Results for the financial year ended 31 Dec 2017

European Wealth Group Limited

("European Wealth" or the "Company")

Audited results for the financial year ended 31 December 2017

European Wealth Group Limited (AIM: EWG, EWGL), the integrated wealth management group, is pleased to announce its audited financial results for the year ended 31 December 2017.

Operational Highlights

· 13% increase in Assets under Management ("AUM") to over £1.7bn (2016: £1.5bn) with a particularly strong addition of funds in the Fixed Income division

· Appointment of a new Group Chief Executive Officer in September 2017, leading to the delivery of a substantial number of positive measures to:

o Position the Group for growth through M&A and organically;

o Significantly reduce operating costs; and

o To grow AUM and recurring fee income

· M&A strategy is focused on delivering earnings accretive acquisitions and capitalising on the consolidation opportunities in the industry - decision made not to proceed with the acquisition of Newbridge Securities given that the remaining closing conditions could not be satisfied

Financial highlights

· Increase in Group revenue for the year to £10m (2016: £9.4m)

· Refinancing of the Convertible Loan of £4.0m, leading to £9.3m of new capital and the addition of two significant and supportive shareholders

· Core adjusted loss of £0.9m (2016: £0.2m profit)

· Group loss for the year of £5.9m (2016: £0.75m loss), primarily due to one-off restructuring costs and a substantial write-down to goodwill

· European Wealth became debt free with a net cash position post period end following the conversion of £6.7m of loan facilities into ordinary shares

Marianne Ismail, Group Chief Executive of European Wealth, commented: "I am delighted to be reporting growth in AUM and revenues in the first set of full year results published since my appointment in September 2017.

"Our activities have been firmly focused on creating a strong platform for growth. We have removed the debt, in turn bringing cash onto the balance sheet, reduced our operating costs, and have invested in software to ensure that our business reflects the needs of our customers. With this in mind we are confident that the losses incurred during the period due to these activities will position European Wealth ideally to create value for shareholders both organically and via M&A and we hope that the benefits will begin to be reflected in our interims.

"Our M&A strategy remains central to our business. We have stringent criteria to ensure that we deliver value accretive acquisitions and with this in mind, the decision was made not to pursue the acquisition of Newbridge Securities in the USA. However, there is a significant market opportunity, given the fragmented nature of the global wealth management industry, and with this in mind we look forward to updating the market on future opportunities at the appropriate time."

The annual report is being printed and will be posted out to shareholders today. Alternatively, the documents are available to be viewed or downloaded from the Company's website: https://www.europeanwealth.com/

European Wealth Group Limited +44 (0)20 7623 2368

Marianne Ismail

Hugo Evans

finnCap Ltd (Nomad and Broker) +44 (0)20 7220 0500

Adrian Hargrave

Anthony Adams

Redleaf Communications (for media) +44 (0)20 3757 6865; [email protected]

Robin Tozer

Chairman and Group Chief Executive Officer Statement

During 2017, our total client assets under management or advice increased to over £1.7bn (2016 £1.5bn) with a particularly strong addition of funds in our Fixed Income division. The revenues of the Group also increased to just over £10m from £9.4m in 2016, reflecting the continuing ability to grow top-line revenue, despite the testing conditions faced by the Group over the course of the year.

Strategy and Key Actions during 2017

2017 was a year of significant change for European Wealth and at the time of writing this report, the Group has addressed the key issues which it has faced since inception and we are optimistic that the actions outlined below leave the business in a position of strength.

The strategy of the Group continues to focus on three inter-related business segments, namely Investment Management, Financial Planning and Private Client Stockbroking. Growth in these three core activities is being pursued through acquisition of earnings accretive businesses, organic growth and adding revenue generating staff.

The UK market is in a period of major consolidation which offers an opportunity to build a brand, as the market place, particularly in financial planning is fragmented with almost no brand recognition for any competitor. In addition, the US, the predominant global wealth management market, is in a similar period of change creating a target market for recruiting and acquisitions.

To achieve a profitable company with significant growth in assets under management, the Board has taken three strategic actions.

