Regulatory Story
Go to market news section View chart   Print
RNS
Mattioli Woods PLC  -  MTW   

Final Results

Released 07:00 04-Sep-2018

RNS Number : 6408Z
Mattioli Woods PLC
04 September 2018
 

 

 

4 September 2018

 

Mattioli Woods plc

 

("Mattioli Woods", "the Company" or "the Group")

 

Final results

 

Mattioli Woods plc (AIM: MTW.L), the specialist wealth management and employee benefits business, today reports its final results for the year ended 31 May 2018. 

 

Financial highlights

·     Revenue up 16.2% to £58.7m (2017: £50.5m)

·     Organic revenue growth1 of 15.6% (2017: 11.6%)

·     Recurring revenues2 of 84.8% (2017: 85.1%)

·     EBITDA3 up 22.1% to £12.7m (2017: £10.4m):

EBITDA margin of 21.6% (2017: 20.6%)

·     Adjusted EBITDA4 up 15.7% to £12.5m (2017: £10.8m):

Adjusted EBITDA margin of 21.3% (2017: 21.4%)

·     Profit before tax up 27.3% to £9.8m (2017: £7.7m)

·     Basic EPS up 27.3% to 31.2p (2017: 24.5p)

·     Adjusted EPS5 up 11.1% to 37.0p (2017: 33.3p)

·     Proposed total dividend up 20.6% to 17.0p (2017: 14.1p)

·     Strong financial position with net cash6 of £20.2m (2017: £23.0m)

 

1. Excluding acquisitions completed in the current and prior financial years. 

2. Annual pension consultancy and administration fees; ongoing adviser charges; level and renewal commissions; banking income; property, discretionary portfolio and other annual management charges. 

3. Earnings before interest, taxation, depreciation, amortisation and impairment, excluding share of profit from associates. 

4. Earnings before interest, taxation, depreciation, amortisation, impairment, changes in valuation of derivative financial instruments and acquisition-related costs, including share of profit from associates (net of tax). 

5. Before acquisition-related costs, amortisation and impairment of acquired intangibles, changes in valuation of derivative financial   instruments and notional finance income and charges. 

6. Excluding £3.5m of VAT reclaimed on behalf of and to be repaid to clients. 

 

Operational highlights and recent developments

·     Reducing client costs while maintaining target EBITDA margin

·     Total client assets7 up 10.1% to £8.73bn (2017: £7.93bn):

 

Lowered custody charges for all clients using our core investment platform

Gross discretionary AuM up 29.3% to £2.34bn (2017: £1.81bn)

£115.4m (2017: £98.4m) inflows into the Mattioli Woods Structured Products Fund

£103.8m inflows into Amati funds

£49.1m (2017: £76.0m) of new equity raised by Custodian REIT

·     Over 1,300 (2017: 1,200) new clients chose the Group's services in year

·     134 (2017: 115) consultants at year end

·      Recent acquisitions performing well

·      Extending strategic geographic footprint:

Moved to new Manchester office in May 2018

Opening new Edinburgh office in September 2018

Moving to new Leicester office in October 2018

·      Continued investment in technology, compliance and training

 

 

7. Includes £286.0m (2017: £153.8m) of funds under management by the Group's associate, Amati Global Investors Limited, excluding £27.0m (2017: £12.1m) of Mattioli Woods' client investment and £12.1m (2017: £9.8m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc. 

 

Commenting on the results, Ian Mattioli MBE, Chief Executive Officer, said:

 

"I am pleased to report another year of strong and sustainable growth, with revenue up 16.2% to £58.7m (2017: £50.5m).  Organic revenue growth of 15.6% or £7.7m (2017: 11.6% or £4.4m) was primarily driven by the flow of new business generated by our consultancy team, with over 1,300 new SIPP, SSAS and personal clients choosing Mattioli Woods during the year.  

 

"Strong growth in revenue translated into strong growth in Adjusted EPS, up 11.1% to 37.0p (2017: 33.3p).  Accordingly, the Board is pleased to recommend the payment of an increased final dividend of 11.5 pence per share (2017: 9.4 pence).  This makes a proposed total dividend for the year of 17.0 pence (2017: 14.1 pence), a year-on-year increase of 20.6% (2017: 12.8%), demonstrating our desire to deliver value to shareholders and confidence in the outlook for our business.  

 

"Recent acquisitions and investments continue to perform well.  Organic growth was supplemented by full-year revenues of £1.7m (2017: £1.2m) from the MC Trustees pension administration business acquired in September 2016 and our share of profits from Amati increased to £0.2m (2017: £0.1m).  Amati has enjoyed strong growth in gross assets under management, which increased from £175.7m at the start of the year to £325.1m at the year end. 

 

"Last month we announced the acquisition of Broughtons Financial Planning, which has a similar culture to Mattioli Woods and gives us new opportunities to grow and develop the client offering of the combined business.  With increasing complexity and continuing consolidation across the key markets in which we operate, we expect there will be further opportunities to accelerate our growth by acquisition. 

 

"We continue to invest in the Group as we look to build upon our success to date.  I am delighted with the performance of our business over the last financial year and believe we are well-positioned to progress further towards the ambitious longer-term goals we have set."

 

 

For further information please contact:

Mattioli Woods plc

 

Ian Mattioli MBE, Chief Executive Officer

 

Nathan Imlach, Chief Financial Officer

Tel: +44 (0) 116 240 8700

 

www.mattioliwoods.com

 

Canaccord Genuity Limited

 

Sunil Duggal

 

David Tyrrell

Tel: +44 (0) 20 7523 8000

Emma Gabriel

www.canaccordgenuity.com

 

Media enquiries:

Camarco

 

Ed Gascoigne-Pees

Tel: +44 (0) 20 3757 4984

 

www.camarco.com

 

Analyst presentation

 

There will be an analyst presentation to discuss the results at 09:30am today at Canaccord Genuity Limited, 88 Wood Street, London, EC2V 7QR. 

 

Those analysts wishing to attend are asked to contact Ed Gascoigne-Pees at Camarco on +44 (0) 20 3757 4984 or at ed.gascoigne-pees@camarco.co.uk

 

 

Chairman's statement

 

Another year of growth

 

I am pleased to report another successful year of growth for Mattioli Woods, with a strong flow of organic new business from individuals and corporates choosing to use the range of specialist services we provide, coupled with continued demand for advice from existing clients.  Revenue growth of 16.2% on the prior year translated into growth in Adjusted EPS8 of 11.1% to 37.0 pence (2017: 33.3 pence). 

 

We are proud of the strong shareholder returns we have delivered over many years and remain committed to growing the dividend, while maintaining an appropriate level of dividend cover.  Accordingly, the Board is pleased to recommend the payment of an increased final dividend of 11.5 pence per share (2017: 9.4 pence).  This makes a proposed total dividend for the year of 17.0 pence (2017: 14.1 pence), a year-on-year increase of 20.6%

 

Our aim is to create a long-term sustainable business of which our clients, shareholders, people and suppliers are proud to be a part and the Group's recent achievements have been recognised with a number of professional awards for individual and corporate achievements.  I would like to congratulate Paul Jourdan on being named best UK Smaller Companies Fund Manager at the FE Alpha Manager of the Year Awards in May, Mark Fuller and Ben Wattam on the Mattioli Woods' Structured Products Fund being named Retail Investment Product of the Year at the Risk Awards 2018 and Ian Mattioli on winning CEO of the Year at the 2018 City of London Wealth Management Awards.  Other achievements included the Group winning Apprenticeship Employer of the Year at the 2017 Leicester Apprenticeship Hub Graduation Ceremony. 

 

 

8. Basic EPS up 27.3% to 31.2p (2017: 24.5p). 

 

Our strategy

 

Previously, we have set out our ambitions to grow revenue to £100m and total client assets to £15bn, while maintaining an EBITDA margin of 20%.  As we work towards these goals our strategy remains focused on the pursuit of organic growth, supplemented by strategic acquisitions that enhance value and broaden or deepen our expertise and servicesRecent acquisitions are performing well and we were delighted to announce the acquisition of Broughtons Financial Planning last month.  We continue to review a diverse pipeline of potential acquisition opportunities, believing further consolidation within our core markets remains likely. 

 

Our focus remains on delivering great outcomes for our clients as we address their changing needs, with our ambition being to see our brand become an even stronger force in the UK financial services sector. 

 

Our people

 

We are a business built on the integrity and expertise of our people.  As an Investors in People company we are committed to developing our people and building the capacity to deliver sustainable growth.  Over the past year our people have responded admirably as the business has evolved and the financial services industry continues to go through a period of unprecedented regulatory change, including the changes brought about by the Markets in Financial Instruments Directive II ("MiFID II"), the General Data Protection Regulation ("GDPR") and Packaged Retail and Insurance-Based Investment Products ("PRIIPs"). 

 

We are dedicated to maintaining our culture of putting clients first, encouraging a collegiate approach and preserving our integrity.  I would like to thank all our staff for their continued commitment, enthusiasm and professionalism in dealing with our clients' affairs.  

 

Governance and the board

 

During the year, as part of the Board's commitment to developing the corporate governance and management structures of the Group to ensure they continue to meet the changing needs of the business we undertook internal and external reviews of the effectiveness of the Board, its sub-committees and the Group's senior executive management framework.  We created a new Senior Executive Team ("SETGO") to execute the strategy determined by the Board, bringing together a senior team with responsibility for all our key operational areas. 

 

As part of these changes, Mark Smith and Alan Fergusson stepped down from the Board in August 2017 to eliminate duplication between the Board and SETGO, ensuring clearer lines of responsibility within the management team and creating a balanced Board of three executive directors and three non-executive directors.  We believe these changes give the business the optimal management structure to secure continued growth. 

 

Shareholders

 

During the year we have engaged with shareholders through various channels, including company-hosted events, group meetings and one-to-one meetings.  We are fortunate to have a number of supportive institutional shareholders with a significant investment in the Group and welcome opportunities to talk to all our shareholders, large and small.  We will continue to maintain a regular and constructive dialogue with them, while seeking to broaden our shareholder base. 

 

 

Outlook

 

We continue to invest in the Group as we look to build upon our success to date and grow our business both organically and through strategic acquisitions that share our culture and values.  I am delighted with the performance of our business over the last financial year and believe we are well-positioned to progress further towards the ambitious longer-term goals we have set. 

 

 

Joanne Lake

Chairman

3 September 2018

 

 

 

Chief Executive's review

 

Introduction

 

I am pleased to report another year of strong and sustainable growth, with revenue for the year ended 31 May 2018 up 16.2% to £58.7m (2017: £50.5m).  Organic revenue growth of 15.6% or £7.7m (2017: 11.6% or £4.4m) was primarily driven by the flow of new business generated by our consultancy team, with over 1,300 new SIPP, SSAS and personal clients choosing Mattioli Woods during the year.  

 

We continue to enjoy strong client retention and have seen sustained demand for advice from clients, driven by lifestyle, increasing longevity, tax and other legislative changes, including the pension freedoms that introduced more flexibility as to how and when people can access their pension savings. 

 

Total client assets under management, administration and advice increased by over 10% to £8.73bn (2017: £7.93bn) and we continue to develop our investment and asset management proposition.  Strong inflows of new money combined with positive investment performance to increase the Group's gross discretionary assets under management to £2.34bn (2017: £1.81bn) at the year end. 

 

In meeting our clients' investment needs we generally use third parties' funds, but where we have the particular expertise required we look to meet those needs in-house.  This approach has led to the development of our Private Investors Club, Custodian REIT plc ("Custodian REIT") and the Mattioli Woods Structured Products Fund, in addition to the funds managed by our associate company Amati Global Investors Limited ("Amati").  Where appropriate, we intend to expand upon these opportunities. 

 

The value of assets held within our Discretionary Portfolio Management service increased by 17.5% to £1.34bn (2017: £1.14bn), of which £121.0m or 9.0% is invested within funds managed by the Group and its associates.  We reduced the custody charge for all those clients using our core investment platform with effect from 1 August 2017, which coincided with the launch of our new range of multi asset funds designed to improve investment efficiency, administration and reporting for clients. 

 

Prior to this, in June 2017 we renewed the terms of the Investment Management Agreement for Custodian REIT, the UK real estate investment trust managed by our subsidiary Custodian Capital, to secure both a cost reduction for investors and an important long-term revenue stream for the Group. 

 

In addition to being manager of Custodian REIT, Custodian Capital facilitates direct property ownership on behalf of pension schemes and private clients and manages our Private Investors Club, which offers alternative investment opportunities to suitable clients by way of private investor syndicates.  The value of Custodian Capital's assets under management increased to £0.54bn at the year end (2017: £0.45bn). 

 

The Mattioli Woods' Structured Products Fund was named Retail Investment Product of the Year at the Risk Awards 2018, with the fund offering investors the benefits of collateralisation, instant diversification, continuous availability and liquidity.  A combination of new client investment and money from maturing structured product plans increased the fund's value to £213.8m at 31 May 2018 (2017: £98.4m). 

 

I believe securing economies of scale, such as rebates on fund managers' charges, and the benefits of operating our integrated model will allow us to further improve client outcomes and reduce clients' total expense ratios ("TERs"), while maintaining our target profit margin. 

 

Recent acquisitions and investments continue to perform well.  Organic growth was supplemented by full-year revenues of £1.7m (2017: £1.2m) from the MC Trustees pension administration business acquired in September 2016 and our share of profits from Amati increased to £0.2m (2017: £0.1m).  We were delighted when Amati's Paul Jourdan was named best UK Smaller Companies Fund Manager at the FE Alpha Manager of the Year Awards in May.  Paul is manager of the TB Amati UK Smaller Companies Fund, which won the UK Smaller Companies category at the Investment Week Fund Manager of the Year Awards last year.  Amati has enjoyed strong growth in gross assets under management, which increased from £175.7m at the start of the year to £325.1m at the year end. 

 

We are delighted to welcome Gary Bond and his experienced team into the Group following the acquisition of Broughtons Financial Planning Limited ("Broughtons") earlier this month.  Broughtons adds a further 250 clients with over £120m of assets under advice and the transaction is expected to be earnings enhancing in the first full year of ownership. 

 

Our success has been based upon the delivery of quality advice, growing our clients' assets and enhancing their financial outcomes.  As the business grows, we will continue to develop new products and services so we can better deal with our clients' needs, using the best of what we have and what other providers can offer. 

 

We have many challenges coming up, including further changes in regulation and legislation, moving to new offices in Leicester and the ongoing development of our technology infrastructure.  The foundation of our success has been the development of our people and I am very proud of how we deal with our clients and how we interact between ourselves.  I believe we have created a business our clients are proud to be a part of, our people feel proud to work for and is one that recognises and rewards talent and hard work. 

 

Market overview

 

Mattioli Woods operates within the UK's financial services industry, which is subject to the effects of volatile markets and economic conditions.  Our markets are highly fragmented and serviced by a wide range of suppliers offering diverse services to both individual and corporate clients.  These markets remain highly competitive and in recent years we have seen changes in regulation, legislation and client needs as the demand for advice and the potential market for our products and services continue to grow.  We continue to be proactive in relation to the opportunities this creates, with our specialists dedicated to keeping up with the pace of change. 

 

Both MiFID II and the GDPR came into effect in the first half of this calendar year and we continue to prepare for other regulatory and legislative changes already in train, such as the Senior Managers and Certification Regime ("SM&CR"). 

 

The Financial Conduct Authority ("FCA") recently published proposals in response to the findings of its Retirement Outcomes Review ("ROR"), which are designed to help people think about their drawdown choices earlier, create investment pathways to help them with their choices and make costs and charges easier to understand, including the possible introduction of a charge cap.  I believe our advice-led model, integrating administration and investment management, is aligned with the regulator's proposals and positions us well to continue reducing client costs and deliver improved client outcomes. 

 

The ROR and the latest consultation are part of a wider package of FCA activity covering the pensions and retirement income sectors, including work on defined benefit pension transfers.  As previously reported, following consideration of the increasing costs of professional indemnity insurance, additional regulatory controls and the resources we would have to dedicate to this small part of our business, we have stopped giving pension transfer advice to individuals with safeguarded or defined benefits.  The impact of this decision on the Group's financial performance is not expected to be material, with pension transfer advice to individuals with safeguarded benefits contributing approximately 1.6% of direct revenues for the year, and less to profit given the significant compliance costs associated with this activity. 

 

The Financial Advice Market Review ("FAMR") published by the FCA and HM Treasury in March 2016 made a series of recommendations designed to tackle barriers to consumers engaging with financial advice and help the profession develop more cost-effective ways of delivering advice, particularly through the use of technology, while the FCA's recent review of the asset management market and interim report on its investment platform market study published in July this year both highlight concerns over pricing. 

 

We continue to invest in the development of our IT platform and anticipate that the adoption of innovative technology may drive some margin compression in the wider market.  Although development of the Group's technology infrastructure has taken longer than we initially anticipated, the costs of this development remain in line with our original expectations.  Investing in technology, while securing the economies of scale and operational efficiencies that we have previously outlined are key elements of our stated aim to reduce clients' TERs, while maintaining fair and sustainable profits for our shareholders. 

