Kingswood H. Regulatory News (KWG)

1

Accounting policies

General information

Kingswood Holdings Limited is a company incorporated in Guernsey under The Companies (Guernsey) Law, 2008. The shares of the Company are traded on the AIM market of the London Stock Exchange (ticker symbol: KWG). 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 ICAAP.

1.1

Basis of accounting

The Group's interim condensed consolidated financial statements are prepared and presented in accordance with IAS 34 'Interim Financial Reporting'. The accounting policies adopted by the Group in the preparation of its 2022 interim report are consistent with those disclosed in the annual financial statements for the year ended 31 December 2021.

The information relating to the six months ended 30 June 2022 and the six months ended 30 June 2021 do not constitute statutory financial statements and has not been audited. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's most recent annual financial statements for the year ended 31 December 2021.

1.2

Changes in significant accounting policies

The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2022 annual financial statements.

1.3

Significant accounting policies

Going concern

The Directors review the going concern position of the Group on a regular basis as part of the monthly reporting process which includes consolidated management accounts and cash flow projections and have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Revenue recognition

Performance obligations and timing of revenue recognition

The majority of the Group's UK revenue, being investment management fees and ongoing wealth advisory, is derived from the value of funds under management / advice, with revenue recognised over the period in which the related service is rendered. This method reflects the ongoing portfolio servicing required to ensure the Group's contractual obligations to its clients are met. This also applies to the Group's US Registered Investment Advisor ("RIA") business.

For certain commission, fee-based and initial wealth advisory income, revenue is recognised at the point the service is completed. This applies in particular to the Group's US Independent Broker Dealer ("IBD") services, and its execution-only UK investment management. There is limited judgement needed in identifying the point such a service has been provided, owing to the necessity of evidencing, typically via third-party support, a discharge of pre-agreed duties.

1

Accounting policies

The US division also has significant Investment Banking operations, where commission is recognised on successful completion of the underlying transaction.

Determining the transaction price

Most of the Group's UK revenue is charged as a percentage of the total value of assets under management or advice. For revenue earned on a commission basis, such as the US broker dealing business, a set percentage of the trade value will be charged. In the case of one-off or ad hoc engagements, a fixed fee may be agreed.

Allocating amounts to performance obligations

Owing to the way in which the Group earns its revenue, which is largely either percentage-based or fixed for discrete services rendered, there is no judgement required in determining the allocation of amounts received. Where clients benefit from the provision of both investment management and wealth advisory services, the Group is able to separately determine the quantum of fees payable for each business stream.

Further details on revenue, including disaggregation by operating segment and the timing of transfer of service(s), are provided in note 3 below.

2

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 1, 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.

Critical judgements in applying the Group's accounting policies

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

Assessment of control

Control is considered to exist where an investor has power over an investee, or else is exposed, and has rights, to variable returns. The Group determines control to exist where its own direct and implicit voting rights relative to other investors afford the Group - via its board and senior management - the practical ability to direct, or as the case may be veto, the actions of its investees. 

The company holds 50.1% of voting rights in Kingswood US, LLC, parent company of the US and its subsidiaries, as well as a majority stake in the US division's advisory board when grouped with affiliated entities. The Group has thus determined that the Company has rights, to variable returns from involvement with Kingswood US, LLC and its subsidiaries; and the ability to use power over the US Group to affect the amount of those returns, as such the Company has consolidated the sub-group as subsidiaries with a 49.9% non-controlling interest.

The company holds 70% of voting rights in Moloney Investments Limited, parent company of Ireland and its subsidiaries, as well as a majority stake in the Ireland division's advisory board when grouped with affiliated entities. The Group has thus determined that the Company has the practical ability to direct the relevant activities of Moloney Investments Limited and its subsidiaries and has consolidated the sub-group as subsidiaries with a 30% non-controlling interest.

2

Critical accounting judgements and key sources of estimation uncertainty

Estimates and Assumptions

Intangible assets:

Expected duration of client relationships

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 period, client relationships were amortised over a 10-20 year period.

Goodwill

The amount of goodwill initially recognised as a result of a business combination is dependent on the allocation of the purchase price to the fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair value of the assets and liabilities is based, to a considerable extent, on management's judgement. Goodwill is reviewed annually for impairment by comparing the carrying amount of the Cash Generating Units (CGU) to their expected recoverable amount, estimated on a value-in-use basis. The CGUs are based on the business segments as outlined in note 3.

Share-based remuneration:

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.

Deferred tax:

Recoverability of deferred tax assets

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

Leases:

Estimating the incremental borrowing rate

The Group cannot readily determine the interest rate implicit in leases where it is the lessee, therefore, it uses its incremental borrowing rate to measure lease liabilities. This is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.

The incremental borrowing rate therefore reflects what the Group 'would have to pay', which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary's functional currency). The Group estimates the incremental borrowing rate using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary's stand-alone credit rating).

Deferred consideration:

Payment of deferred consideration

The Group structures acquisitions such that consideration is split between initial cash or equity settlements and deferred payments. The initial value of the contingent consideration is determined by EBITDA and/or revenue targets agreed on the acquisition of each asset. It is subsequently remeasured at its fair value through the Statement of Comprehensive Income, based on the Directors' best estimate of amounts payable at a future point in time, as determined with reference to expected future performance. Forecasts are used to assist in the assumed settlement amount.

3

Business and geographical segments

Information reported to the Group's Non-Executive Chairman for the purposes of resource allocation and assessment of segment performance is focused on the category of customer for each type of activity.

The Group's reportable segments under IFRS 8 are as follows: investment management, wealth planning and US operations.

The Group has disaggregated revenue into various categories in the following table which is intended to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic date and enable users to understand the relationship with revenue segment information provided below.

The following is an analysis of the Group's revenue and results by reportable segment for the year to 31 December 2021. The table below details a full year's worth of revenue and results for the principal business and geographical divisions, which has then reconciled to the results included in the Statement of Comprehensive Income:

Investment management

Wealth planning

US 

operations

IRE

operations

Group

Total

Perioded Ended 30 June 2023

Continuing operations:

£'000

£'000

£'000

£'000

£'000

£'000

Revenue (disaggregate

by timing):

Non-recurring

452

2,053

37,514

1,743

-

41,762

Recurring

3,465

14,662

2,051

790

-

20,968

External sales

3,917

16,715

39,565

2,533

-

62,730

Direct expenses

(569)

(793)

(35,952)

-

-

(37,314)

Gross profit

3,348

15,922

3,613

2,533

-

25,416

Operating profit / (loss)

1,379

5,589

591

761

(3,355)

4,965

Business re-positioning costs

(76)

(104)

(124)

-

(64)

(368)

Finance costs

(7)

(87)

(8)

(1)

(7,035)

(7,138)

Amortisation and depreciation

(9)

(823)

-

(18)

(2,107)

(2,957)

Remuneration charge (deferred consideration)

-

-

-

(259)

(259)

Transaction costs

(61)

(272)

-

(3,828)

(4,161)

Goodwill adjustment

-

-

-

-

-

Profit / (loss) before tax from continuing operations

1,226

4,303

459

742

(16,649)

(9,919)

Tax

-

(157)

(14)

(4)

-

(175)

Profit / (loss) after tax from continuing operations

1,226

4,146

445

738

(16,649)

(10,094)

3

Business and geographical segments

Perioded Ended 30 June 2022

Investment management

Wealth planning

US 

operations

Group

Total

Continuing operations:

£'000

£'000

£'000

£'000

£'000

Revenue (disaggregated by timing):

Non-recurring

465

1,776

55,944

-

58,185

Recurring

3,123

11,088

7,993

-

22,204

External sales

3,588

12,864

63,937

-

80,389

Direct expenses

(717)

(519)

(59,094)

-

(60,330)

Gross profit

2,871

12,345

4,843

-

20,059

Operating (loss) / profit

685

5,125

1,529

(2,834)

4,505

Business re-positioning costs

(140)

(336)

(397)

(329)

(1,202)

Finance costs

(1)

(70)

(3)

(1,381)

(1,455)

Amortisation and depreciation

-

(687)

42

(1,218)

(1,863)

Remuneration charge (deferred consideration)

-

(42)

-

6,351

6,309

Transaction costs

-

-

-

(1,621)

(1,621)

Goodwill adjustment

-

-

-

(6,364)

(6,364)

Profit / (loss) before tax from continuing operations

544

3,990

1,171

(7,396)

(1,691)

Tax

-

(129)

11

(21)

(139)

Profit / (loss) after tax from continuing operations

544

3,861

1,182

(7,417)

(1,830)

3

Business and geographical segments

Year Ended 31 December 2022

Investment management

Wealth planning

US 

operations

Group

Total

(audited)

Continuing operations:

£'000

£'000

£'000

£'000

£'000

Revenue (disaggregated by timing):

Non-recurring

931

2,045

118,396

-

121,322

Recurring

6,252

15,169

9,431

23

28,394

External sales

7,183

17,214

127,827

23

149,716

Direct expenses

(1,476)

(913)

(118,108)

-

(120,497)

Gross profit

3,176

16,301

9,719

23

29,219

Operating (loss) / profit

365

5,779

5,123

(4,940)

6,327

Business re-positioning costs

(177)

(239)

(263)

(885)

(1,564)

Finance costs

-

(72)

2

(4,857)

(4,927)

Amortisation and depreciation

-

(1,197)

(212)

(990)

(2,399)

Other gains

-

-

-

(3,056)

(3,056)

Remuneration charge (deferred consideration)

-

(3,691)

-

(3,318)

(7,009)

Transaction costs

-

(4)

-

(1,832)

(1,836)

(Loss) / profit before tax from continuing operations

188

576

4,650

(19,878)

(14,464)

Tax

-

(16)

(317)

(428)

(761)

(Loss) / profit after tax from continuing operations

188

560

4,333

(20,306)

(15,225)

4

Other (losses) / gains

Six months to

Six months to

Year Ended

30 June 2023

30 June 2022

31 December 2022

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Additional payments due on acquired businesses

-

-

-

Unrealised gain/(loss) on investment

-

-

(23)

-

-

(23)

5

Earnings per share

Six months to

Six months to

Year ended

30 Jun 2023

30 Jun 2022

31 Dec 2022

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

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

(10,537)

(2,545)

(7,797)

Number of shares

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

216,920,719

216,920,719

216,920,724

Effect of dilutive potential ordinary shares:

Share options

6,624,664

8,580,094

5,897,018

Convertible preference shares in issue

525,217,205

469,263,291

512,407,029

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

748,762,592

694,764,104

735,224,771

Continuous operations:

Basic loss per share

£(0.05)

£(0.01)

£(0.04)

Diluted loss per share

£(0.01)

£(0.00)

£(0.01)

Total loss:

Basic loss per share

£(0.05)

£(0.01)

£(0.04)

Diluted loss per share

£(0.01)

£(0.00)

£(0.01)

6

Tangible Assets

Fixtures and equipment

£'000

Cost

At 1 January 2022

1,655

Additions

86

Acquisitions NBV

61

At 30 June 2022

1,802

Additions

27

Acquisitions NBV

19

Reclassifications

1,438

FX on opening

17

At 31 December 2022

3,303

Additions

99