The first was to strengthen the balance sheet and address the refinancing of the Convertible Loan. Our interim report for the first six months of 2017 concentrated on the refinancing of the Convertible Loan of £4.0m which was due to mature on 9 June 2017. £9.3m of new capital for EWG was announced on 23rd June 2017 and two significant and supportive shareholders, KPI (Nominees) Limited ("Kingswood") and Astoria Investments Ltd ("Astoria") joined our share register. Despite this equity infusion, the Group still had some debt on the balance sheet and this was addressed through a small working capital facility.

In last year's annual report, it was noted that since its inception in 2009, the Group has been mainly funded by debt. Therefore secondly, as a result of the recent fundraising in May 2018, we are pleased to report that the Group is now debt free with a net cash position for the first time and is well-positioned to take advantage of the long-term growth opportunities present in the global wealth management and financial planning market.

Thirdly, since the appointment of a new Group Chief Executive Officer in September, we have conducted an extensive strategic review of the operating businesses and put in place a substantial number of positive measures to position the Group for growth, to markedly reduce operating costs and to grow AUM and recurring fee income. Over the last seven months to date, we have taken £1.4m of costs out of the operating business and markedly reduced the headcount. The Group now has hubs in London, Manchester and East Malling in Kent. In addition, our back office continues to be located in Cheltenham. As a result of this restructuring, there have been substantial extraordinary costs incurred, including a significant impairment (£2.3m) to the Groups intangible assets, notably goodwill attached to the foreign subsidiaries in Gibraltar and Switzerland. However, the majority of the implementation of the cost reduction took place in the first few months of 2018 and will be fully reflected in the Groups interim report.

Newbridge

In November 2017, the Group entered into an agreed purchase for Newbridge Securities in the US. FINRA, the US regulator approved the application on 22 May 2018. EWG then entered into final due diligence and the completion of all the remaining (non-regulatory) closing conditions. Both parties worked in good faith but unfortunately the remaining closing conditions could not be satisfied and both parties decided not to proceed with the proposed acquisition.

We remain committed to our growth strategy however and are ambitious to grow both organically and dynamically by acquisition in the UK and US.

The Board

There have been a number of Board changes during 2017.

After the July 2017 fund raise Kishore Gopaul retired.

In September 2017, John Morton stepped down from the Board and also as Group Chief Executive. Marianne Ismail, previously a non-executive director was appointed Group Chief Executive Officer.

In October 2017, following the successful capital raise in July, Gary Wilder and Jonathan Massing of Kingswood joined the Board.

In December Simon Ray resigned his position on the Board and Darryl Kaplan who represents Astoria joined in February 2018.

We welcome our new directors and would like to thank the retiring directors for their service over several years.

Outlook

It is very apparent that there are substantial changes in customer requirements in the global marketplace. Holistic wealth management combining advice and solutions for life events is replacing traditional investment management. Customers are demanding technology driven solutions which are in turn improving operational efficiency and client reporting. We are addressing these changes by co-locating our investment managers and financial planners in London and Manchester as well as introducing software which brings digital marketing, on-boarding and processing.

In both the UK and US, the speed and scale of change has disrupted many providers. MIFID II across the EU has furthered full transparency of charges and a trend to "all-in fees". We have reviewed our charges in the light of this and have invested in our software and outsourcing to ensure we continue to put the interests of our clients first and meet all our regulatory requirements.

 In the UK, 70% of wealth is controlled by those aged 55 and above while growing wealth among the under 30s is the trend globally. Many clients are first time wealthy, thanks to entrepreneurship, property inheritance and pension pots. They have a high demand for quality advice giving rise to a growing demand for advisory services. Advice coupled with investment management and access to solutions including active, passive and alternative strategies is the cornerstone of our strategy.

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

Buzz West, Chairman

Marianne Ismail, Group Chief Executive Officer

June 2018 

Strategic Report

This strategic report has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to European Wealth Group Limited and its subsidiary undertakings, when viewed as a whole. The strategic report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

Objectives and strategy

The Group's strategy is to become a leading provider of wealth planning and investment management services in its chosen markets. This will be achieved both through organic growth and by selective acquisitions. This strategy has resulted in the Group increasing its total client assets under management or advice to £1.7bn over the last five years.

We are predominantly a private client business, but also have a strong Fixed Income Institutional business. We provide services in four main areas:

· Wealth planning and advice, including pensions and succession planning

· Private client discretionary investment management

· Institutional discretionary investment management

· Private client stockbroking

Market growth in the UK remains strong, driven both by increasing personal wealth and by regulatory change, especially pensions freedom, which substantially drives demand for wealth planning. There is a shortage of skilled advisors, and many advice firms are too small to carry the increasing compliance burden.

The Group launched a new growth strategy in Q1 2018 and this is already bearing fruit; we are successfully hiring quality advisors, in a very tight market; we are investing further in the quality of our investment research and pensions advisory compliance, to ensure that we are able to provide the robust, quality advice which is so needed in the market; and we are planning acquisitions of good quality target firms which fit with our culture and which see the benefits of prospering within a business that has critical mass and a strong operating platform.

Our business is highly scalable; incremental revenue growth will disproportionately boost profitability, since our platform is now fit for purpose and has capacity. We continue to invest, with a new digital client service model being implemented in 2018, which will allow our advisors to work with clients directly from Tablet screens, eliminating paper.

The firm today has 23 investment managers and financial planners. Our plan over the next three years is to grow this to 50, both through organic growth and through acquisition. About 85% of our financial planning assets are currently served from external operating platforms; we anticipate that much of this will be handled in-house going forward, whether under advisory or discretionary mandates.

We have a strong geographic base in London, Manchester and South Africa; and we continue to explore opportunities for the right acquisition in the US.

To frame our new growth plans, we are launching a new brand identity; from July 2018 the Group's businesses will trade under the name KW Wealth.

Financial Overview

A summary of the statement of comprehensive income for the financial year is set out below:

1 Costs relate to the fees associated with the aborted acquisition of Newbridge as announced on 7 November 2017, the aborted acquisition of Cornhill Capitaland additional costs incurred in relation to the acquisition of Compass Financial Benefits in June 2014

2 Costs incurred in relation to the repayment of the convertible loan note in June 2017

3 During the year there were a number of changes to both the senior management team and the front office in respect of fixed employment contracts. These are not considered by the Board as part of the Group's ongoing operating costs

4 Refer to Note 19 for explanation of the impairment charge

Statement of Financial Position

The focus of the Board in 2017 was to strengthen the statement of financial position on the back of the CLS repayment in June. The Group therefore carried out a capital raise in July 2017, resulting in an additional £9.3m of capital injected into the business. This increased net assets of the business from £17.8m in 2016 to £20.9m as at 31 December 2017 and reduced the net current liabilities from £8.1m to £2.6m.

On 7 November 2017, EWG entered into an agreement with KPI giving the Group access to four facilities for the purchase of Newbridge Securities. At the year end, £10.3m of these facilities had been drawn and held within current liabilities (refer to Note 26 for breakdown of these facilities). On 31 May 2018, £7.0m of the drawn facilities, inclusive of interest and fees, were converted into European Wealth ordinary shares, further strengthening the statement of financial position.

On 7 June 2018, the Group announced its decision not to pursue the Newbridge acquisition (as detailed in the Chairman and Group Chief Executive Officer’s Statement). The remainder of the drawn facilities were returned to the lender, leaving the Group debt-free, with net assets, current assets and strong cash position. This will allow the business to pursue its growth strategy as laid out in the first part of this report.

Key performance indicators

A review of the Group’s business and an indication of likely future developments are contained in the Chairman and Group Chief Executive Officer statements and in the Review of the Business. The Group’s key performance indicators are highlighted below.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2017

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 Financial Position

As at 31 December 2017

Company Statement of Financial Position

For the year ended 31 December 2017

The Company loss for the year end 31 December 2017 was £4,251,000 (2016: £2,688,000).

Consolidated Statement of Changes in Equity

For the year ended 31 December 2017

Company Statement of Changes in Equity

For the year ended 31 December 2017

Consolidated Statement of Cash Flows

For the year ended 31 December 2017

Notes to the Financial Statements

For the year ended 31 December 2017

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 in line with Guernsey Company Law.

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, 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 presentation 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 Statement of Financial Position and average rates for the Statement of Comprehensive Income.

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 Statement of Comprehensive Income.

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 Statement of Financial Position and average rates for the Statement of Comprehensive Income.

XCAP Nominees Limited is a non-trading entity.

4. Adoption of new and revised standards

New accounting standards, amendments and interpretations adopted in the period

In the year ended 31 December 2017, 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.

