Kingswood H. Regulatory News (KWG)

22 June 2016

European Wealth Group Limited

("European Wealth", or the "Company" or together with its subsidiaries the "Group")

Audited consolidated results for 12 month period to 31 December 2015

The directors of European Wealth (AIM: EWG, EWGL), the fast growing wealth management group, are pleased to announce its audited consolidated results for the year to 31 December 2015.

Operational Highlights

• Funds under management increased by 20% to £1.2 billion (2014: £1.0 billion);

• 3 acquisitions were successfully completed in the financial year under review:

o In July 2015 the Group completed the acquisition of Greensnow Limited (trading under the name of ISM Solutions) which added £70 million of funds under influence and a young client base with a significant proportion of recurring revenue;

o In September 2015 the Group completed the acquisition of the financial planning clients of Bells Solicitors which added £43 million of funds under influence;

o In November 2015 the Group acquired XCAP Nominees Limited, the client list of Hume Capital plc bringing £30 million of funds under management to the Group;

• Staff numbers increased to 82 (2014: 69) of which 49% are fee earning (2014: 46%);

• Group recurring revenue increased to 63% (2014: 45%)

Financial Highlights

• Income from trading activities increased by 67% to £7.7 million (2014: £4.6 million) which reflects a full year of trading as well as organic growth, growth from acquisitions and growth from attracting additional revenue generating staff;

• Group recurring revenue increased to 63% (2014: 45%)

• Financial Planning recurring revenue increased to 72% (2014: 49%);

• Strong growth of Treasury and Cash Management team who now account for 13% of the Investment Management division's revenue (2014: 8%)

• Loss before tax increased to £1.0 million (2014: £0.3 million) generating a cash outflow of £1.07 million mainly as a result of lower than expected trading volumes and the costs associated with making acquisitions and bringing in new revenue generating staff;

• Net assets increased to £17.3 million (2014: £16.6 million);

Summary information

European Wealth Group Limited and its subsidiaries (the "Group") is a growing and established private wealth management business which was founded in 2009 and commenced trading in 2010. Its principal services are financial planning and investment management in both equity and fixed interest instruments.

Its client base currently ranges from individuals with up to £8 million of assets to invest to institutions investing up to £84 million. It currently manages over £1.2 billion of funds under management or influence ("FUM") and has its headquarters in London and regional offices in Brighton, Cheltenham, Worcester, Wokingham, East Malling, Manchester and an overseas business in Zurich, Switzerland. European Wealth and its subsidiaries (the "Group") currently have 82 employees as well as using the services of 6 consultants.

The Group's structure is split into two business divisions: Investment Management and Financial Planning.

Under the Investment Management division the three trading subsidiaries are European Investment Management Limited ("European Investment Management"), European Wealth Trading Limited ("European Wealth Trading") and European Wealth (Switzerland) SA (formerly P&C Global Wealth managers SA) ("EW Switzerland").

European Investment Management is the investment management arm of the Group providing institutional style investment management for private clients, trusts, pension funds and charities. It also manages money on behalf of third party independent financial advisers. As at the year end European Investment Management and EW Switzerland had approximately £751 million of FUM split between approximately £406 million of, mainly discretionary, equity investments and approximately £345 million of fixed interest investments.

European Wealth Trading is a member of the London Stock Exchange and is the dealing arm for the Group with its main activity being the provision of dealing services to European Investment Management.

The Financial Planning business is European Financial Planning Limited ("European Financial Planning"). European Financial Planning currently acts for over 9,000 clients and 51 corporate pension schemes ranging in size from 10 to 4,500 members, with aggregate funds under advice of approximately £500 million. The Financial Planning division provides advice to clients covering three core services - financial planning, corporate pension advisory and tax planning.

Chairman's Statement

I am pleased to present the second Annual Report and Financial Statements for European Wealth Group Limited ("European Wealth" or the "Company", together with all its subsidiaries, the "Group") since the reverse takeover of European Wealth Management Group Limited ("EWMG") in May 2014. 

The Group has continued to pursue its core strategy of taking advantage of the structural changes within the financial services industry both in the United Kingdom and internationally. These changes, which are primarily driven by changing regulation, are resulting in increased stress on overheads at a time when the industry is becoming more competitive and margins, particularly in the investment management industry, remain under pressure.

The Group's strategy has always been to grow organically, through acquisition and by attracting additional revenue-generating staff. It is inevitable that growth will be determined by our success in each part of our strategy. For the year to 31 December 2015, revenues increased to £7.7 million (2014: £5.6 million), an increase of 38 per cent.

