TIDMMTW
RNS Number : 2547J
Mattioli Woods PLC
08 September 2016
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
8 September 2016
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 2016.
Financial highlights
-- Adjusted EBITDA(1) up 25.7% to GBP9.3m (2015: GBP7.4m):
- Adjusted EBITDA margin (1) of 21.6% (2015: 21.3%)
- Adjusted EPS(2.3) up 14.0% to 31.0p (2015: 27.2p)
-- Revenue up 24.3% to GBP43.0m (2015: GBP34.6m)
-- Recurring revenues represent 82.6% (2015: 81.4%)
-- Proposed total dividend up 19.0% to 12.5p (2015: 10.5p)
-- Strong financial position with net cash of GBP29.8m (2015: GBP10.6m)
Operational highlights
-- Total client assets up 22.2% to GBP6.61bn (2015: GBP5.41bn):
- Discretionary AuM up 15.8% to GBP1.17bn (2015: GBP1.01bn)
- GBP98.4m of new equity raised by Custodian REIT
-- Net organic revenue growth(4) of 11.3% (2015: 19.2%):
- Over 1,100 new client wins
- 104 (2015: 81) consultants at year end
-- June 2015 placing raised gross proceeds of GBP18.6m:
- Earnings enhanced by five acquisitions completed in year
- All businesses integrating well
- Increased headroom on regulatory capital requirements
-- Broadening proposition as adviser, manager and provider
Recent developments and outlook
-- Expect increasing demand for advice post-Brexit
-- Acquisition of MC Trustees in September 2016
-- Strong pipeline of further acquisition opportunities
-- Planned launch of new structured product fund
-- Appointment of Anne Gunther as Non-Executive Director
-- Building work on new Leicester office started in May 2016
-- Opening new Manchester office
1 Earnings before interest, taxation, depreciation, amortisation
and acquisition-related costs.
(2) Basic EPS up 7.7% to 21.1p (2015: 19.6p).
3 Before acquisition-related costs, amortisation and impairment
of acquired intangibles, and notional finance income and
charges.
(4) Excluding banking income.
Commenting on the final results, Bob Woods, Executive Chairman,
said:
"I am pleased to report another year of strong growth, with
organic growth supplemented by the five acquisitions completed
during the period. Revenue was up 24.3% to GBP43.0m (2015:
GBP34.6m), with strong growth in our wealth management business
following the announcement of the Government's new pension freedoms
and a 22.2% increase in the value of total client assets under
management, administration and advice to GBP6.61bn at the
year-end.
"This strong revenue growth translated to growth in Adjusted EPS
of 14.0% to 31.0p (2015: 27.2p). Accordingly, the Board is pleased
to recommend the payment of an increased final dividend of 8.65
pence per share (2015: 7.16 pence). This makes a proposed total
dividend for the year of 12.5 pence (2015: 10.5 pence), a
year-on-year increase of 19.0%, while maintaining an appropriate
level of dividend cover.
"Acquisitions are a core part of our growth strategy and the
five acquisitions completed in the year are integrating well. The
acquisition of Old Station Road Holdings Limited and its
subsidiaries (together "MC Trustees"), which we announced today, is
another excellent strategic and cultural fit with our existing
business and we continue to seek further value-enhancing
acquisitions.
"The accelerating pace of consolidation within the SIPP market
is putting smaller operators under increasing pressure to join
forces with larger firms. I expect this trend to continue following
the introduction of increased regulatory capital requirements for
SIPP operators on 1 September 2016.
"Finally, as I prepare to hand over Chairmanship to Joanne Lake,
I am confident that her great understanding of our business and
formidable diligence will be of immense value in helping our
executive team drive the business towards its goals. Throughout its
25 year history, in both good and bad economic conditions, Mattioli
Woods has grown by being focused on the delivery of quality advice,
services and products, growing our clients' assets and enhancing
their financial outcomes. I am convinced this proposition will
allow us to continue to differentiate ourselves and secure better
outcomes for an increasing number of clients, thereby delivering
value for our shareholders."
For further information please contact:
Mattioli Woods plc
Ian Mattioli, Chief Executive
Nathan Imlach, Finance Tel: +44 (0) 116 240 8700
Director
www.mattioliwoods.com
Canaccord Genuity Limited
Roger Lambert, Corporate Tel: +44 (0) 20 7523 8350
Broking
Kit Stephenson, Corporate
Broking
Sunil Duggal, Investment www.canaccordgenuity.com
Banking
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
08:30am 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.
Strategic report
Chairman's statement
I am delighted to report another year of strong growth, with
revenues up 24.3% to GBP43.0m (2015: GBP34.6m) despite unsettled
markets. Adjusted EPS(5) for the year was up 14.0% to 31.0p (2015:
27.2p). As a result of this strong performance the Board is pleased
to recommend an increased final dividend of 8.65p (2015: 7.16p) up
20.8% on the prior year.
Last year, I announced I would be stepping-down as Executive
Chairman and so this is my last report after 11 years as Chairman
of an AIM listed business. I am immensely proud of our team, which
has grown in strength and delivered consistent growth throughout
this period. We are very fortunate in having appointed Joanne Lake
to succeed me as Non-Executive Chairman. Joanne has known the
business since we first considered floating and has served as an
independent Non-Executive Director since July 2012. She has a great
understanding of our business and I know her formidable diligence
will be of immense value in helping our executive team drive the
business towards its goals.
Over the last 25 years, we have shown in good and bad economic
conditions that we have a robust business model, which can deliver
additional shareholder value through organic growth, the
development of new revenue streams and the acquisition of similar
or complementary businesses. We have continued to enjoy strong
organic growth in our wealth management business, winning a record
number of new wealth management cases during the year, comprising
over 1,000 new SIPP, SSAS and personal clients with total assets
under management, administration and advice of over GBP350m. In
addition, our employee benefits business won over 100 new corporate
clients.
The Government's new pension freedoms created additional demand
for advice, which more than offset an anticipated fall in banking
income, following further cuts in the interest margins available
from our banking partners. As in previous times of change, our
proposition as adviser, administrator, product provider and asset
manager sets us apart and positions us well to deal with the
challenges of changing investment markets to secure better outcomes
for our clients.
Carefully considered acquisitions continue to contribute to our
growth. In June 2015, we raised GBP18.6m (before expenses) by way
of a placing with institutional investors ("the Placing") to allow
us to pursue further acquisition opportunities. At the same time,
we announced the acquisition of Boyd Coughlan Limited ("Boyd
Coughlan"), which was followed by the purchase of the Taylor
Patterson Group Limited ("Taylor Patterson") in September 2015, the
Lindley Trustees pension business in October 2015, Maclean Marshall
Healthcare, a specialist healthcare and protection business in
January 2016 and Stadia Trustees' pension business in February
2016.
The five businesses acquired during the year are integrating
well and have all contributed positively to the Group's trading
results since acquisition, increasing earnings and enhancing
value.
The acquisition of Old Station Road Holdings Limited and its
subsidiaries (together "MC Trustees"), which we announced today, is
another excellent strategic and cultural fit with our existing
pension business. MC Trustees provides trustee and administration
services to over 1,500 SIPP and SSAS schemes and offers the
opportunity to realise synergies from the merger of its business
onto Mattioli Woods' bespoke pension administration platform.
In addition, the Company has signed heads of terms to acquire MC
Holdings (Malta) Limited and its subsidiary (together "MC Malta").
MC Malta operates Qualifying Recognised Overseas Pension Schemes
("QROPS"), providing arrangements suitable for expatriates from the
UK or people who have earned a pension in the UK and now live
abroad, extending the Group's existing pension offering. The
acquisition of MC Malta is expected to complete following approval
of the proposed transaction by the Malta Financial Services
Authority.
The accelerating pace of consolidation within the SIPP market is
putting smaller operators under increasing pressure to join forces
with larger firms. I expect this trend to continue following the
introduction of increased regulatory capital requirements for SIPP
operators on 1 September 2016. We continue to seek further
value-enhancing acquisitions and were delighted to be one of only
three operators to be awarded an 'A' rating in a recent independent
report on the sustainability of the bespoke SIPP market.
One of the Group's subsidiaries, Custodian Capital Limited
("Custodian Capital"), is the discretionary investment manager of
Custodian REIT plc ("Custodian REIT"), a closed-ended property
investment company listed on the Main Market of the London Stock
Exchange. Custodian Capital's management fees are based on the net
asset value of Custodian REIT, which now has a market
capitalisation of over GBP300m following GBP98.4m of new share
issues during the last financial year. Following the UK referendum
Custodian REIT has maintained a premium to net asset value, against
a backdrop of mass redemptions across the open-ended property
funds. I anticipate the long-term secure income it offers investors
will ensure it remains an attractive investment, given the
likelihood that low interest rates will endure for some time to
come.
In August 2015, we announced plans to build a new central
Leicester office on the site of the former Leicester City Council
headquarters at New Walk. Construction commenced in May 2016, with
completion scheduled for the end of 2017.
In July 2016, we announced a three-year deal with rugby giants
Leicester Tigers to strengthen the Group's brand awareness. The new
agreement will include 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 from the start of the
2016/17 season.
Our recent achievements have been recognised with a number of
industry awards for individual and corporate achievements
nationally and locally, including Best Wealth Management Adviser at
the Money Marketing Awards 2016, as well as being highly commended
as Best Investment Adviser. Our focus is on ensuring we continue to
address our clients' changing needs and our ambition is to see our
brand become an even stronger force in the UK financial services
sector.
(5) Before acquisition-related costs, amortisation and
impairment of acquired intangibles, and notional finance income and
charges.
Acquisitions
We have invested over GBP40m since our admission to AIM in 2005
in bringing 18 businesses or client portfolios into the Group.
Accordingly, we have developed considerable expertise and a strong
track record in the execution and subsequent integration of such
deals.
The Boyd Coughlan and Taylor Patterson acquisitions have
provided the Group with a wider audience for its products and
services and extended our wealth management and employee benefits
capabilities, with the experienced management teams of both
companies remaining part of the enlarged Group.
Lindley Trustees provided trustee and administration services to
over 130 SSAS schemes, and post-acquisition we have integrated this
business into Taylor Patterson's operations. The acquisition of
Maclean Marshall Healthcare brought additional scale and expertise
to our corporate healthcare proposition.
In February 2016, we worked closely with the Financial Conduct
Authority ("FCA") to secure our appointment to administer the
wind-up of the SIPP schemes operated by Stadia Trustees and
transfer the members' assets to new pension arrangements, including
a default arrangement provided by Mattioli Woods. We had completed
the transfer of 287 active schemes into the default arrangement at
31 May 2016, with a further 174 schemes transferring over since the
year end.
With increasing complexity and continuing consolidation across
the key markets in which we operate, we are confident there will be
further opportunities to expand our operations by acquisition,
accelerating our already strong growth.
Assets under management, administration and advice
Total client assets under management, administration and advice
increased by 22.2% to GBP6.61bn at 31 May 2016 (2015: GBP5.41bn) as
follows:
SIPP and SSAS(6) Personal and other pension Total
GBPm Employee benefits GBPm GBPm GBPm
------------------------------- ----------------- ----------------------- ------------------------------- --------
At 1 June 2015 3,376.2 1,059.4 974.8 5,410.4
Boyd Coughlan - 89.6 166.9 256.5
Taylor Patterson 336.3 87.5 263.3 687.1
Lindley Trustees 112.8 - - 112.8
Stadia Trustees 24.7 - - 24.7
Acquisitions during the
year(7) 473.8 177.1 430.2 1,081.1
Net inflow/(outflow),
including market movements 146.1 (78.3) 46.6 114.4
Assets under management,
administration and advice(8) 3,996.1 1,158.2 1,451.6 6,605.9
------------------------------- ----------------- ----------------------- ------------------------------- --------
Acquisitions during the year added GBP1,081.1m of client assets,
with a net inflow of GBP114.4m during the period comprising:
-- An increase of GBP146.1m in SIPP and SSAS funds under
trusteeship, following net organic growth of 3.6% in the number of
schemes being administered at the year end. We enjoyed 12.4%
organic growth in direct(9) schemes, which was partly offset by a
net loss in the number of schemes the Group operates on an
administration-only basis (before acquisitions during the year). In
recent years, we have been appointed to operate or wind-up a number
of distressed SIPP portfolios following the failure of the previous
operator, with lost schemes including the transfer of members of
these distressed portfolios to alternative arrangements;
-- A GBP46.6m increase in other personal and pension assets,
with over 350 new personal clients won during the period; and
-- A GBP78.3m fall in the value of assets held in the corporate
pension schemes advised by our employee benefits business,
primarily due to retrenchment amongst our clients in the North Sea
oil and gas industry. However, revenues in our employee benefits
business are not linked to the value of client assets in the same
way that certain of our wealth management revenue streams are.
6 Value of funds under trusteeship in SIPP and SSAS schemes
administered by Mattioli Woods and its subsidiaries.
7 Value at 31 May 2016.
8 Certain pension scheme assets, including clients' own
commercial properties, are only subject to a statutory valuation at
a benefit crystallisation event.
9 SIPP and SSAS schemes where the Group acts as pension
consultant and administrator.
Staff
We continue our transition from small to big, retaining our core
principles as a business built on the integrity and expertise of
our people. Our total headcount at 31 May 2016 had increased to 504
(2015: 406) and we continue to invest in our graduate recruitment
programme, with 25 (2015: 14) new graduates and 15 (2015: 8)
apprentices joining the Group during the year. We continue to
expand our consultancy and technical teams to take advantage of new
business opportunities, with the number of consultants having
increased to 104 (2015: 81) at the year end.
