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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Mattioli Woods Plc | LSE:MTW | London | Ordinary Share | GB00B0MT3Y97 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 792.00 | 790.00 | 794.00 | 792.00 | 792.00 | 792.00 | 22,201 | 07:37:29 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | 111.18M | 7.65M | 0.1474 | 53.73 | 411.14M |
From Apr 2019 to Apr 2024
TIDMMTW
RNS Number : 6408Z
Mattioli Woods PLC
04 September 2018
4 September 2018
Mattioli Woods plc
("Mattioli Woods", "the Company" or "the Group")
Final results
Mattioli Woods plc (AIM: MTW.L), the specialist wealth management and employee benefits business, today reports its final results for the year ended 31 May 2018.
Financial highlights
-- Revenue up 16.2% to GBP58.7m (2017: GBP50.5m) -- Organic revenue growth(1) of 15.6% (2017: 11.6%) -- Recurring revenues(2) of 84.8% (2017: 85.1%) -- EBITDA(3) up 22.1% to GBP12.7m (2017: GBP10.4m):
- EBITDA margin of 21.6% (2017: 20.6%)
-- Adjusted EBITDA(4) up 15.7% to GBP12.5m (2017: GBP10.8m):
- Adjusted EBITDA margin of 21.3% (2017: 21.4%)
-- Profit before tax up 27.3% to GBP9.8m (2017: GBP7.7m) -- Basic EPS up 27.3% to 31.2p (2017: 24.5p) -- Adjusted EPS(5) up 11.1% to 37.0p (2017: 33.3p) -- Proposed total dividend up 20.6% to 17.0p (2017: 14.1p) -- Strong financial position with net cash(6) of GBP20.2m (2017: GBP23.0m)
1. Excluding acquisitions completed in the current and prior financial years.
2. Annual pension consultancy and administration fees; ongoing adviser charges; level and renewal commissions; banking income; property, discretionary portfolio and other annual management charges.
3. Earnings before interest, taxation, depreciation, amortisation and impairment, excluding share of profit from associates.
4. Earnings before interest, taxation, depreciation, amortisation, impairment, changes in valuation of derivative financial instruments and acquisition-related costs, including share of profit from associates (net of tax).
5. Before acquisition-related costs, amortisation and impairment of acquired intangibles, changes in valuation
of derivative financial instruments and notional finance income and charges.
6. Excluding GBP3.5m of VAT reclaimed on behalf of and to be repaid to clients.
Operational highlights and recent developments
-- Reducing client costs while maintaining target EBITDA margin -- Total client assets(7) up 10.1% to GBP8.73bn (2017: GBP7.93bn):
- Lowered custody charges for all clients using our core investment platform
- Gross discretionary AuM up 29.3% to GBP2.34bn (2017: GBP1.81bn)
- GBP115.4m (2017: GBP98.4m) inflows into the Mattioli Woods Structured Products Fund
- GBP103.8m inflows into Amati funds
- GBP49.1m (2017: GBP76.0m) of new equity raised by Custodian REIT
-- Over 1,300 (2017: 1,200) new clients chose the Group's services in year -- 134 (2017: 115) consultants at year end -- Recent acquisitions performing well -- Extending strategic geographic footprint:
- Moved to new Manchester office in May 2018
- Opening new Edinburgh office in September 2018
- Moving to new Leicester office in October 2018
-- Continued investment in technology, compliance and training
7. Includes GBP286.0m (2017: GBP153.8m) of funds under management by the Group's associate, Amati Global Investors Limited, excluding GBP27.0m (2017: GBP12.1m) of Mattioli Woods' client investment and GBP12.1m (2017: GBP9.8m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.
Commenting on the results, Ian Mattioli MBE, Chief Executive Officer, said:
"I am pleased to report another year of strong and sustainable growth, with revenue up 16.2% to GBP58.7m (2017: GBP50.5m). Organic revenue growth of 15.6% or GBP7.7m (2017: 11.6% or GBP4.4m) was primarily driven by the flow of new business generated by our consultancy team, with over 1,300 new SIPP, SSAS and personal clients choosing Mattioli Woods during the year.
"Strong growth in revenue translated into strong growth in Adjusted EPS, up 11.1% to 37.0p (2017: 33.3p). Accordingly, the Board is pleased to recommend the payment of an increased final dividend of 11.5 pence per share (2017: 9.4 pence). This makes a proposed total dividend for the year of 17.0 pence (2017: 14.1 pence), a year-on-year increase of 20.6% (2017: 12.8%), demonstrating our desire to deliver value to shareholders and confidence in the outlook for our business.
"Recent acquisitions and investments continue to perform well. Organic growth was supplemented by full-year revenues of GBP1.7m (2017: GBP1.2m) from the MC Trustees pension administration business acquired in September 2016 and our share of profits from Amati increased to GBP0.2m (2017: GBP0.1m). Amati has enjoyed strong growth in gross assets under management, which increased from GBP175.7m at the start of the year to GBP325.1m at the year end.
"Last month we announced the acquisition of Broughtons Financial Planning, which has a similar culture to Mattioli Woods and gives us new opportunities to grow and develop the client offering of the combined business. With increasing complexity and continuing consolidation across the key markets in which we operate, we expect there will be further opportunities to accelerate our growth by acquisition.
"We continue to invest in the Group as we look to build upon our success to date. I am delighted with the performance of our business over the last financial year and believe we are well-positioned to progress further towards the ambitious longer-term goals we have set."
For further information please contact:
Hot Features
Premium
Mattioli Woods plc
Ian Mattioli MBE, Chief Executive
Officer
Nathan Imlach, Chief Financial Tel: +44 (0) 116 240 8700
Officer
www.mattioliwoods.com
Canaccord Genuity Limited
Sunil Duggal
David Tyrrell Tel: +44 (0) 20 7523 8000
Emma Gabriel www.canaccordgenuity.com
Media enquiries:
Camarco
Ed Gascoigne-Pees Tel: +44 (0) 20 3757 4984
www.camarco.com
Analyst presentation
There will be an analyst presentation to discuss the results at 09:30am today at Canaccord Genuity Limited, 88 Wood Street, London, EC2V 7QR.
Those analysts wishing to attend are asked to contact Ed Gascoigne-Pees at Camarco on +44 (0) 20 3757 4984 or at ed.gascoigne-pees@camarco.co.uk.
Chairman's statement
Another year of growth
I am pleased to report another successful year of growth for Mattioli Woods, with a strong flow of organic new business from individuals and corporates choosing to use the range of specialist services we provide, coupled with continued demand for advice from existing clients. Revenue growth of 16.2% on the prior year translated into growth in Adjusted EPS(8) of 11.1% to 37.0 pence (2017: 33.3 pence).
We are proud of the strong shareholder returns we have delivered over many years and remain committed to growing the dividend, while maintaining an appropriate level of dividend cover. Accordingly, the Board is pleased to recommend the payment of an increased final dividend of 11.5 pence per share (2017: 9.4 pence). This makes a proposed total dividend for the year of 17.0 pence (2017: 14.1 pence), a year-on-year increase of 20.6%.
Our aim is to create a long-term sustainable business of which our clients, shareholders, people and suppliers are proud to be a part and the Group's recent achievements have been recognised with a number of professional awards for individual and corporate achievements. I would like to congratulate Paul Jourdan on being named best UK Smaller Companies Fund Manager at the FE Alpha Manager of the Year Awards in May, Mark Fuller and Ben Wattam on the Mattioli Woods' Structured Products Fund being named Retail Investment Product of the Year at the Risk Awards 2018 and Ian Mattioli on winning CEO of the Year at the 2018 City of London Wealth Management Awards. Other achievements included the Group winning Apprenticeship Employer of the Year at the 2017 Leicester Apprenticeship Hub Graduation Ceremony.
8. Basic EPS up 27.3% to 31.2p (2017: 24.5p).
Our strategy
Previously, we have set out our ambitions to grow revenue to GBP100m and total client assets to GBP15bn, while maintaining an EBITDA margin of 20%. As we work towards these goals our strategy remains focused on the pursuit of organic growth, supplemented by strategic acquisitions that enhance value and broaden or deepen our expertise and services. Recent acquisitions are performing well and we were delighted to announce the acquisition of Broughtons Financial Planning last month. We continue to review a diverse pipeline of potential acquisition opportunities, believing further consolidation within our core markets remains likely.
Our focus remains on delivering great outcomes for our clients as we address their changing needs, with our ambition being to see our brand become an even stronger force in the UK financial services sector.
Our people
We are a business built on the integrity and expertise of our people. As an Investors in People company we are committed to developing our people and building the capacity to deliver sustainable growth. Over the past year our people have responded admirably as the business has evolved and the financial services industry continues to go through a period of unprecedented regulatory change, including the changes brought about by the Markets in Financial Instruments Directive II ("MiFID II"), the General Data Protection Regulation ("GDPR") and Packaged Retail and Insurance-Based Investment Products ("PRIIPs").
We are dedicated to maintaining our culture of putting clients first, encouraging a collegiate approach and preserving our integrity. I would like to thank all our staff for their continued commitment, enthusiasm and professionalism in dealing with our clients' affairs.
Governance and the board
During the year, as part of the Board's commitment to developing the corporate governance and management structures of the Group to ensure they continue to meet the changing needs of the business we undertook internal and external reviews of the effectiveness of the Board, its sub-committees and the Group's senior executive management framework. We created a new Senior Executive Team ("SET(GO) ") to execute the strategy determined by the Board, bringing together a senior team with responsibility for all our key operational areas.
As part of these changes, Mark Smith and Alan Fergusson stepped down from the Board in August 2017 to eliminate duplication between the Board and SET(GO) , ensuring clearer lines of responsibility within the management team and creating a balanced Board of three executive directors and three non-executive directors. We believe these changes give the business the optimal management structure to secure continued growth.
Shareholders
During the year we have engaged with shareholders through various channels, including company-hosted events, group meetings and one-to-one meetings. We are fortunate to have a number of supportive institutional shareholders with a significant investment in the Group and welcome opportunities to talk to all our shareholders, large and small. We will continue to maintain a regular and constructive dialogue with them, while seeking to broaden our shareholder base.
Outlook
We continue to invest in the Group as we look to build upon our success to date and grow our business both organically and through strategic acquisitions that share our culture and values. I am delighted with the performance of our business over the last financial year and believe we are well-positioned to progress further towards the ambitious longer-term goals we have set.
Joanne Lake
Chairman
3 September 2018
Chief Executive's review
Introduction
I am pleased to report another year of strong and sustainable growth, with revenue for the year ended 31 May 2018 up 16.2% to GBP58.7m (2017: GBP50.5m). Organic revenue growth of 15.6% or GBP7.7m (2017: 11.6% or GBP4.4m) was primarily driven by the flow of new business generated by our consultancy team, with over 1,300 new SIPP, SSAS and personal clients choosing Mattioli Woods during the year.
We continue to enjoy strong client retention and have seen sustained demand for advice from clients, driven by lifestyle, increasing longevity, tax and other legislative changes, including the pension freedoms that introduced more flexibility as to how and when people can access their pension savings.
Total client assets under management, administration and advice increased by over 10% to GBP8.73bn (2017: GBP7.93bn) and we continue to develop our investment and asset management proposition. Strong inflows of new money combined with positive investment performance to increase the Group's gross discretionary assets under management to GBP2.34bn (2017: GBP1.81bn) at the year end.
In meeting our clients' investment needs we generally use third parties' funds, but where we have the particular expertise required we look to meet those needs in-house. This approach has led to the development of our Private Investors Club, Custodian REIT plc ("Custodian REIT") and the Mattioli Woods Structured Products Fund, in addition to the funds managed by our associate company Amati Global Investors Limited ("Amati"). Where appropriate, we intend to expand upon these opportunities.
The value of assets held within our Discretionary Portfolio Management service increased by 17.5% to GBP1.34bn (2017: GBP1.14bn), of which GBP121.0m or 9.0% is invested within funds managed by the Group and its associates. We reduced the custody charge for all those clients using our core investment platform with effect from 1 August 2017, which coincided with the launch of our new range of multi asset funds designed to improve investment efficiency, administration and reporting for clients.
Prior to this, in June 2017 we renewed the terms of the Investment Management Agreement for Custodian REIT, the UK real estate investment trust managed by our subsidiary Custodian Capital, to secure both a cost reduction for investors and an important long-term revenue stream for the Group.
In addition to being manager of Custodian REIT, Custodian Capital facilitates direct property ownership on behalf of pension schemes and private clients and manages our Private Investors Club, which offers alternative investment opportunities to suitable clients by way of private investor syndicates. The value of Custodian Capital's assets under management increased to GBP0.54bn at the year end (2017: GBP0.45bn).
The Mattioli Woods' Structured Products Fund was named Retail Investment Product of the Year at the Risk Awards 2018, with the fund offering investors the benefits of collateralisation, instant diversification, continuous availability and liquidity. A combination of new client investment and money from maturing structured product plans increased the fund's value to GBP213.8m at 31 May 2018 (2017: GBP98.4m).
I believe securing economies of scale, such as rebates on fund managers' charges, and the benefits of operating our integrated model will allow us to further improve client outcomes and reduce clients' total expense ratios ("TERs"), while maintaining our target profit margin.
Recent acquisitions and investments continue to perform well. Organic growth was supplemented by full-year revenues of GBP1.7m (2017: GBP1.2m) from the MC Trustees pension administration business acquired in September 2016 and our share of profits from Amati increased to GBP0.2m (2017: GBP0.1m). We were delighted when Amati's Paul Jourdan was named best UK Smaller Companies Fund Manager at the FE Alpha Manager of the Year Awards in May. Paul is manager of the TB Amati UK Smaller Companies Fund, which won the UK Smaller Companies category at the Investment Week Fund Manager of the Year Awards last year. Amati has enjoyed strong growth in gross assets under management, which increased from GBP175.7m at the start of the year to GBP325.1m at the year end.
We are delighted to welcome Gary Bond and his experienced team into the Group following the acquisition of Broughtons Financial Planning Limited ("Broughtons") earlier this month. Broughtons adds a further 250 clients with over GBP120m of assets under advice and the transaction is expected to be earnings enhancing in the first full year of ownership.
Our success has been based upon the delivery of quality advice, growing our clients' assets and enhancing their financial outcomes. As the business grows, we will continue to develop new products and services so we can better deal with our clients' needs, using the best of what we have and what other providers can offer.
We have many challenges coming up, including further changes in regulation and legislation, moving to new offices in Leicester and the ongoing development of our technology infrastructure. The foundation of our success has been the development of our people and I am very proud of how we deal with our clients and how we interact between ourselves. I believe we have created a business our clients are proud to be a part of, our people feel proud to work for and is one that recognises and rewards talent and hard work.
Market overview
Mattioli Woods operates within the UK's financial services industry, which is subject to the effects of volatile markets and economic conditions. Our markets are highly fragmented and serviced by a wide range of suppliers offering diverse services to both individual and corporate clients. These markets remain highly competitive and in recent years we have seen changes in regulation, legislation and client needs as the demand for advice and the potential market for our products and services continue to grow. We continue to be proactive in relation to the opportunities this creates, with our specialists dedicated to keeping up with the pace of change.
Both MiFID II and the GDPR came into effect in the first half of this calendar year and we continue to prepare for other regulatory and legislative changes already in train, such as the Senior Managers and Certification Regime ("SM&CR").
The Financial Conduct Authority ("FCA") recently published proposals in response to the findings of its Retirement Outcomes Review ("ROR"), which are designed to help people think about their drawdown choices earlier, create investment pathways to help them with their choices and make costs and charges easier to understand, including the possible introduction of a charge cap. I believe our advice-led model, integrating administration and investment management, is aligned with the regulator's proposals and positions us well to continue reducing client costs and deliver improved client outcomes.
The ROR and the latest consultation are part of a wider package of FCA activity covering the pensions and retirement income sectors, including work on defined benefit pension transfers. As previously reported, following consideration of the increasing costs of professional indemnity insurance, additional regulatory controls and the resources we would have to dedicate to this small part of our business, we have stopped giving pension transfer advice to individuals with safeguarded or defined benefits. The impact of this decision on the Group's financial performance is not expected to be material, with pension transfer advice to individuals with safeguarded benefits contributing approximately 1.6% of direct revenues for the year, and less to profit given the significant compliance costs associated with this activity.