The growth in our revenue has partly been a result of the acquisitions that we made in the second half of 2015 which together account for £445,000 of turnover in the year under review. The balance has been achieved by growth in the core business.

It was pleasing to report in the half yearly figures that the Group had achieved one of its ambitions of recording a positive EBITDA figure. The Group, however, has recorded a loss before tax and exceptional items for the full year to 31 December 2015 of £1.7 million (2014: £22,000). It should be noted that the 2014 numbers included £0.8 million of one off non trading related revenues as a result of the EWMG acquisition. As stated in the trading statement released on 11 December 2015, the full year loss is a reflection of two key influences.

Firstly, many of the new revenue generating staff took longer to build an established client base than we had originally anticipated. However, it is pleasing to see that we are now starting to benefit from the revenue generated from those clients which we expect to develop during the course of 2016. Secondly, subdued trading volumes in global stock markets in the second half of the year has resulted in commission-driven revenues being lower than expected. 

The Group is continuing to grow as demonstrated by the increase in the funds under management or influence ('FUM') over the period covered by this report. FUM grew by over 20 per cent. to £1.2 billion (31 December 2014: £1.0 billion). This growth is against a background of benign equity markets with the FTSE All Share Index falling by 2.49 per cent. over the same period. 

It was noted in the last Annual Report that growing a business at this speed will inevitably put pressure on the infrastructure of the business. This has resulted in the total headcount continuing to increase and reaching 82 at the 31 December 2015. The mix of staff and consultants is as below:

The Group has also continued to invest in both its IT and support systems. Against a background of potential margin pressure, it is important that the Group is run as efficiently as possible using the most up to date technology. Over the last 12 months, a new software system has been introduced into the Financial Planning division. It is expected that, once fully functional, the new system will significantly enhance the administrative capability of that division resulting in a reduction in the administrative costs. 

Chairman's Statement (continued)

Acquisitions

During the second half of the year under review, three acquisitions were made bringing the total number of acquisitions since the listing on AIM in May 2014 to five. The Board has continued to take a prudent approach towards making acquisitions by ensuring that any acquisition fits with the ethos of the Group and, is valued at a realistic level. 

The first of last year's acquisitions was completed in July. This was the purchase of Greensnow Limited, the IFA business that trades under the name ISM Solutions ("ISM"). ISM has further increased the Company's presence within the financial planning arena of the UK financial services industry as well as adding £70 million of funds under influence. ISM provides a broad range of financial planning services to a client base made up predominantly of young, aspiring professionals. At the time of writing this report, all the administration systems have been integrated with our core Financial Planning business and the staff has transferred from Fenchurch Street to our Head Office in Austin Friars. 

The second acquisition completed in September, this was the purchase of the financial planning clients of Bells Solicitors ("Bells"), adding £43 million of funds under influence. This acquisition has been integrated into the financial planning back office systems and the member of staff is now based in the Company's Wokingham office.

In the last quarter of 2015 the acquisition of XCAP Nominees Limited from the administrators of Hume was announced. This acquisition added critical mass to our Investment Management division, bringing £30 million of funds under management and has further enhanced our presence in Manchester. The transfer of client assets and the interaction with the clients was a challenging project but it is pleasing to report that the process is now complete and all the clients and assets are migrated onto our core investment management system.

This acquisition has added 10 per cent. to our equity funds under management within the investment management business and is expected to add some 15 per cent. to our dealing revenue.

Board changes

On 11 March 2015, Paul Everitt stepped down as Non-Executive Director. The Board would like to thank Paul for his significant contribution to the Company over the past several years and to wish him well for the future.

On 1 December 2015 Marianne Hay joined the Board of the Company as a Non Executive Director. Formerly the Head of Private Banking for Europe, Middle East and Africa for Standard Chartered Bank, Ms. Hay is highly experienced at board level in leading global financial services businesses. Her core skills include strategic planning, risk management and investment management.

On 29 April 2016, Rod Gentry stepped down as Chief Executive Officer. Rod has been a Director of European Wealth from its creation and has made a significant contribution towards its development since its launch in 2010. The Board and the management team would like to place on record their appreciation for his dedication, and wish him all the best for the future.

Having strengthened the senior management team with the appointment of Adam Suggett as Group Financial Controller and Simon Ray as Chief Operating Officer, the Board considers that there is sufficient depth of expertise to be able to drive the business forward in the near term.

Chairman's Statement (continued)

Review of Divisions

European Wealth Group has established two key divisions which allow the Group to offer a wide range of services within the wealth management industry.

