Annual Report 2019
We are
one of the UK’s leading providers
of wealth management and employee
benefit services. Discover
Mattioli Woods
Welcome
Delivering
great outcomes
Mattioli Woods is one of the
UK’s leading providers of wealth
management and employee benefit
services, with total assets under
management, administration
and advice of £9.4bn
(2018: £8.7bn)
Highlights
Revenue
£58.5m
2018: £58.7m
Recurring revenues1
90.2%
2018: 84.8%
Operating profit before financing
+2.1%
£9.8m
2018: £9.6m
£0.1m (2018: £0.5m) gained on revaluation of Amati option
Adjusted EBITDA2
+16.0%
Profit before tax
+4.1%
Adjusted profit before tax4
+8.8%
£14.5m
2018: £12.5m
Adjusted EBITDA margin3 of 24.8% (2018: 21.3%)
£10.2m
2018: £9.8m
£12.3m
2018: £11.3m
Basic EPS
30.8p
2018: 30.8p
Adjusted EPS5
37.3p
2018: 34.4p
+8.4%
Proposed total dividend
+17.6%
20.0p
2018: 17.0p
Net cash6
£23.2m
2018: £20.2m
Mattioli Woods plc Annual Report 2019
1 Annual pension consultancy and administration fees; ongoing adviser charges; level and renewal commissions;
banking income; property, discretionary portfolio and other annual management charges.
2 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).
3 Adjusted EBITDA divided by revenue.
4 Before acquisition–related costs, amortisation and impairment of acquired intangibles, changes in valuation
of derivative financial instruments and notional finance income and non-cash interest charges on provisions.
5 Adjusted profit after tax used to derive adjusted EPS is calculated as adjusted profit before tax less income tax
at the standard rate of 19.0% (2018: 19.0%).
6 Cash and short-term deposits less £0.1m (2018: £3.5m) of VAT reclaimed on behalf of and to be repaid to clients.
Strategic report
Governance
Financial statements
Operational highlights and
recent developments
Contents
Aberdeen wealth management
consultancy team
Strategic report
Highlights
At a glance
Operating segments
Client case study
Chairman’s statement
Our journey
Business model and strategy
Chief Executive's review
Key performance indicators
Principal risks
Corporate social responsibility
«
02
04
06
08
10
12
14
19
25
29
Governance
Chairman’s introduction to governance 34
38
Board of Directors
40
Corporate governance report
48
Directors’ remuneration report
Directors’ report
54
Directors’ responsibility
for the financial statements
Independent auditor’s report
58
59
Financial statements
Consolidated statement
of comprehensive income
Consolidated and company
statements of financial position
Consolidated and company
statements of changes in equity
Consolidated and company
statements of cash flow
Notes to the financial statements
Alternative performance
measure workings
Company information
Five year summary
Financial calendar
66
67
68
70
71
122
124
125
126
For more information, visit our website:
www.mattioliwoods.com
» Revenue mix remains primarily fee based
» Improved margin through operational
efficiencies whilst lowering clients’
costs by £3.1m
» Total client assets of the Group
and its associate7 up 7.4% to £9.38bn
(2018: £8.73bn)
» Gross discretionary AuM8 up 9.8%
to £2.57bn (2018: £2.34bn)
» Recent acquisitions performing
and integrating well
» Continued investment in technology,
compliance and training
7
Includes £409.0m (2018: £286.0m) of funds under
management by the Group’s associate, Amati Global
Investors Limited, excluding £31.9m (2018: £27.0m)
of Mattioli Woods’ client investment and £11.9m
(2018: £12.1m) of cross-holdings between the TB Amati
Smaller Companies Fund and the Amati AIM VCT plc.
8 Includes £452.8m (31 May 2018: £325.1m) of funds
under management by Amati Global Investors Limited,
including Mattioli Woods’ client investment and cross-
holdings between TB Amati Smaller Companies Fund
and Amati AIM VCT plc.
01
Mattioli Woods plc Annual Report 2019
At a glance
Growing
our business
Where we operate
Offices
11
Number of employees
586
Aberdeen
Belfast
Birmingham
Buckingham
Edinburgh
Glasgow
Leicester
London
Manchester
Newmarket
Preston
New acquisitions:
Broughtons Financial
Planning:
Based in Oldbury in the West Midlands,
Broughtons was founded in 2001 and
provides wealth management advice
and administration for 250 individual
clients, with over £120m of assets
under advice.
Broughtons has a similar culture to
Mattioli Woods and the combined
business gives us opportunities to
grow and develop the client offering.
Expanding into
Northern Ireland:
With the purchase of Belfast-based
SSAS Solutions.
Read more on page 9
Our purpose
Creating and preserving wealth, our trusted advice gives
clients the understanding to achieve their objectives.
Our goals
Medium-term goals:
Total client assets
£15bn
Revenue
£100m
EBITDA margin
20%+
02
Buckingham office
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Why
invest?
Our model is designed to deliver great client outcomes, leading
to strong client retention and sustainable shareholder returns.
Focus on strong
shareholder returns
» Clear strategy to grow and
Adjusted EBITDA*
diversify revenues
» Operating in growing markets
» Investing in people, technology
and infrastructure
£14.5m
2018: £12.5m
Scalable business with
integrity at its core
» Lowering clients’ costs without
Recurring revenues**
compromising on quality
» Retaining existing clients, while
seeking new business opportunities
» Right people, right culture, right skills
90.2%
2018: 84.8%
Consolidation in
our key markets
» Expanding across the value chain
Acquisitions since admission to AIM
» Organic and acquired growth strategy
» Pipeline of well-considered acquisition
opportunities
22
Profit in line with
expectations
» Securing economies of scale and
Profit before tax
operational efficiency
» Integration of acquired businesses
» Almost 30 consecutive years
of profit growth
£10.2m
2018: £9.8m
Securing profitable growth
Robust business
model
Track record of
organic growth
Innovation
Acquisitions
* 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).
** Annual pension consultancy and administration fees; ongoing adviser charges; level and renewal commissions;
banking income; property, discretionary portfolio and other annual management charges.
03
Mattioli Woods plc Annual Report 2019 Operating segments
We put our clients at the core
of everything we do, with
the objective of growing
and preserving their assets,
while giving them control
and understanding of
their overall financial position
Wealth management
We provide wealth management and administration services
to individuals and families, embracing all aspects of financial
planning, pensions, personal and trust investment, coupled
with estate planning.
Pension consultancy and administration
Mattioli Woods is a leader in the provision of Self Invested
Personal Pension (“SIPP”) and Small Self-Administered
Pension Scheme (“SSAS”) arrangements, which are often
central to our clients’ life planning strategies. We have
established a reputation for technical excellence, widely
acknowledged within our industry. We maintain our
technical edge through our in-depth understanding
of UK pension legislation, which translates into meaningful
advice given to clients by our consultancy team.
The provision of personalised and proactive administration
further differentiates us from our competitors.
Investment and asset management
Discretionary management and the provision of bespoke
investment advice sit at the heart of our investment
proposition. 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 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 in the future.
Continued growth in the quantum of assets under
management and advice has enhanced the quality of the
Group’s earnings by increasing the proportion of recurring
revenues, while the migration of client assets under advice
to assets under management allows us to deliver a more
efficient wealth management service to those clients.
Our services are delivered by a dedicated team, with
many years’ experience in finance and investment.
04
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
At the same time, we are focused on
growing our business, both organically
and by acquisition, to deliver strong,
sustainable shareholder returns over
the long-term.
Our focus is on holistic planning and providing high levels
of personal service, maintaining close relationships with all
our clients. We plan to continue developing complementary
services around our core specialisms, blending advice,
investment and asset management with product provision
to progress as a modern financial services business aligned
to our clients’ needs, producing great client outcomes and
lowering clients’ costs.
Employee benefits
We assist our corporate clients
with employee engagement, with the
aim of improving recruitment, retention
and workplace morale.
Property management
Our subsidiary company Custodian Capital Limited
(“Custodian Capital”) facilitates direct property ownership
on behalf of pension schemes and private clients and also
manages the Mattioli Woods Private Investors Club, which
offers alternative investment opportunities to suitable clients
by way of private investment structures.
In addition, Custodian Capital is the discretionary fund
manager of Custodian REIT plc (“Custodian REIT”), a UK
real estate investment trust listed on the Main Market of the
London Stock Exchange. We believe investment in good
quality properties with institutional grade tenants typically
provides stable returns over the long-term and our property
team offers years of experience in commercial property
investment to help deliver this.
Read more about Custodian REIT on page 11
Employee benefits
This encompasses consultancy and administration on areas
such as defined contribution and defined benefit pension
schemes, workplace savings, healthcare, international
benefit solutions and risk benefits, in addition to the design,
implementation and administration of these schemes.
The Group also offers its clients total reward and flexible
benefit systems, assisting its clients in the delivery of
these to their employees, along with advice, guidance
and financial education. Recent changes in legislation are
increasing demand for our financial education and wealth
management services to be delivered through employers.
Read more about segmental reporting on page 88
05
Mattioli Woods plc Annual Report 2019 Client case study
Meeting our
clients’ needs
Our best-selling product is peace of mind – we are
seeing more and more clients planning for their
children’s futures. Our tailored solutions mean
consideration can be given as to how best to help
children, grandchildren or others in financial terms.
Whether cascading funds for the mitigation of
inheritance tax or simply making sensible plans
to meet future expenses, our experienced
consultants can help.
Doug Brown on adviser Doug Ryan...
I started a business in the IT sector 31 years ago with my
business partner Moira Pollard. We came from the same
employer before that and had a pension fund that we
transferred using that company’s existing pension adviser.
As a start-up, we didn’t have much money, so didn’t pay
much into the pension, but our business became very
successful and is still going today – managing the
IT infrastructure for hedge funds and lawyers in the
City of London.
The pension assets were not performing very well.
The company was beginning to generate an income
for us, but the pension fund wasn’t giving us the growth
that the market had experienced.
The advisory firm kept changing our adviser, and every time
we got a new one we were switched into different funds.
It didn’t instil us with confidence. It was working for them;
it wasn’t working for us.
Mattioli Woods featured in a press article as a rising star in
the wealth management sector. We met Doug and explained
our woes to him. He was a breath of fresh air. Personality was
the key – we clicked with him straight away.
We were quite old in the IT sector, having started the
company in our late 30s and early 40s. Doug was in the
same age group as our staff and that reassured us he’d
be around for a while.
In those days I was sceptical of investment advice,
but Doug has proven he knows a lot more than me
about investment! We quickly adopted the approach
of ‘what he says goes’.
He has kept us abreast of legislative changes, particularly
the cap in pension savings lifetime allowance, and has
given us the confidence that we don’t need to worry.
When we started the company Moira had already been
diagnosed with multiple sclerosis and she’d had breast
cancer. We didn’t know how quickly her illness would
progress. She passed away last September. Doug before,
during and since her illness has done an amazing job.
He took the time to learn about us as individuals and has
shown great ability in handling our individual situations.
Moira was born at the end of the war and abandoned in
a hospital. She was married but had no children or other
relatives. She had plenty of good friends though – Doug
among them. Her needs were based around her health
and rapidly increasing care costs. I have two sons and six
grandchildren and want to ensure my family has some
financial security.
Doug has been very sensitive to Moira’s needs. She insisted
on dying at home - that’s a promise I made to her. It was
very expensive, but it didn’t matter. Doug made sure the
money was there at the drop of a hat. His caring approach
sets him apart from any other adviser we’ve known.
He was very pedantic in going through reams of paperwork
to establish the composition of our existing investments and
confirm the previous advisory firm hadn’t mismanaged them.
I am still a director of the IT business – I retained 5% and now
have Moira’s 5% – but look on every day spent in the office as
time I could be out in my woodland or on my boat.
Doug’s more than
an advisor at this
stage – he’s a very
close friend.
06
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Our relationship developed
over time and evolved from
a purely professional to
a personal one.
Doug Ryan on Doug Brown...
Two IT consultancy business owners contacted us in 2006
after reading about our company in a press article. They were
looking for an advisory firm to run their pension assets better
than they had been in the past.
We were one of three companies they asked to tender for
the business. Their pensions were held in a variation of a SSAS.
It was incredibly convoluted and had a very complex fee
structure that didn’t make sense.
My proposition to them was that I wanted to do things a
great deal simpler. I suggested setting up a multi-member
SIPP with a clear and straightforward fee structure. They
would both be trustees of the pension fund alongside us,
enabling them to retain ownership of the pension. Our
approach seemed to create real traction with them.
I was young at the time – I’d just turned 30 – but they were
never prejudiced. As good business people, they focused on
the solution. That’s undoubtedly why they picked me in the
first place.
The next step was to decide upon a diversified investment
strategy. Unfortunate timing – coming just before the
credit crunch – meant their investments were quite severely
affected in the next few years. I got myself straight in front of
them to ensure they knew what was going on. That helped
to give them confidence. Their investments have since
performed well.
Our relationship developed over time and evolved from
a purely professional to a personal one. We met every six
months and spoke on the phone intermittently. We often
discussed our personal lives and how they were going.
It was clear to me that they were very nice people.
Every time we met we discussed other areas of their personal
finances. Since the initial work on their corporate pension
assets, our remit has extended to personal investments and
consolidation of other investment strategies. Our overriding
aim was to take care of them.
Moira sadly passed away last year, but I had immense respect
for her as a businesswoman. I always appreciated it when she
imparted a bit of her knowledge. She provided me with some
great guidance in terms of my own career.
I have seen young people rising through the ranks of their
business and I have been interested to learn how they
advanced their careers. A number of these people have
subsequently become major shareholders in the business.
I have a really close relationship with Doug. We have an
awful lot of trust in each other.
Doug Ryan(L), Doug Brown(R)
07
Mattioli Woods plc Annual Report 2019 Chairman’s statement
Focus on
delivery
Our integrated business model allows us to address more
of the value chain across advice, administration, platform,
investment management and product provision. We have
used the resultant economies of scale and operational
efficiencies to reduce clients’ costs, while delivering the
sustainable returns for our shareholders that we are proud
to have delivered over many years.
We 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 13.67 pence
per share (2018: 11.5 pence). This makes a proposed total
dividend for the year of 20.0 pence (2018: 17.0 pence),
a year-on-year increase of 17.6%.
Strategy
Previously, we have set out our ambitions to grow revenue to
£100m and total client assets to £15bn, while maintaining an
EBITDA margin of 20%+. As we work towards these goals our
strategy remains focused on achieving sustainable levels of
organic growth, supplemented by strategic acquisitions that
enhance value and broaden or deepen our expertise
and services to better serve our clients.
In March, we were delighted to announce the acquisition of
SSAS Solutions (UK) Limited (“SSAS Solutions”), which is based
in Belfast and acts as SSAS practitioner to over 350 schemes
with approximately £380m of assets under administration.
This followed the acquisition of Broughtons Financial Planning
Limited (“Broughtons”) in the first half of the financial year,
which has integrated well and contributed positively to our
trading results since acquisition.
We will seek to build on our track record of successful
acquisitions by continuing to assess a diverse pipeline of
potential acquisition opportunities that meet our strict criteria,
believing further consolidation within our core markets
remains likely.
Our people
We are a business built on the integrity and expertise of our
people. By putting clients first we are able to continue building
a business that is sustainable over the long-term and our
people have responded positively as the business has evolved
and the financial services industry continues to go through a
period of unprecedented change. Operational achievements
over the past year include:
» A seamless move to our new freehold office at New Walk in
Leicester, incurring significantly lower relocation costs than
anticipated. This development allows us to benefit from
future rental savings of approximately £0.85m per annum,
whilst providing a modern office facility with the capacity
for future growth;
» The successful implementation of a cloud-hosted
IT architecture across the Group;
» The introduction of an integrated human resource
management and payroll system;
» The launch of a refreshed Mattioli Woods brand;
» Implementation of changes to the regulatory regime
(General Data Protection Regulations (“GDPR”) and the
Markets in Financial Instruments Directive II (“MiFID II”)) and
preparation for the introduction of the Senior Managers and
Certification Regime; and
» Continued investment to improve our client and service
Joanne Lake
Non-Executive Chairman
We believe the
opportunity for
Mattioli Woods
is significant.
I am pleased to report another
successful year for Mattioli Woods.
Profit before tax was up 4.1% to £10.2m (2018: £9.8m), with
adjusted profit before tax up 8.8% to £12.3m (2018: £11.3m)
and adjusted EBITDA up 16.0% to £14.5m (2018: £12.5m).
This performance has been achieved despite the ongoing
political and economic uncertainties and generally poor
investor sentiment during the year ended 31 May 2019.
Throughout the year we maintained our focus on client
service and developing our customer proposition. As
highlighted in our July trading update, a combination of
the Group reducing costs for our clients by £3.1m and the
general market conditions, which resulted in reduced levels
of investment by clients, led to marginally lower than
expected revenue of £58.5m (2018: £58.7m). However, the
financial impact of this was more than offset by the realisation
of operational efficiencies and other planned administrative
cost savings, resulting in an increased operating margin9 of
16.8% (2018: 16.4%) and adjusted EBITDA margin of 24.8%
(2018: 21.3%), meaningfully ahead of our 20%+ target.
9 Revenue divided by operating profit before financing.
proposition.
08
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
We continue to streamline our business, drive increased
efficiency and reinforce our purpose to grow and preserve
our clients’ assets, while giving them control and
understanding of their overall financial position. Uncertainty
around Brexit will continue to impact investor and consumer
sentiment in the short-term, but we are confident that our
focus on addressing the changing needs of our clients will
position us well to deliver future growth and continued
sustainable shareholder returns.
Joanne Lake
Non-Executive Chairman
2 September 2019
New acquisitions:
Expanding into
Northern Ireland
In March 2019, the Group announced its
expansion into Northern Ireland with the
purchase of Belfast-based SSAS Solutions, which
is Northern Ireland’s largest independent firm
of dedicated SSAS specialists offering business
owners bespoke retirement solutions.
Established in 2009, it provides pension administration and trustee
services to over 350 SSAS clients, with approximately £380m of
assets under administration.
With both companies sharing values such as client-first service,
it has been business as usual for the SSAS Solutions team, who
have developed great client relationships and solid connections
with a number of professional connections throughout Ireland.
We are looking to enhance the team as we expand Mattioli Woods’
operations in the region, creating a new administration hub for the
Group and developing the existing client offering to include SIPPs.
We are committed to developing our staff and building the
capacity to deliver sustainable growth over the long-term.
As part of our normal planning, we monitor the Group’s
capabilities and assess what new skills are necessary to
strengthen the business over time, taking account of the
existing balance of knowledge, experience and diversity.
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
Good corporate governance continues to be a priority for us.
We strive for high standards in our own corporate governance
and disclosure, and in July 2018 we adopted the QCA
Corporate Governance Code.
The Board remains committed to developing the corporate
governance and management structures of the Group to
ensure they continue to meet the changing needs of the
business. Murray Smith, Group Managing Director, has
decided to stand down from the Board at the Company’s
next Annual General Meeting (“AGM”) on 21 October 2019 to
continue in a full-time role as Founder Director to the Group,
where his focus will be on his client portfolio, acquisitions and
acting as an ambassador for Mattioli Woods.
Murray has been instrumental to the success of the Group
and we will continue to benefit from his experience
and insight in this new role, with Murray’s management
responsibilities being handed over to our Deputy Group
Managing Director, Michael Wright.
Following Murray’s cessation as a director, the Company
will have a Board with a majority of independent directors,
which we believe represents the right governance structure
for the business.
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
Investment markets look likely to remain volatile but we
believe the opportunity for Mattioli Woods is significant,
as people seek to take charge of their money and manage
it through the generations. At the same time, savings
and investments are becoming more complicated and
regulatory requirements continue to increase. The inherent
agility within our business model allows us to adapt to the
changing wealth and asset management marketplace.
Clients need long-term advice and personalised strategies
more than ever before. We will continue to focus on
reducing clients’ costs without compromising client
service, whilst delivering high quality solutions.
09
Mattioli Woods plc Annual Report 2019 Our journey
Track record of
adding value
Acquisition of
City Pensions
£2.1m and first
London office
Admission
to AIM
Develop
structured
products
initiative
Funds under
trusteeship
exceed £1bn
Revenue
exceeds
£10m
Appointed to
operate Freedom
SIPP
Acquisition of
Kudos £10.0m,
adding
Aberdeen
and Glasgow
offices
Launch
discretionary
portfolio
management
service
2005
2006
2007
2008
2009
2010
2011
2012
Acquisition of
Suffolk
Life portfolio
£0.7m
Acquisition
of Pension
Consulting
£2.0m
Acquisition of JB
Group £1.8m
Acquisition of
CP Pensions
£0.7m
Appointed to
operate Pilgrim
SIPP
10
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Acquisition of
Taylor Patterson
£8.3m – Preston
office
Acquisition of
MC Trustees
£2.2m
Acquisition of
Atkinson
Bolton £6.2m –
Newmarket
office
Acquisition
of Boyd
Coughlan
£7.0m –
Buckingham
office
Open first
Manchester
office
Acquisition of
49% of new
associate, Amati
Global Investors
£3.3m
Acquisition of
Broughtons
£4.4m –
Birmingham
office
Acquisition of
SSAS Solutions
£4.5m – Belfast
office
Acquisition
of Ashcourt
Rowan
Pensions
£1.2m
Launch
Custodian REIT
on main market
of the London
Stock Exchange
Revenue exceeds
£30m, with assets
under advice and
administration of
£6bn
Launch the
Mattioli Woods
Structured
Products Fund
Ian Mattioli and
Bob Woods
awarded MBEs
Move to new
Leicester office
Launch new
partnership with
Alzheimer’s
Research UK
2013
2014
2015
2016
2017
2018
2019
Appointed to
operate HD
SIPP
Custodian REIT
Five years on...
Developed from
Mattioli Woods’ syndicated
property initiative,
Custodian REIT plc
completed its IPO with
admission to the main
market of the London Stock
Exchange in March 2014.
Upon admission, it acquired a portfolio of
£95m of UK commercial property which
was sourced from an existing portfolio of
48 properties held by our clients.
By principally targeting sub £10m lot size
regional properties, Custodian REIT aims
to provide investors with an attractive level
of income and the potential for capital
growth, becoming the REIT of choice for
private and institutional investors seeking
high and stable dividends from well-
diversified UK real estate.
In the five years since its launch, Custodian
REIT has gone from strength to strength
and the company’s market capitalisation
has grown from £132m to £443m through
managing a portfolio of increasingly well
diversified regional properties with a gross
value that has increased from £95m at IPO
to £573m today.
11
Mattioli Woods plc Annual Report 2019 Business model and strategy
A platform for
sustainable growth
Our business model
Integrated model allows us to address more of the value chain:
» Economies of scale
» Operational efficiencies
» Lower client costs
» Sustainable shareholder returns
Adviser
» Trusted expertise
» Close client relationships
» Own distribution through team of 115
consultants with an average age of 38
Administrator
» End-to-end administration
» Proactive, personal service
» 11,100+ SIPP and SSAS schemes
» Own MWeb pension administration platform
Platform
» Investing in technology
» Strategic partnerships with external providers
Asset
manager
» Bespoke advice
» Discretionary portfolio management
» Using the best of what we and others provide
Product
provider
» Innovative new product development
» Addressing clients’ needs
» Extending distribution beyond advised clients
12
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
» Focus on maintaining
close client relationships
» Passion for looking after
clients’ aspirations and
assets
» Adviser, manager and
provider
Our strategy
» In-house product offering,
with flexibility to offer
other providers’ products
when better suited
» Broadening services
Personal
client
service
Proactive
advice
Medium
term goals
£15bn total client assets
£100m revenue
20%+ EBITDA margin
Strong
shareholder
returns
Great client
outcomes
» Organic growth
» Supplemented by value-
enhancing acquisitions
» Strong and passionate
management team
» Progressive dividend policy
» Strong client satisfaction
and retention
» Strong investment
performance relative
to benchmarks
» Lowering clients’ TERs
13
Mattioli Woods plc Annual Report 2019 Chief Executive’s review
Invested for the future
to deliver long-term growth
Introduction
I am pleased to report another successful
year, with operating profit before
financing up 2.1% to £9.8m (2018: £9.6m)
and profit before tax up 4.1% to £10.2m
(2018: £9.8m), enhanced by an increased
share of profit of £0.5m (2018: £0.2m)
from our 49% associate Amati.
Given the success of this relationship, which in the year
ended 31 May 2019 also contributed a £0.1m (2018: £0.5m)
gain on the revaluation of our option to acquire the other
51% of Amati, we believe the Group retaining a 49% minority
interest is the optimal structure for all stakeholders and in
June 2019 we cancelled our option in return for a £0.75m
payment from the Amati management team, as agreed in
the heads of terms signed prior to the year end.
Adjusted EBITDA was up 16.0% to £14.5m (2018: £12.5m),
primarily driven by the economies of scale and operational
efficiencies our integrated model offers, which we have used
to reduce clients’ costs, while delivering sustainable returns
for our shareholders. In recent years we have demonstrated
that one of the key benefits of operating an integrated
model is the ability to reduce our fees and charges where
possible, including:
» Reducing the custody charge for all those clients using
our core investment platform;
» Reducing the rate of Custodian Capital’s property
management fees charged to Custodian REIT, plus a step
down in the rate of administrative fees charged;
» The launch of the Mattioli Woods Structured Products
Fund, charging significantly less than individual structured
product plans had done historically; and
» Reducing adviser charges on our clients’ investments
in Custodian REIT and the Mattioli Woods’ Structured
Products Fund.
The aggregate impact of these changes in the year ended
31 May 2019 was a £3.1m (2018: £2.4m) reduction in clients’
costs, with the negative revenue impact of this, more volatile
market conditions and an increase in the number of clients
focusing on wealth preservation being partially offset by
£1.1m of revenue from acquisitions in the year. Revenue
was £58.5m (2018: £58.7m), with growth in prior periods
primarily driven by increased client activity following the
pension freedoms coming into effect in 2015. Although
the flow of new business generated by our consultancy
team was impacted by ongoing political and economic
uncertainties and generally poor investor sentiment
throughout the period, a total of 762 (2018: 1,335)
new SIPP, SSAS and personal clients chose to use
Mattioli Woods during the year.
Ian Mattioli
Chief Executive Officer
Our success is based
upon the delivery of
quality advice.
14
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
We have previously stated our belief that fees for financial
services in the UK are generally too expensive. The Financial
Conduct Authority (“FCA”) is reviewing the impact of
the Retail Distribution Review (“RDR”) and the Financial
Advice Market Review (“FAMR”), and recently published a
consultation paper proposing new rules to avoid consumers
being hit with unnecessary ongoing advice charges. The
FCA has expressed its concern that when combined with
multiple layers of charging such as platform charges, fees
for discretionary fund management and product charges,
advisers are not giving sufficient attention to value for
money. This may lead to regulatory pressure on the sector
to reduce the cost to consumers. Given the work we’ve
done to date and our long-term aim to reduce clients’ total
expense ratios (“TERs”) towards 1%, we believe we are
well-positioned as the market changes and evolves.
Delivering a more vibrant,
flexible and collaborative
working environment for
our people.
A seamless move
to the new
Leicester office
The move to a new Leicester office
in New Walk marks a key milestone
in the Group’s history. In October
2018, we transitioned nearly 400
of our people into the city centre,
a short distance from the Leicester
Tigers, sponsored by Mattioli Woods.
The 50,000 sq ft building not only provides us with the
capacity to grow in line with our aspirations but also
has delivered a more vibrant, flexible and collaborative
working environment for our people, which has
helped us to achieve closer integration and
operational efficiencies.
As part of the project, we introduced a number of
technological improvements to support our new
and secure agile way of working. These included the
implementation of a cloud-hosted IT architecture across
the Group, PaperCut printing technology and telephone
hot desking.
We have also enhanced our training and development
capabilities, with dedicated learning and study areas,
and improved our visitor experience with several
meeting and hosting spaces.
Our switch to New Walk has breathed new life into
an area that is a cornerstone of Leicester’s business,
academic and retail quarter and enhanced our
engagement with the local business community.
Our conference suites and business lounges not only
support our programme of seminars and events but
also play host to a growing number of external events,
exhibitions and meetings for partner organisations.
Benefits
» Space to grow
» A great place to work
» Increased collaboration and integration
» Improved client and visitor experience
» In the heart of the community
15
Mattioli Woods plc Annual Report 2019 Chief Executive’s review continued
We have also sought ways to reduce our clients’ costs
elsewhere in the value chain, including:
» Reducing ongoing charges within our clients’ discretionary
portfolios;
» Creating a range of multi asset funds to further reduce
costs and improve investment efficiency, administration
and reporting for clients; and
» Securing a VAT exemption for the management of
certain clients’ pension schemes that constitute a ‘special
investment fund’, reclaiming £3.5m of VAT on their behalf.
Retaining the integrity,
expertise and passion of our
people remains a priority of
the board and is at the heart
of our success.
In addition to adding new clients, we continue to enjoy
strong client retention and anticipate that there will be
sustained demand for advice from clients, driven by lifestyle,
increasing longevity, tax and other legislative changes,
particularly when the implications of the UK’s withdrawal
from the European Union become clear.
Our success has been based upon the delivery of quality
advice, growing our clients’ assets and enhancing
their financial outcomes. Total client assets under
management, administration and advice by the Group and
its associate increased by 7.4% to £9.38bn (2018: £8.73bn)
notwithstanding the negative market movements during
the year.
In meeting our clients’ investment needs we generally
use third parties’ funds, but where we have the particular
expertise and a more appropriate investment product,
we look to meet those needs in-house. This has led to
the innovative development of our Private Investors Club,
Custodian REIT and the Mattioli Woods Structured Products
Fund, in addition to the funds managed by Amati.
These bespoke investment services enjoyed aggregate
net inflows (before market movements) of £265.2m
(2018: £452.1m), with gross discretionary assets under
management by the Group and its associate increasing to
£2.57bn (2018: £2.34bn) at the year end. The value of assets
held within our Discretionary Portfolio Management service
increased by 3.7% to £1.39bn (2018: £1.34bn), of which
£132.3m or 9.5% (2018: £121.0m or 9.0%) is invested within
funds managed by the Group and its associate. We plan to
continue developing new products and services to better
deal with our clients’ needs, using the best of what we have
and the best of what other providers can offer.
Recent acquisitions are performing and integrating well,
with the financial result for the year including positive
contributions from Broughtons and SSAS Solutions, which
were acquired in August 2018 and March 2019 respectively.
16
We believe securing economies of scale, such as rebates on
fund managers’ charges and other benefits of operating our
integrated model will allow us to improve client outcomes
and reduce clients’ TERs. By putting our clients first and
building our reputation of integrity through the cycle, we
have created a business focused on positive client outcomes
that can deliver sustainable shareholder returns over the
long-term.
Market overview
Mattioli Woods operates within the UK’s financial services
industry, which is subject to the effects of volatile markets
and economic conditions and regulatory changes. 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 a period of unprecedented
change in regulation and legislation.
As the demand for high-quality, personalised advice and the
potential market for our products and services continue to
grow, so do the costs of regulation, with the Financial Services
Compensation Scheme (“FSCS”) announcing an increase
in its levy for 2019/20 after an uplift in claims against SIPP
operators, resulting in the Group’s regulatory fees and levies
for the 12 months ending 31 March 2020 almost doubling
to £0.7m.
Pricing fairness and competition continue to attract regulatory
scrutiny and we believe our focus on client service and
the inherent flex within our business model will allow us
to continue to adapt to the changing wealth and asset
management marketplace.
Both MiFID II and the GDPR came into effect last year and
we continue to prepare for other regulatory and legislative
changes already in train, including the Senior Managers and
Certification Regime (“SM&CR”).
Considerable uncertainty remains across the financial services
sector: the outcome of Brexit is still unknown and the impact
of new rules on markets will take time to become clear as we
shift from a period of implementing new regulations to one of
ongoing supervision.
While there remains uncertainty around Brexit it will continue
to impact markets and consumer confidence. Financial
decision making is more difficult and clients may be reluctant
to make decisions or to invest in more volatile markets,
preferring to sit on the side-lines. Our diversified model means
we are well-positioned to proactively advise our clients whilst
protecting returns through the cycle. We anticipate that
we may see increased investment activity and an increased
demand for advice once the shape of Brexit becomes clearer.
However, we are conscious the UK's exit from the European
Union might raise unexpected challenges, including those
arising from any broader impact that Brexit might have on the
UK economy, politics or on the operation of European-based
funds, such as the Mattioli Woods Structured Products Fund.
The FAMR published by the FCA and HM Treasury in 2016
made a series of recommendations designed to tackle
barriers to consumers engaging with financial advice,
particularly through the use of technology. We continue to
invest in the development of our IT platform and completed
several projects during the year, including the implementation
of a cloud-hosted IT architecture, which offers the Group
enhanced data security, business continuity and scalability for
future growth, and the introduction of an integrated human
resource management and payroll system that allows us to
engage with all of our people through one platform.
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
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, which has 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:
» 44.4% investment and asset management (2018: 42.7%);
» 34.9% pension consultancy and administration (2018: 37.1%);
» 11.1% property management (2018: 10.1%); and
» 9.6% employee benefits (2018: 10.1%).
We aim to operate a seamless structure, allowing us to cover
all aspects of wealth management and employee benefits.
Our key objectives are:
» Maintaining long-term relationships and delivering great
outcomes for our clients;
» Proactively anticipating our clients’ needs to deliver on
their expectations;
» Investing in our people and technology to service greater
business volumes at a lower cost;
» Sharing knowledge and ideas between ourselves and
others for mutual benefit;
» The development of our market standing through the
integrity and expertise of our people;
» Extending our range of products and services, seeking
to attract new clients both organically and via strategic
acquisitions; and
» Being proud of our charitable and community spirit,
supporting staff and local and national charities.
Assets under management, administration and advice
Unlike many wealth managers, the majority of the Group’s
revenues are fee-based, rather than being linked to the value
of assets under management, administration or advice10,
giving our business a revenue profile that is less sensitive to
market performance. Acquisitions during the year added
£0.50bn of client assets, with Group and its associates total
client assets increasing by 7.4% to £9.38bn at 31 May 2019
(2018: £8.73bn) as shown below.
The £653.3m increase in total client assets during the year
is analysed as follows:
» A £565.7m increase (2018: £454.6m) in SIPP and SSAS
funds under trusteeship, with a 5.6% (2018: 5.1%) increase
in the number of schemes being administered at the
year end, comprising a 3.7% (2018: 13.5%) increase in the
number of direct11 schemes to 6,051 (2018: 5,834) and
a 7.9% increase (2018: 3.7% decrease) in the number of
schemes the Group operates on an administration-only
basis to 5,068 (2018: 4,699) following the acquisition of
SSAS Solutions. 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;
» A £41.2m decrease (2018: £135.6m increase) in the value
of assets held in the corporate pension schemes advised
by our employee benefits business, following the loss of
some larger corporate clients in the year. 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;
» A £5.8m (2018: £81.3m) increase in personal wealth
and other assets under management and advice, with
the acquisition of Broughtons and 254 (2018: 291) new
personal clients won during the year driving a 2.5%
(2018: 1.5%) increase in the total number of personal
clients12 to 6,052 (2018: 5,902); and
Assets under management,
administration and advice13
At 1 June 2018
Broughtons
SSAS Solutions
Acquisitions during the year
Net inflows/(outflows), including
market movements
—
380.0
380.0
185.7
SIPP and SSAS
£m
5,485.9
14
Employee
benefits
£m
1,237.9
Personal wealth
and other assets
£m
1,719.4
—
—
—
120.5
—
120.5
Sub-total
£m
8,443.2
120.5
380.0
500.5
Amati
£m
286.0
15
—
—
—
Total
£m
8,729.2
120.5
380.0
500.5
152.8
(41.2)
(114.7)
29.8
123.0
At 31 May 2019
6,051.6
1,196.7
1,725.2
8,973.5
409.0
9,382.5
10 Revenue for the year ended 31 May 2019 was split 52% (31 May 2018: 58%) fixed, initial or time-based fees and 48% (31 May 2018: 42%) ad valorem fees based on the value of assets
under management, advice and administration.
11 SIPP and SSAS schemes where the Group acts as pension consultant and administrator.
12 Includes personal wealth clients with SIPP and SSAS schemes operated by third parties.
13 Certain pension scheme assets, including clients’ own commercial properties, are only subject to a statutory valuation at a benefit crystallisation event.
14 Value of funds under trusteeship in SIPP and SSAS schemes administered by Mattioli Woods and its subsidiaries.
15 Assets under management of £409.0m (2018: £286.0m) excludes £31.9m (2018: £27.0m) of Mattioli Woods’ client investment included within SIPP and SSAS, employee benefits
and personal wealth and other assets and excludes £11.9m (2018: £12.1m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.
17
Mattioli Woods plc Annual Report 2019
Chief Executive’s review continued
» A £123.0m (2018: £132.2m) increase in Amati’s funds
under management (excluding Mattioli Woods’ client
investments), primarily through the growth of the
TB Amati UK Smaller Companies Fund to £291.1m
(2018: £166.3m) at 31 May 2019.
I would like to congratulate the Amati team on being
named ‘Fund Manager of the Year’ at the Investment Week
Fund Manager of the Year Awards in June 2019. Amati is
an excellent fund manager that has performed strongly
since Mattioli Woods’ investment, seeing gross funds under
management16 increase from circa £120.0m to £452.8m
(2018: £325.1m) at the year end, winning numerous industry
awards and having the TB Amati UK Smaller Companies
fund rated by three major fund research houses. As a result
of Amati’s strong performance the Group’s share of its profits
increased to £0.5m (2018: £0.2m).
Key performance indicators
The directors consider the key performance indicators
(“KPIs”) for the Group are as follows on page 19.
Financial performance and future developments
Revenue
Total Group revenue was £58.5m (2018: £58.7m), with the
changing revenue mix across each of the Group’s operating
segments explained in more detail below. With effect from
1 June 2018 the Group adopted the new accounting
standard IFRS 15 ‘Revenue from Contracts with Customers’,
with there being no material differences between the results
for the year ended 31 May 2019 under IAS 18 ‘Revenue’,
had it applied, and those reported under IFRS 15.
Revenue included £1.1m (2018: £nil) from the Broughtons
and SSAS Solutions businesses acquired during the year. We
have identified a number of key strategic objectives to drive
efficiency and effectiveness across the Group, streamlining
processes, building a scalable operating model and making
Mattioli Woods easier to do business with. We expect these
changes will deliver further material cost savings for us and
our clients.
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.
Employee benefits expense
As in previous years, the major component of the Group’s
operating costs is our employee benefits expense of £31.2m
(2018: £32.1m) representing 53.3% of revenue (2018: 54.7%).
Securing economies of scale and operational efficiencies,
particularly through the integration of acquired businesses
and clients, are key elements of our aim to reduce clients’
TERs and we are pleased to have increased average
consultant and client relationship manager caseloads
during the year.
Due to the lease on the Group’s office in Hampton-in-Arden
expiring in June 2019 and the proximity of this location to
Leicester, we relocated our MC Trustees business to our
new Leicester office in the first half of the financial year,
resulting in some voluntary redundancies and the Group’s
average headcount during the year falling to 600 (2018: 618)
at 31 May 2019.
We have also reviewed our approach to consultancy
development, with the number of consultants reducing to
115 (2018: 133) at the year end, following the retirement
of several vendors of acquired businesses on completion
of their earn-outs, restructuring of our employee benefits
business and a new consultancy development programme
going live in December 2018.
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 fell to £11.7m (2018: £12.6m),
with the impact of additional regulatory and compliance
costs following the introduction of MiFID II, increased IT
costs after moving to a cloud-hosted infrastructure and
changes in revenue mix increasing irrecoverable VAT being
more than offset by the impact of lower headcount on
variable costs and significantly lower than anticipated costs
incurred on the Group’s exit from its previous premises at
Grove Park.
We completed a seamless move to the new office. This
more flexible working environment allows us to continue
growing the business and realise further operational
efficiencies, whilst ensuring our client services remain first
class. In addition, we will benefit from future rental savings
of approximately £0.85m per annum.
With effect from 1 June 2018 the Group adopted the new
accounting standard IFRS 9 ‘Financial Instruments’, which
replaced IAS 39 ‘Financial Instruments: Recognition and
Measurement’ and introduces changes to the classification
of financial assets and a new impairment model for financial
assets, resulting in earlier recognition of impairment losses.
The impact, net of tax, of the transition to IFRS 9 on the
opening balance of consolidated retained earnings was
a reduction in value of £0.25m.
Share based payments
Share based payments costs fell to £1.1m (2018: £1.5m)
following the settlement of all outstanding cash-settled
options in the prior year, with strong share price growth in
previous periods having increased the costs associated with
the cash-settled options.
Loss on disposal of property, plant and equipment
The loss on disposals of property, plant and equipment of
£0.1m (2018: £0.1m) was incurred primarily on the disposal
of consultants’ cars.
Gain on revaluation of derivative financial instrument
The gain of £0.1m (2018: £0.5m) represents the increase
in value of the Group’s option to acquire a further 51% of
Amati, which was cancelled following the year end in return
for a £0.75m payment from the management team.
Net finance costs
The Group has maintained a positive net cash position
throughout the year, with net finance costs of £0.03m
(2018: £0.08m) reflecting credit interest of £0.06m (2018:
£0.07m) being offset by £0.09m (2018: £0.15m) of non-cash
interest charges on the unwinding of discounts on long term
provisions.
Taxation
The effective rate of taxation on profit on ordinary activities
was 20.0% (2018: 16.2%), above (2018: below) the standard
rate of tax of 19.0% (2018: 19.0%), primarily due to certain
expenses associated with sponsorship and other business
development activities not being deductible for tax
purposes.
The lower effective rate in the prior year was due to research
and development relief claimed in respect of the two years
ended 31 May 2017. The net deferred taxation liability carried
forward at 31 May 2019 was £3.8m (2018: £2.8m).
16 Includes Mattioli Woods’ client investment and £11.9m (2018: £12.1m) of
cross-holdings between the TB Amati Smaller Companies Fund and the
Amati AIM VCT plc.
18
Mattioli Woods plc Annual Report 2019 Key performance indicators
Strategic report
Governance
Financial statements
Strategy/objective
KPI
How we performed
Organic growth and
growth by acquisition
See ‘Our business model’ on page 12
and 'Revenue' on page 18.
Operating efficiency
See ‘Profitability and earnings per
share’ on page 20 and 21.
Shareholder value and
financial performance
See ‘Profitability and earnings per
share’ on page 20 and 21.
Growth in the value of
assets under management,
administration and advice
See ‘Assets under management,
administration and advice’ on pages
17 and 18.
2019
2018
2017
2019
2018
2017
2019
2018
2017
Revenue – total income (excluding VAT)
from all revenue streams.
Adjusted EBITDA margin – profit generated
from the Group’s operating activities
before financing income or costs, taxation,
depreciation, amortisation, impairment,
changes in valuation of derivative financial
instruments and acquisition-related costs,
including share of profit from associates
(net of tax), divided by revenue.
Adjusted Earnings Per Share
(“EPS”) – total comprehensive income for
the year, net of taxation, attributable to
equity holders of the Company, adjusted
to add back acquisition-related costs, gain
on revaluation of derivative financial assets,
non-cash interest 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.
£58.5m
£58.7m
£50.5m
24.8%
21.3%
21.4%
37.3p
34.4p
30.3p
Assets under management – the value of all
client assets the business gives advice upon,
manages or administers.
2019
2018
2017
£9.4bn
£8.7bn
£7.9bn
Excellent client service
and retention
See ‘Segmental review’ on pages
22 and 23.
Client attrition – the number of direct
SSAS and SIPP schemes lost as a result of
death, annuity purchase, external transfer
or cancellation as a percentage of average
scheme
2019
2018
2017
Financial stability
See ‘Cash flow’ on pages 21.
See ‘Regulatory capital’ on page 22.
Debtors’ days – this is the average number
of days’ sales outstanding in trade
receivables at any time.
2019
2018
2017
Surplus on regulatory capital – requirement
– this is the aggregate surplus on the total
regulatory capital requirement of the Group
(see Note 30).
2019
2018
2017
2.6%
3.4%
3.6%
32 days
32 days
40 days
£17.3m
£18.8m
£13.4m
19
Mattioli Woods plc Annual Report 2019 Chief Executive’s review continued
Alternative performance measures
The Group has identified certain measures that it believes
will assist in the understanding of the performance of
the business. Adjusted EBITDA, adjusted profit before tax
(“adjusted PBT”), adjusted profit after tax (“adjusted PAT”)
and adjusted EPS are non-GAAP alternative performance
measures, considered by the Board to provide additional
insight on business performance compared to looking
at the Group’s results on a statutory basis only.
These alternative performance measures may not be
directly comparable with other companies’ adjusted
measures and are not intended to be a substitute for, or
superior to, any IFRS measures of performance. However,
the Board considers them to be important measures for
assessing performance, used widely within the business
and by research analysts covering the Company.
Supporting calculations for alternative performance
measures and reconciliations between alternative
performance measures and their IFRS equivalents are
set out in the Alternative performance measure workings
section of the Annual Report.
Profitability and earnings per share
Profit before tax was up 4.1% to £10.2m (2018: £9.8m), with
adjusted profit before tax up 8.8% to £12.3m (2018: £11.3m).
A continued focus on operational efficiencies and the
realisation of one-off and recurring administrative cost
savings translated into strong growth in adjusted EBITDA
up 16.0% to £14.5m (2018: £12.5m), with adjusted EBITDA
margin of 24.8% (2018: 21.3%).
The Board considers adjusted EBITDA to be a relevant
measure for investors who want to understand the
underlying profitability of the Group, adjusting for items
that are non-cash or affect comparability between periods
as shown below:
Statutory operating profit before financing
Amortisation of acquired intangibles
Amortisation of software
Depreciation
2019
£m
9.8
1.9
1.0
1.3
2018
£m
9.6
1.8
0.5
0.8
EBITDA17
14.0
12.7
Share of associate profits (net of tax)
Acquisition-related costs
Gain on revaluation of Amati option
Adjusted EBITDA18
0.5
0.1
(0.1)
14.5
0.2
0.1
(0.5)
12.5
Adjusted PBT, adjusted PAT and adjusted EPS are additional measures the Board considers to be relevant for investors who
want to understand the underlying earnings of the Group, excluding items that are non-cash or affect comparability between
periods as follows:
Profit
2019
£m
10.2
(2.0)
8.2
10.2
1.9
(0.1)
0.1
0.1
12.3
(2.3)
9.9
EPS
2019
pps
38.5
(7.7)
30.8
38.5
7.2
(0.4)
0.3
0.5
46.1
(8.8)
37.3
Profit
2018
£m
9.8
(1.6)
8.2
9.8
1.8
(0.5)
0.2
0.1
11.3
(2.1)
9.1
EPS
2018
pps
36.8
(6.0)
30.8
36.8
6.6
(2.0)
0.6
0.5
42.5
(8.1)
34.4
Statutory profit before tax
Income tax expense
Statutory profit after tax / Basic EPS
Statutory profit before tax
Amortisation of acquired intangibles
Gain on revaluation of Amati option
Non-cash interest charges on provisions
Acquisition-related costs
Adjusted PBT
Income tax expense at standard rate
Adjusted PAT / Adjusted EPS19
17 Earnings before interest, taxation, depreciation, amortisation and impairment.
18 Figures in table may not add due to rounding.
19 Figures in table above may not add due to rounding.
20
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
As explained in Note 16, client portfolios acquired through
business combinations are recognised as intangible assets.
The amortisation charge for the year of £1.9m (2018: £1.8m)
associated with these intangible assets has been excluded
from adjusted PAT and adjusted EPS because the Board
reviews the performance of the business before these
charges, which are non-cash and do not apply evenly
to all business units.
Adjusted EPS20 increased 8.4% to 37.3p (2018: 34.4p), while
basic EPS was 30.8p (2018: 30.8p), with profits for the year
stated after recognising a smaller gain on revaluation of
the Amati option and £0.6m of accelerated amortisation
on existing IT systems. EPS was also impacted by the
higher effective tax rate of 20.0% (2018: 16.2%) and the
issue of 380,766 shares under the Company’s share plans,
77,171 shares as part of the initial consideration for the
Broughtons acquisition and 162,654 shares as part of the
initial consideration for the SSAS Solutions acquisition.
Diluted EPS was 30.7p (2018: 30.8p).
Dividends
The Board is pleased to recommend the payment
of an increased final dividend of 13.67p per share
(2018: 11.5p). This makes a proposed total dividend
for the year of 20.0p (2018: 17.0p), a year-on-year
increase of 17.6% (2018: 20.6%), 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 25 October
2019 to shareholders on the register at the close of business
on 13 September 2019, having an ex-dividend date of
12 September 2019.
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 2019, shareholders’ instructions must be
received by Link by 27 September 2019.
Cash flow
Opening cash balances of £23.7m (2018: £23.0m) included
£3.5m of VAT reclaimed on behalf of clients, of which
£3.4m was distributed during the year, with cash generated
from operations falling to £11.0m or 78.0% of EBITDA
(2018: £18.2m or 143%). An improvement in operating profit
margin before changes in working capital and provisions
to 25.8% (2018: 23.3%) was offset by a £4.1m increase
(2018: decrease of £4.5m) in the Group’s working capital
requirement, comprising:
» A £4.2m decrease (2018: £5.1m increase) in trade and
other payables, excluding £0.7m of trade and other
payables added on the acquisition of Broughtons and
SSAS Solutions, due to:
» a £3.4m decrease in other payables due to VAT
reclaimed on behalf of clients in the prior financial
year being repaid to clients this year;
20 Before acquisition–related costs, amortisation and impairment of acquired
intangibles, changes in valuation of derivative financial instruments and non-
cash interest charges on provisions.
» a £0.6m decrease in trade payables, primarily due
to the timing of stage payments on the internal
fit-out of the Group’s new office in Leicester;
» a £0.4m decrease in current income tax liabilities
outstanding at the year end, with a £0.4m increase
in corporation tax paid during the year; and
» a £0.2m increase in social security and other taxes
outstanding at the year end;
» A £0.7m decrease (2018: £1.0m increase) in trade and
other receivables, due to:
» a £1.2m decrease in other receivables (excluding
£0.4m added with recent acquisitions), with £0.8m
due to client insurance costs being recharged prior
to the year end this year and a £0.3m net repayment
of loans advanced to investment syndicates;
» a £0.3m increase in prepayments, excluding £0.1m
added with recent acquisitions, due to an increasing
volume of service contracts as the Group expands; and
» a £0.2m increase in trade receivables, excluding £0.1m
added on the acquisition of Broughtons and SSAS
Solutions; plus
» A £0.6m decrease (2018: £0.4m increase) in provisions,
following the settlement of contingent consideration on
prior period acquisitions and the release of dilapidations
and onerous contract provisions on the Group’s exit
from its premises at Grove Park in Leicester.
Cash balances at 31 May 2019 totalled £23.2m (2018:
£23.7m), with £4.5m of initial consideration on the two
acquisitions completed during the year and £0.8m (2018:
£3.5m) of contingent consideration on historic acquisitions
paid during the year.
Outstanding trade receivables remained at 32 days’ sales
(2018: 32 days), with a continued focus on credit control.
Trade payables increased to 40 days’ purchases (2018:
37 days) with balances at the year end inflated due to the
Group being invoiced clients’ annual property insurance
premiums in May, which are subsequently recharged to
clients and paid monthly over the next 12 months.
Capital expenditure of £2.0m (2018: £8.8m) comprised
£0.8m incurred on the fit-out of the Group’s new offices
in Leicester, £0.5m on the purchase of new company cars,
£0.4m investment in new computer hardware and office
equipment and £0.3m on software development.
In the first half we reviewed our capital investment in IT,
which resulted in the accelerated amortisation of some of
our existing IT systems. We intend to continue investing in
technology to develop our client relationship platforms and
improve our client service propositions.
Bank facilities
The Group does not have an overdraft or other bank facility
due to the headroom the Group’s current cash balances
provide on its working capital requirements.
21
Mattioli Woods plc Annual Report 2019 Chief Executive’s review continued
Capital structure
The Group’s capital structure is as follows:
2019
£000
2018
£000
Cash and short-term deposits
(23,248)
(23,668)
Shareholders’ equity
85,593
78,950
Capital employed
62,345
55,282
The Group continues to maintain a strong cash position,
with cash balances of £23.2m (2018: £23.7m).
Regulatory capital
The Group’s regulatory capital requirement has increased
in recent years. In addition the Group's capital is reduced
when it makes acquisitions due to the requirement for
intangible assets arising on acquisition to be deducted
from Tier 1 Capital.
However, the Group continues to enjoy significant
headroom on its increased regulatory capital requirement,
allowing us to pursue further acquisition opportunities
(see Note 30).
Segmental review
Investment and asset management
Investment and asset management revenues generated
from advising clients on both pension and personal
investments increased 3.6% to £26.0m (2018: £25.1m),
representing 44.4% (2018: 42.7%) 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 9.8% to £2.57bn
(2018: £2.34bn) as follows:
Income from both initial and ongoing portfolio management
charges increased to £15.0m (2018: £14.2m), with £174.8m
(2018: £273.7m) of inflows into our discretionary portfolio
management service during the year.
Fees for services provided by Custodian Capital to Custodian
REIT are included in the ‘Property management’ segment.
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 individual structured product plans
increased the fund’s value to £242.5m at 31 May 2019
(2018: £213.8m), with annual management charges
increasing to £1.3m (2018: £0.8m).
Adviser charges based on gross assets under advice of
£2.03bn (2018: £2.04bn) fell to £9.7m (2018: £10.1m), with
the lower revenue margin illustrating how we are reducing
clients’ charges and TERs, particularly on those assets
invested in Custodian REIT, the MW SPF and Amati funds.
Broughtons contributed £0.9m of adviser charges during the
year, following its acquisition in August 2018. 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 88.9% (2018: 81.7%). Notwithstanding our
fee-based advisory model, 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.
We extended our asset management business through our
purchase of 49% of Amati, an award-winning specialist fund
management business focusing on UK small and mid-sized
companies, in February 2017. Amati is the manager of the
TB Amati UK Smaller Companies Fund; Amati AIM VCT plc
and an AIM IHT portfolio service.
Assets under
management
DPM
£m
Custodian
REIT
£m
MW SPF
£m
Amati
£m
Gross AuM
£m
Cross-
holdings in
DPM
21
Cross-
holdings in
Amati funds
22
Net AuM
£m
At 1 June 2018
1,341.1
462.6
213.8
325.1
2,342.6
(121.0)
(12.0)
2,209.5
Inflows
Outflows
Market movements
174.8
(114.5)
(7.4)
22.8
—
(2.1)
45.9
(9.9)
(7.3)
154.9
(8.8)
(18.4)
398.4
(133.2)
(35.2)
(11.3)
—
—
—
0.2
—
387.1
(133.0)
(35.2)
At 31 May 2019
1,394.0
483.3
242.5
452.8
2,572.6
(132.3)
(11.9)
2,428.4
21 Comprises £29.7m (2018: £30.4m) invested in Custodian REIT, £76.6m (2018: £69.2m) in MW SPF and £26.0m (2018: £21.4m) in Amati funds.
22 Cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.
22
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Pension consultancy and administration
The introduction of the pensions freedoms has combined
with a period of political and economic uncertainty driving
a broader market shift away from accumulation and steady
savings towards wealth preservation and decumulation.
Pension consultancy and administration revenues were
down 6.4% to £20.4m (2018: £21.8m), representing
34.9% (2018: 37.1%) of Group revenues of which 93.6%
(2018: 87.7%) were recurring, with a lower level of client
activity partially offset by the total number of SIPP and
SSAS schemes administered by the Group increasing
5.6% to 11,119 (2018: 10,533), including the 354 schemes
administered by SSAS Solutions.
Direct23 pension consultancy and administration fees
fell 6.6% to £15.5m (2018: £16.6m). Retirement planning
remains central to many of our clients’ wealth management
strategies and the number of direct schemes increased to
6,051 (2018: 5,834), with 471 new schemes gained in the
year (2018: 875). Our focus remains on the quality of new
business, with the value of a new scheme averaging £0.3m
(2018: £0.4m). We continue to enjoy strong client retention,
with an increase in the external loss rate24 to 2.2% (2018:
1.5%) and the overall attrition rate25 to 3.4% (2018: 2.6%).
The number of SSAS and SIPP schemes the Group operates
on an administration-only basis increased to 5,068 (2018:
4,699) at the year end, with scheme numbers enhanced by
the acquisition of SSAS Solutions during the year. In prior
years the Group has been appointed to administer a number
of SIPPs following the previous operators’ failure and work
continues in connection with certain schemes previously
administered by Stadia Trustees Limited, HD Administrators,
Pilgrim Trustees Services Limited and The Freedom SIPP
Limited. Lost schemes include the transfer of some
members of these portfolios to alternative arrangements.
Overall, third party administration fees fell 10.4% to £4.3m
(2018: £4.8m), with £0.2m of revenue generated by SSAS
Solutions since its acquisition at the end of March 2019.
The Group’s banking revenue was £0.6m (2018: £0.4m),
reflecting the increase in the Bank of England base rate
to 0.75% at the start of August 2018.
The pension market continues to evolve, with historic
restrictions on annual contributions and annual allowances
meaning that gross inflows predominantly come from
customers of other operators choosing to move their
existing arrangements to Mattioli Woods. There has also
been some negative publicity for the pension market over
the last few years, with certain SIPP and SSAS operators in
the spotlight due to issues with esoteric and non-standard
investments, while the general economic environment has
reduced some consumers’ focus on pension savings.
23 SIPP and SSAS schemes where Mattioli Woods acts as pension consultant
and administrator.
24 Direct schemes lost to an alternative provider as a percentage of average
scheme numbers during the year.
While we anticipate continued regulatory scrutiny of the
pension market, the market opportunity remains strong,
with SIPP and SSAS arrangements still benefiting from the
introduction of the pension freedoms and being favoured as
a way of allowing individuals to have greater access, control,
flexibility and responsibility over their pension savings. SIPPs
are increasingly the pension vehicle of choice for the mass
affluent and having been appointed to administer SIPPs
previously operated by a number of failed operators in recent
years we anticipate there may be some similar opportunities
for the Group over the next few years.
We like to see our clients withdrawing funds to enjoy in their
retirement and anticipate there will continue to be natural
outflows from our clients’ SIPP and SSAS schemes, particularly
as the “baby boom” generation reaches retirement. We expect
any such decumulation to have a positive impact on the
Group’s results, linking-in with the provision of advice around
the cascading of wealth through the generations, inheritance
tax and other planning.
Property management
Property management revenues increased 10.2% to £6.5m
(2018: £5.9m), representing 11.1% of total revenue (2018:
10.1%), with our subsidiary Custodian Capital having assets
under management and administration of £585.6m (2018:
£542.9m) at 31 May 2019. Recurring annual management
charges represented 90.6% (2018: 89.8%) of property
management revenues, the majority of which are derived
from the services provided by Custodian Capital to Custodian
REIT, which currently offers a fully-covered dividend yield of
5.6%, one of the highest26 among its UK property investment
company peer group, coupled with the potential for capital
growth from a balanced portfolio of real estate assets.
In addition, Custodian Capital continues to facilitate 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. This initiative continues to be
well supported, with £27.9m (2018: £26.3m) invested in seven
(2018: eight) new syndicates during the year, one of which
remained open to further investment following the year end.
Employee benefits
Employee benefits revenues fell 5.1% to £5.6m (2018: £5.9m),
due to fewer auto-enrolment pension projects compared
to previous years as the market approached ‘steady state’
under the regulations in April 2019, coupled with the loss of
some larger corporate clients in the year. Employee benefits
revenues now represent 9.6% of total revenue (2018: 10.1%).
In June 2018 we were delighted to announce the
appointment of Saira Chambers to lead our employee
benefits team as Employee Benefits Director and we have
progressed a number of strategic projects during the year,
including a review of the services provided to smaller clients,
resulting in some loss of revenue but improved profitability
within this business segment.
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.
25 Direct schemes lost as a result of death, annuity purchase, external transfer
26 Source: Numis Securities Limited, Investment Companies Datasheet dated
or cancellation as a percentage of average scheme numbers during the year.
30 August 2019.
23
Mattioli Woods plc Annual Report 2019 Chief Executive’s review continued
Acquisitions
We have invested over £54m since our admission to AIM
in 2005 in bringing 22 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 year are integrating well
and have contributed positively to the Group’s trading results
since acquisition, increasing earnings and enhancing value.
With 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 shareholder value are
influenced by other stakeholders, principally our clients,
suppliers, employees, the Government and our strategic
partners. Our approach to all these parties is founded on the
principle of open and honest dialogue, based on a mutual
understanding of needs and objectives.
Relationships with our clients are managed on an individual
basis through our client relationship managers and
consultants. Employees have performance development
reviews and employee forums also provide a communication
route between employees and management. Mattioli Woods
also participates in trade associations and industry groups,
which give us access to client and supplier groups and
decision-makers in Government and other regulatory bodies.
Mattioli Woods is a member of the Association of Member-
directed Pension Schemes and the Quoted Companies
Alliance.
Resources
The Group aims to safeguard the assets that give it competitive
advantage, including its reputation for quality and proactive
advice, its technical competency and its people.
Our core values provide a framework for integrity, leading to
responsible and ethical business practices. Structures for
accountability from our administration and consultancy teams
through to senior management and the Group’s Board are
clearly defined. The proper operation of the supporting
processes and controls are regularly reviewed by the Audit
Committee and the Risk and Compliance Committee and
take into account ethical considerations, including procedures
for ‘whistle-blowing’.
Our people
I thank all our staff for their continued commitment,
enthusiasm and professionalism in dealing with our clients’
affairs. Our culture is based on professionalism, putting
clients first and adopting a collegiate approach. Retaining
the integrity, expertise and passion of our people remains
a priority of the board and at the heart of our success. We are
committed to developing our people and maintaining
the capacity to deliver sustainable growth.
As our business grows, the board recognises the continued
importance of good communication and will ensure that the
strong client-centric behaviours that are embedded within
the business are preserved. During the year the board had
particular focus on the impact of growth on our culture.
Outside of board meetings, non-executive directors have
held a number of meetings with employees across the
business to share experiences more directly.
Our total headcount at 31 May 2019 had decreased to 586
(2018: 622) and we continue to invest in our graduate and
apprenticeship recruitment programmes. During the year
18 (2018: 20) new graduates and 17 (2018: 24) apprentices
joined the Group, which was recognised for creating
opportunities for young people by being highly commended
in the Large Employer of the Year Award category at
the National Apprenticeship Awards 2018. We also offer
programmes for ‘life served’ people seeking exciting
opportunities for a change in career or a return to work.
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 end of the
year 57% of eligible staff had invested in the Plan (2018: 58%)
and we continue to encourage broader staff participation.
In May 2019 the Mattioli Woods Employee Benefit Trust
(“the Trust”) commenced making market purchases of the
Company’s shares. The Trust holds shares for the benefit
of the Group’s employees and, in particular, to satisfy the
vesting of awards made under the Company’s various share
schemes. The acquisition of shares by the Trust helps to
avoid dilution of shareholders by reducing the need for the
Company to issue new shares.
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
The Board is ultimately responsible for risk management and
regularly considers the most significant and emerging threats
to the Group’s strategy, as well as establishing and maintaining
the Group’s systems of internal control and risk management
and reviewing the effectiveness of those systems. The Board
and senior management are actively involved in a continuous
risk assessment process as part of our risk management
framework, supported by the annual Internal Capital Adequacy
Assessment Process (“ICAAP”), which assesses the principal
risks facing the Group. Stress tests include consideration of the
impact of a number of severe but plausible events that could
impact the business. The work also takes account of the
availability and likely effectiveness of mitigating actions that
could be taken to avoid or reduce the impact or occurrence
of the underlying risks.
Day-to-day, our risk assessment process considers both the
impact and likelihood of risk events which could materialise
and affect the delivery of the Group’s strategic goals.
Throughout the Group, all employees have a responsibility
for managing risk and adhering to our control framework.
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.
24
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Principal risks
An active approach
to risk and responsibility
Industry risks
Risk type
Description
Mitigating factors
Changes in
investment
markets and
poor investment
performance
Volatility may adversely affect
trading and/or the value of
the Group’s assets under
management, administration
and advice, from which we
derive revenues.
Changing
markets and
increased
competition
The Group operates
in a highly competitive
environment with evolving
characteristics and trends.
» Majority of clients’ funds held within registered
pension schemes or ISAs, where less likely to
withdraw funds and lose tax benefits.
» Broad range of investment solutions enables
clients to shelter from market volatility
through diversification, while continuing
to generate revenues for the Group.
» Market volatility is closely monitored
by the Investment Committee.
» The Group seeks to maintain strong working
relationships with clients underpinned by
high levels of service, quality products and a
continued focus
on product development and innovation.
» Consolidating market position develops
the Group’s pricing power.
» Control over scalable and flexible bespoke
pension administration platform.
» Experienced management team with
a strong track record.
» Loyal customer base and strong client retention.
» Broad service offering gives diversified
revenue streams.
Key of change
Increase
No change
New
Chance
Impact
Medium Medium
Change
in risk
High
High
Evolving
technology
Regulatory risk
The Group’s technology
could become obsolete if
we are unable to develop our
systems to accommodate
changing client needs, new
products and the emergence
of new industry standards.
The Group may be adversely
affected as a result of new
or revised legislation or
regulations or by changes
in the interpretation or
enforcement of existing laws
and regulations.
» We partner with leading software providers
Medium High
to assist in our systems development.
» High awareness of the importance of
technology at Board level.
» Expanded systems development with phased
implementation of Group-wide platform.
» Strong compliance culture, with appropriate
Medium Medium
/High
oversight and reporting supported by
training.
» External professional advisers are engaged
to review and advise upon control
environment.
» Business model and culture embraces FCA
principles, including treating clients fairly.
» Decision to withdraw from providing advice
on safeguarded pensions.
» Financial strength provides comfort should
capital resource requirements be increased.
Changes in
tax law
Changes in tax legislation
could reduce the
attractiveness of long-term
savings via pension schemes,
particularly
SSASs and SIPPs.
» The Government has a desire to encourage
long-term savings to plan for an ageing
population, which is currently under-
provided for.
» Changes in pension legislation create the
need for clients to seek advice.
Low
Medium
» The development of the Group’s investment
and asset management services has
reduced dependency on pension planning.
25
Mattioli Woods plc Annual Report 2019 Principal risks continued
Operational risks
Key of change
Increase
No change
New
Risk type
Description
Mitigating factors
Chance
Impact
Change
in risk
Damage to
the Group’s
reputation
Errors,
breakdown
or security
breaches in
respect of
the Group’s
software or
information
technology
systems
Data quality
Business
continuity
There is a risk of reputational
damage as a result of
employee misconduct, failure
to manage inside information
or conflicts of interest, fraud,
improper practice, poor
client service or advice.
Serious or prolonged
breaches, errors or
breakdowns in the Group’s
software or information
technology systems
could negatively impact
customer confidence. It
could also breach contracts
with customers and data
protection laws, rendering us
liable to disciplinary action by
governmental and regulatory
authorities, as well as to
claims by our clients.
Inaccurate data or voids
in our data could result in
inaccurate regulatory and/or
client reporting.
In addition to the failure of
IT systems, there is a risk of
disruption to the business
as a result of power failure,
fire, flood, acts of terrorism,
re-location problems and
the like.
» Strong compliance culture with a focus
Medium High
on positive customer outcomes.
» High level of internal controls, including
checks on new staff.
» Well-trained staff who ensure the interests
of clients are met in the services provided.
» Ongoing review of data security including
High
High
penetration testing and “phishing” exercise.
» IT performance, scalability and security are
deemed top priorities by the Board.
» Experienced in-house team of IT
professionals and established name
suppliers.
» Ongoing initiatives to clean data.
High
Medium
» Development of data warehouse
to standardise data tables and create
‘one source of truth’.
» Periodic review of Business Continuity Plan,
considering best practice methodologies.
» Disaster recovery plan and a disaster recovery
team in place. Business impact analysis has
been conducted by each department.
» Business interruption insurance.
Medium Medium
Fraud risk
There is a risk an employee
or third party defrauds either
the Group or a client.
» The Group ensures the control environment
mitigates against the misappropriation of
client assets.
Medium Medium
» Strong corporate controls require dual
signatures for all payments and Board
approval for all expenditure greater than
£100,000.
» Assessment of fraud risk every six months
discussed with the Audit Committee, Risk
and Compliance Committee and external
auditors.
» Clients have view-only access
to information.
» Ongoing review of risk of fraud due to
external attack on the Group’s IT systems.
26
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Risk type
Description
Mitigating factors
Chance
Impact
Change
in risk
Key personnel
risk
The loss of, or inability
to recruit, key personnel
could have a material
adverse effect on the
Group’s business, results
of operations or financial
condition.
Litigation or
claims made
against the
Group
Reliance on
third parties or
outsourcing risk
Strategic risk
Risk of liability related to
litigation from clients or
third parties and assurance
that a claim or claims will
not be covered by insurance
or, if covered, will exceed
the limits of available
insurance coverage, or that
any insurer will become
insolvent and will not meet
its obligations to provide the
Group with cover.
Any regulatory breach or
service failure on the part of an
outsourced service provider
could expose the Group to the
risk of regulatory sanctions and
reputational damage.
Risk that management
will pursue inappropriate
strategies or implement the
Group’s strategy ineffectively.
Corporate
manslaughter
risk
The risk of breaching
corporate manslaughter laws
as a result of management
breach in duty of care.
Conduct risk
Information
security risk
The risk that we fail our
clients through the flawed
design or mis-selling of our
products or services, or poor
business conduct results
in client outcomes that do
not meet their needs and
circumstances.
The risk that the security
controls over our IT systems
are compromised by internal
or external influences,
resulting in unauthorised
access to our client or
corporate confidential data.
» Succession planning is a key consideration
Low
Medium
throughout the Group.
» Success of the Group should attract high
calibre candidates.
» Share-based schemes in operation to
incentivise staff and encourage retention.
» Recruitment programmes in place to attract
appropriate new staff.
» Cross functional acquisition team brought
into acquisition projects at an early stage.
» Appropriate levels of Professional Indemnity
insurance cover regularly reviewed with the
Group’s advisers.
» Comprehensive internal review procedures,
including compliance sign-off, for advice
and marketing materials.
» Maintenance of three charging models;
time cost, fixed and asset based, which are
aligned to specific service propositions and
agreed with clients.
» Restricted status for our consultants to
enable the recommendation of our own
products and others in the market.
High
Medium
» Due diligence is part of the selection
Medium High
process for key suppliers.
» Ongoing review of relationships and
concentration of risk with key business
partners.
» Review of outsourcing is a key area
of focus in Internal Audit plan.
» Experienced management team with
Low
Low
successful track record to date.
» Management has demonstrated a thorough
understanding of the market and monitors
this through regular meetings with clients.
» Policies and procedures in place to provide
High
Medium
employee guidance when driving on
company business.
» Company cars regularly maintained and
serviced with reputable and vetted companies.
» Adequate insurance cover.
» Responsible employees.
» Only appropriately authorised consultants
Medium Medium
can provide advice.
» Robust training and competence scheme in place.
» Operation of ‘three lines of defence’ model,
including internal and external reviews to monitor
suitability of advice being given to clients.
» Robust firewalls and patches maintained to
prevent unauthorised access to IT systems,
including utilisation of third party providers
to protect corporate networks.
» Electronic data is protected by user access
controls. Data privacy training is provided
across the Group.
» Compliance with the Data Protection
Act and registration with the Information
Commissioner’s Office.
Medium High
27
Mattioli Woods plc Annual Report 2019 Principal risks continued
Financial risks
Key of change
Increase
No change
New
Risk type
Description
Mitigating factors
Chance
Impact
Change
in risk
Counterparty
default
That the counterparty to
a financial obligation will
default on repayments.
» The Group trades only with recognised,
Medium Medium
creditworthy third parties.
» Customers who wish to trade on credit terms
are subject to credit verification procedures.
» All receivables are reviewed on an ongoing
basis for risk of non-collection and any
doubtful balances are provided against.
Bank default
The risk that a bank could fail.
» We only use banks with strong credit ratings.
Medium High
» Client deposits spread across multiple banks.
» Regular review and challenge of treasury
policy by management.
Concentration
risk
A component of credit
risk, arising from a lack of
diversity in business activities
or geographical risk.
» The client base is broad, without significant
exposure to any individual client or group
of clients.
» Broad service offering gives diversified
Medium Medium
revenue streams.
» Cash generative business.
Low
Low
» Group maintains a surplus above regulatory
and working capital requirements.
» Treasury management provides for the
availability of liquid funds at short notice.
» Market expectation that interest rates will rise.
Low
Medium
» Good relationships with key banking
partners.
» Access to competitive interest rates due
to scale of business.
» New products created in line with client
Low
Low
demand.
» Potential costs are carefully considered
by the Investment Committee prior to
the launch of each product.
Liquidity risk
Interest rate risk
Underwriting
risk
The risk the Group is unable
to meet liabilities as they
become due because of an
inability to liquidate assets or
obtain adequate funding.
Risk of decline in earnings
due to a decline in banking
margin or deposit rates
received on surplus cash.
Low interest rates make
it harder to structure
compelling capital-protected
products for clients.
When arranging new products
for promotion to the Group’s
clients, the Group may need
to guarantee a minimum
aggregate investment to
secure appropriate terms for
the product.
If actual client investment is
less than the underwritten
amount, we would incur
the cost of either acquiring
the unsold element of the
product or unwinding any
hedges underlying the unsold
element of the product.
Emerging risks, including legislative and regulatory change, have
the potential to impact the Group and its strategy. The Board, Audit
Committee and Risk and Compliance Committee continue 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, and intend
to focus on operational resilience and enhancing the control
environment over the next 12 months.
Brexit is likely to be one of the most significant political and economic
events to impact the UK in our lifetimes. The lack of consensus on the
UK's strategy creates uncertainty and the longer term implications will
not be clear for some time.
We continue to monitor Brexit-related developments closely. As a UK
business with no operations in other European Union (“EU”) countries,
no material dependencies on goods or people from other EU
countries and a predominantly UK client base, we anticipate that the
operational impacts on our business will be relatively small. In particular
Brexit will bring no changes to the basis or nature of the services we
provide to the vast majority of our clients and investors who are based
in the UK. However, we recognise the impact of Brexit more generally,
which could affect the value of our clients’ funds under management,
advice and administration.
Investors in the Mattioli Woods Structured Product Fund (which is a
Luxembourg-based SICAV) are likely to see some changes to the basis
on which this fund is delivered. It is also possible that there may be
some implications for the small number of our private clients based in
other EU countries, depending on the exact nature of the services they
receive and regulatory framework agreed in the transitional period or
in the event of an exit from the EU without agreement. We continue
to review the investment implications of Brexit for client portfolios and
our range of funds, and regularly communicate our views through
formal and informal briefings to clients and our consultants.
28
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Corporate social responsibility
Our commitment
to operating responsibly
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 platform for good
corporate social responsibility.
We have a long-standing commitment to support our staff
in engaging with their local communities and charities. This
social awareness is present throughout the business, from
our employees to our clients, our professional connections
and the suppliers we use. Our continued contribution
through the commitment of our people continues to
improve lives and build communities.
Sustainability
To deliver strong, sustainable shareholder returns over the
long-term the operation of a profitable business is a priority
and that means investing for growth. To achieve this, the
Group recognises that it needs to operate in a sustainable
manner and therefore has adopted core principles to its
business operations which provide a framework for both
managing risk and maintaining its position as a good
‘corporate citizen’.
Charities and communities
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.
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, raising over £200,000 for the charity. This year,
we have launched a new national partnership with Alzheimer’s Research
UK focused on boosting research, improving treatments and raising
awareness about dementia.
Alzheimer’s Research
Alzheimer’s Research UK will become the Group’s charity of the year for
the next two years with the aim to raise £150,000 during this partnership to
help transform lives, identify life-changing treatments and eventually a cure.
We intend to engage employees, clients and partners to raise money for the
charity through a series of fundraising events, from bucket collections to
payroll giving, sporting events, dinners and seasonal activities.
We believe that dementia is one of the biggest problems facing health
services today and one that is impacting the lives of many of our employees
and clients. The money raised over the next two years is going to fund
ground-breaking research that will change the lives of people impacted by it.
In addition, almost 80 charities throughout the UK benefitted after Mattioli
Woods urged its staff to nominate worthy causes as part of a new initiative.
Chief Executive Ian Mattioli asked for nominations to help continue a
charitable tradition started by the Group’s associate company, Amati.
Mattioli Woods
launches fight
against dementia.
Mattioli Woods launches a new
national partnership with Alzheimer’s
Research UK focused on boosting
research, improving treatments and
raising awareness about dementia.
29
Mattioli Woods plc Annual Report 2019 Corporate social responsibility continued
Rothley 10k
Over 1,000 runners from Leicestershire and beyond took
to the streets of Rothley in June 2019 for the annual
Mattioli Woods Rothley 10k. The race has grown year-on-
year and is now the largest 10k road race in the county,
which is a great showcase of local community spirit.
Rainbows, LOROS, Air Ambulance Service, Age UK, Eye
Camps, Vista and RNLI are among the charities to benefit
from over £25,000 of funds raised through sponsorship
and race entry fees to become the largest fund raising
event in its history. Over the years, the race has now
generated more than £300,000 for local causes.
Raised for local causes
£300,000
Amati partnership
Every year, Amati has a commitment to donate 10%
of its profits to good causes and sharing similar values,
we want to further that tradition and continue the good
work Amati started.
Staff throughout the Group were asked to suggest causes
they felt deserving of a pay-out. The money was distributed
after Ian received a “truly heart-warming” response from
employees, with a decision to split awards between
the requests received resulting in 77 organisations
and individuals sharing over £32,800.
Sammi Kinghorn
We have sponsored world champion wheelchair racer Sammi
Kinghorn for the past five years. Sammi – now 23 – has gone
on to achieve international success, winning three European
Championship gold medals in 2014, a bronze in 2015 at the
Doha World Championships and two gold medals and a
bronze medal at the London 2017 World Championships.
Mattioli Woods has been one of her main sponsors from the
start of her wheelchair racing career and, following her recent
successes, Sammi and coach Ian Mirfin said the Company’s
support had been vital to her progress. After returning to
shorter distance track racing for the first time in almost two
years in May 2019, Sammi has her sights firmly set on the
2019 World Para Athletics Championships in Dubai and the
2020 Paralympics in Tokyo.
30
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Developing
our people
The Group continues to create opportunities for young people and
has launched a new trainee consultant programme for aspiring advisors.
We have introduced a 26-week plan to foster small groups of trainee
advisers in a classroom setting, two days a week.
Each week is themed, including topics such as tax, pensions and investments,
and aims to get trainees who have been with the company for 18 months and
have completed their level 4 qualification to the point where they are able to
develop financial plans.
Mattioli Woods’ graduate and apprenticeship schemes have been running for
a number of years, with this new programme highlighting the firm’s motivation
to ‘grow our own’. Trainees work alongside consultants in administrative roles
and attend consultant-led client meetings. The scheme will continue to be
rolled out for new groups of employees who demonstrate the potential to
move into consultant roles at the firm.
Training expenditure
£0.25m
» 45% professional/regulated training
» 45% management/talent development
» 10% general
eLearning hours completed
6,000+
New graduates
18
New apprentices
16
Trainee consultant programme
31
Mattioli Woods plc Annual Report 2019 Corporate social responsibility continued
2018/2019 Mattioli Woods
graduating apprentices
Senior Investment Administrator,
Asset Management:
Henry Allen
Software Development Manager,
Information Technology:
Elliott Clarke
Consultant,
Wealth Management:
Thomas Duckworth
“I wanted to get into the
financial services sector
but had very little relevant
experience.”
“So, I started looking at apprenticeships, and
applied for the scheme at Mattioli Woods.
The programme has allowed me to get my
foot in the door with a company becoming
ever more prominent in its sector, giving me
the foundations I needed for a career in this
profession. I have since moved from being
a Client Relationship Manager into a senior
role within the investment operations team,
having gained several qualifications along
the way.”
“I joined Mattioli Woods as a
software developer apprentice.
I have progressed through
the Information Technology
team and have recently
been promoted to Software
Development Manager.“
“Mattioli Woods is a great place to work with
a strong culture of investing in its employees.
I have been given great opportunities which
I’ve grabbed with both hands.”
“I joined Mattioli Woods in
2014 having worked in the
industry as an adviser and/
or administrator for both
small IFA practices and multi-
national corporations.”
“Mattioli Woods combines the collaborative
and friendly environment of a smaller
company with the experience, knowledge
and potential for progression of a larger
firm. Since joining I have added a breadth
of knowledge that would not be possible in
other firms, which continues to make me a
better consultant, benefiting every one of
my clients.”
32
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
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.
Pages 1 to 33 constitute the strategic report, which has
been approved by the Board of Directors and signed
on its behalf by:
Ian Mattioli MBE
Chief Executive Officer
2 September 2019
Our core values provide
a framework for integrity,
leading to responsible and
ethical business practices.
33
Mattioli Woods plc Annual Report 2019 Chairman’s introduction to governance
Good governance is fundamental
to the way we do business
Governance overview
The Board is committed to achieving
high standards of corporate governance,
integrity and business ethics. We
recognise the need to ensure an effective
governance framework is in place to
give all our stakeholders confidence that
the business is effectively run, ensuring
good outcomes for our clients and
looking after the interests of the Group’s
shareholders and other stakeholders.
Board structure
The Board has established a sub-committee structure
comprising Risk and Compliance, Audit, Remuneration
and Nomination Committees. During the financial year
ended 31 May 2018 the Group undertook internal and
external reviews of the effectiveness of the Board, its
sub-committees and the senior executive management
framework. We created a new Senior Executive Team to
execute the strategy determined by the Board, bringing
together a senior team with responsibility for all our key
operational areas.
Joanne Lake
Non-Executive Chairman
An effective governance
framework is in place to
give all our stakeholders
confidence.
Following the end of the financial year ended 31 May 2019
the Group has again reviewed its management and
governance structure, implementing a number of changes
designed to improve the management and governance
of the Group’s key areas of operation, illustrated opposite.
The Senior Executive Team has been restructured into two
new committees, comprising the Governance Committee
and the Management Engagement Committee.
The Group’s investment and asset management business
is managed through a single committee, which has been
renamed the Investment Committee (formerly the
Asset Management Executive Committee), which ensures
risk and investment controls are applied consistently
across our various products and services.
Each operating subsidiary is managed by its own board,
which reports to the Management Engagement Committee.
We believe these changes give the business the optimal
management structure to secure continued growth.
Balanced board
Gender
50/50
Executive/Non-Executive
50/50
34
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
How our company
is structured
Board of Directors
Risk and
Compliance
Committee
Risk and
Compliance
Executive
Committee
Audit
Committee
Remuneration
Committee
Nomination
Committee
Governance
Committee
Management
Engagement
Committee
The board has established a sub-
committee structure comprising Risk
and Compliance, Audit, Remuneration
and Nomination Committees.
Investment
Committee
Attendance at meetings
Risk and Compliance
Committee
Joanne Lake
8/8
Carol Duncumb
7/8
Anne Gunther
8/8
Ian Mattioli
7/8
Audit
Committee
Joanne Lake
5/5
Carol Duncumb
5/5
Anne Gunther
5/5
Remuneration
Committee
Joanne Lake
3/3
Carol Duncumb
3/3
Anne Gunther
3/3
Nomination
Committee
Joanne Lake
4/4
Carol Duncumb
4/4
Anne Gunther
4/4
35
Mattioli Woods plc Annual Report 2019
Chairman’s introduction to governance continued
Corporate governance code
In March 2018 the AIM Rules were changed such that
all AIM companies were obliged to apply a recognised
corporate governance code from September 2018,
providing details of that code on its website along with
details of how the company complies with or departs
from the code.
In July 2018 the Board resolved to adopt the Quoted
Companies Alliance (“QCA”) revised corporate governance
code (“QCA Code”), which requires the Group to apply ten
principles focused on the pursuit of medium to long-term
value for shareholders and also to publish certain related
disclosures.
In preparing to adopt the QCA Code the Board reviewed
the Group’s risk management framework and resolved
to split the Audit, Risk and Compliance Committee into
two committees: an Audit Committee and a separate Risk
and Compliance Committee, reflecting the continued
improvement of the Group’s three lines of defence model.
The Group’s other governance arrangements remain
unchanged.
Corporate governance principles applicable
to the Group
The ten QCA Code corporate governance
principles, which apply to the Group, are:
1. Establish a strategy and business model which promote
long-term value for shareholders.
2. Seek to understand and meet shareholder needs
and expectations.
3. Take into account wider stakeholder and social
responsibilities and their implications for long-term
success.
4. Embed effective risk management, considering both
opportunities and threats, throughout the organisation.
5. Maintain the Board as a well-functioning, balanced
team led by the chair.
6. Ensure that between them the Directors have the
necessary up-to-date experience, skills and capabilities.
7. Evaluate Board performance based on clear and relevant
objectives, seeking continuous improvement.
8. Promote a corporate culture that is based on ethical
values and behaviours.
9. Maintain governance structures and processes that
are fit for purpose and support good decision-making
by the Board.
10. Communicate how the Company is governed and is
performing by maintaining a dialogue with shareholders
and other relevant stakeholders.
Application of the QCA Code and required disclosures
The QCA Code requires us to apply the principles set out
above and to publish certain related disclosures in our
Annual Report, on our website, or a combination of the two.
We have followed the QCA Code’s recommendations
and have provided disclosure relating to all principles in
a corporate governance statement on our website and
summarise our compliance with the following principles
in this Annual Report.
Strategy and business model – QCA Principle One
The Group’s strategy and business model is described
in our Strategic Report on pages 8 and 12.
Effective risk management – QCA Principle Four
The Group embeds risk management throughout the
organisation and this is described on pages 40 and 41.
Board Balance and Skills – QCA Principles Five and Six
The Board, led by the Chair, has the necessary skills and
knowledge to discharge their duties and responsibilities
effectively, setting clear expectations and ensuring stringent
measures for corporate governance standards are met,
particularly in relation to executive remuneration, risk,
compliance and audit. The Executive and Non-executive
Directors’ skill sets are complementary, and together
provide a blend of broad commercial, operational, legal,
and financial expertise. The skill set is suitably broad and
sufficiently high calibre such that all decision making
at Board level is robust and mindful of the fiduciary
responsibilities that need to be discharged
to all shareholders.
In addition, the Directors are aware of the importance
of keeping abreast of the industry’s current activities and
industry conferences and events throughout the year
to keep their skills, contacts and knowledge current and
simultaneously engage with the regulator, other operators
and service providers to the financial services industry.
We have followed
the QCA Code’s
recommendations
and have provided
disclosure relating to all
principles in a corporate
governance statement
on our website.
36
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Board Effectiveness – QCA Principle Seven
The Board intends to undertake a self-evaluation during the
financial year ending 31 May 2020 and annually thereafter.
The criteria against which the Board collectively and
individually will be assessed, includes Board composition,
roles and responsibilities, meetings and administration,
Board committees, Board discussions, Board relationships
and stewardships, monitoring and evaluation, strategy and
internal control.
The aim of the Board evaluation is to review the
effectiveness of the Board’s performance and assess its
strengths as well as areas for development. As part of our
Board evaluation process, the Board is currently considering
the Company’s approach to succession planning and
will work with the Nomination Committee on the Board
evaluation process. The executive management team
and, at a more junior level, senior departmental managers
address progression of employees through annual appraisals
and competency reviews. The Group’s structured ‘Financial
Assess’ training programme further assists key managers
with training and learning opportunities.
The aim of the Board
evaluation is to review the
effectiveness of the Board’s
performance and assess its
strengths as well as areas
for development.
Board of Directors
The Board of Directors comprises three Executive Directors
and three independent Non-Executive Directors. A short
biography of each director is set out on pages 38 and 39.
Time commitments of Board members
The Group embraces the benefits that are brought by
a Board from a range of business backgrounds and who
are actively involved in other businesses. The Board also
recognises its members must be able to dedicate sufficient
time to the Company.
The Board has considered the time commitments of
each director and is comfortable that each has sufficient
available capacity to carry out the required duties for
Mattioli Woods:
» Joanne Lake’s time commitment from her other
directorships averages eight to nine working days per
month.
» Ian Mattioli’s time commitment from his roles as
Non-Executive Chairman of K3 Capital Group plc
and Non-Executive Director of Custodian REIT plc
average two and one and a half working days per
month respectively.
» Nathan Imlach’s time commitment from his other
appointments averages two to three working days
per month.
» Murray Smith’s other business interests outside of the
Group are trivial in time commitment.
» Carol Duncumb‘s time commitment from her other
business interests outside of the Group averages nine
to ten working days per month.
» Anne Gunther’s time commitment from her other
directorships averages four and a half working days
per month.
Imminent changes to the Board
Murray Smith, Group Managing Director, has decided to
stand down from the Board at the Company’s AGM on
21 October 2019 to continue in a full-time role as Founder
Director to the Group, where his focus will be on his client
portfolio, acquisitions and acting as an ambassador for
Mattioli Woods.
Murray has been instrumental to the success of the Group
and we will continue to benefit from his experience
and insight in this new role, with Murray’s management
responsibilities being handed over to our Deputy Group
Managing Director, Michael Wright. Following Murray
stepping down as a director the Company will have
a Board comprising a majority of independent directors,
which we believe represents the right governance
structure for the business.
Joanne Lake
Non-Executive Chairman
2 September 2019
37
Mattioli Woods plc Annual Report 2019
Board of Directors
Diverse. Experienced.
Committed.
Joanne Lake
Non-Executive Chairman
A C
RN
Ian Mattioli MBE
Chief Executive Officer
Nathan Imlach
Chief Financial Officer
C
Appointed to the Board: 2012
Tenure at Mattioli Woods: 7 years
Appointed to the Board: 2005
Tenure at Mattioli Woods: 28 years
Appointed to the Board: 2005
Tenure at Mattioli Woods: 14 years
Joanne was appointed to the Board in
July 2012. In June 2015, she became Deputy
Chairman ahead of her appointment as
Non-Executive Chairman at the Group’s
Annual General Meeting in October 2016.
Joanne has over 30 years’ experience in
accountancy and investment banking,
including with Panmure Gordon, Evolution
Securities, Williams de Broë and Price
Waterhouse. She is a Chartered Accountant
and a Fellow of both the Chartered Institute
for Securities & Investment (“CISI”) and
the Institute of Chartered Accountants
in England and Wales (“ICAEW”), and is
a member of the ICAEW’s Corporate
Finance Faculty. Joanne is also deputy
chairman of Main Market-listed Henry
Boot plc, a land promotion and property
development company and a non-executive
director of Gateley (Holdings) Plc, the first
UK commercial law firm to list on AIM,
and Morses Club plc, a UK non-standard
consumer finance company.
Ian has over 35 years’ experience in
financial services, wealth management and
property businesses and, together with
Bob Woods, founded Mattioli Woods in
1991. Ian is responsible for the vision and
operational management of the Group and
instigated the development of its investment
proposition, including the syndicated
property initiative that developed the seed
portfolio for the launch of Custodian REIT
plc, of which he is founder, non-executive
director and Chairman of its discretionary
investment manager, Custodian Capital.
His personal achievements include
winning the London Stock Exchange
AIM Entrepreneur of the Year award and
CEO of the Year in the 2018 City of
London Wealth Management Awards.
Ian was awarded an MBE in the Queen’s
2017 New Year’s Honours list for his
services to business and the community
in Leicestershire. Ian is also Non-Executive
Chairman of K3 Capital Group plc, which
is listed on AIM and specialises in business
transfer, business brokerage and corporate
finance across the UK.
Committee key
Board meeting attendance
Nathan is responsible for all financial aspects
of Mattioli Woods’ operations and leads the
Group’s acquisition activity. He qualified as
a Chartered Accountant in 1993 with Ernst
& Young, specialising in providing mergers
and acquisitions advice to a broad range of
quoted and unquoted clients in the UK and
abroad. He is a Fellow of the CISI and holds
the Corporate Finance qualification from the
ICAEW. Nathan is Chief Financial Officer and
member of the investment committee of
the Group’s subsidiary Custodian Capital and
Company Secretary to Custodian REIT plc,
having led its admission to the Main Market
of London Stock Exchange in 2014 together
with Ian Mattioli and Richard Shepherd-
Cross. Nathan is also Non-Executive and
Senior Independent Director of AIM-quoted
Mortgage Advice Bureau (Holdings) plc,
a leading mortgage network, and a trustee
of Leicester Grammar School.
A Audit Committee
Committee Chair
C Risk and Compliance
Committee
Member of
the Committee
N Nomination
Committee
R Remuneration
Committee
38
Joanne Lake
8/8
Ian Mattioli MBE
8/8
Nathan Imlach
8/8
Murray Smith
8/8
Carol Duncumb
8/8
Anne Gunther
8/8
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Murray Smith
Group Managing Director
Carol Duncumb
Non-Executive Director
A C
RN
Anne Gunther
Non-Executive Director
A C N R
Appointed to the Board: 2005
Tenure at Mattioli Woods: 23 years
Appointed to the Board: 2014
Tenure at Mattioli Woods: 5 years
Appointed to the Board: 2016
Tenure at Mattioli Woods: 3 years
Murray graduated with an MA in
accountancy and has worked in the financial
services industry since 1992. Moving to
Mattioli Woods in 1995, Murray built his
early career as a consultant, specialising
in advice on all aspects of retirement and
wealth planning, before taking management
responsibility for the Group’s sales and
marketing functions, culminating in his
appointment to the Board in 2005.
As Group Managing Director, Murray is
responsible for the strategic development
and integration of the Group’s wealth
management and employee benefits
divisions, together with the day-today
delivery of the client proposition and
consultancy functions. He is also actively
involved in the Group’s acquisition strategy.
Murray has decided to stand down from the
Board at the next AGM to continue in a full-
time role as Founder Director to the Group.
Carol has over 35 years’ experience
working in consumer-related companies
and over the last 10 years has focused
on online transactional companies to
gain greater experience of changing
consumer behaviours. Previously, Carol
was the Chief Executive of Intimas plc and
Managing Director of Wolsey Limited and
has a strong understanding of managing
businesses. More recently, her activities
have included business angel investing into
online consumer businesses. She manages
a portfolio of investments, whilst advising
successful entrepreneurs and management
teams on developing their businesses.
As part of her Non-Executive role,
Carol currently chairs Mattioli Woods’
Remuneration Committee.
Anne was appointed to the Board in June
2016 and is Chairman of both the Audit
and the Risk and Compliance Committees.
Anne has spent nearly 40 years in retail
financial services in the UK, with executive
experience cross all sectors, from lending
to wealth management, and including
IPO, merger and acquisition activity. Anne
has a significant background in direct
channel delivery; her team having launched
Lloyds Internet Banking, and then as Chief
Executive of both Standard Life Bank
and Standard Life Healthcare. She was a
founding director of Standard Life Wealth.
Anne is a Chartered Banker and holds an
MBA from Warwick Business School and
a degree in Physics from Nottingham
University. In her non-executive career,
Anne has held roles in both the charitable
and commercial sectors, and has also
chaired Warwick Business School. In
addition to her Mattioli Woods role,
Anne sits on the Masthaven Bank board
and chairs the Audit and Risk Committee,
is a Non-Executive and Senior Independent
Director and Chair of the Audit Committee
for GBGI Limited, an AIM listed specialist
health insurer, as well as being a director
of the Water Plus Limited group, a jointly
owned subsidiary of United Utilities plc
and Severn Trent plc.
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Mattioli Woods plc Annual Report 2019 Corporate governance report
Operation of the Board
The Board is responsible to shareholders for the proper management of the Group and has a formal schedule of matters specifically
reserved to it for decision. These include strategic planning, business acquisitions and disposals, authorisation of major capital expenditure
and material contractual arrangements, setting policies for the conduct of business and approval of budgets and financial statements.
Other matters are delegated to the management team, supported by policies for reporting to the Board. The Company maintains appropriate
insurance cover in respect of legal action against the Company’s directors, but no cover exists in the event that a director is found to have
acted fraudulently or dishonestly.
The agenda and relevant briefing papers are distributed by the Company Secretary on a timely basis, usually a week in advance of each
Board meeting.
The roles of Chairman and Chief Executive are distinct, as set out in writing and agreed by the Board. The Chairman is responsible for
the effectiveness of the Board, directing strategy and ensuring communication with shareholders. The Chief Executive is responsible for
overseeing the delivery of this strategy and the day-to-day management of the Group by the executive management team. The Board
is committed to developing the corporate governance and management structures of the Group to ensure they continue to meet the
changing needs of the business.
The Non-Executive Directors are considered by the Board to be independent of management and free from any relationship which might
materially interfere with the exercise of independent judgement. The Board does not consider the Non-Executive Directors’ shareholdings
to impinge on their independence. The Non-Executive Directors provide a strong independent element to the Board and bring experience
at a senior level of business operations and strategy. Anne Gunther is the Senior Independent Director.
All directors have access to the Company Secretary, who is responsible for ensuring that Board procedures and applicable rules and
regulations are observed. Any director, on appointment and throughout their service, is entitled to receive any training they consider
necessary to fulfil their responsibilities effectively.
The Board meets regularly throughout the year as well as on an ad hoc basis, as required by time critical business needs, and is the principal
forum for directing the business of the Group.
Board committees
The Board has delegated authority to four committees. The Chairman of each committee provides a report of any meeting of that
committee at the next Board meeting. The Chairman of each committee is present at the AGM to answer questions from shareholders.
Risk and Compliance Committee
The Risk and Compliance Committee comprises Anne Gunther (Chairman), Carol Duncumb, Joanne Lake, Ian Mattioli as CEO and
temporary Compliance Oversight Function. The committee is in the process of replacing Ian with a new appointment to the Compliance
Oversight Function. Senior managers and representatives from the internal audit, risk and compliance functions attend committee meetings
as necessary.
The Risk and Compliance Committee is principally responsible for monitoring identified risks and the effectiveness of mitigating action,
keeping risk assessment processes under review, reviewing the impact of key regulatory changes on the Group, assessing material breaches
of risk limits and regulations as well as reviewing client complaints.
Risk management framework
The Group’s risk management framework is designed to ensure risks are identified, managed and reported effectively. The Group has been
investing in its risk management framework to meet the requirements of key regulatory changes, such as MiFID II, the GDPR and the SM&CR,
and the risk management framework remains subject to ongoing review.
We continue to apply a ‘three lines of defence’ model to support our risk management framework, with responsibility and accountability for
risk management summarised as follows:
» First line: Senior management and operational business units are responsible for managing risks, by developing and maintaining
effective internal controls to mitigate risk. First-line systems and controls are employed to ensure business activities are conducted
in compliance with internal policies and procedures. First-line supervision teams carry out monitoring of business activities on
a day-to-day basis.
» Second line: The risk, compliance and anti-money laundering functions maintain a level of independence from the first line. They are
responsible for providing oversight and challenge of the first line’s day-to-day management, monitoring and reporting of risks to both
senior management and governing bodies.
» Third line: The internal audit function is responsible for providing independent assurance to both senior management and governing
bodies as to the effectiveness of the group’s governance, risk management and internal controls.
Output from first, second and third-line monitoring is reported to the managers and management information is reported to the Executive
Risk and Compliance Committee and the Risk and Compliance Committee.
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Mattioli Woods plc Annual Report 2019 Strategic report
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Risk appetite
Risk appetite is defined as both the amount and type of risk the Group is prepared to accept or retain in pursuit of our strategy. Our appetite
is subject to regular review to ensure it remains aligned to our strategic goals. At least annually, the Board, Executive Risk and Compliance
Committee and the Risk and Compliance Committee will formally review and approve the Group’s risk appetite statement and assess
whether the firm has operated in accordance with the stated risk appetite measures during the year.
Notwithstanding its continued expectations for business growth, the Board retains a relatively low overall appetite for risk, ensuring that
our internal controls mitigate risk to appropriate levels.
Risk assessment process
Identified risks are tracked in a department-level risk register and used as the basis for a consolidated risk register that provides the Risk and
Compliance Committee with an overview of the key risks across the organisation. The Board and senior management are actively involved
in a continuous risk assessment process as part of our risk management framework, supported by the annual Internal Capital Adequacy
Assessment Process (“ICAAP”), which assesses the principal risks facing the Group.
Stress tests include consideration of the impact of a number of severe but plausible events that could impact the business. The work also
takes account of the availability and likely effectiveness of mitigating actions that could be taken to avoid or reduce the impact or occurrence
of the underlying risks.
The Group’s risk assessment process considers both the impact and likelihood of risk events which could materialise, affecting the delivery
of strategic goals and annual business plans. A top-down and bottom-up approach ensures that our assessment of key risks is challenged
and reviewed on a regular basis, with the Board and its committees receiving regular reports and information from senior management,
operational business units and the risk oversight functions.
Activities during the year
The committee met eight times during the year (once in conjunction with the now separate Audit Committee) with future meetings to be
structured around the financial calendar of the Company. The committee’s activities during the year included:
» Review and challenge of the key components of the Group’s risk management framework;
» Review and challenge of the ICAAP, exploring scenarios and stress tests to determine an appropriate regulatory capital requirement
prior to recommendation to the Board;
» Review and challenge of the Group’s treating customers fairly policy and outcomes;
» Review of the Group’s training and competence regime;
» Regulatory changes including MiFID II, GDPR and SM&CR were considered in discussion with management and their impact on the
Group assessed;
» Review of the risks associated with the development of the New Walk office in Leicester and subsequent move, including IT
infrastructure changes; and
» Review of recommendation of the Group’s risk appetite statement and tolerance for key risks to the Board.
Audit Committee
The Audit Committee comprises Anne Gunther (Chairman), Carol Duncumb and Joanne Lake. Anne Gunther is a Chartered Banker and the
Board is satisfied that all members of the committee have recent and relevant financial experience. The Board believes the committee is
independent, with all members being Non-Executive Directors.
The key responsibilities of the Audit Committee are:
» To review the reporting of financial and other information to the shareholders of the Company and to monitor the integrity of the
financial statements;
» To review the Group’s accounting procedures and provide oversight of significant judgement areas;
» To review the firm’s internal controls and effectiveness of the internal audit function;
» To review the effectiveness of the external audit process and the independence and objectivity of the external auditors; and
» To report to the Board on how it has discharged its responsibilities.
Committee meetings are normally attended by the Chief Executive and the Chief Financial Officer and by representatives of the external and
internal auditors by way of invitation. The presence of other senior executives from the Group may be requested. The committee meets with
representatives of the external auditors without management present at least once a year.
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Mattioli Woods plc Annual Report 2019 Corporate governance report continued
Audit Committee continued
Activities during the year
The committee met five times during the year (once in conjunction with the now separate Risk and Compliance Committee) with future
meetings to be structured around the financial calendar of the Company. The committee considered the significant financial and audit
issues, the judgements made in connection with the financial statements and reviewed the narrative within the Annual Report and
the Interim Report.
During the year the Audit Committee reviewed the operation of the internal audit function and concluded that outsourcing was the best way
to maintain a high quality function. In light of an ever-changing regulatory environment, outsourcing gives the Group access to greater skills
externally, while having the ability to shrink or expand our internal audit activities to meet the ongoing demands of the business.
After concluding a competitive tender process, RSM Risk Assurance Services LLP were appointed to provide internal audit services
to the Group in December 2018.
The committee also considered the appointment of, and fees payable to, the external auditor and discussed with them the scope
of the interim review and annual audit.
Specific audit issues the committee discussed included:
» Management’s assessment of the fair value of the call option to acquire the remaining 51% of Amati as at 31 May 2019.
» Provisions recognised in respect of contingent consideration payable on past business combinations and management’s key
assumptions and estimates applied in reaching these recognition and measurement decisions.
» Additions made during the year as part of the Group’s development of a new office at New Walk in Leicester to ensure treatment
remains in accordance with IAS 16.
» The purchase price allocation and fair value accounting for the acquisitions of Broughtons and SSAS Solutions during the year.
» The disclosure of the impact of IFRS 9, IFRS 15 and IFRS 16 on the financial statements for the year ended 31 May 2019.
Significant judgements and estimates
Significant critical accounting judgements and key estimates in connection with the Group’s financial statements for the year ended
31 May 2019 and other matters considered by the committee included:
Goodwill and intangible assets
As set out in Note 18 to the Group financial statements, at 31 May
2019, the Group had goodwill of £20.2m with other intangible
assets amounting in total to £28.5m. Under IFRSs, these balances
are assessed annually for impairment. Impairment testing requires
the application of judgement, largely around the assumptions
that are built into the calculation of the value in use of the cash
generating unit being tested for impairment.
The committee considered the impairment reviews carried out
by management. These reviews focused on the assumptions
underlying the calculation of the value in use of the cash
generating units tested for impairment. The underlying cash flow
assumptions were challenged by management and the committee,
having regard to historical performance. This was supported by the
challenge to the Group’s budgets earlier in the year.
The main assumptions reviewed by the committee were the
achievability of long-term business plans and the discount rate
used as outlined in Note 18. These assumptions were subject to
sensitivity analysis by management which was also reviewed by the
committee.
The committee concluded that the carrying values of goodwill and
intangibles included in the financial statements are appropriate.
The committee considered management’s approach to estimating
the recoverability of WIP, including the recovery rate applied and
the length of historical data used to calculate that recovery rate.
The committee concluded that the valuation of accrued WIP in the
financial statements is appropriate.
Revenue recognition
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 (“work in progress” or “WIP”). 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 2019 was £4.6m (2018: £5.6m).
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Financial statements
Acquisition accounting
Business combinations are accounted for using the purchase
accounting method. This involves assessing the fair value of
the assets acquired and 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.
The committee reviewed the purchase price allocations prepared
by management on the purchase of Broughtons and SSAS
Solutions during the year. These reviews focused on the underlying
cash flow assumptions and the discount rate used to determine
the present value of the cash flows attributable to the subject
intangible assets.
Client portfolios are valued by discounting their expected future
cash flows over their expected useful lives, based on the Group’s
historical experience. Expected future cash flows are estimated
based on the historical revenues and costs associated with the
operation of that client portfolio. The discount rates used estimate
the cost of capital, adjusted for risk.
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 contingent consideration payments. The carrying amount of
contingent consideration provided for at 31 May 2019 was £2.7m
(2018: £0.9m).
Other liability provisioning
The committee concluded that the fair values of the identifiable
assets and liabilities of Broughtons and SSAS Solutions as at their
respective dates of acquisition included in the financial statements
are appropriate.
The committee considered management’s assessment of
the amounts that will be paid under the relevant acquisition
agreements. These reviews focused on the assumptions underlying
the cash flows covering the contingent consideration period.
Following this review, the committee was satisfied that the
judgements exercised were appropriate and that the contingent
consideration payable on acquisitions was fairly stated in the
financial statements.
As detailed in Note 26, the Group recognises provisions for client
claims, commission clawbacks, dilapidations, onerous contracts
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.
The committee considered and challenged the nature of the
provisions, the potential outcomes, any developments relating
to specific claims, and the prior history of obligations, provisions
and claims in order to assess whether the provisions recorded are
prudent and appropriate.
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 committee discussed with management the key elements
of judgement to assure themselves as to the adequacy and
appropriateness of the provisions. Following this discussion,
the committee was satisfied that the judgements exercised
were appropriate and that the provisions were fairly stated
in the financial statements.
Use of alternative performance measures
The Group has identified certain measures that it believes will assist
in the understanding of the performance of the business. These
measures are not defined under IFRS but can be used, subject
to appropriate disclosure in the Annual Report and Accounts.
These alternative performance measures are: recurring revenue,
adjusted EBITDA, adjusted profit before tax, adjusted profit after
tax and adjusted earnings per share as set out in the Alternative
performance measure workings section of the Annual Report.
The committee considered the measures and felt that these
alternative performance measures are those considered by
management to be important comparables and key measures
used within the business for assessing performance. They are
not substitute for, or superior to any IFRS measures.
The committee was also satisfied that the disclosure of the
alternative performance measures was appropriate.
Other matters
In addition to the above matters, the committee considered
a number of other judgements which have been made by
management including: IFRS 15 ‘Revenue from contracts with
customers’, IFRS 9 ‘Financial instruments’ and IFRS 16 ‘Leases’.
The committee considered management’s approach, proposed
disclosures, assessment of impact on the financials and the
judgements made in relation to impairment allowances and
the factors considered around expected credit losses on
financial instruments.
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Mattioli Woods plc Annual Report 2019
Corporate governance report continued
Audit Committee continued
External auditor
An analysis of fees payable to the external audit firm in respect of audit and non-audit services during the year is set out in Note 7 to the
financial statements. The Company is satisfied the external auditor remains independent in the discharge of their audit responsibilities.
The Audit Committee determined that the audit would be put out to tender in 2018. Three audit firms were invited to participate in the
process. No contractual obligations restricted the Audit Committee’s choice of external auditor. Having concluded a competitive tender
in line with best practice, Deloitte LLP were appointed at the Company’s AGM in October 2018.
Internal audit
The internal audit function is responsible for providing assurance on the internal controls related to the Group’s key activities. Our internal
audit activity is based around a strategic approach to cyclical internal audit along with consideration of the Group’s key priorities and
risks. This approach is designed to provide assurance over key areas of FCA oversight, including; conduct risk management, complaints,
outsourcing and financial crime and whistleblowing. During the year the internal audit function engaged in a number of activities, including:
» Developing our internal audit plan based on an analysis of the Group’s corporate objectives, risk profile and assurance framework,
as well as other factors such as emerging issues in our sector;
» Audits over the Group’s key financial controls, client payroll and benefit payments, operational resilience, general IT controls and cyber
risk management. Each review identified control improvements to enhance our business operations; and
» Consultancy-style reviews, where internal audit has partnered with the business to strengthen a number of key processes.
As the third line of defence, the internal audit function (together with the external auditors in connection with their audit of the financial
statements) is building risk awareness within the organisation by challenging the first and second lines of defence to continue improving
the controls framework.
Remuneration Committee
The Remuneration Committee comprises Carol Duncumb (Chairman), Joanne Lake and Anne Gunther. The committee meets not less than
twice a year. It is responsible for determining and reviewing the Group’s policy on executive remuneration and other benefits and terms of
employment, including performance related bonuses and share options. The committee also administers the operation of the share option
and share incentive schemes established by the Company.
The members of the Remuneration Committee have no personal interest in the outcome of their decisions and seek to serve the interests
of shareholders to ensure the continuing success of the Company. The remuneration of the Non-Executive Directors is determined by the
Board itself. No director is permitted to participate in decisions concerning their own remuneration.
The committee met three times during the year with key items considered including:
» The Group’s remuneration policy;
» Annual review of Executive Directors’ and other senior managers’ base salaries and bonus arrangements;
» Awards to be granted under the share option and share incentive schemes established by the Company;
» Gender pay reporting;
» Trends in executive pay in the wider market; and
» The implications new corporate governance requirements may have for the design of the Group’s remuneration policy and
remuneration disclosures.
The Committee continues to review the Group’s long-term incentive plans to ensure it can continue to attract, retain and incentivise
appropriately qualified staff to achieve its goals.
Nomination Committee
The Nomination Committee comprises Joanne Lake (Chairman), Carol Duncumb and Anne Gunther. The Committee is responsible
for reviewing the size, structure and composition of the Board, establishing appropriate succession plans for the Executive Directors
and other senior executives in the Group and for the nomination of candidates to fill Board vacancies where required.
The committee works in close consultation with the Executive Directors and met four times during the year, with the main items
being considered including Board structure, the possibility of expanding the number of non-executive directors on the Board and
management succession.
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Governance
Financial statements
Meetings and attendance
All directors are encouraged to attend all Board meetings and meetings of Committees of which they are members. Directors’ attendance
at meetings during the year (including the AGM) was as follows:
Meetings in year
Joanne Lake
Ian Mattioli1
Nathan Imlach
Murray Smith
Carol Duncumb
Anne Gunther
Risk and
Compliance
Committee1
Board
Audit
Committee1
Remuneration
Committee
Nomination
Committee
8
8
8
8
8
8
8
8
8
7
—
—
7
8
5
5
—
—
—
5
5
3
3
—
—
—
3
3
4
4
—
—
—
4
4
Notes:
1 Operated as a combined Audit, Risk and Compliance Committee until 27 July 2018, when split into separate Risk and Compliance and Audit Committees. Ian Mattioli joined the Risk
and Compliance Committee on 27 July 2018.
Other committees
These committees will form part of the Corporate Governance framework, but are not sub-committees of the Board. The main committees
comprise the Governance Committee, the Management Engagement Committee, the Investment Committee and the Executive Risk and
Compliance Committee.
Governance Committee
The Board strongly believes that good governance and strong, responsible, balanced leadership by the Board are critical to creating
long-term shareholder value and business success. The committee’s role is to assist the Board in shaping the strategy, culture and ethical
values of the Group, while supporting the Management Engagement Committee in the day to day management of Mattioli Woods and
its subsidiaries.
The key responsibilities of the committee are to:
» Take a leadership role in shaping the corporate governance principles, culture and ethical values of the Group in line with the Group’s
strategic priorities;
» Oversee the brand and reputation of the Group, ensuring that reputational risk is consistent with the risk appetite approved by the Board
and the creation of long-term shareholder value;
» Develop strategy and growth initiatives, such as possible acquisitions and new products and services;
» Implement the agreed strategy and support the day-to-day management of the Group by the Management Engagement Committee;
» Review and discuss the annual business plan and budget prior to its submission to the Board for approval;
» Oversee the Group’s compliance with its statutory and regulatory obligations, including conduct of the firm and treating customers
fairly; and
» Oversee the Group’s conduct in relation to its corporate and societal obligations, including setting the guidance, direction and policies
for the Group’s corporate responsibility agenda and related activities and advising the Board and management on these matters.
The Governance Committee is chaired by the Chief Executive and comprises functional heads from the appropriate disciplines.
Management Engagement Committee
The Board has delegated its day-to-day operational authority to the Management Engagement Committee, subject to a list of matters which
are reserved for decision by the Governance Committee or the full Board only. The Management Engagement Committee is primarily
responsible for:
» Developing and monitoring all aspects of the Group’s business on a continuing basis;
» Implementing the business strategy and business plans agreed by the Board from time to time;
» Ensuring that day-to-day operations are conducted in accordance with the relevant regulatory and statutory requirements;
» Monitoring the management and performance of the Group‘s operating subsidiaries (including their results compared to budget, risks
and regulatory compliance); and
» Reviewing employee talent management and development programmes, ensuring they take into account diversity, including gender.
The Management Engagement Committee meets at least monthly but more frequently if required. The committee is chaired by the Chief
Executive and committee meetings may be attended by any number of a broad range of senior managers from across the Group, depending
on the meeting agenda.
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Corporate governance report continued
Other committees continued
Investment Committee
The Board has delegated authority to the Investment Committee to oversee the Group’s investment management approach, developing the
‘house view’ on economics, investment markets and asset allocation; and considering how the Group should best apply these views.
In particular, the Investment Committee is responsible for developing and implementing the Group’s asset management strategy, for
developing and monitoring all aspects of the Group’s investment business on a continuing basis, receiving reports from the board of
Custodian Capital, the Structured Products Fund Oversight Committee and the Multi-Asset Team (including the Asset Allocation Committee).
The committee is also responsible for ensuring that the Group’s day-to-day investment and asset management operations are conducted in
accordance with the relevant regulatory and statutory requirements through the investment research and investment operations teams.
The Investment Committee meets at least six times a year but more frequently if required. The committee is chaired by the Chief Investment
Officer and comprises senior members of the investment, wealth management, technical and compliance functions.
Executive Risk and Compliance Committee
The Board has delegated authority to the Executive Risk and Compliance Committee to oversee the operation of the Group’s risk and
compliance framework and activity. The Executive Risk and Compliance Committee is responsible for ensuring that risk, compliance and
internal audit are considered, reviewed and actions implemented across all areas of the Group including wealth management advice, asset
management, pension administration and employee benefits. The committee is also responsible for ensuring that risks are fully considered
in context of the Group’s ICAAP and the impact on the Group’s capital requirements.
The Executive Risk and Compliance Committee meets at least four times a year but more frequently if required. The committee is chaired
by the Compliance Oversight Function and comprises senior members of the Group’s management and compliance function.
Induction, training and performance evaluation
New directors receive an induction on their appointment covering the activities of the Group, its key business and financial risks, the terms
of reference of the Board and its committees and the latest financial information.
The Chairman ensures directors update their skills, knowledge and familiarity with the Group as required to fulfil their roles on the Board and
its committees. Ongoing training is provided as necessary and includes updates from the Company Secretary on changes to the AIM Rules,
requirements under the Companies Acts and other regulatory matters. All directors have access to independent professional advice at the
Company’s expense where they judge it necessary to discharge their duties, with requests for such advice being authorised by the Chairman
or two other directors, one of whom is a Non-Executive.
Evaluation of the Board’s performance
During the year ended 31 May 2018 an external review of the Board’s effectiveness was undertaken by an independent third party.
This involved one-to-one interviews with directors and a review of Board and Board committee papers and minutes. The key points
raised in the review were around board composition and succession planning.
In response, we reduced the size of our Board to eliminate duplication of documentation and discussion between the Board and the
executive management team, ensuring clearer lines of responsibility within the management team and creating a balanced Board of three
Executive Directors and three Non-Executive Directors.
The Board intends to undertake a self-evaluation during the financial year ending 31 May 2020 and annually thereafter. Individual appraisal
of each director’s performance is undertaken either by the Chief Executive Officer or Chairman each year and involves meetings with
each director on a one-to-one basis. The Non-Executive Directors, led by the Senior Independent Director, carry out an appraisal of the
performance of the Chairman and Chief Executive Officer.
Retirement and re-election
All directors are subject to election by shareholders after their appointment and to re-election thereafter at intervals of no more than
three years.
Non-Executive Directors’ appointments are initially for 12 months, and continue thereafter until terminated by either party giving six months’
prior written notice to expire at any time on or after the initial 12 month period. The terms and conditions of appointment of the Non-
Executive Directors are available for inspection at the Company’s registered office during normal business hours and prior to the AGM.
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Communications with shareholders
The Board is committed to maintaining an ongoing dialogue with the Company’s shareholders. The principal methods of communication
with private investors remain the Annual Report and financial statements, the Interim Report, the AGM and the Group’s website
(www.mattioliwoods.com).
It is intended that all directors will attend each AGM and shareholders will be given the opportunity to ask questions at the AGM on
21 October 2019. In addition, the Chairman, Chief Executive Officer and Chief Financial Officer welcome dialogue with individual institutional
shareholders to understand their views and feed these back to the Board. General presentations are also given to analysts and investors
covering the annual and interim results.
Internal control and risk management
The Board is ultimately responsible for the Group’s system of internal control and for reviewing its effectiveness. Such systems are designed
to manage rather than eliminate risks and can only provide reasonable not absolute assurance against material misstatement or loss.
In accordance with the guidance of the Turnbull Committee on internal control, an ongoing process has been established for identifying,
evaluating and managing significant risks faced by the Group. This process has been in place throughout the year under review and up
to the date of approval of the Annual Report and financial statements.
The Board routinely reviews the effectiveness of the system of internal control and risk management to ensure controls react to changes
in the nature of the Group’s operations.
The Group maintains appropriate insurance cover and reviews the adequacy of the cover regularly, in conjunction with the Group’s
insurance brokers.
There are clearly defined procedures for reviewing and approving all bids, acquisitions and capital expenditure within the Group.
On behalf of the Board
Nathan Imlach
Chief Financial Officer
2 September 2019
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Mattioli Woods plc Annual Report 2019 Directors’ remuneration report
Remuneration policy
Mattioli Woods recognises the importance of its employees to the success of the Group and consequently the remuneration policy is
designed to be market competitive to attract, motivate and retain high calibre individuals. The main focus of the Group’s remuneration policy
is to align the interests of the Executive Directors with the Group’s strategic priorities and the long-term creation of shareholder value.
The Remuneration Committee reviews the regulatory and legislative framework with the aim of ensuring that the remuneration policy is in
line with best practice, including the FCA codes of practice (“the FCA Codes”) which set out the standards and policies that regulated firms
are required to meet when setting pay and bonus awards for staff. External data is used to validate rather than to benchmark the total reward
and the Remuneration Committee takes into consideration the current economic climate, remuneration policies of comparable businesses
and pay and employment conditions elsewhere in the Group when considering Executive Directors‘ and other senior managers’ pay.
The remuneration arrangements are designed to:
» Promote value creation;
» Support the business strategy;
» Promote the long-term success of the Group;
» Deliver a competitive level of pay for the Executive Directors and senior management;
» Encourage the retention of staff through deferred variable compensation, where appropriate;
» Ensure greater alignment between the interests of the Executive Directors and the long-term interests of shareholders through
significant long-term equity participation;
» Be fair for both the director and the Group, with some element of discretion;
» Comply with financial services rules and regulations;
» Discourage excessive risk taking and short-termism;
» Encourage more effective risk management; and
» Support positive behaviours and a strong and appropriate conduct culture.
The Group’s policy is to remunerate Executive Directors and senior management through basic salary and benefits, annual performance-
related discretionary bonuses and participation in long-term incentive plans which promote the creation of sustainable shareholder value.
The total reward is designed to include a balance of fixed and variable pay with an element of deferral.
Fees for the Non-Executive Directors are determined by the Board and are reviewed annually, having regard to fees paid to non-executive
directors in other UK quoted companies, the time commitment and responsibilities of the role. Non-Executive Directors do not receive
bonuses or share entitlements. No director is permitted to participate in decisions concerning their own remuneration.
The effective date for changes in directors’ remuneration is 1 September, in line with the Group’s other employees.
Shareholders will be asked to approve the Directors’ Remuneration Report, including the remuneration policy which applies to the directors
and employees of the Group, at the Company’s next AGM on 21 October 2019.
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Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Single total figure of remuneration for each director
Directors’ remuneration payable in respect of the years ended 31 May 2019 and 2018 was as follows:
Salary
and fees
Benefits
Bonus
Long-term
incentive
plan
Pension-
related
benefits
Share
incentive
plan
Total
2019
£000
2018
£000
2019
£000
2018
£000
2019
£000
2018
£000
2019
£000
2018
£000
2019
£000
2018
£000
2019
£000
2018
£000
2019
£000
2018
£000
Executives
Ian Mattioli1,3
Nathan Imlach1,2
Murray Smith1,2
Mark Smith1,2,4,6
Alan Fergusson1,3,4.5
530
304
260
—
—
540
304
260
41
139
Sub-total
1,094 1,284
Non-executives
Joanne Lake1
Carol Duncumb1
Anne Gunther1
Sub-total
Total
98
49
57
96
47
50
204
193
—
12
12
—
—
24
—
—
—
—
2
14
14
2
—
524
246
120
—
—
500
228
214
20
—
525
272
229
—
—
579
378
326
—
—
52
30
26
—
—
52
30
26
4
3
32
890
962 1,026 1,283
108
115
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
2
—
—
—
4
—
—
—
—
—
2 1,633
866
2
647
2
—
—
—
—
1,675
956
842
67
142
6 3,146 3,682
—
—
—
—
98
49
57
96
47
50
204
193
6 3,350 3,875
1,298
1,477
24
32
890
962 1,026 1,283
108
115
Notes:
1 The benefit package of each Executive Director includes the provision of life assurance under a group scheme.
2 The benefit packages of Nathan Imlach, Murray Smith and Mark Smith include the provision of a company car.
3 The salary packages of Ian Mattioli and Alan Fergusson include a car allowance.
4 Mark Smith and Alan Fergusson ceased to be directors on 15 August 2017.
5 Alan Fergusson received a termination payment of £103,000 on ceasing to be an employee on 1 May 2018.
6 Mark Smith exercised 34,690 share options during the year ended 31 May 2018 after ceasing to be a director, resulting in a gain of £277,518. Mark Smith received a termination
payment of £169,666 on ceasing to be an employee on 22 November 2018.
Notes to Directors’ remuneration table
Salary
The base salaries of the Executive Directors are reviewed annually having regard to personal performance, divisional or Group performance,
significant changes in responsibilities and competitive market practice in their area of operation.
Fees
The Non-Executive Directors are only paid fees, which are not pensionable. In addition to a basic fee, Non-Executive Directors also receive
additional responsibility fees in recognition of them being a member of or chairing a committee or being the senior independent director.
Benefits
Benefits for Executive Directors principally relate to the provision of cars, death in service cover and permanent health insurance or cash
allowances taken in lieu of such benefits.
Bonus
Awards to Executive Directors and some other senior employees of the Group of profit related bonuses are made from a pool of the
Group’s earnings before interest, taxation, depreciation and amortisation after payment of bonuses payable to all other staff. For the year
ended 31 May 2019, the bonus arrangements for the Executive Directors comprised:
» A corporate award based on actual profit achieved compared to target profit; and
» A personal award based on the achievement of personal objectives assessed on a discretionary basis, considering each executive’s
performance against their key objectives.
49
Mattioli Woods plc Annual Report 2019
Directors’ remuneration report continued
Notes to Directors’ remuneration table continued
The payment of corporate award at its maximum level is dependent on outperformance of the Board’s approved internal budget for
the period. The maximum award as a proportion of salary and the actual award payable in respect of the year ended 31 May 2019 are
summarised as follows:
Director
Ian Mattioli
Nathan Imlach
Murray Smith
Actual
award as a
proportion of
salary
Maximum
award as a
proportion of
salary
98.9%
80.9%
46.2%
105.0%
84.0%
94.5%
Linked to
corporate
objectives
50.0%
50.0%
50.0%
Linked to
personal
objectives
50.0%
50.0%
50.0%
Personal objectives are reviewed and approved by the Remuneration Committee at the start of each financial year, with the payment of
personal awards being made at the committee’s discretion. For the year ending 31 May 2020, the short-term incentive arrangements for
each Executive Director are as follows:
Director
Ian Mattioli
Nathan Imlach
Murray Smith
Maximum
award as a
proportion of
salary
105.0%
84.0%
84.0%
Linked to
corporate
objectives
50.0%
50.0%
0%
Linked to
personal
objectives
50.0%
50.0%
100.0%
Long-term incentive plan
To assist the Group to attract and retain appropriately qualified staff, it adopted the Mattioli Woods 2010 Long-Term Incentive Plan
(“the LTIP”) to incentivise certain of its senior employees and Executive Directors. Awards made to the Executive Directors under
the LTIP are set out below.
Pension related benefits
Executive Directors may participate in the pension arrangements of the Group or elect to have pension payments paid into a personal
pension plan or as cash in lieu of pension on the same basis as other employees. Pension payments in respect of Executive Directors are
currently 10% of base salary.
Share incentive plan
The Mattioli Woods plc Share Incentive Plan (“the SIP”) enables employees to buy shares in the Company at an effective discount to the Stock
Exchange price by having an amount deducted from pre-tax salary each month. In addition, the Company can grant participating employees
matching and/or free shares.
This benefit is the value of the SIP matching shares made in the year. Employees may contribute up to £150 per month to buy partnership
shares with contributions matched on a one-for-one basis by the Company.
Mattioli Woods 2010 Long-Term Incentive Plan
The current LTIP was approved by shareholders at the Company’s 2010 AGM. During the year ended 31 May 2019 the Remuneration
Committee granted further awards under the LTIP in respect of the year ended 31 May 2018. The LTIP allows a significant element of
deferred variable remuneration to be paid in equity or a cash equivalent award.
Eligibility
Any employee (including an Executive Director) of the Company or any of its subsidiaries will be eligible to participate in the LTIP at the
discretion of the Remuneration Committee.
Form of award
Awards under the LTIP may be in the form of an option granted to the participant to acquire ordinary shares with a nominal exercise price of
1p. Alternatively, the Remuneration Committee may at its discretion grant participants a right to receive a cash amount which relates to the
value of a certain number of notional shares.
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Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Performance conditions
Options granted under the LTIP are only exercisable subject to the satisfaction of the following performance conditions which will determine
the proportion of the option that will vest at the end of the three-year performance period:
Compound annual growth in EBITDA
over the three-year performance period
<5%
5%
12%
Percentage of maximum award vesting
Nil
30%
100%
The percentage of maximum award vesting will be calculated pro rata between the minimum and maximum hurdles. If the performance
conditions are not met over the three financial years commencing on 1 June before the date of grant, the options lapse. The options will
generally be exercisable after approval of the financial statements for the financial year two years after the year of grant, or on a change of
control (if earlier).
The Remuneration Committee has resolved that the performance period for any future awards under the LTIP will be extended to
a five-year period after which the option will vest to create greater alignment between award-holders and shareholders and encourage
a long-term perspective.
Individual and overall limits
The maximum award for any eligible employee under the LTIP for any one year is 100% of salary. The LTIP is subject to an overall limit on the
total number of shares which may be issued within a 10 year period under the LTIP or any other employee share plan operated by the Group
of 10% of the issued ordinary share capital of the Company.
Clawback
Vested and unvested LTIP awards are subject to a formal malus and clawback mechanism.
Grant of equity share options under the LTIP
As at 31 May 2019, the Company had granted options to certain of its senior employees and Executive Directors to acquire (in aggregate) up
to 2.83% (2018: 3.26%) of its share capital. The maximum entitlement of any individual was 0.75% (2018: 0.80%). The options are exercisable
at 1p per share.
Grant of cash-settled options under the LTIP
At 31 May 2019 there were no cash-settled options in issue (2018: nil).
Terms of awards
Options may be granted over newly issued shares, treasury shares or shares purchased in the market. Options are not transferable other than
on death. Shares acquired through the LTIP may be delivered to participants by the trustees of the Mattioli Woods 2010 Employee Benefit
Trust (“the EBT”), which was established for this purpose. The trustees may either subscribe for new shares from the Company or purchase
shares on the market. The EBT may never hold more than 5% of the ordinary share capital of the Company at any time. At 31 May 2019 the
EBT held 12,248 shares (2018: nil) and the Company held no shares in treasury (2018: nil).
Mattioli Woods Consultants’ Share Option Plan
To attract and retain appropriately qualified staff the Group adopted the Mattioli Woods Consultants’ Share Option Plan (“the Consultants’
Share Option Plan”) to incentivise certain of its senior consultants. Where possible, and to the limits applied by the legislation, the Consultants’
Share Option Plan benefits from the tax advantages under an Enterprise Management Initiative (“EMI”) scheme.
At 31 May 2019, there were no outstanding options that had been granted under the Consultants’ Share Option Plan. At 31 May 2018, the
Company had granted options under the plan to certain of its senior consultants to acquire (in aggregate) up to 0.18% of its share capital.
The maximum entitlement of any individual was 0.16%. The options were exercisable at a price of 216p per share.
Unapproved share scheme
Options issued under the Consultants’ Share Option Plan are intended to be qualifying options for EMI purposes. If they are not qualifying
options (for example, because they exceed the statutory limit at the date of grant) then they will take effect as unapproved options which
cannot benefit from the preferential tax treatments afforded to options granted pursuant to an EMI scheme. The rules for these options will
be identical to those for the Consultants’ Share Option Plan.
51
Mattioli Woods plc Annual Report 2019 Directors’ remuneration report continued
Directors’ interest in share options
Outstanding share options granted to Executive Directors under the 2010 LTIP are as follows:
Director
Ian Mattioli
Murray Smith
Mark Smith1
Nathan Imlach
Alan Fergusson1
Total
Exercise
price
£
0.01
0.01
0.01
0.01
0.01
31 May
2018
No.
209,676
89,350
85,864
101,964
26,247
513,101
Granted
during
the year
No.
62,176
28,114
14,921
29,203
—
Exercised
during
the year
No.
(71,836)
(31,346)
(31,346)
(37,224)
(26,247)
Forfeited
during
the year
No.
—
—
(49,317)
—
—
31 May
2019
No.
200,016
86,118
20,122
93,943
—
134,414
(197,999)
(49,317)
400,199
Notes:
1 Mark Smith and Alan Fergusson ceased to be directors on 15 August 2017.
The Remuneration Committee intends to grant additional awards under the LTIP following the announcement of the Group’s results for the
year ended 31 May 2019.
Note 19 to the financial statements contains a detailed schedule of all options granted to directors and employees as at 31 May 2019.
All of the options were granted for nil consideration.
Service contracts
It is the Group’s policy for all Executive Directors to have contracts of employment that contain a termination notice period not exceeding
12 months. Ian Mattioli’s appointment continues until terminated by either party on giving not less than 12 months’ notice to the other party.
The other Executive Directors’ appointments continue until termination by either party on giving not less than six months’ notice to the
other party.
Joanne Lake, Carol Duncumb and Anne Gunther do not have service contracts. A letter of appointment provides for an initial period
of 12 months and continues until terminated by either party giving six months’ prior written notice to expire at any time on or after the
initial 12 month period.
Directors’ shareholdings
As at 31 May 2019, the interest of the directors in the issued shares of the Company, as shown in its register maintained under section 809 (2)
and (3) of the Companies Act 2006 were:
Director
Ian Mattioli
Nathan Imlach
Murray Smith
Carol Duncumb
Joanne Lake
Anne Gunther
2019
No.
3,371,876
112,668
79,465
8,800
4,100
4,000
%
12.60
0.42
0.30
0.03
0.02
0.01
2018
No.
3,299,254
112,039
79,246
8,800
4,100
4,000
%
12.62
0.43
0.30
0.03
0.02
0.02
Notes:
1 Directors’ shareholdings include any shareholdings of trusts or family members deemed to be connected persons.
The mid-market closing price of the Company’s ordinary shares at 31 May 2019 was 810.0p and the range during the financial year was
625.0p to 857.5p.
None of the directors had an interest in any contract of significance in relation to the business of the Company or its subsidiaries at any time
during the financial year, other than those disclosed in Note 29 to the financial statements.
There was no change in the directors’ shareholdings (all of which are beneficial) or their interests in share options between 31 May 2019 and
2 September 2019.
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Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Total shareholder return performance graph
The graph below illustrates the total shareholder return (“TSR”) for the five years ended 31 May 2019 in terms of the change in value of an
initial investment of £100 invested on 1 June 2014 in a holding of the Company’s shares against the corresponding total shareholder returns
in hypothetical holdings of shares in the FTSE AIM All Share Index.
Mattioli Woods TSR
FTSE AIM All share TSR
£250
£200
£150
£100
£50
£0
31 May 2014
31 May 2015
31 May 2016
31 May 2017
31 May 2018
31 May 2019
The Company is a member of the FTSE AIM All Share Index and considers this to be the most appropriate broad equity market index for the
purpose of measuring the Company’s relative performance.
On behalf of the Board
Carol Duncumb
Chairman of the Remuneration Committee
2 September 2019
53
Mattioli Woods plc Annual Report 2019 Directors’ report
Report and financial statements
The directors have pleasure in presenting their report together with the financial statements for the year ended 31 May 2019.
For the purposes of this report, the expression ‘Company’ means Mattioli Woods plc and the expression ‘Group’ means the Company
and its subsidiaries.
Business review
The Group’s principal activities continue to be the provision of pension consulting and administration, wealth management, asset
management and employee benefits consultancy. The Strategic Report includes further information about the Group’s principal activities
on pages 4 and 5, and financial performance during the year and indications of likely future developments on pages 18 to 22.
The directors believe they have adequately discharged their responsibilities under section 414(c) of the Companies Act 2006 to provide
a balanced and comprehensive review of the development and performance of the business.
Results and dividends
Group profit for the year after taxation amounted to £8.2m (2018: £8.2m), in line with the previous year and revenues, which were £58.5m
(2018: £58.7m). The effective rate of taxation was above the standard rate of tax at 20.0% (2018: 16.2%), primarily due to expenses associated
with sponsorship and other business development activities not being deductible for tax purposes. The lower effective rate in the equivalent
period last year was due to research and development relief claimed in respect of the two years ended 31 May 2017.
The final dividend in respect of the year ended 31 May 2018 of 11.5p per share was paid in October 2018. An interim dividend in respect
of the year ended 31 May 2019 of 6.33p per share was paid to shareholders in March 2019. The directors recommend a final dividend
of 13.67p per share. This has not been included within the Group financial statements as no obligation existed at 31 May 2019. If approved,
the final dividend will be paid on 25 October 2019 to ordinary shareholders whose names are on the register at the close of business on
13 September 2019.
Share capital
Mattioli Woods plc is a public limited company incorporated in England and Wales and its shares are quoted on the AIM market of London
Stock Exchange plc. The Company’s authorised and issued share capital during the year and as at 31 May 2019 is shown in Note 23.
The ordinary shares rank pari passu in all respects. Save as agreed at the Annual General Meeting of the shareholders, the ordinary shares
have pre-emption rights in respect of any future issues of ordinary shares to the extent conferred by section 561 of the Companies Act 2006.
There are no restrictions on the transfer of ordinary shares in the Company, other than:
» Certain restrictions that may be imposed from time to time by laws and regulations and pursuant to the Listing Rules of the
FCA, whereby certain directors, officers and employees of the Group require the approval of the Group to deal in ordinary shares
of the Company;
» Restrictions on the former shareholder of Broughtons as a result of him entering into a lock-in agreement with Mattioli Woods and its
nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 77,171 ordinary
shares in Mattioli Woods during the two years ending 8 August 2020; and
» Restrictions on the former shareholders of SSAS Solutions as a result of them entering into a lock-in agreement with Mattioli Woods
and Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 162,654 ordinary shares in Mattioli Woods
during the two years ending 27 March 2021.
The Group is not aware of any other agreements between holders of securities that may result in restrictions on the transfer of
ordinary shares.
Employee share trust
The Mattioli Woods 2010 Employee Benefit Trust (“the EBT”) was established to deliver shares for the benefit of employees and former
employees of the Group who have been granted an award under one of the Group’s employee share schemes. The trustee has agreed
to satisfy awards under the Group’s employee share schemes. As part of these arrangements the Group funds the EBT, from time to time,
to enable the trustee to acquire shares to satisfy these awards, details of which are set out in Note 23 of the Financial Statements. The trustee
has waived its right to dividends on all shares held within the trust.
During the year ended 31 May 2019 the EBT purchased 12,248 shares in the Company (2018: nil) at a cost of £99,000 (2018: £nil).
CREST
Mattioli Woods plc share dealings are settled in CREST, the computerised system for the settlement of share dealings on the London Stock
Exchange. CREST reduces the amount of documentation required and makes the trading of shares faster and more secure. CREST enables
shares to be held in an electronic form instead of the traditional share certificates. CREST is voluntary and shareholders can keep their share
certificates if they wish. This may be preferable for shareholders who do not trade in shares on a frequent basis.
54
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Substantial shareholdings
At 2 September 2019, the Company had been notified of the following interests representing 3% or more of its issued share capital:
Shareholder
Ian Mattioli
BlackRock Investment Management (UK) Limited
Liontrust Investment Partners LLP
Investec Wealth and Investment Limited
Standard Life Aberdeen plc
Bob Woods
Unicorn Asset Management Limited
Livingbridge VC LLP
Number of
ordinary shares
Percentage
holding
3,371,876
2,654,986
2,619,391
2,582,756
2,383,687
1,941,692
1,356,538
1,005,914
12.6%
9.9%
9.8%
9.6%
8.9%
7.2%
5.1%
3.8%
In addition to the above shareholdings, 588,138 ordinary 1p shares representing 2.2% of the issued share capital are held by employees via
the Mattioli Woods plc Share Incentive Plan (“the SIP”). The Group intends to actively encourage wider share ownership by its employees
through the SIP and other share-based incentive schemes.
Directors
A list of current serving directors and their biographies is given on pages 38 and 39. The Company’s articles of association require that
any Director who held office at the time of the two preceding AGMs and who did not retire at either of them shall retire from office at the
next AGM and may offer himself for re-election. As a matter of good governance however, each of the Directors will stand for re-election
at this AGM.
The Board has a process for the evaluation of its own performance and that of the individual Directors and, following the evaluation of the
performance of the Directors during the year ended 31 May 2019, it was confirmed that each Director continues to be an effective member
of the Board and to demonstrate commitment to the role.
Murray Smith, Group Managing Director, will step down from the Board at the AGM on 21 October 2019.
Directors’ interests
Directors’ emoluments, beneficial interests in the shares of the Company and their options to acquire shares are disclosed in the Directors’
Remuneration Report. During the period covered by this report, no director had a material interest in a contract to which the Company or
any of its subsidiaries was a party (other than their own service contract), requiring disclosure under the Companies Act 2006 other than in
respect of Custodian REIT plc and the rental of the office premises at MW House and Gateway House as disclosed in Note 29.
Conflicts of interest
There are procedures in place to deal with any directors’ conflicts of interest arising under section 175 of the Companies Act 2006 and such
procedures have operated effectively since the Company adopted new articles of association on 22 October 2009.
Directors’ indemnity
All directors and officers of the Company have the benefit of the indemnity provision contained in the Company’s Articles of Association.
The provision, which is a qualifying third party indemnity provision, was in force throughout the last two financial years and is currently still in
force. The Group also purchased and maintained throughout the financial period Directors’ and Officers’ liability insurance in respect of itself
and its directors and officers, although no cover exists in the event directors or officers are found to have acted fraudulently or dishonestly.
Employees
The Group continues to involve its staff in the future development of the business. Information is provided to employees through briefing
sessions, the Group’s website and its intranet, ‘MWeb’, which is continually updated.
The Group operates ‘MyWay’, an online flexible benefits platform. Employees can change elements of their benefits choice annually or if they
have any lifestyle events. MyWay offers a variety of benefits covering health and wellbeing, finance and lifestyle choices, in addition to a core
benefits package, and employees are able to purchase these benefits at group rates. MyWay shows employees the value of their salary and
all other benefits as part of a total reward statement. The platform allows individuals to select options to meet their personal needs and since
its launch we have seen an increasing take up of flexible benefits each year.
The Group operates a Group Personal Pension plan available to all employees and contributes to the pension schemes of directors and
employees. Following the introduction of auto-enrolment every employer must automatically enrol eligible jobholders into a workplace
pension scheme. Employers are then required to make contributions to pension schemes, adding to the savings made by employees. Eligible
employees may choose to opt out after they have been automatically enrolled. Employers cannot avoid their obligation to automatically
enrol eligible employees into a qualifying scheme.
55
Mattioli Woods plc Annual Report 2019
Directors’ report continued
Employees continued
The Group’s pension scheme qualifies as an auto-enrolment scheme, with the Group applying the following contribution rates:
Date
6 April 2018 to 5 April 2019
6 April 2019 onwards
Employer
contribution
3%
5%
Minimum
employee
contribution
3%
5%
The Group operates a Share Incentive Plan and Long-Term Incentive Plan, details of which are given in the Directors’ Remuneration Report
and the financial statements.
The Group is committed to the principle of equal opportunity in employment, regardless of a person’s race, creed, colour, nationality,
gender, age, marital status, sexual orientation, religion or disability. Employment policies are fair, equitable and consistent with the skills
and abilities of the employees and the needs of the business.
Applications for employment by disabled persons are always fully considered. In the event of members of staff becoming disabled, every
effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. Group policy is that the
training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees.
We continue to run a successful graduate training programme as well as the Mattioli Woods Business Academy, have expanded our
apprenticeship scheme across the Group and introduced a new entry level training initiative – the Schools and College Leaver Programme.
The programme provides focused specialist training and immediate access to funded support towards a professional qualification, the
Diploma in Regulated Financial Planning. We continue to provide short duration work experience places to local schools and colleges,
while continuing to work in partnership with Gateway College Leicester, offering those considering an alternative route to higher education
worthwhile work experience. Apprenticeships and our own training programmes offer work-based training to develop new and existing staff
across a range of business areas, fulfilling the Group’s commitment to creating opportunities that offer a clear progression path both in the
short and long-term.
We operate an eLearning platform in conjunction with the Chartered Insurance Institute’s Financial Assess for the continued professional
development of our staff. We are committed to continual process improvement and intend to seek further business improvements across
our locations.
Research and development
In response to the need for an increasingly sophisticated software solution to manage the broader range of products and services offered
by Mattioli Woods, the Group has continued to develop its technology infrastructure, extending the development of its bespoke pension
administration and wealth management platform to include employee benefits, with the aim of enhancing the services offered to clients and
realising operational efficiencies across the Group as a whole. The costs of this development are capitalised where they are recognised as
having an economic value that will extend into the future and they meet the criteria of IAS 38 to be capitalised.
Related party transactions
Details of related party transactions are given in Note 29.
Environmental
The Board believes good environmental practices, such as the recycling of paper waste and purchase of fuel efficient motor vehicles, will
support its strategy by enhancing the reputation of the Group. However, due to the nature of its business generally, the Group does not have
a significant environmental impact.
Annual General Meeting
The AGM of the Company will be held on 21 October 2019. The notice of the meeting together with details of the resolutions proposed and
explanatory notes are enclosed with this report and can also be found on the Group’s website.
Principal risks and uncertainties
The directors’ view of the principal risks and uncertainties facing the business is summarised on pages 24 to 28 of the Chief Executive’s Review.
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Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Financial risk management
The Company and certain of its subsidiaries are supervised in the UK by the Financial Conduct Authority (“FCA”). The Group must
comply with the regulatory capital requirements set by the FCA and manages its regulatory capital through continuous review of the
capital requirements of the Company and its regulated subsidiaries, which are monitored by the Group’s management and reported monthly
to the Board.
The Group’s financial risk management is based upon sound economic objectives and good corporate practice. The Board has overall
responsibility for risk management and internal control. Our process for identifying and managing risks is set out in more detail on pages
40 and 41 of the review of Corporate Governance. The key risks and mitigating factors are set out on pages 24 to 28.
The Group seeks to manage financial risk, to ensure sufficient liquidity is available to meet the identifiable needs of the Group and to invest
cash assets safely and profitably. If required, short term flexibility is achieved through the use of bank overdraft facilities. The Group does not
undertake any trading activity in financial instruments. All activities are transacted in Sterling. The Group does not engage in any hedging
activities.
The Group reviews the credit quality of customers and limits credit exposures accordingly. All trade receivables are subject to credit risk
exposure. However, there is no specific concentration of credit risk as the amounts recognised represent a large number of receivables from
various customers.
Loans may be advanced to investment syndicates to secure new investment opportunities. In the event that a syndicate fails to raise
sufficient funds to complete the investment, the Group may either take up ownership of part of the investment or lose some, or all, of the
loan. However, to mitigate this risk, loans are only approved by the Board under strict criteria, which include confirmation of client demand
for the investment.
Corporate governance
A full review of Corporate Governance appears on pages 34 to 47.
Auditor
The Audit Committee has recommended to the Board that the incumbent auditor, Deloitte LLP is reappointed for a further term. Deloitte LLP
have confirmed their willingness to continue in office as the Group’s auditor in accordance with Section 489 of the Companies Act 2006.
The Group is satisfied that Deloitte LLP are independent and there are adequate safeguards in place to safeguard their objectivity.
A resolution to approve the appointment of Deloitte LLP will be put to shareholders at the Company’s AGM on 21 October 2019.
Directors’ statement as to disclosure of information to the auditor
The directors who were members of the Board at the time of approving the Directors’ Report are listed on pages 38 and 39. Having made
enquiries of fellow directors and of the Company’s auditor, each of these directors confirms that:
» To the best of each director’s knowledge and belief, there is no relevant audit information of which the Company’s auditor
is unaware; and
» Each director has taken all the steps they might reasonably be expected to have taken to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that information.
Going concern
The directors believe the Group is well placed to manage its business risks successfully. The Group’s forecasts and projections show that the
Group should continue to be cash generative, maintain a surplus on its regulatory capital requirements and be able to operate within the
level of its current financing arrangements. Accordingly, the directors continue to adopt the going concern basis for the preparation of the
financial statements.
Events after the balance sheet date
Details of significant events occurring after the end of the reporting period are given in Note 32.
On behalf of the Board
Nathan Imlach
Chief Financial Officer and Company Secretary
2 September 2019
57
Mattioli Woods plc Annual Report 2019 Directors’ responsibilities for the financial statements
The directors are responsible for preparing the Directors’ Report, Strategic Report and the financial statements in accordance with applicable
law and regulations.
UK company law requires the directors to prepare Group and Company financial statements for each financial year. The directors are
required by the AIM Rules of the London Stock Exchange to prepare Group financial statements in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and have elected to prepare the Company financial statements in
accordance with IFRS as adopted by the EU.
The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the Group and Company
and the financial performance of the Group. The Companies Act 2006 provides in relation to such financial statements that references in the
relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing each of the Group and
Company financial statements, the directors are required to:
» Select suitable accounting policies and then apply them consistently;
» Make judgements and estimates that are reasonable and prudent;
» State whether they have been prepared in accordance with IFRSs adopted by the EU; and
» Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company
will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable
them to ensure the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the
Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Mattioli Woods plc website.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
58
Mattioli Woods plc Annual Report 2019 Independent auditor’s report to the members of Mattioli Woods plc
Strategic report
Governance
Financial statements
Opinion
In our opinion:
» the financial statements of Mattioli Woods plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the
state of the group’s and of the parent company’s affairs as at 31 May 2019 and of the group’s profit for the year then ended;
» the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union;
» the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies Act 2006; and
» the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
» the consolidated statement of comprehensive income;
» the consolidated and company statements of financial position;
» the consolidated and company statements of changes in equity;
» the consolidated and company cash flow statement; and
» the related notes 1 to 33.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union
and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
» Revenue recognition
» Acquisition accounting
» Impairment of goodwill and intangible assets
Materiality
Scoping
The materiality that we used for the group financial statements was £512,000 which was determined
on the basis of 5% of profit before taxation.
The group audit includes the full scope audit of Mattioli Woods plc and six other trading subsidiaries.
We carried out a review of the results of the recently acquired SSAS Solutions Limited business. This scope
covers over 99% of the group’s reported results.
Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the following matters where:
» the directors’ use of the going concern basis of accounting in preparation of the financial
statements is not appropriate; or
» the directors have not disclosed in the financial statements any identified material uncertainties
that may cast significant doubt about the group’s or the parent company’s ability to continue
to adopt the going concern basis of accounting for a period of at least twelve months from the
date when the financial statements are authorised for issue.
We have nothing to report in
respect of these matters.
59
Mattioli Woods plc Annual Report 2019
Independent auditor’s report to the members of Mattioli Woods plc continued
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and
directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Revenue recognition – valuation and recoverability of accrued income
Key audit matter
description
The financial statements report total revenue of £58.5 million (2018: £58.7 million), of which £4.6 million
(2018: £5.6 million) represents accrued income in respect of time costs incurred on clients’ affairs during
the period which has not yet been invoiced.
How the scope of
our audit responded
to the key audit
matter
We identified a key audit matter relating to the estimate made by management over the valuation of accrued
income, which is based on the expected recovery rate for time charges billed across the portfolio of clients.
Management develops the forecast based on the average recovery rate experienced in the last twelve
months and makes adjustments for accrued income balances which are more than twelve months old.
Inappropriate assumptions for recoverability would result in inaccurate revenue recognition.
The accounting policy for revenue recognition is provided in Note 2.3 and the management judgement is
discussed in more detail in the key sources of estimation uncertainty section of Note 2.4. Revenue recognised
in the year is disclosed in Note 4. This risk was also considered by the audit committee, as set out in “Audit
Committee activities during the year” within the Governance section of the Annual Report.
We have obtained an understanding of the relevant controls to evaluate the design and implementation
of the controls over the recording of time costs and the setting of the recovery rate for accrued revenue.
Our work on the testing of the accrued revenue balance included:
» Examining the historical recovery rates to assess whether twelve months is an appropriate period
of data to set the current recovery rate and to look for evidence of patterns or outliers that might
indicate it is not;
» Recalculating the recovery rate from the underlying data and carrying out tests of the arithmetical
accuracy of the application of the recovery rate;
» Examining a sample of post year-end invoices for evidence that actual billing is in line with the
accrued amounts;
» Reviewing the movement in recoverability rates post year end for evidence of deterioration in the same;
» Testing the cut off of recording of time spent on client matters at the balance sheet date; and
» Considering the adequacy of disclosure of the estimation uncertainty for accrued revenue.
Key observations
We are satisfied that the assumptions used to estimate the recovery of accrued income are reasonable and
supported by past experience. We did not identify any errors that warranted reporting to the audit committee
and, accordingly, the accrued revenue figure appears to be appropriate.
We concluded that the disclosure around the nature of the estimate is appropriate.
60
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Acquisition accounting
Key audit matter
description
How the scope of
our audit responded
to the key audit
matter
The group completed two acquisitions during the year ending 31 May 2019 for a total consideration
of £9.2 million.
IFRS 3 Business Combinations requires that the acquired assets and liabilities of subsidiaries should be
recognised initially at fair value and this may include the recognition of certain intangible assets, such as
for the value of the existing customer portfolios. Management has carried out a purchase price allocation
exercise to determine the fair value of the assets acquired and the liabilities assumed, which is disclosed in
Note 3 of the financial statements.
The amount paid for both subsidiaries is in excess of the book value of the net assets acquired and
management have determined the value of an intangible asset for the existing customer relationships of each
business (£5.2 million in aggregate). This requires an estimation of the future income stream from existing
customers and the calculation of an appropriate discount rate. Inappropriate assumptions in this regard could
lead to a misstatement of the intangible asset recognised, with an opposite error created in the valuation of
the goodwill recognised.
We identified a key audit matter relating to the revenue forecast and discount rate that support the valuation
of the intangible asset.
The accounting policy for acquisitions is provided in Note 2.3 and the management judgement is discussed
in more detail in the key sources of estimation uncertainty section of Note 2.4. Disclosures related to
acquisitions are provided in Note 3. This risk was also considered by the audit committee, as set out in “Audit
Committee activities during the year” within the Governance section of the Annual Report.
We have obtained an understanding of the relevant controls to evaluate the design and implementation of
the controls over the purchase price allocation exercise.
We have also compared the book value of the acquired assets and liabilities to relevant accounting records
and considered the results of our audit and review work carried out at 31 May 2019 on the acquired entities.
We have challenged the completeness and valuation of intangible assets and other fair value adjustments.
This includes identifying that the retained customer list was the only intangible. We have audited the model
for each acquisition, comparing forecast results to actual results and using our valuation specialists to review
the method applied to determining the value and calculating the discount rate.
Our work on the testing of the valuation of the intangible asset included testing of the mechanical accuracy
of the intangible asset calculation.
We have reviewed the acquisition disclosures provided in Note 3 for consistency with the information and
compliance with IFRS 3.
Key observations
The discount rate applied is within our acceptable range. We have concluded that management’s estimates
over the valuation of the intangible assets are reasonable and that the intangible assets are fairly stated.
The disclosures made concerning the acquisitions are appropriate.
61
Mattioli Woods plc Annual Report 2019 Independent auditor’s report to the members of Mattioli Woods plc continued
Impairment of goodwill and intangible assets
Key audit matter
description
The group balance sheet shows intangible assets (including goodwill) of £48.7 million (2018: £43.2 million).
Management are required by IAS 36 Impairment, to perform an annual impairment review of indefinite life
goodwill and for amortising intangible assets where there are indicators of impairment.
Management have prepared an impairment model which covers all of the operating segments, because
each has goodwill attributed to it. Each operating segment is treated as a cash generating unit (“CGU”) for the
purposes of the impairment assessment. There is significant headroom in all CGUs, with the exception of the
Employee Benefits division. This is broadly consistent with the fact that the market capitalisation of Mattioli
Woods plc (over £200 million at 31 May 2019) is significantly in excess of the carrying value of goodwill and
intangible assets.
Note 16 of the financial statements discloses that there is no impairment to the carrying value of Employee
Benefits division goodwill and intangible assets, but that there is no headroom in the model and, accordingly
if the division does not meet the earnings forecast, it is possible that it will be impaired in future.
Therefore, we have focused our audit work on the assumptions which have been used for the Employee
Benefits division, specifically the discount rate and the comparison of the forecast cashflows to historical
results.
The accounting policy for goodwill is provided in Note 2.3 and the management judgement is discussed in
more detail in the key sources of estimation uncertainty section of Note 2.4. Goodwill and intangible assets
are disclosed in Note 16. This risk was also considered by the audit committee, as set out in “Audit Committee
activities during the year” within the Governance section of the Annual Report.
We have obtained an understanding of the relevant controls to evaluate the design and implementation
of the controls over the reviews of the impairment review model.
Our work on the impairment review model included:
» Reviewing of the EBITDA forecast used in the model against the historical trading of the Employee
Benefits division and challenged the reasons for any changes;
» Assessing the length of the forecast period and the long term growth rates;
» Working with our valuation specialists to evaluate an estimate of the discount rate independently in order
to challenge the rate selected by management;
» Considering management’s assessment of the classification of CGUs for consistency with their operating
segments; and
» Testing the impairment calculations for mechanical accuracy and consistency.
We have also considered the goodwill and intangible assets sensitivity disclosures in Note 16 and assessed
whether that they are consistent with our understanding of sensitivities and the potential impairment under
those scenarios.
How the scope of
our audit responded
to the key audit
matter
Key observations
Current trading, including post year-end trading performance, indicates that the forecasts for the Employee
Benefits division are conservative. The discount rate applied is at the low end of the acceptable range,
but this reflects the element of risk already built into the cashflow forecasts. We have concluded that the
management judgement not to impair the intangible assets and goodwill is reasonable.
The disclosures made concerning the impairment review and the sensitivities that apply to Employee Benefits
appear appropriate.
62
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
£512,000
£358,000
Group financial statements
Parent company financial statements
Basis for determining
materiality
5% of pre-tax profit.
Rationale for the
benchmark applied
In determining our materiality benchmark,
we considered the focus of the users of the
financial statements. Profit before tax is a key
performance indicator for the Group as well
as being the key metric provided in trading
updates, and is an indicator of profits available
for distribution to members.
Parent company materiality equates to 4% of
parent company only profit and is capped at 70%
of group materiality.
The parent company is also the largest trading
entity in the group, so we considered it appropriate
to assess materiality based on the parent company
profit before tax. We cap the materiality to reflect
the proportion of the group’s profit that arises in
the company.
PBT £10,236,000
PBT
Group materiality
Group materiality
£512,000
Component
materiality range
£205,000 to £358,000
Audit Committee reporting
threshold £25,000
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £25,000, as well as differences
below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure
matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and assessing
the risks of material misstatement at the group level. Based on that assessment, our audit scope focused on the key trading entities in the
group, which are Mattioli Woods plc, Custodian Capital Limited, Boyd Coughlan Limited, Taylor Patterson Limited, MC Trustees Limited and
Broughtons Financial Planning Limited, plus the property owning entity, Mattioli Woods (New Walk) Limited.
Our audit work included a full scope audit on these UK components. The extent of our testing was based on our assessment of the risks
of material misstatement and of the materiality of the Group’s operations in those components. These components represent the principal
business units and, together with the consolidation adjustments, account for 99% of the Group’s revenue and profit before tax and 98% of
the assets. We have carried out review procedures for the remaining balances that were not addressed in our full scope audits.
The parent company and group finance function is located in Leicester and all material balances are audited directly by the group audit team.
The consolidation of the results is also carried out at the level of the overall group and there are no sub-consolidations.
63
Mattioli Woods plc Annual Report 2019 Independent auditor’s report to the members of Mattioli Woods plc continued
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor’s
report thereon.
We have nothing to report in
respect of these matters.
Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
64
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
» the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
» the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and of the parent company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
Opinion on other matter prescribed by the Capital Requirements (Country-by-Country Reporting) Regulations 2013
In our opinion the information given on page 90 for the financial year ended 31 May 2019 has been properly prepared, in all material
respects, in accordance with the Capital Requirements (Country-by-Country Reporting) Regulations 2013.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have nothing to report
in respect of these matters.
» we have not received all the information and explanations we require for our audit; or
» adequate accounting records have not been kept by the parent company, or returns adequate
for our audit have not been received from branches not visited by us; or
» the parent company financial statements are not in agreement with the accounting records
and returns.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures
of directors’ remuneration have not been made.
We have nothing to report
in respect of this matter.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Kieren Cooper (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
2 September 2019
65
Mattioli Woods plc Annual Report 2019 For the year ended 31 May 2019
Consolidated statement
of comprehensive income
Revenue
Employee benefits expense
Other administrative expenses
Share based payments
Amortisation and impairment
Depreciation
Impairment loss on trade receivables
Loss on disposal of property, plant and equipment
Gain on revaluation of derivative financial instrument
Operating profit before financing
Finance revenue
Finance costs
Net finance costs
Share of profit from associate, net of tax
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year, net of tax
Attributable to:
Equity holders of the parent
Earnings per ordinary share:
Basic (pence)
Diluted (pence)
Proposed total dividend per share (pence)
Note
4
11
19
16,18
15
20
17
10
8
9
17
12
13
13
14
2019
£000
2018
£000
58,464
58,669
(31,239)
(11,741)
(1,060)
(2,962)
(1,288)
(358)
(125)
100
9,791
60
(86)
(26)
480
10,245
(2,048)
8,197
6
8,203
(32,148)
(12,560)
(1,497)
(2,225)
(822)
(273)
(67)
540
9,617
73
(154)
(81)
240
9,776
(1,586)
8,190
9
8,199
8,203
8,199
30.8
30.7
20.0
30.8
30.8
17.0
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.
66
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
As at 31 May 2019
Consolidated and Company
statements of financial position
Assets
Property, plant and equipment
Intangible assets
Deferred tax asset
Investments in subsidiaries
Investment in associate
Derivative financial asset
Total non-current assets
Trade and other receivables
Investments
Cash and short-term deposits
Total current assets
Total assets
Equity
Issued capital
Share premium
Merger reserve
Equity – share based payments
Capital redemption reserve
Own shares
Retained earnings
Total equity attributable to equity holders of the parent
Non-current liabilities
Deferred tax liability
Financial liabilities and provisions
Total non-current liabilities
Current liabilities
Trade and other payables
Income tax payable
Financial liabilities and provisions
Total current liabilities
Total liabilities
Total equities and liabilities
15
16
12
17
17
21
20
17
22
23
23
23
23
23
23
23
12
26
25
26
Note
Group
£000
2019
Company
£000
Group
£000
16,483
43,199
674
—
3,725
650
64,731
16,946
81
23,668
40,695
2018
Company
£000
2,892
40,931
664
18,572
3,725
650
67,434
28,906
81
17,880
46,867
16,665
48,734
512
—
4,211
750
70,872
16,384
80
23,248
39,712
3,469
38,505
509
12,803
4,211
750
60,247
28,111
80
14,095
42,286
110,584
102,533
105,426
114,301
268
32,137
10,639
2,356
2,000
(99)
38,292
85,593
4,345
1,976
6,321
14,527
536
3,607
18,670
24,991
268
32,137
10,639
2,356
2,000
—
33,883
81,283
3,150
1,951
5,101
12,806
—
3,343
16,149
21,250
261
31,283
8,781
3,010
2,000
—
33,615
78,950
3,455
596
4,051
17,988
695
3,742
22,425
26,476
110,584
102,533
105,426
261
31,283
8,781
3,010
2,000
—
28,468
73,803
3,218
17,506
20,724
15,972
101
3,701
19,774
40,498
114,301
The profit of the Company for the financial year, after taxation, was £8.9m (2018: £7.8m).
The financial statements on pages 66 to 123 were approved by the Board of directors and authorised for issue on 2 September 2019 and are
signed on its behalf by:
Ian Mattioli MBE
Chief Executive Officer
Registered number: 3140521
Nathan Imlach
Chief Financial Officer
67
Mattioli Woods plc Annual Report 2019
For the year ended 31 May 2019
Consolidated and Company
statements of changes in equity
As at 31 May 2018
261
31,283
8,781
Group
As at 1 June 2017
Profit for the year
Total comprehensive income
Transactions with owners of the Group,
recognised directly in equity
Share of other comprehensive
income from associates
Issue of share capital
Share-based payment transactions
Deferred tax recognised in equity
Current tax taken to equity
Reserves transfer
Dividends
Adjustment on initial application
of IFRS 9 (net of tax)
Adjusted balance at 1 June 2018
Profit for the year
Total comprehensive income
Transactions with owners of the Group,
recognised directly in equity
Share of other comprehensive
income from associates
Issue of share capital
Share-based payment transactions
Deferred tax recognised in equity
Current tax taken to equity
Reserves transfer
Own shares
Dividends
—
261
—
—
—
7
—
—
—
—
—
—
Issued
capital
(Note 23)
£000
258
—
—
Share
premium
(Note 23)
£000
30,314
—
Merger
reserve
(Note 23)
£000
8,781
—
Equity –
share based
payments
(Note 23)
£000
Capital
redemption
reserve
(Note 23)
£000
2,571
—
2,000
—
—
—
—
—
—
3
—
—
—
—
—
—
969
—
—
—
—
—
—
—
—
—
—
—
—
—
31,283
—
—
8,781
—
—
—
1,020
(62)
92
(611)
—
3,010
—
3,010
—
—
—
—
—
—
—
—
2,000
—
2,000
—
—
—
—
—
Own shares
(Note 23)
£000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Retained
earnings
(Note 23)
£000
28,671
8,190
Total
equity
£000
72,595
8,190
8,190
8,190
9
—
—
—
—
611
(3,866)
9
972
1,020
(62)
92
—
(3,866)
33,615
78,950
(250)
(250)
33,365
8,197
78,700
8,197
8,197
8,197
—
854
—
—
—
—
—
—
—
1,858
—
—
—
—
—
—
—
—
799
(160)
134
(1,427)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(99)
—
6
—
—
—
—
1,427
—
(4,703)
6
2,719
799
(160)
134
—
(99)
(4,703)
As at 31 May 2019
268
32,137
10,639
2,356
2,000
(99)
38,292
85,593
68
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Issued
capital
(Note 23)
£000
258
—
—
Share
premium
(Note 23)
£000
30,314
—
Merger
reserve
(Note 23)
£000
8,781
—
Equity –
share based
payments
(Note 23)
£000
Capital
redemption
reserve
(Note 23)
£000
2,571
—
2,000
—
Retained
earnings
(Note 23)
£000
23,892
7,822
Total
equity
£000
67,816
7,822
—
—
—
—
7,822
7,822
—
3
—
—
—
—
—
—
969
—
—
—
—
—
—
—
—
—
—
—
—
—
31,283
—
—
8,781
—
—
—
1,020
(62)
92
(611)
—
3,010
—
3,010
—
—
—
—
—
—
—
—
9
—
—
—
—
611
(3,866)
9
972
1,020
(62)
92
—
(3,866)
2,000
28,468
73,803
—
(230)
(230)
2,000
—
28,238
8,915
73,573
8,915
—
—
—
—
8,915
8,915
—
854
—
—
—
—
—
—
1,858
—
—
—
—
—
—
—
799
(160)
134
(1,427)
—
—
—
—
—
—
—
—
6
—
—
—
—
1,427
(4,703)
6
2,719
799
(160)
134
—
(4,703)
Company
As at 1 June 2017
Profit for the year
Total comprehensive income
Transactions with owners of the Company,
recognised directly in equity
Share of other comprehensive
income from associates
Issue of share capital
Share-based payment transactions
Deferred tax recognised in equity
Current tax taken to equity
Reserves transfer
Dividends
Adjustment on initial application
of IFRS 9 (net of tax)
Adjusted balance at 1 June 2018
Profit for the year
Total comprehensive income
Transactions with owners of the Company,
recognised directly in equity
Share of other comprehensive
income from associates
Issue of share capital
Share-based payment transactions
Deferred tax recognised in equity
Current tax taken to equity
Reserves transfer
Dividends
—
261
—
—
—
7
—
—
—
—
—
As at 31 May 2018
261
31,283
8,781
As at 31 May 2019
268
32,137
10,639
2,356
2,000
33,883
81,283
As permitted by s408 of the Companies Act 2006, no separate profit or loss account or statement of comprehensive income is presented
in respect of the parent Company. The profit attributable to the Company is disclosed in the footnote to the Company’s statement of
financial position.
69
Mattioli Woods plc Annual Report 2019
For the year ended 31 May 2019
Consolidated and Company
statements of cash flows
Note
15
16
17
8
9
17
17, 31
19
12
15
16
26
3
3
17
8
14
22
22
Group
2019
£000
Company
2019
£000
Group
2018
£000
Company
2018
£000
8,197
1,288
2,962
—
(60)
86
(480)
(100)
125
1,060
—
—
2,048
15,126
656
(4,231)
(537)
11,014
(1)
(2,221)
8,792
117
(1,680)
(297)
(763)
(4,537)
—
1,845
—
(211)
467
54
—
(5,005)
595
(99)
(4,703)
(4,207)
(420)
23,668
23,248
8,915
840
2,723
14,935
(512)
691
(480)
(100)
114
1,060
—
(18,835)
1,116
10,467
1,101
(3,580)
(687)
7,301
—
(1,640)
5,661
117
(1,648)
(297)
(763)
(4,537)
—
—
—
(211)
467
34
1,500
(5,338)
595
—
(4,703)
(4,108)
(3,785)
17,880
14,095
8,190
822
2,225
—
(73)
154
(240)
(540)
67
1,378
119
—
1,586
13,688
(957)
5,100
344
18,175
(1)
(1,840)
16,334
72
(7,773)
(980)
(3,506)
—
—
—
9
(2,332)
2,032
73
—
(12,405)
626
—
(3,866)
(3,240)
689
22,979
23,668
7,822
815
2,004
—
(458)
551
(240)
(540)
68
1,378
119
(2,500)
886
9,905
(5,043)
5,187
325
10,374
(1)
(1,419)
8,954
68
(1,627)
(980)
(3,506)
—
3,765
—
9
(2,332)
2,032
65
2,500
(6)
626
—
(3,866)
(3,240)
5,708
12,172
17,880
Operating activities
Profit for the year
Adjustments for:
Depreciation
Amortisation
Impairment
Investment income
Interest expense
Share of profit from associate
Gain on revaluation of derivative financial asset
Loss on disposal of property, plant and equipment
Equity-settled share-based payments
Cash-settled share-based payments
Dividend income
Income tax expense
Cash flows from operating activities before changes
in working capital and provisions
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions
Cash generated from operations
Interest paid
Income taxes paid
Net cash flows from operating activities
Investing activities
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Purchase of software
Contingent consideration paid on acquisition of subsidiaries
Acquisition of subsidiaries
Cash transferred on hive up of group companies
Cash received on acquisition of subsidiaries
Other investments
Loans advanced to property syndicates
Loan repayments from property syndicates
Interest received
Dividends received
Net cash flows from investing activities
Financing activities
Proceeds from the issue of share capital
Cost of own shares acquired
Dividends paid
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
70
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Notes to the financial statements
Corporate information
1.
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.
Basis of preparation and accounting policies
2.
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 (Notes 17, 21 and 26), and are presented in pounds, with all values rounded to the nearest thousand pounds (£000) except when
otherwise indicated.
The principal accounting policies adopted are set out in this note and, unless otherwise stated, have been applied consistently to all periods
presented in the financial statements. The financial statements were authorised for issue in accordance with a resolution of the directors on
2 September 2019.
2.2 Developments in reporting standards and interpretations
Standards affecting the financial statements
This is the first set of the Group’s financial statements where IFRS 9 and IFRS 15 have been applied. These new standards were adopted from
1 June 2018. Under the transition methods chosen, comparative information is not restated. Changes to significant accounting policies are
described in Note 2.
IFRS 9 Financial Instruments
IFRS 9 ‘Financial instruments’ replaces IAS 39 and 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.
Transition
The Group has taken advantage of the exemption from restating comparative information for prior periods with respect to classification and
measurement (including impairment) requirements. Differences in the carrying amounts of financial assets and financial liabilities resulting
from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 June 2018. Accordingly, the information presented for
the year ended 31 May 2018 does not generally reflect the requirements of IFRS 9 but rather those of IAS 39.
The impact, net of tax, of transition to IFRS 9 on the opening balance of consolidated retained earnings was a reduction in value of £250,000
(Company: £230,000). Our provisional evaluation of the application of IFRS 9 indicated an expected reduction in value of £400,000 but
on further review of our methodology for measuring historic credit losses we adopted a methodology using specific rates for each Group
company, to better reflect the historic loss rates experienced by each company.
Classification and measurement of financial assets and financial liabilities
The basis of classification for financial assets under IFRS 9 is different from that under IAS 39. Financial assets are classified into one of three
categories: amortised cost, fair value through profit or loss (“FVTPL”) or fair value through other comprehensive income (“FVOCI”). The held
to maturity, loans and receivables and available for sale categories available under IAS 39 have been removed.
The classification criteria for allocating financial assets between categories under IFRS 9 require the Group to document the business models
under which its assets are managed, distinguishing whether:
» its objective is to hold assets to collect contractual cash flows;
» its objective is both to collect contractual cash flows and to sell the asset; or
» it represents another type of business model (e.g. trading).
The Group is also required to review contractual terms and conditions to determine whether the cash flows arising on these assets are solely
payments of principal and interest on the principal amount outstanding.
All of the Group’s financial assets as at 1 June 2018 were managed within business models whose objective is solely to collect contractual
cash flows, except derivative financial instruments which are classified as FVTPL.
71
Mattioli Woods plc Annual Report 2019 Notes to the financial statements continued
2.2 Developments in reporting standards and interpretations continued
IFRS 9 Financial Instruments continued
Classification and measurement of financial assets and financial liabilities continued
The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 June 2018 relates solely to new impairment requirements,
described further below. The following tables explain the original measurement categories under IAS 39 and the new measurement
categories under IFRS 9 for each class of the Group and Company’s financial assets as at 1 June 2018:
Group financial assets
Cash and short-term deposits
Derivative financial asset
Investments
Other financial assets
Total
Company financial assets
Cash and short-term deposits
Derivative financial asset
Investments
Other financial assets
Total
Original classification
under IAS39
Loans and receivables
FVTPL
Held to maturity investments
Loans and receivables
Original classification
under IAS39
Loans and receivables
FVTPL
Held to maturity investments
Loans and receivables
Carrying value
under IAS39
£000
23,668
650
81
16,016
40,415
Carrying value
under IAS39
£000
17,880
650
81
12,377
30,988
New classification
under IFRS 9
Amortised cost
FVTPL
Amortised cost
Amortised cost
New classification
under IFRS 9
Amortised cost
FVTPL
Amortised cost
Amortised cost
Carrying value
under IFRS9
£000
23,668
650
81
15,708
40,107
Carrying value
under IFRS9
£000
17,880
650
81
12,092
30,703
The basis of classification for financial liabilities under IFRS 9 remains unchanged from under IAS 39. Financial liabilities are classified as
measured at amortised cost or at FVTPL. Trade and other payables are initially recognised at fair value and subsequently measured at
amortised cost using the effective interest method.
The only financial liability recorded by the Group as FVTPL is contingent consideration payable on acquisitions, which remains as FVTPL
on the application of IFRS 9 and so no change in carrying value has been recorded on adopting IFRS 9. The Group holds no liabilities as held
for trading.
Impairment of financial assets
Under IFRS 9, an expected credit loss (“ECL”) model replaces the incurred loss model, meaning there no longer needs to be a triggering event
to recognise impairment losses. A credit loss provision must be made for the amount of any loss expected to arise, whereas under IAS 39,
credit losses are recognised when they are incurred.
Under the ECL model, a dual measurement approach applies whereby a financial asset will attract an ECL allowance equal to either:
» 12 month ECLs (losses resulting from possible defaults within the next 12 months); or
» Lifetime ECLs (losses resulting from possible defaults over the remaining life of the financial asset).
The latter applies if there has been a significant deterioration in the credit quality of the asset, albeit lifetime ECLs will always be recognised
for assets without a significant financing component. The maximum period considered when estimating ECLs is the maximum contractual
period over which the Group is exposed to credit risk.
Measurement of ECLs
The Group’s trade and other receivables are generally short term and do not contain significant financing components. Therefore, the
Group has applied a practical expedient by using a provision matrix to calculate lifetime ECLs based on actual credit loss experience over
the past 12 months and will consider forward looking factors where relevant. Adoption of this practical expedient is only available for trade
receivables and amounts receivable under contracts.
Applying this methodology as at 1 June 2018 resulted in an impairment loss provision of £1,422,000 under IFRS 9 relating to trade and other
receivables (31 May 2018: £1,114,000 under IAS 39). This methodology was also applied at the interim reporting date.
72
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
The following tables set out the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each
class of the Group and Company’s financial assets as at 1 June 2018:
Group financial assets – Trade and other receivables
Other trade receivables
Accrued income
Accrued time costs and disbursements
Other receivables
Total
Company financial assets – Trade and other receivables
Other trade receivables
Accrued income
Accrued time costs and disbursements
Other receivables
Total
Carrying value
under IAS39
£000
Carrying value
under IFRS9
£000
Additional
ECL provision
£000
5,133
3,927
5,556
1,400
4,912
3,865
5,542
1,389
16,016
15,708
221
62
14
11
308
Carrying value
under IAS39
£000
Carrying value
under IFRS9
£000
Additional
ECL provision
£000
5,043
1,245
5,556
533
12,377
4,826
1,191
5,542
533
12,092
217
54
14
—
285
Presentation of impairment
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Impairment
losses are presented separately on the statement of comprehensive income.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 brings a new and detailed approach to how and when revenue is recognised from contracts with customers and the treatment
of the costs of obtaining a contract with a customer. The standard requires that the recognition of revenue is linked to the fulfilment of
identified performance obligations that are enshrined in the customer contract. It also requires that the incremental cost of obtaining
a customer contract should be capitalised if that cost is expected to be recovered. The standard replaces existing revenue recognition
guidance, particularly that under IAS 18.
Transition
The Group has adopted IFRS 15 using the cumulative effect method, with the effect of applying the standard recognised at the date
of adoption, with no restatement of the comparative period. The impact, net of tax, of transition to IFRS 15 on the opening balance of
retained earnings was £nil. There are no material differences between the results for the year ended 31 May 2019 under IAS 18, had it applied,
and IFRS 15.
Impact on financial statements for the year ended 31 May 2019
The Group has considered the impact of adopting IFRS 15 on its existing revenue streams, as well as on its policy of capitalising the cost of
obtaining customer contracts. Subsequent to the assessment of the Group’s revenue recognition policies, the majority are the same under
IFRS 15 and IAS 18. The matters below were considered in more detail as potential differences, but did not impact the financial statements
for the year ended 31 May 2018.
Property management fees and adviser charges
Included within property management fees are initial fees charged on the establishment of private investment syndicates. Under IFRS 15,
the Group has identified the only performance obligation is the establishment of the private investment syndicate and hence these fees can
be recognised when the performance obligation has been satisfied.
Included within adviser charges are initial adviser charges, which are recognised on a ‘point in time’ basis as being earned at the point when
an investment of funds has been made by the client and submitted to the product provider, which can include private investment syndicates.
Costs to obtain a contract
The Group pays certain employees bonuses partly based on the revenues generated from their client portfolios and incurs various direct
marketing costs. IFRS 15 requires incremental costs to obtain any contract with a customer to be capitalised if those costs relate directly
to a contract or anticipated contract, generate or enhance the resources of the entity, and the entity expects to recover them.
The Group has elected to apply the optional practical expedient for costs to obtain a contract which allows the Group to immediately
expense bonus and marketing costs (£1,756,000 included under employee benefits expense and £1,092,000 included in other administrative
expenses respectively) because the amortisation period of the asset that the Group otherwise would have used is one year or less.
73
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
2.2 Developments in reporting standards and interpretations continued
Standards not affecting the financial statements
In addition to IFRS 9 and IFRS 15 the following new and revised standards and interpretations have been adopted in the current year:
Standard or interpretation
Annual Improvements to IFRSs 2014-2016 Cycle
IAS 40 amended
IFRIC 22
IFRS 2 (amended)
Transfers of Investment Property
Foreign Currency Transactions and Advance Consideration
Classification and Measurement of Share-based Payments
Periods commencing
on or after
1 January 2018
1 January 2018
1 January 2018
1 January 2018
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
Annual Improvements to IFRSs 2015-2017 Cycle
IFRS 9 (amended)
IFRS 16
IFRIC 23
IAS 28 (amended)
IAS 19 (amended)
Amendments to References to the Conceptual Framework in IFRS Standards
IFRS 3 (amended)
IAS 1 and IAS 8 (amendments)
IFRS 17
Financial Instruments
Leases
Accounting for uncertain tax treatments
Long-term Interests in Associates and Joint Ventures
Plan Amendment, Curtailment or Settlement
Business Combinations
Definition of Material
Insurance Contracts
Periods commencing
on or after
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2020
1 January 2020
1 January 2020
1 January 2021
IFRS 16 ‘Leases’ is expected to have a significant effect on the 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 16 Leases
IFRS 16 ‘Leases’ was issued in January 2016 and is effective for accounting periods beginning on or after 1 January 2019. IFRS 16 primarily
changes 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 has estimated the impact of the following accounting changes that will arise under IFRS 16:
» Right-of-use assets with an estimated value of £3,500,000 as at 31 May 2019 will be recorded for assets that are leased by the Group
(see Note 27). Currently, no leased assets are included on the Group’s consolidated statement of financial position for operating leases.
These assets primarily comprise office properties with lease periods between one and ten years and multifunction printers.