The Financial Advice Market Review ("FAMR") published by the FCA and HM Treasury in March 2016 made a series of recommendations designed to tackle barriers to consumers engaging with financial advice and help the profession develop more cost-effective ways of delivering advice, particularly through the use of technology, while the FCA's recent review of the asset management market and interim report on its investment platform market study published in July this year both highlight concerns over pricing.
We continue to invest in the development of our IT platform and anticipate that the adoption of innovative technology may drive some margin compression in the wider market. Although development of the Group's technology infrastructure has taken longer than we initially anticipated, the costs of this development remain in line with our original expectations. Investing in technology, while securing the economies of scale and operational efficiencies that we have previously outlined are key elements of our stated aim to reduce clients' TERs, while maintaining fair and sustainable profits for our shareholders.
Our industry is experiencing a period of significant regulatory change. The fair treatment of clients is at the core of all that we do and we will further invest in our regulatory and compliance capabilities to ensure we can continue to deliver great client outcomes.
Our services
Our core pension and wealth management offering serves the higher end of the market, including controlling directors and owner-managed businesses, professionals, executives and retirees. Our broad range of employee benefit services is targeted towards medium-sized and larger corporates. The Group has developed a broader wealth management proposition in recent years, grown from its strong pensions advisory and administration expertise. The mix of income derived from the Group's four key revenue streams changed slightly during the year, summarised as follows:
-- 42.7% investment and asset management (2017: 41.6%); -- 37.1% pension consultancy and administration (2017: 37.4%); -- 10.1% employee benefits (2017: 10.7%); and -- 10.1% property management (2017: 10.3%).
We aim to operate a seamless structure, allowing us to cover all aspects of wealth management and employee benefits, without confusing strategy for individual service lines, such as our advice-led SSAS and SIPP proposition.
Assets under management, administration and advice
Total client assets under management, administration and advice increased by 10.1% to GBP8.73bn at 31 May 2018 (2017: GBP7.93bn) as follows:
Assets under management, Personal wealth and administration and SIPP and SSAS(10) Employee benefits other assets Sub-total Amati(11) Total advice(9) GBPm GBPm GBPm GBPm GBPm GBPm --------------------- ------------------ ------------------ --------------------- ---------- ---------- -------- At 1 June 2017 5,031.3 1,102.3 1,638.1 7,771.7 153.8 7,925.5 Net inflow, including market movements 454.6 135.6 81.3 671.5 132.2 803.7 At 31 May 2018 5,485.9 1,237.9 1,719.4 8,443.2 286.0 8,729.2 --------------------- ------------------ ------------------ --------------------- ---------- ---------- --------
9. Certain pension scheme assets, including clients' own commercial properties, are only subject to a statutory valuation at a benefit crystallisation event.
10. Value of funds under trusteeship in SIPP and SSAS schemes administered by Mattioli Woods and its subsidiaries.
11. Assets under management of GBP286.0m (2017: GBP153.8m) excludes GBP27.0m (2017: GBP12.1m) of Mattioli Woods' client investment included within SIPP and SSAS, employee benefits and personal wealth and other assets and excludes GBP12.1m (2017: GBP9.8m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.
The growth in total assets under management, administration and advice of GBP803.7m during the year is analysed as follows:
-- An increase of GBP454.6m in SIPP and SSAS funds under trusteeship, with net organic growth of 5.1% in the number of schemes being administered at the year end, comprising a 13.5% (2017: 11.8%) increase in the number of direct(12) schemes to 5,834 (2017: 5,140) and a 3.7% decrease (2017: 1.6% increase) in the number of schemes the Group operates on an administration-only basis to 4,699 (2017: 4,881). In recent years we have been appointed to operate or wind-up a number of SIPP portfolios following the failure of their previous operators, with lost schemes including the transfer of certain members of these distressed portfolios to more appropriate arrangements;
-- An GBP135.6m increase in the value of assets held in the corporate pension schemes advised by our employee benefits business, although revenues in our employee benefits business are not linked to the value of client assets in the way certain of our wealth management revenue streams are;
-- An GBP81.3m increase in personal wealth and other assets under management and advice, with the 291 (2017: 350) new personal clients won during the year driving a 3.4% increase in the total number of personal clients to 4,925 (2017: 4,763); and
-- An GBP132.2m increase in Amati's funds under management (excluding Mattioli Woods' client investments), primarily through the growth of the TB Amati UK Smaller Companies Fund to GBP166.3m (31 May 2017: GBP69.3m) at 31 May 2018.
We extended our asset management business through our purchase of 49% of Amati in February 2017, an award-winning specialist fund management business based in Edinburgh, focusing on UK small and mid-sized companies. Amati is the manager of the TB Amati UK Smaller Companies Fund; Amati AIM VCT plc and an AIM IHT portfolio service.
12. SIPP and SSAS schemes where the Group acts as pension consultant and administrator.
Key performance indicators
The directors consider the key performance indicators ("KPIs") for the Group are as follows:
Strategy/objective Performance indicator Further explanation
---------------------------- ----------------------------------- --------------------------------
Organic growth Revenue - total income (excluding See 'Introduction'.
and growth by acquisition VAT) from all revenue streams.
---------------------------- ----------------------------------- --------------------------------
Operating efficiency Adjusted EBITDA margin - See 'Profit for the
profit generated from the year and earnings per
Group's operating activities share'.
before financing income
or costs, taxation, depreciation,
amortisation, impairment,
changes in valuation of
derivative financial instruments
and acquisition-related
costs, including share of
profit from associates (net
of tax), divided by revenue.
---------------------------- ----------------------------------- --------------------------------
Shareholder value Adjusted Earnings Per Share See 'Profit for the
and financial performance ("EPS") - total comprehensive year and earnings per
income for the year, net share'.
of taxation, attributable
to equity holders of the
Company, adjusted to add
back acquisition-related
costs, gain on revaluation
of derivative financial
assets, notional finance
charges on the unwinding
of discounts on long--term
provisions and the amortisation
of acquired intangible assets,
divided by the weighted
average number of ordinary
shares in issue.
---------------------------- ----------------------------------- --------------------------------
Growth in the value Assets under management, See 'Assets under management,
of assets under administration and advice administration and advice'.
management, administration - the value of all client
and advice assets the business gives
advice upon, manages or
administers.
---------------------------- ----------------------------------- --------------------------------
Excellent client Client loss rate - the number See 'Segmental review'.
service and retention of direct SSAS and SIPP
schemes lost as a result
of death, annuity purchase,
external transfer or cancellation
as a percentage of average
scheme numbers during the
period).
---------------------------- ----------------------------------- --------------------------------
Financial stability Debtors' days - this is See 'Cash flow'.
the average number of days'
sales outstanding in trade
receivables at any time.
---------------------------- ----------------------------------- --------------------------------
Financial stability Surplus on regulatory capital At 31 May 2018 the total
requirement - this is the regulatory capital requirement
aggregate surplus on the across the Group was
total regulatory capital GBP10.9m (2017: GBP10.0m)
requirement of the Group. and the Group had an
aggregate surplus(13)
of GBP18.8m (2017: GBP13.4m)
across all regulated
entities.
---------------------------- ----------------------------------- --------------------------------
13. Including shares issued during the year and admitted to Core Equity Tier 1 capital following the year end, proposed final dividend and retained earnings for the year.
Financial performance and future developments
Revenue
Total Group revenue was up 16.2% to GBP58.7m (2017: GBP50.5m), with sustained demand for the Group's services reflected by revenue growth across each of the Group's operating segments, as explained in more detail below.
Employee benefits expense
As in previous years, the major component of the Group's operating costs is our employee benefits expense of GBP32.1m (2017: GBP28.7m) representing 54.7% of revenue (2017: 56.8%). During the year we saw an increase in the average number of employees from 553 to 618. We continue to invest in our IT systems, compliance and training across all parts of the Group, with the aim of delivering further operational efficiencies and benefiting from further economies of scale.
Other administrative expenses
Other administrative expenses increased to GBP12.3m (2017: GBP9.5m), primarily due to additional costs associated with the impending move from the Group's existing offices at Grove Park to a new office in the centre of Leicester, increased IT costs as a result of moving to a hosted infrastructure, changes in revenue mix increasing irrecoverable VAT and various other costs increasing in line with headcount.
Share based payments
Share based payments costs fell to GBP1.5m (2017: GBP1.9m) following the settlement of all outstanding cash-settled options during the period, with strong share price growth having increased the costs associated with these options in the prior year.
Net finance costs
The Group has maintained a positive net cash position throughout the year, with net finance costs of GBP0.1m (2017: GBP0.2m) reflecting the impact of GBP0.2m (2017: GBP0.3m) of notional finance charges on the unwinding of discounts on long--term provisions.
Taxation
The effective rate of taxation on profit on ordinary activities was 16.2% (2017: 16.9%), below the standard rate of tax, primarily due to research and development relief claimed for the two years ended 31 May 2017, with a lower effective rate in the equivalent period last year resulting from the reversal of deferred tax liabilities on acquired intangibles following cuts in the UK corporation tax rate. The net deferred taxation liability carried forward at 31 May 2018 was GBP2.8m (2017: GBP2.8m).
Profit for the year and earnings per share
Strong growth in revenue translated into strong growth in EBITDA, up 22.1% to GBP12.7m (2017: GBP10.4m), with EBITDA margin of 21.6% (2017: 20.6%) despite further investment in the infrastructure and sustainability of our business.
Adjusted EBITDA, adjusted profit after tax and adjusted EPS are non-GAAP alternative performance measures, considered by the Board to be a better reflection of true business performance than looking at the Group's results on a statutory basis only. These measures are widely used by research analysts covering the Company.
Adjusted EBITDA(14) increased 15.7% to GBP12.5m (2017: GBP10.8m), while adjusted EBITDA margin was 21.3% (2017: 21.4%). To facilitate a like-for-like comparison with prior years a gain of GBP0.5m (2017: GBP0.1m) on revaluation of the Amati option, GBP0.2m (2017: GBP0.3m) of notional finance costs on the unwinding of discounts on long term provisions and acquisition-related costs of GBP0.1m (2017: GBP0.4m) have been added back in calculating adjusted EBITDA, with amortisation of acquired intangibles added back in the calculation of adjusted profit after tax ("PAT") and adjusted EPS, which are reconciled to the statutory figures as follows:
Profit EPS Profit EPS
2018 2018 2017 2017
GBPm pps GBPm pps
-------------------------------------- ------- ------ ------- ------
Statutory profit before tax 9.8 37.2 7.7 29.5
Income tax expense (1.6) (6.0) (1.3) (5.0)
Statutory PAT / Basic EPS 8.2 31.2 6.4 24.5
Amortisation on acquired intangibles 1.7 6.7 1.7 6.7
Gain on revaluation of Amati
option (0.5) (2.0) (0.1) (0.4)
Notional finance costs 0.2 0.6 0.3 1.0
Acquisition-related costs 0.1 0.5 0.4 1.5
Adjusted PAT / Adjusted EPS 9.7 37.0 8.7 33.3
-------------------------------------- ------- ------ ------- ------
As explained in Note 9, client portfolios acquired through business combinations are recognised as intangible assets. The total amortisation charge for the year of GBP1.7m (2017: GBP1.7m) associated with these intangible assets has been excluded from adjusted PAT and adjusted EPS as the directors consider these costs can distort the results of a particular period.
Adjusted EPS(15) increased 11.1% to 37.0p (2017: 33.3p), while basic EPS was up 27.3% to 31.2p (2017: 24.5p), with growth in operating profits stated after recognising a gain on revaluation of the Amati option, notional finance costs and acquisition-related costs.
Diluted EPS increased 27.5% to 31.1p (2017: 24.4p), with the exercise of 256,686 options issued under the Company's share option plans during the year.
14. Earnings before interest, taxation, depreciation, amortisation, impairment, changes in valuation of derivative financial instruments and acquisition-related costs, including share of profit from associates (net of tax).
15. Before acquisition-related costs, amortisation and impairment of acquired intangibles, changes in valuation of derivative financial instruments and notional finance costs.
Dividends
The Board is pleased to recommend the payment of an increased final dividend of 11.5 pence per share (2017: 9.4 pence). This makes a proposed total dividend for the year of 17.0 pence (2017: 14.1 pence), a year-on-year increase of 20.6% (2017: 12.8%), demonstrating our desire to deliver value to shareholders and confidence in the outlook for our business. The Board remains committed to growing the dividend, while maintaining an appropriate level of dividend cover. If approved, the final dividend will be paid on 26 October 2018 to shareholders on the register at the close of business on 21 September 2018, having an ex-dividend date of 20 September 2018.
The Company offers shareholders the option to invest their dividends in a Dividend Reinvestment Plan ("DRIP"). The DRIP is administered by the Company's registrar, Link Asset Services ("Link"), which uses cash dividend payments to which participants in the DRIP are entitled to purchase shares in the market, which means the Company does not need to issue new shares and avoids diluting existing shareholdings.
For the DRIP to apply to the proposed final dividend for the year ended 31 May 2018, shareholders' instructions must be received by Link by 5 October 2018.
Cash flow
Cash generated from operations increased to GBP18.2m or 143% of EBITDA (2017: GBP10.4m or 100%), with an improved cash conversion ratio despite a slight fall in the Group's operating profit margin before changes in working capital and provisions to 23.3% (2017: 24.3%).
The Group's working capital requirement fell by GBP4.5m (2017: increase of GBP1.8m) following the receipt of a further GBP3.3m of VAT reclaimed on behalf of clients prior to the year end and improved credit control, with the decrease in working capital comprising:
-- GBP5.1m (2017: GBP1.8m) increase in trade and other payables, primarily due to:
- GBP3.3m increase in other payables due to VAT reclaims received on behalf of clients, which were repaid to clients following the year end;
- GBP1.3m increase in accruals and deferred income, with a GBP1.0m increase in accrued staff bonuses following another successful year, a change to the timing of directors' bonus payments and increased headcount across the Group;
- GBP0.3m increase in other trade payables due to the timing of stage payments payable on the fit-out of the Group's new office in Leicester; and
- GBP0.1m increase in social security and other taxes outstanding at the year end.
-- GBP1.0m (2017: GBP2.0m) increase in trade and other receivables (excluding a GBP0.3m increase in loans advanced to investment syndicates) following further growth in our direct pension business (where fees are typically invoiced six months in arrears), with the higher value of clients' assets under management and advice increasing accrued income in our investment and asset management business; and
-- GBP0.4m increase (2017: GBP1.5m decrease) in provisions, with the recognition of additional costs associated with exiting the Group's existing premises in Leicester offsetting the settlement of contingent deferred consideration on acquisitions and cash-settled LTIP awards during the year.
Cash balances at 31 May 2018 totalled GBP23.7m (2017: GBP23.0m), with GBP3.5m (2017: GBP2.3m) of contingent deferred consideration on historic acquisitions paid during the year and a total of GBP3.5m of client VAT reclaims to be repaid following the year end.
Outstanding trade receivables fell to 32 days' sales (2017: 40 days), with an increase in investment and asset management revenues and a continued focus on credit control, while trade payables reduced to 24 days' purchases (2017: 52 days).
Capital expenditure of GBP8.8m (2017: GBP8.8m) was in line with expected spend, with the most significant cash outflows being GBP7.0m incurred on the development of the Group's new offices in Leicester, GBP1.2m investment in new computer hardware, software and office equipment and GBP0.5m on the purchase of new company cars following further expansion of the consultancy team.
Investment in the Group's infrastructure continues as we progress the implementation of our hosted IT architecture, which offers enhanced data security, business continuity and scalability for future growth. Our Manchester office moved to a new central city location to accommodate our expanding team in May and we have also agreed terms to move into a new Edinburgh office, which will house both Mattioli Woods' consultants and the Amati team.
The move to our new Leicester premises is scheduled to commence this month. We are delighted that construction of the 50,000 sq ft office was completed to our specification and at the budgeted total cost of GBP12.4m, with the subsequent fit-out of the new site currently running slightly ahead of schedule and in line with expected total costs of GBP1.6m. This development enables the Group to maintain its regulatory capital whilst efficiently using its surplus cash not available for distribution to shareholders. In addition, we will benefit from future rental savings of GBP0.85m per annum and a more flexible working environment, which will allow us to continue to grow the business and realise further operational efficiencies. The bespoke infrastructure of our new building will assist us to ensure our client services continue to be first class.
Bank facilities
The Group does not have an overdraft facility due to the headroom the Group's current cash balances provide on its working capital requirements. Management will continue to review the level of bank facilities the Group may require going forward.
Capital structure
The Group's capital structure is as follows:
2018 2017
GBP000 GBP000
------------------------------ --------- ---------
Cash and short-term deposits (23,668) (22,979)
Shareholders' equity 78,950 72,595
Capital employed 55,282 49,616
------------------------------ --------- ---------
The Group continues to maintain a net cash position, with net cash balances increasing to GBP23.7m (2017: GBP23.0m).
Regulatory capital
The Board considers it prudent for the Group to target headroom of circa 25% over the FCA regulatory capital requirement. The Group's regulatory capital requirement has increased in recent years, and in addition its capital is eroded when it makes acquisitions due to the requirement for intangible assets arising on acquisition to be deducted from Tier 1 Capital.
The Group continues to enjoy significant headroom on its increased regulatory capital requirement allowing us to pursue further acquisition opportunities.
Segmental review
Investment and asset management
Investment and asset management revenues generated from advising clients on both pension and personal investments increased 19.5% to GBP25.1m (2017: GBP21.0m), representing 42.7% (2017: 41.6%) of total Group revenues.
The Group's gross discretionary assets under management ("AuM"), including the multi asset funds which now sit at the heart of our discretionary portfolio management service ("DPM"), Custodian REIT, the Mattioli Woods Structured Products Fund ("MW SPF") and the funds managed by our associate company, Amati, increased by 29.3% to GBP2.34bn (2017: GBP1.81bn) as follows:
Cross-holdings
Assets under DPM Custodian REIT MW SPF Amati Gross AuM Cross-holdings in Amati Net AuM
management GBPm GBPm GBPm GBPm GBPm in DPM(16) funds(17) GBPm
----------------- -------- --------------- ------- ------ ---------- ---------------- --------------- --------
At 1 June 2017 1,144.8 391.4 98.4 175.7 1,810.3 (76.9) (9.8) 1,723.6
Inflows 273.7 49.1 115.4 103.8 542.0 (44.1) (2.3) 495.6
Outflows (88.7) - - (2.9) (91.6) - - (91.6)
Market movements 11.3 22.1 - 48.5 81.9 - - 81.9
At 31 May 2018 1,341.1 462.6 213.8 325.1 2,342.6 (121.0) (12.1) 2,209.5
----------------- -------- --------------- ------- ------ ---------- ---------------- --------------- --------
16. Comprises GBP30.4m (2017: GBP28.3m) invested in Custodian REIT, GBP69.2m (2017: GBP36.7m) in MW SPF and GBP21.4m (2017: GBP11.9m) in Amati funds.
17. Cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.
Income from both initial and ongoing portfolio management charges increased to GBP14.2m (2017: GBP10.7m), as the value of clients' assets in discretionary portfolios increased 17.5% to GBP1.34bn (2017: GBP1.14bn).
Fees for services provided by Custodian Capital to Custodian REIT are included in the 'Property management' segment, with annual management charges on the MW SPF increasing to GBP0.8m (2017: GBP0.2m) due to growth in the fund's AuM to GBP213.8m (2017: GBP98.4m).
Adviser charges based on the value of assets under advice were GBP10.1m (2017: GBP10.1m), with the revenue impact of gross assets under advice increasing to GBP2.04bn (2017: GBP1.52bn) offset by an increasing proportion of assets under advice being invested in Custodian REIT, the MW SPF and Amati funds, which has resulted in lower client adviser charges and TERs. We continue to see some migration of assets under advice to AuM as clients from acquired portfolios engage with our DPM service.
Growth in total assets under management and advice continues to enhance the quality of earnings through an increase in recurring revenues, with the proportion of investment and asset management revenues which are recurring being 81.7% (2017: 81.0%). As with other firms, these income streams are linked to the value of funds under management and advice, and are therefore affected by the performance of financial markets.
Pension consultancy and administration
We continue to see demand for advice from clients, driven by lifestyle, increasing longevity, tax and other legislative changes, including the pension freedoms that introduced a major shift in how people can access their pensions, which in turn has driven further growth in pension consultancy and administration revenues. Our client base primarily comprises owner-managers, executives and members of the professions. Additional fees are generated from the provision of specialist consultancy services.
Pension consultancy and administration revenues were up 15.3% to GBP21.8m (2017: GBP18.9m), representing 37.1% (2017: 37.4%) of Group revenues of which 87.7% (2017: 91.0%) were recurring, with the growth in revenues driven by the total number of SIPP and SSAS schemes administered by the Group increasing 5.1% to 10,533 (2017: 10,021).
New client wins, sustained demand for advice, increased staff utilisation and improved billing recoveries helped drive direct(18) pension consultancy and administration fees up 17.7% to GBP16.6m (2017: GBP14.1m). Retirement planning is often central to our clients' wealth management strategies and the number of direct schemes increased to 5,834 (2017: 5,140), with 875 new schemes gained in the year (2017: 764), continuing the momentum of new business wins seen in prior periods. Our focus remains on the quality of new business, with the average value of a new scheme maintained at GBP0.4m (2017: GBP0.4m). We also maintained strong client retention, with an external loss rate(19) of 1.5% (2017: 2.1%) and an overall attrition rate(20) of 2.6% (2017: 3.6%).
18. SIPP and SSAS schemes where Mattioli Woods acts as pension consultant and administrator.
19. Direct schemes lost to an alternative provider as a percentage of average scheme numbers during the year.
20. Direct schemes lost as a result of death, annuity purchase, external transfer or cancellation as a percentage of average scheme numbers during the year.
The number of SSAS and SIPP schemes the Group operates on an administration-only basis fell to 4,699 (2017: 4,881) at the year end, with lost schemes including the transfer of members of distressed portfolios acquired in the last few years to alternative arrangements. Mattioli Woods was appointed to administer the SIPPs previously operated by Stadia Trustees Limited in 2016. A number of clients who transferred illiquid pension fund assets from their Stadia Trustees' SIPP to a Mattioli Woods scheme have now received compensation from the Financial Services Compensation Scheme due to the failings of Stadia Trustees Limited and we continue to process claims on behalf of over 400 other clients. Similar to the way in which the Group dealt with members of the HD SIPP, these clients' pension funds may now be reactivated, generating additional revenues for the Group.
Work also continues in connection with the wind up of the Freedom SIPP, which we were appointed to provide administration and consultancy services to by the scheme's liquidators, PricewaterhouseCoopers, in 2010. Overall, third party administration fees increased 4.3% to GBP4.8m (2017: GBP4.6m), with GBP0.4m of additional revenues representing the impact of a full year's contribution from MC Trustees.
The Group's banking revenue was GBP0.4m (2017: GBP0.2m), reflecting that the Bank of England base rate increased to 0.5% from a historic low of 0.25% at the start of November 2017.
Property management
Property management revenues increased 13.5% to GBP5.9m (2017: GBP5.2m), representing 10.1% of total revenue (2017: 10.3%), with our subsidiary Custodian Capital having assets under management and administration of GBP542.9m (2017: GBP444.8m) at 31 May 2018. Recurring annual management charges represented 89.8% (2017: 90.4%) of property management revenues, the majority of which are derived from the services provided by Custodian Capital to Custodian REIT. The fund seeks to provide investors with an attractive level of income, coupled with the potential for capital growth from a diversified portfolio of commercial real estate properties in the UK.
In addition, Custodian Capital continues to facilitate direct property ownership on behalf of pension schemes and private clients and also manages our "Private Investors Club", which offers alternative investment opportunities to suitable clients by way of private investor syndicates. This initiative continues to be well supported, with GBP26.3m (2017: GBP20.4m) invested in the eight (2017: five) new syndicates completed during the year.
Employee benefits
Employee benefits revenues were up 9.3% to GBP5.9m (2017: GBP5.4m), representing 10.1% of total revenue (2017: 10.7%). There is growing recognition from organisations of the importance of investing in employee benefits. Employers are increasingly encouraging staff wellbeing and retirement savings, which we expect to drive a period of steady growth in the UK employee benefits market, and we believe the Government's emphasis on workplace advice presents new opportunities for us to realise further synergies between our employee benefits and wealth management businesses.
Acquisitions
We have invested GBP50m since our admission to AIM in 2005 in bringing 21 businesses or client portfolios into the Group, developing considerable expertise and a strong track record in the execution and subsequent integration of such transactions.
The two businesses acquired during the previous financial year have integrated well and contributed positively to the Group's trading results since acquisition, increasing earnings and enhancing value. Our most recent acquisition, Broughtons, has a similar culture to Mattioli Woods and the transaction gives us new opportunities to grow and develop the client offering of the combined business.
With increasing complexity and continuing consolidation across the key markets in which we operate, we expect there will be further opportunities to accelerate our growth by acquisition. Our strong balance sheet gives us the flexibility to make further value-enhancing acquisitions.
Relationships
The Group's performance and value to our shareholders are influenced by other stakeholders, principally our clients, suppliers, employees, the Government and our strategic partners. Our approach to all these parties is founded on the principle of open and honest dialogue, based on a mutual understanding of needs and objectives.
Relationships with our clients are managed on an individual basis through our client relationship managers and consultants. Employees have performance development reviews and employee forums also provide a communication route between employees and management, including SET(GO) . Mattioli Woods also participates in trade associations and industry groups, which give us access to client and supplier groups and decision-makers in Government and other regulatory bodies. Mattioli Woods is a member of the Association of Member-directed Pension Schemes and the Quoted Companies Alliance.
Resources
The Group aims to safeguard the assets that give it competitive advantage, including its reputation for quality and proactive advice, its technical competency and its people.
Our core values provide a framework for integrity, leading to responsible and ethical business practices. Structures for accountability from our administration and consultancy teams through to SET(GO) and the Group's Board are clearly defined. The proper operation of the supporting processes and controls are regularly reviewed by the Audit, Risk and Compliance Committee and take into account ethical considerations, including procedures for 'whistle-blowing'.
Our people
As we continue to grow, our "Big to Better" initiative will enable us to retain our core principles as a business built on the integrity, expertise and passion of our people. Our total headcount at 31 May 2018 had increased to 622 (2017: 568) and we continue to invest in our graduate recruitment programme, with 20 (2017: 25) new graduates and 24 (2017: 16) apprentices joining the Group during the year. We are also developing programmes for 'life served' people seeking exciting opportunities for a change in career or a return to work. We continue to expand our consultancy and technical teams to take advantage of new business opportunities, with the number of consultants having increased to 134 (2017: 115) at the year end.
In June 2018 we were delighted to announce the appointment of Saira Chambers to lead our employee benefits team as Employee Benefits Director. Saira brings extensive experience across all aspects of employee benefits, both as a consultant and in senior leadership roles, and this blend of knowledge and experience will enable us to transform this area of our business as part of our long-terms plans.
We enjoy a strong team spirit and facilitate employee equity ownership through the Mattioli Woods plc Share Incentive Plan ("the Plan") and other share schemes. At the year end the proportion of eligible staff invested via the Plan remained high at 58% (2017: 58%) and we will continue to encourage broader participation in the Plan.
Forward-looking statements
The strategic report is prepared for the members of Mattioli Woods and should not be relied upon by any other party for any other purpose. Where the report contains forward-looking statements these are made by the directors in good faith based on the information available to them at the time of their approval of this report. Consequently, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risks underlying such forward-looking statements and information. The Group undertakes no obligation to update these forward-looking statements.
Principal risks and uncertainties
There are a number of potential risks which could hinder the implementation of the Group's strategy and have a material impact on its long--term performance. These arise from internal or external events, acts or omissions which could pose a threat to the Group. The principal risks identified as having a potential material impact on the Group are detailed below, together with the principal means of mitigation. The risk factors mentioned do not purport to be exhaustive as there may be additional risks that materialise over time that the Group has not yet identified or deemed to have a potentially material adverse effect on the business:
Industry risks
Change
Risk type Description Mitigating factors Chance Impact in risk
------------ ---------------- ------------------------------------------------------------ ------- ------- ---------
Changes Volatility Medium Medium No
in may adversely * Majority of clients' funds held within registered change
investment affect trading pension schemes or ISAs, where less likely to
markets and/or the withdraw funds and lose tax benefits.
and poor value of the
investment Group's assets
performance under * Broad range of investment solutions enables clients
management, to shelter from market volatility through
administration diversification, while continuing to generate
and advice, revenues for the Group.
from which
we derive
revenues. * Market volatility is closely monitored by the Asset
Management Executive Committee.
---------------- ------------------------------------------------------------ ------- ------- ---------
Changing The Group High High No
markets operates in * Consolidating market position develops the Group's change
and a highly pricing power.
increased competitive
competition environment
with evolving * Control over scalable and flexible bespoke pension
characteristics administration platform.
and trends.
* 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 Medium High No
technology technology * We partner with leading software providers to assist change
could become in our systems development.
obsolete if
we are unable
to develop * High awareness of the importance of technology at
our systems Board level.
to accommodate
changing client
needs, new * Expanded systems development with phased
products and implementation of Group-wide platform.
the emergence
of new industry
standards.
---------------- ------------------------------------------------------------ ------- ------- ---------
Regulatory The Group Medium Medium Increase
risk may be * Strong compliance culture. / High
adversely
affected as
a result of * External professional advisers are engaged to review
new or revised and advise upon control environment.
legislation
or regulations
or by changes * Business model and culture embraces FCA principles,
in the including treating clients fairly.
interpretation
or enforcement
of existing * Decision to withdraw from providing advice on
laws and safeguarded pensions.
regulations.
* Financial strength provides comfort should capital
resource requirements be increased.
---------------- ------------------------------------------------------------ ------- ------- ---------
Changes Changes in Low Medium No
in tax tax legislation * The Government has a desire to encourage long-term change
law could reduce savings to plan for an ageing population, which is
the currently under-provided for.
attractiveness
of long-term
savings via * Changes in pension legislation create the need for
pension clients to seek advice.
schemes,
particularly
SSASs and * The development of the Group's investment and asset
SIPPs. management services has reduced dependency on pension
planning.
---------------- ------------------------------------------------------------ ------- ------- ---------
Operational risks
------------------------------------------------------------------------------------------- ------- ------- ---------
Change
Risk type Description Mitigating factors Chance Impact in risk
------------- -------------- ------------------------------------------------------------ ------- ------- ---------
Damage to There is a Medium High No
the Group's risk of * Strong compliance culture with a focus on positive change
reputation reputational customer outcomes.
damage as a
result of
employee * High level of internal controls, including checks on
misconduct, new staff.
failure to
manage inside
information * Well-trained staff who ensure the interests of
or conflicts clients are met in the services provided.
of interest,
fraud,
improper
practice,
poor
client
service
or advice.
-------------- ------------------------------------------------------------ ------- ------- ---------
Errors, Serious or High High No
breakdown prolonged * Ongoing review of data security. change
or security breaches,
breaches errors or
in respect breakdowns * IT performance, scalability and security are deemed
of the in the top priorities by the Board.
Group's Group's
software software or
or information * Experienced in-house team of IT professionals and
information technology established name suppliers.
technology systems could
systems negatively
impact
customer
confidence.
It could also
breach
contracts
with
customers
and data
protection
laws,
rendering
us liable to
disciplinary
action by
governmental
and
regulatory
authorities,
as well as
to claims by
our clients.
-------------- ------------------------------------------------------------ ------- ------- ---------
Data quality Inaccurate High Medium New risk
data or voids * Ongoing initiatives to clean data
in our data
could result
in inaccurate * Development of data warehouse to standardise data
regulatory tables and create 'one source of truth'
and/or client
reporting
-------------- ------------------------------------------------------------ ------- ------- ---------
Business In addition Medium Medium No
continuity to the * Periodic review of Business Continuity Plan, change
failure considering best practice methodologies.
of IT
systems,
there is a * Disaster recovery plan and a disaster recovery team
risk of in place. Business impact analysis has been conducted
disruption by department.
to the
business
as a result * Business interruption insurance.
of power
failure,
fire, flood,
acts of
terrorism,
re-location
problems and
the like.
-------------- ------------------------------------------------------------ ------- ------- ---------
Fraud risk There is a Medium Medium No
risk an * The Group ensures the control environment mitigates change
employee against the misappropriation of client assets.
or third
party
defrauds * Strong corporate controls require dual signatures for
either all payments, SET(GO) approval for all expenditure
the Group or greater than GBP5,000 and Board approval for all
a client. expenditure greater than GBP100,000.
* Assessment of fraud risk every six months discussed
with the Audit Committee, Risk and Compliance
Committee and external auditors.
* Clients have view-only access to information.
* Ongoing review of risk of fraud due to external
attack on the Group's IT systems.