Financial Planning

The Financial Planning division has continued to develop during the year under review. The changes to the remuneration structure of the financial planning industry have continued to impact on the shape of the revenue generated by this division. The consequence of this trend has been to significantly improve the quality of income generated as illustrated by the increased percentage of revenue that is recurring rather than being transactional. 

The percentage of revenue classed as recurring has increased to 72 per cent. (2014: 49 per cent.). This percentage is expected to increase further during 2016 particularly when a full year's contribution from ISM is reflected in the figures.

The Financial Planning division is structured into three distinct financial planning disciplines; general financial planning, group pension scheme administration and specialist tax planning.

The largest in terms of turnover is the general financial planning discipline, accounting for some 74 per cent. of the financial planning revenue. This will always be the cornerstone of the business but your Board remains of the opinion that diversification is important within the financial planning industry and provides good opportunities for cross referrals across the Group. 

The group pension industry has been through significant change over the last two years moving away from commission based arrangements to standard fees. Our Financial Planning division has remained strong through these changes with the revenue accounting for 21 per cent. of the financial planning division's revenue, a modest drop of 3 per cent. compared to the same period in 2014.

The benefits of the Financial Planning division also include the opportunity for cross selling as senior members leave their company pension scheme to establish their own arrangements. 

Specialist tax planning for high net worth individuals made a more modest contribution to the financial planning turnover in 2015 accounting for 5 per cent. of turnover in comparison to 8 per cent. in 2014. However, the Board expect demand for tax planning schemes including EIS and VCTs to increase over the medium term.

Investment Management

The investment management division is made up of three core disciplines, discretionary portfolio management, treasury and Cash Management and the specialist execution only dealing desk.

Discretionary portfolio asset management is the backbone of the division, providing discretionary and advisory multi-asset investment management services to a broad range of clients. This area accounts for 77 per cent. of the division's turnover (2014: 80 per cent.). As mentioned earlier in this report, high quality, institutional style investment management is a critically important ingredient for meeting clients' expectations over the long term. It is pleasing to see that the benchmark portfolios are continuing to outperform both their peers and benchmarks over a variety of time horizons.

European Wealth (Switzerland) SA is a key part of this division and despite the loss of a major client in 2015, the business performed better than expected. The business continues to win new clients, both in the UK and locally, in an increasingly difficult environment and the Board remains committed to developing its links in Switzerland where it continues to see opportunities.

The treasury and Cash Management team has continued to grow funds under management with the overall contribution to the revenue of the division increasing to 13 per cent. (2014: 8 per cent.). This is especially pleasing to see in an environment where management fees in this sector are under pressure given the unprecedented level of global interest rates.

Chairman's Statement (continued)

It is also encouraging to see that the team has continued this growth in 2016 winning a number of large mandates and additional funds from a high quality list of clients.

The specialist execution dealing desk continues to provide dealing services to the rest of the investment management division in addition to generating its own revenues. In 2015 the team contributed 11 per cent. of the divisions revenue (2014: 12 per cent.). The second half of the year under review saw trading volumes on the London Stock Exchange fall to unexpectedly low levels and the flow of new issues and secondary placings, an area the desk specialises in, almost disappear with a number of floatations not successfully proceeding due to both stock market and global economic uncertainty. 

The opening months of the current year have been challenging for the dealing team but the Board expect a recovery in the remainder of 2016. 

Outlook

Following the challenging trading environment in the second half of 2015, and the current economic and political uncertainties in various parts of the globe, predicting how 2016 is likely to unfold is particularly difficult. The opening month of 2016 was a particularly trying period for the industry with global stock markets falling by up to 10 per cent. as a result of a sharp fall in the oil price together with concerns over the speed of growth in the Chinese economy. European markets have to face the UK's EU referendum and world markets have to survive the uncertainty of the US presidential elections in November.

Despite the short term uncertainties, the Board believe that the increased demand for the services that the company offer together with a continuing trend of consolidation within the industry will provide opportunities for the further development of the Group focusing on the three channels of growth.

The Board expects the impact of RDR to continue to be felt in the financial planning industry for the foreseeable future. The revenue generated by this division is increasingly adopting the profile of the fund management business with clients paying a percentage fee depending on the level of service agreed and the size of the assets.

The current dynamics of the industry highlight the need to run an efficient and operationally streamlined business. With the business having been created only five years ago we believe we have the up to date systems and technology to be able to take advantage of this huge opportunity. 

In conclusion, 2015 has been a year when we have continued to take advantage of growth opportunities in the industry. As with any growing business, it is the dedication and determination of the staff that help fuel the growth of the Group. I would like to take this opportunity to thank everybody associated with European Wealth for their commitment and determination over the last 12 months. The Board and all the staff within the Group are determined to make European Wealth a growing name within the wealth management industry both across the UK and overseas. We look forward to the future with confidence.

A J Morton

Executive Chairman

The entire Group's revenue and operating (loss)/profit was derived from continuing operations.

There were no items of comprehensive income in the current year or prior year, other than the loss as shown above.

The operating (loss)/profit and total comprehensive loss for the year are attributable to the equity holders.

Consolidated balance sheet (continued)

The financial statements of European Wealth Group Limited (registered number 42316) were approved by the Board of Directors and authorised for issue on 21 June 2016

They were signed on its behalf by:

A J Morton

Executive Chairman

21 June 2016

Company balance sheet (continued)

The financial statements of European Wealth Group Limited (registered number 42316) were approved by the Board of Directors and authorised for issue on 21 June 2016.

They were signed on its behalf by:

A J Morton

Executive Chairman

21 June 2016

Notes to the Financial Statements

For the year ended 31 December 2015

1 General information

European Wealth Group Limited is a public company incorporated in Guernsey under The Companies (Guernsey) Law, 2008. The shares of the Group are traded on AIM. The nature of the Group's operations and its principal activities are set out in the Strategic Report in the Annual Report and Accounts. Certain subsidiaries in the Group are subject to the FCA's regulatory capital requirements and therefore required to monitor its compliance with credit, market and operational risk requirements, in addition to performing their own assessment of capital requirements as part of the Individual Capital Adequacy Assessment Process (ICAAP).

2 Basis of accounting

The financial statements of the Group and the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"s) adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments (please refer to significant accounting policies note for details). Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies adopted are set out below.

For all periods up to and including the year ended 31 December 2013, the Group prepared its financial statements in accordance with local UK generally accepted accounting practice.

3 Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Group made up to 31 December each year. From 1 January 2013 to 6 May 2014, the Group consisted solely of European Wealth Group Limited, which at the time was an Investment Company.

The Group now consists of the following subsidiaries, European Wealth Management Group Limited, European Investment Management Limited, European Financial Planning Limited, European Wealth Trading Limited, European Wealth (Switzerland) SA, GTI Fund Investment Ltd P&C Global, EIM Nominees Limited, EW Investments Limited, Matthews Smith (Financial Consultants) Limited, Greensnow Limited (trades under the name ISM Solutions), ISM Financial Solutions Limited, ISM Wealth Management Limited and XCAP Nominees Limited.

All acquisitions are consolidated on the date of acquisition.

For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in pounds sterling, which is the functional currency of the Company and the presentational currency for the consolidation financial statements.

European Wealth Management Group Limited, European Investment Management Limited, European Financial Planning Limited, European Wealth Trading Limited have been consolidated to the consolidated statement of comprehensive income as of 7 May 2014.

Compass Financial Benefits Limited has been consolidated as of 25 June 2014.

European Wealth (Switzerland) SA has been consolidated as of 1 December 2014. This company reports its company accounts in Swiss Francs. These have been converted into Sterling for the purposes of the consolidation based on year end rates for the balance sheet and average rates for the Income Statement.

Greensnow Limited, ISM Financial Solutions Limited and ISM Wealth Management Limited have been consolidated as of 1 July 2015.

EIM Nominees Limited has net assets of £21 and therefore that Company's information is not shown separately. Under The Companies (Guernsey) Law, 2008, EIM Nominees Limited is exempt from the requirement to present its own income statement.

EW Investments Limited, XCAP Nominees Limited and Matthews Smith (Financial Consultants) Limited are non trading entities.

5. Going Concern

The Financial Reporting Council issued a guidance note in April 2016 requiring all companies to provide fuller disclosures regarding the directors' assessment of going concern.

The Group's business activities, together with the factors likely to affect its future development and liquidity and capital position, are set out in the Review of the Group's Business section of the Strategic Report on page 10.

In the year ended 31 December 2015 the Group made a loss before tax and exceptional items of £1.7 million, had a net current liability position of £3.3 million with net cash used in operating activities of £1.1 million. A material percentage of the loss was made in the second half of the year for three significant reasons; Firstly, due to industry wide reductions in trading volumes, secondly, as a result of three acquisitions made and thirdly due to the cost of new teams joining.

The Group has taken steps to alleviate the reliance on trading commission through amending the charging structure.

