Kingswood H. Regulatory News (KWG)

22 May 2015

European Wealth Group Limited (formerly EW Group Limited)

("European Wealth", or "the Group")

Audited consolidated results for 12 month period to 31 December 2014

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 2014.

Operational Highlights

• Admission to AIM following the acquisition and reverse takeover of European Wealth Management Group Limited ("EWMG") in May 2014;

• Acquisition of Compass Financial Benefits Limited, a financial planning business with approximately £31 million of funds under influence, in June 2014;

• Acquisition of P&C Global Wealth Managers SA and the associated GTI Fund Investment Ltd, a Swiss based asset manager with approximately £92 million of discretionary funds under management, in November 2014; and

• Expansion of network of local and regional offices into the North West of England with the opening of an office in Hardman Square, Manchester, on 1 September 2014.

Financial Highlights

Group

• Group revenue of £5.6 million (2013: £1.9 million) and operating profit of £0.3 million (2013: £1.6 million), reflecting the inclusion of the European Wealth Management Limited figures as of 7 May 2014;

• Profit before tax and exceptional items of £22,000 (2013: £1.56 million); and

• Group net asset position of £16.6 million (2013: £8.0 million).

European Wealth Management Group Limited

• Full year revenue increase of 16% to £6.7 million (2013: £5.8 million);

• Funds under management and influence increase of over 59% growing to £1.03 billion (2013: £629 million); and

• EWMG's EBITDA loss narrowed in period to £0.2 million (2013: £(0.4) million) reflecting ongoing investment into the development of the business.

John Morton, Executive Chairman of European Wealth, commented:

"Following the completion of the reverse last May, the Group has continued its significant growth trajectory, funds under management and influence up by over 59% in the year and revenues for European Wealth Management Group Limited were up by 16% over the same period. We will continue to grow the business through a combination of strategic acquisitions, attracting revenue-generating individuals and organic growth. The investment into our expansion, combined with the one-off costs associated to the reverse, has inevitably placed pressure on our headline numbers in the short-term though I am pleased to report we are now making progress in stabilising those costs. Indeed, the Board remain firmly of the view that a combination of an increased demand for the services the industry offers together with a continued consolidation can only provide an attractive opportunity for the continued development of the Group."

A copy of the audited accounts is available for download from the Company's website, http://www.europeanwealth.com.

For further details, please contact:

About European Wealth Group Limited

European Wealth Group Limited (AIM: EWG, EWGL) is the holding company for the fast growing wealth management business, European Wealth Management Group Limited. Having commenced trading in 2010, European Wealth has two operating divisions, European Investment Management Limited ("EIM") and European Financial Planning Limited ("EFP"). Both are regulated by the FCA and were established to be RDR compliant from the outset, EIM opting for Restricted Adviser status and EFP for Independent Adviser status. Today the Group's head office is in London with an expanding network of offices both in the UK and continental Europe. Core services offered by the Group are financial planning, corporate pension advisory and investment management in both equity and fixed interest instruments. For further information on European Wealth's wealth management and financial planning services, please go to www.europeanwealth.com

Chairman's Statement

Following my appointment as Executive Chairman of European Wealth Group Limited ("European Wealth" or the "Company") in May 2014, I am delighted to present the first Annual Report and Accounts following the completion of the Reverse Takeover of European Wealth Management Group ("EWMG") in May 2014.

The Company made its first investment in EWMG back in April 2012 following a change in the investment objectives of the Company, since then further investments were made to support the rapid growth of EWMG and, finally, in the first quarter of 2014, the Board concluded that the best way to deliver value to shareholders was to facilitate the listing on AIM of EWMG by way of a reverse takeover. At the same time, the name of the Company was changed to European Wealth Group Limited. 

As noted above, the reverse acquisition was completed in May 2014 and therefore the financial figures that are being reported to 31 December 2014 do not include the historical EWMG figures, as the 2014 Income Statement only recognises the revenue of EWMG after 7 May 2014. Prior to that date, for the period 1 January 2013 to 6 May 2014 the Company was an investment company and as a result its revenues were mainly related to re-valuations of the EWMG investment.

For the year to 31 December 2014, revenues increased from £1.9 million to £5.5 million however the profit before tax and exceptional items fell from £1.5 million to £22,000. The strong profit performance in 2013 reflected an increase in the carrying value of investment in European Wealth.