-------------- ------------------------------------------------------------ ------- ------- ---------
Key The loss of, Low Medium No
personnel or inability * Succession planning is a key consideration throughout change
risk to recruit, the Group.
key personnel
could have
a material * Success of the Group should attract high calibre
adverse candidates.
effect
on the
Group's * Share-based schemes in operation to incentivise staff
business, and encourage retention.
results
of operations
or financial * Recruitment programmes in place to attract
condition. appropriate new staff.
* Cross functional acquisition team brought into
acquisition projects at an early stage.
* Keyman cover for company founders.
-------------- ------------------------------------------------------------ ------- ------- ---------
Litigation Risk of High Medium Increase
or claims liability * Appropriate levels of Professional Indemnity
made against related to insurance cover regularly reviewed with the Group's
the Group litigation advisers.
from clients
or third
parties * Comprehensive internal review procedures, including
and assurance compliance sign-off, for advice and marketing
that a claim materials.
or claims
will
not be * Maintenance of three charging models; time cost,
covered fixed and asset based, which are aligned to specific
by insurance service propositions and agreed with clients.
or, if
covered,
will exceed * Restricted status for our consultants to enable the
the limits recommendation of our own products and others in the
of available market.
insurance
coverage,
or that any
insurer will
become
insolvent
and will not
meet its
obligations
to provide
the Group
with
cover.
-------------- ------------------------------------------------------------ ------- ------- ---------
Reliance Any Low High Increase
on third regulatory * Due diligence is part of the selection process for
parties breach or key suppliers.
service
failure on
the part of * Ongoing review of relationships and concentration of
an outsourced risk with key business partners.
service
provider
could expose
the Group to
the risk of
regulatory
sanctions and
reputational
damage.
-------------- ------------------------------------------------------------ ------- ------- ---------
Strategic Risk that Low Low No
risk management * Experienced management team with successful track change
will pursue record to date.
inappropriate
strategies
or implement * Management has demonstrated a thorough understanding
the Group's of the market and monitors this through regular
strategy meetings with clients.
ineffectively
.
-------------- ------------------------------------------------------------ ------- ------- ---------
Corporate The risk of High Medium No
manslaughter breaching * Policies and procedures in place to provide employee change
risk corporate guidance when driving on company business.
manslaughter
laws as a
result * Company cars regularly maintained and serviced with
of management reputable and vetted companies.
breach in
duty
of care. * Adequate insurance cover.
* Responsible employees.
-------------- ------------------------------------------------------------ ------- ------- ---------
Financial risks
----------------------------------------------------------------------------------------------- ------- ------- ---------
Change
Risk type Description Mitigating factors Chance Impact in risk
-------------- ------------------ ----------------------------------------------------------- ------- ------- ---------
Counterparty That the Medium Medium No
default counterparty * The Group trades only with recognised, creditworthy change
to a financial third parties.
obligation
will 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 Medium High Decrease
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 Medium Medium No
risk of credit risk, * The client base is broad, without significant change
arising from exposure to any individual client or group of
a lack of clients.
diversity
in business
activities * Broad service offering gives diversified revenue
or geographical streams.
risk.
------------------ ----------------------------------------------------------- ------- ------- ---------
Liquidity The risk the Low Low No
risk Group is unable * Cash generative business. change
to meet
liabilities
as they become * Group maintains a surplus above regulatory and
due because working capital requirements.
of an inability
to liquidate
assets or obtain * Treasury management provides for the availability of
adequate funding. liquid funds at short notice.
------------------ ----------------------------------------------------------- ------- ------- ---------
Interest Risk of decline Low Medium Increase
rate risk in earnings * Market expectation that interest rates will rise.
due to a decline
in banking
margin or deposit * Good relationships with key banking partners.
rates received
on surplus
cash. * Access to competitive interest rates due to scale of
Low interest business.
rates make
it harder to
structure
compelling
capital-protected
products for
clients.
------------------ ----------------------------------------------------------- ------- ------- ---------
Underwriting When arranging Low Low No
risk new products * New products created in line with client demand. change
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.
------------------ ----------------------------------------------------------- ------- ------- ---------
Emerging risks, including legislative and regulatory change, have the potential to impact the Group and its strategy. The senior management team continues to monitor emerging risks and threats to the financial services sector including, for example, cyber threats, regulatory change and scenarios potentially arising from geopolitical developments, including Brexit.
Management's current assessment is that the direct impacts of Brexit are not expected to have a direct material adverse impact on our business, given the Group's UK-based business model. However, we are conscious this position might change and could raise unexpected challenges, including those arising from any broader impact that Brexit might have on the UK economy as a whole.
Corporate social responsibility
We believe that running a profitable and growing business, which creates jobs and contributes to the economic success of the areas in which it operates, is a good platform for good corporate social responsibility.
Charities and communities
Mattioli Woods has a long-standing commitment to ensure our staff can engage with their local communities, playing a valuable role by forming innovative partnerships with other organisations and charities. This social awareness is present throughout the business, from our employees to our clients, our professional connections and the suppliers we use.
We have a high level of engagement within our local communities. Each year, we sponsor business, sports and community awards. Our business has benefited greatly from winning numerous awards and we feel it's right to help other businesses reap the rewards of such accolades. In addition, we sponsor a variety of local clubs, business and sports related events across the country. We believe this brings many benefits to the local community and beyond.
The Group is pleased to continue sponsoring the Rothley 10k, one of the most celebrated charity road running races in Leicestershire. This year proved to be a record-breaking year, with the race attracting a best ever 1,171 runners in June 2018, raising over GBP28,000 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 GBP200,000 for the charity.
We also continue to sponsor wheelchair racer Sammi Kinghorn, who set a new 200m T53 world record last year. Sammi helped us celebrate our switch to new offices in the heart of Glasgow and proudly displayed two gold medals and a bronze won at the world para athletics championships in London in 2017.
In addition, we support many other smaller charities. An employee at our Solihull office has set up a 'Little Free Library' in the village she lives in to provide a free book exchange for local children. We continue to support Newmarket's Open Door initiative, which provides vulnerable people with supported housing and training opportunities; Rainbow House in Preston, a comprehensive programme for children, young people and adults with neurological conditions and Project Luangwa, an international charity supported by our Solihull team that provides education in Zambia through the construction of schools, sponsoring of students and provision of educational materials.
Employees
The Group continues to create opportunities for young people through both its Financial Services Development scheme and apprenticeship recruitment, winning Apprenticeship Employer of the Year at the 2017 Leicester Apprenticeship Hub Graduation Ceremony. This year, we are looking to recruit 24 graduates and 20 apprentices. We have also given 19 students the opportunity to work with us to gain valuable work experience during the year.
During the year we lost a well-respected leader in our Employee Benefits business when Mike Reid sadly lost his battle against cancer. Mike will be greatly missed by all his workmates, clients and suppliers that he worked with during his 12 years with the Group.
Diversity and inclusion
We are an equal opportunities employer and it is our policy to ensure that all job applicants and employees are treated fairly and on merit regardless of race, sex, marital/civil partnership status, age, disability, religious belief, pregnancy, maternity, gender reassignment or sexual orientation.
Modern slavery
Mattioli Woods is committed to preventing modern slavery and human trafficking in all its activities, and to ensuring its supply chains are free from modern slavery and human trafficking. We welcomed the introduction of the Modern Slavery Act 2015 and publish a Modern Slavery and Human Trafficking Statement on our website. We have also developed policies, reviewed our due diligence processes for suppliers and provided training to staff.
A copy of our Modern Slavery and Human Trafficking Statement can be found on our website.
Anti-bribery policy
We value our reputation for ethical behaviour and upholding the utmost integrity and we comply with the FCA's clients' best interests rule. We understand that in addition to the criminality of bribery and corruption, any such crime would also have an adverse effect on our reputation and integrity.
Mattioli Woods has a zero tolerance approach to bribery and corruption and we ensure all our employees and suppliers are adequately trained as to limit our exposure to bribery by:
-- Setting out clear anti-bribery and corruption policies; -- Providing mandatory training to all employees;
-- Encouraging our employees to be vigilant and report any suspected cases of bribery in accordance with the specified procedures; and
-- Escalating and investigating instances of suspected bribery and assisting the police or other appropriate authorities in their investigations.
Gender pay reporting
The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 requires all employers with 250 or more employees in the UK to publish details of their gender pay gap. Its aim is to achieve greater transparency about gender pay difference. The analysis is based on data as at 5 April of each year and shows the differences in the average pay between men and women. The Group has submitted its data on gender pay to the government and published these details on our website.
Approval
The strategic report contains certain forward-looking statements, which are made by the Directors in good faith based on the information available to them at the time of their approval of this annual report. Statements contained within the strategic report should be treated with some caution due to the inherent uncertainties (including but not limited to those arising from economic, regulatory and business risk factors) underlying any such forward-looking statements. The strategic report has been prepared by Mattioli Woods to provide information to its shareholders and should not be relied upon for any other purpose.
The strategic report in its entirety has been approved by the Board of Directors and signed on its behalf by:
Ian Mattioli MBE
Chief Executive Officer
3 September 2018
Consolidated Statement of Comprehensive Income
For the year ended 31 May 2018
2018 2017
Note GBP000 GBP000
-------------------------------------------------------- ----- --------- ---------
Revenue 4 58,669 50,533
Employee benefits expense (32,148) (28,711)
Other administrative expenses (12,833) (9,558)
Share based payments 11 (1,497) (1,902)
Amortisation and impairment 9 (2,225) (1,996)
Depreciation 7 (822) (606)
Loss on disposal of property, plant & equipment (67) (61)
Gain on revaluation of derivative financial instrument 10 540 93
Operating profit before financing 9,617 7,792
-------------------------------------------------------- ----- --------- ---------
Finance revenue 73 45 Finance costs (154) (291) Net finance costs (81) (246) Share of profit from associate, net of tax 10 240 103 Profit before tax 9,776 7,649 Income tax expense (1,586) (1,293) Profit for the year 8,190 6,356 Other comprehensive income for the year, net of tax - - Total comprehensive income for the year, net of tax 8,190 6,356 -------------------------------------------------------- ----- --------- --------- Attributable to: Equity holders of the parent 8,190 6,356 Earnings per ordinary share: Basic (pence) 6 31.2 24.5 Diluted (pence) 6 31.1 24.4 Proposed total dividend per share (pence) 7 17.0 14.1
The operating profit for each period arises from the Group's continuing operations. The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own statement of comprehensive income in these financial statements.
Consolidated and Company Statements of Financial Position Registered number: 3140521
As at 31 May 2018
2018 2017
Group Company Group Company
Note GBP000 GBP000 GBP000 GBP000
----------------------------------------------------------- ----- -------- -------- ------- --------
Assets
Property, plant and equipment 8 16,483 2,892 9,671 2,209
Intangible assets 9 43,199 40,931 44,444 36,743
Deferred tax asset 674 664 798 777
Investments in subsidiaries - 18,572 - 18,572
Investment in associate 10 3,725 3,725 3,476 3,476
Derivative financial asset 12 650 650 110 110
Total non-current assets 64,731 67,434 58,499 61,887
----------------------------------------------------------- ----- -------- -------- ------- --------
Trade and other receivables 16,946 28,906 15,692 22,767
Investments 81 81 86 86
Cash and short-term deposits 13 23,668 17,880 22,979 12,172
Total current assets 40,695 46,867 38,757 35,025
----------------------------------------------------------- ----- -------- -------- ------- --------
Total assets 105,426 114,301 97,256 96,912
----------------------------------------------------------- ----- -------- -------- ------- --------
Equity
Issued capital 14 261 261 258 258
Share premium 14 31,283 31,283 30,314 30,314
Merger reserve 14 8,781 8,781 8,781 8,781
Equity - share based payments 14 3,010 3,010 2,571 2,571
Capital redemption reserve 14 2,000 2,000 2,000 2,000
Retained earnings 14 33,615 28,468 28,671 23,892
Total equity attributable to equity holders of the parent 78,950 73,803 72,595 67,816
----------------------------------------------------------- ----- -------- -------- ------- --------
Non-current liabilities
Deferred tax liability 3,455 3,218 3,600 2,692
Financial liabilities and provisions 15 596 17,506 2,842 11,337
Total non-current liabilities 4,051 20,724 6,442 14,029
----------------------------------------------------------- ----- -------- -------- ------- --------
Current liabilities
Trade and other payables 17,988 15,972 12,862 10,501
Income tax payable 695 101 957 259
Financial liabilities and provisions 15 3,742 3,701 4,400 4,307
Total current liabilities 22,425 19,774 18,219 15,067
----------------------------------------------------------- ----- -------- -------- ------- --------
Total liabilities 26,476 40,498 24,661 29,096
----------------------------------------------------------- ----- -------- -------- ------- --------
Total equities and liabilities 105,426 114,301 97,256 96,912
----------------------------------------------------------- ----- -------- -------- ------- --------
The profit of the Company for the financial year, after taxation, was GBP7.8m (2017: GBP4.5m).