The Group still continues to look to build the asset base in order to improve its revenue generating capabilities. However, the Company also has various restructuring options and mitigating factors which if implemented could improve the short term cash flow position of the Group. The Group regularly monitors its actual and forecast cash flow position to determine whether the steps mentioned above are required.

However, whilst the Group expects to generate positive cash flows that cover its operating costs, there are material non operating costs that are due for payment in the next 12 months which the Group may not be able to cover from its current operating cash flows. The Group has several potential options in terms of refinancing debt and raising new equity that would assist in covering these costs if operating cash flows do not generate sufficient headroom, together with the ability to realign the operational cost base. Discussions are currently underway with a number of parties, but these are not as yet finalised

Therefore, in summary, there appears to be a material uncertainty related to the above, that may cast significant doubt on the Group's ability to continue as a going concern.

However, having considered the cashflow forecast, the present negotiations that are underway with equity and debt providers, and the mitigating actions that have been described above; at the time of preparation of this Annual Report the directors have a reasonable expectation that the Group has adequate financial resources to continue in operational existence for the foreseeable future. For these reasons the directors continue to prepare these financial statements on the going concern basis. Accordingly, the financial statements do not include any adjustments that may be required if they were prepared on a basis other than going concern.

6. Business combinations

All business combinations are accounted for by applying the acquisition method. The acquisition method involves recognition, at fair value, of all identifiable assets and liabilities, including contingent liabilities, of the subsidiary at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. The cost of business combinations is measured based on the fair value of the equity or debt instruments issued and cash or other consideration paid, plus any directly attributable costs.

Goodwill arising on a business combination represents the excess of cost over the fair value of the Group's share of the identifiable net assets acquired and is stated at cost less any accumulated impairment losses. Goodwill is tested annually for impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Negative goodwill arising on an acquisition is recognised immediately in the income statement. On disposal of a subsidiary the attributable amount of goodwill that has not been subject to impairment is included in the determination of the profit or loss on disposal.

On 7 May 2014, the Company completed the acquisition of 100% of EWMG. The transaction was classed as a reverse takeover under the AIM rules. As there was an equity interest previously held, which qualified as an associate under IAS 28, the acquisition has been treated as if it were disposed of and reacquired at fair value on the acquisition date. 

In the year ended 31 December 2014 a profit was therefore calculated from the "sale" of the associate, which was established as the fair value of the stake less the carrying value of the investment. For the immediate reacquisition, the amount of additional consideration paid for the stake, was added to the fair value of the original stake, to calculate the total consideration that was paid for the 100% shareholding, less the fair value of the net assets of the business in order to calculate the goodwill acquired. This has included calculating the fair value of the intangibles acquired as would be the case in normal acquisition accounting.

This accounting treatment has been adopted rather than "reverse acquisition accounting", as it was not considered by the directors that either of the former shareholders of the entity whose shares were acquired owned the majority of shares, and controlled the majority of votes, in the combined entity, or that the management of the combined entity were drawn predominantly from the entity acquired. This conclusion was reached as control was deemed to have passed with the final acquisition in the present year, meaning that EWMG shareholders that became European Wealth Group Limited shareholders by way of the earlier two transactions were already considered European Wealth Group Limited shareholders in respect of those interests when considering the final transaction. In addition, when looking at the qualitative factors in this transaction, EWG had been acting as an investment holding company, and the three partial acquisitions were not a series of linked transactions which supported the accounting analysis.

7. Business and geographical segments

Products and services from which reportable segments derive their revenues

Information reported to the Group's Executive Chairman for the purposes of resource allocation and assessment of segment performance is focussed on the category of customer for each type of activity. The Group's reportable segments under IFRS 8 are as follows:

· Investment Management; and

· Financial Planning

Information regarding the Group's operating segments is reported below.

Segment revenues and results

The following is an analysis of the Group's revenue and results by reportable segment for the year to 31 December 2015. The table below details full year's worth of revenue and results for the principal business divisions, which has then reconciled to the results included in the Statement of Comprehensive Income:

.

.

7. Business and geographical segments (continued)

Products and services from which reportable segments derive their revenues

The following is an analysis of the Group's revenue and results by reportable segment for the year to 31 December 2014. The table below details full year's worth of revenue and results for the principal business divisions, which has then reconciled to the results included in the Statement of Comprehensive Income:

8. Loss for the year

Loss for year ended 31 December 2015 has been arrived at after charging:

See Directors' remuneration report for details of Directors' remuneration during the year.

