Kingswood H. Regulatory News (KWG)

European Wealth Group Limited

("EWG", the "Company" or the "Group")

Audited results for 12 months to 31 December 2016

The directors of European Wealth (AIM: EWG, EWGL), the growing wealth management group, are pleased to announce its audited results for the year to 31 December 2016.

Operational Highlights

· Assets under management increased by 25% to £1.5bn (2015: £1.2bn)

· Three acquisitions were successfully completed in the financial year under review:

− In January 2016, the Group acquired the financial planning client list from Phoenix Invest Limited which added £20m of funds under influence, integrated into European Financial Planning

− In September 2016, the Group completed the acquisition of CIMCO Partners Management Limited, changing the name to European Wealth Gibraltar Limited, which manages the G20 Absolute Return fund. This acquisition added US$22m of funds under management

− In October 2016, the Group acquired a book of business and certain related assets from Towry Asset Management, which will bring an estimated £80m-£100m of additional funds under management to the Group

· Growth in overseas operations with the addition of a Gibraltar office, and a foothold into the South African market through the 2016 acquisitions

Financial Highlights

· Income from trading activities increased by 23% to £9.4m (2015: £7.7m) due to organic growth and growth from acquisitions

· Group recurring revenue increased to £5.3m (2015: £4.8m)

· Financial Planning recurring revenue increased to 79% (2015: 72%)

· Strong growth of Treasury and Cash Management mandate which now accounts for 14% of the investment management division's revenue (2015: 13%)

· Loss before tax decreased to £0.8m (2015: £1m) resulting in the firm recording a positive EBITDA of £346,000 (2015: loss of £68,000)

· Net assets increased to £17.8m (2014: £17.3m)

John Morton, Group Chief Executive of European Wealth, commented: 

"European Wealth has had a successful year pursuing its strategy of growth through classic organic growth, selective acquisitions of businesses and the addition of revenue-generating staff resulting in another significant increase in our funds under management.

"Having built a structure which will enable us to continue to develop the business, we are now in a stronger position, bolstered by our new shareholders, to support the continued development of the Group to the benefit of our clients, staff and shareholders".

For further details, please contact: 

Chairman's Statement

Overview of 2016

2016 was a year of considerable growth and development for European Wealth. Our total funds under management increased by 25% to £1.5bn (2015: £1.2bn) and it is pleasing to note that this was achieved both through organic growth and our ongoing strategy of selective acquisitions. Since the year end our funds under management have increased further to over £1.65bn due to new mandates won in the current year and as a result of funds transferring under the Towry agreement.

This increase in funds under management was mirrored in the turnover for the Group, which reached £9.4m for the year to 31 December 2016, an increase of 23% over the previous year (2015: £7.7m). At the interim stage, we commented that we believed that one of the key measures of performance was an increasing, positive EBITDA so it is pleasing to note that the Group recorded a positive EBITDA of £0.3m. Growth in the top line coupled with our focus on cost control saw the loss before tax reduce from £1.0m in 2015 to £0.8m for the year to 31 December 2016.

Strategy

The strategy of the Group continues to be to expand through three key channels, organic growth, selective acquisition and attracting additional revenue-generating staff. I have already commented above on the success we had last year in generating both organic and acquisitive growth. However, as highlighted in a trading statement earlier in the year, we believe that the cost of acquisitions within the investment management and financial planning industries has increased to a point where we feel selective recruitment of revenue-generating staff would be the most effective use of the company's capital in the short term. This should not be interpreted however, as our intention to walk away from the pursuit of selective acquisitions where we see a prudent, fairly priced acquisition which adds to the overall Group skill set and produces economies of scale from our already robust administration system.

The Board

In April 2016, Rod Gentry stepped down from the Board. Rod was an integral part of the team that created European Wealth and we are all grateful for his dedication over the years. Following Rod's departure, the Board reviewed the management structure of the business and the performance of certain parts of the Group. As a result, a number of changes were made. The role of Executive Chairman was split, with John Morton taking on the role of Group Chief Executive and I became Non-Executive Chairman. Underlining the importance of efficient, up to date and cost effective operations within the whole Group, Simon Ray our Group Chief Operating Officer has also been appointed to the Board.

The regulatory obligations on the Board continue to increase with the 'Senior Management Regime' due to be implemented at the beginning of 2018. Whilst the Board recognise the need for individual accountability of Directors and Senior Management, we believe strongly in the collective responsibility of the Board, and the Executive Management Team together with robust challenge by Non-Executive Directors.

