The directors present their annual report and financial statements for the year ended 31 December 2023.
This Strategic Report provides a review of the business for the financial year and describes how risks are managed.
The report outlines the developments and performance of the group during the financial year, the position at the end of the year and discusses the main trends and factors that could affect the future.
The company’s principal activity continues to be that of providing client-directed financial and investment research, trade execution and administrative services on behalf of the parent entity, KGH Ltd (formerly Key Group Holdings (Cayman) Ltd).
The company's activities primarily consist of:
Operational tasks on behalf of the parent company
Provision of non-discretionary client directed specific investment research
Trade execution services
Provision of middle and back-office services
The UK entity continues to support the Parent entity and the directors are satisfied with the results for the year and the position at the year end.
The company’s ongoing principal activity is to provide client-directed financial and investment research services on behalf of the parent entity, KGH Ltd (formerly Key Group Holdings (Cayman) Ltd).
The company’s principal risks are therefore closely linked to those of the parent entity, and it is consequently exposed to the parent entities reliance on its client.
KGH Ltd is a registered investment adviser, that has operated successfully for many years. KGH Ltd and its parent Millinvest Ltd have demonstrated their commitment to the long-term success of the company and view it as a critical component of its overall business strategy. The Directors have reviewed the financial standing of the client and are confident that the client will continue to utilise the company’s services for the foreseeable future.
In Q1 2023, all external capital was returned, and all external client accounts closed. As a result, KGH Ltd deregistered with the Financial Conduct Authority ("FCA") in July 2023.
The company's operational risks are minimal and manageable for the following reasons:
a) The UK entity has a low turnover where staff undertake cross-functional activities on a day-to-day basis which ensures cover and contingency, reducing the risk of any disruption in processes.
b) The current client is adequately capitalised which greatly lowers the risk of issues with liquidity and cashflow impacting the UK subsidiary.
c) Regulatory matters are highlighted to management by external consultants and are regularly monitored by the COO/CFO. Any new regulatory matters are discussed by management and appropriate action taken.
d)The disaster recovery strategy of the UK entity (and of the KGH global group) ensures that all employees connect remotely via VDI (Microsoft Azure) to ensure minimum disruption when dealing with external factors. An adequate financial buffer remains in place to address any potential continuing financial shock.
The group generated turnover of £24,240,132 (2022: £21,343,276) and profit before tax of £2,499,190 (2022: £3,365,476) in the year.
The Group’s strategy is to continue to provide non-discretionary research, trading, and administrative services. The Group is focused exclusively on servicing it its only client and will continue to develop and grow as the client's assets grow.
There are no key performance indicators monitored by management due to the nature of the business.
The directors recognise that the long-term success of the business is dependent on the way it works with its various stakeholders including for example our people, our society, our service providers, and our shareholders. The directors have had regard to the interests of our stakeholders while complying with the obligations to promote the success of the company in line with section 172 of the Companies Act. The directors have discussed these obligations throughout the year including how this is incorporated into our decision-making process.
The directors’ decision making process considers both risk and reward in pursuit of delivering long term value for all our stakeholders and protecting their interests. Awareness and understanding of the current and potential risks to the business, including both financial and non-financial risks, are fundamental to how we manage the business. Further information on risks is provided above.
The directors are committed to acting fairly and operating to high standards of business conduct for all its stakeholders.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
See the strategic report for details of future developments and risk management.
The company has a branch in France.
The results for the year are set out on page 9.
No ordinary dividends were paid. The directors do not recommend payment of an ordinary dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Moore Kingston Smith LLP were appointed as auditor to the company in accordance with section 485 of the Companies Act 2006 and they are deemed to be reappointed under section 487(2) of the Companies Act 2006.
We have audited the financial statements of KGHL Research (UK) Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2023 which comprise the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the parent company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs (UK) we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Explanation as to what extent the audit was considered capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
The objectives of our audit in respect of fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses to those assessed risks; and to respond appropriately to instances of fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both management and those charged with governance of the company.
Our approach was as follows:
We obtained an understanding of the legal and regulatory requirements applicable to the company and considered that the most significant are the Companies Act 2006, UK Financial reporting standards as issued by the Financial Reporting Council and UK taxation legislation.
We obtained an understanding of how the company complies with these requirements by discussions with management and those charged with governance.
We assessed the risk of material misstatement of the financial statements, including the risk of material misstatement due to fraud and how it might occur, by holding discussions with management and those charged with governance.