9. Exceptional items

The deferred consideration adjustments relate to amounts recognised in respect of the Compass and the EW Switzerland acquisitions. For Compass, the amount of deferred consideration payable is £0.9 million compared to £0.5 million that was held on the prior year balance sheet. The difference of £0.4 million has been taken as a debit to the consolidated statement of comprehensive income. For EW Switzerland, the amount of deferred consideration paid was £0.2 million compared to £1.3 million that was held on the prior year balance sheet. The difference of £1.1 million has been taken as a credit to the consolidated statement of comprehensive income. The net effect of both of these transactions is a credit of £0.7 million to the consolidated Statement of Comprehensive Income.

10. Earnings per share

The calculation of the basic and diluted loss per share is based on the following data:

Losses

The loss per share is (0.05)p (2014: loss per share 0.03p) diluted loss per share is (0.04)p (2014: loss per share 0.02p). The number of ordinary shares for the year ended 31 December 2013 has been restated based on the 60 for 1 share consolidation that occurred on 7 May 2014.

11. Business combinations

During the period under review, the Group completed three acquisitions.

On 1 July 2015, EWG acquired 100 per cent of the issued share capital of Greensnow Limited, the IFA business that trades under the name ISM Solutions ("ISM").

Based in the City of London, the clients of ISM are made up of predominantly young, aspiring professionals in both the legal and accountancy professions. For the full year to 31 March 2015 ISM had turnover of £1.1 million of which approximately 92 per cent was recurring income and profit before tax of £114,986. As at 31 March 2015, ISM had aggregate net assets of £29,000.

The aggregate maximum consideration for the acquisition of ISM is £3.0 million (the "Maximum Consideration"), of which 50 per cent. is to be satisfied in cash and 50 per cent. in new ordinary shares of 5p each of the Company ("Ordinary Shares"). The initial consideration payable on completion to ISM is £1.25 million and has been paid in cash and Ordinary Shares.

During the post acquisition period from 1 July 2015 to 31 December 2015, ISM generated revenue of £0.4 million and made a loss before tax of £0.01 million.

On 21 September 2015, EWG acquired the financial planning business of legal firm Bells Solicitors Limited ("Bells Financial Planning") based in Farnham, Surrey. This was the acquisition of a book of business rather than a company.

Bells Financial Planning business, established in 1999 and expanded in 2012 through the acquisition of local IFA company Biggs Hart, primarily advises high net worth individuals and private clients in the Farnham area who may have financially benefitted as a result of the legal firm's work.

In the financial year to 31 August 2015, Bells Financial Planning clients accounted for approximately £43 million of funds under influence and generated approximately £185,000 of revenue, of which approximately 91% was recurring.

The maximum consideration payable for the Acquisition is £675,000 ("Maximum Consideration"), of which 80% is to be satisfied in cash and 20% in new Ordinary Shares of 5p each of the Company.

On 22 November 2015, EWG acquired XCAP Nominees Limited, the nominee account of Hume Capital Securities plc.

The acquisition brings a further £30 million of assets to European Wealth's Manchester office, opened in late 2014. The total consideration paid was £10,000.

As at 31 December 2015, in relation to all the previous acquisitions made by the Group, a total of £2.0 million of deferred consideration was due to paid in a mixture of cash and shares (2014: £1.9 million). 

12. Intangible assets and goodwill

Acquisition of 100 per cent of the issued share capital of Greensnow Limited, the IFA business that trades under the name ISM Solutions ("ISM").

On 1 July 2015, European Wealth Group Limited acquired 100 per cent of the issued share capital of ISM.

ISM is a Financial Planning business with £70 million of funds under influence.

Pre-acquisition financial details of the companies acquired are as follows:

Acquisition of the financial planning client book of Bells Solicitors Limited ("Bells Financial Planning")

On 21 September 2015, EWG acquired the financial planning business of legal firm Bells Solicitors Limited ("Bells Financial Planning") based in Farnham, Surrey. This was the acquisition of a book of business rather than a company.

Bells Financial Planning business, established in 1999 and expanded in 2012 through the acquisition of local IFA company Biggs Hart, primarily advises high net worth individuals and private clients in the Farnham area who may have financially benefitted as a result of the legal firm's work.

Bells Financial Planning clients accounted for approximately £43 million of funds under influence.

Acquisition of XCAP Nominees Limited ("XCAP Nominees")

On 22 November 2015, EWG acquired XCAP Nominees. This was effectively the acquisition of the client list of Hume Capital Securities plc which brought in approximately £30 million of Funds under Management to the Group.

Goodwill

European Wealth Group Limited has recognised goodwill its various acquisitions as per the table below. The factors that make up the goodwill recognised include but are not limited to, the greater P/E ratio valuations placed on firms with assets under management compared to assisting in delivering the benefits of recurring and non-trading dependent revenue.