A number of projects and initiatives are being undertaken within the regulated businesses to both ensure that the Group is not only fully prepared for the introduction of MiFID II but that we also continue to review, improve and modernise the delivery of our service to clients however they may interact with the Group.

Outlook

The global economy and stock markets have a number of uncertainties to confront during 2017. American interest rates have continued their upward trend, more rises are expected in the current year and this trend will possibly spread over to other parts of the world impacting the bond markets. Meanwhile, US equity markets have hit record highs, driven by the economic promises of the new administration. Closer to home, the UK has to confront the challenges of Brexit and a shock UK election result, which are likely to cause periods of uncertainty both for the UK domestic economy and the stock markets in the UK and Continental Europe; where France has elected a new President and elections follow in many other European countries. It remains to be seen what impact all this will have on global stock markets that performed particularly well in the fourth quarter of 2016 and have started the current year with optimism.

Irrespective of these uncertainties, European Wealth is now well placed to continue its strategy for growth. The Group has secured £9.3m of new capital, which will fund the redemption of the bridging finance put in place on 7 June to facilitate the repayment of the convertible loan stock, repay other loans and leave the Group debt free. With a much-strengthened balance sheet, your Board now looks forward to taking advantage of the right opportunities when they emerge over the next year.

Your Board has always considered the culture of European Wealth to be one of the Group's main assets and something that we are committed to developing further as the Group grows. The correct culture within the Group will not only help the employees within the business, it will also result in a superior service to clients and, ultimately, greater rewards to shareholders. Within times of significant change in any industry, the more internal stability that can be provided to employees, the greater the chance of reducing staff turnover and of building loyalty amongst our staff and our client base.

In closing, I would like to express my own thanks and those of all the members of the Board to our clients, shareholders and staff for their strong support for the Group.

Buzz West

Chairman

June 2017

Group Chief Executive's Report

Despite a lacklustre start to 2016, global stock markets performed well over the year with the FTSE All Share Index increasing by 12.8% and the FTSE World Index increasing by 26.2%. This was despite some significant turmoil in the political landscape during the second half of the year. Not only did stock markets have to weather the uncertainty surrounding the election of the President of the United States and its unexpected result, but also the somewhat surprise decision by the UK Electorate to vote in favour of Brexit. The political fallout of the latter initially caused a significant fall in the currency. Sterling weakness however, had a positive impact on the UK stock market which has such a strong representation of companies with high proportions of overseas earnings. The UK market was also underpinned by good economic growth figures compared to many other major economies particularly those in Continental Europe.

Against this background, I am pleased to report that European Wealth has had a successful year pursuing its strategy of growth through classic organic growth, selective acquisitions of businesses and the addition of revenue-generating staff. As noted in the Chairman's Statement, funds under management have increased by 25% to £1.5bn. During the last 12 months, the two largest acquisitions were the Towry book of business which was mainly comprised of South African clients and CIMCO, the managers of a Gibraltar-based Absolute Return Fund, which has added approximately US$22m to the funds under management. The total amount of funds under management acquired during 2016 was £36m, the rest of the increase has been a result of organic growth.

The financial performance of the Group over the last 12 months has also improved, justifying the confidence expressed in our Interim Statement. These results have been boosted not only by revenue growth but also by further control of the cost base.

The turnover in the investment management business has grown by 33% over the last 12 months, increasing to £6.1m (2015: £4.5m) primarily driven by increases in the revenue generated from discretionary portfolio management and the continued strong growth in our treasury and cash management services. The financial planning business was also able to record a 10% increase in turnover to £3.3m (2015: £3.0m); primarily driven by increases in income from general financial planning services and specialist tax planning.

In the last two years, we have followed a deliberate policy of investing in our operational infrastructure which is now helping us control our costs and to absorb acquisitions. As we provide all the administration in-house, the Group's fixed cost base is understandably high, accounting for approximately 80% of the total operating costs. However, it does confer the advantage that any increase in revenue has a disproportionately positive impact on the profitability of the Group.

Our total headcount continues to increase and reached 92 at the 31 December 2016.

The above numbers do not include the staff that have transferred over following our acquisition of the book of business from Towry which was announced in October 2016. Whilst the transfer is taking longer than we originally anticipated, the staff of two investment managers and an assistant joined European Wealth at the end of February and the speed of client transfer is accelerating. It is your Board's intention to build a presence in South Africa to attract further funds under management both from local introducers and private individuals.

The increase in the ratio of administration staff to fee-earners has been the result of a restructuring within the financial planning business. A team of paraplanners, which we have included in administration staff, have been put in place to support the financial advisers. We expect this to have a positive effect on the amount of revenue that can be generated by each financial planner.

One of the features of 2016 has been the increase in levels of organic growth. This will be further enhanced by the establishment of a dedicated business development function which will concentrate both on the cross-selling that can be achieved within the Group but also developing our range of external introducers both in the UK and overseas.

Review of Divisions

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

Investment Management

The investment management division is made up of three core disciplines, discretionary portfolio management, treasury and cash management and a specialist execution-only dealing desk. Revenue from each division breaks down as follows:

The discretionary portfolio management discipline has always been the backbone of the division providing discretionary and advisory multi-asset investment services to a broad range of clients. As the market becomes ever more competitive, it is important that European Wealth continues to offer clients a highly personal service and investment performance that meets their objectives. To this end, it is pleasing that our investment performance remains strong and we continue to win industry awards.

Within the investment management division, despite the low interest rate environment making profitable fixed interest investment challenging, our Fixed Interest team have, once again, been very successful in showing strong organic growth. The Team won several new mandates, particularly in the university sector, increasing their funds under management from £345m at the end of 2015 to £475m at the end of 2016. Furthermore, I am pleased to report that the success has continued into 2017 and in the opening months of 2017, they have been awarded mandates over a further £200m together with some of the existing clients adding additional funds to their portfolios. The Treasury and Cash management team will continue to be in demand as the quest for low risk assets but with some positive return, continues.

The earnings from the Dealing Desk will always be volatile and driven by trading activity in the stock markets. Nevertheless, your Board considers it to be a valuable source of revenue for the Group and an area that we expect to develop further as a certain segment of the client base continue to want to keep control of their assets and require a purely execution-only service. Despite margin pressure with the availability of online dealing services, the fact that we are clearing our own trades through an in-house back office facility allows us to keep our marginal cost as low as possible.

Financial Planning

The financial planning business is divided between three distinct disciplines, the revenue for each is as follows:

We stated at the interim stage that we were introducing new procedures in our financial planning business and also were in the process of fully integrating the ISM and Bells acquisitions. The changes to the client charging structure which I referred to in my Chairman's Statement last year have continued in 2016. Consequently, the shape of the revenue has continued to improve with the recurring revenue now accounting for 79% of total revenue (2015 - 72%). The Interim Report was very clear on the imperative to build recurring revenue as quickly as possible to provide the cash flow to invest in the high added value service necessary to grow the business and stay ahead of the competition.

General financial planning will always be a cornerstone of this business but increasingly we see growing demand for more specialist financial planning such as advising clients where to place their assets to take best advantage of current taxation legislation and, more importantly, to plan for retirement and structure their personal and family assets in the most appropriate way. There are good opportunities for cross-referrals both within the financial planning business and the wider Group.

The Balance Sheet

Since its inception, the Group has been, in part, funded by debt. At its admission to AIM in May 2014, much of that debt was consolidated in a convertible loan stock. Contemporaneous with these results, European Wealth has agreed terms to raise £9.3m of new capital. Not only will this provide the funds to redeem the bridge finance entered into on 7 June and all accrued interest thereon, it is also sufficient to enable the Group to repay other loans and satisfy all deferred consideration liabilities, leaving the Group debt free.

With the Group now firmly cash flow positive, and a strengthened balance sheet, European Wealth is better placed to face the future than at any time in its recent history.

Outlook

The outlook for world economies and, consequently, stock markets would appear to be subject to more political influences than usual. Following the close election in the US, the complexities of Brexit, the recent elections in the UK and France, together with the election in Germany, which have and will continue to command the attention of politicians and the media, there is ample reason to believe there will be spells of volatility in stock markets.

However, there is cause for some optimism. Except for a very small number of small emerging economies, the outlook is for all developed economies to grow and forecasts are for the UK economy to show the best growth rate in Europe and even surpass that of the US. Interest rates are likely to continue to increase moderately in the US and are unlikely to move at all in Europe. The UK may be an exception here but with Brexit it is unlikely to be anything other than a cosmetic nod to the rising inflation numbers. Inflation is reasonably under control in the major economies although the weakness of Sterling has started to impact the inflation numbers in the UK. Against this background, we view the future for investment returns with some confidence although there may be some correction following the recent strong run in markets.

The continued uncertainty within the wealth management industry together with the ongoing challenges with the introduction of MiFID II at the beginning of 2018, will put pressure on the smaller fund management and financial planning companies. The increase in regulation is not restricted to the UK; regulation is also increasing within the financial services industry internationally. These dynamics are likely to lead to more consolidation and consequently the opportunity for further acquisitive growth, both domestically and internationally. The greatest challenge at the moment is to ensure that acquisitions are realistically priced, something your Board is finding an increasing challenge.

Acquiring individuals or teams of people can sometimes be better than acquiring a whole company. The consolidation within the industry has resulted in a higher level of turnover amongst senior revenue generating staff and European Wealth has been able to take advantage of this uncertainty. We have already recruited two new revenue generators in the first three months of 2017 and expect them to be contributing to the Group's revenue in a very short space of time.

The Board believes that the demand for impartial financial planning and investment management advice will grow as individuals become more responsible for the funding of their retirement at a time when life expectancy is increasing.

In conclusion, we are looking forward to the future with confidence; our balance sheet has been strengthened and we are on track for achieving our short-term target of £2.0bn of AUM. Finally, I would like to add my thanks to everybody associated with European Wealth for their continued commitment and determination over the last 12 months. The Board and all the staff within the Group remain determined to make European Wealth a growing name within the wealth management industry both across the UK and overseas.

A J Morton

Group Chief Executive

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

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

Consolidated Statement of Changes in Equity

For the year ended 31 December 2016

1. General information

European Wealth Group Limited is a 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. Certain subsidiaries in the Group are subject to the FCA's regulatory capital requirements and therefore required to monitor their compliance with credit, market and operational risk requirements, in addition to performing their own assessment of capital requirements as part of the Individual Capital Adequacy Assessment Process (ICAAP).

2. 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, note 5). 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.

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, European Wealth (Gibraltar) 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 consolidated financial statements.

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

Compass Financial Benefits Limited has been consolidated as of 25 June 2014, all revenue is incorporated within European Financial Planning Limited, and the Company has ceased trading as a separate entity.

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, all revenue is incorporated within European Financial Planning Limited, and the Companies have ceased trading as separate entities.

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.

European Wealth (Gibraltar) Limited has been consolidated as of 21 September 2016. This company reports its company accounts in US Dollars. 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.

XCAP Nominees Limited is a non trading entities.

4. Adoption of new and revised standards

New accounting standards, amendments and interpretations adopted in the period

In the year ended 30 June 2016, the group did not adopt any new standards or amendments issued by the IASB or interpretations issued by the IFRS Interpretations Committee (IFRS IC) that have had a significant impact on the consolidated financial statements.

The following new and revised standards and interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements, but may impact the accounting for future transactions and arrangements

Annual Improvements to IFRSs 2010 - 2012 Cycle

Annual Improvements to IFRSs 2011 - 2013 Cycle

New accounting standards, amendments and interpretations not yet adopted

At the date of authorisation of these financial statements, The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective and in some cases had not yet been adopted by the EU:

IFRS 9 Financial Instruments

IFRS 15 Revenue from Contracts with Customers

IFRS 11 (amendments) Accounting for Acquisitions of Interests in Joint Operations

IAS 1 (amendments) Disclosure Initiative

IAS 16 and IAS 38 (amendments) Clarification of Acceptable Methods of Depreciation and Amortisation

IAS 27 (amendments) Equity Method in Separate Financial Statements

IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

IFRS 10, IFRS 12 and IAS 28 (amendments) Investment Entities: Applying the Consolidation Exemption

IFRS 16 Leases

IFRS 16 replaces IAS 17 Leases. It eliminates the classification of leases as either operating leases or finance leases. Any leases with more than 12 months' term are to be recognised as a lease asset on the balance sheet and the related future lease obligations as a liability. IFRS 16 is only effective for annual periods beginning on or after 1 January 2019. The Group did not apply early adoption.

Annual Improvements to IFRSs: 2012-2014 Cycle Amendments to: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting.

The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods, except that IFRS 9 will impact both the measurement and disclosures of financial instruments and IFRS 20 June have an impact on revenue recognition and related disclosures. Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 and IFRS 15 until a detailed review has been completed. The above standards have not had significance on the Group or on the Company other than on disclosures.