 

Our industry is experiencing a period of significant regulatory change.  The fair treatment of clients is at the core of all that we do and we will further invest in our regulatory and compliance capabilities to ensure we can continue to deliver great client outcomes. 

 

Our services

 

Our core pension and wealth management offering serves the higher end of the market, including controlling directors and owner-managed businesses, professionals, executives and retirees.  Our broad range of employee benefit services is targeted towards medium-sized and larger corporates.  The Group has developed a broader wealth management proposition in recent years, grown from its strong pensions advisory and administration expertise.  The mix of income derived from the Group's four key revenue streams changed slightly during the year, summarised as follows:

 

·     42.7% investment and asset management (2017: 41.6%);

·     37.1% pension consultancy and administration (2017: 37.4%);

·     10.1% employee benefits (2017: 10.7%); and

·     10.1% property management (2017: 10.3%). 

 

We aim to operate a seamless structure, allowing us to cover all aspects of wealth management and employee benefits, without confusing strategy for individual service lines, such as our advice-led SSAS and SIPP proposition. 

 

Assets under management, administration and advice

 

Total client assets under management, administration and advice increased by 10.1% to £8.73bn at 31 May 2018 (2017: £7.93bn) as follows:

 

Assets under management, administration and advice9

SIPP and SSAS10

£m

Employee benefits

£m

Personal wealth and other assets

£m

Sub-total

£m

Amati11

£m

Total

£m

 

 

 

 

 

 

 

At 1 June 2017

5,031.3

1,102.3

1,638.1

7,771.7

153.8

7,925.5

 

 

 

 

 

 

 

Net inflow, including market movements

454.6

135.6

81.3

671.5

132.2

803.7

 

 

 

 

 

 

 

At 31 May 2018

5,485.9

1,237.9

1,719.4

8,443.2

286.0

8,729.2

 

 

9. Certain pension scheme assets, including clients' own commercial properties, are only subject to a statutory valuation at a benefit crystallisation event. 

10. Value of funds under trusteeship in SIPP and SSAS schemes administered by Mattioli Woods and its subsidiaries. 

11. Assets under management of £286.0m (2017: £153.8m) excludes £27.0m (2017: £12.1m) of Mattioli Woods' client investment included within SIPP and SSAS, employee benefits and personal wealth and other assets and excludes £12.1m (2017: £9.8m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.

 

The growth in total assets under management, administration and advice of £803.7m during the year is analysed as follows:

 

·    An increase of £454.6m in SIPP and SSAS funds under trusteeship, with net organic growth of 5.1% in the number of schemes being administered at the year end, comprising a 13.5% (2017: 11.8%) increase in the number of direct12 schemes to 5,834 (2017: 5,140) and a 3.7% decrease (2017: 1.6% increase) in the number of schemes the Group operates on an administration-only basis to 4,699 (2017: 4,881).  In recent years we have been appointed to operate or wind-up a number of SIPP portfolios following the failure of their previous operators, with lost schemes including the transfer of certain members of these distressed portfolios to more appropriate arrangements;

·     An £135.6m increase in the value of assets held in the corporate pension schemes advised by our employee benefits business, although revenues in our employee benefits business are not linked to the value of client assets in the way certain of our wealth management revenue streams are;

·     An £81.3m increase in personal wealth and other assets under management and advice, with the 291 (2017: 350) new personal clients won during the year driving a 3.4% increase in the total number of personal clients to 4,925 (2017: 4,763); and

·   An £132.2m increase in Amati's funds under management (excluding Mattioli Woods' client investments), primarily through the growth of the TB Amati UK Smaller Companies Fund to £166.3m (31 May 2017: £69.3m) at 31 May 2018.  

 

We extended our asset management business through our purchase of 49% of Amati in February 2017, an award-winning specialist fund management business based in Edinburgh, focusing on UK small and mid-sized companies.  Amati is the manager of the TB Amati UK Smaller Companies Fund; Amati AIM VCT plc and an AIM IHT portfolio service. 

 

 

12. SIPP and SSAS schemes where the Group acts as pension consultant and administrator. 

 

Key performance indicators

 

The directors consider the key performance indicators ("KPIs") for the Group are as follows:

 

Strategy/objective

Performance indicator

Further explanation

Organic growth and growth by acquisition

 

Revenue - total income (excluding VAT) from all revenue streams. 

 

See 'Introduction'. 

Operating efficiency

Adjusted EBITDA margin - profit generated from the Group's operating activities before financing income or costs, taxation, depreciation, amortisation, impairment, changes in valuation of derivative financial instruments and acquisition-related costs, including share of profit from associates (net of tax), divided by revenue. 

 

See 'Profit for the year and earnings per share'. 

Shareholder value and financial performance

Adjusted Earnings Per Share ("EPS") - total comprehensive income for the year, net of taxation, attributable to equity holders of the Company, adjusted to add back acquisition-related costs, gain on revaluation of derivative financial assets, notional finance charges on the unwinding of discounts on long‑term provisions and the amortisation of acquired intangible assets, divided by the weighted average number of ordinary shares in issue. 

 

See 'Profit for the year and earnings per share'. 

Growth in the value of assets under management, administration and advice

 

Assets under management, administration and advice - the value of all client assets the business gives advice upon, manages or administers. 

 

See 'Assets under management, administration and advice'. 

Excellent client service and retention

Client loss rate - the number of direct SSAS and SIPP schemes lost as a result of death, annuity purchase, external transfer or cancellation as a percentage of average scheme numbers during the period). 

 

See 'Segmental review'. 

Financial stability

Debtors' days - this is the average number of days' sales outstanding in trade receivables at any time. 

 

See 'Cash flow'. 

Financial stability

Surplus on regulatory capital requirement - this is the aggregate surplus on the total regulatory capital requirement of the Group. 

 

At 31 May 2018 the total regulatory capital requirement across the Group was £10.9m (2017: £10.0m) and the Group had an aggregate surplus13 of £18.8m (2017: £13.4m) across all regulated entities. 

 

13. Including shares issued during the year and admitted to Core Equity Tier 1 capital following the year end, proposed final dividend and retained earnings for the year. 

 

Financial performance and future developments

 

Revenue

 

Total Group revenue was up 16.2% to £58.7m (2017: £50.5m), with sustained demand for the Group's services reflected by revenue growth across each of the Group's operating segments, as explained in more detail below.

 

Employee benefits expense

 

As in previous years, the major component of the Group's operating costs is our employee benefits expense of £32.1m (2017: £28.7m) representing 54.7% of revenue (2017: 56.8%).  During the year we saw an increase in the average number of employees from 553 to 618.  We continue to invest in our IT systems, compliance and training across all parts of the Group, with the aim of delivering further operational efficiencies and benefiting from further economies of scale. 

 

 

Other administrative expenses

 

Other administrative expenses increased to £12.3m (2017: £9.5m), primarily due to additional costs associated with the impending move from the Group's existing offices at Grove Park to a new office in the centre of Leicester, increased IT costs as a result of moving to a hosted infrastructure, changes in revenue mix increasing irrecoverable VAT and various other costs increasing in line with headcount. 

 

Share based payments

 

Share based payments costs fell to £1.5m (2017: £1.9m) following the settlement of all outstanding cash-settled options during the period, with strong share price growth having increased the costs associated with these options in the prior year. 

 

Net finance costs

 

The Group has maintained a positive net cash position throughout the year, with net finance costs of £0.1m (2017: £0.2m) reflecting the impact of £0.2m (2017: £0.3m) of notional finance charges on the unwinding of discounts on long‑term provisions. 

 

Taxation

 

The effective rate of taxation on profit on ordinary activities was 16.2% (2017: 16.9%), below the standard rate of tax, primarily due to research and development relief claimed for the two years ended 31 May 2017, with a lower effective rate in the equivalent period last year resulting from the reversal of deferred tax liabilities on acquired intangibles following cuts in the UK corporation tax rate.  The net deferred taxation liability carried forward at 31 May 2018 was £2.8m (2017: £2.8m). 

 

Profit for the year and earnings per share

 

Strong growth in revenue translated into strong growth in EBITDA, up 22.1% to £12.7m (2017: £10.4m), with EBITDA margin of 21.6% (2017: 20.6%) despite further investment in the infrastructure and sustainability of our business

 

Adjusted EBITDA, adjusted profit after tax and adjusted EPS are non-GAAP alternative performance measures, considered by the Board to be a better reflection of true business performance than looking at the Group's results on a statutory basis only.  These measures are widely used by research analysts covering the Company. 

 

Adjusted EBITDA14 increased 15.7% to £12.5m (2017: £10.8m), while adjusted EBITDA margin was 21.3% (2017: 21.4%)To facilitate a like-for-like comparison with prior years a gain of £0.5m (2017: £0.1m) on revaluation of the Amati option, £0.2m (2017: £0.3m) of notional finance costs on the unwinding of discounts on long term provisions and acquisition-related costs of £0.1m (2017: £0.4m) have been added back in calculating adjusted EBITDA, with amortisation of acquired intangibles added back in the calculation of adjusted profit after tax ("PAT") and adjusted EPS, which are reconciled to the statutory figures as follows:

 

 

Profit

2018

EPS

2018

Profit

2017

EPS

2017

 

£m

pps

£m

pps

 

 

 

 

 

Statutory profit before tax

9.8

37.2

7.7

29.5

Income tax expense

(1.6)

(6.0)

(1.3)

(5.0)

 

 

 

 

 

Statutory PAT / Basic EPS

8.2

31.2

6.4

24.5

 

 

 

 

 

Amortisation on acquired intangibles

1.7

6.7

1.7

6.7

Gain on revaluation of Amati option

(0.5)

(2.0)

(0.1)

(0.4)

Notional finance costs

0.2

0.6

0.3

1.0

Acquisition-related costs

0.1

0.5

0.4

1.5

 

 

 

 

 

Adjusted PAT / Adjusted EPS

9.7

37.0

8.7

33.3

 

As explained in Note 9, client portfolios acquired through business combinations are recognised as intangible assets.  The total amortisation charge for the year of £1.7m (2017: £1.7m) associated with these intangible assets has been excluded from adjusted PAT and adjusted EPS as the directors consider these costs can distort the results of a particular period. 

 

Adjusted EPS15 increased 11.1% to 37.0p (2017: 33.3p), while basic EPS was up 27.3% to 31.2p (2017: 24.5p), with growth in operating profits stated after recognising a gain on revaluation of the Amati option, notional finance costs and acquisition-related costs. 

 

Diluted EPS increased 27.5% to 31.1p (2017: 24.4p), with the exercise of 256,686 options issued under the Company's share option plans during the year. 

 

 

14. Earnings before interest, taxation, depreciation, amortisation, impairment, changes in valuation of derivative financial instruments and acquisition-related costs, including share of profit from associates (net of tax). 

15. Before acquisition-related costs, amortisation and impairment of acquired intangibles, changes in valuation of derivative financial instruments and notional finance costs. 

 

Dividends

 

The Board is pleased to recommend the payment of an increased final dividend of 11.5 pence per share (2017: 9.4 pence).  This makes a proposed total dividend for the year of 17.0 pence (2017: 14.1 pence), a year-on-year increase of 20.6% (2017: 12.8%), demonstrating our desire to deliver value to shareholders and confidence in the outlook for our business.  The Board remains committed to growing the dividend, while maintaining an appropriate level of dividend cover.  If approved, the final dividend will be paid on 26 October 2018 to shareholders on the register at the close of business on 21 September 2018, having an ex-dividend date of 20 September 2018. 

The Company offers shareholders the option to invest their dividends in a Dividend Reinvestment Plan ("DRIP").  The DRIP is administered by the Company's registrar, Link Asset Services ("Link"), which uses cash dividend payments to which participants in the DRIP are entitled to purchase shares in the market, which means the Company does not need to issue new shares and avoids diluting existing shareholdings. 

 

For the DRIP to apply to the proposed final dividend for the year ended 31 May 2018, shareholders' instructions must be received by Link by 5 October 2018. 

 

Cash flow

 

Cash generated from operations increased to £18.2m or 143% of EBITDA (2017: £10.4m or 100%), with an improved cash conversion ratio despite a slight fall in the Group's operating profit margin before changes in working capital and provisions to 23.3% (2017: 24.3%). 

 

The Group's working capital requirement fell by £4.5m (2017: increase of £1.8m) following the receipt of a further £3.3m of VAT reclaimed on behalf of clients prior to the year end and improved credit control, with the decrease in working capital comprising:

 

·     £5.1m (2017: £1.8m) increase in trade and other payables, primarily due to:

£3.3m increase in other payables due to VAT reclaims received on behalf of clients, which were repaid to clients following the year end;

£1.3m increase in accruals and deferred income, with a £1.0m increase in accrued staff bonuses following another successful year, a change to the timing of directors' bonus payments and increased headcount across the Group;

£0.3m increase in other trade payables due to the timing of stage payments payable on the fit-out of the Group's new office in Leicester; and

£0.1m increase in social security and other taxes outstanding at the year end. 

·     £1.0m (2017: £2.0m) increase in trade and other receivables (excluding a £0.3m increase in loans advanced to investment syndicates) following further growth in our direct pension business (where fees are typically invoiced six months in arrears), with the higher value of clients' assets under management and advice increasing accrued income in our investment and asset management business; and

·     £0.4m increase (2017: £1.5m decrease) in provisions, with the recognition of additional costs associated with exiting the Group's existing premises in Leicester offsetting the settlement of contingent deferred consideration on acquisitions and cash-settled LTIP awards during the year. 

 

Cash balances at 31 May 2018 totalled £23.7m (2017: £23.0m), with £3.5m (2017: £2.3m) of contingent deferred consideration on historic acquisitions paid during the year and a total of £3.5m of client VAT reclaims to be repaid following the year end. 

 

Outstanding trade receivables fell to 32 days' sales (2017: 40 days), with an increase in investment and asset management revenues and a continued focus on credit control, while trade payables reduced to 24 days' purchases (2017: 52 days). 

 

Capital expenditure of £8.8m (2017: £8.8m) was in line with expected spend, with the most significant cash outflows being £7.0m incurred on the development of the Group's new offices in Leicester, £1.2m investment in new computer hardware, software and office equipment and £0.5m on the purchase of new company cars following further expansion of the consultancy team. 

 

Investment in the Group's infrastructure continues as we progress the implementation of our hosted IT architecture, which offers enhanced data security, business continuity and scalability for future growth.  Our Manchester office moved to a new central city location to accommodate our expanding team in May and we have also agreed terms to move into a new Edinburgh office, which will house both Mattioli Woods' consultants and the Amati team. 

 

The move to our new Leicester premises is scheduled to commence this month.  We are delighted that construction of the 50,000 sq ft office was completed to our specification and at the budgeted total cost of £12.4m, with the subsequent fit-out of the new site currently running slightly ahead of schedule and in line with expected total costs of £1.6m.  This development enables the Group to maintain its regulatory capital whilst efficiently using its surplus cash not available for distribution to shareholders.  In addition, we will benefit from future rental savings of £0.85m per annum and a more flexible working environment, which will allow us to continue to grow the business and realise further operational efficiencies.  The bespoke infrastructure of our new building will assist us to ensure our client services continue to be first class. 

 

Bank facilities

 

The Group does not have an overdraft facility due to the headroom the Group's current cash balances provide on its working capital requirements.  Management will continue to review the level of bank facilities the Group may require going forward. 

 

 

Capital structure

 

The Group's capital structure is as follows:

 

 

2018

£000

2017

£000

 

 

 

Cash and short-term deposits

(23,668)

(22,979)

Shareholders' equity

78,950

72,595

 

 

 

Capital employed

55,282

49,616

 

The Group continues to maintain a net cash position, with net cash balances increasing to £23.7m (2017: £23.0m). 

 

Regulatory capital

 

The Board considers it prudent for the Group to target headroom of circa 25% over the FCA regulatory capital requirement.  The Group's regulatory capital requirement has increased in recent years, and in addition its capital is eroded when it makes acquisitions due to the requirement for intangible assets arising on acquisition to be deducted from Tier 1 Capital.  

 

The Group continues to enjoy significant headroom on its increased regulatory capital requirement allowing us to pursue further acquisition opportunities. 

 

Segmental review

 

Investment and asset management

 

Investment and asset management revenues generated from advising clients on both pension and personal investments increased 19.5% to £25.1m (2017: £21.0m), representing 42.7% (2017: 41.6%) of total Group revenues. 

 

The Group's gross discretionary assets under management ("AuM"), including the multi asset funds which now sit at the heart of our discretionary portfolio management service ("DPM"), Custodian REIT, the Mattioli Woods Structured Products Fund ("MW SPF") and the funds managed by our associate company, Amati, increased by 29.3% to £2.34bn (2017: £1.81bn) as follows:

 

 

 

Assets under management

DPM

£m

Custodian REIT

£m

MW SPF

£m

Amati

£m

Gross AuM

£m

Cross-holdings in DPM16

Cross-holdings in Amati funds17

Net AuM

£m

 

 

 

 

 

 

 

 

 

At 1 June 2017

1,144.8

391.4

98.4

175.7

1,810.3

(76.9)

(9.8)

1,723.6

 

 

 

 

 

 

 

 

 

Inflows

273.7

49.1

115.4

103.8

542.0

(44.1)

(2.3)

495.6

Outflows

(88.7)

-

-

(2.9)

(91.6)

-

-

(91.6)

Market movements

11.3

22.1

-

48.5

81.9

-

-

81.9

 

 

 

 

 

 

 

 

 

At 31 May 2018

1,341.1

462.6

213.8

325.1

2,342.6

(121.0)

(12.1)

2,209.5

 

 

16. Comprises £30.4m (2017: £28.3m) invested in Custodian REIT, £69.2m (2017: £36.7m) in MW SPF and £21.4m (2017: £11.9m) in Amati funds. 

17. Cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc. 

 

Income from both initial and ongoing portfolio management charges increased to £14.2m (2017: £10.7m), as the value of clients' assets in discretionary portfolios increased 17.5% to £1.34bn (2017: £1.14bn). 

Fees for services provided by Custodian Capital to Custodian REIT are included in the 'Property management' segment, with annual management charges on the MW SPF increasing to £0.8m (2017: £0.2m) due to growth in the fund's AuM to £213.8m (2017: £98.4m). 

 

Adviser charges based on the value of assets under advice were £10.1m (2017: £10.1m), with the revenue impact of gross assets under advice increasing to £2.04bn (2017: £1.52bn) offset by an increasing proportion of assets under advice being invested in Custodian REIT, the MW SPF and Amati funds, which has resulted in lower client adviser charges and TERs.  We continue to see some migration of assets under advice to AuM as clients from acquired portfolios engage with our DPM service. 

 

Growth in total assets under management and advice continues to enhance the quality of earnings through an increase in recurring revenues, with the proportion of investment and asset management revenues which are recurring being 81.7% (2017: 81.0%).  As with other firms, these income streams are linked to the value of funds under management and advice, and are therefore affected by the performance of financial markets. 

 

Pension consultancy and administration

 

We continue to see demand for advice from clients, driven by lifestyle, increasing longevity, tax and other legislative changes, including the pension freedoms that introduced a major shift in how people can access their pensions, which in turn has driven further growth in pension consultancy and administration revenues.  Our client base primarily comprises owner-managers, executives and members of the professions.  Additional fees are generated from the provision of specialist consultancy services.  

 

Pension consultancy and administration revenues were up 15.3% to £21.8m (2017: £18.9m), representing 37.1% (2017: 37.4%) of Group revenues of which 87.7% (2017: 91.0%) were recurring, with the growth in revenues driven by the total number of SIPP and SSAS schemes administered by the Group increasing 5.1% to 10,533 (2017: 10,021). 

 

New client wins, sustained demand for advice, increased staff utilisation and improved billing recoveries helped drive direct18 pension consultancy and administration fees up 17.7% to £16.6m (2017: £14.1m).  Retirement planning is often central to our clients' wealth management strategies and the number of direct schemes increased to 5,834 (2017: 5,140), with 875 new schemes gained in the year (2017: 764), continuing the momentum of new business wins seen in prior periods.  Our focus remains on the quality of new business, with the average value of a new scheme maintained at £0.4m (2017: £0.4m).  We also maintained strong client retention, with an external loss rate19 of 1.5% (2017: 2.1%) and an overall attrition rate20 of 2.6% (2017: 3.6%). 

 

 

18. SIPP and SSAS schemes where Mattioli Woods acts as pension consultant and administrator. 

19. Direct schemes lost to an alternative provider as a percentage of average scheme numbers during the year. 

20. Direct schemes lost as a result of death, annuity purchase, external transfer or cancellation as a percentage of average scheme numbers during the year. 

 

The number of SSAS and SIPP schemes the Group operates on an administration-only basis fell to 4,699 (2017: 4,881) at the year end, with lost schemes including the transfer of members of distressed portfolios acquired in the last few years to alternative arrangements.  Mattioli Woods was appointed to administer the SIPPs previously operated by Stadia Trustees Limited in 2016.  A number of clients who transferred illiquid pension fund assets from their Stadia Trustees' SIPP to a Mattioli Woods scheme have now received compensation from the Financial Services Compensation Scheme due to the failings of Stadia Trustees Limited and we continue to process claims on behalf of over 400 other clients.  Similar to the way in which the Group dealt with members of the HD SIPP, these clients' pension funds may now be reactivated, generating additional revenues for the Group. 

 

Work also continues in connection with the wind up of the Freedom SIPP, which we were appointed to provide administration and consultancy services to by the scheme's liquidators, PricewaterhouseCoopers, in 2010.  Overall, third party administration fees increased 4.3% to £4.8m (2017: £4.6m), with £0.4m of additional revenues representing the impact of a full year's contribution from MC Trustees. 

 

The Group's banking revenue was £0.4m (2017: £0.2m), reflecting that the Bank of England base rate increased to 0.5% from a historic low of 0.25% at the start of November 2017. 

 

Property management

 

Property management revenues increased 13.5% to £5.9m (2017: £5.2m), representing 10.1% of total revenue (2017: 10.3%), with our subsidiary Custodian Capital having assets under management and administration of £542.9m (2017: £444.8m) at 31 May 2018.  Recurring annual management charges represented 89.8% (2017: 90.4%) of property management revenues, the majority of which are derived from the services provided by Custodian Capital to Custodian REIT.  The fund seeks to provide investors with an attractive level of income, coupled with the potential for capital growth from a diversified portfolio of commercial real estate properties in the UK. 

 

In addition, Custodian Capital continues to facilitate direct property ownership on behalf of pension schemes and private clients and also manages our "Private Investors Club", which offers alternative investment opportunities to suitable clients by way of private investor syndicates.  This initiative continues to be well supported, with £26.3m (2017: £20.4m) invested in the eight (2017: five) new syndicates completed during the year. 

 

Employee benefits

 

Employee benefits revenues were up 9.3% to £5.9m (2017: £5.4m), representing 10.1% of total revenue (2017: 10.7%).  There is growing recognition from organisations of the importance of investing in employee benefits.  Employers are increasingly encouraging staff wellbeing and retirement savings, which we expect to drive a period of steady growth in the UK employee benefits market, and we believe the Government's emphasis on workplace advice presents new opportunities for us to realise further synergies between our employee benefits and wealth management businesses. 

 

Acquisitions

 

We have invested £50m since our admission to AIM in 2005 in bringing 21 businesses or client portfolios into the Group, developing considerable expertise and a strong track record in the execution and subsequent integration of such transactions. 

 

The two businesses acquired during the previous financial year have integrated well and contributed positively to the Group's trading results since acquisition, increasing earnings and enhancing value.  Our most recent acquisition, Broughtons, has a similar culture to Mattioli Woods and the transaction gives us new opportunities to grow and develop the client offering of the combined business. 

 

With increasing complexity and continuing consolidation across the key markets in which we operate, we expect there will be further opportunities to accelerate our growth by acquisition.  Our strong balance sheet gives us the flexibility to make further value-enhancing acquisitions. 

 

Relationships

 

The Group's performance and value to our shareholders are influenced by other stakeholders, principally our clients, suppliers, employees, the Government and our strategic partners.  Our approach to all these parties is founded on the principle of open and honest dialogue, based on a mutual understanding of needs and objectives. 

 

Relationships with our clients are managed on an individual basis through our client relationship managers and consultants.  Employees have performance development reviews and employee forums also provide a communication route between employees and management, including SETGO.  Mattioli Woods also participates in trade associations and industry groups, which give us access to client and supplier groups and decision-makers in Government and other regulatory bodies.  Mattioli Woods is a member of the Association of Member-directed Pension Schemes and the Quoted Companies Alliance. 

 

Resources

 

The Group aims to safeguard the assets that give it competitive advantage, including its reputation for quality and proactive advice, its technical competency and its people.  

 

Our core values provide a framework for integrity, leading to responsible and ethical business practices.  Structures for accountability from our administration and consultancy teams through to SETGO and the Group's Board are clearly defined.  The proper operation of the supporting processes and controls are regularly reviewed by the Audit, Risk and Compliance Committee and take into account ethical considerations, including procedures for 'whistle-blowing'. 

 

Our people

 

As we continue to grow, our "Big to Better" initiative will enable us to retain our core principles as a business built on the integrity, expertise and passion of our people.  Our total headcount at 31 May 2018 had increased to 622 (2017: 568) and we continue to invest in our graduate recruitment programme, with 20 (2017: 25) new graduates and 24 (2017: 16) apprentices joining the Group during the year.  We are also developing programmes for 'life served' people seeking exciting opportunities for a change in career or a return to work.  We continue to expand our consultancy and technical teams to take advantage of new business opportunities, with the number of consultants having increased to 134 (2017: 115) at the year end.  

 

In June 2018 we were delighted to announce the appointment of Saira Chambers to lead our employee benefits team as Employee Benefits Director.  Saira brings extensive experience across all aspects of employee benefits, both as a consultant and in senior leadership roles, and this blend of knowledge and experience will enable us to transform this area of our business as part of our long-terms plans.  

 

We enjoy a strong team spirit and facilitate employee equity ownership through the Mattioli Woods plc Share Incentive Plan ("the Plan") and other share schemes.  At the year end the proportion of eligible staff invested via the Plan remained high at 58% (2017: 58%) and we will continue to encourage broader participation in the Plan. 

 

Forward-looking statements

 

The strategic report is prepared for the members of Mattioli Woods and should not be relied upon by any other party for any other purpose.  Where the report contains forward-looking statements these are made by the directors in good faith based on the information available to them at the time of their approval of this report.  Consequently, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risks underlying such forward-looking statements and information.  The Group undertakes no obligation to update these forward-looking statements. 

 

Principal risks and uncertainties

 

There are a number of potential risks which could hinder the implementation of the Group's strategy and have a material impact on its long‑term performance.  These arise from internal or external events, acts or omissions which could pose a threat to the Group.  The principal risks identified as having a potential material impact on the Group are detailed below, together with the principal means of mitigation.  The risk factors mentioned do not purport to be exhaustive as there may be additional risks that materialise over time that the Group has not yet identified or deemed to have a potentially material adverse effect on the business:

 

Industry risks

 

 

 

Risk type

Description

Mitigating factors

Chance

Impact

Change in risk

Changes in investment markets and poor investment performance

Volatility may adversely affect trading and/or the value of the Group's assets under management, administration and advice, from which we derive revenues. 

·      Majority of clients' funds held within registered pension schemes or ISAs, where less likely to withdraw funds and lose tax benefits. 

·      Broad range of investment solutions enables clients to shelter from market volatility through diversification, while continuing to generate revenues for the Group. 

·      Market volatility is closely monitored by the Asset Management Executive Committee.

Medium

Medium

No change

Changing markets and increased competition

The Group operates in a highly competitive environment with evolving characteristics and trends. 

·      Consolidating market position develops the Group's pricing power.

·      Control over scalable and flexible bespoke pension administration platform.

·      Experienced management team with a strong track record. 

·      Loyal customer base and strong client retention.

·      Broad service offering gives diversified revenue streams.

High

High

No change

Evolving technology

The Group's technology could become obsolete if we are unable to develop our systems to accommodate changing client needs, new products and the emergence of new industry standards.

·      We partner with leading software providers to assist in our systems development.

·      High awareness of the importance of technology at Board level.

·      Expanded systems development with phased implementation of Group-wide platform.

Medium

High

No change

Regulatory risk

The Group may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations.

·      Strong compliance culture. 

·      External professional advisers are engaged to review and advise upon control environment. 

·      Business model and culture embraces FCA principles, including treating clients fairly. 

·      Decision to withdraw from providing advice on safeguarded pensions. 

·      Financial strength provides comfort should capital resource requirements be increased.  

Medium

Medium / High

Increase

Changes in tax law

Changes in tax legislation could reduce the attractiveness of long-term savings via pension schemes, particularly SSASs and SIPPs. 

·      The Government has a desire to encourage long-term savings to plan for an ageing population, which is currently under-provided for. 

·      Changes in pension legislation create the need for clients to seek advice. 

·      The development of the Group's investment and asset management services has reduced dependency on pension planning. 

Low

Medium

No change

 

Operational risks

 

 

 

Risk type

Description

Mitigating factors

Chance

Impact

Change in risk

Damage to the Group's reputation

There is a risk of reputational damage as a result of employee misconduct, failure to manage inside information or conflicts of interest, fraud, improper practice, poor client service or advice.

·      Strong compliance culture with a focus on positive customer outcomes.

·      High level of internal controls, including checks on new staff. 

·      Well-trained staff who ensure the interests of clients are met in the services provided. 

Medium

High

No change

Errors, breakdown or security breaches in respect of the Group's software or information technology systems

Serious or prolonged breaches, errors or breakdowns in the Group's software or information technology systems could negatively impact customer confidence.  It could also breach contracts with customers and data protection laws, rendering us liable to disciplinary action by governmental and regulatory authorities, as well as to claims by our clients.

·      Ongoing review of data security. 

·      IT performance, scalability and security are deemed top priorities by the Board.

·      Experienced in-house team of IT professionals and established name suppliers. 

High

High

No change

Data quality

Inaccurate data or voids in our data could result in inaccurate regulatory and/or client reporting

·      Ongoing initiatives to clean data

·      Development of data warehouse to standardise data tables and create 'one source of truth'

High

Medium

New risk

Business continuity

In addition to the failure of IT systems, there is a risk of disruption to the business as a result of power failure, fire, flood, acts of terrorism, re-location problems and the like.

·      Periodic review of Business Continuity Plan, considering best practice methodologies.

·      Disaster recovery plan and a disaster recovery team in place.  Business impact analysis has been conducted by department. 

·      Business interruption insurance. 

Medium

Medium

No change

Fraud risk

There is a risk an employee or third party defrauds either the Group or a client. 

·      The Group ensures the control environment mitigates against the misappropriation of client assets.

·      Strong corporate controls require dual signatures for all payments, SETGO approval for all expenditure greater than £5,000 and Board approval for all expenditure greater than £100,000. 

·      Assessment of fraud risk every six months discussed with the Audit Committee, Risk and Compliance Committee and external auditors. 

·      Clients have view-only access to information. 

·      Ongoing review of risk of fraud due to external attack on the Group's IT systems. 

Medium

Medium

No change

Key personnel risk

The loss of, or inability to recruit, key personnel could have a material adverse effect on the Group's business, results of operations or financial condition.

·      Succession planning is a key consideration throughout the Group.

·      Success of the Group should attract high calibre candidates.

·      Share-based schemes in operation to incentivise staff and encourage retention.

·      Recruitment programmes in place to attract appropriate new staff. 

·      Cross functional acquisition team brought into acquisition projects at an early stage.

·      Keyman cover for company founders.

Low

Medium

No change

Litigation or claims made against the Group

Risk of liability related to litigation from clients or third parties and assurance that a claim or claims will not be covered by insurance or, if covered, will exceed the limits of available insurance coverage, or that any insurer will become insolvent and will not meet its obligations to provide the Group with cover. 

·      Appropriate levels of Professional Indemnity insurance cover regularly reviewed with the Group's advisers. 

·      Comprehensive internal review procedures, including compliance sign-off, for advice and marketing materials. 

·      Maintenance of three charging models; time cost, fixed and asset based, which are aligned to specific service propositions and agreed with clients. 

·      Restricted status for our consultants to enable the recommendation of our own products and others in the market. 

High

Medium

Increase

Reliance on third parties

Any regulatory breach or service failure on the part of an outsourced service provider could expose the Group to the risk of regulatory sanctions and reputational damage.

·      Due diligence is part of the selection process for key suppliers.

·      Ongoing review of relationships and concentration of risk with key business partners. 

Low

High

Increase

Strategic risk

Risk that management will pursue inappropriate strategies or implement the Group's strategy ineffectively.

·      Experienced management team with successful track record to date.

·      Management has demonstrated a thorough understanding of the market and monitors this through regular meetings with clients.

Low

Low

No change

Corporate manslaughter risk

The risk of breaching corporate manslaughter laws as a result of management breach in duty of care.

·      Policies and procedures in place to provide employee guidance when driving on company business.

·      Company cars regularly maintained and serviced with reputable and vetted companies.

·      Adequate insurance cover.

·      Responsible employees.

High

Medium

No change

 

Financial risks

 

 

 

Risk type

Description

Mitigating factors

Chance

Impact

Change in risk

Counterparty default

That the counterparty to a financial obligation will default on repayments. 

·      The Group trades only with recognised, creditworthy third parties. 

·      Customers who wish to trade on credit terms are subject to credit verification procedures. 

·      All receivables are reviewed on an ongoing basis for risk of non-collection and any doubtful balances are provided against. 

Medium

Medium

No change

Bank default

The risk that a bank could fail.

·      We only use banks with strong credit ratings. 

·      Client deposits spread across multiple banks. 

·      Regular review and challenge of treasury policy by management.

Medium

High

Decrease

Concentration risk

A component of credit risk, arising from a lack of diversity in business activities or geographical risk. 

·      The client base is broad, without significant exposure to any individual client or group of clients.

·      Broad service offering gives diversified revenue streams. 