We also welcomed 76 new employees to the Group as part of the
acquisitions completed during the period. As an Investors in People
company we are committed to developing our people and building the
capacity to deliver sustainable growth. Once complete, our new
office in Leicester will provide our staff there with a modern
working environment and capacity for further growth.
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. I am delighted that the proportion
of eligible staff investing via the Plan has increased to 61%
(2015: 59%) and we will continue to encourage broader participation
in the Plan. I would like to thank all our staff for their
continued commitment, enthusiasm and professionalism in dealing
with our new and existing clients' affairs.
Board changes
Following the retirement of the Group's senior Non-Executive
Director, John Redpath, earlier this year, we were delighted to
welcome Anne Gunther as a Non-Executive Director in June 2016.
Anne's many years' experience in banking and private client asset
management will be a great asset to the Group as we continue to
grow and develop our business.
In June 2015 we announced the appointment of Joanne Lake as
Deputy Chairman, as an interim step prior to her proposed
appointment as Non-Executive Chairman at the Annual General Meeting
in October 2016. The period since then has allowed a considered
handover of responsibilities and I believe this is the optimal time
for the role of Chairman to be separated from executive
responsibilities.
Joanne has a broad understanding of financial services with over
30 years of corporate finance and City experience. She has been a
Non-Executive Director and Chairman of the audit committee since
July 2012 and I wish her every success in her new role.
On stepping down from the Board, I will continue in a full-time
executive role as Senior Adviser to the Group. As previously
announced, my focus will be on my client portfolio, new business
development and acting as an ambassador for Mattioli Woods. I will
also support the development of the Group's high end corporate and
private clients.
Dividends
The Board is pleased to recommend the payment of an increased
final dividend of 8.65 pence per share (2015: 7.16 pence). This
makes a proposed total dividend for the year of 12.5 pence (2015:
10.5 pence), a year-on-year increase of 19.0% (2015: 15.4%). 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 1 November 2016 to shareholders on the
register at the close of business on 23 September 2016.
Strategy
Our strategy remains focused on the pursuit of strong organic
growth, supplemented by strategic acquisitions that enhance value
and broaden or deepen our expertise and services. Our distribution
channels include our consultancy team, a nationwide network of
professional introducers and, increasingly, our workplace financial
educational programmes.
We continue to invest in our bespoke pension administration and
wealth management platform, with the first phase of a new customer
relationship management system in the final stages of testing. This
is expected to realise operational efficiencies across the Group
and we recognise the increasing consumer requirement for a strong
advisory service blended with on-line functionality, visibility and
product availability.
Our focus is on ensuring we continue to address our clients'
changing needs and our ambition is to see our brand become an even
stronger force in the UK financial services sector.
Outlook
I am very proud that throughout the 25 years since Ian Mattioli
and I founded Mattioli Woods, delivering great client outcomes has
remained at the heart of everything we do. Successive Governments
have instigated pension reform and I expect further legislative
changes to support growth in our advice-led business, where we are
recognised experts in the field of wealth management and retirement
planning.
We saw some slowdown in investment activity over the summer
months as investors held their breath following the UK referendum.
Last week, the International Monetary Fund reported that while the
short-term turbulence in financial markets triggered by the Brexit
vote has subsided, recent data points to an even more modest pace
of global growth this year. Although further volatility in
financial markets may impact how our investment and asset
management revenues are derived, it remains a great strength of our
business that we can continue to derive income from investments in
all asset classes, while ensuring our clients' investment
strategies are appropriately aligned to the prevailing conditions
and suitable for their financial needs.
I believe Mattioli Woods' vertically-integrated models for
wealth management and employee benefits, combining our capabilities
as adviser, administrator, product provider and asset manager,
positions us well to secure further profitable growth going
forward.
Bob Woods
Chairman
7 September 2016
Strategic report
Chief Executive's review
Introduction
I am pleased to report another very successful year, with
revenue in the year ended 31 May 2016 up 24.3% to GBP43.0m (2015:
GBP34.6m). We have made strong progress towards our medium term
goal of growing revenues to GBP100m and remain a business built on
the integrity and expertise of our people. We continue to focus on
delivering great outcomes for our clients, with one of our key aims
being to grow and preserve their investment assets.
Strong demand for advice and the continued development of our
consultancy team has driven increased new business flows, with
organic revenue growth of 8.7% (2015: 16.5%) despite an anticipated
fall in banking revenues within our pension consultancy and
administration business to GBP0.4m (2015: GBP1.2m). The Bank of
England's decision to cut the base rate to a historic low of 0.25%
last month has eliminated the small banking margin we had retained
until then, with client rates on our core pension scheme accounts
also falling to zero. With some commentators speculating that we
might see the introduction of negative interest rates in the UK, we
are reviewing how we might enhance our existing client banking
model.
In recent years our clients have increasingly focused on
income-generating alternatives to cash and I anticipate this
further reduction in base rates will stimulate growth in our
investment and asset management business.
We have developed bespoke investment propositions, including our
Private Investors Club, structured product and property investment
initiatives, which all have the benefit of low correlation with
mainstream equity and bond markets. I believe these initiatives, in
conjunction with further product development, will help us deliver
positive investment returns despite what are expected to be
difficult mainstream markets.
Subject to regulatory approval, we plan to launch a new
structured product fund later this year and have strengthened our
client proposition with the launch of a new inheritance service,
'Progression', which will complement our existing estate planning
provision.
Organic growth was supplemented by GBP5.2m of revenues generated
by the five businesses acquired during the year, plus full-year
revenues of GBP0.5m (2015: GBP0.2m) from the UK Wealth Management
and Torquil Clark pension administration businesses acquired in
August 2014 and January 2015 respectively.
EBITDA(10) was up 25.4% to GBP8.9m (2015: GBP7.1m), with a small
increase in EBITDA margin to 20.7% (2015: 20.5%) despite further
investment in the infrastructure of our business and the fall in
banking revenues.
Adjusted EPS(11) increased 14.0% to 31.0p (2015: 27.2p), while
basic EPS increased 7.7% to 21.1p (2015: 19.6p), with 22.3% growth
in operating profits offset by the dilutive effect of issuing of
3,795,918 shares under the Placing and 655,630 shares as initial
consideration on the Boyd Coughlan and Taylor Patterson
acquisitions. Basic EPS was also impacted by GBP0.5m of notional
finance charges (2015: GBP0.2m) on the unwinding of discounts on
long-term provisions and GBP0.3m (2015: GBP0.3m) of
acquisition-related costs. The effective rate of taxation fell to
16.5% (2015: 24.0%) due to the recalculation of deferred tax
liabilities on acquired intangibles following cuts in the UK
corporation tax rate.
Our success is based upon the delivery of quality advice,
services and products, growing our clients' assets and enhancing
their financial outcomes. The foundation of this success is the
development of our people and I am delighted 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.
10 Earnings before interest, taxation, depreciation and
amortisation.
11 Before acquisition-related costs, notional finance costs and
amortisation and impairment of intangible assets arising on
acquisitions.
Industry overview
Mattioli Woods operates within the UK's financial services
industry, which is subject to the effects of volatile markets and
economic conditions. In recent years, we have seen a period of
unprecedented change in legislation, regulation and customer needs.
We continue to be proactive in relation to the opportunities this
creates, with our specialists dedicated to keeping up with the pace
of change. Our entrepreneurial model allows us to adapt and advise
our clients accordingly.
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, with
recent regulatory changes, including the abolition of provider
commissions on corporate pensions in April 2016 and increased
capital requirements for SIPP operators from 1 September 2016,
driving further consolidation across the industry.
We continue to invest in the development of our IT platform and
I believe the entry of new competitors with innovative technology
(such as 'robo-advice') may drive some margin compression in the
wider market. The FCA's 'regulatory sandbox', which opened in May
2016, provides firms with an opportunity to test innovative
products, services, business models and delivery mechanisms in a
live environment without immediately incurring all the normal
regulatory consequences of pilot activities.
In addition, some commentators believe the Government and FCA's
joint report on the financial advice market ("the FAMR") published
in March 2016 may lead to further regulatory or legislative
pressure to reduce the cost to consumers. I expect regulatory and
market concerns over pricing to further validate our
vertically-integrated model, where seeking operational efficiencies
in the back office and reducing investment management and platform
costs are key elements of our drive to reduce our clients' total
expense ratios ("TERs") while maintaining our target profit
margin.
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 affluent
retirees. Our broad range of employee benefit services is targeted
towards medium-sized and larger corporates.
In recent years, the Group has developed a broader wealth
management proposition, grown from its strong pensions advisory and
administration expertise, with the Group's income now derived from
four key service lines:
-- Investment and asset management;
-- Pension consultancy and administration;
-- Employee benefits; and
-- Property management.
Investment and asset management
Investment and asset management revenues generated from advising
clients on both pension and personal investments increased 49.1% to
GBP17.0m (2015: GBP11.4m), representing 39.6% (2015: 32.9%) of
total Group revenues. Income from initial and ongoing portfolio
management charges increased to GBP8.8m (2015: GBP5.4m), as the
value of assets held in clients' discretionary portfolios increased
7.3% to GBP0.88bn (2015: GBP0.82bn).
I am pleased with the investment performance delivered by both
our core portfolio management service and Custodian REIT during the
period. The Group's total discretionary assets under management,
including Custodian REIT and the Thoroughbred OEIC, totalled
GBP1.17bn (2015: GBP1.01bn) at the year end.
Adviser charges (including legacy investment commissions and
revenues from protection business) increased to GBP8.2m (2015:
GBP6.0m), with adviser charges primarily based on the value of
assets under advice during the period. Assets under advice include
over GBP111.4m of clients' assets held in structured products. Our
structured product initiative has been a great success, delivering
returns of over 6% per annum on average for matured plans since
inception in 2005. We plan to launch a new structured product fund
later this year to build on this foundation by targeting similar
returns, but with the benefits of collateralisation, instant
diversification, continuous availability and liquidity that are not
available under our current plan arrangements.
The growth of funds under management and advice has enhanced the
quality of earnings through an increase in recurring revenues, with
the proportion of investment and asset management revenues which
are recurring increasing to 81.7% (2015: 78.2%). 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
Retirement planning is often central to our clients' wealth
management strategies. We maintain our technical edge through our
widely acknowledged understanding of UK pension legislation, which
allows our consultancy team to deliver meaningful guidance to our
clients. Our client base primarily comprises owner-managers, senior
executives and members of the professions. Additional fees are
generated from the provision of specialist ad hoc consultancy
services.
Pension consultancy and administration revenues were up 6.4% to
GBP16.6m (2015: GBP15.6m), representing 38.6% (2015: 45.1%) of
Group revenues, of which 82.6% (2015: 86.1%) are recurring. This
increase was driven by the total number of SIPP and SSAS schemes
administered by the Group increasing 19.6% to 7,872 (2015: 6,580)
at the year end, with acquisitions completed during the year adding
1,054 new schemes.
Direct pension consultancy(12) and administration fees increased
9.5% to GBP12.7m (2015: GBP11.6m), with additional one-off revenues
earned following significant changes in pension legislation,
including restrictions on contributions for high earners and a
further reduction in the lifetime allowance. The number of direct
schemes administered by the Group increased 19.4% to 4,598 (2015:
3,850), with 665 (2015: 455) new schemes gained in the year
(excluding acquisitions), representing 17.3% (2015: 12.9%) growth
on the number of schemes at the start of the year. Client wins
included 162 new Mattioli Woods Personal Pensions, a product
launched last year to provide a wrapper allowing smaller pension
funds efficient access to our discretionary portfolio management
service, and we extended this initiative through the launch of a
new discretionary investment proposition for employees earlier this
year.
Our focus remains on the quality of new business, with an
average new SIPP value of over GBP0.3m and average new SSAS value
of over GBP0.70m. We also maintained strong client retention, with
an external loss rate(13) of 2.4% (2015: 2.8%) and an overall
attrition rate(14) of 3.6% (2015: 3.0%).
In July 2015 the Government published a Green Paper on the
possibility of a radical departure from the current tax regime,
such as replacing upfront tax relief on pension contributions with
tax-free pension payments. The consultation on tax relief reform
has led to heated debate and while continual change (and talk of
change) to the UK pensions system may work against the Government's
aim to ensure all individuals save for their retirement, I expect
it to drive sustained demand for advice, benefiting our core
pensions business.
The number of SSAS and SIPP schemes the Group operates on an
administration-only basis increased to 3,274 (2015: 2,730) at the
year end. In recent years, Mattioli Woods has been appointed to
operate or wind-up a number of distressed SIPP portfolios following
the failure of the previous operator. Lost schemes include the
planned transfer of members of these distressed SIPP portfolios to
alternative arrangements, with the 324 lost schemes during the
period being more than offset by the 783 administration-only
schemes acquired as part of the Taylor Patterson, Lindley Trustees
and Stadia Trustees portfolios plus organic growth. Overall, third
party administration fees increased 25.0% to GBP3.5m (2015:
GBP2.8m).
The strong growth in direct and third party administration fees
was offset by a GBP0.8m fall in banking revenues to GBP0.4m (2015:
GBP1.2m).
(12) SIPP and SSAS schemes where the Group acts as pension
consultant and administrator.
13 Direct schemes lost to an alternative provider as a
percentage of average scheme numbers during the period.
14 Direct schemes lost as a result of death, annuity purchase,
external transfer or cancellation as a percentage of average scheme
numbers during the period.
Property management
Property management revenues increased to GBP4.1m (2015:
GBP2.8m) or 9.5% of total revenue (2015: 8.1%), of which 91.6%
(2015: 90.3%) represented recurring annual management charges. The
majority of our property management revenues are derived from the
services provided by Custodian Capital to Custodian REIT.