For the 12 months to December 2014, the underlying performance of European Wealth Management Group Limited is detailed below:

Revenue has increased in line with the underlying growth in funds under management or influence ("FUM"), and whilst EBITDA remains negative, margins have improved. This negative EBITDA is also a reflection of several new teams that were brought in during 2014 of who we expect to see the financial benefits start to be achieved during the course of the current year.

The Company is still a rapidly growing business as demonstrated by the increase in FUM over the period covered by this report. FUM grew by over 59% increasing from £629 million at 31 December 2013 to in excess of £1billion at 31 December 2014.

Growing a business at this speed inevitably puts pressure on the infrastructure of the business, however over the same period the total headcount has increased from 56 to 67 reflecting the benefits the company is achieving from having invested in market-leading IT and support systems.

Nevertheless, there has been a necessity to strengthen the senior management team over the last 12 months and I am pleased to report that Adam Suggett joined as Financial Controller of the trading subsidiaries in July 2014 and has subject to Financial Conduct Authority ("FCA") approval been appointed a Director to the regulated subsidiaries and Financial Controller of the Group.

Since the year end we have also redefined the role of our Chief Operating Officer, Simon Ray to ensure he has the necessary time and resource to ensure the administrative functions across the Group are run as efficiently as possible. 

The growth in our funds under influence has been driven by three main ambitions. When European Wealth was admitted to AIM in May 2014, the Directors stated their strategy to pursue a policy of growing the business by acquisition, organic growth and by attracting highly qualified staff - many with a client following. Your Board has stayed true to these three ambitions. Since the completion of the reverse acquisition, two acquisitions have been made. 

The first, Compass Financial Planning, was completed in June 2014. Compass was a financial planning business that advised a number of Group Pension schemes together with a wide range of private individuals. Within four months, we were able to integrate the Compass administration systems on to our own systems within European Financial Planning and we were able to accommodate the two advisers within our Head Office in Austin Friars, London. 

At the end of 2014, the second acquisition was completed being the purchase of P&C Wealth Management, a Zurich based wealth management business. This acquisition represents an important strategic move expanding our offshore wealth management offering. 

Switzerland has always had a tradition of providing high quality investment management services, and the Board believes that over the last few years, the Swiss fund management business has become far more transparent and is itself starting to go through some significant regulatory change. 

The Board believes that this regulatory change will continue for a number of years and the wealth management industry in Switzerland is likely to go through the changes and consolidation that have been experienced in the UK industry over the last five years. It is widely accepted that much of the regulation that is being introduced across Europe is being based on the practices and rules in the UK. Consequently, your Board believes that with the Company's experience in making acquisitions and knowledge of the UK regulatory environment, the Company could be able to benefit over the medium term from the inevitable consolidation. 

Together with making acquisitions, the Company also extended its domestic reach in September 2014 by opening a regional office in Manchester. The office was established to facilitate the recruitment of two experienced wealth managers and to establish a European Wealth presence in one of the most dynamic and fast-growing cities in the UK outside London. Since the year end additional experienced investment managers have been recruited to develop our presence in Manchester. The early indications are encouraging with a steady flow of new clients and an increasing awareness of European Wealth within the local community. 

Organic growth is something that takes time for a new company to achieve. Not only is there the necessity for the company to establish a brand name and reputation, there is also a need to be of a certain size to attract a wider range of clients. As we progressed through 2014, it was noticeable how the Group's organic growth was beginning to accelerate. This was particularly true with our institutional fixed interest division where funds under management during 2014 increased from £193 million to £299 million, all of which was generated by new investment mandates being won or existing clients increasing the amount of money managed with European Investment Management. 

Further on in my report, I will comment on each of the divisions in the Group, however the fact that your company has a diverse range of skills within both the investment management and the financial planning businesses has allowed for the beginning of referrals from one business to another. Again, this is something that will only grow slowly and has to be acceptable to the client and of added value to the individual client requirements.

The third pillar of our growth has been attracting individuals with a client following to the Group. During 2014, five new revenue generating staff were employed and whilst this inevitably had a negative impact on our profitability during 2014, the benefits will be seen in 2015. It takes time for advisers to transfer clients over and experience has shown us that this type of expansion is a drain on the profitability of the Company in the short term. Nevertheless, the rewards in the future are significant given the marginal profitability of additional revenue. 

The Board consider it very important that the service provided to clients continues to meet their expectations. One of the most important areas is that of investment performance as clients are becoming far more commercial and if they are paying fees, they expect to see some added value service. It is pleasing to note that during 2014 and the early part of 2015, European Investment Management, has continued to win industry awards for both its investment management capability, but more importantly, its investment strategy. It is the latter that was developed over the first year of the company's existence and delivers a very structured and risk adjusted investment discipline.