We inquired of management and those charged with governance as to any known instances of noncompliance or suspected non-compliance with laws and regulations.
Based on this understanding, we designed specific appropriate audit procedures to identify instances of non-compliance with laws and regulations. This included making enquiries of management and those charged with governance and obtaining additional corroborative evidence as required.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken for no purpose other than to draw to the attention of the company’s members those matters we are required to include in an auditor's report addressed to them. To the fullest extent permitted by law, we do not accept or assume responsibility to any party other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
The statement of comprehensive income has been prepared on the basis that all operations are continuing operations.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £491,978 (2022 - £260,715 profit).
KGHL Research (UK) Limited (“the Company”) is a limited company domiciled and incorporated in England and Wales. The registered office is 6th Floor, 9 Appold Street, London, EC2A 2AP. The business address is Second Floor, 33 Welbeck Street, London, UK, W1G 8EX.
The Group consists of KGHL Research (UK) Limited and its wholly owned subsidiary Key Group Holdings (USA) Inc.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
The consolidated group financial statements consist of the financial statements of the parent company KGHL Research (UK) Limited and its subsidiary (an entity that the group controls through its power to govern the financial and operating policies so as to obtain economic benefits). Following a reconstruction in 2015, the subsidiary was consolidated using the merger method, which treated the merged company as if it had been combined throughout the current and previous accounting periods.
All financial statements are made up to 31 December 2023. Where necessary, adjustments are made to the financial statements of the subsidiary to bring the accounting policies used into line with those used by the parent company.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
At the time of approving the financial statements, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements. The company’s parent entity has confirmed it will continue to support the company to enable it to continue to trade for at least a year from the date of approval of these financial statements.
The company’s ongoing principal activity is to provide investment and research services to its parent entity, KGH Ltd (formerly Key Group Holdings (Cayman) Ltd). The company’s principal risks are therefore closely linked to those of the parent entity and it is consequently exposed to the parent entities willingness and capacity to provide financial support. KGH Ltd is a registered investment adviser, that has operated successfully for many years. KGH Ltd and its parent Millinvest Ltd have demonstrated their commitment to the long-term success of the company and view it as a critical component of it’s overall business strategy. The Directors have reviewed the financial standing of the parent entities and are confident they are able to continue supporting the business.
Turnover represents the fair value of services provided during the period to the parent. Turnover is recognised as contract activity progresses and the right to consideration is earned. Fair value reflects the amount expected to be recoverable from the ultimate parent company and is based on services provided and expenses incurred, but excludes VAT.
A subsidiary is an entity controlled by the company. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
Investment in the subsidiary company is held at cost less accumulated impairment losses.
At each reporting period end date, the company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Debtors
Short term debtors are measured at transaction price, less any impairment. Loans and other debtors receivable are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment.
Creditors
Short term trade creditors and other current creditors payable on demand are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised costs using the effective interest method.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account 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 reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end 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. 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 and loss account, 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 if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
Bonuses arise during the course of the year based on entitlement criteria. The cost is recognised once criteria are met and an obligation exists.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All of these differences are taken to the profit and loss account. The profit and loss accounts of overseas operations are translated into sterling at average rates. The balance sheets of overseas operations are translated into sterling at the closing rates. Material exchange differences arising from translation of the results of overseas operations are recorded as movements on reserves.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount 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 Directors consider that there have been no significant judgements or estimations during the year.
An analysis of the group's turnover is as follows:
In 2022, the company committed to a charitable donation of $1m payable in instalments over 5 years.
Exchange differences recognised in profit or loss during the year amounted to £7,005 (2022 - £28,613).
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 2 (2022 - 1).
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 31 December 2023 are as follows:
The results and balances of the wholly owned subsidiary have been included in the financial statements.
Deferred tax assets and liabilities are offset where the group or company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
The deferred tax asset set out above is expected to reverse over 5 years and relates to timing differences on expenditure.
The company contributes a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the company with respect to the scheme is to make the specified contributions.
Operating lease payments represent rentals payable by the company for its properties.
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
During 2024 the company has made the decision not to pay the remainder of a £628,421 accrued charitable donation. The charity has released the company from their obligation.
Under FRS102 - Related party disclosures, the company has taken advantage of the exemption for transactions and balances which are fully eliminated within the consolidated accounts. Accordingly, the transactions between subsidiaries are not disclosed separately.
The company has taken advantage of the exemption from disclosing transactions with members within a wholly owned group.