Medium

Medium

No change

Liquidity risk

The risk the Group is unable to meet liabilities as they become due because of an inability to liquidate assets or obtain adequate funding.

·      Cash generative business.

·      Group maintains a surplus above regulatory and working capital requirements.

·      Treasury management provides for the availability of liquid funds at short notice.

Low

Low

No change

Interest rate risk

Risk of decline in earnings due to a decline in banking margin or deposit rates received on surplus cash. 

Low interest rates make it harder to structure compelling capital-protected products for clients.

·      Market expectation that interest rates will rise. 

·      Good relationships with key banking partners. 

·      Access to competitive interest rates due to scale of business. 

Low

Medium

Increase

Underwriting risk

When arranging new products for promotion to the Group's clients, the Group may need to guarantee a minimum aggregate investment to secure appropriate terms for the product. 

 

If actual client investment is less than the underwritten amount, we would incur the cost of either acquiring the unsold element of the product or unwinding any hedges underlying the unsold element of the product. 

·      New products created in line with client demand.

·      Potential costs are carefully considered by the Investment Committee prior to the launch of each product.

Low

Low

No change

 

Emerging risks, including legislative and regulatory change, have the potential to impact the Group and its strategy.  The senior management team continues to monitor emerging risks and threats to the financial services sector including, for example, cyber threats, regulatory change and scenarios potentially arising from geopolitical developments, including Brexit. 

 

Management's current assessment is that the direct impacts of Brexit are not expected to have a direct material adverse impact on our business, given the Group's UK-based business model.  However, we are conscious this position might change and could raise unexpected challenges, including those arising from any broader impact that Brexit might have on the UK economy as a whole. 

 

Corporate social responsibility

 

We believe that running a profitable and growing business, which creates jobs and contributes to the economic success of the areas in which it operates, is a good platform for good corporate social responsibility. 

 

Charities and communities

 

Mattioli Woods has a long-standing commitment to ensure our staff can engage with their local communities, playing a valuable role by forming innovative partnerships with other organisations and charities.  This social awareness is present throughout the business, from our employees to our clients, our professional connections and the suppliers we use.

 

We have a high level of engagement within our local communities.  Each year, we sponsor business, sports and community awards.  Our business has benefited greatly from winning numerous awards and we feel it's right to help other businesses reap the rewards of such accolades.  In addition, we sponsor a variety of local clubs, business and sports related events across the country.  We believe this brings many benefits to the local community and beyond. 

 

The Group is pleased to continue sponsoring the Rothley 10k, one of the most celebrated charity road running races in Leicestershire.  This year proved to be a record-breaking year, with the race attracting a best ever 1,171 runners in June 2018, raising over £28,000 of essential funds for a variety of local causes including LOROS, Rainbows, County Air Ambulance Service, Age UK, Eye Camps and RNLI. 

 

In 2015 we chose our first national charity, Breast Cancer Now, the UK's largest breast cancer charity dedicated to funding research into this devastating disease.  By tackling the disease in the labs, on the political agenda, through public health information and with the health service, it believes it can transform the outlook for everyone affected by breast cancer.  To date, the Group has raised over £200,000 for the charity. 

 

We also continue to sponsor wheelchair racer Sammi Kinghorn, who set a new 200m T53 world record last year.  Sammi helped us celebrate our switch to new offices in the heart of Glasgow and proudly displayed two gold medals and a bronze won at the world para athletics championships in London in 2017. 

 

In addition, we support many other smaller charities.  An employee at our Solihull office has set up a 'Little Free Library' in the village she lives in to provide a free book exchange for local children.  We continue to support Newmarket's Open Door initiative, which provides vulnerable people with supported housing and training opportunities; Rainbow House in Preston, a comprehensive programme for children, young people and adults with neurological conditions and Project Luangwa, an international charity supported by our Solihull team that provides education in Zambia through the construction of schools, sponsoring of students and provision of educational materials.

 

Employees

 

The Group continues to create opportunities for young people through both its Financial Services Development scheme and apprenticeship recruitment, winning Apprenticeship Employer of the Year at the 2017 Leicester Apprenticeship Hub Graduation Ceremony.  This year, we are looking to recruit 24 graduates and 20 apprentices.  We have also given 19 students the opportunity to work with us to gain valuable work experience during the year. 

 

During the year we lost a well-respected leader in our Employee Benefits business when Mike Reid sadly lost his battle against cancer.  Mike will be greatly missed by all his workmates, clients and suppliers that he worked with during his 12 years with the Group. 

 

Diversity and inclusion

 

We are an equal opportunities employer and it is our policy to ensure that all job applicants and employees are treated fairly and on merit regardless of race, sex, marital/civil partnership status, age, disability, religious belief, pregnancy, maternity, gender reassignment or sexual orientation. 

 

Modern slavery

 

Mattioli Woods is committed to preventing modern slavery and human trafficking in all its activities, and to ensuring its supply chains are free from modern slavery and human trafficking.  We welcomed the introduction of the Modern Slavery Act 2015 and publish a Modern Slavery and Human Trafficking Statement on our website.  We have also developed policies, reviewed our due diligence processes for suppliers and provided training to staff. 

 

A copy of our Modern Slavery and Human Trafficking Statement can be found on our website. 

 

Anti-bribery policy

 

We value our reputation for ethical behaviour and upholding the utmost integrity and we comply with the FCA's clients' best interests rule.  We understand that in addition to the criminality of bribery and corruption, any such crime would also have an adverse effect on our reputation and integrity. 

 

Mattioli Woods has a zero tolerance approach to bribery and corruption and we ensure all our employees and suppliers are adequately trained as to limit our exposure to bribery by:

 

·     Setting out clear anti-bribery and corruption policies;

·     Providing mandatory training to all employees;

·   Encouraging our employees to be vigilant and report any suspected cases of bribery in accordance with the  specified procedures; and

·    Escalating and investigating instances of suspected bribery and assisting the police or other appropriate authorities in their investigations.

 

Gender pay reporting

 

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 requires all employers with 250 or more employees in the UK to publish details of their gender pay gap.  Its aim is to achieve greater transparency about gender pay difference.  The analysis is based on data as at 5 April of each year and shows the differences in the average pay between men and women.  The Group has submitted its data on gender pay to the government and published these details on our website. 

 

Approval

 

The strategic report contains certain forward-looking statements, which are made by the Directors in good faith based on the information available to them at the time of their approval of this annual report.  Statements contained within the strategic report should be treated with some caution due to the inherent uncertainties (including but not limited to those arising from economic, regulatory and business risk factors) underlying any such forward-looking statements.  The strategic report has been prepared by Mattioli Woods to provide information to its shareholders and should not be relied upon for any other purpose. 

 

The strategic report in its entirety has been approved by the Board of Directors and signed on its behalf by:

 

Ian Mattioli MBE

Chief Executive Officer

3 September 2018

 

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 May 2018

 

 

Note

 

 

 

2018

£000

 

 

 

2017

£000

 

 

 

 

Revenue

4

58,669

50,533

 

 

 

 

Employee benefits expense

 

(32,148)

(28,711)

Other administrative expenses

 

(12,833)

(9,558)

Share based payments

11

(1,497)

(1,902)

Amortisation and impairment

9

(2,225)

(1,996)

Depreciation

7

(822)

(606)

Loss on disposal of property, plant & equipment

 

(67)

(61)

Gain on revaluation of derivative financial instrument

10

540

93

 

 

 

 

Operating profit before financing

 

9,617

7,792

 

 

 

 

Finance revenue

 

73

45

Finance costs

 

(154)

(291)

 

 

 

 

Net finance costs

 

(81)

(246)

 

 

 

 

Share of profit from associate, net of tax

10

240

103

 

 

 

 

Profit before tax

 

9,776

7,649

Income tax expense

 

(1,586)

(1,293)

 

 

 

 

 

 

 

 

Profit for the year

 

8,190

6,356

Other comprehensive income for the year, net of tax

 

-

-

 

 

 

 

Total comprehensive income for the year, net of tax

 

8,190

6,356

 

 

 

 

Attributable to:

 

 

 

Equity holders of the parent

 

8,190

6,356

 

 

 

 

 

 

 

 

Earnings per ordinary share:

 

 

 

 

 

 

 

Basic (pence)

6

31.2

24.5

Diluted (pence)

6

31.1

24.4

 

 

 

 

Proposed total dividend per share (pence)

7

17.0

14.1

 

The operating profit for each period arises from the Group's continuing operations.  The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own statement of comprehensive income in these financial statements. 

 

 

Consolidated and Company Statements of Financial Position          Registered number: 3140521

As at 31 May 2018

 

 

 

2018

2017

 

 

Group

Company

Group

Company

 

Note

£000

£000

£000

£000

Assets

 

 

 

 

 

Property, plant and equipment

8

16,483

2,892

9,671

2,209

Intangible assets

9

43,199

40,931

44,444

36,743

Deferred tax asset

 

674

664

798

777

Investments in subsidiaries

 

-

18,572

-

18,572

Investment in associate

10

3,725

3,725

3,476

3,476

Derivative financial asset

12

650

650

110

110

 

 

 

 

 

 

Total non-current assets

 

64,731

67,434

58,499

61,887

 

 

 

 

 

 

Trade and other receivables

 

16,946

28,906

15,692

22,767

Investments

 

81

81

86

86

Cash and short-term deposits

13

23,668

17,880

22,979

12,172

 

 

 

 

 

 

Total current assets

 

40,695

46,867

38,757

35,025

 

 

 

 

 

 

Total assets

 

105,426

114,301

97,256

96,912

 

 

 

 

 

 

Equity

 

 

 

 

 

Issued capital

14

261

261

258

258

Share premium

14

31,283

31,283

30,314

30,314

Merger reserve

14

8,781

8,781

8,781

8,781

Equity - share based payments

14

3,010

3,010

2,571

2,571

Capital redemption reserve

14

2,000

2,000

2,000

2,000

Retained earnings

14

33,615

28,468

28,671

23,892

 

 

 

 

 

 

Total equity attributable to equity holders of the parent

 

78,950

73,803

72,595

67,816

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Deferred tax liability

 

3,455

3,218

3,600

2,692

Financial liabilities and provisions

15

596

17,506

2,842

11,337

 

 

 

 

 

 

Total non-current liabilities

 

4,051

20,724

6,442

14,029

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

17,988

15,972

12,862

10,501

Income tax payable

 

695

101

957

259

Financial liabilities and provisions

15

3,742

3,701

4,400

4,307

 

 

 

 

 

 

Total current liabilities

 

22,425

19,774

18,219

15,067

 

 

 

 

 

 

Total liabilities

 

26,476

40,498

24,661

29,096

 

 

 

 

 

 

Total equities and liabilities

 

105,426

114,301

97,256

96,912

 

The profit of the Company for the financial year, after taxation, was £7.8m (2017: £4.5m). 

The financial statements were approved by the Board of directors and authorised for issue on 3 September 2018 and are signed on its behalf by: 

 

 

Ian Mattioli MBE                                                        Nathan Imlach

Chief Executive Officer                                               Chief Financial Officer

 

Consolidated and Company Statements of Changes in Equity

For the year ended 31 May 2018

 

Group

Issued capital
(Note 14)

£000

Share premium (Note 14)

£000

Merger reserve
(Note 14)

£000

Equity - share based payments
(Note 14)

£000

Capital redemption reserve

(Note 14)

£000

Retained earnings

(Note 14)

£000

Total equity

£000

 

 

 

 

 

 

 

 

As at 1 June 2016

252

27,765

8,531

1,642

2,000

25,391

65,581

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

6,356

6,356

Total comprehensive income

-

-

-

-

-

6,356

6,356

Transactions with owners of the Group, recognised directly in equity

 

 

 

 

 

 

 

Share of other comprehensive income from associates

-

-

-

-

-

5

5

Issue of share capital

6

2,549

250

-

-

-

2,805

Share-based payment transactions

-

-

-

949

-

-

949

Deferred tax recognised in equity

-

-

-

52

-

-

52

Current tax taken to equity

-

-

-

237

-

-

237

Reserves transfer

-

-

-

(309)

-

309

-

Dividends

-

-

-

-

-

(3,390)

(3,390)

 

 

 

 

 

 

 

 

As at 31 May 2017

258

30,314

8,781

2,571

2,000

28,671

72,595

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

8,190

8,190

Total comprehensive income

-

-

-

-

-

8,190

8,190

Transactions with owners of the Group, recognised directly in equity

 

 

 

 

 

 

 

Share of other comprehensive income from associates

-

-

-

-

-

9

9

Issue of share capital

3

969

-

-

-

-

972

Share-based payment transactions

-

-

-

1,020

-

-

1,020

Deferred tax derecognised in equity

-

-

-

(62)

-

-

(62)

Current tax taken to equity

-

-

-

92

-

-

92

Reserves transfer

-

-

-

(611)

-

611

-

Dividends

-

-

-

-

-

(3,866)

(3,866)

 

 

 

 

 

 

 

 

As at 31 May 2018

261

31,283

8,781

3,010

2,000

33,615

78,950

 

Consolidated and Company Statements of Changes in Equity

For the year ended 31 May 2018 (continued)

 

Company

Issued capital
(Note 14)

£000

Share premium (Note 14)

£000

Merger reserve

(Note 14)

£000

Equity - share based payments (Note 14)

£000

Capital redemption reserve

(Note 14)

£000

Retained earnings

(Note 14)

£000

Total equity

£000

 

 

 

 

 

 

 

 

As at 1 June 2016

252

27,765

8,531

1,642

2,000

22,487

62,677

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

4,481

4,481

Total comprehensive income

-

-

-

-

-

4,481

4,481

Transactions with owners of the Company, recognised directly in equity

 

 

 

 

 

 

 

Share of other comprehensive income from associates

-

-

-

-

-

5

5

Issue of share capital

6

2,549

250

-

-

-

2,805

Share-based payment transactions

-

-

-

949

-

-

949

Deferred tax recognised in equity

-

-

-

52

-

-

52

Current tax taken to equity

-

-

-

237

-

-

237

Reserves transfer

-

-

-

(309)

-

309

-

Dividends

-

-

-

-

-

(3,390)

(3,390)

 

 

 

 

 

 

 

 

As at 31 May 2017

258

30,314

8,781

2,571

2,000

23,892

67,816

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

7,822

7,822

Total comprehensive income

-

-

-

-

-

7,822

7,822

Transactions with owners of the Company, recognised directly in equity

 

 

 

 

 

 

 

Share of other comprehensive income from associates

-

-

-

-

-

9

9

Issue of share capital

3

969

-

-

-

-

972

Share-based payment transactions

-

-

-

1,020

-

-

1,020

Deferred tax derecognised in equity

-

-

-

(62)

-

-

(62)

Current tax taken to equity

-

-

-

92

-

-

92

Reserves transfer

-

-

-

(611)

-

611

-

Dividends

-

-

-

-

-

(3,866)

(3,866)

 

 

 

 

 

 

 

 

As at 31 May 2018

261

31,283

8,781

3,010

2,000

28,468

73,803

Consolidated and Company Statements of Cash Flows

For the year ended 31 May 2018

 

 

 

Group

2018

Company

2018

Group

2017

Company

2017

 

Note

£000

£000

£000

£000

Operating activities

 

 

 

 

 

Profit for the year

Adjustments for:

 

8,190

7,822

6,356

4,481

Depreciation

8

822

815

606

596

Amortisation and impairment

9

2,225

2,004

1,996

1,655

Investment income

 

(73)

(458)

(45)

(150)

Interest expense

 

154

551

291

494

Share of profit from associate

10

(240)

(240)

(103)

(103)

Gain on revaluation of derivative financial asset

10,12

(540)

(540)

(93)

(93)

Loss on disposal of property, plant and equipment

 

67

68

61

61

Equity-settled share-based payments

11

1,378

1,378

1,241

1,241

Cash-settled share-based payments

 

119

119

661

661

Dividend income

 

-

(2,500)

-

(800)

Income tax expense

 

1,586

886

1,293

706

Cash flows from operating activities before changes in working capital and provisions

 

13,688

9,905

12,264

8,749

Increase in trade and other receivables

 

(957)

(5,043)

(2,018)

(9,140)

Increase in trade and other payables

 

5,100

5,187

1,762

1,944

Increase/(decrease) in provisions

 

344

325

(1,544)

(1,536)

Cash generated from operations

 

18,175

10,374

10,464

17

Interest paid

 

(1)

(1)

(2)

(2)

Income taxes paid

 

(1,840)

(1,419)

(1,700)

(875)

Net cash flows from operating activities

 

16,334

8,954

8,762

(860)

Investing activities

 

 

 

 

 

Proceeds from sale of property, plant and equipment

 

72

68

126

126

Purchase of property, plant and equipment

8

(7,773)

(1,627)

(8,225)

(1,004)

Purchase of software

9

(980)

(980)

(616)

(612)

Consideration paid on acquisition of subsidiaries

 

(3,506)

(3,506)

(3,490)

(3,490)

Investment in subsidiary

 

-

-

-

(1,000)

Consideration paid for shares in associate

 

-

-

(1,646)

(1,646)

Cash transferred on hive up of group companies

 

-

3,765

-

1,289

Cash received on acquisition of subsidiaries

 

-

-

172

-

Other investments

 

9

9

-

-

Loans advanced to property syndicates

 

(2,332)

(2,332)

(541)

(541)

Loan repayments from property syndicates

 

2,032

2,032

571

571

Interest received

 

73

65

39

24

Dividends received

 

-

2,500

-

800

Net cash flows from investing activities

 

(12,405)

(6)

(13,610)

(5,483)

Financing activities

 

 

 

 

 

Proceeds from the issue of share capital

 

626

626

524

524

Repayment of borrowings acquired in business combinations

 

-

-

884

-

Dividends paid

7

(3,866)

(3,866)

(3,390)

(3,390)

Net cash flows from financing activities

 

(3,240)

(3,240)

(1,982)

(2,866)

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

689

5,708

(6,830)

(9,209)

Cash and cash equivalents at start year

13

22,979

12,172

29,809

21,381

Cash and cash equivalents at end of year

13

23,668

17,880

22,979

12,172

 

Notes to the financial statements

 

 

1       Corporate information

 

Mattioli Woods plc ("the Company") is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the AIM market of the London Stock Exchange plc.  The nature of the Group's operations and its principal activities are set out in the Chief Executive's Review. 

 

2       Basis of preparation and accounting policies

 

2.1    Basis of preparation

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and in accordance with the requirements of the Companies Act applicable to companies reporting under IFRS. 

 

The financial statements comprise the financial statements of Mattioli Woods plc and its subsidiaries ("the Group") as at 31 May each year.  The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair value, and are presented in pounds, with all values rounded to the nearest thousand pounds (£000) except when otherwise indicated. 

 

The principal accounting policies adopted are set out in this note and, unless otherwise stated, have been applied consistently to all periods presented in the financial statements.  The financial statements were authorised for issue in accordance with a resolution of the directors on 3 September 2018. 

 

2.2    Developments in reporting standards and interpretations

 

Standards affecting the financial statements

 

There have been no new or revised standards and interpretations that have been adopted in the current year and have affected the amounts reported in these financial statements. 

 

Standards not affecting the financial statements

 

The following new and revised standards and interpretations have been adopted in the current year:

 

 

 

Standard or interpretation

Periods commencing on or after

 

 

Annual Improvements to IFRSs 2014-2016 Cycle

1 January 2017

IAS 7

Disclosure Initiative

1 January 2017

IAS 12

Recognition of Deferred Tax Assets for Unrealised                   Losses

1 January 2017

 

Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements, or give rise to additional disclosures. 

 

Future new standards and interpretations

 

A number of new standards and amendments to standards and interpretations will be effective for future annual periods and, therefore, have not been applied in preparing these consolidated financial statements.  At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective:

 

Standard or interpretation

Periods commencing on or after

 

 

Annual Improvements to IFRSs 2014-2016 Cycle

1 January 2018

IFRS 2 (amended)       Classification and Measurement of Share-based Payments

1 January 2018

IFRS 15                       Revenue from Contracts with Customers

1 January 2018

IFRS 9                         Financial Instruments

1 January 2018

IAS 40 (amended)       Transfers of Investment Property

1 January 2018

IFRIC 22                      Foreign Currency Transactions and Advance Consideration

1 January 2018

IFRS 16                       Leases

1 January 2019

IFRIC 23                      Accounting for uncertain tax treatments

1 January 2019

IAS 28 (amended)        Long Term Interests in Associates and Joint Ventures

1 January 2019

Annual Improvements to IFRSs 2015-2017 Cycle

1 January 2019

IAS 19 (amended)        Plan Amendment, Curtailment or Settlement

1 January 2019

Amendments to References to the Conceptual Framework in IFRS Standards

1 January 2020

IFRS 17                       Insurance Contracts

1 January 2021

 

IFRS 16 'Leases' is expected to have a significant effect on the condensed consolidated interim financial statements and the consolidated financial statements of the Group, as explained below.  Other than to expand certain disclosures within the financial statements, the Directors do not expect the adoption of the other standards and interpretations listed above will have a material impact on the financial statements of the Group in future periods. 

 

 

IFRS 9 Financial Instruments

 

IFRS 9 'Financial instruments' was issued in July 2014, is effective for accounting periods beginning on or after 1 January 2018, was adopted by the Group on 1 June 2018 and therefore will impact the Group's financial statements for the year ending 31 May 2019.

 

IFRS 9 introduces changes to the classification of financial assets and a new impairment model for financial assets, which will result in earlier recognition of impairment losses.  Under the expected credit loss model, loss allowances equal to either the 12 month or lifetime expected credit losses are recognised on initial recognition of financial assets, depending on assessed credit risk.  The latter is applied where there has been a significant deterioration in credit quality of the asset, although a simplified approach for calculating expected credit losses on trade receivables and contract assets is available, which looks only at lifetime expected credit losses.  Additional disclosure requirements include both quantitative and qualitative disclosures supporting the basis and recognition of loss allowances, and the recognition of the loss allowance within provisions. 

 

The Group has assessed the impact of the following accounting changes that will arise under IFRS 9:

 

·   Provisions for impairment losses against financial assets will be recognised sooner as lifetime expected credit losses are recognised on initial recognition of those financial assets. 

·    The Group's trade receivables and accrued income ('contract assets' under IFRS 15) are generally short term and do not include a financing component.  As a result, the Group expects to apply the simplified approach and reflect lifetime expected credit losses.

 

Provisional evaluation of the application of IFRS 9 indicates an expected reduction to opening equity and the carrying amount of financial assets and liabilities recognised in the consolidated financial statements of £0.4m.  The classification of financial assets held by the Group is not expected to change. 

 

IFRS 15 Revenue from Contracts with Customers

 

IFRS 15 'Revenue from Contracts with Customers' was issued in May 2014, is effective for accounting periods beginning on or after 1 January 2018, was adopted by the Group on 1 June 2018 and therefore will impact the Group's financial statements for the year ending 31 May 2019.

 

IFRS 15 changes the way revenue from some customer contracts is recognised, impacting both the timing at which revenue may be recognised, and the value of revenue recognised.  Customer contracts are broken down in to separate performance obligations, with contractual revenues being allocated to each performance obligation and revenue recognised on a basis consistent with the transfer of control of goods or services.  Additional disclosure requirements include the reporting of disaggregated revenues, and the recognition of contract assets and contract liabilities on the face of the statement of financial position.

 

The Group has assessed the impact of the following accounting changes that arise under IFRS 15:

 

·     Timing of recognition of some non-recurring revenues may be deferred where contract performance conditions are deemed not to have been met at the reporting date.

·    Contract balances will be reclassified in the statement of financial position, but this is not expected to impact the value of net current assets reported.

·   Additional disclosures will be included in the annual report to disclose revenues from customer contracts on a disaggregated basis.

 

Provisional evaluation of the application of IFRS 15 suggests that no adjustments are required to opening equity or the carrying amount of financial assets and liabilities recognised in the consolidated financial statements. 

 

IFRS 16 Leases

 

IFRS 16 'Leases' was issued in January 2016, is effective for accounting periods beginning on or after 1 January 2019, will be adopted by the Group on 1 June 2019 and therefore will impact the Group's financial statements for the year ending 31 May 2020.

 

IFRS 16 will primarily change lease accounting for lessees.  Lease agreements will give rise to the recognition of an asset representing the right to use the leased item and a loan obligation for future lease payables.  Lease costs will be recognised in the form of depreciation of the right-of-use asset and interest on the lease liability.  Lessee accounting under IFRS 16 will be similar in many respects to existing IAS 17 accounting for finance leases, but will be substantially different to existing accounting for operating leases where rental charges are currently recognised on a straight-line basis and no lease asset or lease loan obligation is recognised.

 

Lessor accounting under IFRS 16 is similar to existing IAS 17 accounting and is not expected to have a material impact for the Group.  The Group is assessing the impact of the following accounting changes that will arise under IFRS 16:

 

·    Right-of-use assets will be recorded for assets that are leased by the Group; currently no lease assets are included on the Group's consolidated statement of financial position for operating leases.

·    Liabilities will be recorded for discounted future lease payments in the Group's consolidated statement of financial position for the "reasonably certain" period of the lease, which may include future lease periods for which the Group has extension options.  Currently liabilities are generally not recorded for future operating lease payments, which are disclosed as commitments unless they are considered onerous.  The amount of lease liabilities will not equal the lease commitments reported on 31 May 2018, but may not be dissimilar.

·     Lease expenses will be recognised as depreciation of right-of-use assets and interest on lease liabilities; interest will typically be higher in the early stages of a lease and reduce over the term.  Currently operating lease rentals are expensed on a straight-line basis over the lease term within operating expenses.

·     Operating lease cash flows are currently included within operating cash flows in the consolidated statement of cash flows; under IFRS 16 these will be recorded as cash flows from financing activities reflecting the repayment of lease liabilities (borrowings) and related interest. 

 

The Group is continuing to assess the impact of these and other accounting changes that will arise under IFRS 16 and expects the changes highlighted to have a material impact on the consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows after adoption on 1 June 2019:

 

·    EBITDA is likely to rise because the lease expense under IAS 17 for operating leases will be removed and replaced with additional depreciation and finance costs.  The profit profile of the business will also change as more expense is recognised in earlier periods and less in later periods compared to the straight-line amount recognised under IAS 17. 

·   For leases classified as operating leases under IAS 17, there will be a significant impact on the Statement of Financial Position as these assets and corresponding liabilities have to be recognised.  This will impact on gearing levels and potentially on covenants provided to prospective lenders and others. 

 

Application of IFRS 9, IFRS 15 and IFRS 16

 

When IFRS 9, IFRS 15 and IFRS 16 are adopted, they can be applied either on a fully retrospective basis, requiring the restatement of the comparative periods presented in the financial statements, or with their cumulative retrospective impact applied as an adjustment to equity on the date of adoption; when the latter approach is applied it is necessary to disclose the impact of IFRS15 and IFRS 16 on each line item in the financial statements in the reporting period. 

 

Depending on the adoption method that is utilised, certain practical expedients may be applied on adoption.  The Group has not yet determined which method will be adopted or which expedients will be applied on adoption of these standards. 

 

2.3       Principal accounting policies

 

Basis of consolidation

 

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.  The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.  All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full. 

 

Business combinations

 

Business combinations are accounted for using the purchase accounting method.  This involves assessing whether any assets acquired meet the criteria for recognition as separately identifiable intangible assets.  Intangible assets are measured on initial recognition at their fair value at the date of acquisition.  Client portfolios are valued by discounting their expected future cash flows over their expected useful lives, based on the Group's historic experience.  Expected future cash flows are estimated based on the historic revenues and costs associated with the operation of that client portfolio.  The discount rates used estimate the cost of capital, adjusted for risk. 

 

Associates

 

The Company's share of profits from associates is reported separately in the Statement of Comprehensive income and the investment is recognised in the Statement of Financial Position using the equity method.  The investment is initially recorded at cost and subsequently adjusted to reflect the Company's share of the cumulative profits of the associate since acquisition.  Appropriate adjustments to the Company's share of the profits or losses after acquisition are made to account for additional amortisation of the associate's amortisable assets based on the excess of their fair values over their carrying amounts at the time the investment was acquired. 

 

Group re-organisations

 

On 31 December 2017 the trade and assets of the Boyd Coughlan Limited were transferred to the Company.  The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of Boyd Coughlan Limited as at 31 December 2017, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.

 

On 31 August 2016 the trade and assets of the Taylor Patterson Group Limited and its subsidiaries Taylor Patterson Financial Planning Limited and Taylor Patterson Associates Limited (together "the Business") were transferred to the Company.  The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of the Business as at 31 August 2016, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.

 

2.4       Key sources of judgements and estimation uncertainty

 

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities.  If in the future such estimates and assumptions, which are based on management's best judgement at the date of preparation of the financial statements, deviate from actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.  The areas where a higher degree of judgement or complexity arises, or where assumptions and estimates are significant to the consolidated financial statements, are discussed below. 

 

Impairment of client portfolios

 

The Group reviews whether acquired client portfolios are impaired at least on an annual basis.  This comprises an estimation of the fair value less cost to sell and the value in use of the acquired client portfolios.  In assessing value in use, the estimated future cash flows expected to arise from each client portfolio are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset.  

 

The key assumptions used in respect of value in use calculations are those regarding growth rates and anticipated changes to revenues and costs during the period covered by the calculations.  Changes to revenue and costs are based upon management's expectation.  The Group prepares its annual budget and five-year cash flow forecasts derived therefrom, thereafter extrapolating these cash flows using a terminal growth rate of 2.5% (2017: 2.5%), which management considers conservative against industry average long-term growth rates. 

 

The key assumption used in arriving at a fair value less costs to sell requires a valuation based on earnings multiples and values based on assets under management.  These have been determined by looking at valuations of similar businesses and the consideration paid in comparable transactions.  Management has used a range of multiples resulting in an average of 7.5x EBITDA (2017: 7.5x) to arrive at a fair value. 

 

The carrying amount of client portfolios at 31 May 2018 was £23.5m (2017: £25.2m).  No impairment provisions have been made during the year (2017: £nil) based upon the directors' review. 

 

Impairment of goodwill

 

The Group determines whether goodwill is impaired at least on an annual basis.  This requires an estimation of the value in use of the cash-generating units to which the goodwill has been allocated.  In assessing value in use, the estimated future cash flows expected to arise from the cash-generating unit are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset.  

 

The key assumptions used in respect of value in use calculations are those regarding growth rates and anticipated changes to revenues and costs during the period covered by the calculations, based upon management's expectation.  The carrying amount of goodwill at 31 May 2018 was £17.3m (2017: £17.3m).  No impairment provisions have been made during the year (2017: £nil) based upon the directors' review. 

 

Internally generated capitalised software

 

The costs of internal software developments are capitalised where they are judged to have an economic value that will extend into the future and meet the recognition criteria in IAS38.  Internally generated software is then amortised over an estimated useful life, assessed by taking into consideration the useful life of comparable software packages.  The carrying amount of internally generated capitalised software at 31 May 2018 was £1.0m (2017: £1.1m). 

 

Deferred tax assets

 

Deferred tax assets include temporary differences related to employee benefits settled via the issue of share options.  Recognition of the deferred tax assets assumes share options will have a positive value at the date of vesting, which is greater than the exercise price.  The carrying amount of deferred tax assets at 31 May 2018 was £0.7m (2017: £0.8m). 

 

Derivative financial assets

 

The Group entered into an option agreement to acquire the remaining 51% of the share capital of Amati in the two years following 6 February 2019.  The fair value of the option is calculated by a third party valuation expert using Monte Carlo simulation software and involves some estimation and uncertainty in determining the key inputs into the valuation model.  In particular, the key judgemental areas include the expected timing of the exercise of the option, the value of Amati as at the date of exercise and the value of shares payable as consideration on exercise.  The carrying amount of the derivative financial instrument at 31 May 2018 was £0.7m (2017: £0.1m). 

 

Interests in associates

 

Associates are entities in which the Group owns less than 100% of voting rights and has significant influence, but not control or joint control over the financial and operating policies.  In determining whether control exists, this requires significant judgements in assessing factors such as the structure of the investment and the contractual agreement.  The existence of significant influence is evidenced by the Group having representation on the board and the ability to participate in decisions but not being able to control the vote.  The carrying amount of the investment in associate at 31 May 2018 was £3.7m (2017: £3.5m).

 

 

Recoverability of accrued time costs and disbursements

 

The Group recognises accrued income in respect of time costs and disbursements incurred on clients' affairs during the accounting period, which have not been invoiced at the reporting date.  This requires an estimation of the recoverability of the time costs and disbursements incurred but not invoiced to clients.  The carrying amount of accrued time costs and disbursements at 31 May 2018 was £5.6m (2017: £4.5m). 

 

Accrued income

 

Accrued income is recognised in respect of fees, adviser charges and commissions due to the Group on investments and bank deposits placed during the accounting period which have not been received at the reporting date.  This requires an estimation of the amount of income that will be received subsequent to the reporting date in respect of the accounting period, which is based on the value of historic receipts and investments placed by clients under management and advice.  The carrying amount of accrued income at 31 May 2018 was £3.9m (2017: £3.2m). 

 

Acquisitions and business combinations

 

When an acquisition arises the Group is required under IFRS to calculate the Purchase Price Allocation ("PPA").  The PPA requires companies to report the fair value of assets and liabilities acquired and it establishes useful lives for identified assets.  The identification and the valuation of the assets and liabilities acquired involves estimation and judgement when determining whether the recognition criteria are met.  The classification of consideration payable as either purchase consideration or remuneration is an area of judgement and estimate. 

 

Subjectivity is also involved in PPA with the estimation of the future value of brands, technology, customer relationships and goodwill. 

 

Contingent consideration payable on acquisitions

 

The Group has entered into certain acquisition agreements that provide for a contingent consideration to be paid.  A financial instrument is recognised for all amounts management anticipates will be paid under the relevant acquisition agreement.  This requires management to make an estimate of the expected future cash flows from the acquired business and determine a suitable discount rate for the calculation of the present value of any deferred contingent consideration payments.  The carrying amount of contingent consideration provided for at 31 May 2018 was £0.9m (2017: £4.4m). 