The financial statements were approved by the Board of directors and authorised for issue on 3 September 2018 and are signed on its behalf by:
Ian Mattioli MBE Nathan Imlach Chief Executive Officer Chief Financial Officer
Consolidated and Company Statements of Changes in Equity
For the year ended 31 May 2018
Equity - Capital
Issued Share Merger share based redemption Retained
capital premium reserve payments reserve earnings Total
(Note 14) (Note 14) (Note 14) (Note 14) (Note 14) (Note 14) equity
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ------------ ------------ ------------ ------------ ------------ ----------------- ------------
As at 1 June
2016 252 27,765 8,531 1,642 2,000 25,391 65,581
Profit for the
year - - - - - 6,356 6,356
--------------- ------------ ------------ ------------ ------------ ------------ ----------------- ------------
Total
comprehensive
income - - - - - 6,356 6,356
Transactions
with owners of
the Group,
recognised
directly in
equity
Share of other
comprehensive
income from
associates - - - - - 5 5
Issue of share
capital 6 2,549 250 - - - 2,805
Share-based
payment
transactions - - - 949 - - 949
Deferred tax
recognised in
equity - - - 52 - - 52
Current tax
taken to
equity - - - 237 - - 237
Reserves
transfer - - - (309) - 309 -
Dividends - - - - - (3,390) (3,390)
As at 31 May
2017 258 30,314 8,781 2,571 2,000 28,671 72,595
Profit for the
year - - - - - 8,190 8,190
--------------- ------------ ------------ ------------ ------------ ------------ ----------------- ------------
Total
comprehensive
income - - - - - 8,190 8,190
Transactions
with owners of
the Group,
recognised
directly in
equity
Share of other
comprehensive
income from
associates - - - - - 9 9
Issue of share
capital 3 969 - - - - 972
Share-based
payment
transactions - - - 1,020 - - 1,020
Deferred tax
derecognised
in equity - - - (62) - - (62)
Current tax
taken to
equity - - - 92 - - 92 Reserves transfer - - - (611) - 611 - Dividends - - - - - (3,866) (3,866) As at 31 May 2018 261 31,283 8,781 3,010 2,000 33,615 78,950 --------------- ------------ ------------ ------------ ------------ ------------ ----------------- ------------
Consolidated and Company Statements of Changes in Equity
For the year ended 31 May 2018 (continued)
Equity - Capital
Issued Share Merger share based redemption Retained
capital premium reserve payments reserve earnings
(Note 14) (Note 14) (Note 14) (Note 14) (Note 14) (Note 14) Total equity
Company GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
As at 1 June
2016 252 27,765 8,531 1,642 2,000 22,487 62,677
Profit for the
year - - - - - 4,481 4,481
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
Total
comprehensive
income - - - - - 4,481 4,481
Transactions
with owners of
the Company,
recognised
directly in
equity
Share of other
comprehensive
income from
associates - - - - - 5 5
Issue of share
capital 6 2,549 250 - - - 2,805
Share-based
payment
transactions - - - 949 - - 949
Deferred tax
recognised in
equity - - - 52 - - 52
Current tax
taken to
equity - - - 237 - - 237
Reserves
transfer - - - (309) - 309 -
Dividends - - - - - (3,390) (3,390)
As at 31 May
2017 258 30,314 8,781 2,571 2,000 23,892 67,816
Profit for the
year - - - - - 7,822 7,822
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
Total
comprehensive
income - - - - - 7,822 7,822
Transactions
with owners of
the Company,
recognised
directly in
equity
Share of other
comprehensive
income from
associates - - - - - 9 9
Issue of share
capital 3 969 - - - - 972
Share-based
payment
transactions - - - 1,020 - - 1,020
Deferred tax
derecognised
in equity - - - (62) - - (62)
Current tax
taken to
equity - - - 92 - - 92
Reserves
transfer - - - (611) - 611 -
Dividends - - - - - (3,866) (3,866)
As at 31 May
2018 261 31,283 8,781 3,010 2,000 28,468 73,803
--------------- ------------- ------------- ------------- ------------ ------------ ------------- -------------
Consolidated and Company Statements of Cash Flows
For the year ended 31 May 2018
Group Company Group Company
2018 2018 2017 2017
Note GBP000 GBP000 GBP000 GBP000
-------------------------------------------------------------------- ------ --------- -------- --------- --------
Operating activities
Profit for the year
Adjustments for: 8,190 7,822 6,356 4,481
Depreciation 8 822 815 606 596
Amortisation and impairment 9 2,225 2,004 1,996 1,655
Investment income (73) (458) (45) (150)
Interest expense 154 551 291 494
Share of profit from associate 10 (240) (240) (103) (103)
Gain on revaluation of derivative financial asset 10,12 (540) (540) (93) (93)
Loss on disposal of property, plant and equipment 67 68 61 61
Equity-settled share-based payments 11 1,378 1,378 1,241 1,241
Cash-settled share-based payments 119 119 661 661
Dividend income - (2,500) - (800)
Income tax expense 1,586 886 1,293 706
-------------------------------------------------------------------- ------ --------- -------- --------- --------
Cash flows from operating activities before changes in working
capital and provisions 13,688 9,905 12,264 8,749
Increase in trade and other receivables (957) (5,043) (2,018) (9,140)
Increase in trade and other payables 5,100 5,187 1,762 1,944
Increase/(decrease) in provisions 344 325 (1,544) (1,536)
-------------------------------------------------------------------- ------ --------- -------- --------- --------
Cash generated from operations 18,175 10,374 10,464 17
Interest paid (1) (1) (2) (2)
Income taxes paid (1,840) (1,419) (1,700) (875)
Net cash flows from operating activities 16,334 8,954 8,762 (860)
-------------------------------------------------------------------- ------ --------- -------- --------- --------
Investing activities
Proceeds from sale of property, plant and equipment 72 68 126 126
Purchase of property, plant and equipment 8 (7,773) (1,627) (8,225) (1,004)
Purchase of software 9 (980) (980) (616) (612)
Consideration paid on acquisition of subsidiaries (3,506) (3,506) (3,490) (3,490)
Investment in subsidiary - - - (1,000)
Consideration paid for shares in associate - - (1,646) (1,646)
Cash transferred on hive up of group companies - 3,765 - 1,289
Cash received on acquisition of subsidiaries - - 172 -
Other investments 9 9 - -
Loans advanced to property syndicates (2,332) (2,332) (541) (541)
Loan repayments from property syndicates 2,032 2,032 571 571
Interest received 73 65 39 24
Dividends received - 2,500 - 800
Net cash flows from investing activities (12,405) (6) (13,610) (5,483)
-------------------------------------------------------------------- ------ --------- -------- --------- --------
Financing activities
Proceeds from the issue of share capital 626 626 524 524 Repayment of borrowings acquired in business combinations - - 884 - Dividends paid 7 (3,866) (3,866) (3,390) (3,390) Net cash flows from financing activities (3,240) (3,240) (1,982) (2,866) -------------------------------------------------------------------- ------ --------- -------- --------- -------- Net increase/(decrease) in cash and cash equivalents 689 5,708 (6,830) (9,209) Cash and cash equivalents at start year 13 22,979 12,172 29,809 21,381 Cash and cash equivalents at end of year 13 23,668 17,880 22,979 12,172 -------------------------------------------------------------------- ------ --------- -------- --------- --------
Notes to the financial statements
1 Corporate information
Mattioli Woods plc ("the Company") is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the AIM market of the London Stock Exchange plc. The nature of the Group's operations and its principal activities are set out in the Chief Executive's Review.
2 Basis of preparation and accounting policies 2.1 Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and in accordance with the requirements of the Companies Act applicable to companies reporting under IFRS.
The financial statements comprise the financial statements of Mattioli Woods plc and its subsidiaries ("the Group") as at 31 May each year. The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair value, and are presented in pounds, with all values rounded to the nearest thousand pounds (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 3 September 2018.
2.2 Developments in reporting standards and interpretations
Standards affecting the financial statements
There have been no new or revised standards and interpretations that have been adopted in the current year and have affected the amounts reported in these financial statements.
Standards not affecting the financial statements
The following new and revised standards and interpretations have been adopted in the current year:
Standard or interpretation Periods commencing on or after ------------------------------------------------------------------ ------------------------------- Annual Improvements to IFRSs 2014-2016 Cycle 1 January 2017 IAS 7 Disclosure Initiative 1 January 2017 IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017
Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements, or give rise to additional disclosures.
Future new standards and interpretations
A number of new standards and amendments to standards and interpretations will be effective for future annual periods and, therefore, have not been applied in preparing these consolidated financial statements. At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective:
Standard or interpretation Periods commencing on or after ------------------------------------------------------------------------ ------------------------------- Annual Improvements to IFRSs 2014-2016 Cycle 1 January 2018 IFRS 2 (amended) Classification and Measurement of Share-based Payments 1 January 2018 IFRS 15 Revenue from Contracts with Customers 1 January 2018 IFRS 9 Financial Instruments 1 January 2018 IAS 40 (amended) Transfers of Investment Property 1 January 2018 IFRIC 22 Foreign Currency Transactions and Advance Consideration 1 January 2018 IFRS 16 Leases 1 January 2019 IFRIC 23 Accounting for uncertain tax treatments 1 January 2019 IAS 28 (amended) Long Term Interests in Associates and Joint Ventures 1 January 2019 Annual Improvements to IFRSs 2015-2017 Cycle 1 January 2019 IAS 19 (amended) Plan Amendment, Curtailment or Settlement 1 January 2019 Amendments to References to the Conceptual Framework in IFRS Standards 1 January 2020 IFRS 17 Insurance Contracts 1 January 2021
IFRS 16 'Leases' is expected to have a significant effect on the condensed consolidated interim financial statements and the consolidated financial statements of the Group, as explained below. Other than to expand certain disclosures within the financial statements, the Directors do not expect the adoption of the other standards and interpretations listed above will have a material impact on the financial statements of the Group in future periods.
IFRS 9 Financial Instruments
IFRS 9 'Financial instruments' was issued in July 2014, is effective for accounting periods beginning on or after 1 January 2018, was adopted by the Group on 1 June 2018 and therefore will impact the Group's financial statements for the year ending 31 May 2019.
IFRS 9 introduces changes to the classification of financial assets and a new impairment model for financial assets, which will result in earlier recognition of impairment losses. Under the expected credit loss model, loss allowances equal to either the 12 month or lifetime expected credit losses are recognised on initial recognition of financial assets, depending on assessed credit risk. The latter is applied where there has been a significant deterioration in credit quality of the asset, although a simplified approach for calculating expected credit losses on trade receivables and contract assets is available, which looks only at lifetime expected credit losses. Additional disclosure requirements include both quantitative and qualitative disclosures supporting the basis and recognition of loss allowances, and the recognition of the loss allowance within provisions.
The Group has assessed the impact of the following accounting changes that will arise under IFRS 9:
-- Provisions for impairment losses against financial assets will be recognised sooner as lifetime expected credit losses are recognised on initial recognition of those financial assets.
-- The Group's trade receivables and accrued income ('contract assets' under IFRS 15) are generally short term and do not include a financing component. As a result, the Group expects to apply the simplified approach and reflect lifetime expected credit losses.
Provisional evaluation of the application of IFRS 9 indicates an expected reduction to opening equity and the carrying amount of financial assets and liabilities recognised in the consolidated financial statements of GBP0.4m. The classification of financial assets held by the Group is not expected to change.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 'Revenue from Contracts with Customers' was issued in May 2014, is effective for accounting periods beginning on or after 1 January 2018, was adopted by the Group on 1 June 2018 and therefore will impact the Group's financial statements for the year ending 31 May 2019.
IFRS 15 changes the way revenue from some customer contracts is recognised, impacting both the timing at which revenue may be recognised, and the value of revenue recognised. Customer contracts are broken down in to separate performance obligations, with contractual revenues being allocated to each performance obligation and revenue recognised on a basis consistent with the transfer of control of goods or services. Additional disclosure requirements include the reporting of disaggregated revenues, and the recognition of contract assets and contract liabilities on the face of the statement of financial position.
The Group has assessed the impact of the following accounting changes that arise under IFRS 15:
-- Timing of recognition of some non-recurring revenues may be deferred where contract performance conditions are deemed not to have been met at the reporting date.
-- Contract balances will be reclassified in the statement of financial position, but this is not expected to impact the value of net current assets reported.
-- Additional disclosures will be included in the annual report to disclose revenues from customer contracts on a disaggregated basis.
Provisional evaluation of the application of IFRS 15 suggests that no adjustments are required to opening equity or the carrying amount of financial assets and liabilities recognised in the consolidated financial statements.
IFRS 16 Leases
IFRS 16 'Leases' was issued in January 2016, is effective for accounting periods beginning on or after 1 January 2019, will be adopted by the Group on 1 June 2019 and therefore will impact the Group's financial statements for the year ending 31 May 2020.
IFRS 16 will primarily change lease accounting for lessees. Lease agreements will give rise to the recognition of an asset representing the right to use the leased item and a loan obligation for future lease payables. Lease costs will be recognised in the form of depreciation of the right-of-use asset and interest on the lease liability. Lessee accounting under IFRS 16 will be similar in many respects to existing IAS 17 accounting for finance leases, but will be substantially different to existing accounting for operating leases where rental charges are currently recognised on a straight-line basis and no lease asset or lease loan obligation is recognised.
Lessor accounting under IFRS 16 is similar to existing IAS 17 accounting and is not expected to have a material impact for the Group. The Group is assessing the impact of the following accounting changes that will arise under IFRS 16:
-- Right-of-use assets will be recorded for assets that are leased by the Group; currently no lease assets are included on the Group's consolidated statement of financial position for operating leases.
-- Liabilities will be recorded for discounted future lease payments in the Group's consolidated statement of financial position for the "reasonably certain" period of the lease, which may include future lease periods for which the Group has extension options. Currently liabilities are generally not recorded for future operating lease payments, which are disclosed as commitments unless they are considered onerous. The amount of lease liabilities will not equal the lease commitments reported on 31 May 2018, but may not be dissimilar.
-- Lease expenses will be recognised as depreciation of right-of-use assets and interest on lease liabilities; interest will typically be higher in the early stages of a lease and reduce over the term. Currently operating lease rentals are expensed on a straight-line basis over the lease term within operating expenses.
-- Operating lease cash flows are currently included within operating cash flows in the consolidated statement of cash flows; under IFRS 16 these will be recorded as cash flows from financing activities reflecting the repayment of lease liabilities (borrowings) and related interest.
The Group is continuing to assess the impact of these and other accounting changes that will arise under IFRS 16 and expects the changes highlighted to have a material impact on the consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows after adoption on 1 June 2019:
-- EBITDA is likely to rise because the lease expense under IAS 17 for operating leases will be removed and replaced with additional depreciation and finance costs. The profit profile of the business will also change as more expense is recognised in earlier periods and less in later periods compared to the straight-line amount recognised under IAS 17.
-- For leases classified as operating leases under IAS 17, there will be a significant impact on the Statement of Financial Position as these assets and corresponding liabilities have to be recognised. This will impact on gearing levels and potentially on covenants provided to prospective lenders and others.
Application of IFRS 9, IFRS 15 and IFRS 16
When IFRS 9, IFRS 15 and IFRS 16 are adopted, they can be applied either on a fully retrospective basis, requiring the restatement of the comparative periods presented in the financial statements, or with their cumulative retrospective impact applied as an adjustment to equity on the date of adoption; when the latter approach is applied it is necessary to disclose the impact of IFRS15 and IFRS 16 on each line item in the financial statements in the reporting period.
Depending on the adoption method that is utilised, certain practical expedients may be applied on adoption. The Group has not yet determined which method will be adopted or which expedients will be applied on adoption of these standards.
2.3 Principal accounting policies
Basis of consolidation
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.
Business combinations
Business combinations are accounted for using the purchase accounting method. This involves assessing whether any assets acquired meet the criteria for recognition as separately identifiable intangible assets. Intangible assets are measured on initial recognition at their fair value at the date of acquisition. Client portfolios are valued by discounting their expected future cash flows over their expected useful lives, based on the Group's historic experience. Expected future cash flows are estimated based on the historic revenues and costs associated with the operation of that client portfolio. The discount rates used estimate the cost of capital, adjusted for risk.
Associates
The Company's share of profits from associates is reported separately in the Statement of Comprehensive income and the investment is recognised in the Statement of Financial Position using the equity method. The investment is initially recorded at cost and subsequently adjusted to reflect the Company's share of the cumulative profits of the associate since acquisition. Appropriate adjustments to the Company's share of the profits or losses after acquisition are made to account for additional amortisation of the associate's amortisable assets based on the excess of their fair values over their carrying amounts at the time the investment was acquired.
Group re-organisations
On 31 December 2017 the trade and assets of the Boyd Coughlan Limited were transferred to the Company. The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of Boyd Coughlan Limited as at 31 December 2017, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.
On 31 August 2016 the trade and assets of the Taylor Patterson Group Limited and its subsidiaries Taylor Patterson Financial Planning Limited and Taylor Patterson Associates Limited (together "the Business") were transferred to the Company. The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of the Business as at 31 August 2016, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.
2.4 Key sources of judgements and estimation uncertainty
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities. If in the future such estimates and assumptions, which are based on management's best judgement at the date of preparation of the financial statements, deviate from actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change. The areas where a higher degree of judgement or complexity arises, or where assumptions and estimates are significant to the consolidated financial statements, are discussed below.
Impairment of client portfolios
The Group reviews whether acquired client portfolios are impaired at least on an annual basis. This comprises an estimation of the fair value less cost to sell and the value in use of the acquired client portfolios. In assessing value in use, the estimated future cash flows expected to arise from each client portfolio are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset.
The key assumptions used in respect of value in use calculations are those regarding growth rates and anticipated changes to revenues and costs during the period covered by the calculations. Changes to revenue and costs are based upon management's expectation. The Group prepares its annual budget and five-year cash flow forecasts derived therefrom, thereafter extrapolating these cash flows using a terminal growth rate of 2.5% (2017: 2.5%), which management considers conservative against industry average long-term growth rates.
The key assumption used in arriving at a fair value less costs to sell requires a valuation based on earnings multiples and values based on assets under management. These have been determined by looking at valuations of similar businesses and the consideration paid in comparable transactions. Management has used a range of multiples resulting in an average of 7.5x EBITDA (2017: 7.5x) to arrive at a fair value.
The carrying amount of client portfolios at 31 May 2018 was GBP23.5m (2017: GBP25.2m). No impairment provisions have been made during the year (2017: 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 2018 was GBP17.3m (2017: GBP17.3m). No impairment provisions have been made during the year (2017: 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 2018 was GBP1.0m (2017: GBP1.1m).
Deferred tax assets
Deferred tax assets include temporary differences related to employee benefits settled via the issue of share options. Recognition of the deferred tax assets assumes share options will have a positive value at the date of vesting, which is greater than the exercise price. The carrying amount of deferred tax assets at 31 May 2018 was GBP0.7m (2017: GBP0.8m).
Derivative financial assets
The Group entered into an option agreement to acquire the remaining 51% of the share capital of Amati in the two years following 6 February 2019. The fair value of the option is calculated by a third party valuation expert using Monte Carlo simulation software and involves some estimation and uncertainty in determining the key inputs into the valuation model. In particular, the key judgemental areas include the expected timing of the exercise of the option, the value of Amati as at the date of exercise and the value of shares payable as consideration on exercise. The carrying amount of the derivative financial instrument at 31 May 2018 was GBP0.7m (2017: GBP0.1m).
Interests in associates
Associates are entities in which the Group owns less than 100% of voting rights and has significant influence, but not control or joint control over the financial and operating policies. In determining whether control exists, this requires significant judgements in assessing factors such as the structure of the investment and the contractual agreement. The existence of significant influence is evidenced by the Group having representation on the board and the ability to participate in decisions but not being able to control the vote. The carrying amount of the investment in associate at 31 May 2018 was GBP3.7m (2017: GBP3.5m).