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 15 'Revenue from Contracts with Customers'

IFRS 15 is effective for periods commencing on or after 1 January 2018 and replaces existing revenue recognition guidance, in particular under IAS 18. The standard was endorsed by the EU during 2016. The group has not adopted this standard early in preparing these consolidated financial statements.

IFRS 15 changes how and when revenue is recognised from contracts with customers and the treatment of the costs of obtaining a contract with a customer. The standard requires that the recognition of revenue is linked to the fulfilment of identified performance obligations that are enshrined in the customer contract. It also requires that the incremental cost of obtaining a customer contract should be capitalised if that cost is expected to be recovered. The group has considered the impact of adopting the standard, on its existing revenue streams, as well as on its policy of capitalising the cost of obtaining customer contracts and does not believe it will have a material impact.

Net fee and commission income

Included within net fee and commission income are initial fees, charged by a number of group companies in relation to certain business activities. Under IFRS 15, the group is required to make an assessment as to whether the work performed to earn such fees constitutes the transfer of services and, therefore, fulfils any performance obligation(s). If so, then these fees can be recognised when the relevant performance obligation has been satisfied; if not, then the fees can only be recognised in the period the services are provided.

We have not identified any instances where the recognition of revenue will change materially from the current treatment in the consolidated financial statements.

IFRS 9 Financial Instruments

IFRS 9 changes the classification and measurement of financial assets. Financial assets will be classified into one of three categories: amortised cost, fair value through profit or loss (FVTPL) or fair value through other comprehensive income (FVOCI).The held to maturity, loans and receivables and available for sale categories available under IAS 39 have been removed. In addition, the classification criteria for allocating financial assets between categories are different under IFRS 9.There is no material change to the classification of financial liabilities.

The Group does not expect the new classification bases to have a material impact on its financial assets.

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 Statement of Financial Position 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 15 may 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 14.

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 related service 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.

Borrowing costs

All borrowing costs are charged to profit and loss 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 profit and loss.

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 Statement of Financial Position 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 Statement of Financial Position 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 Statement of Financial Position 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 profit or loss, 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.

Property, plant and equipment

Property, plant 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:

Office equipment, fixtures and fittings: over 60 months on a straight-line basis

IT equipment and software: over 36 months 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 through the profit and loss. Negative goodwill arising on an acquisition is recognised immediately through the profit and loss. 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 Statement of Financial Position 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 or 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 or 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 Statement of Financial Position 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 through the profit and loss.

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 profit and loss 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.

Reclassification of equity

Under Guernsey Company law, the Company reserves the right to transfer the balance of its share premium account to retained earnings.

Trade and other payables

These amounts represent liabilities for goods and services provided to the group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

Borrowings are removed from the Statement of Financial Position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.

Where the terms of a financial liability are renegotiated and the entity issues equity instruments to a creditor to extinguish all or part of the liability (debt for equity swap), a gain or loss is recognised in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting 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. The convertible loan note was repaid in June 2017.

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 Statement of Financial Position date are stated in note 25.

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 35.

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 Statement of Financial Position 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 35.

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.

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 2017. 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 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: 

8. Loss for the year

Loss for year ended 31 December 2017 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 2017 to 31 December 2017:

Their aggregate remuneration comprised:

11. Other gains and losses

The impairment of intangibles relate to the removal of the Goodwill on acquisition of P&C and CIMCO.

12. Internal restructuring costs

During the year, the Group incurred £283k of internal restructuring costs (2016: £nil), which were part of a formal restructuring plan approved by the Board.

13. Finance costs

14. Tax

UK corporation tax is calculated at 19.25% (2016: 20%) of the estimated assessable profits for the year.

15. Dividends

The Directors are not proposing to pay a dividend in respect of the year ended 31 December 2017 (year ended 31 December 2016: £nil).

16. Earnings per share

The loss per share is (0.10)p (2016: loss per share (0.03)p). The diluted loss per share is (0.10)p (2016: loss per share (0.03)p).

17. Property, plant & equipment

18. Business combinations

During the period under review, the Group completed one acquisition. On 9 May 2017, EWG acquired the entire share capital of Montpelier (B.V.I.) Limited for a purchase price of £30,000. The business was subsequently disposed of on 30 November 2017 for £nil value.