For statutory accounting impairment review purposes, the Group has identified two cash generating units ("CGUs"): investment management and financial planning.

A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of asset. The smallest identifiable group of assets in European Wealth are the 2 divisions that the business is analysed across, being investment management and financial planning. All key management information is divided across these two divisions and when acquisitions are made they are analysed in either of those divisions. The different groups of assets that are within those two divisions do not generate independent cashflows that would enable them to be classed as separate CGUs. This is the first year in which the CGUs have been analysed in this format due to the Group only being formed during the year ended 31 December 2014.

The Company acquired European Wealth Management Group Limited ("EWMG") in 2014. EWMG has been split between the two CGUs depending on which CGU the relevant assets are allocated to by the internal management information. Compass, ISM and Bells were acquired post the EWMG acquisition and have been allocated to the financial planning CGU. EW Switzerland and XCAP Nominees were allocated to the investment management CGU. 

The Group tests, for each CGU, at least annually for goodwill impairment. The recoverable amount of a CGU is determined as the higher of fair value less costs to sell of the value in use. For both CGUs the fair value less costs to sell is greater than the carrying value and therefore no further assessment of value in use has been performed.

Valuations are based on an assets under management multiple (the Investment Management CGU) and recurring revenue multiple (financial planning CGU) and look at industry standard valuation metrics in order to analyse out the individual CGUs. Neither CGU valuation reflects an impairment of goodwill would be necessary as at 31 December 2015.

The amounts recognised in respect of the identifiable assets required and liabilities assumed are as set out in the table below:

Intangible assets

The above addition to intangible assets represents the value of the funds under management acquired and client base acquired as part of the acquisitions of EWMG, Compass, EW Switzerland, ISM, Bells and XCAP Nominees.

The intangible assets are valued using the value applied to the assets under management (i.e. the client lists).

The assets are assessed for their useful life on an asset by asset basis in order to determine amortisation rates. There are currently £8.3 million of intangible assets being amortised over 20 years, £0.6 million over 15 years, and £0.3 million have been assessed to have an infinite useful life. The assets assessed to have an indefinite useful life represent institutional clients with an indefinite lifespan.

13. Short term borrowings

In August and December 2013, loans of £300,000 and £200,000, respectively of two-year non-convertible unsecured loans were taken out, both attracting interest at 10% p.a. The £300,000 loan has been extended by 1 year and is therefore repayable in August 2016 and is classed as short term. The £200,000 loan has been extended by 2 years and is therefore repayable in December 2017 and is classed as non-current. Both loans remain outstanding as at the date of these financial statements.

On 30 June 2015 European Financial Planning Ltd entered into a sterling variable rate loan facility agreement with Clydesdale Bank PLC for an amount of £500,000. This loan is repayable on a fully amortising basis over 3 years. The interest rate charged is 3.75% over the London interbank offered rate ("LIBOR").

On 20 September 2015 European Financial Planning Ltd entered into a sterling variable rate loan facility agreement with Clydesdale Bank PLC for an amount of £150,000. This loan is repayable on a fully amortising basis over 3 years. The interest rate charged is 3.75% over LIBOR.

Of the 2 combined amounts, as at 31 December 2015 £559,302 was outstanding of which £211,424 is repayable within 12 months. The balance of £347,878 is recognised in non-current liabilities.

In December 2015 European Wealth (Switzerland) SA received a loan of £151,072. The loan is repayable after 12 months and attracts an interest rate of 10% per annum.

14. Convertible loan note

On 7 May 2014 as part of the acquisition of EWMG, £5,750,390 worth of convertible loan notes ("CLS") were issued. The CLS is available in individual units worth £10 and CLS attracts a coupon rate of 10 per cent. per annum payable half yearly. The CLS has stepped conversion terms, which along with all other terms, are detailed in the Admission Document which is available on the Company's website.

On the first conversion date in November 2014, 222,789 CLS units (representing £2,227,890 in nominal amount) converted into Ordinary shares in the Company at a price of 72 pence per share.

In December 2014 a further 70,625 CLS units (representing £706,250 in nominal amount) were issued in respect of deferred consideration due to Mr Peter Mullins pursuant to the agreement for the acquisition of Bradley Stuart, dated 18 October 2012.

In June 2015 a further 6,250 CLS units (representing £62,500 in nominal amount) converted into Ordinary shares in the Company at a price of 85 pence per share.