5. Significant accounting policies

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 on page 20.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business.

Management fees

Investment management fees are based on funds under management and are recognised over the period in which the service relates to is completed.

Commission income

Commissions are recognised when the service is completed.

Fee income

Fees for consultancy services are recognised as the service is performed.

Other income

Other income is recognised as the services are provided.

Interest income

Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

Operating lease payments

The rentals under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis. Benefits received and receivable as an incentive to sign an operating lease are similarly spread on a straight-line basis over the lease term, unless another basis is more appropriate.

Borrowing costs

All borrowing costs are recognised in the income statement in the period in which they are incurred.

Retirement benefit costs

The company contributes to defined contribution pension schemes, held in separately administered funds. Contributions to the schemes are charged to the Consolidated Statement of Comprehensive Income when payable.

Operating loss

Operating loss is stated before charging finance costs and investment income.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Detailed financial forecasts are in place to support the carrying value of the deferred asset.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Fixtures and equipment

Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method, on the following bases:

Equipment, fixtures and fittings: 15% per annum on a straight-line basis

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.

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.

Impairment

Goodwill and other intangible assets with an indefinite life are tested annually for impairment. For the purposes of impairment testing, goodwill acquired in a business combination is allocated to each of the group's cash generating units (CGUs) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquisition are assigned to those units. The carrying amount of each CGU is compared to its recoverable amount, which is determined using a discounted future cash flow model.

Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained.

Intangible assets

Client relationships

Client relationships acquired in a business combination are recognised at fair value at the acquisition date. Relationships acquired outside of a business combination are initially recognised at cost. In assessing the fair value of these relationships, the Group has estimated their finite life based on information about the typical length of existing client relationships. Amortisation is calculated using the straight line method over their useful lives, ranging from 10 to 20 years.

Goodwill

Goodwill represents the excess of the cost of acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in 'intangible assets'. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.

Financial assets and liabilities

Financial assets and liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument and are initially measured at fair value.

Financial assets and liabilities are classified into the following specified categories: fair value through profit or loss and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Fair value through profit and loss

Financial assets at fair value through profit or loss are initially recognised at fair value and subsequently re-measured, with gains or losses arising from changes in fair value being recognised in profit and loss in in the period in which they arise.

Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assets

Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

Objective evidence of impairment could include:

· Significant financial difficulty of the issuer or counterparty; or

· Default or delinquency in interest or principal payments; or

· It becoming probable that the borrower will enter bankruptcy or financial re-organisation

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the Statement of Comprehensive Income.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the Statement of Comprehensive Income to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Effective interest rates

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

Client money

The Group holds money on behalf of clients in accordance with the client money rules of the Financial Conduct Authority and other regulatory bodies. Such money and the corresponding liabilities to clients are not shown on the face of the Statement of Financial Position, as the Group is not beneficially entitled thereto. The amounts held on behalf of clients at the balance sheet date are stated in note 24.

Deferred consideration

Deferred consideration, which is included within liabilities or equity depending on the form it takes, relates to the directors' best estimate of amounts payable in the future in respect of certain client relationships and subsidiary undertakings that were acquired by the Group. Deferred consideration is measured at its fair value based on the discounted expected future cash flows. Deferred consideration is recognised in equity when the amount payable is for a fixed amount of shares at a fixed price.

Share-based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 36.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.

Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Such investments are normally those with original maturities of three months or less and bank overdrafts. Cash and cash equivalents are stated net of the bank overdraft.

6. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 5, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

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

Critical judgements in applying the Group and Company's accounting policies

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

Share based payments

The calculation of the fair value of share based payments requires assumptions to be made regarding market conditions and future events. These assumptions are based on historic knowledge and industry standards. Changes to the assumptions used would materially impact the charge to the Statement of Comprehensive Income. Details of the assumptions are set out in note 36.

Goodwill and intangible assets

The amount of goodwill initially recognised as a result of a business combination is dependent on the allocation of the purchase price to the fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair value of the assets and liabilities is based, to a considerable extent, on management's judgement.

Goodwill is reviewed annually for impairment by comparing the carrying amount of the CGUs to their expected recoverable amount, estimated on a value-in-use basis.

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

Convertible loan note

The amount of the convertible loan note that is classified as a liability in the financial statements has been adjusted to reflect its fair value. This involves calculating the amount of the loan that relates to liabilities and the amount that relates to equity through applying an effective interest rate.

This effective interest rate is an estimate based on the directors' industry knowledge of rates for similar loans without the conversion element.

