

 

Aggregate emoluments

 

839

 

59

 

-

 

68

 

966

 

1,219

 

*Resigned 31/12/2020

 

 

Signed on behalf of the Board:

 

 

 

 

 

 

Kenneth 'Buzz' West Chairman

Date: 16 June 2021

 

 

DIRECTORS' RESPONSIBILITIES 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 International Financial Reporting Standards (IFRS) as adopted by the European Union. 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 International Financial Reporting Standards (IFRS) as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole

· The 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:

 

 

 

 

Kenneth 'Buzz' West

Chairman

Date: 16 June 2021

 

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF KINGSWOOD HOLDINGS LIMITED

 

Opinion on the financial statements

 

In our opinion, the Group financial statements:

 

· give a true and fair view of the state of the Group's affairs as at 31 December 2020 and of its loss for the year then ended;

 

· have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; 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 2020 which comprise the Consolidated statement of comprehensive income, Consolidated statement of financial position, the Consolidated statement of changes in equity, 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 IFRSs as adopted by the European Union.

 

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 reviewing the inputs and assumptions within the forecast that forms the basis of management's assessment of the going concern assumption, to supporting documentation and our own understanding of the Company. We performed a sensitivity analysis of management's cash flow forecasts, as well as conducting a review of the Group's liquidity position.

 

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.

 

 

83% of Group loss before tax (calculated on an absolute basis) 99% of Group revenue

88% of Group total assets

 

 

 

 

Key audit matters

 

2020  2019

Revenue recognition  � � Accounting for business combinations  � � Carrying value of intangible assets and  � � goodwill

 

Revenue recognition is a key audit matter in current year due to the significant increase compared to prior year, primarily due to revenue earned from the four new businesses.

 

Acquisition accounting has been included as a key audit matter as there were four business combinations in current year and no business combinations in prior year.

 

Materiality

Group financial statements as a whole

 

£1,577,000 (2019: £931,000) based on 2.5% (2019: 3%) of net assets

 

Specific materiality

 

£396,000 (2019: £346,000) based on 1.5% of revenue (2019: 7.5% of loss before tax)

 

 

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 out 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 revenue were identified as significant and subject to a full scope of their complete financial information.

 

Six components were considered to be financially significant to the Group, with four being located in the United Kingdom and two 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

 

As disclosed in Note 3, the Group recognised revenue of

£25.477m for the year ended 31 December 2020.

 

Refer to Note 1 for related accounting policy.

Revenue was identified as a key audit matter as it is a key performance indicator to the users of the financial statements and because of the fraud risk surrounding revenue  recognition, therefore requiring a significant amount of auditor's attention.

Our procedures for all revenue streams, amongst others, included:

· Considering whether the revenue recognition policies are in accordance with IFRSs as adopted by the European Union;

· Reconciling revenue recorded per the general ledger to underlying reports from systems;

· Selecting a sample of revenue transactions throughout the year and traced to supporting documentation such as third party invoices/ reports and performed recalculation where possible, vouched to cash receipts and verified whether revenue was accounted for appropriately; and

· Assessing whether cut-off of revenue was applied appropriately via selecting a sample of revenue transactions before and after year end and acquisition dates for newly acquired entities.

 

Additional procedures performed over certain revenue streams included:

· 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, performing 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.

 

 

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:

· Chalice Capital Partners LLC and Chalice Wealth

Advisors  LLC (together 'Chalice')

· Sterling  Trust Financial Consulting Limited and its subsidiaries

· Regency Investment Services Limited

· Manhattan Harbor Capital LLC and its subsidiaries

 

As disclosed in Note 30 of the financial report, on 30 April 2020, Kingswood US Holdings, Inc, acquired 100% of the membership interests in Chalice Capital Partners and Chalice Wealth Advisors (together 'Chalice').

 

As disclosed in Note 30 of the financial report, on 23 June 2020, Kingswood Holdings Limited acquired 100% of the shares in Sterling Trust Financial Consulting Limited and its subsidiaries.

 

As disclosed in Note 30 of the financial report, on 17 November 2020, Kingswood Holdings Limited acquired 100% of the shares in Regency  Investment Services Limited.

 

As disclosed in Note 30 of the financial report, on 23 November 2020, Kingswood US Holdings, Inc acquired a controlling stake in Manhattan Harbor Capital LLC through a step acquisition, bringing the total equity ownership at 31 December 2020 to 50.1%.

 

Refer to Note 1 for related accounting policy.

 

The accounting and disclosure for these acquisitions is a key audit matter due to the significant judgement and complexity involved in assessing the fair value of identifiable assets and liabilities and the final consideration which included  contingent

deferred  consideration (based on earn-outs). In addition, the assessment of whether any elements of deferred  consideration would need to be treated as post-combination remuneration  has  a significant impact to the financial statements.