 

 

Provisions

 

As detailed in Note 15, the Group recognises provisions for client claims, contingent consideration payable on acquisitions, commission clawbacks, cash-settled share based payment awards and other obligations which exist at the reporting date.  These provisions are estimates and the actual amount and timing of future cash flows are dependent on future events.  Management reviews these provisions at each reporting date to ensure they are measured at the current best estimate of the expenditure required to settle the obligation.  Any difference between the amounts previously recognised and the current estimate is recognised immediately in the statement of comprehensive income

 

The move to the Group's new central Leicester office is scheduled to complete in October 2018.  An onerous lease provision was recognised during the year as the Group intends to vacate its existing premises in Leicester after the Group takes occupation of its new office at New Walk.  Management estimated the value of the onerous lease provision making assumptions about the amount and timing of the cash flows associated with serving notice on one lease that was being held over and surrendering two unexpired leases.  The carrying amount of onerous lease costs provided for at 31 May 2018 was £0.9m (2017: £nil).  

 

3. Business combinations

 

The Group did not complete any acquisitions during the year.  Transaction costs of £0.1m (2017: £0.4m) incurred on the review of potential acquisitions have been expensed and are included in administrative expenses in the consolidated statement of comprehensive income and operating cash flows in the consolidated statement of cash flows in the period in which they were incurred. 

 

Contingent consideration

 

The Group has entered into certain acquisition agreements that provide for contingent consideration to be paid.  These agreements and the basis of calculation of the net present value of the contingent consideration are summarised below.  While it is not possible to determine the exact amount of contingent consideration (as this will depend on the performance of the acquired businesses during the period), the Group estimates the fair value of the remaining contingent consideration payable is £0.9m (2017: £4.4m). 

 

On 7 September 2016 the Group acquired MC Trustees for total consideration of up to £2.5m, comprising initial consideration of £1.23m in cash plus 38,081 new ordinary shares of 1p each in Mattioli Woods plus contingent consideration of up to £1.0m payable in cash in the two years following completion if certain financial target based on growth in earnings before interest, tax, depreciation and amortisation are met.  The Group estimates the fair value of the remaining contingent consideration at 31 May 2018 to be £0.5m (2017: £0.9m) using cash flows approved by the Board covering the contingent consideration period and expects the maximum contingent consideration will be payable. 

 

On 8 September 2015 the Group acquired Taylor Patterson for an initial consideration comprising cash of £2.1m (excluding cash acquired with the business) and 419,888 shares in Mattioli Woods, plus contingent consideration of up to £3.3m payable in cash in the three years following completion if certain revenue and profit targets are met.  The Group estimates the fair value of the remaining contingent consideration at 31 May 2018 to be £0.4m (2017: £2.2m) using cash flows approved by the Board covering the contingent consideration period.  The maximum contingent consideration was paid following the year end, after the early achievement of all revenue and profit targets. 

 

On 23 June 2015 the Group acquired Boyd Coughlan for initial consideration comprising cash of £3.9m (excluding cash acquired with the business) and 235,742 shares in Mattioli Woods, plus contingent consideration of up to £2.5m payable in cash in the two years following completion if certain profit targets are met.  At 31 May 2018 no further consideration is payable (2017: £1.2m) with the maximum contingent consideration having been paid. 

 

4. Revenue

 

Revenue disclosed in the consolidated statement of comprehensive income is analysed as follows:

 

 

2018

£000

2017

£000

 

 

 

Rendering of services

56,645

49,070

Commission income

2,024

1,463

 

 

 

 

58,669

50,533

 

Rendering of services includes consultancy and administration fees, employee benefits fee income, adviser charges, DPM and fund management charges. 

 

 

 

5. Segment information

 

The Group's objective is to fully integrate the businesses it acquires, to enable it to deliver holistic solutions across its wide and diverse client base.  During the year, the Group transferred the trade and assets of Boyd Coughlan Limited into Mattioli Woods.  The Group's operating segments comprise the following:

 

·    Pension consultancy and administration - fees earned by Mattioli Woods for setting up and administering   pension schemes.  Additional fees are generated from consultancy services provided for special one-off     activities and the provision of bespoke scheme banking arrangements;

·    Investment and asset management - income generated from the management and placing of investments on  behalf of clients;

·  Property management - income generated where Custodian Capital manages collective property investment vehicles, facilitates direct commercial property investments on behalf of clients or acts as the external discretionary manager for Custodian REIT plc; and

·     Employee benefits - income generated by the Group's employee benefits operations. 

 

Each segment represents a revenue stream subject to risks and returns that are different to other operating segments, although each operating segment's products and services are offered to broadly the same market.  The Group operates exclusively within the United Kingdom. 

 

Operating segments

 

The operating segments defined above all utilise the same intangible assets, property, plant and equipment and the segments have been financed as a whole, rather than individually.  The Group's operating segments are managed together as one business.  Accordingly, certain costs are not allocated across the individual operating segments, as they are managed on a group basis.  Segment profit or loss reflects the measure of segment performance reviewed by the Board of Directors (the Chief Operating Decision Maker). 

 

 

 

The following tables present revenue and profit information regarding the Group's operating segments for the two years ended 31 May 2018 and 2017 respectively. 

 

Year ended 31 May 2018

Investment

and

asset management

£000

Pension consultancy and administration

£000

 

Property management

£000

 

Employee benefits

£000

 

Total

segments

£000

 

Corporate costs

£000

 

 

Consolidated

£000

 

 

 

 

 

 

 

 

Revenue

External client

25,096

21,822

5,918

5,833

58,669

-

58,669

 

 

 

 

 

 

 

 

Total revenue

25,096

21,822

5,918

5,833

58,669

-

58,669

 

 

 

 

 

 

 

 

Results

Segment profit before tax

 

8,306

 

3,714

 

1,016

 

113

 

13,149

 

(3,373)

 

9,776

 

Year ended 31 May 2017

Investment

and

 asset management

£000

Pension consultancy and administration

£000

 

Property management

£000

 

Employee benefits

£000

 

Total

segments

£000

 

Corporate costs

£000

 

 

Consolidated

£000

 

 

 

 

 

 

 

 

Revenue

External client

 

21,079

 

18,869

 

5,178

 

5,407

 

50,533

 

-

 

50,533

 

 

 

 

 

 

 

 

Total revenue

21,079

18,869

5,178

5,407

50,533

-

50,533

 

 

 

 

 

 

 

 

Results

Segment profit before tax

 

5,008

 

3,569

 

1,198

 

458

 

10,233

 

(2,584)

 

7,649

 

 

 

Segment assets

 

The following table presents segment assets of the Group's operating segments:

 

 

 

31 May

2018

31 May

2017

 

 

£000

£000

 

 

 

 

Pension consultancy and administration

 

23,790

23,831

Investment and asset management

 

23,023

22,870

Property management

 

1,159

1,360

Employee benefits

 

11,177

11,649

 

 

 

 

Total segments

 

59,149

59,710

 

 

 

 

Corporate assets

 

46,278

37,546

 

 

 

 

Total assets

 

105,427

97,256

 

Segment assets exclude property, plant and equipment, certain items of computer software, investments, current and deferred tax balances and cash balances, as these assets are considered corporate in nature and are not allocated to a specific operating segment. 

 

 

 

31 May

2018

31 May

2017

Reconciliation of assets

 

£000

£000

 

 

 

 

Segment operating assets

 

59,149

59,710

 

 

 

 

Property, plant and equipment

 

16,483

9,671

Intangible assets

 

2,475

1,964

Deferred tax asset

 

675

798

Derivative financial asset

 

650

110

Prepayments and other receivables

 

2,246

1,938

Investments

 

81

86

Cash and short-term deposits

 

23,668

22,979

 

 

 

 

Total assets

 

105,427

97,256

 

Acquired intangibles and amortisation thereon relate to a specific transaction and are allocated between individual operating segments based on the headcount or revenue mix of the cash generating units at the time of acquisition.  The subsequent delivery of services to acquired clients may be across a number or all operating segments, comprising different operating segments to those the acquired intangibles have been allocated to. 

 

Liabilities have not been allocated between individual operating segments, as they cannot be allocated on anything other than an arbitrary basis. 

 

 

Corporate costs

 

Certain administrative expenses including acquisition costs, amortisation of software, depreciation of property, plant and equipment, irrecoverable VAT, legal and professional fees and professional indemnity insurance are not allocated between segments that are managed on a unified basis and utilise the same intangible and tangible assets. 

 

Finance income and expenses, gains and losses on the disposal of assets, taxes, intangible assets and certain other assets and liabilities are not allocated to individual segments as they are managed on a group basis.  Capital expenditure consists of additions of property, plant and equipment and intangible assets. 

 

 

 

31 May

2018

31 May

2017

Reconciliation of profit before tax

 

£000

£000

 

 

 

 

Total segments

 

13,149

10,233

 

 

 

 

Increase in provisions

 

(1,029)

(85)

Irrecoverable VAT

 

(829)

(531)

Depreciation

 

(822)

(606)

Amortisation and impairment

 

(469)

(259)

Professional indemnity insurance

 

(466)

(489)

Acquisition-related costs

 

(132)

(378)

Finance costs

 

(154)

(291)

Loss on disposal of assets

 

(67)

(61)

Bank charges

 

(18)

(22)

Finance income

 

73

45

Gain on revaluation of derivative financial asset

 

540

93

 

 

 

 

Group profit before tax

 

9,776

7,649

 

Country-by-country reporting

 

HM Treasury has transposed the requirements set out under the Capital Requirements Directive IV ("CRD IV") and issued the Capital Requirements Country-by-Country Reporting Regulations 2013, effective 1 January 2014.  The legislation requires Mattioli Woods plc (together with its subsidiaries) to publish certain additional information split by country, on a consolidated basis, for the year ended 31 May 2018.

 

Mattioli Woods plc and its subsidiaries are all incorporated in and operate from the United Kingdom.  All employees of the Group hold contracts of employment in the United Kingdom.  All turnover (revenue) and profit before tax is recognised on activities based in the United Kingdom.  All tax paid and any subsidies received are paid to and received from UK institutions. 

 

 

 

6. Earnings per ordinary share

 

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.  

 

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. 

 

The income and share data used in the basic and diluted earnings per share computations is as follows:

 

 

2018

£000

2017

£000

 

 

 

Net profit and diluted net profit attributable to equity holders of the Company

8,190

6,356

 

 

 

 

 

 

Weighted average number of ordinary shares:

000s

000s

 

 

 

Issued ordinary shares at start period

25,789

25,205

Effect of shares issued during the year ended 31 May 2017

-

455

Effect of shares issued during the year ended 31 May 2018

455

291

 

 

 

Basic weighted average number of shares

26,244

25,951

 

 

 

Effect of dilutive options at the statement of financial position date

53

101

 

 

 

Diluted weighted average number of shares

26,297

26,052

 

The Company has granted options under the Share Option Plan, the Consultants' Share Option Plan and the LTIP to certain of its senior managers and directors to acquire (in aggregate) up to 3.26% of its issued share capital (see Note 11).  Under IAS 33 Earnings Per Share, contingently issuable ordinary shares are treated as outstanding and included in the calculation of diluted earnings per share if the conditions (the events triggering the vesting of the option) are satisfied.  At 31 May 2018 the conditions attached to 787,202 options granted under the LTIP were not satisfied (2017: 777,480).  If the conditions had been satisfied, diluted earnings per share would have been 30.2p per share (2017: 24.0p). 

 

Since the reporting date and the date of completion of these financial statements the following transactions have taken place involving ordinary shares or potential ordinary shares:

 

·     The issue of 77,171 ordinary shares as part of the initial consideration for the acquisition of Broughtons Financial Planning Limited (Note 17);

·     The issue of 26,247 ordinary shares to satisfy the exercise of options under the LTIP; and

·     The issue of 23,578 ordinary shares under the Mattioli Woods plc Share Incentive Plan. 

 

 

7. Dividends paid and proposed

2018

£000

2017

£000

 

 

 

Declared and paid during the year:

 

 

Equity dividends on ordinary shares:

 

 

- Final dividend for 2017: 9.4p (2016: 8.65p)

2,430

2,187

- Interim dividend for 2018: 5.5p (2017: 4.7p)

1,436

1,203

 

 

3,866

3,390

 

Proposed for approval by shareholders at the AGM:

 

 

3,022

2,430

 

8. Property, plant and equipment

 

 

Assets under construction

Computer and office equipment

 

Fixtures and fittings

 

Motor vehicles

 

 

Total

Group

£000

£000

£000

£000

£000

Gross carrying amount:

 

 

 

 

 

At 1 June 2016

-

1,642

918

1,069

3,629

 

 

 

 

 

 

Arising on Acquisitions

-

14

4

-

18

Additions

7,438

443

106

462

8,449

Disposals

-

(75)

(98)

(320)

(493)

 

 

 

 

 

 

At 31 May 2017

7,438

2,024

930

1,211

11,603

 

 

 

 

 

 

Additions

7,019

227

30

495

7,773

Disposals

-

(116)

-

(214)

(330)

 

 

 

 

 

 

At 31 May 2018

14,457

2,137

960

1,492

19,046

 

 

 

 

 

 

Depreciation:

 

 

 

 

 

At 1 June 2016

-

722

583

327

1,632

 

 

 

 

 

 

Charged for the year

-

306

80

220

606

On disposals

-

(51)

(87)

(168)

(306)

 

 

 

 

 

 

At 31 May 2017

-

977

576

379

1,932

 

 

 

 

 

 

Charged for the year

-

391

192

239

822

On disposals

-

(52)

-

(139)

(191)

 

 

 

 

 

 

At 31 May 2018

-

1,316

768

479

2,563

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

At 31 May 2018

14,457

821

192

1,013

16,483

 

 

 

 

 

 

At 31 May 2017

7,438

1,047

354

832

9,671

 

 

 

 

 

 

At 31 May 2016

-

920

335

742

1,997

 

 

 

Assets under construction

 

Leasehold improvements

Computer and office equipment

 

Fixtures and fittings

 

Motor vehicles

 

 

Total

Company

£000

£000

£000

£000

£000

£000

Gross carrying amount:

 

 

 

 

 

 

At 1 June 2016

-

-

1,460

826

1,060

3,346

 

 

 

 

 

 

 

Transfer from group companies

-

-

45

20

-

65

Additions

-

56

437

48

463

1,004

Disposals

-

-

(74)

(98)

(321)

(493)

 

 

 

 

 

 

 

At 31 May 2017

-

56

1,868

796

1,202

3,922

 

 

 

 

 

 

 

Transfer from group companies

-

-

7

-

-

7

Reclassification

-

(56)

-

56

-

-

Additions

877

-

225

30

495

1,627

Disposals

-

-

(116)

-

(199)

(315)

 

 

 

 

 

 

 

At 31 May 2018

877

-

1,984

882

1,498

5,241

 

 

 

 

 

 

 

Depreciation:

 

 

 

 

 

 

At 1 June 2016

-

-

588

511

323

1,422

 

 

 

 

 

 

 

Charged for the year

-

1

301

78

216

596

On disposals

-

-

(51)

(88)

(166)

(305)

 

 

 

 

 

 

 

At 31 May 2017

-

1

838

501

373

1,713

 

 

 

 

 

 

 

Reclassification

-

(1)

-

1

-

-

Charged for the year

-

-

386

190

239

815

On disposals

-

-

(52)

-

   (127)

(179)

 

 

 

 

 

 

 

At 31 May 2018

-

-

1,172

692

485

2,349

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

At 31 May 2018

877

-

812

190

1,013

2,892

 

 

 

 

 

 

 

At 31 May 2017

-

55

1,030

295

829

2,209

 

 

 

 

 

 

 

At 31 May 2016

-

-

872

315

737

1,924

 

 

 

9. Intangible assets

 

 

 

 

Group

Internally generated software

£000

 

 

Software

£000

 

Client portfolios

£000

 

 

Goodwill

£000

 

 

Other

£000

 

 

Total

£000

Gross carrying amount:

 

 

 

 

 

 

At 1 June 2016

1,434

1,080

31,832

16,361

35

50,742

 

 

 

 

 

 

 

Arising on acquisitions

-

-

1,522

869

-

2,391

Additions

155

461

-

23

-

639

 

 

 

 

 

 

 

At 31 May 2017

1,589

1,541

33,354

17,253

35

53,772

 

 

 

 

 

 

 

Additions

104

876

-

-

-

980

 

 

 

 

 

 

 

At 31 May 2018

1,693

2,417

33,354

17,253

35

54,752

 

 

 

 

 

 

 

Amortisation and impairment:

 

 

 

 

 

 

At 1 June 2016

349

557

6,391

-

35

7,332

 

 

 

 

 

 

 

Amortisation during the year

145

114

1,737

-

-

1,996

 

 

 

 

 

 

 

At 31 May 2017

494

671

8,128

-

35

9,328

 

 

 

 

 

 

 

Amortisation during the year

162

307

1,756

-

-

2,225

 

 

 

 

 

 

 

At 31 May 2018

656

978

9,884

-

35

11,553

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

At 31 May 2018

1,037

1,439

23,470

17,253

-

43,199

 

 

 

 

 

 

 

At 31 May 2017

1,095

870

25,226

17,253

-

44,444

 

 

 

 

 

 

 

At 31 May 2016

1,085

523

25,441

16,361

-

43,410

 

 

 

 

 

 

 

 

 

 

 

 

Company

Internally generated software

£000

 

 

Software

£000

 

Client portfolios

£000

 

 

Goodwill

£000

 

 

Total

£000

Gross carrying amount:

 

 

 

 

 

At 1 June 2016

1,434

973

20,567

10,771

33,745

 

 

 

 

 

 

Transfer from group companies

-

-

4,693

4,120

8,813

Additions

155

457

-

-

612

 

 

 

 

 

 

At 31 May 2017

1,589

1,430

25,260

14,891

43,170

 

 

 

 

 

 

Transfer from Group companies

-

-

3,719

1,493

5,212

Additions

104

876

-

-

980

 

 

 

 

 

 

At 31 May 2018

1,693

2,306

28,979

16,384

49,362

 

 

 

 

 

 

Amortisation and impairment:

 

 

 

 

 

At 1 June 2016

349

485

3,938

-

4,772

 

 

 

 

 

 

Amortisation during the year

145

106

1,404

-

1,655

 

 

 

 

 

 

At 31 May 2017

494

591

5,342

-

6,427

 

 

 

 

 

 

Amortisation during the year

162

287

1,555

-

2,004

 

 

 

 

 

 

At 31 May 2018

656

878

6,897

-

8,431

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

At 31 May 2018

1,037

1,428

22,082

16,384

40,931

 

 

 

 

 

 

At 31 May 2017

1,095

839

19,918

14,891

36,743

 

 

 

 

 

 

At 31 May 2016

1,085

488

16,629

10,771

28,973

 

Software

 

Software is amortised over its useful economic life of four years on a reducing balance basis.  Internally generated software represents the development costs of the Group's bespoke customer relationship management, administration and trading platform.  The directors believe this technology will be the principal technology platform used throughout the Group for the foreseeable future.  Internally generated software is amortised on a straight-line basis over an estimated useful life of 10 years. 