» Estimated liabilities of £3,500,000 as at 31 May 2019 will be recorded in the Group’s consolidated statement of financial position,
representing the present value of future cash flows the Group will pay over the “reasonably certain” period of the lease, which may
include future lease periods for which the Group has extension options. A critical accounting judgement is determining appropriate
discount rate assumptions. IFRS 16 sets out that the lease payments shall be discounted using the interest rate implicit in the lease, if
that rate can be readily determined, or the lessee’s incremental borrowing rate. The Group does not have the necessary historical data
to determine the interest rates implicit in the leases and hence the estimated liabilities at transition have been calculated using the
Group’s estimated incremental borrowing rates, which are the rates of interest the Group would have to pay to borrow over a similar
term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use assets in a similar economic
environment. Currently, liabilities are generally not recorded for future operating lease payments, which are disclosed as commitments
unless they are considered onerous. At 31 May 2019, the Group has recognised provisions of £348,000 for dilapidations (see Note 26).
74
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
» In the year ending 31 May 2020 we expect to recognise estimated depreciation on right-of-use assets of £839,000 and estimated
interest costs on the unwinding of discounted lease liabilities of £135,000. These total costs of £974,000 are £54,000 higher than the
expected rental costs of £920,000 that would be recognised under IAS 17, where operating lease rentals are expensed on a straight-line
basis over the lease term within other administrative expenses, because interest will typically be higher in the early stages of a lease and
reduce over the term.
» 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 expects the accounting changes that will arise under IFRS 16 to have a material impact on the consolidated income statement,
consolidated statement of financial position and consolidated statement of cash flows from 1 June 2019:
» EBITDA is expected 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 any covenants provided
to prospective lenders and others.
IFRS 16 was adopted by the Group on 1 June 2019 and therefore will impact the Group’s financial statements for the year ending 31 May
2020. The group plans to use the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognised
as an adjustment to the opening balance sheet at 1 June 2019, with no restatement of comparative information.
The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16
to all contracts entered into before 1 June 2019 and identified as leases in accordance with IAS 17.
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 historical experience. Expected future cash flows are estimated based on the historical 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 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 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.
On 31 May 2019 the loan notes were waived by way of in-specie dividend and the capital and reserves of Boyd Coughlan Limited, Taylor
Patterson Group Limited and its subsidiaries were each reduced to £2. The net impact on the consolidated financial position of the Group
was £nil. The net impact on the financial position of the Company was a gain of £2,400,000, comprising a gain on the waiver of the loan
notes of £17,335,000, offset by impairment of the Company’s investment in these subsidiaries of £14,935,000.
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Mattioli Woods plc Annual Report 2019 Notes to the financial statements continued
2.3 Principal accounting policies continued
Property, plant and equipment
Plant and equipment is stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated
impairment in value. Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition
criteria are met.
Depreciation is provided on all property, plant and equipment at rates calculated to write each asset down to its estimated residual value
over its expected useful life as follows:
» Assets under construction
0% until asset becomes available for use;
» Freehold buildings
2% per annum on cost;
» Computer and office equipment
20/25% per annum on written down values;
» Fixtures and fittings
» Motor vehicles
20% per annum on written down values;
25% per annum on written down values; and
» Leasehold improvements
Straight line over the remaining term of the lease.
Assets under construction are not depreciated until construction is complete and the asset is available for use. At the point when the asset
becomes available for use, it will be transferred to the appropriate asset class and depreciated in line with the above policy.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use
or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognised.
The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end.
Investments
The Group accounts for its investments in subsidiaries using the cost model and investments in associates using the equity method.
Short-term investments
Short-term investments include units in private property syndicates, which are measured at fair value.
Goodwill
Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over
the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition,
goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that
are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned
to those units or groups of units.
Each unit or group of units to which the goodwill is allocated:
» Represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
» Is not larger than a segment based on the Group’s reporting format determined in accordance with IFRS 8 ‘Operating Segments’.
If a cash generating unit was to be sold, the difference between the selling price and the net assets and goodwill would be recognised in the
statement of comprehensive income. Where the Group reorganises its reporting structure in a way that changes the composition of one or
more cash-generating units to which goodwill has been allocated, the goodwill is reallocated to the units affected.
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Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business
combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated
amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite.
Intangible assets assessed as having finite lives are amortised over their useful economic life as follows:
» Purchased software
25% per annum on written down values; and
» Internally generated software
Straight line over 10 years.
Intangible assets assessed as having finite lives are assessed for impairment whenever there is an indication that the intangible asset may
be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each
financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the
asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates.
The amortisation expense on intangible assets with finite lives is recognised in the statement of comprehensive income.
The Group amortises individual client portfolios acquired through business combinations on a straight-line basis over an estimated useful life
based on the Group’s historic experience.
Client portfolios acquired through business combinations are as follows:
Client portfolio
Date of acquisition
Estimated useful life
Mattioli Woods Pension Consultants (“the Partnership Portfolio”)
Geoffrey Bernstein
Suffolk Life
PCL
JBFS
CP Pensions
City Pensions
Kudos
Ashcourt Rowan
Atkinson Bolton
UK Wealth Management
Torquil Clark
Boyd Coughlan
Taylor Patterson
Lindley Trustees
Maclean Marshall Healthcare
Stadia Trustees
MC Trustees
Broughtons
SSAS Solutions
2 September 2003
20 June 2005
27 January 2006
10 July 2007
18 February 2008
30 April 2010
9 August 2010
26 August 2011
23 April 2013
29 July 2013
8 August 2014
23 January 2015
23 June 2015
8 September 2015
5 October 2015
22 January 2016
15 February 2016
7 September 2016
8 August 2018
27 March 2019
25 Years
25 Years
25 Years
25 Years
25 Years
25 Years
20 Years
20 Years
10 Years
20 Years
10 Years
10 Years
20 Years
20 Years
10 Years
10 Years
10 Years
20 Years
15 Years
20 Years
A summary of the policies applied to the Group’s goodwill and intangible assets is as follows:
Useful life
Measurement
method used
Internally generated
or acquired
Goodwill
Indefinite
Client portfolios
Finite
Software
Finite
Other intangibles
Finite
Annual impairment review Amortised over a useful
economic life of between
10 and 25 years on a
straight-line basis
Amortised over a useful
economic life of four years
on a reducing balance basis
or 10 years on a straight-line
basis if internally generated
Amortised over a useful
economic life of three years
Acquired
Acquired
Both
Both
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Mattioli Woods plc Annual Report 2019 Notes to the financial statements continued
2.3 Principal accounting policies continued
Impairment of non-financial assets
The Group assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists,
or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s
recoverable amount is the higher of an asset’s, or cash generating unit’s fair value less cost to sell and its value in use, and is determined
for an individual asset, unless the asset does not generate cash inflows that are largely independent from those of other assets or group
of assets.
When the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated future cash flows 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 the asset. In determining fair
value less cost to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available
fair value indicators.
Impairment losses of continuing operations are recognised in the statement of comprehensive income.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised
impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of the recoverable
amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s
recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its
recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation,
had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of comprehensive income
unless the asset is carried at revalued amount, in which case reversal is treated as a revaluation increase, except in relation to goodwill.
The following criteria are also applied in assessing impairment of specific non-financial assets:
Goodwill
Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may
be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating unit (or group of cash-
generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (or group of cash-generating
units) is less than the carrying amount of the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated,
an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. The Group performs its annual
impairment test of goodwill as at 31 May.
Financial assets
Loans and receivables
Loans and receivables are non-derivative financial assets, which have solely payments of principal and interest that are held with the intention
of collecting the cashflows. After initial measurement, loans and receivables are subsequently carried at amortised cost using the effective
interest method, less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition
and includes fees and transaction costs. Gains and losses are recognised in the statement of comprehensive income when the loans and
receivables are derecognised or impaired, as well as through the amortisation process.
Cash and short-term deposits
Cash and short-term deposits in the statement of financial position comprise cash at banks and in hand and short-term deposits with an
original maturity of three months or less. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and
short-term deposits as defined above, net of outstanding bank overdrafts.
Derivative financial assets
Derivative financial assets comprise an option contract to acquire the remaining ordinary share capital of an associate of the Group.
Derivative financial assets are carried at fair value, with gains and losses arising from changes in fair value taken directly to the Statement of
Comprehensive Income. Fair values of derivatives are determined using valuation techniques, including discounted cash flow models and
option pricing models as appropriate.
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Impairment of non-derivative financial assets
At each reporting date the Group recognises loss allowances for expected credit losses for all financial assets at amortised cost. The Group
measures loss allowances at an amount equal to lifetime expected credit losses, except for bank balances for which credit risk has not
increased significantly since initial recognition, which are measured at 12 month expected credit losses. When estimating expected credit
loss by determining whether credit risk has increased significantly since initial recognition, the Group considers reasonable and supportive
information that is relevant and available without undue cost or effort, including historic rates of loss from the issue of credit notes or
increases in specific provisions for bad debt and will consider forward looking factors where relevant. The carrying amount of the receivable
is reduced through use of an allowance account.
Financial liabilities
Trade and other payables
Trade and other payables are recognised at cost, due to their short term nature. Accruals and deferred income are normally settled monthly
throughout the financial year, with the exemption of bonus accruals which are typically paid annually.
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement at inception date of
whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the
asset. A reassessment is made after inception of the lease, only if one of the following applies:
a) There is a change in contractual terms, other than a renewal or extension of the arrangement;
b) A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term;
c) There is a change in the determination of whether fulfilment is dependent on a specified asset; or
d) There is substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise
to the reassessment for scenarios a), c) or d) and at the date of renewal or extension period for scenario b). The Group has no finance
lease arrangements.
Group as a lessee
Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight line basis over the
lease term.
Interest bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After
initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.
Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised as well as through the
amortisation process.
Contingent consideration
Where the Group has entered into an acquisition agreement under which contingent consideration may be payable, management reviews
the agreement and monitors the financial and other targets to be met to estimate the fair value of any amounts payable. Subsequent
changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IFRS 9
either in profit or loss or as a change to other comprehensive income.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the
amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract,
the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any
provision is presented in the statement of comprehensive income, net of any reimbursement. If the effect of the time value of money is
material, provisions are discounted using a current pre-tax rate which reflects, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passing of time is recognised as a finance cost.
Provisions include financial liabilities. Where the Group has entered into certain acquisition agreements that provide for contingent
consideration to be paid the Board estimates the net present value of contingent consideration payable.
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Mattioli Woods plc Annual Report 2019 Notes to the financial statements continued
2.3 Principal accounting policies continued
Share based payments
The Group engages in share-based payment transactions in respect of services received from certain employees. In relation to equity
settled share based payments, the fair value of services received is measured by reference to the fair value of the shares or share options
granted on the date of grant and is recognised, together with a corresponding increase in equity, as an expense over the period in which the
performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award
(“the vesting date”). The fair value of share options is determined using the Black Scholes Merton pricing model.
The cumulative expense recognised for equity settled transactions at each reporting date until the vesting date reflects the extent to which
the vesting period has elapsed and the Group’s best estimate of the number of equity instruments that will ultimately vest. The statement of
comprehensive income charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and
end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,
which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions
are satisfied.
Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense if the terms had not been
modified. An expense is recognised for any modification, which increases the total fair value of the share based payment arrangement,
or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised
for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement
award on the date it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described
in the previous paragraph.
For cash-settled share-based payments, a liability is recognised for the services received, measured initially at the fair value of the liability.
At the date on which the liability is settled, and at the date of each statement of financial position between grant date and settlement,
the fair value of the liability is remeasured with any changes in fair value recognised in the statement of comprehensive income for the year.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share (further details
are given in Note 13).
Own shares
Own shares consist of shares held within an employee benefit trust. The Company has an employee benefit trust for the granting of shares
to applicable employees.
Own shares are recognised at cost as a deduction from equity shareholders’ funds. Subsequent consideration received for the sale of such
shares is also recognised in equity, with any difference between the sale proceeds and the original cost being taken to retained earnings.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably
measured. Revenue is measured at the fair value of the consideration receivable for each contractual obligation, excluding discounts,
rebates, and other sales taxes or duty. Terms of business with customers typically include payment periods of up to 60 days, although
specific payment terms can be agreed between the parties. The following information details the nature and timing of the satisfaction
of performance obligations in contracts with customers.
Investment and asset management
Commission income and adviser charges are recognised as follows:
» At a point in time: Initial commission (less provision for clawbacks, as explained in Note 26) and initial adviser charges are recognised
on a ‘point in time’ basis as being earned at the point when an investment of funds has been made by the client and submitted to the
product provider.
» Over time: Ongoing adviser charges, based on the value of assets invested, are recognised on an ‘over time’ basis during the period the
assets are held in the portfolio or investment fund and have been compared to observable rates from other providers on a stand-alone
basis, with initial charges recognised by the residual approach to ensure that the allocation of the selling price remains appropriate.
Discretionary portfolio management (“DPM”) charges are recognised as follows:
» At a point in time: Initial charges on the placing of investments are recognised on a ‘point in time’ basis as being earned at the point when
an investment of funds has been made by the client and submitted to the product provider.
» Over time: Ongoing DPM charges based on the value of assets invested are recognised on an ‘over time’ basis during the period the
assets are held in the portfolio or investment fund.
Our ongoing adviser and DPM charges have been compared to observable rates from other providers on a stand-alone basis, with initial
charges being recognised by the residual approach, to ensure that the allocation of the selling price remains appropriate.
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Pension consultancy and administration
Pension consultancy and administration fees are recognised as follows:
» At a point in time: Mattioli Woods generally invoices pension clients on a six monthly basis in arrears for costs incurred in advising on and
administering their affairs. Where revenue is contingent on completion of a service, revenue is recognised on a ‘point in time’ basis at the
point that those contractual performance conditions are satisfied. No revenue is recognised if there are significant uncertainties regarding
recovery of the time incurred.
» Over time: To the extent that the Group has a contractual right to invoice for services rendered, revenue is recognised on an ‘over time’
basis as time is incurred on the provision of services, with an estimate being made of what proportion of uninvoiced time costs will be
recoverable. Recoverability is measured as a percentage of the total time costs incurred on clients’ affairs compared to the proportion
of historical time costs actually invoiced.
Pension consultancy and administration fees have been compared to observable rates from other providers on a stand-alone basis, with
establishment charges being recognised by the residual approach, to ensure that the allocation of the selling price remains appropriate.
Property management
Property management fees are recognised as follows:
» At a point in time: Initial charges on the establishment of a private investment syndicate are recognised on a ‘point in time’ basis when the
syndicate completes its investment.
» Over time: Fund management and private investment syndicate charges, including charges based on the value of assets held, are
recognised on an ‘over time’ basis during the period the assets are held in the fund or syndicate.
Employee benefits
Employee benefits fees are recognised as follows:
» At a point in time: Fee income from services provided on the set up of an employee benefits scheme or provision of non-recurring
employee benefits services are recognised on a ‘point in time’ basis on completion of rendering those services, being the point that those
contractual performance conditions are satisfied.
» Over time: Ongoing management charges on employee benefits schemes are recognised on an ‘over time’ basis over the period to
which they relate.
Interest income
Revenue is recognised as interest accrues (using the effective interest method that is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial instrument to the net carrying amount of the financial asset).
Taxes
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or
repaid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted
by the reporting date.
Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of comprehensive income.
Deferred income tax
Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax balances are recognised for all taxable
temporary differences, except where the deferred income tax balance arises from the initial recognition of goodwill or of an asset or liability
in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit
or loss.
Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax
losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry
forward of unused tax credits and unused tax losses can be utilised.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income
tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will
allow the deferred income tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date.
Deferred income tax relating to items recognised directly in equity is recognised in equity and not in the statement of comprehensive
income. Deferred income tax assets related to temporary differences arising on share-based payments to employees are based on the
market value of the Company’s shares at the year end.
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Mattioli Woods plc Annual Report 2019 Notes to the financial statements continued
2.3 Principal accounting policies continued
Taxes continued
Deferred income tax continued
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against
current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
Sales tax
Revenues, expenses and assets are recognised net of the amount of sales tax, except:
» Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales
tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
» Receivables and payables that are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the
statement of financial position.
Dividend recognition
Dividend distributions to the Company’s shareholders are recognised in the accounting period in which the dividends are declared and paid,
or if earlier, in the accounting period when the dividend is approved by the Company’s shareholders at the Annual General Meeting.
Pension costs
The Group makes discretionary payments into the personal pension schemes of certain employees. Contributions are charged to the
statement of comprehensive income as they are payable.
2.4 Critical accounting judgements and sources of significant 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.
Critical accounting judgements
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 only associate at 31 May 2019 is Amati, in which the Group owns
49% of the voting rights, with the controlling 51% owned by Amati Global Partners LLP. 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 2019 was £4.2m (2018: £3.7m).
Sources of significant estimation uncertainty
Impairment of acquired client portfolios and goodwill
For the purposes of impairment testing, acquired client portfolios and goodwill are allocated to the group of cash-generating units (“CGUs”)
that are expected to benefit from the business combination.
The Group reviews whether acquired client portfolios are impaired on an annual basis, or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired. This comprises an estimation of the fair value less cost to sell and the value
in use of the acquired client portfolios.
The key assumptions used in arriving at a fair value less cost of sale are those around valuations based on earnings multiples and values
based on assets under management. These have been determined by looking at valuations of similar businesses and the consideration
paid in comparable transactions. Management has used a range of multiples resulting in an average of 7.5x EBITDA to arrive at a fair value.
Value in use calculations are utilised to calculate recoverable amounts of a CGU. Value in use is calculated as the net present value
of the projected pre-tax cash flows of the CGU in which the client portfolio is contained. The net present value of cash flows is calculated
by applying a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset,
based on the Group’s pre-tax Weighted Average Cost of Capital (“WACC”). The Group has applied a WACC of 10.2% to each of its
operating segments.
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The key assumptions used in respect of value in use calculations are those regarding growth rates and anticipated changes to revenues
and expenses 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 long-term growth rate of 2.5% (2018: 2.5%), which management considers conservative against industry average long-term
growth rates.
The carrying amount of client portfolios at 31 May 2019 was £26.8m (2018: £23.5m). No impairment provisions have been made during
the year (2018: £nil) based upon the Directors’ review.
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the CGUs
to which the goodwill has been allocated. In assessing value in use, the estimated future cash flows expected to arise from the CGU are
discounted to their present value using a pre-tax discount rate of 10.2%, reflecting current market assessments of the time value of money
and the risks specific to that asset, based on the Group’s WACC.
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 2019
was £20.2m (2018: £17.3m). No impairment provisions have been made during the year (2018: £nil) based upon the Directors’ review.
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 2019 was £4.6m (2018: £5.6m).
The sensitivity of a 1.0% change in the estimated recoverability of time costs and disbursements incurred but not invoiced to clients,
with all other variables held constant, is £0.1m of the Group’s profit before tax. There is no material impact on the Group’s equity.
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 the PPA with the estimation of the future value of brands, technology, customer relationships and goodwill.
The fair value of separately identifiable intangible assets acquired during the year was £5.2m (2018: £nil), with the key assumptions used
to calculate these fair values being those around the estimated useful lives of the acquired customer relationships, the estimated future
cash flows expected to arise from these relationships and the appropriate discount rate to be used to discount these cash flows to their
present value.
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 contingent consideration payments.
Using cash flows approved by the Board covering the contingent consideration period the Board expects the maximum contingent
consideration will be payable. A material change to the carrying value would only occur if the acquired business achieved 80% or less
of the target earnings. The carrying amount of contingent consideration provided for at 31 May 2019 was £2.7m (2018: £0.9m).
Provisions
As detailed in Note 26, the Group recognises provisions for client claims, contingent consideration payable on acquisitions, commission
clawbacks, dilapidations, onerous contracts 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.
83
Mattioli Woods plc Annual Report 2019 Notes to the financial statements continued
Business combinations
3.
The Group completed two acquisitions during the year. Transaction costs of £0.1m (2018: £0.1m) incurred during the course of the
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.
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 fair values of the identifiable assets and liabilities of Broughtons as at the date of acquisition are set out in the table below:
Fair value
recognised on
acquisition
£000
Fair value
adjustments
£000
Previous
carrying value
£000
Property, plant and equipment
Client portfolio
Cash at bank
Prepayments and accrued income
Other receivables
Assets
Trade and other payables
Accruals and deferred income
Other taxation and social security
Income tax
Provisions
Deferred tax liability
Liabilities
Total identifiable net assets at fair value
Goodwill
Total acquisition cost
Analysed as follows:
Initial cash consideration
Acquired net assets adjustment to initial consideration
New shares in Mattioli Woods
Contingent consideration
Discounting of contingent consideration
Total acquisition cost
Cash outflow on acquisition
Cash paid
Cash acquired
Acquired net assets adjustment paid
Acquisition costs
Net cash outflow
—
2,296
—
—
—
2,296
—
—
—
—
—
(390)
(390)
10
—
757
110
304
1,181
(27)
(31)
(3)
(147)
(25)
—
(233)
10
2,296
757
110
304
3,477
(27)
(31)
(3)
(147)
(25)
(390)
(623)
2,854
1,493
4,347
2,100
448
600
1,300
(101)
4,347
2,100
(757)
387
70
1,800
Broughtons specialises in the provision of bespoke wealth management services and impartial advice. It is an excellent cultural and
strategic fit with Mattioli Woods’ existing business, providing services to clients with over £120m of assets under advice. The acquisition
brings additional scale to Mattioli Woods’ existing operations and offers the opportunity to promote additional services to existing and
prospective clients of Broughtons.
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Financial statements
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 of 15 years based on the Group’s historical experience.
From the date of acquisition Broughtons has contributed £0.9m to revenue and £0.4m to the Group profit for the period. If the combination
had taken place at the beginning of the period, Group revenue from continuing operations would have been £58.7m and the profit for the
period would have been £8.3m.
Acquisition of SSAS Solutions (UK) Limited
On 27 March 2019, Mattioli Woods acquired the entire issued share capital of SSAS Solutions (UK) Limited (“SSAS Solutions”), a bespoke,
specialist pension advisory business acting as SSAS practitioner based in Belfast, Northern Ireland.
The fair values of the identifiable assets and liabilities of SSAS Solutions as at the date of acquisition are set out in the table below:
Fair value
recognised on
acquisition
£000
Fair value
adjustments
£000
Previous
carrying value
£000
Property, plant and equipment
Client portfolio
Cash at bank
Prepayments and accrued income
Other receivables
Assets
Trade and other payables
Accruals and deferred income
Other taxation and social security
Income tax
Provisions
Deferred tax liability
Liabilities
Total identifiable net assets at fair value
Goodwill
Total acquisition cost
Analysed as follows:
Initial cash consideration
Acquired net assets adjustment to initial consideration
New shares in Mattioli Woods
Contingent consideration
Discounting of contingent consideration
Total acquisition cost
Cash outflow on acquisition
Cash paid
Cash acquired
Estimated net assets adjustment paid on completion
Acquisition costs
Net cash outflow
20
2,893
1,088
68
171
4,240
(24)
(148)
(74)
(106)
(43)
(495)
(890)
3,350
1,469
4,819
1,250
915
1,260
1,500
(106)
4,819
1,250
(1,088)
800
157
1,119
—
2,893
—
—
(2)
2,891
—
—
—
—
(43)
(492)
(535)
20
—
1,088
68
173
1,349
(24)
(148)
(74)
(106)
—
(3)
(355)
85
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
Business combinations continued
3.
Acquisition of SSAS Solutions (UK) Limited continued
SSAS Solutions was established in 2009 and provides a bespoke, specialist pension advisory service for the operation of small self-administered
pension schemes. Based in Belfast and employing 12 staff, the business provides personal service and expert technical advice to owner-
managed businesses throughout the UK, acting as SSAS practitioner to 350 schemes with approximately £380m of assets under administration.
The acquisition adds further specialist expertise to the Group and SSAS Solutions’ experienced staff have remained with the business.
The goodwill recognised above is attributed to the expected benefits from combining the assets and activities of SSAS Solutions 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 SSAS Solutions’ modus operandi; and
» New opportunities available to the combined business, as a result of both SSAS Solutions and the Group’s 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 of 20 years based on the Group’s historical experience.
From the date of acquisition SSAS Solutions has contributed £0.17m to revenue and £0.06m to the Group profit for the period. If the
combination had taken place at the beginning of the period, Group revenue from continuing operations would have been £59.3m and
the profit for the period would have been £8.5m.
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 £2.7m (2018: £0.9m) (see Note 26).
On 27 March 2019 the Group acquired SSAS Solutions for total consideration of up to £4.9m, comprising initial consideration of £1.25m in
cash plus 162,654 new ordinary shares of 1p each in Mattioli Woods plus contingent consideration of up to £1.5m payable in cash in the two
years following completion if certain financial targets 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 2019 to be £1.4m (2018: £nil) using cash flows
approved by the Board covering the contingent consideration period and expects the maximum contingent consideration will be payable.
On 8 August 2018 the Group acquired Broughtons for total consideration of up to £4.4m, comprising initial consideration of £2.5m in cash
plus 77,171 new ordinary shares of 1p each in Mattioli Woods plus contingent consideration of up to £1.3m payable in cash in the two years
following completion if certain financial targets 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 2019 to be £1.3m (2018: £nil) using cash flows
approved by the Board covering the contingent consideration period and expects the maximum contingent consideration will be payable.
Contingent consideration payable on the previous acquisitions of MC Trustees and Taylor Patterson was settled in full during the year
(see Note 26).
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Governance
Financial statements
Revenue
4.
The Group derives its revenue from the rendering of services over time and at a point in time across all operating segments. The timing of
recognition of the revenues of each operating segment is analysed as follows:
Timing of revenue recognition
At a point in time:
Investment and asset management
Pension consultancy and administration
Property management
Employee benefits
Over time:
Investment and asset management
Pension consultancy and administration
Property management
Employee benefits
2019
£000
2,873
1,276
620
973
5,742
23,124
19,129
5,823
4,646
52,722
58,464
The following table shows the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied
(or partially unsatisfied) as at the end of the reporting period:
Contract liabilities
Investment and asset management
Pension consultancy and administration
Property management
Employee benefits
Group
2019
£000
—
2,353
36
491
2,880
2018
£000
4,633
2,639
570
1,087
8,929
20,463
19,183
5,348
4,746
49,740
58,669
Company
2019
£000
—
1,205
—
491
1,696
The Group expects that 100% of the transaction price allocated to the unsatisfied contracts as at 31 May 2019 will be recognised as revenue
during the next reporting period, amounting to £2,880,000.
The following table shows the movement in contract liabilities in the period:
Contract liabilities
At 1 June 2018
Revenue recognised on completion of performance obligations
Consideration received allocated to performance obligations that are unsatisfied at the period end
At 31 May 2019
Group
2019
£000
2,253
(2,253)
2,880
2,880
Company
2019
£000
1,644
(1,644)
1,696
1,696
Seasonality of operations
5.
Historically, revenues in the second half-year have been typically higher than in the first half. Time or activity-based pension consultancy
and administration fees are impacted by SSAS scheme year ends being linked to the sponsoring company’s year end, which is often in
December or March, coupled with there typically being increased activity on SSAS and SIPP schemes prior to the end of the fiscal year
on 5 April.
Despite further diversification of the Group’s wealth management and employee benefits revenue streams, the directors believe there is still
some seasonality of operations, although a substantial element of the Group’s revenues are now geared to the prevailing economic and
market conditions.
87
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
Segment information
6.
The Group’s objective is to fully integrate the businesses it acquires, to enable it to deliver holistic solutions across its wide and diverse
client base. During the year ended 31 May 2018, 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 private investor syndicates, 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 2019
and 2018 respectively.
Investment
Pension
and asset consultancy and
administration
£000
management
£000
Property
management
£000
Employee
benefits
£000
Total
segments
£000
Corporate
costs
£000
Consolidated
£000
25,997
25,997
20,405
20,405
6,443
6,443
5,619
5,619
58,464
58,464
—
—
58,464
58,464
7,085
4,355
1,463
677
13,580
(3,335)
10,245
Investment
Pension
and asset consultancy and
administration
£000
management
£000
Property
management
£000
Employee
benefits
£000
Total
segments
£000
Corporate
costs
£000
Consolidated
£000
25,096
25,096
21,822
21,822
5,918
5,918
5,833
5,833
58,669
58,669
—
—
58,669
58,669
8,306
3,714
1,016
113
13,149
(3,373)
9,776
Year ended 31 May 2019
Revenue
External client
Total revenue
Results
Segment profit before tax
Year ended 31 May 2018
Revenue
External client
Total revenue
Results
Segment profit before tax
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Financial statements
Segment assets
The following table presents segment assets of the Group’s operating segments:
Pension consultancy and administration
Investment and asset management
Property management
Employee benefits
Segment operating assets
Corporate assets
Total assets
31 May
2019
£000
26,825
28,092
1,559
9,626
66,102
44,482
31 May
2018
£000
23,790
23,023
1,159
11,177
59,149
46,277
110,584
105,426
Segment operating 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.
Reconciliation of assets
Segment operating assets
Property, plant and equipment
Intangible assets
Deferred tax asset
Derivative financial asset
Prepayments and other receivables
Investments
Cash and short-term deposits
Total assets
31 May
2019
£000
66,102
16,665
1,766
512
750
1,461
80
23,248
31 May
2018
£000
59,149
16,483
2,475
674
650
2,246
81
23,668
110,584
105,426
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.
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Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
Segment information continued
6.
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.
Reconciliation of profit before tax
Total segments
Depreciation
Amortisation and impairment
Irrecoverable VAT
Professional indemnity insurance
Finance costs
Loss on disposal of assets
Acquisition-related costs
Bank charges
Gain on revaluation of derivative financial asset
Finance income
Decrease/(Increase) in provisions
Group profit before tax
31 May
2019
£000
13,580
(1,288)
(1,054)
(868)
(513)
(321)
(125)
(123)
(18)
100
292
583
10,245
31 May
2018
£000
13,149
(822)
(469)
(829)
(466)
(154)
(67)
(132)
(18)
540
73
(1,029)
9,776
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 2019.
Mattioli Woods plc and its subsidiaries (see Note 17) are all incorporated in and operate from the United Kingdom. All employees (see Note
11) 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.
Auditor’s remuneration
7.
Remuneration paid by the Group to its auditor, Deloitte LLP (2018: RSM UK Audit LLP), and its associates for the audit of the financial
statements, fees other than for the audit of the financial statements and the total of non-audit fees for the Group were as follows:
Audit-related services:
Audit of the Company
Audit of subsidiaries
Interim review
Other assurance – CASS reporting
Non-audit services:
Indirect tax advice
Corporate finance
Other non audit services
Total
8.
Finance revenue
Bank interest receivable
90
2019
£000
91
52
25
18
186
14
—
—
14
200
2019
£000
60
60
2018
£000
82
24
20
9
135
—
5
23
28
163
2018
£000
73
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Governance
Financial statements
9.
Finance costs
Unwinding of discount on provisions
10. Operating profit
Included in operating profit before financing:
Depreciation (Note 15)
Amortisation and impairment of intangible assets (Notes 16 and 18)
Minimum lease payments recognised as an operating lease expense (Note 27)
Gain on revaluation of derivative financial instrument (Note 17)
11. Employee benefits expense
The average monthly number of employees during the year was:
Executive directors
Consultants
Administrators
Support staff
Staff costs for the above persons were:
Wages and salaries
Social security costs
Pension costs and life insurance
Other staff costs
2019
£000
86
86
2019
£000
(1,288)
(2,962)
(1,054)
100
2018
£000
154
154
2018
£000
(822)
(2,225)
(1,030)
540
Company
2019
No.
Company
2018
No.
3
115
239
202
559
Company
2019
£000
24,419
2,847
807
861
28,934
3
117
239
195
554
Company
2018
£000
25,080
3,028
617
506
29,231
Group
2019
No.
3
119
258
220
600
Group
2019
£000
26,504
3,028
889
886
31,307
Group
2018
No.
3
124
259
232
618
Group
2018
£000
27,640
3,290
681
537
32,148
In addition, the cost of share based payments disclosed separately in the consolidated statement of comprehensive income was £1,060,000
(2018: £1,497,000).
Details of the remuneration payable to each director in respect of the year ended 31 May 2019 is disclosed in the Directors’ Remuneration
Report on page 49.
Emoluments
Company contributions to personal pension schemes
Benefits in kind
2019
£000
2,296
—
24
2,320
2018
£000
2,544
10
32
2,586
Three directors (2018: five) accrued benefits under personal pension schemes, or through an equivalent cash award when they have reached
their maximum lifetime allowance. During the year 119,493 share options were issued to directors (2018: 152,425) and directors exercised
140,406 share options (2018: 191,952). The aggregate amount of gains made by directors on the exercise of share options during the year
was £1,026,000 (2018: £1,283,000).
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Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
11. Employee benefits expense continued
The amounts in respect of the highest paid director are as follows:
Emoluments
Company contributions to personal pension schemes
Benefits in kind
2019
£000
1,106
—
—
1,106
2018
£000
1,092
—
2
1,094
The amount of gains made by the highest paid director on the exercise of share options during the year was £525,000 (2018: £579,000).
Income tax
12.
The major components of income tax expense for the years ended 31 May 2019 and 2018 are:
Consolidated statement of comprehensive income
Current tax
Over provision in prior periods
Deferred tax credit
Adjustments in respect of change in tax rate
Adjustments in respect of prior periods
Income tax expense reported in the statement of comprehensive income
2019
£000
2,106
(64)
2,042
(79)
—
85
2,048
2018
£000
2,013
(343)
1,670
(232)
—
148
1,586
The over provision for current tax in prior periods includes £40,000 (2018: £149,000) arising from a Research and Development tax credit in
respect of the financial year ending 31 May 2018 (2018: 31 May 2016 and 2017).
For the year ended 31 May 2019, the current tax credit on the Group’s share based payment arrangements recognised directly in equity was
£134,000 (2018: £92,000). Deferred tax charged directly to equity was £160,000 (2018: £62,000).
Factors affecting the tax charge for the period
The tax charge assessed for the period is higher (2018: lower) than the standard rate of corporation tax in the UK of 19.0% (2018: 19.0%).
The differences are explained below:
Accounting profit before income tax
Multiplied by standard rate of UK corporation tax of 19.0% (2018: 19.0%)
Effects of:
Expenses not deductible for tax
Changes in tax rates
Other tax rates
Deferred tax on share options
Income not taxable
Over/(under) provision in prior periods
Income tax expense for the year
Effective income tax rate
2019
£000
10,245
2018
£000
9,776
1,947
1,857
150
23
—
(2)
(91)
21
2,048
20.0%
93
27
—
(94)
(102)
(195)
1,586
16.2%
Changes to the UK corporation tax rates were enacted as part of the Finance Act 2016 which received Royal Assent on 23 September 2016,
including the reduction of the main rate of corporation tax to 17% from 1 April 2020 and hence UK deferred tax has been recognised at 17%.
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Financial statements
Deferred income tax
Deferred income tax at 31 May relates to the following:
Deferred income tax liability
Temporary differences on:
Acquired intangibles
Accelerated capital allowances
Derivative financial asset
Deferred tax liability
Deferred income tax asset
Temporary differences on:
Provisions
Accelerated capital allowances
Share based payments
Deferred tax asset
Net deferred tax liability
Group
2019
£000
Group
2018
£000
Company
2019
£000
Company
2018
£000
(4,050)
(158)
(137)
(4,345)
(3,347)
—
(108)
(3,455)
(2,969)
(44)
(137)
(3,150)
153
1
358
512
74
10
590
674
152
—
357
509
(3,110)
—
(108)
(3,218)
63
11
590
664
(3,833)
(2,781)
(2,641)
(2,554)
There are no income tax consequences for the Group attaching to the payment of dividends by Mattioli Woods plc to its shareholders
in either 2018 or 2019.
The primary components of the entity’s recognised deferred tax assets include temporary differences related to share-based payments,
provisions and other items. The primary components of the entity’s deferred tax liabilities include temporary differences related to property,
plant and equipment and intangible assets.
The recognition of deferred tax in the statement of comprehensive income arises from the origination and the reversal of temporary
differences and the effects of changes in tax rates. The components of the deferred tax credit for the year ended 31 May 2019 are
summarised as follows:
Deferred tax in statement of comprehensive income
Under/(over) provision for capital allowances in prior period
Deferred tax on capital allowances
Deferred tax on share based payments
Under provision for intangibles
Deferred tax on derivative financial asset
Over provision on share options
Effect of changes in the standard rate of tax
Deferred tax on intangible assets
Deferred tax on provisions
Overprovision for provisions in prior period
Deferred tax on amortisation of client portfolios
Deferred tax credit/(charge)
2019
£000
89
75
73
54
29
—
—
(2)
(21)
(57)
(234)
6
2018
£000
(7)
(55)
(70)
47
103
118
26
(38)
22
(9)
(220)
(83)
93
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
Income tax continued
12.