 

Our procedures, amongst others, included:

 

· Reviewing the acquisition agreements to understand the key terms and conditions, and confirming our understanding of the transaction with management;

· Assessing whether control is established per IFRS 10 Consolidated Financial Statements, where the Group holds less than 100% interest in the acquiree, by reviewing the investor's relationship with the investee.

· Assessing the estimation of the contingent consideration by challenging management's forecasts including key assumptions around probability of achievement of earn-outs;

· Assessing the acquisition agreements to determine if any elements of deferred consideration would need to be treated as post-combination remuneration;

· Comparing the assets and liabilities recognised on acquisition against the completion accounts of the acquired businesses;

· Evaluating the assumptions and methodology  in  management's determination of the fair value of assets and liabilities acquired which included:

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 intangible assets associated with the acquisitions.

· Assessing the adequacy of the disclosures of 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

 

At 31 December 2020, the carrying value of intangible assets and goodwill was

£47.616m, as disclosed in Note 15.

 

Refer to Note 1 and 2 for detailed disclosures, which include the related accounting policies and critical  accounting judgements and estimates.

The assessment of the carrying value of intangible assets and goodwill 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.

 

Upon acquisition, goodwill has been allocated to a cash generating unit. Management  has determined that three cash generating units exist, being investment management, wealth planning and US operations.

 

An annual impairment test for intangible assets is required for indefinite life assets or where there are indications of impairment under IAS 36 Impairment of Assets.

Our procedures, amongst others, included:

· Reviewing the reasonableness of management's assessment in establishing cash generating units by comparison to management information and our understanding of the Group's operations;

· Analysing management's key assumptions used in the value in use models to determine their reasonableness including:

Challenging the appropriateness of management's discount rates used in the value in use models with the assistance of internal valuations experts;

Challenging assumptions around timing of future cash flows by comparison to post-year end management information;

Checking the mathematical accuracy of the value in use models;

· Performing sensitivity analysis on key assumptions to determine 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, the carrying value of intangible assets and goodwill 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

 

2020

£

2019

£

Materiality

1,577,000

931,000

Basis for determining materiality

2.5% of Net assets

3% of Net assets

Rationale for the benchmark applied

Net assets is of particular interest to the users of the financial statements. We do not consider profit to be an appropriate benchmark as the Group is loss-

making.

Net assets is of particular interest to the users of the financial statements. We do not consider profit to be an appropriate benchmark as the Group is loss-

making.

Performance materiality

1,103,000  (70%  of

Materiality)

698,000  (75%  of

Materiality)

Basis for determining performance materiality

We considered the risk and control environment of the Group

We considered the risk and control environment of the Group

 

Specific materiality

 

We also determined that for profit or loss figures, a misstatement of less than materiality for the financial statements as a whole, could influence the economic decisions of users. As a result, we determined materiality for these items based on revenue. We further applied a performance materiality level of 70% of specific materiality to ensure that the risk of errors exceeding specific materiality was appropriately mitigated. Specific materiality was set as £396,000 (2019: £346,000) which was determined by reference to a benchmark of 1.5% (2019: 7.5% of loss before tax) of consolidated revenue. This lower level of materiality is applied in performance of the audit when determining the nature and extent of testing applied to individual balances and classes of transactions. In setting performance materiality, we had regard to the financial statement materiality and the risk and control environment.

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 £84,000 to

£1,261,000 (2019: £24,000 to £609,000). In the audit of each component, we further applied performance materiality levels of 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 £31,000 (2019: £18,620). 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 and financial statements, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. 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 Parent Company financial statements are not in agreement with the accounting records; or

 

· we have failed to obtain all the information and explanations which, to the best of our knowledge and belief, are necessary for the purposes of our audit.

 

 

Responsibilities of Directors

 

As explained more fully in the Directors' responsibilities statement set out on page 31, 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 Parent Company and Group and considered the risk of acts by the Parent Company and 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 IFRSs as adopted by the European Union.

· 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:

Agreement of the financial statement disclosures to underlying supporting documentation;

Review of correspondence with the regulator;

Enquiries of management;

Sample testing of journal postings made during the year to identify potential management override of controls;

Review of meeting minutes throughout the period; and

 

 

 

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. 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

16 June 2021

 

 

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

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

2020

2019

 

 

 

(restated)

 

Notes

£'000

£'000

Revenue

3

25,477

10,053

Direct expenses

 

(8,471)

(868)

Gross profit

 

17,006

9,185

Operating staff costs

(

11,148)

(7,208)

Other operating costs

 

(5,052)

(1,766)

Total operating costs

(

16,200)

(8,974)

Share of post-tax profits of equity accounted associates

 

 

56

 

-

Operating profit

 

862

211

Non-operating costs:

 

 

 

Business re-positioning costs

 

(1,801)

(1,963)

Finance costs

7

(554)

(211)

Acquisition-related adjustments:

 

 

 

Amortisation and depreciation