 

Client portfolios

 

Client portfolios represent individual client portfolios acquired through business combinations.  Client portfolios are amortised on a straight-line basis over an estimated useful life of between 10 and 25 years, based on the Group's historic experience. 

 

 

Goodwill

 

Goodwill arises where the price paid for an acquisition is greater than the fair value of the net assets acquired.  Goodwill arising on business combinations is subject to annual impairment testing.

 

Other intangibles

 

Other intangibles represent external costs incurred in obtaining a licence.  Other intangibles are amortised on a straight-line basis over a useful economic life of three years. 

 

10. Investment in associate and related derivative

 

Investment in associate

 

On 6 February 2017 the Group acquired 49% of the ordinary share capital of Amati Global Investors Limited ("Amati") from Amati Global Partners LLP plus an option over the remaining ordinary share capital of Amati for a total consideration of £3.39m, comprising £1.65m in cash and £1.74m of new ordinary shares in Mattioli Woods. 

 

Amati is a fund management firm founded in 2010 following the management buyout of Noble Fund Managers Limited.  Amati's principal place of business is the United Kingdom.  It focuses on small and mid-sized companies, with a universe ranging from fully listed constituents of the FTSE Mid 250 and FTSE Small Cap indices, to stocks quoted on AIM.  At the date of investment Amati had approximately £120m of assets under management, including the TB Amati UK Smaller Companies Fund; two AIM Venture Capital Trusts (Amati VCT plc and Amati VCT 2 plc); and an AIM IHT portfolio service. 

 

During the year the shareholders of Amati VCT plc voted to approve its merger with Amati VCT 2 plc, which has been renamed Amati AIM VCT plc.  Amati's gross assets under management at 31 May 2018 had increased to over £325m. 

 

The Group exercises significant influence by virtue of its contractual right to appoint a minority of directors to Amati's board of directors.  The option held by the Group to acquire the remaining shares in Amati is not exercisable until 6 February 2019.  In addition, the Group has no other rights which would allow it to exercise control over Amati's operations.  Therefore, the Group is not judged to control Amati and it is not consolidated. 

 

 

 

The movement in the Group's investment in associate is as follows:

 

Investment in associate - Group and Company

2018

£000

2017

£000

 

 

 

At 1 June

3,476

-

 

 

 

Investment in Amati Global Investors Limited

-

3,368

 

 

 

Share of profit for the year

308

120

Amortisation of fair value intangibles

(68)

(17)

 

 

 

Share of profit from associates in statement of comprehensive income

240

103

Share of other comprehensive income

9

5

 

 

 

At 31 May

3,725

3,476

 

Other comprehensive income represents a movement in Amati's revaluation reserve recognised directly in equity. 

 

The results of Amati for the 12 months ended 31 May 2018 and its aggregated assets and liabilities as at 31 May 2018 are as follows:

 

Name

Country of incorporation

Assets

£000

Liabilities

£000

Revenue

£000

Profit

£000

Interest held

 

 

 

 

 

 

 

Amati Global Investors Limited

Scotland

2,871

861

3,206

628

49%

 

 

 

 

 

 

 

Group's share of profit

 

 

 

 

308

 

 

The net assets of Amati as at 31 May 2017 were £1,364,382.  At 31 May 2018 the net assets of Amati had increased by £646,148 to £2,010,530, increasing the Group's interest in the associate (net of tax) by £316,613 during the year, comprising Mattioli Woods' share of Amati's profit after tax recognised in the statement of comprehensive income and Mattioli Woods' share of the movement in Amati's revaluation reserve recognised directly in equity. 

 

Derivative financial instruments

 

As part of the transaction to acquire its holding in Amati, Mattioli Woods also entered into an option agreement with the Seller which entitles Mattioli Woods to acquire the remaining 51% of Amati in the two years commencing 6 February 2019 for a mixture of cash and Mattioli Woods' ordinary shares ("the Option").  If Mattioli Woods does not exercise the Option to acquire the remaining stake from the Seller, the Seller has an option to buy Mattioli Woods' shareholding back for the original consideration paid. 

 

The fair value of the option contract at the date of acquisition was £16,859.  At 31 May 2018, the fair value of the option contract was £649,699 (2017: £109,974) (Note 12).  The fair value of the option contract is calculated using an option valuation model.

 

11. Share based payments

 

Consultants' Share Option Plan

 

The Company operates the Consultants' Share Option Plan by which certain senior executives are able to subscribe for ordinary shares in the Company.  Options granted under the Consultants' Share Option Plan are summarised as follows:

 

 

 

Date of grant

Exercise price

£

At 1 June 2017

No.

Exercised during the year

No.

At 31 May 2018

No.

 

 

 

 

 

4 September 2007

2.79

38,011

(38,011)

-

8 September 2009

2.16

62,342

(15,481)

46,861

 

 

 

 

 

Outstanding

 

100,353

(53,492)

46,861

 

 

 

 

 

Exercisable

 

100,353

(53,492)

46,861

 

The exercise price of the options is equal to the market price of the shares at the close of business on the day immediately preceding the date of grant.  The options vest when the option holders achieve certain individual performance hurdles.  No options vested during the year as a result of the associated performance conditions being fulfilled.  If the performance hurdles, which are linked to individual sales revenues, are not met over the five financial years commencing on 1 June before the date of grant, the options lapse. 

 

Long‑Term Incentive Plan

 

During the year, Mattioli Woods granted awards to the Company's executive directors and certain senior employees under the LTIP.  Conditional share awards ("Equity-settled") grant participating employees a conditional right to become entitled to options with an exercise price of 1 pence over ordinary shares in the Company.  Conditional cash awards ("Cash-settled") grant participating employees a conditional right to be paid a cash amount based on the proceeds of the sale of a specified number of Ordinary Shares following the vesting of the award.  Movements in the LTIP scheme during the period were as follows:

 

 

 

 

LTIP options

 

 

31 May 2018

Equity-settled

No.

31 May 2018

Cash-settled

No.

31 May 2017

Equity-settled

No.

31 May 2017

Cash-settled

No.

 

 

 

 

 

 

 

Outstanding as at 1 June

 

 

807,445

118,501

696,574

266,650

Granted during the year

 

 

238,825

-

294,340

-

Exercised during the year

 

 

(203,194)

(118,501)

(183,269)

(148,149)

Forfeited during the year

 

 

(36,587)

-

(200)

-

 

 

 

 

 

 

 

Outstanding at 31 May

 

 

806,489

-

807,445

118,501

 

 

 

 

 

 

 

Exercisable at 31 May

 

 

19,287

-

29,965

-

 

The LTIP awards are subject to the achievement of corporate profitability targets measured over a three year performance period and will vest following publication of the Group's audited results for the final performance year.  The amounts shown above represent the maximum opportunity for the participants in the LTIP.  

 

Share Incentive Plan

 

The Company introduced the Mattioli Woods plc Share Incentive Plan ("the SIP") in July 2008.  Participants in the SIP are entitled to purchase, at market value, up to a prescribed number of new 1p ordinary shares in the Company at the end of each month for which they will receive a like for like matching share.  These ordinary shares rank pari passu with existing issued ordinary shares of the Company.

 

A total of 103,924 (2017: 94,392) new ordinary shares were issued to the 363 (2017: 308) employees who participated in the SIP during the year.  At 31 May 2018 the SIP held 593,019 (2017: 553,658) shares on their behalf. 

 

Share based payments expense

 

The expense for share based payments made in respect of employee services under the LTIP is recognised over the expected vesting period of the awards.  The expense recognised during the year ended 31 May 2018 is £1,150,465 (2017: £1,610,790), of which £1,031,168 arises from equity-settled share based payment transactions (2017: £949,395) and £119,297 arises from cash-settled share based payment transactions (2017: £661,395). 

 

The expense for share based payments made in respect of employee services under the Consultants' Share Option Plan is recognised over the expected vesting period of the awards.  The expense recognised during the year ended 31 May 2018 was £nil (2017: £nil), which arises entirely from equity-settled share based payment transactions. 

The expense for share based payments in respect of "Matching shares" issued under the SIP is recognised in the period the shares are granted to the participating employee (see Note 14).  The expense recognised during the year ended 31 May 2018 is £346,649 (2017: £291,146), which arises entirely from equity-settled share based payment transactions. 

 

Summary of share options

 

The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, share options during the year.

 

 

 

Share options

 

2018

No.

2018

WAEP

£

 

2017

No.

2017

WAEP

£

 

 

 

 

 

Outstanding as at 1 June

907,798

0.27

840,499

0.43

 

 

 

 

 

Granted during the year

238,825

0.01

294,340

0.01

Exercised

(256,686)

0.55

(226,841)

1.57

Forfeited during the year

(36,587)

0.01

(200)

0.01

 

 

 

 

 

Outstanding at 31 May

853,350

0.13

907,798

0.27

 

 

 

 

 

Exercisable at 31 May

66,148

1.53

130,318

1.85

 

The weighted average share price at the date of exercise for share options exercised during the year was £7.96 (2017: £7.31).  For the share options outstanding as at 31 May 2018, the weighted average remaining contractual life is 4.0 years (2017: 4.0 years).  The WAEP for options outstanding at the end of the year was £0.13 (2017: £0.27), with the option exercise prices ranging from £0.01 to £2.16. 

 

The fair value of equity-settled share options granted is estimated as at the date of grant using the Black Scholes Merton model, taking into account the terms and conditions upon which the options were granted.  The following table lists the inputs to the model used to estimate the fair value of options granted during the year ended 31 May 2018:

 

 

LTIP

 

 

Share price at date of grant

£8.41

Option exercise price

£0.01

Expected life of option (years)

4.5

Expected share price volatility (%)

17.0

Dividend yield (%)

1.84

Risk-free interest rate (%)

0.5

 

The share price at date of grant for options issued under the LTIP is based on the market value of the shares on that date.  The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur.  The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.  No other features of options grant were incorporated into the measurement of fair value.

 

The share price at 31 May 2018 and movements during the year are set out in the Directors' Remuneration Report.

 

12. Derivative financial asset

 

 

Group

2018

Company

2018

Group

2017

Company

2017

 

£000

£000

£000

£000

 

 

 

 

 

Derivative financial asset (Note 10)

650

650

110

110

 

 

 

 

 

 

650

650

110

110

 

The only derivative financial instrument held by the Group is an option contract over shares in the Group's associate.  The option contract is carried at fair value. 

 

13. Cash and short-term deposits

 

For the purpose of the statement of cashflows, cash and cash equivalents comprise the following at 31 May 2018:

 

Group

2018

£000

Company

2018

£000

Group

2017

£000

Company

2017

£000

 

 

 

 

 

Cash at banks and on hand

23,668

17,880

22,979

12,172

Bank overdrafts

-

-

-

-

 

 

 

 

 

Cash and cash equivalents

23,668

17,880

22,979

12,172

 

Cash at banks earns interest at floating rates based on daily bank deposit rates.  Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.  The fair value of cash and short-term deposits is £23.7m (2017: £23.0m). 

 

Due to the headroom the Group's current cash balances provide on its projected working capital requirements, the Group has not renewed its overdraft facility.  Management will continue to review the level of bank facilities the Group may require going forward. 

 

 

 

14. Issued capital and reserves

 

Share capital

Ordinary shares

 of 1p

Ordinary shares

of 1p

£

 

 

 

Authorised

 

 

 

 

 

At 1 June 2016, 31 May 2017 and 31 May 2018

30,000,000

300,000

 

 

 

Issued and fully paid

 

 

 

 

 

At 1 June 2016

25,205,423

252,054

 

 

 

Exercise of employee share options

226,841

2,268

Shares issued under the SIP

94,392

944

Shares issued for consideration

262,508

2,625

 

 

 

At 31 May 2017

25,789,164

257,891

 

 

 

Exercise of employee share options

256,686

2,567

Shares issued under the SIP

103,924

1,040

Shares issued for consideration

-

-

 

 

 

At 31 May 2018

26,149,774

261,498

 

Rights, preferences and restrictions on shares

 

All ordinary shares carry equal rights and no privileges are attached to any shares in the Company.  All the shares are freely transferable, except as otherwise provided by law.  However:

 

·     The former shareholders of Taylor Patterson ("the Taylor Patterson Sellers") have entered into a lock-in deed with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 419,888 ordinary shares in Mattioli Woods during the three years ending 8 September 2018;

·     The former shareholder of Old Station Road Holdings Limited ("the MCT Seller") has entered into a lock-in deed with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 38,081 ordinary shares in Mattioli Woods during the two years ending 6 September 2018; and

·     The former shareholders of Amati Global Investors Limited ("the Amati Sellers") have entered into a lock-in deed with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 224,427 ordinary shares in Mattioli Woods during the two years ending 7 February 2019.

 

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.  All shares rank equally with regard to the Company's residual assets.

 

Share schemes and share incentive plan

 

The Company has two share schemes under which options to subscribe for the Company's shares have been granted to certain executives and senior employees (Note 11).

 

The Company also operates a share incentive plan.  Participants in the SIP are entitled to purchase up to a prescribed number of new ordinary shares in the Company in any year.  At the Directors' discretion, the Company may also award additional shares to participants in the SIP.  Ordinary shares issued under the SIP rank pari passu with existing issued ordinary shares of the Company.  Dividends paid on shares held within the SIP are used to buy new ordinary shares in the Company of 1p each.

 

Other reserves

 

Movements recognised in other reserves in the year are disclosed in the statement of changes in equity.  The following table describes the nature and purpose of each reserve within equity:

 

Reserve

Description and purpose

 

 

Share premium

Amounts subscribed for share capital in excess of nominal value less any associated issue costs that have been capitalised. 

 

 

Merger reserve

Where shares are issued as consideration for shares in another company, the excess of the fair value of the shares acquired over the nominal value of the shares issued is recognised in the merger reserve. 

 

 

Capital redemption reserve

Amounts transferred from share capital on redemption of issued shares. 

 

 

Equity - share based payments

The fair value of equity instruments granted by the Company in respect of share based payment transactions less options exercised. 

 

 

Retained earnings

All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

 

The Company has issued options to subscribe for the Company's shares under two employee share schemes (Note 11).  The cost of exercised or lapsed share options has been derecognised from equity-share based payments and re-allocated to retained earnings as required by IFRS2 Share-based Payments. 

 

15. Financial liabilities and provisions

 

Group

Contingent consideration

£000

Client claims

£000

Dilapidations

£000

Clawbacks

£000

Employers' NIC on share options

£000

Onerous contracts

£000

 

LTIP

cash liability

£000

FSCS levy

£000

 

Total

£000

 

 

 

 

 

 

 

 

 

 

At 1 June 2016

5,800

532

413

308

624

152

1,263

-

9,092

 

 

 

 

 

 

 

 

 

 

Unwinding of discount

242

-

-

-

-

-

31

-

273

Arising during the year

890

510

90

132

419

-

661

-

2,702

Acquisitions

-

63

30

-

-

-

-

-

93

Paid during the year

(2,250)

(387)

-

-

(306)

-

(1,111)

-

(4,054)

Unused amounts reversed

(264)

(191)

(16)

(316)

-

(77)

-

-

(864)

 

 

 

 

 

 

 

 

 

 

At 31 May 2017

4,418

527

517

124

737

75

844

-

7,242

 

 

 

 

 

 

 

 

 

 

Unwinding of discount

142

-

12

-

-

-

13

-

167

Arising during the year

-

697

122

181

315

913

132

100

2,460

Paid during the year

(3,506)

(225)

(13)

(181)

(401)

-

(989)

-

(5,315)

Unused amounts reversed

(168)

(17)

(7)

-

(24)

-

-

-

(216)

 

 

 

 

 

 

 

 

 

 

At 31 May 2018

886

982

631

124

627

988

-

100

4,338

 

 

 

 

 

 

 

 

 

 

Current 2017

2,830

527

-

124

-

75

844

-

4,400

Non-current 2017

1,588

-

517

-

737

-

-

-

2,842

 

 

 

 

 

 

 

 

 

 

At 31 May 2017

4,418

527

517

124

737

75

844

-

7,242

 

 

 

 

 

 

 

 

 

 

Current 2018

886

982

316

124

346

988

-

100

3,742

Non-current 2018

-

-

315

-

281

-

-

-

596

 

 

 

 

 

 

 

 

 

 

At 31 May 2018

886

982

631

124

627

988

-

100

4,338

 

 

 

Company

 

 

 

Loan note

£000

Contingent consideration

£000

Client claims

£000

Dilapidations

£000

Clawbacks

£000

Employers' NIC on share options

£000

Onerous contracts

£000

LTIP

cash liability

£000

FSCS levy

£000

 

Total

£000

 

 

 

 

 

 

 

 

 

 

 

At 1 June 2016

-

5,800

457

350

294

624

118

1,263

-

8,906

 

 

 

 

 

 

 

 

 

 

 

Finance costs

202

242

-

-

-

-

-

31

-

475

Arising during the year

8,323

890

489

90

127

419

-

661

-

10,999

Transfer from Group companies

-

-

50

62

1

-

35

-

-

148

Paid during the year

-

(2,250)

(353)

-

-

(306)

-

(1,111)

-

(4,020)

Unused amounts reversed

-

(264)

(191)

(15)

(316)

-

(78)

-

-

(864)

 

 

 

 

 

 

 

 

 

 

 

At 31 May 2017

8,525

4,418

452

487

106

737

75

844

-

15,644

 

 

 

 

 

 

 

 

 

 

 

Finance costs

397

142

-

12

-

-

-

13

-

564

Arising during the year

8,018

-

698

89

177

315

913

132

100

10,442

Transfer from Group companies

-

-

25

33

13

-

-

-

-

71

Paid during the year

-

(3,506)

(212)

(13)

(177)

(401)

-

(989)

-

(5,298)

-

(168)

(17)

(7)

-

(24)

-

-

-

(216)

 

 

 

 

 

 

 

 

 

 

 

At 31 May 2018

16,940

886

946

601

119

627

988

-

100

21,207

 

 

 

 

 

 

 

 

 

 

 

Current 2017

-

2,830

452

-

106

-

75

844

-

4,307

Non-current 2017

8,525

1,588

-

487

-

737

-

-

-

11,337

 

 

 

 

 

 

 

 

 

 

 

At 31 May 2017

8,525

4,418

452

487

106

737

75

844

-

15,644

 

 

 

 

 

 

 

 

 

 

 

Current 2018

-

886

946

316

119

346

988

-

100

3,701

Non-current 2018

16,940

-

-

285

-

281

-

-

-

17,506

 

 

 

 

 

 

 

 

 

 

 

At 31 May 2018

16,940

886

946

601

119

627

988

-

100

21,207

 

Loan notes due to subsidiary undertakings

 

On 31 December 2017 the trade and assets of Boyd Coughlan Limited were transferred to the Company.  The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of Boyd Coughlan Limited as at 31 December 2017, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.

 

The book value of the assets and liabilities of Boyd Coughlan Limited as at the date of hive up was:

 

 

 

 

Carrying value

£000

 

 

 

 

Property, plant and equipment

 

 

7

Intangible assets

 

 

5,212

Deferred tax assets

 

 

20

Trade and other receivables

 

 

383

Cash and short-term deposits

 

 

3,765

Trade and other payables

 

 

(666)

Deferred tax liability

 

 

(632)

Financial liabilities and provisions

 

 

(71)

 

 

 

 

Carrying value of assets and liabilities hived up

 

 

8,018

 

On 31 August 2016 the trade and assets of the Taylor Patterson Group Limited and its subsidiaries Taylor Patterson Financial Planning Limited and Taylor Patterson Associates Limited (together "the Taylor Patterson Group") were transferred to the Company.  The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of the Taylor Patterson Group as at 31 August 2016, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.

 

Contingent consideration

 

The Group has entered into certain acquisition agreements that provide for contingent consideration to be paid.  Details of these agreements and the basis of calculation of the net present value of the contingent consideration is summarised in Note 3.  The Group estimates the net present value of the financial liability payable within the next 12 months is £0.9m (2017: £2.8m). 

 

Client claims

 

A provision is recognised for the estimated potential liability when the Group becomes aware of a possible client claim.  No discount rate is applied to the projected cash flows due to their short term nature. 

 

 

Dilapidations

 

Under the terms of the leases for the Group's premises, the Group has an obligation to return the properties in a specified condition at the end of the lease term.  The Group provides for the estimated net present value of the cost of any dilapidations.  The discount rate applied to the cash flow projections is 5.0%. 

 

Clawbacks

 

The Group receives certain initial commissions on indemnity terms and hence the Group provides for the expected level of clawback, based on past experience.  No discount rate is applied to the projected cash flows due to their short term nature. 

 

Onerous contracts

 

Mattioli Woods plc has entered into three commercial leases for its premises at Grove Park, Enderby ("the Grove Park leases") as set out in Note 16.  Onerous lease provisions are recognised when a leased property is expected to become vacant and no longer used in the Group's operations.  Amounts recognised in the period represent the Group's best estimate of the unavoidable costs committed to under the Grove Park leases, based on the expected costs to be incurred as a result of the premises being vacated and the leases surrendered once the Group takes occupation of its new office at New Walk. 

 

The future minimum rentals payable under the Grove Park leases as at 31 May 2018 totalled £1.6m, comprising £1.5m for MW House and £0.1m for Gateway House. 

 

LTIP cash liability

 

The Group has granted cash settled options to certain Executive Directors.  The amount of any cash entitlement on vesting of an award will be directly linked to the value of a specified number of the Company's shares at the vesting date.  At 31 May 2018 there were no cash awards outstanding.

 

FSCS levy

 

The arrangements put in place by the Financial Services Compensation Scheme ("FSCS") to protect depositors and investors from loss in the event of failure of financial institutions have resulted in significant levies on the industry in recent years.

 

There is uncertainty over the level of future FSCS levies as they depend on the ultimate cost to the FSCS of industry failures. The Group contributes to the investment intermediation levy class and accrues levy costs for future levy years when the obligation arises. A provision of £0.1m has been made in these financial statements for FSCS interim levies expected in the year ending 31 May 2019.

 

16. Commitments and contingencies

 

Operating lease agreements - Group as lessee

 

Mattioli Woods plc has entered into three commercial leases for its premises at Grove Park, Enderby.  The lease for the Registered Office, MW House, has a duration of 20 years, from 10 June 2005.  The amount of annual rental is reviewed at three-yearly intervals, with the outstanding June 2017 rent review being settled following the year end at £205,200, an increase of £19,200 from the passing rent of £186,000 (Note 17).  

 

The first lease for part of the ground floor of Gateway House (an office building adjacent to MW House) had a duration of ten years from 1 February 2008.  A second lease for part of the ground floor of Gateway House has a duration of ten years from 1 December 2009.  For both leases, the amount of annual rental is to be reviewed at the end of the fifth year. 

 

Mattioli Woods plc has entered into an intra-group lease, with subsidiary Mattioli Woods (New Walk) Limited as lessor, for its premises under construction at New Walk, Leicester.  The lease carries an annual rental of £875,000 and expires on 28 February 2019.  The Group intends to extend this lease beyond its current agreed term.

 

Mattioli Woods plc has also entered into commercial leases for its premises at:

 

·     Aberdeen, 8 Queens Terrace, which expires 31 May 2023.  The annual rental is £148,000;

·    Newmarket, Cheveley House, Fordham Road, which expires on 24 December 2023, with next break on 24 December 2018.  The annual rental is £115,500;

·     Preston, Lanson House, Winckley Gardens, Mount Street, which expires on 31 July 2022.  The annual rental is £62,000;

·    Buckingham, Investment House, 22-26 Celtic Court, Ballmoor, which expires on 11 April 2022.  The annual rental is £35,000;

·    Glasgow, 120 West Regent Street, which expires on 31 January 2022.  The annual rental is £48,844 plus £2,500 per annum for car parking;

·     Manchester, Suite 310, 76 King Street, lease term is a rolling 6 months.  The annual rental is £31,800;

·     London, 3rd Floor, 87/89 Baker Street, lease expires on 31 October 2021.  The annual rental is £92,500; and

·     Solihull, Enterprise House, Units 1, 2 & 3, lease expires on 13 June 2022, with a break on 14 June 2019.  The annual rental is £63,434.

 

As part of certain acquisitions, the Group acquired operating lease obligations for office equipment.  No restrictions were placed upon the Group by entering into these leases.  Future minimum rentals payable under non-cancellable operating leases as at 31 May are as follows:

 

 

Office equipment

Land and buildings

 

Group

2018

£000

2017

£000

2018

£000

2017

£000

 

 

 

 

 

Not later than one year

151

1

845

867

After one year but not more than five years

525

1

2,802

3,052

More than five years

-

-

491

966

 

 

 

 

 

 

676

2

4,138

4,885

 

 

 

Office equipment

Land and buildings

 

Company

2018

£000

2017

£000

2018

£000

2017

£000

 

 

 

 

 

Not later than one year

150

1

1,438

804

After one year but not more than five years

522

1

2,610

2,798

More than five years

-

-

491

964

 

 

 

 

 

 

672

2

4,539

4,566

 

Group operating lease charges during the year were £938,847 (2017: £863,044) for land and buildings and £90,839 (2017: £18,553) for office equipment. 

 

Capital commitments

 

At 31 May 2018 the Group had capital commitments amounting to £0.8m (2017: £7.6m).  In August 2015, Mattioli Woods (New Walk) Limited entered into a development agreement with Ingleby (1245) Limited, a company owned and controlled by Sowden Group Limited to build a new 50,000 square foot office on the site of the former Leicester City Council headquarters at New Walk, Leicester. 

 

Construction achieved practical completion on 28 February 2018, with transfer of title of the land subsequently passing from Leicester City Council to Mattioli Woods on 30 May 2018.  The overall cost of the development is £14.1m excluding irrecoverable VAT, which has been funded through a combination of existing cash resources and operating cashflows.  Total construction costs to completion were £12.5m, with a further £1.6m set aside for fit-out costs.  The fit-out is in progress and is expected to complete in September 2018, at which time the Group's Leicester operations are scheduled to commence moving from Grove Park to New Walk. 

 

Sponsorship agreement

 

In July 2016, the Group entered in to a three-year sponsorship agreement with rugby giants Leicester Tigers to strengthen the Group's brand awareness.  The agreement includes shirt sponsorship on the Tigers' home and away shirts, a dedicated Mattioli Woods stand at the 26,000 capacity Welford Road stadium, corporate hospitality rights and the provision of exclusive content to Tigers fans.  As at 31 May 2018 this agreement had just over one year to run. 

 

Client claims

 

The Group operates in a legal and regulatory environment that exposes it to certain litigation risks.  As a result, the Group occasionally receives claims in respect of products and services provided and which arise in the ordinary course of business.  The Group provides for potential losses that may arise out of contingencies (Note 16). 

 

In-specie pension contributions

 

As has been widely reported in the media, HMRC has recently challenged all SIPP providers on whether pension contributions could be made in-specie.  As a result there are a number of tax relief claims made on behalf of our clients that have been challenged and we have received or are awaiting assessment notices which are expected to amount to £0.9m.  These assessments have been appealed, with proceedings stayed pending the outcome of HMRC's appeal against the First-Tier Tribunal's ruling in favour of another SIPP operator in a similar case. 

 

Irrespective of the result of HMRC's appeal, the impact on the financial position of the Group is expected to be neutral. 

 

17. Events after the reporting date

 

Grove Park rent review

 

Mattioli Woods has entered into three commercial leases for its premises at Grove Park, Enderby.  The lease for the Registered Office, MW House, has a duration of 20 years, from 10 June 2005.  The amount of annual rental is reviewed at three-yearly intervals, with the outstanding June 2017 rent review being settled in July 2018 at £205,200, an increase of £19,200 from the passing rent of £186,000.  

 

Acquisition of Broughtons Financial Planning Limited

 

On 8 August 2018, Mattioli Woods acquired the entire issued share capital of Broughtons Financial Planning Limited ("Broughtons"), a financial planning and wealth management business based in Oldbury in the West Midlands. 

 

The provisional fair values of the identifiable assets and liabilities of Broughtons as at the date of acquisition are set out in the table below.  Due to the proximity of the date of acquisition to the date of issue of these consolidated financial statements, the provisional fair values of the identifiable assets and liabilities of Broughtons are estimates and remain subject to the agreement of completion accounts by the buyer and seller:

 

 

Provisional fair value recognised on acquisition

£000

Provisional fair value adjustments

£000

Previous carrying value

£000

 

 

 

 

Property, plant and equipment

10

-

10

Client portfolio

2,296

2,296

-

Cash at bank

757

-

757

Prepayments and accrued income

110

-

110

Other receivables

304

-

304

 

 

 

 

Assets

3,477

2,296

1,181

 

 

 

 

Trade and other payables

(27)

-

(27)

Accruals and deferred income

(31)

-

(31)

Other taxation and social security

(3)

-

(3)

Income tax

(147)

-

(147)

Provisions

(25)

-

(25)

Deferred tax liability

(390)

(390)

-

 

 

 

 

Liabilities

(623)

(390)

(233)

 

 

 

 

Total identifiable net assets at fair value

2,854

 

 

Goodwill

1,493

 

 

 

 

 

 

Total acquisition cost

4,347

 

 

 

 

 

 

Analysed as follows:

 

 

 

Initial cash consideration

2,100

 

 

Acquired net assets adjustment to initial consideration

448

 

 

New shares in Mattioli Woods

600

 

 

Contingent consideration

1,300

 

 

Discounting of contingent consideration

(101)

 

 

 

 

 

 

Total acquisition cost

4,347

 

 

 

 

 

 

Cash outflow on acquisition

 

 

 

 

 

 

 

Cash paid

2,100

 

 

Cash acquired

(757)

 

 

Acquired net assets adjustment

448

 

 

Acquisition costs

68

 

 

 

 

 

 

Net cash outflow

1,859

 

 

 

Broughtons specialises in the provision of bespoke wealth management services and impartial advice.  It is an excellent cultural and strategic fit with Mattioli Woods' existing business, providing services to clients with over £120m of assets under advice.  The acquisition brings additional scale to Mattioli Woods' existing operations and offers the opportunity to promote additional services to existing and prospective clients of Broughtons. 

 

In addition, the acquisition adds further specialist expertise to the Group and Broughtons experienced staff have remained with the business.  The goodwill recognised above is attributed to the expected benefits from combining the assets and activities of Broughtons with those of the Group.  The primary components of this residual goodwill comprise:

 

·     Revenue synergies expected to be available to Mattioli Woods as a result of the transaction;

·     The workforce;

·     The knowledge and know-how resident in Broughtons' modus operandi; and

·     New opportunities available to the combined business, as a result of both Broughtons and the existing business becoming part of a more sizeable listed company. 

 

None of the recognised goodwill is expected to be deductible for income tax purposes.  The client portfolio will be amortised on a straight-line basis over an estimated useful life based on the Group's historic experience. 

 

New Edinburgh office

 

On 14 August 2018, Mattioli Woods entered into a 10 year lease, with a break in five years, for new office premises at 8 Coates Crescent, Edinburgh, EH3 7AL.  The annual rental will be £101,850 with a rent review on 14 August 2023. 

 

18. Financial information

 

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 May 2018 or 2017 but is derived from those accounts.  Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 will be delivered in due course.  The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. 

 

19. Distribution of the annual report and accounts to members

 

The annual report and accounts will be posted to shareholders in due course, and will be available on our website (www.mattioliwoods.com) and for inspection by the public at the Group's registered office address: MW House, 1 Penman Way, Grove Park, Enderby, Leicester LE19 1SY during normal business hours on any weekday.  Further copies will be available on request.

 

Please note that the Group's registered office address is due to change to 1 New Walk Place, Leicester, LE1 6RU ("New Walk") with effect from 8 October 2018.  Shareholders will be notified of the change at the Company's Annual General Meeting to be held at New Walk at 10.00am on 25 October 2018. 

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
FR UORWRWWAKRAR
Close


London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply.

 


Final Results - RNS