Recoverability of accrued time costs and disbursements
The Group recognises accrued income in respect of time costs and disbursements incurred on clients' affairs during the accounting period, which have not been invoiced at the reporting date. This requires an estimation of the recoverability of the time costs and disbursements incurred but not invoiced to clients. The carrying amount of accrued time costs and disbursements at 31 May 2018 was GBP5.6m (2017: 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 2018 was GBP3.9m (2017: GBP3.2m).
Acquisitions and business combinations
When an acquisition arises the Group is required under IFRS to calculate the Purchase Price Allocation ("PPA"). The PPA requires companies to report the fair value of assets and liabilities acquired and it establishes useful lives for identified assets. The identification and the valuation of the assets and liabilities acquired involves estimation and judgement when determining whether the recognition criteria are met. The classification of consideration payable as either purchase consideration or remuneration is an area of judgement and estimate.
Subjectivity is also involved in PPA with the estimation of the future value of brands, technology, customer relationships and goodwill.
Contingent consideration payable on acquisitions
The Group has entered into certain acquisition agreements that provide for a contingent consideration to be paid. A financial instrument is recognised for all amounts management anticipates will be paid under the relevant acquisition agreement. This requires management to make an estimate of the expected future cash flows from the acquired business and determine a suitable discount rate for the calculation of the present value of any deferred contingent consideration payments. The carrying amount of contingent consideration provided for at 31 May 2018 was GBP0.9m (2017: GBP4.4m).
Provisions
As detailed in Note 15, the Group recognises provisions for client claims, contingent consideration payable on acquisitions, commission clawbacks, cash-settled share based payment awards and other obligations which exist at the reporting date. These provisions are estimates and the actual amount and timing of future cash flows are dependent on future events. Management reviews these provisions at each reporting date to ensure they are measured at the current best estimate of the expenditure required to settle the obligation. Any difference between the amounts previously recognised and the current estimate is recognised immediately in the statement of comprehensive income.
The move to the Group's new central Leicester office is scheduled to complete in October 2018. An onerous lease provision was recognised during the year as the Group intends to vacate its existing premises in Leicester after the Group takes occupation of its new office at New Walk. Management estimated the value of the onerous lease provision making assumptions about the amount and timing of the cash flows associated with serving notice on one lease that was being held over and surrendering two unexpired leases. The carrying amount of onerous lease costs provided for at 31 May 2018 was GBP0.9m (2017: GBPnil).
3. Business combinations
The Group did not complete any acquisitions during the year. Transaction costs of GBP0.1m (2017: GBP0.4m) incurred on the review of potential acquisitions have been expensed and are included in administrative expenses in the consolidated statement of comprehensive income and operating cash flows in the consolidated statement of cash flows in the period in which they were incurred.
Contingent consideration
The Group has entered into certain acquisition agreements that provide for contingent consideration to be paid. These agreements and the basis of calculation of the net present value of the contingent consideration are summarised below. While it is not possible to determine the exact amount of contingent consideration (as this will depend on the performance of the acquired businesses during the period), the Group estimates the fair value of the remaining contingent consideration payable is GBP0.9m (2017: GBP4.4m).
On 7 September 2016 the Group acquired MC Trustees for total consideration of up to GBP2.5m, comprising initial consideration of GBP1.23m in cash plus 38,081 new ordinary shares of 1p each in Mattioli Woods plus contingent consideration of up to GBP1.0m payable in cash in the two years following completion if certain financial target based on growth in earnings before interest, tax, depreciation and amortisation are met. The Group estimates the fair value of the remaining contingent consideration at 31 May 2018 to be GBP0.5m (2017: GBP0.9m) using cash flows approved by the Board covering the contingent consideration period and expects the maximum contingent consideration will be payable.
On 8 September 2015 the Group acquired Taylor Patterson for an initial consideration comprising cash of GBP2.1m (excluding cash acquired with the business) and 419,888 shares in Mattioli Woods, plus contingent consideration of up to 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 2018 to be GBP0.4m (2017: GBP2.2m) using cash flows approved by the Board covering the contingent consideration period. The maximum contingent consideration was paid following the year end, after the early achievement of all revenue and profit targets.
On 23 June 2015 the Group acquired Boyd Coughlan for initial consideration comprising cash of GBP3.9m (excluding cash acquired with the business) and 235,742 shares in Mattioli Woods, plus contingent consideration of up to GBP2.5m payable in cash in the two years following completion if certain profit targets are met. At 31 May 2018 no further consideration is payable (2017: GBP1.2m) with the maximum contingent consideration having been paid.
4. Revenue
Revenue disclosed in the consolidated statement of comprehensive income is analysed as follows:
2018 2017
GBP000 GBP000
---------------------- ------- -------
Rendering of services 56,645 49,070
Commission income 2,024 1,463
58,669 50,533
---------------------- ------- -------
Rendering of services includes consultancy and administration fees, employee benefits fee income, adviser charges, DPM and fund management charges.
5. Segment information
The Group's objective is to fully integrate the businesses it acquires, to enable it to deliver holistic solutions across its wide and diverse client base. During the year, the Group transferred the trade and assets of Boyd Coughlan Limited into Mattioli Woods. The Group's operating segments comprise the following:
-- Pension consultancy and administration - fees earned by Mattioli Woods for setting up and administering pension schemes. Additional fees are generated from consultancy services provided for special one-off activities and the provision of bespoke scheme banking arrangements;
-- Investment and asset management - income generated from the management and placing of investments on behalf of clients;
-- Property management - income generated where Custodian Capital manages collective property investment vehicles, facilitates direct commercial property investments on behalf of clients or acts as the external discretionary manager for Custodian REIT plc; and
-- Employee benefits - income generated by the Group's employee benefits operations.
Each segment represents a revenue stream subject to risks and returns that are different to other operating segments, although each operating segment's products and services are offered to broadly the same market. The Group operates exclusively within the United Kingdom.
Operating segments
The operating segments defined above all utilise the same intangible assets, property, plant and equipment and the segments have been financed as a whole, rather than individually. The Group's operating segments are managed together as one business. Accordingly, certain costs are not allocated across the individual operating segments, as they are managed on a group basis. Segment profit or loss reflects the measure of segment performance reviewed by the Board of Directors (the Chief Operating Decision Maker).
The following tables present revenue and profit information regarding the Group's operating segments for the two years ended 31 May 2018 and 2017 respectively.
Investment Pension
and consultancy
asset and Property Employee Total Corporate
Year ended management administration management benefits segments costs Consolidated
31 May 2018 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- ------------- --------------- ------------ ------------- ----------- ------------- --------------
Revenue
External
client 25,096 21,822 5,918 5,833 58,669 - 58,669
Total
revenue 25,096 21,822 5,918 5,833 58,669 - 58,669
------------- ------------- --------------- ------------ ------------- ----------- ------------- --------------
Results
Segment
profit
before tax 8,306 3,714 1,016 113 13,149 (3,373) 9,776
------------- ------------- --------------- ------------ ------------- ----------- ------------- --------------
Investment Pension
and consultancy
asset and Property Employee Total Corporate
Year ended management administration management benefits segments costs Consolidated
31 May 2017 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- ------------- --------------- ------------ ------------- ----------- ------------- --------------
Revenue
External
client 21,079 18,869 5,178 5,407 50,533 - 50,533
Total
revenue 21,079 18,869 5,178 5,407 50,533 - 50,533
------------- ------------- --------------- ------------ ------------- ----------- ------------- --------------
Results
Segment
profit
before tax 5,008 3,569 1,198 458 10,233 (2,584) 7,649
------------- ------------- --------------- ------------ ------------- ----------- ------------- --------------
Segment assets
The following table presents segment assets of the Group's operating segments:
31 May 31 May
2018 2017
GBP000 GBP000
---------------------------------------- -------- -------
Pension consultancy and administration 23,790 23,831
Investment and asset management 23,023 22,870
Property management 1,159 1,360
Employee benefits 11,177 11,649
Total segments 59,149 59,710
Corporate assets 46,278 37,546
Total assets 105,427 97,256
----------------------------------------- -------- -------
Segment assets exclude property, plant and equipment, certain items of computer software, investments, current and deferred tax balances and cash balances, as these assets are considered corporate in nature and are not allocated to a specific operating segment.
31 May 31 May
2018 2017
Reconciliation of assets GBP000 GBP000
----------------------------------- -------- -------
Segment operating assets 59,149 59,710
Property, plant and equipment 16,483 9,671
Intangible assets 2,475 1,964
Deferred tax asset 675 798
Derivative financial asset 650 110
Prepayments and other receivables 2,246 1,938
Investments 81 86
Cash and short-term deposits 23,668 22,979
Total assets 105,427 97,256
------------------------------------ -------- -------
Acquired intangibles and amortisation thereon relate to a specific transaction and are allocated between individual operating segments based on the headcount or revenue mix of the cash generating units at the time of acquisition. The subsequent delivery of services to acquired clients may be across a number or all operating segments, comprising different operating segments to those the acquired intangibles have been allocated to.
Liabilities have not been allocated between individual operating segments, as they cannot be allocated on anything other than an arbitrary basis.
Corporate costs
Certain administrative expenses including acquisition costs, amortisation of software, depreciation of property, plant and equipment, irrecoverable VAT, legal and professional fees and professional indemnity insurance are not allocated between segments that are managed on a unified basis and utilise the same intangible and tangible assets.
Finance income and expenses, gains and losses on the disposal of assets, taxes, intangible assets and certain other assets and liabilities are not allocated to individual segments as they are managed on a group basis. Capital expenditure consists of additions of property, plant and equipment and intangible assets.
31 May 31 May
2018 2017
Reconciliation of profit before tax GBP000 GBP000
--------------------------------------------------- -------- -------
Total segments 13,149 10,233
Increase in provisions (1,029) (85)
Irrecoverable VAT (829) (531)
Depreciation (822) (606)
Amortisation and impairment (469) (259)
Professional indemnity insurance (466) (489)
Acquisition-related costs (132) (378)
Finance costs (154) (291)
Loss on disposal of assets (67) (61)
Bank charges (18) (22)
Finance income 73 45
Gain on revaluation of derivative financial asset 540 93
Group profit before tax 9,776 7,649
---------------------------------------------------- -------- -------
Country-by-country reporting
HM Treasury has transposed the requirements set out under the Capital Requirements Directive IV ("CRD IV") and issued the Capital Requirements Country-by-Country Reporting Regulations 2013, effective 1 January 2014. The legislation requires Mattioli Woods plc (together with its subsidiaries) to publish certain additional information split by country, on a consolidated basis, for the year ended 31 May 2018.
Mattioli Woods plc and its subsidiaries are all incorporated in and operate from the United Kingdom. All employees of the Group hold contracts of employment in the United Kingdom. All turnover (revenue) and profit before tax is recognised on activities based in the United Kingdom. All tax paid and any subsidies received are paid to and received from UK institutions.
6. Earnings per ordinary share
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
The income and share data used in the basic and diluted earnings per share computations is as follows:
2018 2017
GBP000 GBP000
-------------------------------------------------------------------------------- ------- -------
Net profit and diluted net profit attributable to equity holders of the Company 8,190 6,356
Weighted average number of ordinary shares: 000s 000s
Issued ordinary shares at start period 25,789 25,205
Effect of shares issued during the year ended 31 May 2017 - 455
Effect of shares issued during the year ended 31 May 2018 455 291
Basic weighted average number of shares 26,244 25,951
Effect of dilutive options at the statement of financial position date 53 101
Diluted weighted average number of shares 26,297 26,052
-------------------------------------------------------------------------------- ------- -------
The Company has granted options under the Share Option Plan, the Consultants' Share Option Plan and the LTIP to certain of its senior managers and directors to acquire (in aggregate) up to 3.26% of its issued share capital (see Note 11). Under IAS 33 Earnings Per Share, contingently issuable ordinary shares are treated as outstanding and included in the calculation of diluted earnings per share if the conditions (the events triggering the vesting of the option) are satisfied. At 31 May 2018 the conditions attached to 787,202 options granted under the LTIP were not satisfied (2017: 777,480). If the conditions had been satisfied, diluted earnings per share would have been 30.2p per share (2017: 24.0p).
Since the reporting date and the date of completion of these financial statements the following transactions have taken place involving ordinary shares or potential ordinary shares:
-- The issue of 77,171 ordinary shares as part of the initial consideration for the acquisition of Broughtons Financial Planning Limited (Note 17);
-- The issue of 26,247 ordinary shares to satisfy the exercise of options under the LTIP; and -- The issue of 23,578 ordinary shares under the Mattioli Woods plc Share Incentive Plan.
7. Dividends paid and proposed
2018 2017
GBP000 GBP000
---------------------------------------------------- ------- -------
Declared and paid during the year:
Equity dividends on ordinary shares:
- Final dividend for 2017: 9.4p (2016: 8.65p) 2,430 2,187
- Interim dividend for 2018: 5.5p (2017: 4.7p) 1,436 1,203
Dividends paid 3,866 3,390
---------------------------------------------------- ------- -------
Proposed for approval by shareholders at the AGM:
Final dividend for 2018: 11.5p (2017: 9.4p) 3,022 2,430
---------------------------------------------------- ------- -------
8. Property, plant and equipment
Assets under Computer and office
construction equipment Fixtures and Motor vehicles
fittings Total
Group GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- -------------------- -------------------- --------------------- ----------------- --------
Gross carrying
amount:
At 1 June 2016 - 1,642 918 1,069 3,629
Arising on
Acquisitions - 14 4 - 18
Additions 7,438 443 106 462 8,449
Disposals - (75) (98) (320) (493)
At 31 May 2017 7,438 2,024 930 1,211 11,603
Additions 7,019 227 30 495 7,773
Disposals - (116) - (214) (330)
At 31 May 2018 14,457 2,137 960 1,492 19,046
---------------------- -------------------- -------------------- --------------------- ----------------- --------
Depreciation:
At 1 June 2016 - 722 583 327 1,632
Charged for the year - 306 80 220 606
On disposals - (51) (87) (168) (306)
At 31 May 2017 - 977 576 379 1,932
Charged for the year - 391 192 239 822
On disposals - (52) - (139) (191)
At 31 May 2018 - 1,316 768 479 2,563
---------------------- -------------------- -------------------- --------------------- ----------------- --------
Carrying amount:
At 31 May 2018 14,457 821 192 1,013 16,483
---------------------- -------------------- -------------------- --------------------- ----------------- --------
At 31 May 2017 7,438 1,047 354 832 9,671
---------------------- -------------------- -------------------- --------------------- ----------------- --------
At 31 May 2016 - 920 335 742 1,997
---------------------- -------------------- -------------------- --------------------- ----------------- --------
Computer and
Assets under Leasehold office Fixtures and
construction improvements equipment fittings Motor vehicles Total
Company GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ ---------------- ---------------- ---------------- ---------------- ---------------- --------
Gross carrying
amount:
At 1 June 2016 - - 1,460 826 1,060 3,346
Transfer from
group companies - - 45 20 - 65
Additions - 56 437 48 463 1,004
Disposals - - (74) (98) (321) (493)
At 31 May 2017 - 56 1,868 796 1,202 3,922
Transfer from
group companies - - 7 - - 7
Reclassification - (56) - 56 - -
Additions 877 - 225 30 495 1,627
Disposals - - (116) - (199) (315)
At 31 May 2018 877 - 1,984 882 1,498 5,241
------------------ ---------------- ---------------- ---------------- ---------------- ---------------- --------
Depreciation:
At 1 June 2016 - - 588 511 323 1,422
Charged for the
year - 1 301 78 216 596
On disposals - - (51) (88) (166) (305)
At 31 May 2017 - 1 838 501 373 1,713
Reclassification - (1) - 1 - -
Charged for the
year - - 386 190 239 815
On disposals - - (52) - (127) (179)
At 31 May 2018 - - 1,172 692 485 2,349
------------------ ---------------- ---------------- ---------------- ---------------- ---------------- --------
Carrying amount:
At 31 May 2018 877 - 812 190 1,013 2,892
------------------ ---------------- ---------------- ---------------- ---------------- ---------------- --------
At 31 May 2017 - 55 1,030 295 829 2,209 ------------------ ---------------- ---------------- ---------------- ---------------- ---------------- -------- At 31 May 2016 - - 872 315 737 1,924 ------------------ ---------------- ---------------- ---------------- ---------------- ---------------- --------
9. Intangible assets
Internally generated
software Client portfolios
GBP000 Software GBP000 Goodwill Other Total
Group GBP000 GBP000 GBP000 GBP000
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
Gross carrying amount:
At 1 June 2016 1,434 1,080 31,832 16,361 35 50,742
Arising on acquisitions - - 1,522 869 - 2,391
Additions 155 461 - 23 - 639
At 31 May 2017 1,589 1,541 33,354 17,253 35 53,772
Additions 104 876 - - - 980
At 31 May 2018 1,693 2,417 33,354 17,253 35 54,752
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
Amortisation and
impairment:
At 1 June 2016 349 557 6,391 - 35 7,332
Amortisation during the
year 145 114 1,737 - - 1,996
At 31 May 2017 494 671 8,128 - 35 9,328
Amortisation during the
year 162 307 1,756 - - 2,225
At 31 May 2018 656 978 9,884 - 35 11,553
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
Carrying amount:
At 31 May 2018 1,037 1,439 23,470 17,253 - 43,199
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
At 31 May 2017 1,095 870 25,226 17,253 - 44,444
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
At 31 May 2016 1,085 523 25,441 16,361 - 43,410
-------------------------- ------------------------- ---------- ------------------- ---------- -------- --------
Internally generated software
GBP000 Client portfolios
Software GBP000 Goodwill Total
Company GBP000 GBP000 GBP000
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
Gross carrying amount:
At 1 June 2016 1,434 973 20,567 10,771 33,745
Transfer from group companies - - 4,693 4,120 8,813
Additions 155 457 - - 612
At 31 May 2017 1,589 1,430 25,260 14,891 43,170
Transfer from Group companies - - 3,719 1,493 5,212
Additions 104 876 - - 980
At 31 May 2018 1,693 2,306 28,979 16,384 49,362
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
Amortisation and impairment:
At 1 June 2016 349 485 3,938 - 4,772
Amortisation during the year 145 106 1,404 - 1,655
At 31 May 2017 494 591 5,342 - 6,427
Amortisation during the year 162 287 1,555 - 2,004
At 31 May 2018 656 878 6,897 - 8,431
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
Carrying amount:
At 31 May 2018 1,037 1,428 22,082 16,384 40,931
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
At 31 May 2017 1,095 839 19,918 14,891 36,743
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
At 31 May 2016 1,085 488 16,629 10,771 28,973
------------------------------ ----------------------------- ---------- ------------------- ---------- --------
Software
Software is amortised over its useful economic life of four years on a reducing balance basis. Internally generated software represents the development costs of the Group's bespoke customer relationship management, administration and trading platform. The directors believe this technology will be the principal technology platform used throughout the Group for the foreseeable future. Internally generated software is amortised on a straight-line basis over an estimated useful life of 10 years.