19. Intangible assets and goodwill

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 fifth 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 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 the wealth management CGU, the fair value less costs to sell is greater than the carrying value. For the financial planning CGU, a minor impairment (£87k) has been recognised. 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. A decision was made to impair the goodwill in full, in respect of the investment in P&C and CIMCO due to the decisions to close the Absolute Return fund and sell the P&C business as at 31 December 2017. Goodwill associated with the acquisition of CIMCO was impaired by £335k while the goodwill associated with the acquisition of P&C was impaired by £1.5m.

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 £7.2m of intangible assets being amortised over 20 years, £1.1m over 15 years and £0.2m over 10 years.

The additions to the Group's intangible assets outlined in the table on page 55 represent the value of the funds under management acquired and client base acquired as part of the acquisitions of Montpelier and Towry. The disposal represents the Group's disposal of Montpelier.

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 and Montpelier and their subsequent impairment/disposal.

20. Investments

The amount recognised as an investment in the Company accounts represents the purchase price of Montpelier (£30k) and an additional investment by EWG into its subsidiary EWMG (£10m). The disposal represents the Groups disposal of Montpelier (£30k).

21. 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 Statement of Financial Position date, the Group has unused tax losses of £4.6m (2016: £4.5m) available for offset against future profits. A deferred tax asset of £428,000 (2016: £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 (£2.2m) as there is some uncertainty as to the timing of future expected profit.

22. 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.

23. Subsidiaries

European Wealth Group Limited has the following subsidiaries:

24. 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.

25. Cash, cash equivalents

Client money

Client money, held in segregated accounts not included in the Statement of Financial Position, was £32.8m (31 December 2016: £37.4m).

26. 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.

27. Short term borrowings

In March 2017, EWG entered into two facilities agreements, each for £250,000, with Phoenix Investments, Inc and Michael Mechas. At 31 December 2017, £250,000 (2016: £nil) and £221,688 (2016: £nil) was outstanding respectively.

On 7 November 2017, EWG entered into a facilities agreement with KPI (Nominees) Ltd. As part of this agreement, EWG has access to four facilities as follows:

1. £10m term facility loan

2. $5m term facility loan

3. £2m working capital term loan facility

4. $2m working capital term loan facility

Each facility has a duration of three years, an interest rate of 7.5%, an underwriting fee of 1%, an arrangement fee of 0.75% and a non-utilisation fee of 0.5%. All fees in relation to the term facility loans are contingent on EWG receiving FINRA approval of the Newbridge acquisition, which was received on 22 May 2018.

At 31 December 2017, £9.6m of Facility 1 had been drawn and was outstanding (2016: £nil). Underwriting fees of £100,000 and arrangement fees of £75,000 have been capitalised against the loan and amortised over the life of the loan. Additionally, professional fees of £205,000 have been capitalised against the loan.

At 31 December 2017, £700,000 of Facility 3 had been drawn and was outstanding (2016: £nil). Underwriting fees of £20,000 and arrangement fees of £15,000 have been capitalised against the loan and amortised over the life of the loan.

Facilities 2 and 4 were undrawn at 31 December 2017.

28. Other non-current liabilities

29. Share capital and share premium

Movements in Ordinary shares

Ordinary shares have a par value of £0.05. They entitle the holder to participate in dividends, and to share in the proceeds of winding up the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

On 31 December 2017, the Company transferred its share premium account to retained earnings.

The company does not have a limited amount of authorised capital.

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.

On 17 January 2017, the Company issued 854,735 ordinary shares of 5p each at an issue price of 51.6p per share as part of the consideration for the acquisition of ISM.

On 1 March 2017, the Company issued 626,808 ordinary shares of 5p each at an issue price of 53.4p per share as part of the consideration for the acquisition of Compass.

On 27 July 2017, the Company announced the completion of a placing of 72,786,620 ordinary shares of 5p each at an issue price of 12.8p per share to raise £9,196,078.

On 21 September 2017, the Company issued 78,886 ordinary shares of 5p each at an issue price of 21p per share as part of the consideration for the acquisition of Bells.

On 13 October 2017, the Company issued 637,158 ordinary shares of 5p each at an issue price of 19.6p per share as part of the consideration for the acquisition of CIMCO.

On 31 December 2017, the Company issued 146,023 ordinary shares of 5p to Simon Ray in settlement of share options.

30. Other Equity

31. Other reserve