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 2016. 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:

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:

8. Loss for the year

Loss for year ended 31 December 2016 has been arrived at after charging:

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

9. Auditor's remuneration

The analysis of auditor's remuneration is as follows:

10. Staff costs

The average monthly number of employees (including Executive Directors, but excluding self employed advisers) from 1 January 2016 to 31 December 2016:

Their aggregate remuneration comprised:

11. Other gains and losses

The deferred consideration adjustments relate to a reduction in fair value of the deferred consideration amounts recognised in respect of the ISM and Bells acquisitions.

12. Finance costs

13. Tax

UK corporation tax is calculated at 20% (2015: 20.25%) of the estimated assessable profits for the year. The standard rate of UK corporation tax was reduced to 20% with effect from 1 April 2015.

14. Dividends

The Directors are not proposing to pay a dividend in respect of the year ended 31 December 2016 (year ended 31 December 2015: same).

15. Earnings per share

The loss per share is (0.03p) (2015: loss per share 0.05p). The diluted loss per share is (0.03)p (2015: loss per share 0.04p).

16. Fixtures & equipment

17. Business combinations

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

On 13 January 2016, EFP acquired the client list of Phoenix Invest Limited. The entire purchase price will be recognised as intangible assets due to EFP considering that due to the acquisition being purely of the client bank, the full consideration relates to assets that can be classed as intangibles under IFRS. Total consideration for the acquisition is £268,000 which is payable in four annual instalments with the final amount being payable in December 2018.

On 21 September 2016, EWG completed the acquisition of CIMCO Partners Management Limited, ("CIMCO") which manages the G20 Absolute Return fund which is based in Gibraltar for a maximum consideration of £750,000. CIMCO currently has approximately US$22m of funds under management. The initial consideration of £500,000 was satisfied on completion and with the issue of 909,091 of new ordinary shares of 5 pence each at a price of 55p. There is, depending on the gross profitability of CIMCO, further deferred consideration which may become payable approximately 12 months after completion of up to a maximum of £250,000, also to be satisfied by the issue of further new Ordinary Shares.

On 7 October 2016, EWG acquired a book of business and certain related assets from Towry Asset Management Limited for a total maximum consideration of £1.0m. The assets under management ("AUM") attributable to the Transferring Assets were approximately £80m-£1o0m as at 31 March 2016. For the full year to 31 March 2016, profit attributable to the Transferring Assets was approximately £0.2m. The aggregate maximum consideration for the Acquisition is £1.0m. The first installment of the Consideration of £150,000 is payable in cash six months after completion; the second installment of the consideration of £400,000 is payable 12 months after completion; and the final installment, up to a maximum of £450,000, is payable in cash depending on the AUM attributing of the Transferring Assets. The final installment will be paid no earlier than 18 months after (but including) the date of completion. The maximum contingent consideration of £450,000 is based on £120m of transferable assets, while the minimum contingent consideration of £60,000 is based on £60m of transferable assets. If assets transferred are between £60m and £120, the contingent consideration will be prorated accordingly.

18. Intangible assets and goodwill

Acquisition of client list of Phoenix Invest Limited

On 13 January 2016, European Financial Planning Limited acquired the full client list of Phoenix Invest Limited.

Phoenix Invest Limited is a financial planning business with £20m of funds under influence.

Acquisition of CIMCO Partners Management Limited, ("CIMCO")

On 21 September 2016, EWG acquired CIMCO Partners Management Limited, ("CIMCO") which manages the Gibraltar-based G20 Absolute Return fund for a maximum consideration of £750,000.

CIMCO accounted for approximately US$22m of funds under management.

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

Acquisition of book of business from Towry

On 7 October 2016, EWG acquired a book of business and certain related assets from Towry Asset Management Limited for a total maximum consideration of £1.0m.

The AUM attributable to the Transferring Assets were approximately £100m as at 31 March 2016. For the full year to 31 March 2016, profit attributable to the Transferring Assets was approximately £0.2m. The aggregate maximum consideration for the acquisition is £1.0m.

Goodwill

Goodwill acquired in a business combination is allocated at acquisition to the CGUs that are expected to benefit from that business combination. The Group has identified two 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 two 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 fourth year in which the CGUs have been analysed in this format.

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. The Phoenix investment has been allocated to the financial planning CGU. CIMCO and Towry acquisitions 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 indicates an impairment of goodwill would be necessary as at 31 December 2016.

Intangible assets

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 £8.0m of intangible assets being amortised over 20 years, £1.2m over 15 years, £0.2m over 10 years and £0.3m 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.

The additions to Group intangible assets outlined in the table on page 54 represent the value of the funds under management acquired and client base acquired as part of the acquisitions of Towry, CIMCO and Phoenix Invest Limited.

The above addition to the Company intangible assets represents the value of the funds under management acquired and client base acquired as part of the acquisitions of Towry.

19. Investments

The amount recognised as an investment in the Company accounts represents the purchase price of the acquisitions of CIMCO and Towry detailed in note 18.

20. Deferred tax asset

The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current year and prior reporting year.

Deferred tax assets and liabilities may only be offset where the Group has a legally enforceable right to do so.

The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

At the balance sheet date, the Group has unused tax losses of £4.5m (2015: £4.5m) available for offset against future profits. A deferred tax asset of £428,000 (2015: £428,000) has been recognised as the Group expects to be able to restructure to utilise these losses. No deferred tax asset has been recognised in respect of the remaining tax losses as there is some uncertainty as to how effective the future restructuring will be.

21. Trade and other receivables

Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost. The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value. All trade and other receivables represent current receivables which are due within 12 months.

22. Subsidiaries

European Wealth Group Limited has the following subsidiaries:

* GTI is held on the balance sheet of P&C for a nominal amount. EWG has no exposure to any potential losses of GTI as all gains and losses are attributed to the unit holders. P&C receives management fees for providing investment management services to GTI.

23. Loans receivable

All loans were to the Company's 100% fully owned subsidiaries, European Wealth Management Group Limited, European Investment Management Limited, European Wealth Trading Limited, and European Financial Planning Limited.

24. Cash, cash equivalents

Client money

Client money, held in segregated accounts not included in the balance sheet, was £37.4m (31 December 2015: £23.5m).

25. Trade and other payables

The Directors consider that the carrying amount of trade payables approximates to their fair value.

The deferred consideration payable is due to be paid by a mixture of cash and Ordinary shares in the Company.

26. 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 another year and is therefore repayable in August 2017 and is classed as short term. The £200,000 loan is repayable in December 2017 and is classed as current. Additional loans were obtained during the year from existing loan holders for £539,000 which are repayable during 2017. All loans remain outstanding as at the date of these financial statements. Additionally the CLS £3,963,115 is due for repayment in June 2017 and is now classed as short term.

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 three 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 three years. The interest rate charged is 3.75% over LIBOR.

Of the two combined amounts, as at 31 December 2016, £347,878 was outstanding of which £220,691 is repayable within 12 months. The balance of £127,187 is recognised in non-current liabilities.

Additionally, on 24 October 2014 John Morton loaned EWMG £100,000. The loan was made at an interest rate of 0% and is repayable at the Company's discretion. As at the year-end £40,000 remains outstanding (2015: £40,000) and is now deemed repayable within one year.

27. 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 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 annum.

28. Other non-current liabilities

29. Share capital

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 £2.0m.

On 22 June 2015 as part of the deferred consideration for Bradley Stuart, 43,502 ordinary shares of 5p each were issued to Mr Peter Mullins at a price of 88.5p per share.

On 1 July 2015, the 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, the 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.

On 13 September 2016, the Company issued 909,091 ordinary shares of 5p each at an issue price of 55p per share as part of the consideration for the acquisition of CIMCO.

On 13 September 2016, the Company issued 454,545 ordinary shares of 5p each at an issue price of 55p per share to Mr Michael Mechas.

On 7 October 2016, the Company announced the completion of a placing of 412,144 ordinary shares of 5p each at an issue price of 50p per share to raise £291,100.

30. Share premium account

31. Capital reserve

32. Foreign exchange reserve

Exchange difference relating to the translation of the results and net assets of the Group's foreign operation from their functional currencies to the Group's presentation currency are recognised directly in other comprehensive income and accumulated in the foreign currency reserve.

33. Retained earnings

In the year to 31 December 2016 the Company made a (loss)/profit after tax of (£2,688,000) (2015: £451,000).

34. Notes to the cash flow statement

Cash and cash equivalents comprise cash and cash equivalents with an original maturity of three months or less. The carrying amount of these assets is approximately equal to their fair value. Cash and cash equivalents are detailed in note 24.

35. Operating lease arrangements

At the balance sheet date, the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: