15 March 2023

KINGSWOOD HOLDINGS LIMITED

("Kingswood" or the "Group")

Trading Update

Kingswood Holdings Limited (AIM: KWG), the international, fully integrated wealth and investment management group, provides an update on trading for the year ended 31 December 2022 ("FY2022") and outlook for the year ended 31 December 2023 ("FY2023").

Trading update: 

Kingswood continues to make exceptional progress against its strategic objectives and its medium-term targets.

Subject to audit, the Group expects to report total revenue of approximately £143.6m for FY2022, a decrease of £6.1m or 3.9% year on year.

UK revenues increased to approximately £33.8m, a 54% increase year on year, reflecting resilience to market headwinds and the benefit of acquisitions in the current and prior periods.

The US business (in which KHL has a 50.1% interest and the US financials are consolidated into Group reporting) expects to report revenues of approximately £110m, a decrease of 14% year on year, due to lower than expected capital markets activity affecting US investment banking revenues and the timing of a large one-off, high margin US transaction that was expected to be reported in 2022 and that will now be recognised in 2023.

The Group expects FY2022 operating profit to be £8.5m, an increase of £2.2m or 34% year on year, but below the Board's expectations.

UK expects to report operating profit of £11.3m (a £5.2m or 84% increase year on year) and is in line with Board expectations.

The US business expects to report operating profit of £2.8m (a £2.4m or 46% decrease year on year) and below Board expectations.

Further detail is set out below.

Strategic highlights:

·     Kingswood completed the acquisition of ten businesses in the UK in 2022. Collectively, these businesses have added £1.7bn AuA, 28 advisers and £11.8m revenue to the Group in 2022 and will add a further £6.0m incremental revenue in 2023.

·      In Q1 2023 two further acquisitions, Barry Fleming Partners and Moloney Investments Ltd (MMPI), have completed, adding further AuA of £0.7bn and revenue of £8.3m. The acquisition of MMPI is a highly strategic investment, providing access to the attractive Irish wealth management market and offering multiple new avenues for growth.

·     UK AUM/A increased by £3.2bn to £8.1bn as at 31 December 2022, driven by inorganic growth and positive net flows of assets under management and advice (AUM/A). AUM/A as at March 2023 is £9.0bn following the acquisitions completed in the Q1 2023.

·     The acquisition of IBOSS has driven increased flows into Kingswood investment solutions. Vertical Integration of AuA, where an existing Wealth Planning client chooses a Kingswood Investment product or service (MPS/PPS), increased to £650m by the end of FY2022.

·     In the H2 2022, the UK business has continued to perform in line with Board expectations, generating net positive inflows of client AUM/A inflows and increasing revenue by more than 50% year on year.

·    In October 2022, Kingswood announced that it had entered into a debt facility with a leading global financial institution to provide initial funding of £50m with the ability to increase the commitment to £150m. This facility will further enable Kingswood UK's strategic growth plans. 

·   Technology has been successfully deployed in the business to improve the client experience and productivity. Following the launch of our market leading 'Kingswood Go' app in March 2022, over 3,300 clients have now been registered providing them with easier access to their investment portfolio. Further investments in technology will deliver an enhanced experience for the client including digital fact finds and new propositions that will provide both a face to face and a digitally delivered service.

·      Kingswood has launched a new AIM portfolio available for clients, expanding the investment proposition.

·   Kingswood US has continued to grow its RIA/BD business organically through the accelerated recruitment of registered representatives, which supported an 19% increase in AUM/A to $3.0bn. The US business continued to build its Investment Banking operating segment, recruiting two new high quality IB groups in H1 2022 focused on mid-market equity capital markets.

·   The UK division has reported strong performance reflecting rapid growth in the business. UK revenue will be approximately £33.8m, a 54% year on year increase (2021: £21.9m). 87% of the UK's revenue is recurring in nature, providing a strong, annuity-style fee stream.

·     The UK division is expected to deliver operating profit of approximately £11m, up 80% year-on-year (2021: £6.1m), which is in line with Board expectations. Growth in operating profit, a large part of which is driven by acquisitions, is underpinned by careful cost management and realising synergy benefits from business integrations to drive margin improvement. Central costs are expected to be £5.6m, £0.7m higher year on year, reflecting investment to support the growing business.

·     US division revenue will be approximately £110m, a year-on-year reduction of 13.9% (2021: £127.8m) due to lower transactional Investment Banking revenues resulting from a slowdown in capital market activity, the timing of a large one-off transaction and accordingly is below expectation. However, RIA/BD revenues, which are recurring in nature and driven by AUM, have grown 25% year over year on a like for like currency basis. Operating profit is expected to be £2.8m (2021: £5.1m)

·    FY2022 Group revenue is therefore expected to be approximately £143.6m, a 3.9% decrease on prior year (2021: £149.7m).

·      FY2022 Group operating profit is expected to be approximately £8.5m, 34% higher than 2021 but below the Board's expectations. Year on year growth in operating profit was driven by acquisitions and organic growth in the UK. It is lower than anticipated due to the impact of lower US Investment Banking revenues and timing of a large one-off revenue from a transaction in the US that had expected to be reported in 2022 and will now be recognised in 2023.

·     As at December 2022, Group net assets are expected to be £74.0m (2021: £76.9m) comprised of £(5.5)m net debt, £(32.8)m deferred consideration and £112.3m of other net assets. As at December 2022 the Group had drawn £25m of the debt facility.

2023 Outlook

Our near-term target remains to build our AUM/A to in excess of £10bn in UK&I and £12bn for the Group.

With the full year effect of the acquisitions made to date, current Group FY2023 run rate operating profit is approximately £14.7m. Through organic growth and further acquisitions through 2023 we are building a pipeline to deliver proforma operating profit of £20m. Further upside should also be expected if markets recover, but this is not assumed in our plans.

We continue to enjoy a strong and healthy pipeline of acquisitions and have capacity with our debt facility to support this. However, we are also considering sources of new capital to ensure that we have a full range of options available to us. We currently have four potential acquisitions in exclusivity and a number of others in advanced negotiations.

In the US, we expect further progress in building out organic growth in the RIA/BD business and look forward to an improvement in capital market conditions.

David Lawrence, Kingswood Chief Executive Officer, commented:

"I am delighted that our business continues to make progress across the Group with organic growth and positive net asset flows complemented by ongoing acquisition activity. It is understandable that capital markets activity softened in the US in 2022 as a result of market conditions, with this division of our business delivering lower operating profit contribution in the year. However, the strategy and trajectory of the business continues as planned. Our recent entry into the Irish market is a further demonstration of Kingswood's progress and commitment to our future growth. We expect to announce further acquisitions later in 2023."

ENDS 

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About Kingswood

Kingswood Holdings Limited (trading as Kingswood) is an AIM-listed (AIM: KWG) international fully integrated wealth management group with circa £9 billion of assets under advice and management. It services circa 19k clients from a growing network of offices across the UK with overseas offices in US , Ireland and South Africa.

Kingswood offers a range of trusted investment solutions to its clients, which range from private individuals to some of the UK's largest universities and institutions, including investment advice and management, personal and company pensions and wealth planning. Kingswood is focused on building on its position as a leading player in the wealth and investment management market through targeted acquisitions, creating a global business through strategic partnerships.

The information contained within this announcement is deemed to constitute inside information as stipulated under the retained EU law version of the Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. The information is disclosed in accordance with the Company's obligations under Article 17 of the UK MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain.