Annual Report 2020
We are
one of the UK’s leading providers
of wealth management and employee
benefit services. Discover
Mattioli Woods
Mattioli Woods plc
Delivering great client outcomes
Find out more about
us at a glance
04
Find out more about
our strategy and
business model
08
Creating and preserving
wealth, our trusted
advice gives clients the
understanding to achieve
their objectives.
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 £9.3bn (2019: £9.4bn).
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
COVID-19
COVID-19 is significantly impacting the UK and global
economies. We have taken positive and decisive action
to protect our clients and staff, and to ensure all our core
business areas remain fully operational throughout this
complex time. Our investment in technology has enabled
our employees to work remotely, and our thanks go to all
our employees who have helped to protect the business
by agreeing to forego bonuses that would have been paid
in more normal trading conditions. In addition, certain of
our higher paid employees significantly reduced their basic
salaries, with these actions reducing costs for the year
ended 31 May 2020 by £2.6m.
The essence of what we do is looking after our clients’
money and there is an expectation that we should apply
the same diligence in looking after that of our business
and our shareholders. Current trading is in line with
our expectations and we can see light at the end
of the COVID-19 tunnel.
Find out more about COVID-19
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Contents
Strategic Report
Highlights
Our approach
Chairman’s statement
Business model & strategy
Chief Executive's review
Market overview
Our services
Key performance indicators
Financial performance and future developments
Principal risks & uncertainties
Section 172 statement
Environmental performance & strategy
Corporate social responsibility
Governance
Governance overview
Board of Directors
Corporate governance report
Directors’ remuneration report
Directors’ report
Directors’ responsibilities for the financial statements
Independent auditor’s report
Financial Statements and other information
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 flows
Notes to the financial statements
Alternative Performance Measure (APM) workings
Company information
Five year summary (unaudited)
Financial calendar
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Mattioli Woods plc Annual Report 2020
Strategic Report
Highlights
Financial highlights
To see our full list of KPIs
13
Revenue
Adjusted EBITDA²,³
Basic EPS
£58.4m
+1.6%
2019 restated: £57.5m
£18.9m
+34.0%
2019 restated: £14.1m
37.8p
+29.0%
2019 restated: 29.3p
Recurring revenues ¹,²
Adjusted EBITDA margin⁴
Adjusted EPS²,⁶
92.1%
2019 restated: 90.0%
of total revenue
32.4%
2019 restated: 24.5%
47.7p
+34.4%
2019 restated: 35.5p
Operating profit before financing
£12.9m
+38.7%
2019 restated: £9.3m
• Significantly ahead of
expectations at start of the year
• Reflects action taken to
protect financial position in
light of COVID-19, including
rebasing Executive salaries,
not paying bonuses and close
management of fixed and
discretionary spend
Profit before tax
£13.4m
+36.7%
2019 restated: £9.8m
Adjusted profit before tax²,⁵
£15.8m
+33.9%
2019 restated: £11.8m
Proposed final dividend
12.7p
2019: 13.67p giving a total
dividend of 20.0p (2019: 20.0p)
Strong financial position with
cash at year end of
£26.0m
2019: £23.2m
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Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
To see our Chief Executive's review
10
Operational highlights and recent developments
• Total client assets of the Group and its associate⁷ of £9.3bn
(2019: £9.4bn)
• Gross discretionary AuM²,⁸ of £2.6bn (2019: £2.6bn), with net
inflows of over £200m in year
• Primarily fee-based revenue profile is less sensitive to market
movements
• Improved operational efficiency pre and post COVID-19
• Delivered an uninterrupted service to clients during COVID-19
• Building capacity to enhance existing client service and drive
future growth
• Continued investment in technology, compliance and training
• Recent acquisitions performing and integrating well
• Strategic acquisition of Hurley Partners Limited completed
post year end
1 Annual pension consultancy and
3 Earnings before interest, taxation,
7 Includes £515.8m (2019: £409.0m) of
administration fees; ongoing adviser
charges; level and renewal commissions;
banking income; property, discretionary
portfolio and other annual management
charges.
depreciation, amortisation, impairment,
changes in valuation of derivative
financial instruments and acquisition-
related costs, including share of profit
from associates (net of tax).
2 This is an alternative performance
measure (“APM”) the Group reports
to assist stakeholders in assessing
performance alongside the Group’s
results on a statutory basis. APMs may
not be directly comparable with other
companies’ adjusted measures and
APMs are not intended to be a substitute
for, or superior to, any IFRS measures of
performance. Supporting calculations for
APMs and reconciliations between APMs
and their IFRS equivalents are set out in
the Alternative performance measure
workings section of the Annual Report.
4 Adjusted EBITDA divided by revenue.
5 Definition amended to no longer add-
back non-cash interest on provisions,
following adoption of IFRS 16. Now
calculated as profit before tax, adding
back amortisation and impairment of
acquired intangibles, changes in valuation
of derivative financial instruments and
acquisition-related costs.
6 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% (2019: 19.0%).
funds under management by the Group’s
associate, Amati Global Investors Limited,
excluding £54.1m (2019: £31.9m) of
Mattioli Woods’ client investment and
£11.5m (2019: £11.9m) of cross-holdings
between the TB Amati Smaller Companies
Fund and the Amati AIM VCT plc.
8 Includes £510.2m (31 May 2019: £452.8m)
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.
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Mattioli Woods plc Annual Report 2020
Strategic Report
Our approach
Mattioli Woods plc (“Mattioli Woods”,
“the Company” or “the Group”) is one
of the UK’s leading providers of wealth
management and employee benefit
services. Our core proposition integrates
asset management and financial
planning to serve controlling Directors
and owner-managed businesses,
professionals, executives, individuals,
families and retirees.
Our comprehensive range of employee benefit services is particularly
suitable for medium-sized to larger corporates.
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. At the same time, we
aim to grow 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 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 including
keeping clients’ costs low, with our integrated model allowing us to
address more of the value chain:
Adviser
Administrator
Platform
Investment manager
Product provider
• Financial planning,
wealth management
and employee
benefits
• Trusted expertise
• Close client
relationships
• Pension and
personal wealth
• End to end
administration
• Proactive, personal
service
• 10,900+ SIPP and
SSAS schemes
• Proprietary
MWeb pension
administration
platform
• Custody, dealing
and client banking
• Strategic
partnerships with
external providers
• Investing in
technology
• Discretionary
portfolio
management
• Bespoke advice
• Using best of what
we and other
providers offer
• Portfolio and fund
management
• SIPP and SSAS
• Innovative
new product
development
• Addressing clients’
needs
Own distribution
through our team of
120 consultants
Direct and
intermediated
distribution
Direct and
intermediated
distribution
Own distribution
through our team of
120 consultants
Extending from direct
to intermediated and
institutional clients
Operating segments
Wealth management
Our wealth management business comprises three
operating segments providing services to individuals
and families, embracing all aspects of financial planning,
personal and trust investment, pensions and 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.
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Read more about our segmental reporting
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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 a particular expertise 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. Where appropriate, we
intend to expand upon these offerings in the future.
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.
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Where we operate
Number of offices:
11
Aberdeen
Belfast
Birmingham
Buckingham
Edinburgh
Glasgow
Leicester
London
Manchester
Newmarket
Preston
Number of
employees:
597
Effective Governance
Board structure:
The Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Risk & Compliance
Committee
“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.”
Joanne Lake
Non-Executive Chairman
Read more on our
Governance framework
44
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 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, 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.
Employee benefits
Mattioli Woods assists its corporate clients with employee
engagement, with the aim of improving recruitment, retention
and workplace morale. 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.
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Operating segments
Wealth management
Our wealth management business comprises three
operating segments providing services to individuals
and families, embracing all aspects of financial planning,
personal and trust investment, pensions and estate planning.
Mattioli Woods plc Annual Report 2020
Strategic Report
Chairman’s
statement
We have remained fully operational
throughout the COVID-19 pandemic.
“ 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.”
Joanne Lake, Non-Executive Chairman
I am pleased to report another successful year for Mattioli Woods.
Revenue increased by 1.6% to £58.4m (2019 restated: £57.5m), despite
the political and economic uncertainties that persisted throughout
the period. A 0.5% fall in organic revenue was more than offset by a
full year’s contribution from Broughtons Financial Planning Limited
(“Broughtons”) and SSAS Solutions (UK) Ltd (“SSAS Solutions”), which
were acquired in the prior financial year, plus a positive contribution
from The Turris Partnership Limited (“Turris”), which has integrated
well since its acquisition in December 2019.
As the Coronavirus (COVID-19) pandemic began to impact the UK
our focus was to protect the health of our staff and clients, whilst
continuing to deliver an uninterrupted service to our clients and
supporting key workers and the wider community. We have remained
fully operational throughout the COVID-19 pandemic, maintaining
our focus on client service and continuing to develop our customer
proposition. From the start of lockdown we decided that we would
not take support from the government, recognising that our long-term
financial prudence has placed the business on a strong footing and not
wishing to add to the burden that will have to be met by the UK taxpayer
as we emerge from the crisis in the coming years.
In anticipation of the likely trading conditions created by the pandemic,
we implemented a number of mitigating actions to protect the Group’s
financial position, realising total cost savings of approximately £2.6m
through all plc Board Directors reducing their basic remuneration and
confirming that remaining staff bonuses and all plc Board Directors’
bonuses in respect of the financial year would not be paid.
As highlighted in our July trading update, these actions combined with
ongoing improvements in operational efficiency resulted in profits
being significantly ahead of our expectations at the start of the year.
Consequently, profit before tax increased 36.7% to £13.4m (2019
restated: £9.8m). This exceptional result provides a buffer for the business
to respond to further challenges arising from the COVID-19 pandemic
and we expect the Group to revert to a normal level of profitability for the
coming year.
We believe the benefits of operating a responsibly integrated business
will enable us to secure great client outcomes, whilst delivering strong,
sustainable shareholder returns through the complex conditions we face,
currently and over the longer term.
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 advice, giving our business a revenue
profile that is less sensitive to market performance. However, a fall in
market values and recent interest rate cuts have resulted in an associated
reduction in the Group’s income streams linked to the value of clients’
funds under management and advice and banking revenue.
The Board believes it is prudent to protect the Group’s financial position
and balance the interests of all stakeholders. Accordingly, the Board
proposes a lower final dividend than might have been proposed in more
normal circumstances of 12.7p per share (2019: 13.67p). This makes a
proposed total dividend for the year of 20.0p (2019: 20.0p), in line with
the prior year.
The Board recognises the importance of dividends to shareholders and
intends to return to growing the dividend, while maintaining an appropriate
level of dividend cover, when it is an appropriate time to do so.
06
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Our strategy
Previously, we set out our ambition 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 July, we were pleased to announce receipt of the regulatory
approval to complete the post year-end acquisition of Hurley
Partners Limited (“Hurley Partners”), a private client adviser and asset
management business with offices in London, Surrey and Manchester.
We will seek to build on our track record of successfully executing and
integrating acquisitions by continuing to assess a diverse pipeline of
potential acquisition opportunities that meet our strict criteria.
Our people
We thank all our staff for their continued commitment, enthusiasm
and professionalism, which combined with our investment in cloud-
based technology and infrastructure allowed us to move quickly to
an operating model that included implementing home working for
almost 600 of our staff.
I deeply appreciate our people’s dedication and how they have dealt
with our clients’ affairs throughout this period. 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.
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.
Governance and the Board
We strive for high standards in our corporate Governance and
disclosure and have adopted the QCA Corporate Governance Code
to facilitate this. 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.
After 15 years as Chief Financial Officer, Nathan Imlach has decided
to stand down from the Board at the Company’s next Annual General
Meeting (“AGM”) on 19 October 2020. Nathan will remain with the
Group, where his focus will be on acquisitions and contributing
to its future direction as Chief Strategic Adviser. Nathan has been
instrumental to the success of the Group and we look forward to
continuing to benefit from his experience and insight in this new role.
Michael joined Mattioli Woods in 2004. As head of our wealth
management business, Michael led the development of the graduate
programme, training and competence scheme, and client service
delivery strategy. In October 2019 he was appointed Group Managing
Director, where his focus is on the strategic development of the
Group’s wealth management and employee benefits propositions.
Michael also leads the Group’s consultancy and administration teams,
whilst continuing to advise clients.
Iain joined the Company in August 2018 as Executive Risk Consultant
and was instrumental in developing the Group Risk and Internal Audit
functions. Having taken on the role of Group Operating Officer, Iain
oversees the day-to-day operations of the Group and has played a key
role in ensuring the Group has remained fully operational throughout
the current COVID-19 pandemic.
Ravi, Michael and Iain will join the Board immediately following
regulatory approval of their appointments. We anticipate that after
Nathan steps down as a Director the Company will have, for a period
of time, a Board comprising four Executive and three Non-Executive
Directors. The Board intends to appoint another Non-Executive Director
and the Group is in discussion with potential candidates. Following
this appointment, the Company will have a balanced Board, 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, with these activities having been hosted online
since March as a result of COVID-19.
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
The Board is positive about the Group’s prospects given all the actions
we have taken to reinforce its financial position, ensuring we remain a
business that is sustainable and here for the long-term. Creating and
preserving wealth, our focus remains on ensuring our trusted advice
gives clients the understanding to achieve their objectives.
We expect that uncertainty around Brexit and the impact of COVID-19
will continue to influence investor and consumer sentiment in the
short-term, but we are confident that our focus on addressing the
changing needs of our clients positions us well to deliver future
growth and continued sustainable shareholder returns.
He will be succeeded by Ravi Tara, Group Finance Director, who
joined the Company in July 2019 as part of its succession planning.
Ravi's experience of improving operational delivery and cost
efficiency in his previous roles will add real value to our proposition
as we position the Group for further growth.
Joanne Lake
Chairman
1 September 2020
The Board believes it is the right time to strengthen the Executive
team through the further appointments of Michael Wright and Iain
McKenzie to the Board as Group Managing Director and Group
Operating Officer respectively.
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Mattioli Woods plc Annual Report 2020 Strategic Report
Business model
& strategy
Purpose
Culture
Creating and preserving wealth, our trusted advice gives
clients the understanding to achieve their objectives.
Our culture is based on professionalism, putting clients first
and adopting a collegiate approach. Retaining the integrity,
expertise and passion of our people continues to be a
priority coupled with a strong compliance culture focused
on delivering positive customer outcomes.
“We are delighted to be working together
as part of the strong and progressive
wealth management business that is
Mattioli Woods. We believe our clients
will see tangible benefits as a result of
us being part of the enlarged Group.
All of our employees remain in place as
part of the newly combined business.
Operating from the same locations with
the highest level of commitment and
personal service, we continue to put our
clients at the heart of everything we do.”
Tony Hurley, Chairman of Hurley Partners Limited
A MATTIOLI WOODS COMPANY
In July 2020, Mattioli Woods completed the acquisition of
Hurley Partners Limited. Hurley Partners’ origins mirror our own,
with the business built on their specialist expertise in SSAS trusteeship
and administration.
Although Hurley Partners was established in 2013, the Directors and
many of the team have worked together for over 30 years. Today, the
advisory team looks after over 300 families, with over 300 self-invested
pension schemes and £550m of assets under administration.
Close client relationships remain at the heart of Hurley Partners’ ethos,
treating clients as the team would like to be treated themselves.
In addition to its strong reputation as a pension specialist, Hurley Partners
offers holistic financial planning and a dedicated discretionary investment
management service, helping its clients understand and meet their
financial objectives.
The business has strong representation in the South East of England,
with its numerous professional connections providing a great
opportunity for the further development of the Group in this region.
The Directors of Hurley Partners have committed their long-term futures
to the enlarged Group and are a team that strives to make a difference in
its local community, having raised more than £330,000 for the benefit
of over 40 UK charities, including the Atkinson Morley Department of
Neurosurgery at St George’s Hospital, London. Hurley Partners has also
been a key sponsor of Cobham RFC for the past six years.
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Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
1 Strategy
A platform for sustainable growth, supplemented
by strategic acquisitions that enhance value and
broaden or deepen our expertise and services to
better serve our clients
2 Medium-term goals
£15bn
Total client assets
Proactive advice
• In-house product offering, with flexibility to offer other
providers’ products when better suited
• Broadening services
Personal client service
• Focus on maintaining close client relationships
• Passion for looking after clients’ aspirations and assets
• Adviser, manager and provider
Great client outcomes
• Strong client satisfaction and retention
• Strong investment performance relative to benchmarks
• Lowering clients’ TERs
Strong shareholder return
• Organic growth
• Supplemented by value-enhancing acquisitions
• Strong and passionate management team
• Progressive dividend policy
3
Integrated business model
Our responsibly integrated model enables us
to provide a comprehensive client offering
through multiple distribution channels
Adviser
• Financial planning, wealth management
and employee benefits
• Trusted expertise
• Close client relationships
Administrator
• Pension and personal wealth
• End to end administration
• Proactive, personal service
• 10,900+ SIPP and SSAS schemes
Platform
• Proprietary MWeb pension administration platform
• Custody, dealing and client banking
• Strategic partnerships with external providers
• Investing in technology
Investment manager
• Discretionary portfolio management
• Bespoke advice
• Using best of what we and other providers offer
Product provider
• Portfolio and fund management
• SIPP and SSAS
• Innovative new product development
• Addressing clients’ needs
2019: £15bn
Revenue
£100m
2019: £100m
EBITDA margin
20%+
2019: 20%+
4 Addressing more of the value chain
To remain agile and competitive to deliver
great client outcomes:
• Economies of scale
• Operational efficiencies
• Lower client costs
• Sustainable shareholder returns
Find out more from our Chief Executive Officer on page 10
10
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Mattioli Woods plc Annual Report 2020
Strategic Report
Chief Executive’s
review
We maintain our culture of putting clients
first, developing our service offering and
building a business that is sustainable
over the long-term.
“I am pleased to report that even in
these unprecedented times we are
continuing to grow and develop the
business, both organically and by
strategic acquisition.”
Ian Mattioli MBE, Chief Executive Officer
10
Introduction
We are dedicated to maintaining our culture of putting clients first,
developing our service offering and building a business that is
sustainable over the long-term. I am pleased to report that even in
these unprecedented times we are continuing to grow and develop
the business, both organically and by strategic acquisition. The Group’s
financial performance in the first nine months of the year ended 31 May
2020 was in line with the Board's expectations but, as anticipated, in the
final quarter the impact of the COVID-19 pandemic on financial markets
resulted in a reduction in the Group's income streams linked to the value
of clients' assets and its banking revenue.
Revenue for the year was up 1.6% to £58.4m (2019 restated: £57.5m), with
growth driven by a full 12 months’ revenues of £2.1m (2019: £1.1m) from the
Broughtons and SSAS Solutions businesses acquired in the prior year, plus
£0.2m of revenues from Turris following its acquisition in December 2019.
Although the flow of new business generated by our consultancy
team continued to be impacted by ongoing political and economic
uncertainties, a total of 558 (2019: 762) new SIPP, SSAS and personal
clients with assets totalling £155m (2019: £213m) chose to use Mattioli
Woods during the year. Our continued investment in technology allowed
us to adapt quickly to remote working as a means of servicing clients and
generating new business. We hosted client and introducer webinars in
the last quarter, attracting many times the number of attendees that we
would have expected via our pre COVID-19 seminar programmes. We are
confident that in this new environment we can continue to generate and
convert new business opportunities.
Operating profit before financing was up 38.7% to £12.9m (2019 restated:
£9.3m) and profit before tax was up 36.7% to £13.4m (2019 restated:
£9.8m), enhanced by an increased share of profit of £0.6m (2019: £0.5m)
from our 49% associate Amati, with the team’s strong investment
performance gaining further recognition through its fund managers
being awarded “VCT Manager of the Year” at the Small Cap Awards 2020.
Adjusted EBITDA was up 34.0% to £18.9m (2019 restated: £14.1m) and
adjusted EBITDA margin increased to 32.4% (2019 restated: 24.5%),
primarily as a result of the one-off reduction in bonuses and other cost
savings made in response to the COVID-19 pandemic, with an increased
contribution from Amati and further efficiencies and cost savings realised
following the planned restructuring of our client facing operations and
the migration of acquired pension portfolios onto our proprietary MWeb
administration platform prior to COVID-19. In addition, the adoption of
IFRS 16 on 1 June 2019 decreased other administrative expenses by £0.9m
and increased depreciation and interest on lease liabilities by £0.8m and
£0.1m respectively, driving £0.9m of the increase in adjusted EBITDA and
1.5% of the increase in adjusted EBITDA margin.
With the expected reversal of bonus cost savings in future periods, we
believe profit margins will revert towards our sustainable longer-term
targets. We continue to seek ways to reduce clients’ costs across the
value chain and believe the benefits of operating a responsibly integrated
model, including the opportunity to secure economies of scale such as
lower fund manager and platform charges, will allow us to improve client
outcomes and further reduce clients’ total expense ratios (“TERs”).