Client portfolios
Client portfolios represent individual client portfolios acquired through business combinations. Client portfolios are amortised on a straight-line basis over an estimated useful life of between 10 and 25 years, based on the Group's historic experience.
Goodwill
Goodwill arises where the price paid for an acquisition is greater than the fair value of the net assets acquired. Goodwill arising on business combinations is subject to annual impairment testing.
Other intangibles
Other intangibles represent external costs incurred in obtaining a licence. Other intangibles are amortised on a straight-line basis over a useful economic life of three years.
10. Investment in associate and related derivative
Investment in associate
On 6 February 2017 the Group acquired 49% of the ordinary share capital of Amati Global Investors Limited ("Amati") from Amati Global Partners LLP plus an option over the remaining ordinary share capital of Amati for a total consideration of GBP3.39m, comprising GBP1.65m in cash and GBP1.74m of new ordinary shares in Mattioli Woods.
Amati is a fund management firm founded in 2010 following the management buyout of Noble Fund Managers Limited. Amati's principal place of business is the United Kingdom. It focuses on small and mid-sized companies, with a universe ranging from fully listed constituents of the FTSE Mid 250 and FTSE Small Cap indices, to stocks quoted on AIM. At the date of investment Amati had approximately GBP120m of assets under management, including the TB Amati UK Smaller Companies Fund; two AIM Venture Capital Trusts (Amati VCT plc and Amati VCT 2 plc); and an AIM IHT portfolio service.
During the year the shareholders of Amati VCT plc voted to approve its merger with Amati VCT 2 plc, which has been renamed Amati AIM VCT plc. Amati's gross assets under management at 31 May 2018 had increased to over GBP325m.
The Group exercises significant influence by virtue of its contractual right to appoint a minority of directors to Amati's board of directors. The option held by the Group to acquire the remaining shares in Amati is not exercisable until 6 February 2019. In addition, the Group has no other rights which would allow it to exercise control over Amati's operations. Therefore, the Group is not judged to control Amati and it is not consolidated.
The movement in the Group's investment in associate is as follows:
2018 2017
Investment in associate - Group and Company GBP000 GBP000
--------------------------------------------------------------------- ------- -------
At 1 June 3,476 -
Investment in Amati Global Investors Limited - 3,368
Share of profit for the year 308 120
Amortisation of fair value intangibles (68) (17)
Share of profit from associates in statement of comprehensive income 240 103
Share of other comprehensive income 9 5
At 31 May 3,725 3,476
--------------------------------------------------------------------- ------- -------
Other comprehensive income represents a movement in Amati's revaluation reserve recognised directly in equity.
The results of Amati for the 12 months ended 31 May 2018 and its aggregated assets and liabilities as at 31 May 2018 are as follows:
Assets Liabilities Revenue Profit
Name Country of incorporation GBP000 GBP000 GBP000 GBP000 Interest held
------------------------------ -------------------------- -------- ------------ -------- -------- --------------
Amati Global Investors
Limited Scotland 2,871 861 3,206 628 49%
Group's share of profit 308
---------------------------------------------------------- -------- ------------ -------- -------- --------------
The net assets of Amati as at 31 May 2017 were GBP1,364,382. At 31 May 2018 the net assets of Amati had increased by GBP646,148 to GBP2,010,530, increasing the Group's interest in the associate (net of tax) by GBP316,613 during the year, comprising Mattioli Woods' share of Amati's profit after tax recognised in the statement of comprehensive income and Mattioli Woods' share of the movement in Amati's revaluation reserve recognised directly in equity.
Derivative financial instruments
As part of the transaction to acquire its holding in Amati, Mattioli Woods also entered into an option agreement with the Seller which entitles Mattioli Woods to acquire the remaining 51% of Amati in the two years commencing 6 February 2019 for a mixture of cash and Mattioli Woods' ordinary shares ("the Option"). If Mattioli Woods does not exercise the Option to acquire the remaining stake from the Seller, the Seller has an option to buy Mattioli Woods' shareholding back for the original consideration paid.
The fair value of the option contract at the date of acquisition was GBP16,859. At 31 May 2018, the fair value of the option contract was GBP649,699 (2017: GBP109,974) (Note 12). The fair value of the option contract is calculated using an option valuation model.
11. Share based payments
Consultants' Share Option Plan
The Company operates the Consultants' Share Option Plan by which certain senior executives are able to subscribe for ordinary shares in the Company. Options granted under the Consultants' Share Option Plan are summarised as follows:
Exercise price At 1 June 2017 Exercised during the year At 31 May 2018
Date of grant GBP No. No. No.
----------------- -------------- -------------- ------------------------- --------------
4 September 2007 2.79 38,011 (38,011) -
8 September 2009 2.16 62,342 (15,481) 46,861
Outstanding 100,353 (53,492) 46,861
----------------- -------------- -------------- ------------------------- --------------
Exercisable 100,353 (53,492) 46,861
----------------- -------------- -------------- ------------------------- --------------
The exercise price of the options is equal to the market price of the shares at the close of business on the day immediately preceding the date of grant. The options vest when the option holders achieve certain individual performance hurdles. No options vested during the year as a result of the associated performance conditions being fulfilled. If the performance hurdles, which are linked to individual sales revenues, are not met over the five financial years commencing on 1 June before the date of grant, the options lapse.
Long--Term Incentive Plan
During the year, Mattioli Woods granted awards to the Company's executive directors and certain senior employees under the LTIP. Conditional share awards ("Equity-settled") grant participating employees a conditional right to become entitled to options with an exercise price of 1 pence over ordinary shares in the Company. Conditional cash awards ("Cash-settled") grant participating employees a conditional right to be paid a cash amount based on the proceeds of the sale of a specified number of Ordinary Shares following the vesting of the award. Movements in the LTIP scheme during the period were as follows:
31 May 2018 31 May 2018 31 May 2017 31 May 2017
Equity-settled Cash-settled Equity-settled Cash-settled
LTIP options No. No. No. No.
-------------------------- --------------- ------------- --------------- -------------
Outstanding as at 1 June 807,445 118,501 696,574 266,650
Granted during the year 238,825 - 294,340 -
Exercised during the year (203,194) (118,501) (183,269) (148,149)
Forfeited during the year (36,587) - (200) -
Outstanding at 31 May 806,489 - 807,445 118,501
---------------------------- --------------- ------------- --------------- -------------
Exercisable at 31 May 19,287 - 29,965 -
---------------------------- --------------- ------------- --------------- -------------
The LTIP awards are subject to the achievement of corporate profitability targets measured over a three year performance period and will vest following publication of the Group's audited results for the final performance year. The amounts shown above represent the maximum opportunity for the participants in the LTIP.
Share Incentive Plan
The Company introduced the Mattioli Woods plc Share Incentive Plan ("the SIP") in July 2008. Participants in the SIP are entitled to purchase, at market value, up to a prescribed number of new 1p ordinary shares in the Company at the end of each month for which they will receive a like for like matching share. These ordinary shares rank pari passu with existing issued ordinary shares of the Company.
A total of 103,924 (2017: 94,392) new ordinary shares were issued to the 363 (2017: 308) employees who participated in the SIP during the year. At 31 May 2018 the SIP held 593,019 (2017: 553,658) shares on their behalf.
Share based payments expense
The expense for share based payments made in respect of employee services under the LTIP is recognised over the expected vesting period of the awards. The expense recognised during the year ended 31 May 2018 is GBP1,150,465 (2017: GBP1,610,790), of which GBP1,031,168 arises from equity-settled share based payment transactions (2017: GBP949,395) and GBP119,297 arises from cash-settled share based payment transactions (2017: GBP661,395).
The expense for share based payments made in respect of employee services under the Consultants' Share Option Plan is recognised over the expected vesting period of the awards. The expense recognised during the year ended 31 May 2018 was GBPnil (2017: 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 (see Note 14). The expense recognised during the year ended 31 May 2018 is GBP346,649 (2017: GBP291,146), which arises entirely from equity-settled share based payment transactions.
Summary of share options
The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, share options during the year.
2018 2017
2018 WAEP 2017 WAEP
Share options No. GBP No. GBP
--------------------------- ---------- ------ ---------- ------
Outstanding as at 1 June 907,798 0.27 840,499 0.43
Granted during the year 238,825 0.01 294,340 0.01
Exercised (256,686) 0.55 (226,841) 1.57
Forfeited during the year (36,587) 0.01 (200) 0.01
Outstanding at 31 May 853,350 0.13 907,798 0.27
--------------------------- ---------- ------ ---------- ------
Exercisable at 31 May 66,148 1.53 130,318 1.85
--------------------------- ---------- ------ ---------- ------
The weighted average share price at the date of exercise for share options exercised during the year was GBP7.96 (2017: GBP7.31). For the share options outstanding as at 31 May 2018, the weighted average remaining contractual life is 4.0 years (2017: 4.0 years). The WAEP for options outstanding at the end of the year was GBP0.13 (2017: GBP0.27), with the option exercise prices ranging from GBP0.01 to GBP2.16.
The fair value of equity-settled share options granted is estimated as at the date of grant using the Black Scholes Merton model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used to estimate the fair value of options granted during the year ended 31 May 2018:
LTIP
------------------------------------- --------
Share price at date of grant GBP8.41
Option exercise price GBP0.01
Expected life of option (years) 4.5
Expected share price volatility (%) 17.0
Dividend yield (%) 1.84
Risk-free interest rate (%) 0.5
The share price at date of grant for options issued under the LTIP is based on the market value of the shares on that date. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options grant were incorporated into the measurement of fair value.
The share price at 31 May 2018 and movements during the year are set out in the Directors' Remuneration Report.
12. Derivative financial asset
Group Company Group Company
2018 2018 2017 2017
GBP000 GBP000 GBP000 GBP000
-------------------------------------- ------- -------- ------- --------
Derivative financial asset (Note 10) 650 650 110 110
650 650 110 110
-------------------------------------- ------- -------- ------- --------
The only derivative financial instrument held by the Group is an option contract over shares in the Group's associate. The option contract is carried at fair value.
13. Cash and short-term deposits
For the purpose of the statement of cashflows, cash and cash equivalents comprise the following at 31 May 2018:
Group Company Group Company
2018 2018 2017 2017
GBP000 GBP000 GBP000 GBP000
--------------------------- -------- -------- -------- --------
Cash at banks and on hand 23,668 17,880 22,979 12,172
Bank overdrafts - - - -
Cash and cash equivalents 23,668 17,880 22,979 12,172
--------------------------- -------- -------- -------- --------
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of cash and short-term deposits is GBP23.7m (2017: GBP23.0m).
Due to the headroom the Group's current cash balances provide on its projected working capital requirements, the Group has not renewed its overdraft facility. Management will continue to review the level of bank facilities the Group may require going forward.
14. Issued capital and reserves
Ordinary shares
Ordinary shares of 1p
Share capital of 1p GBP
--------------------------------------------- ---------------- ----------------
Authorised
At 1 June 2016, 31 May 2017 and 31 May 2018 30,000,000 300,000
--------------------------------------------- ---------------- ----------------
Issued and fully paid
At 1 June 2016 25,205,423 252,054
Exercise of employee share options 226,841 2,268
Shares issued under the SIP 94,392 944
Shares issued for consideration 262,508 2,625
At 31 May 2017 25,789,164 257,891
Exercise of employee share options 256,686 2,567
Shares issued under the SIP 103,924 1,040
Shares issued for consideration - -
At 31 May 2018 26,149,774 261,498
--------------------------------------------- ---------------- ----------------
Rights, preferences and restrictions on shares
All ordinary shares carry equal rights and no privileges are attached to any shares in the Company. All the shares are freely transferable, except as otherwise provided by law. However:
-- The former shareholders of Taylor Patterson ("the Taylor Patterson Sellers") have entered into a lock-in deed with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 419,888 ordinary shares in Mattioli Woods during the three years ending 8 September 2018;
-- The former shareholder of Old Station Road Holdings Limited ("the MCT Seller") has entered into a lock-in deed with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 38,081 ordinary shares in Mattioli Woods during the two years ending 6 September 2018; and
-- The former shareholders of Amati Global Investors Limited ("the Amati Sellers") have entered into a lock-in deed with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 224,427 ordinary shares in Mattioli Woods during the two years ending 7 February 2019.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets.
Share schemes and share incentive plan
The Company has two share schemes under which options to subscribe for the Company's shares have been granted to certain executives and senior employees (Note 11).
The Company also operates a share incentive plan. Participants in the SIP are entitled to purchase up to a prescribed number of new ordinary shares in the Company in any year. At the Directors' discretion, the Company may also award additional shares to participants in the SIP. Ordinary shares issued under the SIP rank pari passu with existing issued ordinary shares of the Company. Dividends paid on shares held within the SIP are used to buy new ordinary shares in the Company of 1p each.
Other reserves
Movements recognised in other reserves in the year are disclosed in the statement of changes in equity. The following table describes the nature and purpose of each reserve within equity:
Reserve Description and purpose
------------------------------ ------------------------------------------------
Share premium Amounts subscribed for share capital in
excess of nominal value less any associated
issue costs that have been capitalised.
Merger reserve Where shares are issued as consideration
for shares in another company, the excess
of the fair value of the shares acquired
over the nominal value of the shares issued
is recognised in the merger reserve.
Capital redemption reserve Amounts transferred from share capital
on redemption of issued shares.
Equity - share based payments The fair value of equity instruments granted
by the Company in respect of share based
payment transactions less options exercised.
Retained earnings All other net gains and losses and transactions
with owners (e.g. dividends) not recognised
elsewhere.
The Company has issued options to subscribe for the Company's shares under two employee share schemes (Note 11). The cost of exercised or lapsed share options has been derecognised from equity-share based payments and re-allocated to retained earnings as required by IFRS2 Share-based Payments.
15. Financial liabilities and provisions
Employers'
NIC on LTIP
Contingent Client share Onerous cash FSCS
consideration claims Dilapidations Clawbacks options contracts liability levy Total
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- -------------- ------- -------------- ---------- ----------- ---------- ----------- ------- --------
At 1 June
2016 5,800 532 413 308 624 152 1,263 - 9,092
Unwinding of
discount 242 - - - - - 31 - 273
Arising
during the
year 890 510 90 132 419 - 661 - 2,702
Acquisitions - 63 30 - - - - - 93
Paid during
the year (2,250) (387) - - (306) - (1,111) - (4,054)
Unused
amounts
reversed (264) (191) (16) (316) - (77) - - (864)
At 31 May
2017 4,418 527 517 124 737 75 844 - 7,242
Unwinding of
discount 142 - 12 - - - 13 - 167
Arising
during the
year - 697 122 181 315 913 132 100 2,460
Paid during
the year (3,506) (225) (13) (181) (401) - (989) - (5,315)
Unused
amounts
reversed (168) (17) (7) - (24) - - - (216)
At 31 May
2018 886 982 631 124 627 988 - 100 4,338
-------------- -------------- ------- -------------- ---------- ----------- ---------- ----------- ------- --------
Current 2017 2,830 527 - 124 - 75 844 - 4,400
Non-current
2017 1,588 - 517 - 737 - - - 2,842
At 31 May
2017 4,418 527 517 124 737 75 844 - 7,242
-------------- -------------- ------- -------------- ---------- ----------- ---------- ----------- ------- --------
Current 2018 886 982 316 124 346 988 - 100 3,742
Non-current
2018 - - 315 - 281 - - - 596
At 31 May
2018 886 982 631 124 627 988 - 100 4,338
-------------- -------------- ------- -------------- ---------- ----------- ---------- ----------- ------- --------
Employers'
NIC on LTIP
Loan Contingent Client share Onerous cash FSCS
note consideration claims Dilapidations Clawbacks options contracts liability levy Total
Company GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- -------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- --------
At 1 June
2016 - 5,800 457 350 294 624 118 1,263 - 8,906
Finance
costs 202 242 - - - - - 31 - 475
Arising
during the
year 8,323 890 489 90 127 419 - 661 - 10,999
Transfer
from Group
companies - - 50 62 1 - 35 - - 148
Paid during
the year - (2,250) (353) - - (306) - (1,111) - (4,020)
Unused
amounts
reversed - (264) (191) (15) (316) - (78) - - (864)
At 31 May
2017 8,525 4,418 452 487 106 737 75 844 - 15,644
Finance
costs 397 142 - 12 - - - 13 - 564
Arising
during the
year 8,018 - 698 89 177 315 913 132 100 10,442
Transfer
from Group
companies - - 25 33 13 - - - - 71
Paid during
the year - (3,506) (212) (13) (177) (401) - (989) - (5,298)
Unused
amounts
reversed - (168) (17) (7) - (24) - - - (216)
At 31 May
2018 16,940 886 946 601 119 627 988 - 100 21,207
------------- -------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- --------
Current 2017 - 2,830 452 - 106 - 75 844 - 4,307
Non-current
2017 8,525 1,588 - 487 - 737 - - - 11,337
At 31 May
2017 8,525 4,418 452 487 106 737 75 844 - 15,644
------------- -------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- --------
Current 2018 - 886 946 316 119 346 988 - 100 3,701
Non-current
2018 16,940 - - 285 - 281 - - - 17,506
At 31 May
2018 16,940 886 946 601 119 627 988 - 100 21,207
------------- -------- -------------- ------- -------------- ---------- ----------- ---------- ---------- ------- --------
Loan notes due to subsidiary undertakings
On 31 December 2017 the trade and assets of Boyd Coughlan Limited were transferred to the Company. The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of Boyd Coughlan Limited as at 31 December 2017, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.
The book value of the assets and liabilities of Boyd Coughlan Limited as at the date of hive up was:
Carrying value
GBP000
--------------------------------------------------- ---------------
Property, plant and equipment 7
Intangible assets 5,212
Deferred tax assets 20
Trade and other receivables 383
Cash and short-term deposits 3,765
Trade and other payables (666)
Deferred tax liability (632)
Financial liabilities and provisions (71)
Carrying value of assets and liabilities hived up 8,018
----------------------------------------------------- ---------------
On 31 August 2016 the trade and assets of the Taylor Patterson Group Limited and its subsidiaries Taylor Patterson Financial Planning Limited and Taylor Patterson Associates Limited (together "the Taylor Patterson Group") were transferred to the Company. The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of the Taylor Patterson Group as at 31 August 2016, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.
Contingent consideration
The Group has entered into certain acquisition agreements that provide for contingent consideration to be paid. Details of these agreements and the basis of calculation of the net present value of the contingent consideration is summarised in Note 3. The Group estimates the net present value of the financial liability payable within the next 12 months is GBP0.9m (2017: GBP2.8m).
Client claims
A provision is recognised for the estimated potential liability when the Group becomes aware of a possible client claim. No discount rate is applied to the projected cash flows due to their short term nature.
Dilapidations
Under the terms of the leases for the Group's premises, the Group has an obligation to return the properties in a specified condition at the end of the lease term. The Group provides for the estimated net present value of the cost of any dilapidations. The discount rate applied to the cash flow projections is 5.0%.
Clawbacks
The Group receives certain initial commissions on indemnity terms and hence the Group provides for the expected level of clawback, based on past experience. No discount rate is applied to the projected cash flows due to their short term nature.
Onerous contracts
Mattioli Woods plc has entered into three commercial leases for its premises at Grove Park, Enderby ("the Grove Park leases") as set out in Note 16. Onerous lease provisions are recognised when a leased property is expected to become vacant and no longer used in the Group's operations. Amounts recognised in the period represent the Group's best estimate of the unavoidable costs committed to under the Grove Park leases, based on the expected costs to be incurred as a result of the premises being vacated and the leases surrendered once the Group takes occupation of its new office at New Walk.
The future minimum rentals payable under the Grove Park leases as at 31 May 2018 totalled GBP1.6m, comprising GBP1.5m for MW House and GBP0.1m for Gateway House.
LTIP cash liability
The Group has granted cash settled options to certain Executive Directors. The amount of any cash entitlement on vesting of an award will be directly linked to the value of a specified number of the Company's shares at the vesting date. At 31 May 2018 there were no cash awards outstanding.
FSCS levy
The arrangements put in place by the Financial Services Compensation Scheme ("FSCS") to protect depositors and investors from loss in the event of failure of financial institutions have resulted in significant levies on the industry in recent years.
There is uncertainty over the level of future FSCS levies as they depend on the ultimate cost to the FSCS of industry failures. The Group contributes to the investment intermediation levy class and accrues levy costs for future levy years when the obligation arises. A provision of GBP0.1m has been made in these financial statements for FSCS interim levies expected in the year ending 31 May 2019.
16. Commitments and contingencies
Operating lease agreements - Group as lessee
Mattioli Woods plc has entered into three commercial leases for its premises at Grove Park, Enderby. The lease for the Registered Office, MW House, has a duration of 20 years, from 10 June 2005. The amount of annual rental is reviewed at three-yearly intervals, with the outstanding June 2017 rent review being settled following the year end at GBP205,200, an increase of GBP19,200 from the passing rent of GBP186,000 (Note 17).
The first lease for part of the ground floor of Gateway House (an office building adjacent to MW House) had a duration of ten years from 1 February 2008. A second lease for part of the ground floor of Gateway House has a duration of ten years from 1 December 2009. For both leases, the amount of annual rental is to be reviewed at the end of the fifth year.
Mattioli Woods plc has entered into an intra-group lease, with subsidiary Mattioli Woods (New Walk) Limited as lessor, for its premises under construction at New Walk, Leicester. The lease carries an annual rental of GBP875,000 and expires on 28 February 2019. The Group intends to extend this lease beyond its current agreed term.
Mattioli Woods plc has also entered into commercial leases for its premises at:
-- Aberdeen, 8 Queens Terrace, which expires 31 May 2023. The annual rental is GBP148,000;
-- Newmarket, Cheveley House, Fordham Road, which expires on 24 December 2023, with next break on 24 December 2018. The annual rental is GBP115,500;
-- Preston, Lanson House, Winckley Gardens, Mount Street, which expires on 31 July 2022. The annual rental is GBP62,000;
-- Buckingham, Investment House, 22-26 Celtic Court, Ballmoor, which expires on 11 April 2022. The annual rental is GBP35,000;
-- Glasgow, 120 West Regent Street, which expires on 31 January 2022. The annual rental is GBP48,844 plus GBP2,500 per annum for car parking;
-- Manchester, Suite 310, 76 King Street, lease term is a rolling 6 months. The annual rental is GBP31,800;
-- London, 3(rd) Floor, 87/89 Baker Street, lease expires on 31 October 2021. The annual rental is GBP92,500; and
-- Solihull, Enterprise House, Units 1, 2 & 3, lease expires on 13 June 2022, with a break on 14 June 2019. The annual rental is GBP63,434.
As part of certain acquisitions, the Group acquired operating lease obligations for office equipment. No restrictions were placed upon the Group by entering into these leases. Future minimum rentals payable under non-cancellable operating leases as at 31 May are as follows:
Office equipment Land and buildings
2018 2017 2018 2017
Group GBP000 GBP000 GBP000 GBP000
--------------------------------------------- --------- -------- ---------- ---------
Not later than one year 151 1 845 867
After one year but not more than five years 525 1 2,802 3,052
More than five years - - 491 966
676 2 4,138 4,885
--------------------------------------------- --------- -------- ---------- ---------
Office equipment Land and buildings
2018 2017 2018 2017
Company GBP000 GBP000 GBP000 GBP000
--------------------------------------------- --------- -------- ---------- ---------
Not later than one year 150 1 1,438 804
After one year but not more than five years 522 1 2,610 2,798
More than five years - - 491 964
672 2 4,539 4,566
--------------------------------------------- --------- -------- ---------- ---------
Group operating lease charges during the year were GBP938,847 (2017: GBP863,044) for land and buildings and GBP90,839 (2017: GBP18,553) for office equipment.
Capital commitments
At 31 May 2018 the Group had capital commitments amounting to GBP0.8m (2017: GBP7.6m). In August 2015, Mattioli Woods (New Walk) Limited entered into a development agreement with Ingleby (1245) Limited, a company owned and controlled by Sowden Group Limited to build a new 50,000 square foot office on the site of the former Leicester City Council headquarters at New Walk, Leicester.
Construction achieved practical completion on 28 February 2018, with transfer of title of the land subsequently passing from Leicester City Council to Mattioli Woods on 30 May 2018. The overall cost of the development is GBP14.1m excluding irrecoverable VAT, which has been funded through a combination of existing cash resources and operating cashflows. Total construction costs to completion were GBP12.5m, with a further GBP1.6m set aside for fit-out costs. The fit-out is in progress and is expected to complete in September 2018, at which time the Group's Leicester operations are scheduled to commence moving from Grove Park to New Walk.
Sponsorship agreement
In July 2016, the Group entered in to a three-year sponsorship agreement with rugby giants Leicester Tigers to strengthen the Group's brand awareness. The agreement includes shirt sponsorship on the Tigers' home and away shirts, a dedicated Mattioli Woods stand at the 26,000 capacity Welford Road stadium, corporate hospitality rights and the provision of exclusive content to Tigers fans. As at 31 May 2018 this agreement had just over one year to run.
Client claims
The Group operates in a legal and regulatory environment that exposes it to certain litigation risks. As a result, the Group occasionally receives claims in respect of products and services provided and which arise in the ordinary course of business. The Group provides for potential losses that may arise out of contingencies (Note 16).
In-specie pension contributions
As has been widely reported in the media, HMRC has recently challenged all SIPP providers on whether pension contributions could be made in-specie. As a result there are a number of tax relief claims made on behalf of our clients that have been challenged and we have received or are awaiting assessment notices which are expected to amount to GBP0.9m. These assessments have been appealed, with proceedings stayed pending the outcome of HMRC's appeal against the First-Tier Tribunal's ruling in favour of another SIPP operator in a similar case.
Irrespective of the result of HMRC's appeal, the impact on the financial position of the Group is expected to be neutral.
17. Events after the reporting date
Grove Park rent review
Mattioli Woods has entered into three commercial leases for its premises at Grove Park, Enderby. The lease for the Registered Office, MW House, has a duration of 20 years, from 10 June 2005. The amount of annual rental is reviewed at three-yearly intervals, with the outstanding June 2017 rent review being settled in July 2018 at GBP205,200, an increase of GBP19,200 from the passing rent of GBP186,000.
Acquisition of Broughtons Financial Planning Limited
On 8 August 2018, Mattioli Woods acquired the entire issued share capital of Broughtons Financial Planning Limited ("Broughtons"), a financial planning and wealth management business based in Oldbury in the West Midlands.
The provisional fair values of the identifiable assets and liabilities of Broughtons as at the date of acquisition are set out in the table below. Due to the proximity of the date of acquisition to the date of issue of these consolidated financial statements, the provisional fair values of the identifiable assets and liabilities of Broughtons are estimates and remain subject to the agreement of completion accounts by the buyer and seller:
Provisional fair value Provisional fair value
recognised on acquisition adjustments Previous carrying value
GBP000 GBP000 GBP000
------------------------------ ----------------------------- ----------------------------- ------------------------
Property, plant and equipment 10 - 10
Client portfolio 2,296 2,296 -
Cash at bank 757 - 757
Prepayments and accrued
income 110 - 110
Other receivables 304 - 304
Assets 3,477 2,296 1,181
------------------------------ ----------------------------- ----------------------------- ------------------------
Trade and other payables (27) - (27)
Accruals and deferred income (31) - (31)
Other taxation and social
security (3) - (3)
Income tax (147) - (147)
Provisions (25) - (25)
Deferred tax liability (390) (390) -
Liabilities (623) (390) (233)
------------------------------ ----------------------------- ----------------------------- ------------------------
Total identifiable net assets
at fair value 2,854
Goodwill 1,493
Total acquisition cost 4,347
------------------------------ -----------------------------
Analysed as follows:
Initial cash consideration 2,100
Acquired net assets
adjustment to initial
consideration 448
New shares in Mattioli Woods 600
Contingent consideration 1,300
Discounting of contingent
consideration (101)
Total acquisition cost 4,347
------------------------------ -----------------------------
Cash outflow on acquisition
------------------------------ -----------------------------
Cash paid 2,100
Cash acquired (757)
Acquired net assets
adjustment 448
Acquisition costs 68
Net cash outflow 1,859
------------------------------ -----------------------------
Broughtons specialises in the provision of bespoke wealth management services and impartial advice. It is an excellent cultural and strategic fit with Mattioli Woods' existing business, providing services to clients with over GBP120m of assets under advice. The acquisition brings additional scale to Mattioli Woods' existing operations and offers the opportunity to promote additional services to existing and prospective clients of Broughtons.
In addition, the acquisition adds further specialist expertise to the Group and Broughtons experienced staff have remained with the business. The goodwill recognised above is attributed to the expected benefits from combining the assets and activities of Broughtons with those of the Group. The primary components of this residual goodwill comprise:
-- Revenue synergies expected to be available to Mattioli Woods as a result of the transaction; -- The workforce; -- The knowledge and know-how resident in Broughtons' modus operandi; and
-- New opportunities available to the combined business, as a result of both Broughtons and the existing business becoming part of a more sizeable listed company.
None of the recognised goodwill is expected to be deductible for income tax purposes. The client portfolio will be amortised on a straight-line basis over an estimated useful life based on the Group's historic experience.
New Edinburgh office
On 14 August 2018, Mattioli Woods entered into a 10 year lease, with a break in five years, for new office premises at 8 Coates Crescent, Edinburgh, EH3 7AL. The annual rental will be GBP101,850 with a rent review on 14 August 2023.
18. Financial information
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 May 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
19. Distribution of the annual report and accounts to members
The annual report and accounts will be posted to shareholders in due course, and will be available on our website (www.mattioliwoods.com) and for inspection by the public at the Group's registered office address: MW House, 1 Penman Way, Grove Park, Enderby, Leicester LE19 1SY during normal business hours on any weekday. Further copies will be available on request.
Please note that the Group's registered office address is due to change to 1 New Walk Place, Leicester, LE1 6RU ("New Walk") with effect from 8 October 2018. Shareholders will be notified of the change at the Company's Annual General Meeting to be held at New Walk at 10.00am on 25 October 2018.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR UORWRWWAKRAR
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September 04, 2018 02:00 ET (06:00 GMT)
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