The total deferred tax movement in the statement of financial position is summarised as follows:
Deferred tax reconciliation
Opening net deferred tax liability
(Credit)/charge recognised in statement of comprehensive income
Deferred tax credit recognised in equity
Deferred tax arising on acquisitions
Closing net deferred tax liability
2019
£000
(2,781)
(6)
(160)
(886)
(3,833)
2018
£000
(2,802)
83
(62)
—
(2,781)
The deferred tax charged on the Group’s outstanding share based payment arrangements recognised directly in equity was £160,000
(2018: £62,000).
Impact of future tax changes
On 15 September 2016 the Finance Bill 2016 received Royal Assent, enacting proposals that were announced in the 2016 budget, the
Autumn Statement 2015 and the Summer Budget 2015. The rate of corporation tax fell to 19% in April 2017 and will fall to 17% from April
2020. These rate changes will affect the amount of future cash tax payments to be made by the Group and will also reduce the size of the
Group’s deferred tax assets and liabilities in the Group’s statement of financial position.
13. 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, excluding own shares of 12,248 (2018: nil).
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:
Net profit and diluted net profit attributable to equity holders of the Company
Weighted average number of ordinary shares:
Issued ordinary shares at start of period
Effect of shares issued during the year ended 31 May 2018
Effect of shares issued during the year ended 31 May 2019
Basic weighted average number of shares
Effect of dilutive options at the statement of financial position date
Diluted weighted average number of shares
2019
£000
8,197
000s
26,150
—
440
26,590
77
26,667
2018
£000
8,190
000s
25,789
455
317
26,561
9
26,570
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 2.83% of its issued share capital (see Note 19). 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 2019 the conditions attached to 680,440 options granted under the
LTIP were not satisfied (2018: 787,202). If the conditions had been satisfied, diluted earnings per share would have been 30.0p per share
(2018: 29.9p).
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 8,693 ordinary shares to satisfy the exercise of options under the LTIP; and
» The issue of 18,932 ordinary shares under the Mattioli Woods plc Share Incentive Plan.
94
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
14. Dividends paid and proposed
Declared and paid during the year:
Equity dividends on ordinary shares:
– Final dividend for 2018: 11.5p (2017: 9.4p)
– Interim dividend for 2019: 6.33p (2018: 5.5p)
Dividends paid
Proposed for approval by shareholders at the AGM:
Final dividend for 2019: 13.67p (2018: 11.5p)
15. Property, plant and equipment
2019
£000
2018
£000
3,024
1,679
4,703
2,430
1,436
3,866
3,664
3,022
Assets under
construction
£000
Land and
buildings
£000
Computer and
office equipment
£000
Fixtures
and fittings
£000
Motor
vehicles
£000
Group
Gross carrying amount:
At 1 June 2017
Additions
Disposals
At 31 May 2018
Additions
Arising on acquisitions
Disposals
Reclassifications
At 31 May 2019
Depreciation:
At 1 June 2017
Charged for the year
On disposals
At 31 May 2018
Charged for the year
On disposals
At 31 May 2019
Carrying amount:
At 31 May 2019
At 31 May 2018
At 31 May 2017
7,438
7,019
—
14,457
790
—
—
(15,247)
—
—
—
—
—
—
—
—
—
14,457
7,438
—
—
—
—
27
—
—
10,753
10,780
—
—
—
—
168
—
168
10,612
—
—
2,024
229
(116)
2,137
323
5
(144)
27
2,348
977
391
(52)
1,316
259
(92)
1,483
865
821
1,047
930
30
—
960
72
25
(2)
4,467
5,522
576
192
—
768
597
—
1,365
4,157
192
354
Total
£000
11,603
7,773
(330)
19,046
1,680
30
(540)
—
1,211
495
(214)
1,492
468
—
(394)
—
1,566
20,216
379
239
(139)
479
264
(208)
535
1,031
1,013
832
1,932
822
(191)
2,563
1,288
(300)
3,551
16,665
16,483
9,671
95
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
15. Property, plant and equipment continued
Company
Gross carrying amount:
At 1 June 2017
Transfer from group companies
Reclassification
Additions
Disposals
At 31 May 2018
Additions
Disposals
Reclassification
At 31 May 2019
Depreciation:
At 1 June 2017
Reclassification
Charged for the year
On disposals
At 31 May 2018
Charged for the year
On disposals
At 31 May 2019
Carrying amount:
At 31 May 2019
At 31 May 2018
At 31 May 2017
Assets under
construction
£000
Leasehold
improvements
£000
Computer and
office equipment
£000
Fixtures
and fittings
£000
Motor
vehicles
£000
—
—
—
877
—
877
790
—
(1,667)
—
—
—
—
—
—
—
—
—
—
877
—
56
—
(56)
—
—
—
—
—
—
—
1
(1)
—
—
—
—
—
—
—
—
55
1,868
7
—
225
(116)
1,984
321
(137)
27
2,195
838
—
386
(52)
1,172
255
(92)
1,335
860
812
1,030
796
—
56
30
—
882
69
—
1,640
2,591
501
1
190
—
692
321
—
1,013
1,578
190
295
1,202
—
—
495
(199)
1,498
468
(394)
—
1,572
373
—
239
(127)
485
264
(208)
541
1,031
1,013
829
Total
£000
3,922
7
—
1,627
(315)
5,241
1,648
(531)
—
6,358
1,713
—
815
(179)
2,349
840
(300)
2,889
3,469
2,892
2,209
96
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Internally
generated
software
£000
1,589
104
1,693
—
97
(217)
1,573
494
162
656
270
(217)
709
864
1,037
1,095
16.
Intangible assets
Group
Gross carrying amount:
At 1 June 2017
Additions
At 31 May 2018
Arising on acquisitions
Additions
Disposals
At 31 May 2019
Amortisation and impairment:
At 1 June 2017
Amortisation during the year
At 31 May 2018
Amortisation during the year
Disposals
At 31 May 2019
Carrying amount:
At 31 May 2019
At 31 May 2018
At 31 May 2017
Company
Gross carrying amount:
At 1 June 2017
Transfer from group companies
Additions
At 31 May 2018
Additions
Disposals
At 31 May 2019
Amortisation and impairment:
At 1 June 2017
Amortisation during the year
At 31 May 2018
Amortisation during the year
Disposals
At 31 May 2019
Carrying amount:
At 31 May 2019
At 31 May 2018
At 31 May 2017
Software
£000
1,541
876
2,417
—
248
(738)
Client
portfolios
£000
33,354
—
33,354
5,190
—
—
17,253
—
17,253
2,962
—
—
1,927
38,544
20,215
671
307
978
785
(738)
8,128
1,756
9,884
1,907
—
1,025
11,791
902
1,439
870
Internally
generated
software
£000
1,589
—
104
1,693
97
(217)
1,573
494
162
656
270
(217)
709
864
1,037
1,095
26,753
23,470
25,226
Software
£000
1,430
—
876
2,306
200
(738)
1,768
591
287
878
774
(738)
914
854
1,428
839
—
—
—
—
—
—
20,215
17,253
17,253
Client
portfolios
£000
25,260
3,719
—
28,979
—
—
28,979
5,342
1,555
6,897
1,679
—
8,576
20,403
22,082
19,918
Goodwill
£000
Other
£000
Total
£000
35
—
35
—
—
—
35
35
—
35
—
—
35
—
—
—
Goodwill
£000
14,891
1,493
—
16,384
—
—
53,772
980
54,752
8,152
345
(955)
62,294
9,328
2,225
11,553
2,962
(955)
13,560
48,734
43,199
44,444
Total
£000
43,170
5,212
980
49,362
297
(955)
16,384
48,704
—
—
—
—
—
—
16,384
16,384
14,891
6,427
2,004
8,431
2,723
(955)
10,199
38,505
40,931
36,743
97
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
Intangible assets continued
16.
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 (see Note 18).
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.
Investments
17.
Investments in subsidiaries
Investments in subsidiaries
At 31 May 2017
Investment in Old Station Road Holdings Limited
Investment in M C Trustees (Pensions)
At 31 May 2018
Investment in Broughtons Financial Planning Limited
Investment in SSAS Solutions UK Limited
Reduction in value of Boyd Coughlan Limited
Reduction in value of Taylor Patterson Group Limited
At 31 May 2019
Group
£000
—
—
—
—
—
—
—
—
—
Company
£000
15,187
2,385
1,000
18,572
4,347
4,819
(7,388)
(7,547)
12,803
On 31 May 2019 certain loan notes payable by the Company were waived and the capital and reserves of Boyd Coughlan Limited, Taylor
Patterson Group Limited and its subsidiaries were each reduced to £2. Following this distribution the value of the Company’s investments in
Boyd Coughlan Limited and Taylor Patterson Group Limited were impaired down to the value of the residual assets held by each subsidiary.
98
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Details of the investments in subsidiaries which the Group and the Company (unless indicated) holds 20% or more of the nominal value of
any class of share capital are as follows:
Share class held
Voting rights and
shares held
Subsidiary undertakings
GB Pension Trustees Limited
Great Marlborough Street Pension Trustees Limited
M.W. Trustees Limited
SLT Trustees Limited
Professional Independent Pension Trustees Limited
Pension Consulting Limited (“PCL”)
PC Trustees Limited (held by PCL)
Bank Street Trustees Limited
JB Trustees Limited
John Bradley Financial Services Limited
Mattioli Woods Legal Limited
Mayflower Trustees Limited
Custodian Capital Limited (“CCL”)
CP SSAS Trustees Limited
CP SIPP Trustees Limited
City Pensions Limited
City Trustees Limited
TCF Global Independent Financial Services Limited (“TCF”)
Kudos Financial Services Limited (held by TCF)
AR Pension Trustees Limited
Robinson Gear (Management Services) Limited
Thoroughbred Wealth Management Limited (“TWM”)
Atkinson Bolton Consulting Limited (held by TWM)
Simmonds Ford Trustees Limited
Acomb Trustees Limited
Ropergate Trustees Limited
Chapel Trustees Limited
Mattioli Woods (New Walk) Limited
Boyd Coughlan Limited
Taylor Patterson Group Limited (“TPG”)
Taylor Patterson Associates Limited (held by TPG)
Taylor Patterson Financial Planning Limited (held by TPG)
Taylor Patterson Trustees Ltd
Lanson House Limited
Lindley Trustees Limited
MWV Solutions Limited
Old Station Road Holdings Limited (“OSRHL”)
M C Trustees (Pensions) Limited (held by OSRHL)
M C Trustees (Administration) Limited (held by OSRHL)
MCT (Properties) Limited (held by OSRHL)
M C Trustees Limited (held by OSRHL)
Ordinary
Ordinary
and preference
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Holding company
Trustee company
Trustee company
Trustee company
Dormant
Dormant
Trustee company
100%
Property and fund management
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
Trustee company
Trustee company
Dormant
Trustee company
Holding company
Dormant
Trustee company
Trustee company
Holding company
Dormant
Trustee company
Trustee company
Trustee company
Trustee company
Property development
Non-trading subsidiary
Non-trading subsidiary
Non-trading subsidiary
Non-trading subsidiary
Trustee company
Dormant
Trustee company
Dormant joint venture
Holding company
Pension administration
Pension administration
Non-trading subsidiary
Trustee company
99
Mattioli Woods plc Annual Report 2019 Notes to the financial statements continued
17.
Investments continued
Subsidiary undertakings
MC Nominees Limited (held by OSRHL)
Broughtons Financial Planning Limited
SSAS Solutions (UK) Ltd
MW Personal Equity (Harbinger Self Storage) Limited (held by CCL)
MW Private Investors (102) General Partner Limited (held by CCL)
MW Private Investors (103) General Partner Limited (held by CCL)
MW Private Investors (105) General Partner Limited (held by CCL)
MW Private Investors (106) General Partner Limited (held by CCL)
MW Private Investors (Beech Properties) General Partner Limited
(held by CCL)
MW Private Investors (Welbeck Land) General Partner Limited
(held by CCL)
MW Private Investors (CITU) General Partner Limited (held by CCL)
MW Private Investors (Proseed) General Partner Limited (held by CCL)
MW Private Investors (Prosperity Liverpool) General Partner Limited
(held by CCL)
MW Private Investors (Heaton Group) General Partner Limited
(held by CCL)
MW Private Equity (Harbinger Self Storage) General Partner Limited
(held by CCL)
MW Private Investors (Tungsten Witney) General Partner Limited
(held by CCL)
MW Private Investors (Versant) General Partner Limited (held by CCL)
MW Private Investors (Piper Homes) General Partner Limited
(held by CCL)
MW Private Investors (The Square) Limited (held by CCL)
MW Private Investors (Expedia) Limited (held by CCL)
MW Private Investors (Belfast Expedia 2) Limited (held by CCL)
MW Private Investors (Belfast Expedia 3) Limited (held by CCL)
MW Private Investors (Belfast Expedia 4) Limited (held by CCL)
MW Private Investors (The Priest House Hotel) Limited (held by CCL)
MW Private Investors (Walrus) Limited (held by CCL)
MW Private Investors (103) EPUT Limited (held by CCL)
MW Private Investors (Clear Nursery) Limited (held by CCL)
MW Private Equity (Rotherhill) Limited (held by CCL)
MW Private Equity (March Projects) Limited (held by CCL)
MW Private Equity (Tungsten Handcross) Limited (held by CCL)
MW Properties (Huntingdon Geared) Limited (held by CCL)
MW Properties (Huntingdon Non-Geared) Limited (held by CCL)
MW Properties (No 42) Limited (held by CCL)
MW Properties (No 46) Limited (held by CCL)
MW Properties (No 49) Limited (held by CCL)
100
Share class held
Voting rights and
shares held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Dormant
Wealth management
Pension administration
Trustee company
General Partner company
General Partner company
General Partner company
General Partner company
Ordinary
100%
General Partner company
Ordinary
Ordinary
Ordinary
100%
100%
100%
General Partner company
General Partner company
General Partner company
Ordinary
100%
General Partner company
Ordinary
100%
General Partner company
Ordinary
100%
General Partner company
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
General Partner company
General Partner company
General Partner company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Mattioli Woods plc Annual Report 2019 Strategic report
Governance
Financial statements
Subsidiary undertakings
MW Properties (No 50) Limited (held by CCL)
MW Properties (No 60) Limited (held by CCL)
MW Properties No 17 Limited (held by CCL)
MW Properties No 20 Limited (held by CCL)
MW Properties No 25 Limited (held by CCL)
MW Properties No 32 Limited (held by CCL)
MW Properties No 35 Limited (held by CCL)
APUK14001 Limited (held by CCL)
APUK14002 Limited (held by CCL)
APUK15001 Limited (held by CCL)
APUK15002 Limited (held by CCL)
APUK15003 Limited (held by CCL)
CC Private (201) Limited (held by CCL)
CC Private (202) Limited (held by CCL)
CC Private (204) Limited (held by CCL)
CC Private (205) Limited (held by CCL)
CC Private (207) Limited (held by CCL)
Brogan Group Investments Limited (held by CCL)
Eltek House Limited (held by CCL)
Welbeck Strategic Land III Limited (held by CCL)
Share class held
Voting rights and
shares held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
Trustee company
The principal place of business of all the subsidiaries is the United Kingdom. The Company accounts for its investments in subsidiaries using
the cost method. The registered office for all subsidiary undertakings is 1 New Walk Place, Leicester, LE1 6RU except for the following:
Subsidiary undertaking
Registered office
TCF Global Independent Financial Services Limited
Kudos Financial Services Limited
Broughtons Financial Planning Limited
SSAS Solutions (UK) Limited
8 Queens Terrace, Aberdeen, AB10 1XL
8 Queens Terrace, Aberdeen, AB10 1XL
5a Swallowfield Courtyard, Wolverhampton Road, Oldbury, West Midlands, B69 2JG
Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN
101
Mattioli Woods plc Annual Report 2019 Notes to the financial statements continued
Investments continued
17.
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 to acquire the remaining 51% ordinary share capital of Amati in the two years commencing 6 February 2019
for a total consideration of £3.39m, comprising £1.65m in cash and £1.74m of new ordinary shares in Mattioli Woods.
Amati is a fund management firm founded in 2010 following the management buyout of Noble Fund Managers Limited. Amati’s principal
place of business is the United Kingdom. It focuses on small and mid-sized companies, with a universe ranging from fully listed constituents
of the FTSE Mid 250 and FTSE Small Cap indices, to stocks quoted on AIM. At the date of investment Amati had approximately £120m of
assets under management, including the TB Amati UK Smaller Companies Fund; two AIM Venture Capital Trusts (Amati VCT plc and Amati
VCT 2 plc); and an AIM IHT portfolio service.
During the year the shareholders of Amati VCT plc voted to approve its merger with Amati VCT 2 plc, which has been renamed Amati AIM
VCT plc. Amati’s gross assets under management at 31 May 2019 had increased to over £453m.
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 was not exercised at 6 February 2019 as the Company had agreed
heads of terms with the counterparty to cancel the option in exchange for a payment of £750,000 from the counterparty. The agreement
completed after the year end (Note 32). The Group has no other rights which would allow it to exercise control over Amati’s operations.
Therefore, the Group is not judged to control Amati and it is not consolidated.
The movement in the Group’s investment in associate is as follows:
Investment in associate – Group and Company
At 1 June
Investment in Amati Global Investors Limited
Share of profit for the year
Amortisation of fair value intangibles
Share of profit from associates in statement of comprehensive income
Share of other comprehensive income
2019
£000
3,725
—
548
(68)
480
6
2018
£000
3,476
—
308
(68)
240
9
At 31 May
4,211
3,725
Other comprehensive income represents a movement in Amati’s revaluation reserve recognised directly in equity.
The results of Amati and its aggregated assets and liabilities as at 31 May 2019 are as follows:
Name
Amati Global Investors Limited
Group’s share of profit
Country of
incorporation
Scotland
Assets
£000
4,504
Liabilities
£000
1,364
Revenue
£000
4,418
Profit
£000
1,116
548
Interest
held
49%
The net assets of Amati as at 31 May 2018 were £2,011,000. At 31 May 2019 the net assets of Amati had increased by £1,130,000 to
£3,140,000, increasing the Group’s interest in the associate (net of tax) by £553,000 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.
102
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
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 £17,000. During the year the Company signed heads of terms to cancel
the option agreement in exchange for £750,000. The cancellation of the agreement was completed after the year end (Note 32). At 31 May
2019, the fair value of the option contract was £750,000. (2018: £650,000) (Note 21) with a gain of £100,000 recognised during the year
(2018: £540,000).
Other investments
At 1 June 2017
Impairment
Revaluation
Disposal
At 31 May 2018
Impairment
Revaluation
At 31 May 2019
Group
£000
Company
£000
86
(1)
5
(9)
81
—
(1)
80
86
(1)
5
(9)
81
—
(1)
80
As at 31 May 2019 the Group held an investment with a market value of £40,000 (2018: £41,000) in the FP Mattioli Woods Balanced Fund
(Note 29).
Mattioli Woods owns 15% of the issued share capital of Mainsforth Developments Limited (“Mainsforth”), a company incorporated in England
and Wales with its principal activity being the development and selling of real estate. Mainsforth had entered into two conditional sale
agreements (“the Agreements”) to acquire freehold land with vacant possession (the “Development Land”). However, the Agreements have
been terminated and at 31 May 2019 the Company’s investment in Mainsforth was valued at £nil (2018: £nil).
At 1 June 2017 the Company owned 9.40% of the shareholding in MW Properties (No.25) Limited (“MWPS25”), acquired at a total cost of
£91,000. MWPS25 owns part of the Development Land. At 31 May 2019 these shares are included within investments at a value of £26,000
(2018: £26,000).
At 1 June 2017 the Company owned 2.04% of the shareholding in MW Properties (Huntingdon Non-Geared) Limited, acquired at a total cost
of £15,000. The company is incorporated in England and Wales and its principal activity is investment in real estate. At 31 May 2019 these
shares are included within investments at a value of £14,000 (2018: £14,000).
103
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
Impairment of goodwill and client portfolio intangible assets
18.
Goodwill and client portfolio intangible assets arising on acquisitions are allocated to the cash generating units comprising the acquired
businesses. Allocation to cash-generating units is based on headcount or revenues at the date of acquisition. Where the Group reorganises its
operating and reporting structures in a way that changes the composition of one or more cash-generating units to which goodwill and client
portfolio assets have been allocated, the goodwill and client portfolio assets are reallocated to the units affected.
The cash-generating units comprise the same groups of assets as the four operating segments, which represent the smallest individual
groups of assets generating cash flows. Goodwill and client portfolio assets have been allocated between the Group’s operating segments
for impairment testing, as follows:
Group
At 1 June 2017
Amortisation during the year
At 31 May 2018
Arising on acquisitions
Amortisation during the year
At 31 May 2019
Goodwill
Client portfolios
At 31 May 2019
Company
At 1 June 2017
Transferred from Group companies
Amortisation during the year
At 31 May 2018
Amortisation during the year
At 31 May 2019
Goodwill
Client portfolios
At 31 May 2019
Pension
consultancy
and admin
£000
Investment
and asset
management
£000
Property
management
£000
14,392
(709)
13,683
4,362
(731)
18,132
(642)
17,490
3,790
(772)
17,314
20,508
7,166
10,148
17,314
9,205
11,303
20,508
287
(8)
279
—
(8)
271
188
83
271
Employee
benefits
£000
9,668
(397)
9,271
—
(396)
Total
£000
42,479
(1,756)
40,723
8,152
(1,907)
8,875
46,968
3,656
5,219
8,875
Pension
consultancy
and admin
£000
Investment
and asset
management
£000
Property
management
£000
Employee
benefits
£000
12,058
—
(632)
11,426
14,664
3,388
(562)
17,490
(632)
(643)
10,794
16,847
4,828
5,966
10,794
7,712
9,135
16,847
287
—
(8)
279
(8)
271
188
83
271
7,800
1,824
(353)
9,271
(396)
8,875
3,656
5,219
8,875
20,215
26,753
46,968
Total
£000
34,809
5,212
(1,555)
38,466
(1,679)
36,787
16,384
20,403
36,787
The determination of whether goodwill and client portfolio assets are impaired requires an assessment of the fair value less cost to sell
and estimation of the value in use of the operating segments to which the assets have been allocated. The recoverable amount of goodwill
and client portfolio assets on a fair value less costs to sell calculation is based on the closing share price of the Group on 31 May 2019 of
810.0p, giving a market capitalisation of £216.8m. Comparing this to the net asset value of the Group of £85.6m, the directors believe the
value of goodwill and client portfolio assets is not impaired at 31 May 2019.
In assessing value in use, the estimated future cash flows of each operating segment are discounted to their present value using
a pre-tax discount rate of 10.2% (2018: 8.3%), reflecting current market assessments of the time value of money and the risks specific
to the asset, based on the Group’s WACC. 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 estimated cash flows for each segment are derived by extrapolating the budgeted cash flows for the year ending 31 May 2020 assuming
annual fee growth of 5.0% (2018: 5.0%) over the next four years and a long-term growth rate of 2.5% (2018: 2.5%), which management
considers conservative against actual average long-term growth rates.
104
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
The value in use calculated at 31 May 2019 was £162.1m. Comparing this to the net asset value of the operating segments identified above,
the directors believe the value of goodwill is not impaired at 31 May 2019. This accounting treatment resulted in an impairment loss of £nil
(2018: £nil).
The value in use calculations at 31 May 2019 indicate there is very little headroom on the value of acquired client portfolios and goodwill
allocated to the Employee Benefits operating segment. If the pre-tax discount rate used to calculate the value in use of each segment
increased by 1.0%, with all other variables held constant, this would result in an £0.6m reduction in the value in use, resulting in an
impairment loss of £0.6m (2018: £nil). If the rate of growth in cash flows generated by the Employee Benefits segment in years two
to five of the period covered by the calculations reduced by 3.0%, with all other variables held constant, this would result in an £0.8m
reduction in the value in use, resulting in an impairment loss of £0.8m (2018: £nil).
The introduction of a charge cap on auto-enrolment pension schemes in April 2015, followed by the abolition of provider commissions
in April 2016, resulted in a number of changes and challenges within the employee benefits market, reducing corporate pension revenues
but leading to higher fee-based recurring revenues going forward. The market continues to evolve with employers now bound to provide
pensions to almost all staff. Pricing in this area remains competitive as the industry settles into a “post-RDR” fee model, but management is
confident the business can deliver further improvement in the Employee Benefits segment’s results. The directors consider that reasonably
likely changes in assumptions would not create an impairment in any of the other operating segments.
19. Share based payments
Consultants’ Share Option Plan
The Company operates the Consultants’ Share Option Plan by which certain senior executives are able to subscribe for ordinary shares in the
Company. Options granted under the Consultants’ Share Option Plan are summarised as follows:
Date of grant
8 September 2009
Outstanding
Exercisable
Exercise
price
£
2.16
At 1 June
2018
No.
46,861
46,861
46,861
Exercised
during
the year
No.
(46,861)
(46,861)
(46,861)
At 31 May
2019
No.
—
—
—
The exercise price of the options is equal to the market price of the shares at the close of business on the day immediately preceding the
date of grant. The options vest when the option holders achieve certain individual performance hurdles. No options vested during the year as
a result of the associated performance conditions being fulfilled. If the performance hurdles, which are linked to individual sales revenues, are
not met over the five financial years commencing on 1 June before the date of grant, the options lapse.
Long-Term Incentive Plan
During the year, Mattioli Woods granted awards to the Company’s executive directors and certain senior employees under the LTIP.
Conditional share awards (“Equity-settled”) grant participating employees a conditional right to become entitled to options with an exercise
price of 1 pence over ordinary shares in the Company. Conditional cash awards (“Cash-settled”) grant participating employees a conditional
right to be paid a cash amount based on the proceeds of the sale of a specified number of Ordinary Shares following the vesting of the
award. Movements in the LTIP scheme during the period were as follows:
LTIP options
Outstanding as at 1 June
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 May
Exercisable at 31 May
31 May
2019
Equity-settled
No.
31 May
2019
Cash-settled
No.
31 May
2018
Equity-settled
No.
806,489
241,756
(233,718)
(57,064)
757,463
77,023
—
—
—
—
—
—
807,445
238,825
(203,194)
(36,587)
806,489
19,287
31 May
2018
Cash-settled
No.
118,501
—
(118,501)
—
—
—
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.
105
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
19. Share based payments continued
Share Incentive Plan
The Company operates the Mattioli Woods plc Share Incentive Plan (“the SIP”). Participants in the SIP are entitled to purchase, at market
value, up to a prescribed number of new 1p ordinary shares in the Company each year for which they will receive a like for like conditional
‘matching share’, subject to their continued employment for the three years following award of the matching share. These ordinary shares
rank pari passu with existing issued ordinary shares of the Company. Movements in the shares held in the SIP on behalf of employees during
the year were as follows:
SIP shares
Scheme shares as at 1 June
Employee shares purchased
Matching shares awarded
Matching shares recycled
Reinvestment of dividends
Shares transferred out
Scheme shares at 31 May
Conditional matching shares at 31 May
31 May
2019
No.
593,019
50,989
50,989
(16,072)
14,281
(106,807)
586,399
117,817
31 May
2018
No.
553,658
50,216
50,216
(7,000)
10,492
(64,563)
593,019
105,385
A total of 359 (2018: 363) employees participated in the SIP during the year.
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 2019 is £825,000 (2018: £1,150,000), of which £825,000 arises from
equity-settled share based payment transactions (2018: £1,031,000) and £nil arises from cash-settled share based payment transactions
(2018: £119,000).
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 2019 was £nil (2018: £nil), which arises
entirely from equity-settled share based payment transactions.
The expense for share based payments in respect of matching shares issued under the SIP is recognised over the expected vesting period
of the shares granted to the participating employee (see Note 23). The expense recognised during the year ended 31 May 2019 is £235,000
(2018: £347,000), which arises entirely from equity-settled share based payment transactions.
Reserves transfer
The Group has reduced the value of the Equity – share based payments reserve by £359,000, reduced deferred tax assets by £68,000 and
increased retained earnings by £291,000 in the year ended 31 May 2019 to reflect the impact of recognising the cost of ‘matching shares’
awarded under the Mattioli Woods plc Share Incentive Plan (“SIP”) over the expected vesting period of the shares and the associated impact
on deferred tax assets. Matching shares awarded under the SIP are subject to a three year continued employment condition. Previously,
the cost of matching shares was recognised in full at the date of the award.
Summary of share options
The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in, share options during
the year.
Share options
Outstanding as at 1 June
Granted during the year
Exercised
Forfeited during the year
Outstanding at 31 May
Exercisable at 31 May
2019
No.
853,350
241,756
(280,579)
(57,064)
757,463
77,023
2019
WAEP
£
1.53
0.01
0.37
0.01
0.01
0.01
2018
No.
907,798
238,825
(256,686)
(36,587)
853,350
66,148
2018
WAEP
£
0.27
0.01
0.55
0.01
0.13
1.53
The weighted average share price at the date of exercise for share options exercised during the year was £7.27 (2018: £7.96). For the share
options outstanding at 31 May 2019, the weighted average remaining contractual life is 4.0 years (2018: 4.0 years). The WAEP for options
outstanding at the end of the year was £0.01 (2018: £0.13).
106
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
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 2019:
Share price at date of grant
Option exercise price
Expected life of option (years)
Expected share price volatility (%)
Dividend yield (%)
Risk-free interest rate (%)
LTIP
£8.32
£0.01
4.5
17.5
2.04
0.76
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 2019 and movements during the year are set out in the Directors’ Remuneration Report.
20. Trade and other receivables (current)
Trade receivables due from Group companies
Other trade receivables
Other receivables
Prepayments and accrued income
Group
2019
£000
—
5,143
437
10,804
16,384
Company
2019
£000
13,969
4,020
530
9,592
28,111
Group
2018
£000
—
5,133
1,400
10,413
16,946
Company
2018
£000
13,783
5,043
532
9,548
28,906
Trade receivables due from related parties are recognised at amortised cost and eliminate on consolidation. For terms and conditions relating
to related party loans, refer to Note 29. None of the related party receivables were overdue at the reporting date.
Non-related party trade receivables are non-interest bearing and are generally on 30-90 days’ terms. As at 31 May 2019, the nominal value
of non-related party trade receivables impaired and fully provided for, and movements in the lifetime loss provision for impairment (with no
12 month expected credit losses or transfers between stages) of receivables were as follows:
As at 1 June
Charge for year
Utilised during the year
Acquired on acquisition
At 31 May
Group
2019
£000
1,114
358
(156)
16
1,332
Company
2019
£000
931
309
(156)
—
1,084
Group
2018
£000
1,051
273
(210)
—
1,114
Company
2018
£000
863
295
(227)
—
931
At 31 May 2019, the analysis of non-related party trade receivables that were past due but not impaired is as follows:
2019
2018
Total
£000
5,143
5,133
Neither past due
nor impaired
£000
2,227
2,199
Past due but not impaired
< 30 days
£000
1,952
1,495
30-60 days
£000
60-90 days
£000
491
561
260
299
>90 days
£000
213
579
107
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
20. Trade and other receivables (current) continued
Prepayments and accrued income balances include the following contract assets accrued under IFRS 15:
Contract assets accrued
At 1 June 2018
Arising from acquisitions
Net increase/(decrease) in contract assets accrued
At 31 May 2019
Group
£000
9,448
143
99
9,690
Company
£000
8,651
—
(100)
8,551
For all receivables above, including neither past due nor impaired, the carrying amount is deemed to reflect the fair value.
21. Derivative financial asset
Derivative financial asset (Notes 17 and 32)
Group
2019
£000
750
750
Company
2019
£000
750
750
Group
2018
£000
650
650
Company
2018
£000
650
650
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.
22. Cash and short-term deposits
For the purpose of the statement of cashflows, cash and cash equivalents comprise the following at 31 May 2019:
Cash at banks and on hand
Bank overdrafts
Cash and cash equivalents
Group
2019
£000
23,248
—
23,248
Company
2019
£000
14,095
—
14,095
Group
2018
£000
23,668
—
23,668
Company
2018
£000
17,880
—
17,880
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between
one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term
deposit rates. The fair value of cash and short-term deposits is £23.2m (2018: £23.7m).
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.
108
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
23.
Issued capital and reserves
Group and Company
Authorised
At 1 June 2017, 31 May 2018 and 31 May 2019
Issued and fully paid
At 1 June 2017
Exercise of employee share options
Shares issued under the SIP
Shares issued for consideration
At 31 May 2018
Exercise of employee share options
Shares issued under the SIP
Shares issued for consideration
At 31 May 2019
Ordinary
shares
of 1p
Share
capital
£000
Share
premium
£000
Merger
reserve
£000
30,000,000
300
—
—
25,789,164
258
30,314
8,781
256,686
103,924
—
2
1
—
139
830
—
26,149,774
261
31,283
280,579
100,187
239,825
3
1
3
101
753
—
—
—
—
8,781
—
—
1,858
26,770,365
268
32,137
10,639
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 shareholder of Broughtons (“the Broughtons 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 77,171 ordinary shares in
Mattioli Woods during the two years ending 8 August 2020; and
» The former shareholders of SSAS Solutions (“the SSAS Solutions 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 162,654 ordinary
shares in Mattioli Woods during the two years ending 27 March 2021.
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 19).
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.
109
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
Issued capital and reserves continued
23.
Own shares
The following movements in own shares occurred during the year:
At 1 June 2017 and 1 June 2018
Acquired during the year
At 31 May 2019
Number
of shares
—
12,248
12,248
Own shares
£000
—
99
99
Own shares represent the cost of the Company’s own shares, either purchased in the market or issued by the Company, that are held by
the Company or in an employee benefit trust to satisfy future awards under the Group’s share-based payment schemes (Note 19). At 31 May
2019 12,248 (2018: nil) shares were held in the Mattioli Woods Employee Benefit Trust.
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
Share premium
Merger reserve
Description and purpose
Amounts subscribed for share capital in excess of nominal value less any associated issue
costs that have been capitalised.
Where shares are issued as consideration for >90% of the shares in a subsidiary, 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
Own shares
Retained earnings
The fair value of equity instruments granted by the Company in respect of share based
payment transactions less options exercised.
The cost of the Company’s own shares, purchased in the market, that are held in an
employee benefit trust to satisfy future awards under the Group’s share-based payment
schemes (Note 19).
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 19). 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’.
24. Cash flows arising from financing liabilities
The financing liabilities of the Group are £nil (2018: £nil).
The financing liabilities of the Company are £nil (2018: £16,940,000), with financing liabilities in the prior year comprising loan notes due
from subsidiary undertakings issued on the hive up of the trade and assets of certain subsidiaries (Note 26). During the year, the interest
accrued on these loan notes and the subsequent waiver of the balance by way of in-specie dividend did not give rise to any financing cash
flows as reported in the Statement of Cash Flows of the Company. However, the gain on the waiver of loan notes of £17,335,000 was
reported as part of non-cash dividend income in the Statement of Cash Flows of the Company.
The net cash flows from financing activities of the Group and the Company, as reported in the Statements of Cash Flows, relate entirely
to financing balances reported within equity.
110
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
25. Trade and other payables
Trade and other payables (current)
Trade payables due to related parties
Other trade payables
Other taxation and social security
Other payables
Accruals and deferred income
Group
2019
£000
—
1,765
1,876
627
10,259
14,527
Company
2019
£000
1,308
812
1,706
517
8,463
12,806
Group
2018
£000
—
2,347
1,628
3,767
10,246
17,988
Company
2018
£000
57
1,517
1,568
3,663
9,167
15,972
Trade payables due to related parties eliminate on consolidation.
For terms and conditions relating to related party loans, refer to Note 29. Terms and conditions of the other financial liabilities set out above
are as follows:
» Trade payables are non-interest bearing and are normally settled on 30-day terms;
» Other taxation and social security becomes interest bearing if paid late and are settled on terms of one or three months; and
» Accruals and deferred income are non-interest bearing and are normally settled monthly throughout the financial year.
26. Financial liabilities and provisions
Group
At 1 June 2017
Unwinding of discount
Arising during the year
Paid during the year
Unused amounts reversed
At 31 May 2018
Unwinding of discount
Arising during the year
Arising on acquisitions
Paid during the year
Unused amounts reversed
Reclassification
At 31 May 2019
Current 2018
Non-current 2018
At 31 May 2018
Current 2019
Non-current 2019
At 31 May 2019
Contingent
consideration
£000
Client
claims Dilapidations
£000
£000
Employers’
NIC on
Clawbacks share options
£000
£000
Onerous
contracts
£000
LTIP cash
liability
£000
FSCS levy
£000
4,418
142
—
(3,506)
(168)
886
75
2,657
—
(763)
—
(200)
527
—
697
(225)
(17)
982
—
728
43
(230)
(245)
207
2,655
1,485
886
—
886
1,260
1,395
2,655
982
—
982
1,485
—
1,485
517
12
122
(13)
(7)
631
10
102
25
(376)
(44)
—
348
316
315
631
—
348
348
124
—
181
(181)
—
124
—
141
—
(142)
—
123
124
—
124
123
—
123
737
—
315
(401)
(24)
627
—
278
—
(263)
(40)
—
602
346
281
627
369
233
602
75
—
913
—
—
988
—
145
—
(368)
(545)
—
220
988
—
988
220
—
220
844
13
132
(989)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
100
—
—
100
—
50
—
—
—
—
150
100
—
100
150
—
150
Total
£000
7,242
167
2,460
(5,315)
(216)
4,338
85
4,101
68
(2,142)
(874)
7
5,583
3,742
596
4,338
3,607
1,976
5,583
111
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
26. Financial liabilities and provisions continued
Company
Loan Contingent
notes consideration
£000
£000
Client
claims Dilapidations
£000
£000
Employers’
NIC on
Clawbacks share options
£000
£000
Onerous
contracts
£000
LTIP cash
liability
£000
FSCS levy
£000
Total
£000
At 1 June 2017
Finance costs
Arising during the year
Transfer from Group companies
Paid during the year
Unused amounts reversed
8,525
397
8,018
—
—
—
At 31 May 2018
Finance costs
Arising during the year
Paid during the year
Unused amounts reversed
Waiver of loan note
Reclassification
16,940
606
—
—
(17,335)
(211)
4,418
142
—
—
(3,506)
(168)
886
75
2,657
(763)
—
—
(200)
452
—
698
25
(212)
(17)
946
—
641
(194)
(168)
—
—
At 31 May 2019
Current 2018
Non-current 2018
At 31 May 2018
Current 2019
Non-current 2019
At 31 May 2019
—
2,655
1,225
—
16,940
16,940
—
—
—
886
—
886
1,260
1,395
2,655
946
—
946
1,225
—
1,225
487
12
89
33
(13)
(7)
601
10
102
(376)
(14)
—
—
323
316
285
601
—
323
323
106
—
177
13
(177)
—
119
—
137
(137)
—
—
—
119
119
—
119
119
—
119
737
—
315
—
(401)
(24)
627
—
278
(263)
(40)
—
—
602
346
281
627
369
233
602
75
—
913
—
—
—
988
—
145
(368)
(545)
—
—
220
988
—
988
220
—
220
844
13
132
—
(989)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
100
—
—
—
100
—
50
—
—
—
—
150
100
—
100
150
—
150
15,644
564
10,442
71
(5,298)
(216)
21,207
691
4,010
(2,101)
(767)
(17,335)
(411)
5,294
3,701
17,506
21,207
3,343
1,951
5,294
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.
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.
On 31 May 2019 the loan notes were waived and the capital and reserves of Boyd Coughlan Limited, Taylor Patterson Group Limited and
its subsidiaries were each reduced to £2.
During the year the Company reclassified £0.2m of residual loan note balances owed to the subsidiary undertakings against current
receivables due to the Company from them.
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 are summarised in Note 3. The Group estimates the
net present value of the financial liability payable within the next 12 months is £1.3m (2018: £0.9m) and the Group expects to settle the
non-current balance of £1.4m (2018: £nil) within the next two years.
The balance reclassified in the year of £0.2m represents consideration which is no longer considered contingent but has yet to be paid,
which is therefore recognised within Other Payables.
Client claims
A provision is recognised for the estimated potential liability when the Group becomes aware of a possible client claim. The value of the
provision recognised is determined based on the nature of the potential liability, the Group’s historic experience and any insurance recovery
expected. No discount rate is applied to the projected cash flows due to their short-term nature.
The balance of £0.2m reclassified in the year represents potential liabilities of the Group recoverable under indemnities provided by the
vendor of an acquired subsidiary, which are now recognised within Other Receivables.
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Governance
Financial statements
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 fair 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
Onerous lease provisions on property leases are recognised when a leased property is expected to become vacant and no longer used in the
Group’s operations. Amounts recognised in the prior period represented the Group’s best estimate of the unavoidable costs committed to
under three commercial leases for its previous premises at Grove Park, Leicester, based on the expected void period between the premises
being vacated and subsequently sub-let after the Group took occupation of its new office at New Walk (see Note 26).
The Group acquired onerous contracts for the provision of certain IT systems on the acquisition of Ashcourt Rowan’s pension business
and on the acquisition of UKWM Pensions. Management has assessed the expected benefits and costs associated with these contracts and
concluded that the costs of the obligation exceed the benefits to the extent that it is appropriate to provide against these contracts in full.
LTIP cash liability
In prior periods the Group has granted cash settled options to certain Executive Directors. The amounts 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 2019 there were
no cash awards outstanding (2018: nil).
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
£150,000 has been made in these financial statements for FSCS interim levies expected in the year ending 31 May 2020 (2018: £100,000).
27. Commitments and contingencies
Operating lease agreements – Group as lessee
Mattioli Woods plc had previously entered into three commercial leases for its premises at Grove Park, Enderby. The first lease for part of the
ground floor of Gateway 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. In August 2018, the Company served notice under the first Gateway House lease
to vacate the premises by 31 October 2018. In addition, the Company surrendered the second Gateway House lease on 31 October 2018 by
way of a surrender premium payment to the landlord reflecting all rent and business rates due from the surrender date to lease expiry, along
with the cost of dilapidations.
On 26 November 2018, the Company assigned the MW House lease to a third party sub-tenant for the remainder of the lease term. Under
the terms of the assignment, no further rent should be paid to Custodian REIT plc, but in the event of default by the assignee, the Group
retains the liability for rents due over the remaining lease term.
Mattioli Woods plc has entered into an intra-group lease, with subsidiary Mattioli Woods (New Walk) Limited as lessor, for its premises at New
Walk, Leicester. The lease carries an annual rental of £875,000 and is renewed on an annual rolling basis.
Mattioli Woods plc has also entered into commercial leases for its premises at:
» Aberdeen, 8 Queens Terrace, which expires on 31 May 2023. The annual rental is £148,000;
» Newmarket, Cheveley House, Fordham Road, which expires on 24 December 2023, with next break on 24 December 2018. The annual
rental is £115,500;
» Preston, Lanson House, Winckley Gardens, Mount Street, which expires on 31 July 2022. The annual rental is £62,000;
» Buckingham, Investment House, 22-26 Celtic Court, Ballmoor, which expires on 11 April 2022. The annual rental is £35,000;
» Glasgow, 120 West Regent Street, which expires on 31 January 2022. The annual rental is £48,844 plus £2,500 per annum for car
parking;
» Manchester, Suite 310, 76 King Street, lease term is a rolling 6 months. The annual rental is £31,800;
» London, 3rd Floor, 87/89 Baker Street, lease expires on 31 October 2021. The annual rental is £92,500; and
» Edinburgh, 8 Coates Crescent, which expires on 14 August 2028, with a break on 14 August 2023. The annual rental is £101,850.
113
Mattioli Woods plc Annual Report 2019 Notes to the financial statements continued
27. Commitments and contingencies continued
Operating lease agreements – Group as lessee continued
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:
Group
Not later than one year
After one year but not more than five years
More than five years
Company
Not later than one year
After one year but not more than five years
More than five years
Office equipment
Land and buildings
2019
£000
196
506
—
702
2018
£000
151
525
—
676
2019
£000
724
1,903
646
3,273
2018
£000
845
2,802
491
4,138
Office equipment
Land and buildings
2019
£000
196
506
—
702
2018
£000
150
522
—
672
2019
£000
636
1,721
429
2,786
2018
£000
1,438
2,610
491
4,539
Group operating lease charges during the year were £861,000 (2018: £939,000) for land and buildings and £193,000 (2018: £91,000) for
office equipment.
Capital commitments
At 31 May 2019 the Group had no capital commitments (2018: £0.8m).
Sponsorship agreement
As part of the Group’s strategy to strengthen its brand awareness the Group has a three-year sponsorship agreement with rugby giants
Leicester Tigers, which ended on 30 June 2019. 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. In November 2018 the Group entered into a new three-year sponsorship agreement with Leicester Tigers, which commenced
on 1 July 2019 at a total cost of £1,230,000 over the three years of the agreement.
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.
In-specie pension contributions
As has been widely reported in the media, HMRC has challenged all SIPP providers on whether pension contributions could be made in-
specie. As a result there are a number of tax relief claims made on behalf of our clients that have been challenged and we have received or
are awaiting assessment notices which are expected to amount to £0.9m. These assessments have been appealed, with proceedings stayed
pending the outcome of HMRC’s appeal against the First-Tier Tribunal’s ruling in favour of another SIPP operator in a similar case.
Irrespective of the result of HMRC’s appeal, the impact on the financial position of the Group is expected to be neutral, with any liability
expected to be recovered from the affected clients whose tax liability it is.
Transfers from defined benefit schemes
The FCA has been conducting an industry wide review of the advice being provided on transfers from defined benefit to defined contribution
schemes since October 2015 (“the Review”).
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 and the Review on the Group’s financial performance is not expected to
be material.
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Governance
Financial statements
28. Pension costs
The Group makes discretionary and contractual payments into the personal pension schemes of employees and contributions are charged
in the statement of comprehensive income as they become payable. The charge for the year was £644,000 (2018: £413,000).
29. Related party disclosures
Custodian REIT plc
In March 2014 the Company’s subsidiary, Custodian Capital, was appointed as the discretionary investment manager of Custodian REIT,
a closed-ended property investment company listed on the Main Market of the London Stock Exchange. The terms of the Investment
Management Agreement (“IMA”) between Custodian Capital and Custodian REIT were amended on agreement of a further three year term
with 12 months’ notice to Custodian Capital’s ongoing engagement from 1 June 2017, with the fees payable to Custodian Capital under the
IMA amended to include:
» A step down in the property management fee from 0.75% to 0.65% of net asset value (“NAV”) applied to NAV in excess of £500m; and
» A step down in the administrative fee from 0.125% to 0.08% of NAV applied to NAV between £200m and £500m and a further step down
to 0.05% of NAV applied to NAV in excess of £500m.
All other key terms of the IMA remain unchanged.
The Company’s Chief Executive Officer, Ian Mattioli, is a non-independent Non-Executive Director of Custodian REIT and the Company’s
Chief Financial Officer, Nathan Imlach, is Company Secretary of Custodian REIT. Ian Mattioli received £33,500 (2018: £28,250) of director’s
fees from Custodian REIT during the year. Fees for Nathan Imlach’s services are charged by Custodian Capital directly to Custodian REIT and
are included in the annual management charges noted below.
Ian Mattioli, Nathan Imlach, Richard Shepherd-Cross (the Managing Director of Custodian Capital), Ed Moore (the Finance Director of
Custodian Capital) and the private pension schemes of Ian Mattioli, Nathan Imlach, Richard Shepherd-Cross, Murray Smith, Joanne Lake and
Carol Duncumb have a beneficial interest in Custodian REIT.
During the year the Group received revenues of £4.0m (2018: £3.8m) in respect of annual management charges, administration and
marketing fees from Custodian REIT. Custodian REIT owed the Group £59,000 at 31 May 2019 (2018: £44,000).
During the year the Group paid rent of £257,000 (2018: £367,000), service charges and other property related costs of £50,000 (2018:
£29,000) and dilapidations on exit of £138,000 (2018: £nil) in respect of its former office premises at MW House and Gateway House,
Leicester where Custodian REIT was the lessor.
Amati Global Investors Limited
On 6 February 2017 the Company purchased 49% of the issued share capital of Amati. The Company also entered into an option agreement
to acquire the remaining 51% of the issued share capital of Amati in the two years commencing 6 February 2019 for a mixture of cash and
Mattioli Woods’ ordinary shares. On 4 January 2019 the Group signed heads of terms agreeing to cancel its option in return for a payment of
£0.75m, equivalent to the fair value of the option at 30 November 2018. This transaction completed following the end of the reporting period
(Note 32).
Three of the Company’s senior management team were appointed to the board of Amati on the date of investment. Ian Mattioli is Deputy
Chairman, the Group’s Chief Investment Officer, Simon Gibson, is a Non-Executive Director and former Chief Operating Officer, Mark Smith
was an Executive Director until he resigned on 22 November 2018. During the year Ian Mattioli and Simon Gibson were paid £5,215 (2018:
£5,063) and Mark Smith was paid £2,575 (2018: £5,063) of directors’ fees by Amati.
On 14 August 2018 the Group entered into a 10-year agreement to sub-let part of the Group’s Edinburgh office to Amati at an annual rent of
£48,000. During the year rent and other property related costs of £39,000 were recharged to Amati (2018: £nil).
The Group received revenues of £nil (2018: £1,000) in respect of consultancy services provided to Amati Global Investors Limited during
the year.
Gateley (Holdings) Plc
The Company’s Chairman, Joanne Lake, is a Non-Executive Director of Gateley (Holdings) Plc, which is the holding company of Gateley Plc,
a provider of commercial legal services. During the year, the Group paid Gateley Plc a total of £2,000 (2018: £34,000) in respect of corporate
legal services provided to the Group and its subsidiaries. In addition, the Group received revenues of £34,000 (2018: £29,000) in respect of
employee benefits services provided to Gateley Plc during the year.
115
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
29. Related party disclosures continued
Worldwide Broker Network Limited
The Company’s former Managing Director of Employee Benefits, Alan Fergusson, is an executive director of Worldwide Broker Network
Limited. Worldwide Broker Network Limited is the holding company of Worldwide Broker Network (US) Inc., an international network of
financial services introducers. During the year, the Group paid £25,000 (2018: £19,000) to Worldwide Broker Network (US) Inc. in respect
of network membership fees.
Vista Insurance Brokers Limited
Vista Insurance Brokers Limited, a broker of insurance products, is party to a dormant joint venture agreement with the Company. The Group
received revenues of £2,000 (2018: £4,000) in respect of employee benefits services provided to Vista Insurance Brokers Limited during the
year. Fees of £nil (2018: £12,000) were paid to Vista Insurance Brokers Limited in the year under a referral fee share arrangement.
Key management compensation
Key management personnel, representing those Executive Directors that served throughout the year and 14 (2018: 18) other executives,
received compensation in the form of short-term employee benefits and equity compensation benefits (see Note 11) which totalled £5.9m
for the year ended 31 May 2019 (2018: £7.2m).
Total compensation is included in “employee benefits expense” and analysed as follows:
Wages and salaries
Social security costs
Pension
Benefits in kind
2019
£000
4,907
803
86
96
5,892
2018
£000
6,036
993
61
159
7,249
In addition, the cost of share based payments disclosed separately in the statement of comprehensive income was £0.7m (2018: £0.9m).
Transactions with other related parties
Following the transfer of Mattioli Woods’ property syndicate business to Custodian Capital, the legal structure of the arrangements offered
to investors changed to a limited partnership structure, replacing the previous trust-based structure. Each limited partnership is constituted
by its general partner and its limited partners (the investors), with the general partner being a separate limited company owned by Custodian
Capital (see Note 17).
The general partner and the initial limited partner enter into a limited partnership agreement, which governs the operation of the partnership
and also sets out the rights and obligations of the investors. The general partners have appointed Custodian Capital as the operator of the
partnerships pursuant to an operator agreement between the general partner and Custodian Capital.
FP Mattioli Woods Balanced Fund
The Company is the investment manager of the FP Mattioli Woods Balanced Fund, an open ended investment company which aims to
achieve long-term growth while managing volatility so that, other than on very short-term measures, outperformance comes with a lower
beta than the benchmark. As at 31 May 2019 the Group held an investment with a market value of £40,000 (2018: £41,000) in the FP Mattioli
Woods Balanced Fund.
MW Properties (Huntingdon Non-Geared) Limited
The Company holds a 2.04% interest in MW Properties (Huntingdon Non-Geared) Limited, a nominee for a property syndicate. The Group
received dividend income of £nil (2018: £1,000) from MW Properties (Huntingdon Non-Geared) Limited during the year, with the market
value of the investment being £14,000 (2018: £14,000) at the year end.
116
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Governance
Financial statements
30. Financial risk management
Financial assets principally comprise trade and other receivables, cash and short-term deposits, which arise directly from its operations.
Financial liabilities comprise certain provisions and trade and other payables. The main risks arising from financial instruments are market risk
(including interest rate risk, foreign exchange risk and price risk), credit risk, and liquidity risk. Each of these risks is discussed in detail below.
The Group monitors financial risks on a consolidated basis, with its financial risk management based upon sound economic objectives and
good corporate practice. No hedging transactions have taken place during the years presented.
Interest rate risk
Market risk
(a)
Interest rate risk is the risk that the Group will sustain losses from adverse movements in interest bearing assets. There is an exposure to
interest rates on banking deposits held in the ordinary course of business. At 31 May 2019 the value of financial instruments on the Group’s
statement of financial position exposed to interest rate risk was £23.2m (2018: £23.7m), and Company £14.1m (2018: £17.9m), comprising
cash and cash equivalents. This exposure is monitored to ensure that the Group is managing its interest earning potential within accepted
liquidity and credit constraints. Other than short-term overdrafts, the Group has no external borrowings and as such is not exposed to interest
rate or refinancing risk on borrowings. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are
also made for varying periods of between one day and 12 months depending on the immediate cash requirements of the Group and earn
interest at the respective fixed term deposit rates.
A source of revenue is based on the value of client cash under administration. The Group has an indirect exposure to interest rate risk on
these cash balances held for clients. These balances are not on the Company or Group statements of financial position.
The following table demonstrates the sensitivity to a 100bps (1%) change in interest rates, with all other variables held constant, of the Group’s
and Company’s profit before tax (through the impact on floating rate deposits). There is no impact on the Group’s equity.
2019
£ Sterling
£ Sterling
2018
£ Sterling
£ Sterling
Increase/decrease
in basis points
Group
Effect on profit
before tax
£000
Company
Effect on profit
before tax
£000
+100
-100
+100
-100
83
(83)
194
(194)
(132)
132
197
(197)
Foreign exchange translation and transaction risk
(b)
Foreign currency risk is the risk that the Group will sustain losses through adverse movements in currency exchange rates. With all of the
Group’s business located within the UK, the Group has no material exposure to foreign exchange translation or transaction risk and does not
hedge any foreign current assets or liabilities.
(c) Price risk
Price risk is the risk that a decline in the value of assets adversely impacts the profitability of the Group as a result of an asset not meeting
its expected value. The Group is exposed to price risk on corporate investments recognised in the Group’s statement of financial position.
At 31 May 2019, the fair value of investments and derivative financial assets recognised in the Group’s and Company’s statement of financial
position was £830,000 (2018: £731,000). A movement in the value of these investments could have a material impact on the Group’s
financial position or results.
Property administration fees, discretionary management charges and adviser charges for intermediation are based on the value of client
assets under administration and hence the Group has an indirect exposure to security price risk on investments held by clients. These
assets are not on the Group’s statement of financial position. The risk of lower revenues is partially mitigated by asset class diversification.
The Group does not hedge its revenue exposure to movements in the value of client assets arising from these risks and so the interests of
the Group are aligned to those of its clients.
117
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
30. Financial risk management continued
Credit risk
The Group and Company trades only with third parties it recognises as being creditworthy. In addition, receivable balances are monitored
on an ongoing basis and under the simplified approach, provisions for credit risk are assessed under the lifetime losses approach with all
assets assessed as one portfolio.
Credit risk from the other financial assets of the Group and Company, which comprise cash and cash equivalents, arises from default
of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.
Liquidity risk
The Group monitors its risk to a shortage of funds by considering the maturity of both its financial investments and financial assets
(e.g. accounts receivables, other financial assets) and projected cash flows from operations.
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans
and leases. The table below summarises the maturity profile of the Group’s and the Company’s financial liabilities at 31 May 2019 and 2018
based on contractual payments:
Group
Trade and other payables
Contingent consideration
At 31 May 2019
Trade and other payables
Contingent consideration
At 31 May 2018
Company
Trade and other payables
Contingent consideration
At 31 May 2019
Trade and other payables
Contingent consideration
Loan notes
At 31 May 2018
On
demand
£000
—
—
—
—
—
—
On
demand
£000
—
—
—
—
—
—
—
Less than
3 months
£000
9,771
—
9,771
14,107
398
14,505
Less than
3 months
£000
9,404
—
9,404
12,760
398
—
13,158
3 to 12
months
£000
—
1,300
1,300
—
500
500
3 to 12
months
£000
—
1,300
1,300
—
500
—
500
1 to 5
years
£000
—
1,500
1,500
—
—
—
1 to 5
years
£000
—
1,500
1,500
—
—
—
—
Maturity of liability
> 5
years
£000
—
—
—
—
—
—
Total
£000
9,771
2,800
12,571
14,107
898
15,005
Maturity of liability
> 5
years
£000
—
—
—
—
—
16,940
16,940
Total
£000
9,404
2,800
12,204
12,760
898
16,940
30,598
Capital management
The Company and certain of its subsidiaries are supervised in the UK by the Financial Conduct Authority (“FCA”). The Group manages its
capital through continuous review of the capital requirements of the Company and its regulated subsidiaries, which are monitored by the
Group’s management and reported monthly to the Board. The Group’s objectives when managing capital are:
» To comply with the regulatory capital requirements set by the FCA;
» To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits
for other stakeholders; and
» To maintain a strong capital base to support the development of its business.
Capital is defined as the total of share capital, share premium, retained earnings and other reserves. Total capital of the Group at 31 May 2019
was £85.6m (2018: £78.9m) and Company was £81.3m (2018: £73.7m). The Group manages the capital structure and makes adjustments
to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to
shareholders, return capital to shareholders or issue new shares.
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Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Regulatory capital is determined in accordance with the requirements of the Capital Requirements Directive (“the CRD”) prescribed in the UK
by the FCA. The Group’s regulatory capital comprises Tier 1 capital, which is the total of issued share capital, retained earnings and reserves
created by appropriations of externally verified retained earnings, net of the book value of goodwill and other intangible assets. The Group
does not hold any Tier 2 or Tier 3 capital.
All regulated entities within the Group are required to meet the Pillar 1 Capital Resources Requirements set out in the CRD. The latest version
of the CRD legislation (“CRD IV”) came into effect on 1 January 2014. The Group is also required to comply with the CRD’s requirements
under Pillar 2 (Operational Risk) and Pillar 3 (Disclosure). The CRD requires continual assessment of the Group’s risks to ensure that the higher
of Pillar 1 and 2 requirements is met. Under the Pillar 3 requirements, the Group must disclose regulatory capital information and has done
so by making the disclosures available on the Group’s website at www.mattioliwoods.com.
The Company and regulated subsidiary companies submit quarterly returns to the FCA relating to their capital resources. At 31 May 2019
the total regulatory capital requirement across the Group was £12.3m (2018: £10.9m) and the Group had an aggregate surplus of £17.3m
(2018: £18.8m), including: shares issued during the year and admitted to Core Equity Tier 1 capital following the year end; the proposed
final dividend; and retained earnings for the year. All the regulated firms within the Group maintained surplus regulated capital throughout
the year. The regulated subsidiaries are limited in the distributions that can be paid up to the Company by each of their individual capital
resource requirements.
31. Financial instruments
The carrying amount of financial assets and financial liabilities recorded by category is as follows:
Financial assets
Cash and short-term deposits
Fair value through profit or loss (including derivative financial asset
and investments) (Note 17)
Amortised cost loans and receivables (including trade
and other receivables) (Note 20)
Financial liabilities
Amortised cost (including trade and other payables and loan notes payable)
Fair value through profit and loss (including contingent consideration) (Note 26)
Group
2019
£000
23,248
Company
2019
£000
14,095
Group
2018
£000
23,668
Company
2018
£000
17,880
830
830
731
731
15,329
39,407
Group
2019
£000
9,771
2,655
12,426
27,112
42,037
Company
2019
£000
9,404
2,655
12,059
16,016
40,415
Group
2018
£000
14,107
886
14,993
28,090
46,701
Company
2018
£000
29,700
886
30,586
Fair values
The directors consider that the carrying value of financial instruments in the Company’s and the Group’s financial statements is equivalent to
fair value. The following table summarises the fair value measurements recognised in the statement of financial position by class of asset or
liability and categorised by level according to the significance of the inputs used in making the measurements:
Group and Company
Financial assets
Derivative financial instruments (Note 21)
At 31 May 2019
Financial liabilities
Contingent consideration (Note 3)
At 31 May 2019
Quoted
prices in active
markets for
identical
instruments
Level 1
£000
Carrying
amount as at
31 May 2019
£000
Significant
other observable
inputs
Level 2
£000
Significant
unobservable
inputs
Level 3
£000
750
750
2,655
2,655
—
—
—
—
—
—
—
—
750
750
2,655
2,655
The fair value of cash equivalents, accounts receivable and accounts payable approximate their carrying values due to their short-term nature.
119
Mattioli Woods plc Annual Report 2019
Notes to the financial statements continued
31. Financial instruments continued
Derivative financial instruments
At 31 May 2019, the fair value of the option contract was determined to be £750,000 (2018: £650,000) after the Company signed heads of
terms with the counterparty to the option contract during the year, which completed following the end of the reporting period (Note 32),
whereby the counterparty has agreed to pay £750,000 in return for cancellation of the option agreement.
The gain relating to the derivative financial instrument is included within ‘operating profit’. There were no other gains or losses arising from
changes in the fair value of financial instruments categorised as level 3 within the fair value hierarchy.
Contingent consideration
As set out in Note 3, the Group has entered into certain acquisition agreements that provide for contingent consideration to be paid. While
the exact amounts payable cannot be determined (as these depend on the future performance of the acquired businesses) the Group
estimates the fair value of contingent consideration payable on acquisitions to be £2.7m (2018: £0.9m).
Interest rate risk
The following table sets out the carrying amount after taking into account provisions for impairment, by maturity, of the Company’s and the
Group’s financial instruments that are exposed to interest rate risk:
Group 31 May 2019
Floating rate
Financial assets (current)
Cash assets
Bank overdrafts
Group 31 May 2018
Floating rate
Financial assets (current)
Cash assets
Bank overdrafts
Company 31 May 2019
Floating rate
Financial assets (current)
Cash assets
Bank overdrafts
Company 31 May 2018
Floating rate
Financial assets (current)
Cash assets
Bank overdrafts
< 1 year
£000
—
23,248
—
< 1 year
£000
—
23,688
—
< 1 year
£000
—
14,095
—
< 1 year
£000
—
17,880
—
1-2 years
2-3 years
3-4 years
4-5 years
> 5 years
£000
£000
£000
£000
£000
—
—
—
1-2 years
£000
—
—
—
—
—
—
—
—
—
—
—
—
2-3 years
3-4 years
4-5 years
£000
£000
£000
—
—
—
—
—
—
—
—
—
—
—
—
> 5 years
£000
—
—
—
1-2 years
2-3 years
3-4 years
4-5 years
> 5 years
£000
£000
£000
£000
£000
—
—
—
1-2 years
£000
—
—
—
—
—
—
—
—
—
—
—
—
2-3 years
3-4 years
4-5 years
£000
£000
£000
—
—
—
—
—
—
—
—
—
—
—
—
> 5 years
£000
—
—
—
Total
£000
—
23,248
—
Total
£000
—
23,688
—
Total
£000
—
14,095
—
Total
£000
—
17,880
—
Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Other financial instruments of the
Company and Group that are not included in the above table are non-interest bearing and therefore not subject to interest rate risk.
120
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Credit risk
The Group’s principal financial assets are cash and short term deposits and trade and other receivables. The only significant concentrations of
credit risk relate to the Group’s bank deposits and exposure to credit risk arising from default of the counterparty. The maximum exposure is
equal to the carrying amount of these deposits. At 31 May 2019, the Group’s bank deposits were held with Royal Bank of Scotland plc, Lloyds
Bank plc, Bank of Scotland plc, Barclays Bank UK plc, Metro Bank plc, Santander UK plc, Cater Allen Limited, Investec Bank plc and Northern
Bank Limited (Danske Bank).
Given the nature of the Group’s operations, it does not have significant concentration of credit risk in respect of trade receivables, with
exposure spread over a large number of customers. An allowance for impairment for trade receivables is made where there is an identified
loss event, which based on previous experience, is evidence of a reduction in the recoverability of the cash flows. Details of trade receivables
and the associated provision for impairment are disclosed in Note 20.
32. Events after the reporting date
Cancellation of Amati option
On 19 June 2019 the Group signed an agreement to cancel its option to acquire the remaining 51% of Amati in return for a payment
of £750,000.
33. Ultimate controlling party
The Company has no controlling party.
121
Mattioli Woods plc Annual Report 2019 Alternative performance measure workings
Recurring revenue
A measure of sustainable revenue, calculated as revenue earned from ongoing services as a percentage of total revenue.
Timing of revenue recognition
At a point in time:
Investment and asset management
Pension consultancy and administration
Property management
Employee benefits
Non recurring revenue
Over time:
Investment and asset management
Pension consultancy and administration
Property management
Employee benefits
Recurring revenue
Total revenue
Recurring revenue
2019
£000
2,873
1,276
620
973
5,742
23,124
19,129
5,823
4,646
52,722
2018
£000
4,633
2,639
570
1,087
8,929
20,463
19,183
5,348
4,746
49,740
58,464
58,669
90.2%
84.8%
Adjusted EBITDA
A measure of the underlying profitability, excluding items that are non-cash or affect comparability between periods, calculated as statutory
operating profit before financing income or costs, tax, depreciation, amortisation, impairment, changes in valuation of derivative financial
instruments and acquisition related costs, including share of profit from associates (net of tax).
Statutory operating profit before financing
Amortisation of acquired intangibles
Amortisation of software
Depreciation
EBITDA
Share of profit from associates, net of tax
Acquisition related costs
Gain on revaluation of derivative financial instrument
Adjusted EBITDA
2019
£000
9,791
1,907
1,055
1,288
2018
£000
9,617
1,756
469
822
14,041
12,664
480
126
(100)
240
125
(540)
14,547
12,489
122
Mattioli Woods plc Annual Report 2019
Strategic report
Governance
Financial statements
Adjusted PBT
A measure of profitability before taxation, excluding items that are non-cash or affect comparability between periods, calculated as statutory
profit before tax excluding amortisation of acquired intangibles, acquisition related costs, non-cash interest charges on provisions and
changes in valuation of derivative financial instruments.
Statutory profit before tax
Amortisation of acquired intangibles
Acquisition related costs
Non-cash interest charges on provisions
Gain on revaluation of derivative financial instrument
Adjusted PBT
2019
£000
10,245
1,907
126
85
(100)
12,263
2018
£000
9,776
1,756
125
166
(540)
11,283
Adjusted PAT
A measure of profitability, net of taxation, excluding items that are non-cash or affect comparability between periods, calculated as statutory
profit before tax excluding amortisation of acquired intangibles, acquisition related costs, non-cash interest charges on provisions, changes
in valuation of derivative financial instruments and deducting tax at the standard rate of 19%.
Adjusted PBT
Income tax expense at standard rate of 19%
Adjusted PAT
2019
£000
12,263
(2,330)
9,933
2018
£000
11,283
(2,144)
9,139
Adjusted EPS
A measure of total comprehensive income for the year, net of taxation, attributable to equity holders of the Company, adjusted to add back
acquisition related costs, changes in valuation of derivative financial instruments, non-cash interest charges on provisions and the amortisation
of acquired intangible assets, divided by the weighted average number of ordinary shares in issue.
Adjusted PAT
Basic weighted average number of shares (see Note 13)
Adjusted EPS
2019
£000
9,933
26,590
37.3p
2018
£000
9,139
26,561
34.4p
123
Mattioli Woods plc Annual Report 2019
Company information
Directors:
Joanne Lake
Ian Mattioli MBE
Nathan Imlach
Murray Smith
Carol Duncumb
Anne Gunther
Non-Executive Chairman
Chief Executive Officer
Chief Financial Officer
Group Managing Director
Non-Executive Director
Non-Executive Director
Company secretary:
Petershill Securities Limited
Registered office:
1 New Walk Place
Leicester
LE1 6RU
Registered number:
3140521
Nominated adviser and broker:
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
N+1 Singer
1 Bartholomew Lane
London
EC2N 2AX
Deloitte LLP
Four Brindleyplace
Birmingham
B1 2HZ
Walker Morris LLP
33 Wellington Street
Leeds
LS1 4DL
Lloyds Bank plc
1 Lochrin Square
92 Fountainbridge
Edinburgh
EH3 9QA
Link Market Services Limited
Link Asset Services
40 Dukes Place
London
EC3A 7NH
DWF LLP
2 Lochrin Square
96 Fountainbridge
Edinburgh
EH3 9QA
Bank of Scotland plc
1 Lochrin Square
92 Fountainbridge
Edinburgh
EH3 9QA
Joint broker:
Auditor:
Principal solicitors:
Principal bankers:
Registrars:
124
Mattioli Woods plc Annual Report 2019
Five year summary (unaudited)
Strategic report
Governance
Financial statements
Revenue
Employee benefits expense
Other administrative expenses
Share based payments
Loss on disposal of property, plant and equipment
Gain on revaluation of derivative financial instrument
EBITDA
Acquisition-related costs
Gain on derivative financial asset
Share of profit from associates
Adjusted EBITDA
Amortisation and impairment
Depreciation
Operating profit before financing
Net financing (costs)/income
Share of profit from associate, net of tax
Profit before tax
Income tax expense
Profit for the year
Assets under management, administration and advice (£m)
Headline debtors’ ratio (days)
External client loss rate
EBITDA margin
Adjusted EBITDA margin
Basic EPS (pence)
Adjusted EPS (pence)
Dividends paid and proposed (pence)
2019
£000
58,464
(31,239)
(12,099)
(1,060)
(125)
100
14,041
126
(100)
480
14,547
(2,962)
(1,288)
9,791
(26)
480
10,245
(2,048)
8,197
9,382.5
32.1
2.2%
24.0%
24.9%
30.8
37.3
20.0
2018
£000
58,669
(32,148)
(12,833)
(1,497)
(67)
540
12,664
125
(540)
240
12,489
(2,225)
(822)
9,617
(81)
240
9,776
(1,586)
8,190
8,729.2
31.9
1.5%
21.6%
21.3%
30.8
34.4
17.0
2017
£000
50,533
(28,711)
(9,558)
(1,902)
(61)
93
10,394
378
(93)
103
10,782
(1,996)
(606)
7,792
(246)
103
7,649
(1,293)
6,356
7,925.3
39.5
2.1%
20.6%
21.4%
24.2
30.3
14.1
2016
£000
42,950
(24,552)
(7,807)
(1,594)
(56)
—
8,941
339
—
—
9,280
(1,816)
(497)
6,628
(337)
—
6,291
(1,046)
5,245
6,605.9
46.4
2.4%
20.8%
21.6%
20.4
27.2
12.5
2015
£000
34,565
(20,042)
(6,604)
(790)
(44)
—
7,085
272
—
—
7,357
(1,279)
(387)
5,419
(129)
—
5,290
(1,268)
4,022
5,410.4
52.2
2.8%
20.5%
21.3%
18.8
25.4
10.5
125
Mattioli Woods plc Annual Report 2019
Announcement of final results for the year ended 31 May 2019
Ex-dividend date for ordinary shares
Record date for final dividend
Annual General Meeting
Payment of final dividend on ordinary shares
Financial calendar
3 September 2019
12 September 2019
13 September 2019
21 October 2019
25 October 2019
126
Mattioli Woods plc Annual Report 2019 Design and Production
www.carrkamasa.co.uk
Design and Production
www.carrkamasa.co.uk
Design and Production
www.carrkamasa.co.uk
Mattioli Woods plc
1 New Walk Place
Leicester
LE1 6RU
Tel: 0116 240 8700
Fax: 0116 240 8701
info@mattioliwoods.com
www.mattioliwoods.com