Following the UK referendum, Custodian REIT has maintained a
premium to net asset value, with its market capitalisation now over
GBP300m. As manager, Custodian Capital charges annual management
fees based on the net asset value of the investment company, with
the Group's recurring revenues being enhanced as a result of
Custodian REIT raising GBP98.4m (2015: GBP50.2m) of new equity
during the year.
A strong income focus allows Custodian REIT to offer one of the
highest yields(15) among its UK property investment company peer
group, coupled with the potential for capital growth from a
balanced portfolio of real estate assets. I anticipate the
long-term secure income it offers investors will remain very
attractive given the further cut in what were already historically
low interest rates post referendum.
In addition, Custodian Capital continues to facilitate direct
property ownership on behalf of pension schemes and private clients
and also manages the "Private Investors Club", which offers
alternative investment opportunities to suitable clients by way of
private investor syndicates. This continues to be well received by
clients, with GBP9.9m (2015: GBP4.0m) invested in eight (2015:
four) new syndicates completed during the year.
15 Source: Numis Securities Limited, Investment Companies Daily
News dated 24 August 2016.
Employee benefits
The employee benefits market has adjusted following the
abolition of provider commissions in April 2016 and I am delighted
over 100 new corporate clients were attracted to the Group's
broader range of employee benefits services during the year.
Employee benefits revenues were up 10.4% to GBP5.3m (2015:
GBP4.8m), representing 12.3% of total revenue (2015:13.9%). The
move to a fee-based proposition has been well-received by corporate
clients and has led to an increase in recurring revenues, with
78.7% (2015: 68.5%) of employee benefits revenues now recurring.
The oil and gas sector is cyclical and has been in a downward phase
over the last year, with a number of cost control measures
implemented by the industry, including redundancies. This has
impacted revenues from clients operating in the oil and gas
industry, but we continue to diversify our revenue streams within
employee benefits through growth in different locations and by
acquisition.
We continue to seek opportunities to enhance our revenues from
non-pension related areas and recent acquisitions have diversified
our employee benefits revenues, both geographically and through the
addition of new specialisms, such as the charity sector and health
insurance. We have also extended our reach through the launch
earlier this year of a new discretionary investment proposition for
employees, using the MW Private Pension.
We are delighted to confirm the appointment of Saira Chambers to
our employee benefits team, who joins the business next month to
lead our newly created International Desk. Saira brings a wealth of
experience in international employee benefits and her focus will be
on developing our international reach and additional growth
opportunities. She will be based in our new Manchester office,
which will act as a hub for both wealth management and employee
benefits consultants.
We are also delighted to announce the strengthening of our
Aberdeen, Leicester, Newmarket and London teams with the
appointment of new consultants in each area. At a time when the
employee benefits market is going through extensive transition, we
are growing our consultancy team as we believe the opportunities
are extensive.
The need for advice from both corporates and their staff is
likely to increase following the UK referendum result, and I expect
our Executive Financial Counselling, Boardroom Pay and Financial
Education initiatives to continue to gather pace. In addition, the
FAMR highlighted concerns around a developing 'advice gap', driven
by:
-- Increasing responsibility on individuals to manage their own financial affairs;
-- The ability of individuals to pay for advice; and
-- Advice needs arising from pensions' liberalisation and auto-enrolment.
The aim of the FAMR was to set out measures to improve the
affordability and access to advice for consumers. While the RDR has
been effective in moving the industry to a fee-based model, there
has been a reduction in the number of financial advisers and advice
in relation to the investment of smaller amounts is expensive. As a
result, the main recommendations of the review focus on
affordability and accessibility, with a significant emphasis on
workplace advice and funding this pre-retirement and annually.
Complementing this initiative, in the last Budget the Government
announced a consultation to increase the tax-free contribution
employers can make to employees for employer-arranged pension
advice from April 2017 from GBP150 to GBP500, making the provision
of comprehensive financial advice a viable employee benefit without
incurring a P11D liability. I believe the opportunities this
presents to our employee benefits business will enable us to
realise further synergies with our wealth management business,
building on the GBP0.6m of revenues generated in cross referrals
between the two divisions during the last financial year.
Key performance indicators
The directors consider the key performance indicators ("KPIs")
for the Group are as follows:
Strategy/objective Performance indicator
----------------------- ------------------------------------------
Organic growth Revenue - total income (excluding
and growth by VAT) from all revenue streams.
acquisition
----------------------- ------------------------------------------
Operating efficiency Adjusted EBITDA margin - profit
generated from the Group's operating
activities before financing income
or costs, taxation, depreciation,
amortisation and acquisition-related
costs, divided by revenue.
----------------------- ------------------------------------------
Shareholder value Adjusted EPS - total comprehensive
and financial income for the year, net of taxation,
performance attributable to equity holders
of the Company, adjusted to add
back acquisition-related costs,
notional finance charges on the
unwinding of discounts on long--term
provisions and the amortisation
of acquired intangible assets,
divided by the number of ordinary
shares in issue.
----------------------- ------------------------------------------
Growth in the Assets under management, administration
value of assets and advice - the value of all client
under management, assets the business gives advice
administration upon, manages or administers.
and advice
----------------------- ------------------------------------------
Excellent client Client loss rate - the number of
service and retention 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.
----------------------- ------------------------------------------
Financial stability Debtors' days - this is the average
number of days' sales outstanding
in trade receivables at any time.
----------------------- ------------------------------------------
Financial stability Surplus on regulatory capital requirement
- this is the aggregate surplus
on the total regulatory capital
requirement of the Group.
----------------------- ------------------------------------------
Financial performance and future developments
Group results
Revenues were up 24.3% to GBP43.0m (2015: GBP34.6m), with
sustained demand for the Group's services. We are particularly
pleased with the continued development of our broader wealth
management proposition and the integration of recently acquired
businesses during the year. The mix between the Group's key revenue
streams changed during the period, summarised as follows:
-- 39.6% investment and asset management (2015: 32.9%);
-- 38.6% pension consultancy and administration (2015: 45.1%);
-- 12.3% employee benefits (2015: 13.9%); and
-- 9.5% property management (2015: 8.1%).
Unadjusted EBITDA increased 25.4% to GBP8.9m (2015: GBP7.1m),
with an increase in EBITDA margin to 20.7% (2015: 20.5%) despite
further investment in the infrastructure of our business, a fall in
banking revenues and costs associated with the completion and
integration of recent acquisitions.
To facilitate a like-for-like comparison with prior years,
acquisition costs of GBP0.3m (2015: GBP0.3m) incurred on
acquisitions during the year have been added back in calculating
adjusted EBITDA and adjusted profit before tax. Adjusted EBITDA(16)
increased 25.7% to GBP9.3m (2015: GBP7.4m), while adjusted EBITDA
margin increased to 21.6% (2015: 21.4%).
As highlighted in my Industry Overview, I see both a market
expectation and possible regulatory or legislative pressure to
reduce product costs. Previously, I have set out our aim to reduce
the TERs incurred by clients and I anticipate we will see some
continued pressure on margins, which we plan to offset by securing
operational efficiencies through the further development of our IT
platform and by reducing investment management and platform
costs.
16 Adding back GBP0.3m (2015: GBP0.3m) of acquisition-related
costs.
Net finance costs
Net finance costs were GBP0.3m (2015: GBP0.1m) due to the impact
of GBP0.5m (2015: GBP0.2m) of notional finance charges on the
unwinding of discounts on long--term provisions. The Group has
maintained a positive net cash position, with average balances
significantly higher than the prior year following the Placing in
June 2015, putting us in strong position to continue acquiring
suitable businesses.
Taxation
The effective rate of taxation on profit on ordinary activities
decreased to 16.5% (2015: increased to 24.0%) primarily due to the
recalculation of deferred tax liabilities on acquired intangibles
following a cut in the substantively enacted rate of UK corporation
tax from 20% to 18%. The net deferred taxation liability carried
forward at 31 May 2016 was GBP3.0m (2015: GBP1.9m).
Earnings per share and dividend
Adjusted EPS(17) was up 14.0% at 31.0p (2015: 27.2p), with basic
EPS increased 7.7% to 21.1p (2015: 19.6p), due to the impact of
strong revenue growth and an increase in underlying operating
profits being offset by notional finance charges on the unwinding
of discounts on long--term provisions and an increase in
acquisition-related costs during the year. Diluted earnings per
share increased 8.8% to 21.1p (2015: 19.4p), with the exercise of
281,338 options issued under the Company's share option plans
during the period. A proposed increase of 19.0% in the total
dividend for the year to 12.5p (2015: 10.5p) demonstrates our
desire to deliver value to shareholders and confidence in the
outlook for our business.
17 Before acquisition-related costs, amortisation and impairment
of acquired intangibles, and notional finance income and
charges.
Cash flow
Cash generated from operations increased to GBP11.8m or 133% of
EBITDA (2015: GBP7.6m or 107%), with the cash conversion ratio
improving due to:
-- EBITDA for the period being stated after a GBP1.1m increase
in non-cash costs, being a GBP0.80m increase in share-based payment
costs and a GBP0.3m increase in notional interest costs,
representing the unwinding of discounting on long--term provisions;
and
-- A GBP1.3m fall in the Group's working capital requirement
(2015: increase of GBP0.3m), with a GBP0.5m (2015: GBP1.7m)
increase in trade and other receivables being offset by a GBP1.6m
(2015: GBP1.4m) increase in trade and other payables and a GBP0.2m
(2015: GBP0.01m) increase in provisions.
New client wins and recent legislative changes led to increased
activity and hence an increase in accrued income and trade
receivables in our direct pension business (where fees are
typically invoiced six months in arrears), with higher
discretionary funds under management increasing accrued income in
investment and asset management (including property
management).
Trade and other payables increased due to:
-- A GBP0.7m increase in trade payables at the year end due to a
higher value of property insurance invoices outstanding at the year
end following strong growth in our property management business,
the timing of expenditure on legal and professional fees and a
general increase in overheads as a result of continued growth;
-- A GBP0.5m increase in accrued staff bonuses at the year end,
following a successful year where results are ahead of target;
and
-- A GBP0.3m increase in deferred income following growth in our
third party administration business, (where annual fees are
typically paid annually in advance).
Net cash at 31 May 2016 was GBP29.8m (2015: GBP10.6m) after the
Placing raised net proceeds of GBP17.9m, with GBP6.8m cash outflow
and GBP3.2m cash acquired on the five acquisitions completed during
the year, plus GBP1.1m (2015: GBP2.4m) of deferred consideration
paid in cash on historic acquisitions, with GBP0.95m being an
accelerated payment of deferred consideration on the Atkinson
Bolton acquisition to complete its integration into the Group's
wealth management and employee benefits divisions.
Outstanding trade receivables fell to 46 days' sales (2015: 52
days), with a continued focus on credit control, while trade
payables increased to 52 days' purchases (2015: 32 days) due to the
higher value of invoices for property insurances, legal and
professional fees and other overheads outstanding at the year
end.
Capital expenditure in the year was GBP1.7m (2015: GBP1.0m),
with the most significant costs being investment in new computer
hardware and software and the purchase of new company cars
following continued expansion of the consultancy team. The
continued development of the Group's technology infrastructure is a
key part of our strategy and we continue to invest in our bespoke
pension administration and wealth management platform. The first
phase of our new customer relationship management system is in the
final stages of user acceptance testing and is expected to realise
operational efficiencies across the Group. Although the development
of our platform is taking longer than we initially anticipated, the
expected development costs remain in line with our initial
estimates.
Bank facilities
The Group previously maintained borrowing facilities with Lloyds
Bank plc ("Lloyds"), which comprised a GBP5.0m overdraft facility.
The facility was repayable upon demand and expired on 31 January
2016.
We did not renew the 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:
2016 2015
GBP000 GBP000
---------------------- --------- ---------
Net cash (29,809) (10,570)
Shareholders' equity 65,581 39,467
Capital employed 35,772 28,897
---------------------- --------- ---------
The Group continues to maintain a net cash position and net cash
balances have increased to GBP29.8m (2015: GBP10.6m) following the
Placing and an increase in trade and other payables to GBP10.0m
(2015: GBP8.0m).
Regulatory capital
The Board considers it prudent for the Group to maintain
headroom of at least 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.
To provide the flexibility to take advantage of further acquisition
opportunities, the Company raised net proceeds of GBP17.9m pursuant
to the Placing, which has been allocated as follows:
-- GBP4.0m to satisfy the initial cash consideration and deal
costs payable on the acquisition of Boyd Coughlan, plus GBP2.5m of
contingent deferred consideration payable in cash in the two years
following completion;
-- GBP2.2m to satisfy the initial cash consideration and deal
costs payable on the acquisition of Taylor Patterson, plus GBP3.3m
of contingent deferred consideration payable in cash in the three
years following completion;
-- GBP0.3m to satisfy the cash consideration and deal costs
payable on the acquisition of Lindley Trustees;
-- GBP0.2m to satisfy the cash consideration and deal costs
payable on the acquisition of Maclean Marshall Healthcare; and
-- GBP0.1m to satisfy the cash consideration and deal costs
payable on the acquisition of Stadia Trustees.
The balance of the Placing proceeds has given the enlarged Group
greater headroom on its increased regulatory capital requirement
following these acquisitions, allowing us to pursue further
acquisition opportunities.
Acquisitions
The five businesses acquired during the year continue to
integrate well. The rebranding of Boyd Coughlan was completed in
December 2015 and the trade and assets of Taylor Patterson were
hived-up into Mattioli Woods following the year end. Both
acquisitions have provided the Group with a wider audience for its
products and services and extended our wealth management and
employee benefits capabilities, with the experienced management
teams of both businesses remaining part of the enlarged Group.