At this stage of the Group's development, it is important to establish some key performance indicators which will measure the performance of the Group in the future. 

Whilst your Board recognises the importance of the headline funds under management, consideration should also be given to the profitability of the Group. 

In the medium term, our intention is to reach an EBITDA margin of 15%. As part of the key performance indicators, your Board will also focus on staff numbers and particularly the ratio of administration staff to revenue-generating staff in each division.

European Wealth Group has two key divisions which have been established to allow the Group to offer a very diverse yet complimentary wealth management service.

Financial Planning

As at December 2014, European Financial Planning advised on £380 million of funds under influence on behalf of over 5,800 clients and 51 group pension schemes. 

The business is structured into three distinct financial planning disciplines. The largest in terms of turnover is the general financial planning discipline which accounts for some 66% of the financial planning division's revenue. This will always be the cornerstone of the business advising clients on a broad range of financial planning issues. 

The introduction of new regulations, known within the industry as Retail Distribution Review ("RDR"), has had a material impact on the way this part of the financial planning industry operates. Businesses have been forced to move away from the old practice of charging clients commissions either upfront or ongoing. These have been replaced with a transparent charging structure whereby the clients fully understand the costs of the services they are being provided. 

When European Financial Planning was established in 2009, many of the new regulations had been drafted and this allowed the company to be structured in a way that would comply with the new rules. Nevertheless it has caused considerable turmoil in the industry which is something your Board expects to continue for the medium term and may present further opportunities. 

Following the acquisition of Bradley Stuart in 2012, our financial planning business gained a number of Group Personal Pension Schemes to administer which today accounts for 26% of the financial planning division's revenue. By administering these schemes, our financial planners gain exposure to a wide range of employees ranging from Chief Executives to administrative staff. Inevitably, a number of these members require additional services beyond advice on contributions to a company scheme, this has been a healthy source of organic growth for the financial planning business and is a trend your Board would expect to continue into 2015. 

As with the general financial planning industry, the Group Personal Pensions industry has gone through a material change over the last nine months resulting in all the schemes that the Company administer moving away from a commission based arrangement to a standard fee. This was a difficult transition for many of the clients as the cost of running these schemes were effectively transferred from the individual members who were making contributions, to the company providing the pension scheme. 

It is clear that the Government is determined to complete the liberalisation of pension schemes and allow individuals far more access to their pension assets at a relatively early age. Whilst this will create a significant opportunity for the industry, it is one that must be approached with caution. It is well reported in the press that the population is living longer and the cost of care in old age is ever-increasing. Consequently, your Board believes there will be increasing demand for independent financial planning that can help clients understand the financial implications of living longer and the inherent cost. 

This can only be accommodated during the years when individuals are at their peak period of wealth accumulation which, generally, is between 10 - 15 years before retirement. Your Board believes that financial planning will become far more of an ongoing project management function rather than its historic role of providing one-off advice. 

The third discipline within the financial planning business is that of specialist tax planning for high net worth individuals. This accounts for 8% of financial planning turnover and the service is primarily aimed at individuals generating a significant level of earnings where they are looking for advice on EIS and VCT investments together with other tax efficient investments. 

There has been much publicity over the last 12 months around some of the more adventurous tax planning schemes and there is a clear trend that HMRC are becoming far more active in challenging some of the schemes. All of the advice provided to clients around tax efficient investments is focused on structures that have been pre-approved by HMRC and also go through a very stringent internal approval system. Your Board consider that demand for this service will increase over the coming years as many successful people find they have contributed their maximum level to pensions and are therefore looking for other tax efficient investments.

Investment Management

The investment management business had £647 million of funds under management as at 31 December 2014. These funds are managed for a very diverse range of clients ranging from institutions to individuals, trusts and pension schemes. This division can be split into three main disciplines, which are discretionary and advisory multi-asset investment management, treasury and cash management and execution only stockbroking.

Discretionary and advisory multi-asset investment management is the backbone of the business accounting for 77% of the division's turnover. A significant amount of time and energy has been spent on defining the service to clients not only by developing a whole of market investment offering but also ensuring that the internal administration systems are both robust and state of the art. 

The Group decided very early on in its development that a structure would be put in place whereby client assets can be held by our own subsidiary, European Investment Nominees Limited rather than engaging the services of a third party administrator. Many companies of our size have taken the decision to outsource their back office function and whilst this is possibly cheaper in the short term, your Board believe this strategy would have a negative impact on the profitability of the business as it grows. 