As a result there are currently 416,625 CLS units in issue (representing £4,166,250 in nominal amount). Of this total amount £203,135 has been taken to the capital reserves in accordance with IAS 32. This is based on an assumed effective interest rate of 12 per cent. per annum.

15. Other non-current liabilities

16. Share capital

On 7 May 2014, the Company undertook a share capital re-organisation due to the relatively large number of shares that were in existence. The share reorganisation was effected by:

1. The consolidation and conversion of each block of 60 Existing EWG Shares into one New Ordinary Share and one New Deferred Share; and

2. Where any Existing Shareholder's holding of Existing EWG Shares is not divisible by 60, the compulsory redemption of all of the remaining unconsolidated Existing EWG Shares held by that Existing Shareholder.

The effect of the re-organisation was to reduce the number of ordinary shares in issue from 633,712,300 Existing EWG shares of 0.1p each to 10,561,858 New Ordinary Shares of 5p each.

On 7 May 2014, as part of the consideration for European Wealth Management Group Limited, 2,611,084 new ordinary shares of 5p each were issued to the former shareholders of European Wealth Management Group Limited.

On 25 June 2014, as part of the consideration for Compass Financial Benefits Limited ("Compass"), 269,575 ordinary shares of 5p each were issued to the former shareholders of Compass at a price of 100p per share.

On 25 June 2014 the Company raised a total of £674,000 via the issue of 749,303 ordinary shares of 5p each in the Company at a price of 90p per share.

On 25 June 2014 Hearth Investments Limited ("Hearth") agreed to convert a loan plus interest, amounting to £40,997, into 56,940 ordinary shares at a price of 72p, being the price agreed in the original agreement dated 25 March 2014.

On 25 June 2014, a number of directors subscribed for 56,251 ordinary shares of 5p each in the Company, in aggregate, at a price of 90p per share raising a total of approximately £51,000 for the Company.

On 25 June 2014, Buzz West agreed to convert his entire loan plus interest to EWMG, amounting to £61,512, into 68,346 ordinary shares of the Company at a price of 90p.

On 25 July 2014 as part of the deferred consideration for Bradley Stuart, 43,488 ordinary shares of 5p each were issued to Mr Peter Mullins at a price of 100p per share.

On 14 November 2014 the Company issued 1,309,620 ordinary shares of 5p each at an issue price of 104.9p per share as part of the consideration for the acquisition of P&C Global Wealth Managers SA and GTI Fund Investment Ltd.

On 28 November 2014 the Company issued 3,094,288 ordinary shares of 5p each at an issue price of 72p per share as a result of the conversion of 222,789 convertible loan note units (representing £2,227,890 in nominal amount).

On 23 December 2014 as part of the deferred consideration for Bradley Stuart, 943,750 ordinary shares of 5p each were issued to Mr Peter Mullins at a price of 100p per share.

On 2 June 2015 the Company issued 73,529 ordinary shares of 5p each at an issue price of 85p per share as a result of the conversion of 6,250 convertible loan note units (representing £62,500 in nominal amount).

On 12 June 2015 the Company announced the completion of a placing of 2,527,095 ordinary shares of 5p each at an issue price of to 80p per share to raise approximately £2.0 million.

On 22 June 2015 as part of the deferred consideration for Bradley Stuart, 88,014 ordinary shares of 5p each were issued to Mr Peter Mullins at a price of 88.5p per share.

On 1 July 2015 Company issued 706,214 ordinary shares of 5p each at an issue price of 88.5p per share as part of the consideration for the acquisition of ISM.

On 1 July 2015 Company issued 53,333 ordinary shares of 5p each at an issue price of 84p per share as part of the consideration for the acquisition of Bells.

On 11 December 2015 following the calculation of the deferred consideration payable to Bruce Albrecht and Iain Little, the vendors of European Wealth (Switzerland) SA (formerly known as P&C Global Wealth Managers SA) (the "Vendors"), a further 234,184 ordinary shares of 0.5p each in the Company were issued to the Vendors in equal amounts at a price of 104.9p.

17. Share premium account

18. Capital reserve

19. Retained earnings

In the year to 31 December 2015 the Company made a profit after tax of £451,000 (2014: £127,000).

20. Notes to the cash flow statement

Cash and cash equivalents comprise cash and cash equivalents with an original maturity of three months or less. The carrying amount of these assets is approximately equal to their fair value.

21. Post Balance Sheet Events

Post year end European Financial Planning Limited acquired the client list of Phoenix Invest Limited, a financial planning business that generates over £93,000 of recurring revenue. The total consideration payable is £268,000 spread over a 4 year period.