Lindley Trustees provides trustee and administration services to
a portfolio of SSAS schemes, and following its acquisition we have
integrated this business into Taylor Patterson's operations.
Maclean Marshall Healthcare has brought additional scale and
expertise to our corporate healthcare proposition, with our
appointment to administer the wind-up of the SIPP schemes operated
by Stadia Trustees and transfer the members' assets to new pension
arrangements adding scale to our SIPP administration business.
We are confident there will be further opportunities to expand
our operations by acquisition, accelerating our already strong
growth.
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. 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 responsible and ethical
business practices. Structures for accountability from our
administration teams through to the operational management team and
the Group's Board are clearly defined. The proper operation of the
supporting processes and controls are regularly reviewed by the
Audit Committee and take into account ethical considerations,
including procedures for 'whistle-blowing'.
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 our strategy and have a material impact on our
long--term performance. These arise from internal or external
events, acts or omissions which could pose a threat to the
Group.
We are proud of our consistently high client retention rate, but
continue seeking ways to strengthen this. We believe the most
significant risk we face is potential damage to our reputation as a
result of poor client service and we are determined not to let
standards slip. We address this through ongoing quality control
procedures and the provision of regular training for all our
staff.
Pension regulations will continue to be reviewed. Future changes
may not produce an environment that is advantageous to the Group
and any changes in regulation may be retrospective. To address this
risk, we are committed to ensuring that our views are expressed
during consultation exercises and that we respond positively and
rapidly to new regulations.
We also recognise that a significant skills shortage would
represent a risk to growth. We are mitigating this risk through
investment in our graduate and apprentice recruitment programmes
and by providing incentives to motivate and retain our existing
employees.
One source of revenue is based on the value of cash balances
held in clients' schemes. These balances are not included in the
Consolidated or Company statements of financial position. In recent
years, lower banking margins due to a continued low interest rate
environment have resulted in a decline in these revenues. We are
reviewing our banking relationships to ensure we can access
competitive interest rates for our clients, but the Bank of
England's decision to cut the base rate to a historic low of 0.25%
last month has eliminated the small banking margin we had retained
until then, with client rates on our core pension scheme accounts
also falling to zero. With some commentators speculating that we
might see the introduction of negative interest rates in the UK, we
are reviewing how we might enhance our client banking model.
The Group has an indirect exposure to security price risk on
investments held by clients, with discretionary portfolio
management fees, adviser charges (including legacy investment
commissions) and property management fees being based on the value
of clients' assets under management, administration or advice.
Periods of volatility in a particular asset class may see changes
in how our investment revenues are derived. However, a great
strength of our business is that we can continue to derive income
from investments in all asset classes, while ensuring our clients'
investment strategies are appropriately aligned to the prevailing
market conditions and suitable for their financial needs.
The table below outlines the current risk factors for the
business identified by the Group. 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 Risk Mitigating factors
--------------- --------------------------- -------------------------------------------------------------
Changes Volatility may
in investment adversely affect * Majority of clients' funds held within registered
markets trading and/or pension schemes or ISAs, where less likely to
and poor the value of withdraw funds and lose tax benefits.
investment the Group's assets
performance under management,
administration * Broad range of investment solutions enables clients
and advice, from to shelter from market volatility through
which we derive diversification, while continuing to generate
revenues. revenues for the Group.
* Market volatility is closely monitored by the
Investment Committee.
--------------- --------------------------- -------------------------------------------------------------
Changing The Group operates
markets in a highly competitive * Consolidating market position develops the Group's
and increased environment with pricing power.
competition evolving characteristics
and trends.
* 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.
--------------- --------------------------- -------------------------------------------------------------
Evolving The Group's technology
technology could become * Track record of successful development.
obsolete if we
are unable to
develop our systems * High awareness of the importance of technology at
to accommodate Board level.
changing client
needs, new products
and the emergence * Expanded systems development with phased
of new industry implementation of Group-wide platform.
standards.
--------------- --------------------------- -------------------------------------------------------------
Regulatory The Group may
risk be adversely * Strong compliance culture.
affected as a
result of new
or revised legislation * External professional advisers are engaged to review
or regulations and advise upon control environment.
or by changes
in the interpretation
or enforcement * Business model and culture embraces FCA principles,
of existing laws including treating clients fairly.
and regulations.
* Financial strength provides comfort should capital
resource requirements be increased.
--------------- --------------------------- -------------------------------------------------------------
Changes Changes in tax
in tax law legislation could * The Government has a desire to encourage long-term
reduce the attractiveness savings to plan for an ageing population, which is
of long-term currently under-provided for.
savings via pension
schemes, particularly
SSASs and SIPPs. * 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.
--------------- --------------------------- -------------------------------------------------------------
Operational risks
---------------------------------------------------------------------------------------------------------------
Risk type Risk Mitigating factors
---------------- ------------------------------ -------------------------------------------------------------
Damage to There is a risk
the Group's of reputational * Strong compliance culture with a focus on positive
reputation damage as a result customer outcomes.
of employee misconduct,
failure to manage
inside information * High level of internal controls, including checks on
or conflicts new staff.
of interest,
fraud, improper
practice, poor * Well-trained staff who ensure the interests of
client service clients are met in the services provided.
or advice.
---------------- ------------------------------ -------------------------------------------------------------
Errors, Serious or prolonged
breakdown breaches, errors * Ongoing review of data security.
or security or breakdowns
breaches in the Group's
in respect software or information * IT performance, scalability and security are deemed
of the Group's technology systems top priorities by the Board.
software could negatively
or information impact customer
technology confidence. It * Experienced in-house team of IT professionals and
systems could also breach established name suppliers.
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.
---------------- ------------------------------ -------------------------------------------------------------
Business In addition to
continuity the failure of * Periodic review of Business Continuity Plan,
IT systems, there considering best practice methodologies.
is a risk of
disruption to
the business * Disaster recovery plan and a disaster recovery team
as a result of in place. Business impact analysis has been conducted
power failure, by department.
fire, flood,
acts of terrorism,
re-location problems
and the like.
---------------- ------------------------------ -------------------------------------------------------------
Fraud risk There is a risk
an employee defrauds * The Group ensures the control environment mitigates
either the Group against the misappropriation of client assets.
or a client.
* Strong corporate controls require dual signatures for
all payments and Board approval for all expenditure
greater than GBP15,000.
* Assessment of fraud risk every six months discussed
with the Audit 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.
---------------- ------------------------------ -------------------------------------------------------------
Key personnel The loss of,
risk or inability * Succession planning is a key consideration throughout
to recruit, key the Group.
personnel could
have a material
adverse effect * Success of the Group should attract high calibre
on the Group's candidates.
business, results
of operations
or financial * Share-based schemes in operation to incentivise staff
condition. 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.
---------------- ------------------------------ -------------------------------------------------------------
Litigation Risk of liability
or claims related to litigation * Appropriate levels of Professional Indemnity
made against from clients insurance cover regularly reviewed with the Group's
the Group or third parties advisers.
and assurance
that a claim
or claims will * Comprehensive internal review procedures, including
not be covered compliance sign-off, for advice and marketing
by insurance materials.
or, if covered,
will exceed the
limits of available * Maintenance of three charging models; time cost,
insurance coverage, fixed and asset based, which are aligned to specific
or that any insurer service propositions and agreed with clients.
will become insolvent
and will not
meet its obligations * Restricted status for our consultants to enable the
to provide the recommendation of our own products versus others in
Group with cover. the market.
---------------- ------------------------------ -------------------------------------------------------------
Reliance Any regulatory
on third breach or service * Due diligence is part of the selection process for
parties failure on the key suppliers.
part of an outsourced
service provider
could expose * Ongoing review of relationships and concentration of
the Group to risk with key business partners.
the risk of regulatory
sanctions and
reputational
damage.
---------------- ------------------------------ -------------------------------------------------------------
Strategic Risk that management
risk will pursue inappropriate * Experienced management team with successful track
strategies or record to date.
implement the
Group's strategy
ineffectively. * Management has demonstrated a thorough understanding
of the market and monitors this through regular
meetings with clients.
---------------- ------------------------------ -------------------------------------------------------------
Financial risks
---------------------------------------------------------------------------------------------------------------
Risk type Risk Mitigating factors
---------------- ------------------------------ -------------------------------------------------------------
Counterparty That the counterparty
default to a financial * The Group trades only with recognised, creditworthy
obligation will third parties.
default on repayments.
* 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.
---------------- ------------------------------ -------------------------------------------------------------
Bank default The risk that
a bank could * We only use banks with strong credit ratings.
fail.
* Client deposits spread across multiple banks.
* Regular review and challenge of treasury policy by
management.
---------------- ------------------------------ -------------------------------------------------------------
Concentration A component of
risk credit risk, * The client base is broad, without significant
arising from exposure to any individual client or group of
a lack of diversity clients.
in business activities
or geographical
risk. * Broad service offering gives diversified revenue
streams.
---------------- ------------------------------ -------------------------------------------------------------
Liquidity The risk the
risk Group is unable * Cash generative business.
to meet liabilities
as they become
due because of * Group maintains a surplus above regulatory and
an inability working capital requirements.
to liquidate
assets or obtain
adequate funding. * Treasury management provides for the availability of
liquid funds at short notice.
---------------- ------------------------------ -------------------------------------------------------------
Interest Risk of decline
rate risk in earnings due * Interest rates being at historic lows has resulted in
to a decline associated income streams no longer being material.
in banking margin
or deposit rates
received on surplus * Good relationships with key banking partners.
cash.
Low interest
rates make it * Access to competitive interest rates due to scale of
harder to structure business.
compelling capital-protected
products for
clients.
---------------- ------------------------------ -------------------------------------------------------------
Operational
risks
---------------- ------------------------------ -------------------------------------------------------------
Risk type Risk Mitigating factors
---------------- ------------------------------ -------------------------------------------------------------
Underwriting When arranging
risk new products * New products created in line with client demand.
for promotion
to the Group's
clients, the * Potential costs are carefully considered by the
Group may need Investment Committee prior to the launch of each
to guarantee product.
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.
---------------- ------------------------------ -------------------------------------------------------------
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 the basis for good corporate social
responsibility.
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 both business, sports and community awards.
Our business has benefited greatly from winning numerous awards and
we feel its 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 sponsor the Rothley 10k, one of the most
celebrated charity road running races in Leicestershire, which
attracted over 700 runners in 2016, a new record for the race,
which raised over GBP20,000 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 GBP90,000 for the charity.
Employees across the country have been involved in a number of
activities to raise essential funding for this great cause,
including a group wide cycling challenge, Tough Mudder in the
Midlands, the London and Edinburgh marathons, Glack Attack in
Aberdeen and numerous cake sales and challenges.
We also continue to sponsor wheelchair racer Sammi Kinghorn, who
represented Scotland in the 2014 Commonwealth Games in Glasgow and
is representing Team GB at the Paralympic games in Rio de Janeiro
this month.
The Mattioli Woods Business Academy ("the Academy") operates in
partnership with Gateway College, Leicester. The Academy has been
developed to create opportunities locally for young people and
assist the Group in recruiting and developing staff with the right
skills, experience and values. The Academy offers two-year
placements to 10 of the brightest students each year, leading to
Level 3 qualifications in Business and Finance and a wealth of
workplace experience.
In addition, we continue to expand our Financial Services
Development Scheme, aimed at graduates, apprentices and school
leavers, with plans to enrol up over 20 new joiners this year.
Approval
In accordance with Section 414(c) of the Companies Act 2006
(Strategic Report and Directors' Report) Regulations 2013, the
Company has prepared a Strategic Report, which includes information
that would have been previously included in the Directors'
Report.
The Strategic Report in its entirety has been approved by the
Board of Directors and signed on its behalf by:
Ian Mattioli
Chief Executive
7 September 2016
Consolidated Statement of Comprehensive Income
For the year ended 31 May 2016
2016 2015
Note GBP000 GBP000
----------------------------------------------------- ----- --------- ---------
Revenue 4 42,950 34,565
Employee benefits expense (24,552) (20,042)
Other administrative expenses (7,807) (6,604)
Share based payments (1,594) (790)
Amortisation and impairment (1,816) (1,279)
Depreciation (497) (387)
Loss on disposal of property, plant & equipment (56) (44)
Operating profit before financing 6,628 5,419
----------------------------------------------------- ----- --------- ---------
Finance revenue 122 46
Finance costs (459) (175)
Net finance costs (337) (129)
Profit before tax 6,291 5,290
Income tax expense (1,046) (1,268)
Profit for the year 5,245 4,022
Other comprehensive income for the year, net of tax - -
Total comprehensive income for the year, net of tax 5,245 4,022
----------------------------------------------------- ----- --------- ---------
Attributable to:
Equity holders of the parent 5,245 4,022
Earnings per ordinary share:
Basic (pence) 6 21.1 19.6
Adjusted (pence) 31.0 27.2
Diluted (pence) 6 21.1 19.4
Proposed total dividend per share (pence) 7 12.5 10.5
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.
The profit of the Company for the financial year, after taxation,
was GBP5.1m (2015: GBP2.5m).
Consolidated and Company Statements of Financial Position Registered number: 3140521
As at 31 May 2016
2016 2015
Group Company Group Company
Note GBP000 GBP000 GBP000 GBP000
----------------------------------------------------------- ----- ------- -------- ------- --------
Assets
Property, plant and equipment 1,997 1,924 1,430 1,430
Intangible assets 8 43,410 28,973 28,852 28,818
Deferred tax asset 737 731 422 422
Investments - 15,187 - 17,617
Total non-current assets 46,144 46,815 30,704 48,287
----------------------------------------------------------- ----- ------- -------- ------- --------
Trade and other receivables 13,495 14,010 12,355 11,922
Investments 79 79 129 129
Cash and short-term deposits 10 29,809 21,381 10,570 8,545
Total current assets 43,383 35,470 23,054 20,596
----------------------------------------------------------- ----- ------- -------- ------- --------
Total assets 89,527 82,285 53,758 68,883
----------------------------------------------------------- ----- ------- -------- ------- --------
Equity
Issued capital 11 252 252 204 204
Share premium 11 27,765 27,765 8,689 8,689
Merger reserve 11 8,531 8,531 4,838 4,838
Equity - share based payments 11 1,642 1,642 997 976
Capital redemption reserve 11 2,000 2,000 2,000 2,000
Retained earnings 11 25,391 22,487 22,739 20,048
Total equity attributable to equity holders of the parent 65,581 62,677 39,467 36,755
----------------------------------------------------------- ----- ------- -------- ------- --------
Non-current liabilities
Deferred tax liability 3,724 2,127 2,339 2,332
Financial liabilities and provisions 12 5,738 5,738 2,393 21,195
Total non-current liabilities 9,462 7,865 4,732 23,527
----------------------------------------------------------- ----- ------- -------- ------- --------
Current liabilities
Trade and other payables 10,047 8,397 7,979 7,297
Income tax payable 1,083 178 624 348
Financial liabilities and provisions 12 3,354 3,168 956 956
Total current liabilities 14,484 11,743 9,559 8,601
----------------------------------------------------------- ----- ------- -------- ------- --------
Total liabilities 23,946 19,608 14,291 32,128
----------------------------------------------------------- ----- ------- -------- ------- --------
Total equities and liabilities 89,527 82,285 53,758 68,883
----------------------------------------------------------- ----- ------- -------- ------- --------
The financial statements were approved by the Board of directors
and authorised for issue on 7 September 2016 and are signed on its
behalf by:
Bob Woods Nathan Imlach
Executive Chairman Finance Director
Consolidated and Company Statements of Changes in Equity
For the year ended 31 May 2016
Equity - Capital
Issued Share Merger share based redemption Retained
capital premium reserve payments reserve earnings
(Note 11) (Note 11) (Note 11) (Note 11) (Note 11) (Note 11) Total equity
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
As at 1 June
2014 200 8,001 4,040 1,046 2,000 20,257 35,544
Profit for the
year - - - - - 4,022 4,022
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
Total
comprehensive
income - - - - - 4,022 4,022
Transactions
with owners of
the Group,
recognised
directly in
equity
Issue of share
capital 4 688 798 - - - 1,490
Share-based
payments - - - 256 - - 256
Deferred tax
taken to
equity - - - 2 - - 2
Current tax
taken to
equity - - - 34 - - 34
Dividends paid - - - - - (1,881) (1,881)
Reserves
transfer - - - (341) - 341 -
As at 31 May
2015 204 8,689 4,838 997 2,000 22,739 39,467
Profit for the
year - - - - - 5,245 5,245
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
Total
comprehensive
income - - - - - 5,245 5,245
Transactions
with owners of
the Group,
recognised
directly in
equity
Issue of share
capital 48 19,076 3,693 - - - 22,817
Share-based
payments - - - 596 - - 596
Deferred tax
taken to
equity - - - 61 - - 61
Current tax
taken to
equity - - - 149 - - 149
Dividends paid - - - - - (2,754) (2,754)
Reserves
transfer - - - (161) - 161 -
As at 31 May
2016 252 27,765 8,531 1,642 2,000 25,391 65,581
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
Consolidated and Company Statements of Changes in Equity
For the year ended 31 May 2016 (continued)
Equity - Capital
Issued Share Merger share based redemption Retained
capital premium reserve payments reserve earnings
(Note 11) (Note 11) (Note 11) (Note 11) (Note 11) (Note 11) Total equity
Company GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
As at 1 June
2014 200 8,001 4,040 1,040 2,000 19,105 34,386
Profit for the
year - - - - - 2,483 2,483
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
Total
comprehensive
income - - - - - 2,483 2,483
Transactions
with owners of
the Company,
recognised
directly in
equity
Issue of share
capital 4 688 798 - - - 1,490
Share-based
payments - - - 241 - - 241
Deferred tax
taken to
equity - - - 2 - - 2
Current tax
taken to
equity - - - 34 - - 34
Dividends paid - - - - - (1,881) (1,881)
Reserves
transfer - - - (341) - 341 -
As at 31 May
2015 204 8,689 4,838 976 2,000 20,048 36,755
Profit for the
year - - - - - 5,053 5,053
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
Total
comprehensive
income - - - - - 5,053 5,053
Transactions
with owners of
the Company,
recognised
directly in
equity
Issue of share
capital 48 19,076 3,693 - - - 22,817
Share-based
payments - - - 596 - - 596
Deferred tax
taken to
equity - - - 61 - - 61
Current tax
taken to
equity - - - 149 - - 149
Dividends paid - - - - - (2,754) (2,754)
Reserves
transfer - - - (140) - 140 -
As at 31 May
2016 252 27,765 8,531 1,642 2,000 22,487 62,677
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
Consolidated and Company Statements of Cash Flows
For the year ended 31 May 2016
Group Company Group Company
2016 2016 2015 2015
Note GBP000 GBP000 GBP000 GBP000
----------------------------------------------------------------------- ----- -------- -------- -------- --------
Operating activities
Profit for the year
Adjustments for: 5,245 5,053 4,022 2,486
Depreciation 497 482 387 339
Amortisation and impairment 8 1,816 1,411 1,279 2,775
Gain on bargain purchase (105) (105) (92) (92)
Investment income (122) (93) (46) (23)
Interest expense 459 785 175 411
Loss on disposal of property, plant and equipment 56 56 44 44
Equity-settled share-based payments 838 838 466 451
Cash-settled share-based payments 756 756 324 324
Dividend income - (2,497) - (1,750)
Income tax expense 1,046 625 1,268 927
----------------------------------------------------------------------- ----- -------- -------- -------- --------
Cash flows from operating activities before changes in working capital
and provisions 10,486 7,311 7,827 5,892
Increase in trade and other receivables (509) (2,058) (1,699) (1,010)
Increase in trade and other payables 1,619 1,035 1,442 1,176
Increase in provisions 192 192 10 30
----------------------------------------------------------------------- ----- -------- -------- -------- --------
Cash generated from operations 11,788 6,480 7,580 6,088
Interest paid - - (1) (1)
Income taxes paid (1,714) (1,343) (1,441) (1,096)
Net cash flows from operating activities 10,074 5,137 6,138 4,991
----------------------------------------------------------------------- ----- -------- -------- -------- --------
Investing activities
Proceeds from sale of property, plant and equipment 75 75 69 69
Purchase of property, plant and equipment (1,115) (1,107) (603) (579)
Purchase of software 8 (597) (590) (374) (374)
Consideration paid on acquisition of subsidiaries 3 (6,911) (6,911) (2,383) (2,383)
Consideration paid on acquisition of business 3 (735) (735) (363) -
Cash transferred on hive up of group companies - - - 3,373
Cash received on acquisition of subsidiaries 3 3,217 - 32 -
Other investments (16) (16) (90) (90)
Loans advanced to property syndicates (2,188) (2,188) - -
Loan repayments from property syndicates 2,158 2,158 - -
Interest received 122 93 46 23
Dividends received - 800 - 1,750
Net cash flows from investing activities (5,990) (8,421) (3,666) 1,789
----------------------------------------------------------------------- ----- -------- -------- -------- --------
Financing activities
Proceeds from the issue of share capital 19,568 19,568 467 467
Payment of costs of share issue (693) (693) - -
Repayment of borrowings acquired in business combinations (965) - - -
Repayment of Directors' loans (1) (1) (2) (2)
Dividends paid 7 (2,754) (2,754) (1,881) (1,881)
Net cash flows from financing activities 15,155 16,120 (1,416) (1,416)
----------------------------------------------------------------------- ----- -------- -------- -------- --------
Net increase in cash and cash equivalents 19,239 12,836 1,056 5,364
Cash and cash equivalents at start year 10 10,570 8,545 9,514 3,181
Cash and cash equivalents at end of year 10 29,809 21,381 10,570 8,545
----------------------------------------------------------------------- ----- -------- -------- -------- --------
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 (GBP000) 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 7 September 2016.
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
--------------------------- ------------------------------ -------------------------------
IFRS 2 (amended) Share-based Payment 1 July 2014
IFRS 3 (amended) Business Combinations 1 July 2014
IFRS 8 (amended) Operating Segments 1 July 2014
IFRS 13 (amended) Fair Value Measurement 1 July 2014
IAS 16 (amended) Property, Plant and Equipment 1 July 2014
IAS 24 (amended) Related Party Disclosures 1 July 2014
IAS 38 (amended) Intangible Assets 1 July 2014
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
commencing after 1 June 2015 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
----------------------------- --------------------------------------------- -------------------------------
IAS 1 Presentation of financial statements 1 January 2016
IAS 16 (amended) Property, Plant and Equipment 1 January 2016
IAS 27 (revised) Separate Financial Statements 1 January 2016
IAS 28 (amended) Investments in Associates and Joint Ventures 1 January 2016
IAS 38 (amended) Intangible Assets 1 January 2016
IFRS 9 Financial Instruments 1 January 2018
IFRS 10 (amended) Consolidated Financial Statements 1 January 2016
IFRS 11 (amended) Joint Arrangements 1 January 2016
IFRS 12 (amended) Disclosures of Interests in Other Entities 1 January 2016
IFRS 15 Revenue from Contracts with Customers 1 January 2018
IFRS 16 Leases 1 January 2019
IFRS 9 'Financial Instruments', IFRS 15 'Revenue from Contracts
with Customers' and IFRS 16 'Leases' are expected to have the most
significant effect on the consolidated financial statements of the
Group.
IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from
Contracts with Customers' are not expected to become mandatory for
periods commencing before 1 January 2018. IFRS 16 ' Leases' is not
expected to become mandatory for periods commencing before 1
January 2019. These standards have not yet been adopted by the EU
and the Group does not plan to adopt these standards early. IFRS 9
'Financial Instruments' could change the classification and
measurement of financial assets and the timing and extent of credit
provisioning. IFRS 15 'Revenue from Contracts with Customers' could
change how and when revenue is recognised from contracts with
customers. The extent of their impact has not yet been fully
determined.
IFRS 16 'Leases' eliminates the classification of leases as
either operating leases or finance leases. The Group will be
required to recognise all leases with a term of more than 12 months
as a lease asset in its statement of financial position, together
with a financial liability representing its obligation to make
future lease payments. The extent of its impact has not yet been
fully determined.
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 the future
periods.
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.
Group re-organisation
During the year ended 31 May 2015 the trade and assets of City
Pensions Limited, Thoroughbred Wealth Management Limited, Atkinson
Bolton Consulting Limited and Kudos Financial Services Limited were
transferred to the Company. The net asset and results for the
transferred businesses are reflected in the parent company
financial statements at the same values as they would have been
reflected in the Group accounts had the transfer not taken place.
Each transfer of trade and assets resulted in any goodwill, client
portfolios recognised as intangible assets and associated deferred
tax balances that arose on consolidation, being recognised in the
parent company statement of financial position. The trade and
assets were exchanged for loan notes attracting annual interest on
the outstanding principal at a rate of 3% above the Bank of England
base rate. On 30 November 2015 the loan notes were waived and the
capital and reserves in City Pensions Limited, Thoroughbred Wealth
Management Limited, Atkinson Bolton Consulting Limited and Kudos
Financial Services Limited were reduced to GBP1.
2.3 Key sources of judgements and estimation uncertainty
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% (2015: 2.5%),
which management considers conservative against industry average
long-term growth rates.
The key assumption used in arriving at a fair value less cost of
sale are those around valuations 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 to
arrive at a fair value.
The carrying amount of client portfolios at 31 May 2016 was
GBP25.4m (2015: GBP16.9m). No impairments have been made during the
year (2015: GBPnil) 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 2016 was GBP16.4m (2015: GBP10.8m). No
impairments have been made during the year (2015: GBPnil) 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 2016 was GBP1.1m (2015:
GBP0.8m).
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 2016 was GBP0.7m (2015: GBP0.4m).
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 2016 was
GBP4.6m (2015: GBP4.5m).
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 2016 was GBP2.5m (2015: GBP2.2m).
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 2016 was GBP5.8m
(2015: GBP1.5m).
Provisions
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.
3. Business combinations
The Group completed five acquisitions during the year.
Transaction costs incurred during the course of each acquisition
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.
Acquisition of Boyd Coughlan Limited
On 23 June 2015, Mattioli Woods acquired 100% of the voting
equity interests of Boyd Coughlan Limited ("Boyd Coughlan"), an
employee benefits and wealth management business based in
Buckingham. Boyd Coughlan provides advice to both high net worth
individuals and companies on all aspects of financial planning.