In an effort to improve the profitability of the investment management business, European Wealth Trading Limited, also a member of the Group, became a member of the London Stock Exchange enabling trades to be executed directly with the market thus avoiding third party brokerage costs. The Group has established a specialist execution-only desk who have managed to build a number of external clients and at the same time handle an increasing flow of business from the in-house asset management team. In 2014, the execution only team accounted for 15% of the revenue of European Investment Management which is expected to grow strongly during 2015. 

Unlike many of our competitors, we have established an institutional treasury and cash management service which accounts for a significant amount of our funds under management but due to the low management fees chargeable, the contribution to the turnover is more modest at 8%. Whilst the returns available from this type of investment discipline are at near record low, reflecting the low level of current interest rates in the UK, the Board believes that it is an investment discipline that is vital to a number of institutions who are seeking to generate a return greater than that available from cash, but, importantly, without taking any significant amount of risk. 

As I commented earlier on in my report, the funds under management within this division have grown significantly over the past twelve months and given the investment returns achieved together with the experience of the investment managers, we expect this division to continue to grow during 2015. 

Despite the significant growth in the number of discretionary investment management offerings and a trend amongst many private client stock brokers to develop into wealth managers; there is a steady and growing demand for straightforward, execution-only stockbroking. 

Outlook

The Board believes that a combination of an increased demand for the services the industry offers, together with a continued consolidation can only provide an attractive opportunity for the continued development of the Group. Your Board feels that the Company is well-placed to benefit from the consolidation in the industry by pursuing the three cornerstones of the Group's development being acquisition, attracting revenue-generating individuals and organic growth. This together with the broad spectrum of services offered, should place the Group in a strong position.

The consolidation in the wealth management industry is expected to continue in the current year and your Board is regularly assessing a number of opportunities to continue to accelerate the growth of the Group by further acquisition. 

2014 has been an important period of change for the Group and is only the start of a plan to significantly grow both the turnover and the funds under management. Such ambitions can only be realised with the support and dedication of every member of staff within the Group. I would like to take this opportunity to thank everybody associated with European Wealth for the commitment and determination they have shown over the last 12 months. Your Board and all the staff within the Group are committed to making European Wealth a growing name within the wealth management industry and look forward to the future with confidence.

A J Morton

Executive Chairman

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2014

All the Group's revenue and operating 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. Accordingly, no statement of comprehensive income is presented.

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

Consolidated Balance Sheet

As at 31 December 2014

The financial statements of European Wealth Group Limited (registered number 42316) were approved by the Board of Directors and authorised for issue on 21 May 2015.

They were signed on its behalf by:

A J Morton

Executive Chairman

21 May 2015

Company Balance Sheet

As at 31 December 2014

The financial statements of European Wealth Group Limited (registered number 42316) were approved by the Board of Directors and authorised for issue on 21 May 2015.

They were signed on its behalf by:

A J Morton

Executive Chairman

21 May 2015

Consolidated and Company Statement of Changes in Equity

For the year ended 31 December 2014

Selected Key Notes

For the year ended 31 December 2014

1 Basis of accounting

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 in the Annual Report and Accounts of the Group and the Company have been prepared in accordance with IFRSs 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. 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. These financial statements for the year ended 31 December 2014 are the first the Group has prepared in accordance with IFRS. Refer to Note 4 for information on how the Group adopted IFRS.

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, P&C Global Wealth Managers SA, GTI Fund Investment Ltd P&C Global, European Investment Management Nominees Limited, Compass Financial Benefits Limited, EW Investments Limited and Matthews Smith (Financial Consultants) 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 Income Statement as of 7 May 2014.

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

P&C Global Wealth managers 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.

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 and Matthews Smith (Financial Consultants) Limited are non trading entities.

4 First time adoption of IFRS

These financial statements, for the year ended 31 December 2014, are the first the Group has prepared in accordance with IFRS. For periods up to and including the year ended 31 December 2013, the Group prepared its financial statements in accordance with UK GAAP. Accordingly, the Group has prepared financial statements which comply with IFRS applicable for periods ending on or after 31 December 2014, together with the comparative period data as at and for the year ended 31 December 2013, as described in the accounting policies. In preparing these financial statements, the Group's opening statement of financial position was prepared as at 1 January 2013, the Group's date of transition to IFRS.

In assessing the impact of the conversion to IFRS, no adjustments were required to the opening balances as at 1 January 2013 or as at 1 January 2014.

The Income Statement and the Cashflow Statement have been represented in accordance with IAS 1 but no adjustments to the figures were required.

5 Going concern

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is contained in the Directors' Report in the Annual Report and Accounts.

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. 

A profit has therefore been 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 EWG shareholders by way of the earlier two transactions, were already considered EWG 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 Intangible assets

The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition.

After initial recognition intangible assets are carried at cost less accumulated amortisation and impairment losses. The carrying amounts are reviewed at each reporting date when events or circumstances indicate that the assets may be impaired. If any such indication exists or as in the case of goodwill, when annual impairment testing is required, the asset's recoverable amount is estimated.

The recoverable amount is the higher of the asset's fair value less costs to sell (or net selling price) and its value-in-use. Value-in-use is the discounted present value of estimated future cash inflows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life.

Impairment is identified at the individual asset level where possible. Where the recoverable amount of an individual asset cannot be identified, it is calculated for the smallest cash-generating unit (CGU) to which the asset belongs.

A CGU is the smallest identifiable group of assets that generates cash inflows independently. When the carrying amount of an asset (or CGU) exceeds its recoverable amount, the asset (or CGU) is considered to be impaired and is written down to its recoverable amount. An impairment loss is immediately recognised as an expense.

8. Business and geographical segments

Products and services from which reportable segments derive their revenues

Information reported to the Group's Chief Executive Officer 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:

· Wealth Management

· 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 2014. The table below details full years worth of revenue and results for the principal business divisions, which has then reconciled to the results included in the Income Statement:

The comparative figures relate to the period when there were no distinguishable operating segments therefore the results have not been disclosed separately.

The Directors do not consider the net assets readily identifiable and consequently have not disclosed these separately in this note.

Geographical information

All of the Group's revenue is materially generated within the UK.

9. Loss for the year

Loss for year ended 31 December 2014 has been arrived at after charging:

See directors' remuneration report for details of directors' remuneration during the period.

10. Exceptional items

11. (Loss)/earnings per share

The earnings per share is (0.03)p (2013: 0.19p) diluted loss per share is (0.02)p (2013: diluted earnings per share 0.19p). 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.

12. Business combinations

During the period under review, the Group completed 3 acquisitions.

On 7 May 2014, European Wealth Group Limited acquired 100 per cent of the issued share capital of European Wealth Management Group Limited.

European Wealth Management Group Limited is a fast growing private wealth management business which was founded in 2009 and commenced trading in 2010. Its core services are financial planning, corporate pension advisory and investment management in both equity and fixed interest instruments.

The consideration paid totalled £13.5 million with further details provided in note 12 to this announcement.

During the post acquisition period from 7 May 2014 to 31 December 2014, EWMG generated revenue of £4.3 million and made a loss before tax of £0.4m.

On 25 June 2014, EWMG acquired 100 per cent of the issued share capital of Compass Financial Benefits Limited ("Compass") a financial planning business with £31million of funds under influence.

Compass was acquired for a maximum consideration of three times its recurring income (being Compass's retail distribution review compliant recurring income) for the 12 months following completion. The consideration is payable in two tranches; an initial tranche, payable on completion, of £539,150, was satisfied half in cash, being £269,575, and half in 269,575 ordinary shares of European Wealth Group Limited at a price of 100p per share. The remainder of any consideration due will be similarly be satisfied half in in cash and half in ordinary shares.

During the post acquisition period from 25 June 2014 to 31 December 2014, Compass generated revenue of 100k and made a profit before tax of £55k. Please note that this excludes revenue and costs recognised in the financial statements of European Financial Planning which is where the client agreements were novated to post acquisition.

On 14 November 2014, European Wealth Group Limited acquired 100 per cent of the issued share capital of P&C Global Wealth Managers SA and GTI Fund Investment Limited.

P&C is a Swiss company which was founded over 10 years ago by Iain Little and Bruce Albrecht, in order to provide a range of high quality financial and related services to international clients. GTI is a sister company, incorporated in the Cayman Islands, which offers a range of funds advised by P&C.

The consideration for is split into two tranches. The initial tranche of £1,387,598 was satisfied via the payment of approximately £13,807 in cash and the issue of 1,309,620 ordinary shares of 5p each in the capital of the Company at an issue price of 104.9p per share.

Up to a further £1,373,791 will be due in early 2016, dependent on the funds under management and pipeline as at 13 November 2015. The deferred consideration will be satisfied through the issue of up to 1,309,620 ordinary shares, also at an issue price of 104.9p per share. Both the initial tranche of shares and the deferred consideration shares will be subject to 12-month orderly market arrangements.

During the post acquisition period from 14 November 2014 to 31 December 2014, P&C generated revenue of £300k and made a profit before tax of £60k.

If the Group had been consolidated as of 1 January 2014 the revenue for the year would have been £8.4 million and the loss before tax would have been £0.8m)

13. Intangible assets and goodwill

Acquisition of European Wealth Management Group

On 7 May 2014, European Wealth Group Limited acquired 100 per cent of the issued share capital of European Wealth Management Group Limited.

European Wealth Management Group Limited is a fast growing private wealth management business which was founded in 2009 and commenced trading in 2010. Its core services are financial planning, corporate pension advisory and investment management in both equity and fixed interest instruments.

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

Acquisition of P&C Global Wealth Managers SA ("P&C") and GTI Fund Investment Ltd ("GTI")

On 14 November 2014, European Wealth Group Limited acquired 100 per cent of the issued share capital of P&C Global Wealth Managers SA and GTI Fund Investment Limited.

P&C is a Swiss company which was founded over 10 years ago by Iain Little and Bruce Albrecht, in order to provide a range of high quality financial and related services to international clients. GTI is a sister company, incorporated in the Cayman Islands, which offers a range of funds advised by P&C.

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

Acquisition of Compass Financial Benefits Limited ("Compass")

On 25 June 2014, European Wealth Management Group Limited (a fully owned subsidiary of European Wealth) acquired 100 per cent of the issued share capital of Compass.

Compass is a Financial Planning business with £31 million of funds under influence.

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

Goodwill

European Wealth Group Limited has recognised goodwill in respect of the European Wealth Management Group Limited acquisition, the P&C and GTI acquisition and the Compass acquisition 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.

The Group will test, for each Cash Generating Unit (CGU), at least annually for goodwill impairment. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flows based on financial budgets prepared by management covering a five year period and then extrapolated for the remaining useful economic life based on relevant estimated growth rates for revenue and costs. This will then be adjusted for the anticipated terminal growth value. This net cash flow is then discounted by an appropriate cost of capital in order to estimate their present value.

The key assumptions for the value-in-use calculations are those regarding the discount rate, growth rates and expected changes to revenues and costs in the period. Management has made these assumptions based on past experience and future expectations in the light of anticipated market conditions, combined with the actions taken during this and last year to streamline the Group's operations whilst maximising revenue potential.

Where the value-in-use exceeds the carrying value of the goodwill asset, it has been concluded that no impairment is necessary. However, where this is not the case, goodwill is written down to the net present value of cash flows at the balance sheet date.

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 EWMG acquisition, the Compass acquisition (a fully owned subsidiary of EWMG) and the P&C acquisition.

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 £6.7 million of intangible assets being amortised over 20 years and £0.3 million have been assessed to have an infinite useful life. 

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.

As a result, there are currently 422,875 CLS units in issue (representing £4,228,750 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. Share capital

The Company has one class of ordinary shares of nominal value of 5 pence each and one class of deferred shares which have very limited rights, such that in practical terms they have no value.

In March 2013, the Company issued 56,847,461 new Ordinary Shares of 0.1p each ("Ordinary Shares") valued at 0.01375p each in consideration for the acquisition of 58,948 shares in European Wealth Management Group.

In April 2013, the Company completed a subscription to raise £626,750 through the issue of 62,675,000 Ordinary Shares at a subscription price of 1p per Ordinary Share ("Subscription"). On the same day, the Company also issued 3,250,000 Ordinary Shares in satisfaction of professional fees incurred in connection with the Subscription.

In June 2013, 142,857,143 Ordinary Shares were issued in connection with the conversion of £1.0 million of unsecured convertible loan notes issued by the Company variously between October 2012 and February 2013 ("Loan Notes").

In October 2013, the Company completed a subscription to raise £584,400 through the issue of 58,440,000 Ordinary Shares at a subscription price of 1p per Ordinary Share. On the same day, the Company issued 7,398,644 Ordinary Shares to acquire £73,986.44 of short term debt from European Wealth and also issued a further 2,539,044 Ordinary Shares in satisfaction of interest due on the Loan Notes.

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 new 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 new 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 new 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 new 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 new 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 new 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 new 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 new ordinary shares of 5p each were issued to Mr Peter Mullins at a price of 100p per share.

16. Share premium account

17. Equity reserve

The equity reserve contains deferred consideration where we are expecting to issue shares in the future. The balance is unlikely to be distributed.

18. Retained loss

19. 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.