The acquisition has been accounted for using the acquisition
method. The fair value of the identifiable assets and liabilities
of Boyd Coughlan as the date of acquisition was:
Fair value recognised on
acquisition Fair value adjustments Previous carrying value
GBP000 GBP000 GBP000
--------------------------------- -------------------------------- ----------------------- ------------------------
Property, plant and equipment 7 (26) 33
Client portfolio 4,270 4,270 -
Cash at bank 2,656 - 2,656
Trade and other receivables 144 - 144
Deferred tax 1 - 1
Assets 7,078 4,244 2,834
--------------------------------- -------------------------------- ----------------------- ------------------------
Trade and other payables (73) - (73)
Accruals and deferred income (58) (20) (38)
Other taxation and social
security (40) - (40)
Income tax (121) - (121)
Provisions (38) (38) -
Deferred tax liability (854) (854) -
Liabilities (1,184) (912) (272)
--------------------------------- -------------------------------- ----------------------- ------------------------
Total identifiable net assets at
fair value 5,894
Goodwill 1,493
Total acquisition cost 7,387
--------------------------------- --------------------------------
Analysed as follows:
Initial cash consideration 3,300
Adjustment to initial
consideration 561
New shares in Mattioli Woods 1,200
Deferred contingent
consideration 2,500
Discounting of deferred
contingent consideration (174)
Total acquisition cost 7,387
--------------------------------- --------------------------------
Cash outflow on acquisition GBP000
--------------------------------- --------------------------------
Cash paid 3,861
Cash acquired (2,656)
Acquisition costs 131
Net cash outflow 1,336
--------------------------------- --------------------------------
Boyd Coughlan is an excellent cultural and strategic fit with
Mattioli Woods, providing advice to both corporate and personal
clients, and generating strong margins and recurring revenues. The
acquisition has provided a wider audience for the Group's products
and services, extending its employee benefits proposition at a time
when the drive towards total reward and flexible benefits is
creating new business opportunities in the corporate market.
Synergies include the ability to promote additional services to
existing and prospective clients of each business. In addition, the
acquisition added further specialist expertise to the Group and its
experienced management team has been retained by Mattioli Woods.
The goodwill recognised above is attributed to the expected
benefits from combining the assets and activities of Boyd Coughlan
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 Boyd Coughlan's modus operandi; and
-- New opportunities available to the combined business, as a
result of both Boyd Coughlan 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 is being amortised on a
straight-line basis over an estimated useful life based on the
Group's historic experience.
From the date of acquisition Boyd Coughlan has contributed
GBP2.5m to revenue and GBP0.7m to the Group profit for the period.
If the combination had taken place at the beginning of the period,
Group revenue from continuing operations would have been GBP43.1m
and the profit for the period would have been GBP5.3m.
Acquisition of Taylor Patterson Group Limited
On 8 September 2015, Mattioli Woods acquired 100% of the voting
equity interests of Taylor Patterson Group Limited and its
subsidiaries (together "Taylor Patterson"), a financial advisory
firm based in Preston. Taylor Patterson provides wealth management,
strategic financial planning, employee benefits and pension
services to businesses and individuals.
The acquisition has been accounted for using the acquisition
method. The fair value of the identifiable assets and liabilities
of Taylor Patterson as the date of acquisition was:
Fair value recognised on
acquisition Fair value adjustments Previous carrying value
GBP000 GBP000 GBP000
--------------------------------- -------------------------------- ----------------------- ------------------------
Property, plant and equipment 72 (3) 75
Client portfolio 4,941 4,941 -
Cash at bank 561 - 561
Trade and other receivables 458 - 458
Assets 6,032 4,938 1,094
--------------------------------- -------------------------------- ----------------------- ------------------------
Trade and other payables (110) - (110)
Accruals and deferred income (100) - (100)
Income tax (262) - (262)
Provisions (147) (116) (31)
Deferred tax liability (999) (999) -
Loans (965) - (965)
Liabilities (2,583) (1,115) (1,468)
--------------------------------- -------------------------------- ----------------------- ------------------------
Total identifiable net assets at
fair value 3,449
Goodwill 4,098
Total acquisition cost 7,547
--------------------------------- --------------------------------
Analysed as follows:
Initial cash consideration 2,500
Adjustment to initial
consideration (396)
New shares in Mattioli Woods 2,500
Deferred contingent
consideration 3,300
Discounting of contingent
consideration (357)
Total acquisition cost 7,547
--------------------------------- --------------------------------
Cash outflow on acquisition GBP000
--------------------------------- --------------------------------
Cash paid 2,104
Cash acquired (561)
Acquisition costs 124
Net cash outflow 1,667
--------------------------------- --------------------------------
Taylor Patterson has been another excellent cultural and
strategic acquisition, which extended the Group's geographic
footprint into the North-West of England and has delivered the
opportunity to offer discretionary investment management to Taylor
Patterson's clients.
The business has brought further specialist expertise into the
Group's wealth management and employee benefits operations and its
experienced management team has been retained by Mattioli Woods.
The goodwill recognised above is attributed to the expected
benefits from combining the assets and activities Taylor Patterson
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 Taylor Patterson's modus operandi; and
-- New opportunities available to the combined business, as a
result of both Taylor Patterson 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 is gbe amortised on a
straight-line basis over an estimated useful life based on the
Group's historic experience.
From the date of acquisition Taylor Patterson has contributed
GBP2.4m to revenue and GBP0.7m to the Group profit for the period.
If the combination had taken place at the beginning of the period,
Group revenue from continuing operations would have been GBP43.8m
and the profit for the period would have been GBP5.5m.
Acquisition of Lindley Trustees
On 5 October 2015 the Group acquired the pension administration
business of Lindley Group and 100% of the voting equity interests
of Lindley Trustees Limited (together "Lindley Trustees"), which
provides trustee and administration services to over 130 small
self-administered pension ("SSAS") schemes.
The acquisition has been accounted for using the acquisition
method. The fair value of the identifiable assets and liabilities
of Lindley Trustees as the date of acquisition was:
Fair value recognised on
acquisition Fair value adjustments Previous carrying value
GBP000 GBP000 GBP000
--------------------------------- -------------------------------- ----------------------- ------------------------
Client portfolio 271 271 -
Assets 271 271 -
--------------------------------- -------------------------------- ----------------------- ------------------------
Provisions (18) (18) -
Deferred tax liability (54) (54) -
Liabilities (72) (72) -
--------------------------------- -------------------------------- ----------------------- ------------------------
Total identifiable net assets at
fair value 199
Total acquisition cost 199
--------------------------------- --------------------------------
Analysed as follows:
Cash consideration 199
Total acquisition cost 199
--------------------------------- --------------------------------
Cash outflow on acquisition GBP000
--------------------------------- --------------------------------
Cash paid 199
Acquisition costs 36
Cash outflow 235
--------------------------------- --------------------------------
The acquisition delivered synergies from combining the
activities of Lindley Trustees with those of Mattioli Woods,
extending those existing relationships the Group had with
intermediaries like the Lindley Group. The goodwill recognised
above is attributed to the expected benefits from combining the
assets and activities of Lindley Trustees with those of the Group.
The primary components of this residual goodwill comprise:
-- Operational synergies expected to be realised as a result of
combining the activities of Lindley Trustees onto the same pension
administration platform that is used by Mattioli Woods;
-- The workforce; and
-- The knowledge and know-how resident in Lindley Trustees' modus operandi.
The client portfolio is being amortised on a straight-line basis
over an estimated useful life based on the Group's historic
experience.
From the date of acquisition Lindley Trustees has contributed
GBP0.2m to revenue and GBP0.1m to the Group profit for the period.
If the combination had taken place at the beginning of the period,
Group revenue from continuing operations would have been GBP43.1m
and the profit for the period would have been GBP5.3m.
Acquisition of Maclean Marshall Healthcare
On 22 January 2016 the Group acquired the business and assets of
Maclean Marshall Healthcare ("MMH") for a cash consideration of
GBP0.225m. Based in Aberdeen, MMH provides advice to personal and
corporate clients on all aspects of private medical insurance.
The acquisition has been accounted for using the acquisition
method. The fair value of the identifiable assets and liabilities
of MMH as the date of acquisition was:
Fair value recognised on
acquisition Fair value adjustments Previous carrying value
GBP000 GBP000 GBP000
--------------------------------- -------------------------------- ----------------------- ------------------------
Client portfolio 278 278 -
Assets 278 278 -
--------------------------------- -------------------------------- ----------------------- ------------------------
Deferred tax liability (53) (53) -
Liabilities (53) (53) -
--------------------------------- -------------------------------- ----------------------- ------------------------
Total identifiable net assets at
fair value 225
Total acquisition cost 225
--------------------------------- --------------------------------
Analysed as follows:
Cash consideration 225
Total acquisition cost 225
--------------------------------- --------------------------------
Cash outflow on acquisition GBP000
--------------------------------- --------------------------------
Cash paid (225)
Acquisition costs (5)
Net cash outflow (230)
--------------------------------- --------------------------------
The acquisition introduced an experienced manager and over 130
new corporate and personal clients to the Group, adding further
scale to its employee benefits business. The client portfolio is
being amortised on a straight-line basis over an estimated useful
life based on the Group's historic experience.
From the date of acquisition MMH has contributed GBP0.03m to
revenue and GBP0.01m to the Group profit for the period. If the
combination had taken place at the beginning of the period, Group
revenue from continuing operations would have been GBP43.0m and the
profit for the period would have been GBP5.3m.
Acquisition of Stadia Trustees
Following a variation of permission in 2013, Stadia Trustees
Limited was forced to cease accepting new business by the FCA.
Stadia Trustees Limited was one of eight small SIPP operators
inspected by the FCA (when it was the Financial Services Authority)
in 2011, as part of the regulator's efforts to tackle the risks
posed by small firms and unregulated collective investment
schemes.
Mattioli Woods worked closely with Stadia Trustees Limited and
the FCA to complete its acquisition of Stadia Trustees' business
("Stadia Trustees") on 15 February 2016, with a mandate to
administer the wind-up of the Stadia SIPP, Noisnep SIPP, Essential
SIPP, Essex Community Foundation SIPP, Hero SIPP, Investor Club
SIPP, Ipswich SIPP, Liberator SIPP and Munro SIPP ("the Schemes")
and transfer members' assets to new pension arrangements, including
a default arrangement provided by Mattioli Woods.
The acquisition has been accounted for using the acquisition
method. The fair value of the identifiable assets and liabilities
of Stadia Trustees as the date of acquisition was:
Fair value recognised on
acquisition Fair value adjustments Previous carrying value
GBP000 GBP000 GBP000
--------------------------------- -------------------------------- ----------------------- ------------------------
Client portfolio 359 359 -
Assets 359 359 -
--------------------------------- -------------------------------- ----------------------- ------------------------
Deferred income (66) (66) -
Deferred tax liability (68) (68) -
Liabilities (134) (134) -
--------------------------------- -------------------------------- ----------------------- ------------------------
Total identifiable net assets at
fair value 225
Gain on bargain purchase
recognised in administrative
expenses in the statement of
comprehensive
income (105)
Total acquisition cost 120
--------------------------------- --------------------------------
Analysed as follows:
Cash consideration 120
Total acquisition cost 120
--------------------------------- --------------------------------
Cash outflow on acquisition GBP000
--------------------------------- --------------------------------
Cash paid 120
Acquisition costs 10
Cash outflow 130
--------------------------------- --------------------------------
The acquisition gives Mattioli Woods the opportunity to secure
new business, having proven to be a sound strategic partner with
the expertise, scale and systems to give quality SIPP
administration, delivering an enhanced service and long-term
security for clients. Stadia Trustees was acquired for a
consideration of GBP0.12m, as the regulator and seller recognised
the Group's ability to deal with the complexities associated with
the winding up of the SIPPs operated by Stadia Trustees Limited and
transfer of their members to alternative pension arrangements. This
resulted in a gain on bargain purchase of GBP0.11m being recognised
in the statement of comprehensive income.
From the date of acquisition Stadia Trustees has contributed
GBP0.09m to revenue and GBP0.05m to the Group profit for the
period. If the combination had taken place at the beginning of the
period, Group revenue from continuing operations would have been
GBP43.2m and the profit for the period would have been GBP5.4m.
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
contingent consideration payable within the next 12 months is
GBP2.3m (2015: GBP0.1m).
On 8 September 2015 the Group acquired Taylor Patterson for an
initial consideration comprising cash of GBP2.1m (excluding cash
acquired with the business) and 419,888 shares in Mattioli Woods,
plus contingent consideration of GBP3.3m 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 2016 to be GBP3.1m
using cash flows approved by the Board covering the contingent
consideration period and expects the maximum contingent
consideration will be payable.
On 23 June 2015 the Group acquired Boyd Coughlan for initial
consideration comprising cash of GBP3.9m (excluding cash acquired
with the business) and 235,742 shares in Mattioli Woods, plus
contingent consideration of GBP2.5m payable in cash in the two
years following completion if certain profit targets are met. The
Group estimates the fair value of the remaining contingent
consideration at 31 May 2016 to be GBP2.4m using cash flows
approved by the Board covering the contingent consideration period
and expects the maximum contingent consideration will be
payable.
On 11 August 2014 the Group acquired UKWM Pensions for initial
cash consideration of GBP0.28m (excluding cash acquired with the
business) plus contingent consideration of GBP0.08m payable in cash
in the two years following completion if certain revenue targets
are met. The Group estimates the net present value of the remaining
contingent consideration at 31 May 2016 to be GBP0.04m using cash
flows approved by the Board covering the contingent consideration
period and expects the remaining contingent consideration will be
payable.
On 29 July 2013, Mattioli Woods acquired 100% of the voting
equity interests of TWM and its subsidiary Atkinson Bolton
Consulting Limited (together "Atkinson Bolton"). The share purchase
agreement ("the Agreement") stated contingent deferred
consideration of up to GBP2.75m was payable in cash in the four
years following completion if certain financial targets were met.
To facilitate the earlier integration of Atkinson Bolton into the
Group's wealth management and employee benefits divisions, the
parties agreed to vary the Agreement on 26 August 2014 such
that:
-- GBP1.6m of contingent consideration was paid in September
2014 as GBP0.8m in cash and GBP0.8m through the allotment and issue
of new ordinary shares in Mattioli Woods, following the achievement
of certain financial targets based on growth in the EBITDA
generated by Atkinson Bolton in the year from 1 August 2013 to 31
July 2014; and
-- Up to GBP1.15m of contingent consideration was to be payable
in cash if certain financial targets are met based on compound
annual growth in the EBITDA generated by Mattioli Woods in the
three years from 1 August 2014 to 31 July 2017.
To facilitate the exit of one of the vendors, the parties agreed
a further variation of the Agreement on 29 April 2016 to accelerate
the payment of the remaining contingent consideration for a
discounted payment of GBP0.945m, with the balance of the provision
released to the consolidated statement of comprehensive income. At
31 May 2016 there are no further amounts payable under the
Agreement.
On 23 April 2013, the Group acquired the trade and certain
assets of Ashcourt Rowan Administration Limited, 100% of the share
capital of Ashcourt Rowan Pension Trustees Limited and 100% of the
share capital of Robinson Gear (Management Services) Limited for an
initial cash consideration of GBP0.66m plus contingent
consideration of up to GBP0.625m payable in cash in the five years
following completion if certain targets are met based on growth in
revenues and client retention during that period. The Group
estimates the net present value of the remaining contingent
consideration at 31 May 2016 to be GBP0.25m using cash flows
approved by the Board covering the contingent consideration
period.
4. Revenue
Revenue disclosed in the consolidated statement of comprehensive
income is analysed as follows:
2016 2015
GBP000 GBP000
---------------------- ------- -------
Rendering of services 40,282 28,164
Commission income 2,668 6,401
42,950 34,565
---------------------- ------- -------
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 ended 31 May 2015,
the Group harmonised it's legal and operational structures,
transferring the trade and assets of City Pensions Limited,
Atkinson Bolton Consulting Limited and Kudos Financial Services
Limited into Mattioli Woods. The Group's operating segments now
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. In prior years, fees earned for setting up
and administering pension schemes under an advice--led model were
reported separately for setting up and administering pension
schemes under an administration--only model. Following the transfer
of the trade and assets of City Pensions Limited to Mattioli Woods,
these fees are reported as one operating segment;
-- 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 2016 and 2015 respectively.
Pension Investment
consultancy and
and asset Property Employee Total Corporate
Year ended administration management management benefits segments costs Consolidated
31 May 2016 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- --------------- ------------- ------------ ------------- ----------- ------------- --------------
Revenue
External
client 16,563 17,054 4,066 5,267 42,950 - 42,950
Total
revenue 16,563 17,054 4,066 5,267 42,950 - 42,950
------------- --------------- ------------- ------------ ------------- ----------- ------------- --------------
Results
Segment
result 3,279 3,498 814 491 8,082 (1,791) 6,291
------------- --------------- ------------- ------------ ------------- ----------- ------------- --------------
Pension Investment
consultancy and
and asset Property Employee Total Corporate
Year ended administration management management benefits segments costs Consolidated
31 May 2015 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- --------------- ------------- ------------ ------------- ----------- ------------- --------------
Revenue
External
client 15,545 11,430 2,790 4,800 34,565 - 34,565
Total
revenue 15,545 11,430 2,790 4,800 34,565 - 34,565
------------- --------------- ------------- ------------ ------------- ----------- ------------- --------------
Results
Segment
result 3,348 2,221 433 637 6,639 (1,349) 5,290
------------- --------------- ------------- ------------ ------------- ----------- ------------- --------------
Segment assets
The following table presents segment assets of the Group's
operating segments:
31 May 31 May
2016 2015
GBP000 GBP000
---------------------------------------- --------- ---------
Pension consultancy and administration 21,977 18,071
Investment and asset management 19,683 11,088
Property management 898 1,196
Employee benefits 11,311 9,061
Total segments 53,869 39,416
Corporate assets 35,658 14,342
Total assets 89,527 53,758
----------------------------------------- --------- ---------
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. 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, including
assets from the acquisition of subsidiaries.
31 May 31 May
2016 2015
Reconciliation of profit GBP000 GBP000
----------------------------- ------- -------
Total segments 8,082 6,639
Acquisition costs (339) (272)
Depreciation (497) (387)
Amortisation and impairment (247) (139)
Loss on disposal of assets (56) (44)
Unallocated overheads (298) (355)
Bank charges (17) (23)
Finance income 122 46
Finance costs (459) (175)
Group profit before tax 6,291 5,290
------------------------------ ------- -------
31 May 31 May
2016 2015
Reconciliation of assets GBP000 GBP000
----------------------------------- ------- -------
Segment operating assets 53,869 39,416
Property, plant and equipment 1,997 1,430
Intangible assets 1,608 1,191
Investments 79 129
Deferred tax asset 737 422
Prepayments and other receivables 1,428 600
Cash and short-term deposits 29,809 10,570
Total assets 89,527 53,758
------------------------------------ ------- -------
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:
2016 2015
GBP000 GBP000
-------------------------------------------------------------------------------- ------- -------
Net profit and diluted net profit attributable to equity holders of the Company 5,245 4,022
Weighted average number of ordinary shares: 000s 000s
Issued ordinary shares at start period 20,372 19,990
Effect of shares issued during the year ended 31 May 2015 - 297
Effect of shares issued during the year ended 31 May 2016 4,430 215
Basic weighted average number of shares 24,802 20,502
Effect of dilutive options at the statement of financial position date 90 237
Diluted weighted average number of shares 24,892 20,739
-------------------------------------------------------------------------------- ------- -------
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 3.33%
of its issued share capital. 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 2016 the conditions attached to 696,574
options granted under the LTIP were not satisfied (2015: 410,032).
If the conditions had been satisfied, diluted earnings per share
would have been 20.5p per share (2015: 19.0p).
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 14,000 ordinary shares to satisfy the exercise
of options under the Consultants' Share Option Plan; and
-- The issue of 17,636 ordinary shares under the Mattioli Woods plc Share Incentive Plan.
7. Dividends paid and proposed
2016 2015
GBP000 GBP000
---------------------------------------------------- ------- -------
Declared and paid during the year:
Equity dividends on ordinary shares:
- Final dividend for 2015: 7.16p (2014: 6.00p) 1,790 1,202
- Interim dividend for 2016: 3.85p (2015: 3.34p) 964 679
Dividends paid 2,754 1,881
---------------------------------------------------- ------- -------
Proposed for approval by shareholders at the AGM:
Final dividend for 2016: 8.65p (2015: 7.16p) 2,184 1,790
---------------------------------------------------- ------- -------
8. Intangible assets
Internally generated
software Client portfolios
GBP000 Software GBP000 Goodwill Other Total
Group GBP000 GBP000 GBP000 GBP000
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
Gross carrying amount:
At 1 June 2014 809 734 20,956 10,771 35 33,305
Arising on acquisitions - - 756 - - 756
Additions 242 132 - - - 374
At 31 May 2015 1,051 866 21,712 10,771 35 34,435
Arising on acquisitions - - 10,120 5,590 - 15,710
Additions 383 214 - - - 597
At 31 May 2016 1,434 1,080 31,832 16,361 35 50,742
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
Amortisation and
impairment:
At 1 June 2014 155 411 3,716 - 22 4,304
Amortisation during the
year 88 72 1,106 - 13 1,279
At 31 May 2015 243 483 4,822 - 35 5,583
Amortisation during the
year 106 74 1,569 - 1,749
At 31 May 2016 349 557 6,391 - 35 7,332
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
Carrying amount:
At 31 May 2016 1,085 523 25,441 16,361 - 43,410
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
At 31 May 2015 808 383 16,890 10,771 - 28,852
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
At 31 May 2014 654 323 17,240 10,771 13 29,001
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
Internally generated software
GBP000 Client portfolios
Software GBP000 Goodwill Total
Company GBP000 GBP000 GBP000
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
Gross carrying amount:
At 1 June 2014 809 593 7,124 4,335 12,861
Transfer from group companies - 41 12,340 6,436 18,817
Arising on acquisitions - - 194 - 194
Additions 242 132 - 374
At 31 May 2015 1,051 766 19,658 10,771 32,246
Arising on acquisitions - - 909 - 909
Additions 383 207 - - 590
At 31 May 2016 1,434 973 20,567 10,771 33,745
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
Amortisation and impairment:
At 1 June 2014 155 364 2,150 - 2,669
Amortisation during the year 88 53 618 - 759
At 31 May 2015 243 417 2,768 - 3,428
Amortisation during the year 106 68 1,170 - 1,344
At 31 May 2016 349 485 3,938 - 4,772
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
Carrying amount:
At 31 May 2016 1,085 488 16,629 10,771 28,973
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
At 31 May 2015 808 349 16,890 10,771 28,818
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
At 31 May 2014 654 229 4,974 4,335 10,192
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
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.
9. Share based payments
Share Option Plan
The Company operated the Share Option Plan by which certain of
the executive directors and other senior executives are able to
subscribe for ordinary shares in the Company at an exercise price
of GBP1.32 per share, equal to the placing price of the shares
issued on 15 November 2005. The options vested when profit-based
performance conditions were fulfilled. All options vesting under
the Share Option Plan were exercised prior to the option expiry
date of 31 October 2015 and hence at 31 May 2016 there were no
options outstanding under the Share Option Plan (2015: 52,950).
Consultants' Share Option Plan
The Company also 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:
Granted during Exercised Lapsed during
Exercise price At 1 June 2015 the year during the year the year At 31 May 2016
Date of grant GBP No. No. No. No. No.
----------------- -------------- -------------- ---------------- --------------- ---------------- --------------
5 September 2006 2.21 122,347 - (122,347) - -
4 September 2007 2.79 142,124 - (74,011) - 68,113
8 September 2009 2.16 107,842 - (32,030) - 75,812
372,313 - (228,388) - 143,925
----------------- -------------- -------------- ---------------- --------------- ---------------- --------------
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 period, 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:
31 May 2016 31 May 2016 31 May 2015 31 May 2015
Equity-settled Cash-settled Equity-settled Cash-settled
LTIP options No. No. No. No.
-------------------------- --------------- ------------- --------------- -------------
Outstanding as at 1 June 410,032 266,650 217,519 148,149
Granted during the year 292,574 - 235,901 118,501
Exercised during the year - - - -
Forfeited during the year (6,032) - (43,388) -
Outstanding at 31 May 696,574 266,650 410,032 266,650
---------------------------- --------------- ------------- --------------- -------------
Exercisable at 31 May - - - -
---------------------------- --------------- ------------- --------------- -------------
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 99,972 (2015: 110,134) new ordinary shares were
issued to the 218 employees who participated in the SIP during the
year. At 31 May 2016 the SIP held 508,218 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 2016 is GBP1,351,505 (2015: GBP567,966), of which GBP595,664
arises from equity-settled share based payment transactions (2015:
GBP243,454) and GBP755,841 arises from cash-settled share based
payment transactions (2015: GBP324,512).
The expense for share based payments made in respect of employee
services under the Share Option Plan and the Consultants' Share
Option Plan is recognised over the expected vesting period of the
awards. The expense recognised during the year ended 31 May 2016
was GBPnil (2015: GBPnil), 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. The expense recognised
during the year ended 31 May 2016 is GBP242,913 (2015: GBP221,857),
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.
2016 2015
2016 WAEP 2015 WAEP
Share options No. GBP No. GBP
--------------------------- ---------- ------ --------- ------
Outstanding as at 1 June 835,295 1.17 733,934 2.23
Granted during the year 292,574 0.01 235,901 0.01
Exercised (281,338) 2.19 (91,152) 1.99
Forfeited during the year (6,032) - (43,388) -
Outstanding at 31 May 840,499 0.43 835,295 1.17
--------------------------- ---------- ------ --------- ------
Exercisable at 31 May 143,925 2.46 425,263 2.28
--------------------------- ---------- ------ --------- ------
The weighted average share price at the date of exercise for
share options exercised during the year was GBP5.48. For the share
options outstanding as at 31 May 2016, the weighted average
remaining contractual life is 4.0 years (2015: 3.4 years). The WAEP
for options outstanding at the end of the year was GBP0.43 (2015:
GBP1.17), with the option exercise prices ranging from GBP0.01 to
GBP2.79.
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 share price at 31 May 2016 and movements
during the year are set out in the Directors' Remuneration
Report.
10. Cash and short-term deposits
For the purpose of the statement of cashflows, cash and cash
equivalents comprise the following at 31 May 2016:
Group Company Group Company
2016 2016 2015 2015
GBP000 GBP000 GBP000 GBP000
--------------------------- -------- -------- -------- --------
Cash at banks and on hand 29,809 21,381 10,570 8,545
Bank overdrafts - - - -
Cash and cash equivalents 29,809 21,381 10,570 8,545
--------------------------- -------- -------- -------- --------
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 GBP29.8m (2015: GBP10.6m).
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.
11. Issued capital and reserves
Ordinary shares
Ordinary shares of 1p
Share capital of 1p GBP
--------------------------------------------- ---------------- ----------------
Authorised
At 1 June 2014, 31 May 2015 and 31 May 2016 30,000,000 300,000
--------------------------------------------- ---------------- ----------------
Issued and fully paid
At 1 June 2014 19,989,872 199,899
Exercise of employee share options 91,152 912
Shares issued under the SIP 110,134 1,101
Shares issued for consideration 181,407 1,814
At 31 May 2015 20,372,565 203,726
Placing 3,795,918 37,959
Exercise of employee share options 281,338 2,813
Shares issued under the SIP 99,972 1,000
Shares issued for consideration 655,630 6,556
At 31 May 2016 25,205,423 252,054
--------------------------------------------- ---------------- ----------------
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 Thoroughbred Wealth Management
Limited ("the TWM 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 946,256 ordinary shares in Mattioli Woods
during the four years ending 29 July 2017;
-- The former shareholders of Boyd Coughlan Limited ("the BCL
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
235,742 ordinary shares in Mattioli Woods during the two years
ending 23 June 2017; and
-- 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 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 three share schemes under which options to
subscribe for the Company's shares have been granted to certain
executives and senior employees.
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
Merger Equity - share based Capital redemption
Share premium Reserve payments reserve Retained earnings
Group GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- ---------------- --------- --------------------- ---------------------- ------------------
At 1 June 2014 8,001 4,040 1,046 2,000 20,257
Reserve transfer - - (341) - 341
Share based payments - - 256 - -
Shares issued under 508 - - - -
the SIP
Shares issued as - 798 - - -
deferred
consideration for TWM
Shares issued on 180 - - - -
exercise of options
Deferred tax - - 2 - -
recognised in equity
Profit for the
financial year - - - - 4,022
Dividends paid - - - - (1,881)
Current tax charge - - 34 - -
taken to equity
At 31 May 2015 8,689 4,838 997 2,000 22,739
Reserve transfer - - (161) - 161
Share based payments - - 596 - -
Shares issued under 594 - - - -
the SIP
Shares issued as - 3,693 - - -
initial consideration
for BCL and TPL
Shares issued on 613 - - - -
exercise of options
Costs of issuing new (693) - - - -
shares
Current tax taken to - - 149 - -
equity
Deferred tax taken to - - 61 - -
equity
Profit for the
financial year - - - - 5,245
Dividends paid - - - - (2,754)
New shares issued 18,562 - - - -
At 31 May 2016 27,765 8,531 1,642 2,000 25,391
---------------------- ---------------- --------- --------------------- ---------------------- ------------------
Merger Equity - share based Capital redemption
Share premium reserve payments reserve Retained earnings
Company GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- -------------- --------- --------------------- ---------------------- --------------------
At 1 June 2014 8,001 4,040 1,040 2,000 19,105
Reserve transfer - - (341) - 341
Share based payments - - 241 - -
Shares issued as - 798 - - -
deferred
consideration for TWM
Shares issued under 508 - - - -
the SIP
Shares issued on 180 - - - -
exercise of options
Deferred tax - - 2 - -
recognised in equity
Profit for the
financial year - - - - 2,483
Dividends paid - - - - (1,881)
Current tax charge - - 34 - -
taken to equity
At 31 May 2015 8,689 4,838 976 2,000 20,048
Reserve transfer - - (140) - 140
Share based payments - - 596 - -
Shares issued as - 3,693 - - -
initial consideration
for BCL and TPL
Shares issued under 594 - - - -
the SIP
Shares issued on 613 - - - -
exercise of options
Deferred tax - - 61 - -
recognised in equity
Profit for the
financial year - - - - 5,053
Dividends paid - - - - (2,754)
Current tax charge - - 149 - -
taken to equity
Costs of issuing new (693) - - - -
shares
New shares issued 18,562 - - - -
At 31 May 2016 27,765 8,531 1,642 2,000 22,487
---------------------- -------------- --------- --------------------- ---------------------- --------------------
The company has issued options to subscribe for the Company's
shares under three employee share schemes. 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.
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 The fair value of equity instruments
payments granted by the Company in
respect of share based payment
transactions.
Retained earnings All other net gains and losses
and transactions with owners
(e.g. dividends) not recognised
elsewhere.
12. Financial liabilities and provisions
Employers' LTIP
NIC on cash
Contingent Client share Onerous liability
consideration claims Dilapidations Clawbacks options contracts GBP000 Other Total
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- --------
At 1 June
2015 1,446 345 285 294 316 61 484 118 3,349
Unwinding of
discount 436 - - - - - 23 - 459
Arising
during the
year 5,269 375 65 - 308 56 756 - 6,829
Acquisitions
(Note 3) - 75 63 14 - 35 - 18 205
Paid during
the year (1,136) (263) - - - - - - (1,399)
Unused
amounts
reversed (215) - - - - - - (136) (351)
At 31 May
2016 5,800 532 413 308 624 152 1,263 - 9,092
-------------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- --------
Current 2015 138 345 - 294 - 61 - 118 956
Non-current
2015 1,308 - 285 - 316 - 484 - 2,393
At 31 May
2015 1,446 345 285 294 316 61 484 118 3,349
-------------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- --------
Current 2016 2,299 532 63 308 - 152 - - 3,354
Non-current
2016 3,501 - 350 - 624 - 1,263 - 5,738
At 31 May
2016 5,800 532 413 308 624 152 1,263 - 9,092
-------------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- --------
Employers'
NIC on LTIP
Loan Contingent Client share Onerous cash
notes consideration claims Dilapidations Clawbacks options contracts liability Other Total
Company GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- --------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- ---------
At 1 June
2015 18,802 1,446 345 285 294 316 61 484 118 22,151
Unwinding of
discount - 436 - - - - - 23 - 459
Arising
during the
year - 5,269 375 65 - 308 57 756 - 6,831
Waiver of
loan notes (18,802) - - - - - - - - (18,802)
Paid during
the year - (1,136) (263) - - - - - - (1,399)
Unused
amounts
reversed - (215) - - - - - - (118) (333)
At 31 May
2016 - 5,800 457 350 294 624 118 1,263 - 8,906
------------- --------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- ---------
Current 2015 - 138 345 - 294 - 61 - 118 956
Non-current
2015 18,802 1,308 - 285 - 316 - 484 - 21,195
At 31 May
2015 18,802 1,446 345 285 294 316 61 484 118 22,151
------------- --------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- ---------
Current 2016 - 2,299 457 - 294 - 118 - - 3,168
Non-current
2016 - 3,501 - 350 - 624 - 1,263 - 5,738
At 31 May
2016 - 5,800 457 350 294 624 118 1,263 - 8,906
------------- --------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- ---------
Loan notes due to subsidiary undertakings
During the prior year the trade and assets of City Pensions
Limited, Thoroughbred Wealth Management Limited, Atkinson Bolton
Consulting Limited and Kudos Financial Services Limited were
transferred to the Company in exchange for loan notes attracting
annual interest on the outstanding principal at a rate of 3% above
the Bank of England base rate.
On 30 November 2015 the loan notes were waived and the capital
and reserves in City Pensions Limited, Thoroughbred Wealth
Management Limited, Atkinson Bolton Consulting Limited and Kudos
Financial Services Limited were reduced to GBP1.
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 GBP2.3m (2015: GBP0.1m).
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
The Group acquired onerous contracts for the provision of
certain IT systems on the acquisition of Ashcourt Rowan's pension
business and on the acquisition of UKWM Pensions. Management has
assessed the expected benefits and costs associated with these
contracts and concluded that the costs of the obligation exceed the
benefits to the extent that it is appropriate to provide against
these contracts in full.
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.
Other
Prior to the Group's acquisitions of Ashcourt Rowan's pension
business and UKWM Pensions, employees of the businesses to be
acquired had been notified that the businesses were to be
restructured, creating a potential liability for certain
employee-related costs. Post-acquisition the Group became liable
for those employee-related costs relating to each restructuring,
which have now been paid in full.
13. 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 Head Office,
MW House, has a duration of 20 years, from 10 June 2005. The amount
of annual rental is to be reviewed at three-yearly intervals. The
first lease for part of the ground floor of Gateway House (an
office building adjacent to MW House) has 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 also entered into commercial leases for
its premises at:
-- 8 Queens Terrace, Aberdeen, which expires 31 May 2023. The annual rental is GBP147,000;
-- Cheveley House, Fordham Road, Newmarket, which expires on 24
December 2023, with next break clause of 24 December 2018. The
annual rental is GBP115,500;
-- Lanson House, Winckley Gardens, Mount Street, Preston, which
expires on 31 July 2022. The annual rental is GBP62,000; and
-- Investment House, 22-26 Celtic Court, Ballmoor, Buckingham,
which expires on 11 April 2017. The annual rental is GBP20,000.
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
2016 2015 2016 2016
Group GBP000 GBP000 GBP000 GBP000
--------------------------------------------- --------- -------- ---------- ---------
Not later than one year 2 7 706 634
After one year but not more than five years 2 8 1,724 1,635
More than five years - - 1,130 1,390
4 15 3,560 3,659
--------------------------------------------- --------- -------- ---------- ---------
Office equipment Land and buildings
2016 2015 2016 2015
Company GBP000 GBP000 GBP000 GBP000
--------------------------------------------- --------- -------- ---------- ---------
Not later than one year 2 7 627 634
After one year but not more than five years 2 8 1,476 1,635
More than five years - - 1,057 1,390
4 15 3,160 3,659
--------------------------------------------- --------- -------- ---------- ---------
Group operating lease charges during the year were GBP797,604
(2015: GBP820,939) for land and buildings and GBP5,685 (2015:
GBP14,632) for office equipment.
Capital commitments
At 31 May 2016 the Group had capital commitments amounting to
GBP14.0m (2015: GBP0.1m). In August 2015, Mattioli Woods (New Walk)
Limited ("MW New Walk") entered into a development agreement with
Ingleby (1245) Limited ("Ingleby"), a company owned and controlled
by Sowden Group Limited ("Sowden") to build a new 50,000 square
foot office on the site of the former Leicester City Council
("LCC") headquarters at New Walk, Leicester.
The expected expenditure for the development is circa GBP15.0m
including fit out costs and irrecoverable VAT, which will be funded
through a combination of existing cash resources, bank funding and
future operating cashflows. Construction commenced in May 2016,
with construction scheduled to complete in late 2017 for occupancy
in 2018.
Initial development costs are expected to reduce budgeted profit
after tax by circa GBP0.10m in the current financial year, with
further reductions of circa GBP0.40m and GBP0.20m in the following
two years respectively.
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 12).
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 has
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. No provision has been made in these financial statements
for any FSCS interim levy in the year ended 31 May 2016.
14. Events after the reporting date
Taxation
The UK Government has announced tax changes which will have a
significant effect on the Group's future tax position. The rate of
corporation tax reduced from 21% to 20% from 1 April 2015 and the
summer budget of 8 July 2015 announced further reductions to 19% in
April 2017 and then 18% from April 2020. These rate changes will
affect the amount of future cash tax payments to be made by the
Group and will also reduce the size of deferred tax assets and
liabilities in the Group's statement of financial position.
Group re-organisation
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.
Acquisition of MC Trustees
On 7 September 2016, Mattioli Woods plc acquired the entire
issued share capital of Old Station Road Holdings Limited and its
subsidiaries (together "MC Trustees") from its shareholder ("the
Seller") for a total consideration of up to GBP2.2m.
MC Trustees was founded in 1986 and provides pension
administration and trustee services to over 1,500 SIPP and SSAS
clients with over GBP400m of assets under administration. Based in
Hampton-in-Arden in the West Midlands and employing 26 staff, the
business specialises in the provision of personal service and
strong technical advice. MC Trustees' experienced management team
will be retained by Mattioli Woods following the acquisition, which
is expected to be earnings enhancing in the first full year of
ownership.
In the year ended 31 December 2015, MC Trustees generated a
profit before taxation of GBP0.4m on revenues of GBP1.6m. At 31
December 2015 MC Trustees' net assets were GBP0.3m.
The total consideration comprises:
-- An initial consideration of GBP1.2m (subject to adjustment
for the value of net assets acquired), comprising GBP0.95m in cash
plus 38,081 new ordinary shares of 1 pence each in Mattioli Woods
("the Consideration Shares"), which are valued at GBP0.25m based on
the closing price of a Mattioli Woods share on 7 September 2016;
and
-- Deferred consideration of up to GBP1.0m payable in cash in
the two years following completion, subject to certain financial
targets being met based on growth in earnings before interest, tax,
depreciation and amortisation generated during that period.
Payment of the initial cash consideration, deal costs and
estimated net asset adjustment resulted in a cash outflow at
completion of GBP1.38m.
Application has been made to AIM for the admission of the
Consideration Shares to trading ("Admission"). Admission of the
Consideration Shares, which will rank parri passu in all respects
with Mattioli Woods' existing shares in issue, is expected to
become effective on 14 September 2016.
The Seller has entered into a lock-in deed with Mattioli Woods
and its nominated adviser and broker, Canaccord Genuity Limited,
restricting sales of the Consideration Shares during the two years
following completion.
In addition to the acquisition of MC Trustees, the Company has
reached agreement in principle, subject to contract, to acquire MC
Holdings (Malta) Limited and its subsidiary (together "MC Malta")
for a total consideration of up to GBP0.6m payable partly in cash
and partly through the issue of new Ordinary Shares. MC Malta
operates Qualifying Recognised Overseas Pension Schemes ("QROPS"),
providing pension arrangements suitable for expatriates from the UK
or people who have earned a pension in the UK and now live
abroad.
The acquisition of MC Malta is subject to agreement of legally
binding documentation and will be conditional upon approval of the
proposed transaction by the Malta Financial Services Authority.
Due to the proximity of the date of acquisition of MC Trustees
to the date of announcement of the Group's final results for the
year ended 31 May 2016, the Directors are unable to provide the
disclosure requirements of IFRS3 relating to acquisitions after the
end of the reporting period but before the financial statements are
authorised for issue.
15. Distribution of the annual report and accounts to
members
The announcement set out above does not constitute a full
financial statement of the Group's affairs for the year ended 31
May 2015 or 2016. The Group's auditors have reported on the full
accounts of each year and have accompanied them with an unqualified
report. The accounts have yet to be delivered to the Registrar of
Companies.
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 head 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.
The Company's annual general meeting will take place on 25
October 2016 at the Group's head office.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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