Our success has been based upon the delivery of quality advice, growing
our clients’ assets and enhancing their financial outcomes. We enjoy
strong, intergenerational client retention and have seen sustained
demand for advice from clients set around the complexities we are all
facing. We anticipate there will be a sustained demand for advice, driven
by changes in lifestyle, increasing longevity, tax and other legislative
changes, particularly when the implications of the UK’s withdrawal from
the European Union become clearer.
We continue to deliver strong investment performance across both
portfolios and funds. In meeting our clients’ investment needs we
generally use third parties’ funds, but where we have a 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 plc (“Custodian REIT”) and the Mattioli Woods
Structured Products Fund, in addition to the funds managed by Amati.
Despite continued market and political uncertainty, we achieved aggregate
net inflows (before market movements) of £200.2m (2019: £265.2m) into
the Group’s bespoke investment services, albeit this uncertainty resulted
in lower flows than in the prior year. Gross discretionary assets under
management by the Group and its associate decreased to £2.55bn (2019:
£2.57bn) at the year end, primarily due to the impact of COVID-19 on the
value of property held by Custodian REIT, with valuers assuming a three-
month rent deferral and overall increase in yield to all assets let to tenants
which had ceased or significantly curtailed trading, in line with Royal
Institute of Chartered Surveyors (“RICS”) advice to valuers.
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
The value of assets held within our Discretionary Portfolio Management
service increased by 1.4% to £1.41bn (2019: £1.39bn), of which £128.0m
or 9.1% (2019: £132.3m or 9.5%) 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.
Market overview
Mattioli Woods operates within the UK’s financial services industry,
which is subject to the effects of volatile markets, economic conditions
and regulatory changes. Our markets are highly fragmented and remain
competitive, serviced by a wide range of suppliers offering diverse
services to both individual and corporate clients.
The UK retail savings and investment market has demonstrated
considerable growth in recent years. It remains dominated by pension
schemes but is evolving as a result of societal, economic, regulatory and
technological changes. The impact of COVID-19, over a decade of low
interest rates and evolving client preferences, including environmental,
social and governance (“ESG”) considerations, have created challenges
for people seeking to generate income, while preserving and growing
their capital. At the same time, there is a growing awareness of the gap
between the level of current UK savings and that which is necessary to
provide a reasonable standard of living in retirement. Employers continue
to withdraw from defined benefit pension schemes, requiring individuals
to be more self-reliant in planning for their own long-term needs.
Individuals who have generated substantial personal and family wealth
are increasingly seeking solutions that help them fulfil their personal
ambitions, and we believe events such as the current pandemic are likely
to drive an increased demand for the holistic planning and expert advice
we provide.
In addition, there are a number of changes in regulation and legislation
that may shift the landscape of financial advice.
Regulation
The FCA has been proactive in its response to COVID-19, with the FCA’s
Executive Director of Supervision setting out the FCA's priorities and
long-term expectations for the wealth management and advice industry
in June this year. The FCA's focus is on firms’ operational and financial
resilience, including the preservation of client assets and money, and it
expects firms to take reasonable steps to ensure they continue to meet
the challenges the pandemic poses to customers and staff, particularly
through their business continuity plans.
Acting with integrity, charging appropriate fees for delivered services and
the prevention of fraud, financial crime and market abuse are all important
parts of this. On 31 July 2020 the FCA’s new rules aimed at making it easier
for consumers to transfer fund investments between platforms came
into effect. We believe these changes should be beneficial for advisers in
ensuring that, subject to individual suitability assessments, clients are on
the most appropriate platform for their needs.
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. Previously, we reported increases in the Financial Services
Compensation Scheme (“FSCS”) levy had resulted in the Group’s
regulatory fees and levies more than doubling to £0.8m for the 2019/20
year. The Group’s regulatory fees and levies for the 2020/21 year have
increased to £1.1m, driven by further increases in the FSCS levy due to SIPP
and pension advice claims in the wider market, and we expect these costs
will continue to increase over the next few years.
As regulators focus on protecting consumers, legislation is becoming
increasingly stringent and the level of public scrutiny on conduct and
cost is increasing, with clients able to more easily view the cost of the
services they receive following the introduction of the Markets in
Financial Instruments Directive II (“MiFID II”) last year.
Last year the EU published rules introducing a bespoke prudential regime
for investment firms, the Investment Firm Directive and Regulation (“IFD/
IFR”), to be implemented by 26 June 2021. The UK is no longer a member
of the EU and will not be obliged to implement the EU’s rules. However,
the FCA is now consulting on the introduction of a UK regime that will
achieve similar outcomes as the IFD/IFR but, for the first time, be designed
with investment firms in mind, replacing many rules largely designed for
deposit-taking credit institutions and lowering the ongoing regulatory
cost for investment firms.
The proposed rules represent significant change. UK investment firms
would be subject to liquidity requirements across the Board and there
would be a new methodology for calculating capital requirements,
the ‘K-factor’ approach. There would also be new remuneration and
disclosure requirements.
The need to comply with these and other regulatory changes, including
the extension of the Senior Managers and Certification Regime (“SMCR”)
to investment firms in December 2019, means we continue to invest in
our people, technology and infrastructure as we look to build upon our
success to date.
EU withdrawal (“Brexit”)
While the “divorce agreement” part of Brexit has now happened, we
remain subject to EU rules and will be implementing those that come in
before the end of the transition period at the end of December 2020.
A regulatory imperative to offer ESG propositions and collect information
on a client’s ESG preferences looks likely from 2021, in the form of
MiFID II amendments, and preparation may require investment in the
short term. Tools may be developed, similar to those used to assess
clients’ attitude to risk, to enable firms to assess ESG preferences in a
consistent repeatable manner.
As a UK business with no operations in other 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. We remain conscious
that the political situation could impact equity markets, interest rates
and consumer confidence, raising unexpected challenges, including
any broader impact that Brexit might have on the UK economy or on
the operation of European funds, such as the Mattioli Woods Structured
Products Fund. However, we are confident we have the right structures
in place to ensure the continued operation of our business in the event
of a no-deal Brexit.
Changes to the tax regime
Following HM Treasury’s review of the tapered annual allowance and
its impact on NHS staff, the Chancellor of the Exchequer announced
significant changes to the tapered annual pensions allowance for higher
earners in the March 2020 Budget that mean from 2020-21 the “threshold
income” will be £200,000, so individuals with income below this level will
not be affected by the tapered annual allowance, and the annual allowance
will only begin to taper down for individuals who also have an “adjusted
income” above £240,000.
In July, the Chancellor announced £30bn worth of stimulus measures in the
government’s ‘Plan for Jobs’ to boost job creation in the UK, building on the
action taken in the March 2020 Budget in response to the immediate threat
posed by COVID-19. Having announced unprecedented levels of state
support in recent months, the emergency packages will need to be repaid
in one way or another and some have warned that savings or pensions
could be targeted for this.
The Office of Tax Simplification (“OTS”) has been asked by the Chancellor
to review capital gains tax (“CGT”) with particular reference to individuals
and smaller businesses. Separately, a project being funded by the London
School of Economics and CAGE Warwick is considering whether a UK
wealth tax is desirable and deliverable. Whilst the CGT review has been
instigated by the Chancellor, no official government review has been
commissioned in respect of a wealth tax.
We expect any changes in the tax regime to create further demand for our
financial planning and advisory services.
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 strategies
more than ever before. We will continue to provide quality solutions,
maintaining our focus on client service and continuing to adapt our
business model to the changing market, integrating asset management
and financial planning to build upon our established reputation for
delivering sound advice and consistent investment performance, while
looking to reduce clients’ costs.
11
Mattioli Woods plc Annual Report 2020 Strategic Report
Chief Executive’s review continued
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:
• 45.9% investment and asset management (2019 restated: 45.2%);
• 35.3% pension consultancy and administration (2019 restated: 35.5%);
• 9.2% property management (2019 restated: 9.6%); and
• 9.6% employee benefits (2019 restated: 9.7%).
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 advice⁹, giving our business a revenue profile that is less
sensitive to market performance. The acquisition of Turris during the year
added £68.4m of client assets, with total client assets of the Group and its
associate of £9.3bn at 31 May 2020 (2019: £9.4bn) as seen on Table 1.
Our discretionary portfolio management service has continued to deliver
strong investment performance relative to the market, with aggregate net
inflows of over £200m into this and the Group’s other bespoke investment
services during the year. The movement in total client assets is analysed as
follows:
• A £22.6m fall (2019: £565.7m increase) in SIPP and SSAS funds under
trusteeship, with a 1.7% fall (2019: 5.6% increase) in the number of
schemes being administered at the year end, comprising a 0.7% (2019:
3.7%) increase in the number of direct13 schemes to 6,453 (2019:
6,405) and a 5.0% decrease (2019: 7.9%) in the number of schemes
the Group operates on an administration-only basis to 4,480 (2019:
4,714). In recent years, we have been appointed to operate or wind-up
several SIPP portfolios following the failure of their previous operators,
with the lower number of schemes due in part to the transfer of
certain members of these distressed portfolios to more appropriate
arrangements;
• A £172.5m (2019: £41.2m) decrease in the value of assets held in
the corporate pension schemes advised by our employee benefits
business, following the loss of two large corporate clients in the first
half. However, revenues in our employee benefits business are not
linked to the value of client assets in the way that certain of our wealth
management revenue streams are and our corporate client portfolio
remains well diversified;
• A £6.1m (2019: £5.8m) increase in personal wealth and other assets
under management and advice, with the acquisition of Turris and 180
(2019: 254) new personal clients won during the year partially offsetting
some natural client attrition, resulting in a 2.1% decrease (2019: 2.5%
increase) in the total number of personal clients¹⁴ to 5,925 (2019:
6,052); and
• A £106.8m (2019: £123.0m) 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
£400.4m (2019: £291.1m) at 31 May 2020.
Amati continues to perform strongly since Mattioli Woods’ investment,
seeing gross funds under management¹⁵ increase to £581.4m (31 May
2019: £452.8m) at the year end. As a result of Amati’s strong performance
the Group’s share of its profits increased to £0.6m (2019: £0.5m). Co-
managed by Amati’s Chief Executive Dr Paul Jourdan, David Stevenson
and Anna Macdonald, the TB Amati UK Smaller Companies Fund is a top-
quartile performer in The Investment Association UK Smaller Companies
sector over three and five years and has recently been added to Hargreaves
Lansdown’s Wealth Shortlist.
In addition, in October 2019 the Amati AIM VCT published a prospectus to
raise up to £25m (with an over-allotment facility of a further £20m). Amati
reached capacity in the £25m offer in April 2020 and having considered the
current rate of investment activity, the VCT is now seeking to raise a further
£20m under the over-allotment facility prior to the offer closing on
16 October 2020.
Table 1
Assets under management,
administration and advice¹⁰
SIPP and
SSAS ¹¹
£m
Employee
benefits
£m
Personal
wealth
and other
assets
£m
Sub-total
£m
Amati ¹²
£m
Total
£m
At 1 June 2019
6,051.6
1,196.7
1,725.2
8,973.5
409.0
9,382.5
Acquisition during the year
—
—
68.4
68.4
—
68.4
Net inflows/(outflows),
including market movements
(22.6)
(172.5)
(62.3)
(257.4)
At 31 May 2020
6,029.0
1,024.2
1,731.3
8,784.5
106.8
515.8
(150.6)
9,300.3
12
9 Revenue for the year ended 31 May 2020
was split 53% (2019 restated: 52%) fixed,
initial or time-based fees and 47% (2019
restated: 48%) ad valorem fees based on
the value of assets under management,
advice and administration.
10 Certain pension scheme assets, including
clients’ own commercial properties, are
only subject to a statutory valuation at a
benefit crystallisation event.
11 Value of funds under trusteeship in SIPP
and SSAS schemes administered by
Mattioli Woods and its subsidiaries.
12 Assets under management of £515.8m
(2019: £409.0m) excludes £54.1m
(2019: £31.9m) of Mattioli Woods’ client
investment included within SIPP and SSAS,
employee benefits and personal wealth
and other assets and excludes £11.5m
(2019: £11.9m) of cross-holdings between
the TB Amati Smaller Companies Fund
and the Amati AIM VCT plc.
13 SIPP and SSAS schemes where the
Group acts as pension consultant and
administrator. SIPP and SSAS schemes
administered by SSAS Solutions
reclassified as direct during the year.
14 Includes personal wealth clients’ with
SIPP and SSAS schemes operated by
third parties.
15 Includes Mattioli Woods’ client
investment and £11.5m (2019: £11.9m)
of cross-holdings between the TB Amati
Smaller Companies Fund and the Amati
AIM VCT plc.
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Key performance indicators
The Directors consider the key performance indicators (“KPIs”)
for the Group are as follows:
Strategy/objective
Performance indicator
Further explanation
Organic growth and growth by acquisition
Revenue – total income (excluding VAT) from
all revenue streams.
See ‘Our business model’ and ‘Revenue’
04
14
Operating efficiency
Shareholder value and financial
performance
See ‘Profitability and earnings per share’
15
See ‘Profitability and earnings per share’
15
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.
Growth in the value of assets under
management, administration and advice
Assets under management, administration
and advice – the value of all client assets
the business gives advice upon, manages
or administers.
See ‘Assets under management, administration and advice’
12
Excellent client service
and retention
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 numbers during the period.
See ‘Segmental review’
17
Financial stability
Debtors’ days – this is the average number of
days’ sales outstanding in trade receivables at
any time.
See ‘Cash flow’
16
Surplus on regulatory capital requirement
– this is the aggregate surplus on the total
regulatory capital requirement of the Group.
See ‘Regulatory capital’
17
13
Mattioli Woods plc Annual Report 2020
Strategic Report
Chief Executive’s review continued
Financial performance and future developments
Revenue
Group revenue was up 1.6% to £58.4m (2019 restated: £57.5m), with
organic revenues supplemented by a full 12 months’ revenues of £2.1m
(2019: £1.1m) from the Broughtons and SSAS Solutions businesses
acquired in the prior year, plus £0.2m of revenues from Turris following
its acquisition in December 2019.
On 1 June 2018 the Group adopted the accounting standard IFRS 15
‘Revenue from Contracts with Customers’. IFRS 15 brought a new and
detailed approach to how and when revenue is recognised from contracts
with customers. Fees and commissions receivable on the arrangement of
insurance by the Group’s property management business on behalf of its
clients were previously reported gross, with the premiums payable on the
arrangement of the insurance on the clients’ behalf previously reported
as other administrative expenses. Having revisited the terms of these
insurance arrangements, we have concluded the revenue that should
be recognised under IFRS 15 is the net amount of consideration that the
Group retains after paying the other party the consideration received in
exchange for the insurance services to be provided by that party.
Accordingly, we have restated revenue recognised in respect of the
year ended 31 May 2019 to reduce revenue by £1.0m and restated other
administrative expenses to reduce costs for the year by an equal amount.
There is no impact on total equity and no impact on profit or earnings per
share for the year.
Performance measures impacted by the restatement to revenue and
other administrative expenses, including fee-based revenue, recurring
revenue, operating profit margin, adjusted EBITDA margin and debtors’
days have been corrected by restating each of the alternative performance
measures (see page 126) for the prior year.
Employee benefits expense
As in previous years, the major component of the Group’s operating costs
is our employee benefits expense of £27.6m (2019: £31.2m) representing
47.3% of revenue (2019 restated: 54.3%). 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, partly through
the migration of acquired pension portfolios onto our bespoke MWeb
administration platform.
In addition, we pre-emptively implemented a number of mitigating
actions to protect the Group’s strong financial position in light of the
trading conditions created by the COVID-19 pandemic, realising £0.15m
of cost savings through all plc Board Directors reducing their basic
remuneration plus a further £2.4m on confirmation that remaining staff
bonuses and all plc Board Directors' bonuses in respect of the financial
year will not be paid.
The Group’s total headcount increased to 597 (2019: 586) at 31 May 2020,
with Turris’ experienced team of five staff in Glasgow being retained
following its acquisition. In addition, the number of consultants increased
to 120 (2019: 115) following the launch of a new consultancy development
programme 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 as the
business continues to grow.
Other administrative expenses
Other administrative expenses increased to £10.9m (2019 restated:
£10.8m), with additional professional, regulatory and compliance costs
incurred following the appointment of RSM Risk Assurance Services LLP
to provide internal audit services in December 2018, increased regulatory
fees and levies and the introduction of SMCR during the period.
The Group adopted the new accounting standard IFRS 16 ‘Leases’
with effect from 1 June 2019, where lessees now recognise an asset
representing the right to use the leased item and a lease obligation for
future lease payables. In addition, one lease where the Group is lessor
that was previously classified as an operating lease under IAS 17 has been
reclassified as a finance lease under IFRS 16, giving rise to the recognition
of a finance lease receivable and the partial de-recognition of the right of
use asset representing the head lease for the property.
These changes had the following impact on the Group’s Financial
Statements:
• A £0.9m decrease in other administrative expenses for the period,
with the lease expense under IAS 17 for operating leases replaced
with £0.8m of depreciation of the right-of-use assets and £0.1m
interest on the lease liabilities; and
• Recognition in the Statement of Financial Position at 31 May 2020
of £2.6m of right-of-use assets, lease liabilities of £2.9m and a finance
lease receivable of £0.3m.
Other administrative expenses in the prior year were lower due to the
£0.5m reversal of unused provision for onerous contracts due to the
actual costs incurred on the Group’s exit from its previous premises at
Grove Park being significantly lower than anticipated.
Share-based payments
Share-based payments costs were £1.3m (2019 restated: £1.5m).
The Group’s trading performance and actions taken in response to the
COVID-19 pandemic resulted in profits being significantly ahead of our
expectations at the start of the year, increasing the number of options
expected to vest under the Company’s long-term incentive plans and the
associated non-cash share-based payments cost recognised in the year,
“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 as the business continues to grow.”
14
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
the impact of which was partially offset by the vesting period for some
of the new awards granted under the Mattioli Woods 2010 Long Term
Incentive Plan (“the LTIP”) during the period being extended from three
to five years.
Separately, following a detailed review of our option valuation model
we identified the model had not been correctly updated to reflect the
likely outcome of non-market based conditions as determined at each
period end using the data available at the time. The correction of historical
calculations to reflect the expectations of achieving performance
conditions at previous reporting dates has increased the share-based
payments costs recognised in respect of the year ended 31 May 2019
by £0.5m, and in respect of the three years ended 31 May 2019 by
approximately £0.8m in aggregate. Accordingly, we have restated share-
based payments costs for the year ended 31 May 2019 to increase the
cost recognised by £0.5m and restated the value of the reserves transfer
re-allocating the cost of exercised or lapsed share options from equity-
share-based payments to retained earnings to reflect a £0.1m increase
in the share-based payments costs associated with these options.
Corresponding deferred tax assets have been restated resulting in a
reduction in income tax expense in respect of the year ended 31 May 2018
by £0.1m and 31 May 2019 by £0.1m. Retained earnings as at 31 May 2018
were reduced by £0.4m and at 31 May 2019 by £0.7m, and the equity-
share-based payments reserve as at 31 May 2018 was increased by £0.4m
and at 31 May 2019 by £0.9m.
Performance measures impacted by the restatement to share-based
payments costs, including operating profit before financing, EBITDA,
adjusted EBITDA, profit before tax, adjusted profit before tax, profit after
tax, adjusted profit after tax, effective taxation rate, basic EPS and adjusted
EPS, have been corrected by restating each of the impacted financial
statement line items (see page 81) and alternative performance measures
(see page 126) for the prior year.
Gain on revaluation of derivative financial instrument
Given the success of our investment in Amati, which contributed an
increased share of profits of £0.6m (2019: £0.5m) during the year, we
believe the Group retaining a 49% minority interest is the optimal structure
for all stakeholders and in June 2019 cancelled our option to acquire
the other 51% of Amati, in return for a £0.75m payment from the Amati
management team. Accordingly, there was no gain or loss (2019: £0.1m gain)
in the value of the Group’s option that was cancelled during the period.
Net finance costs
The Group has maintained a positive net cash position throughout the
year, with increased net finance costs of £0.16m (2019: £0.03m) reflecting
credit interest of £0.10m (2019: £0.06m) being offset by £0.14m (2019:
£0.09m) of non-cash notional finance charges on the unwinding of
discounts on long term provisions and £0.12m of interest on the lease
liabilities recognised on adoption of IFRS 16.
Taxation
The effective rate of taxation on profit on ordinary activities was 24.2%
(2019 restated: 20.1%), above the standard rate of tax of 19.0% (2019:
19.0%), primarily due to deferred tax liabilities being recognised at an
increased rate of tax following reversal of the government’s planned cut
in the standard rate of tax to 17.0% from 6 April 2020. In addition, certain
expenses associated with sponsorship and other business development
activities were not deductible for tax purposes.
The net deferred taxation liability carried forward at 31 May 2020 was
£3.6m (2019: £3.8m).
Alternative performance measures
The Group has identified certain measures that it believes will assist in the
understanding of the performance of the business. Recurring revenues,
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 into business performance compared with reporting 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 36.7% to £13.4m (2019 restated: £9.8m), with
adjusted profit before tax up 33.9% to £15.8m (2019 restated: £11.8m),
driven by the mitigating actions taken to protect the Group’s financial
position in light of the COVID-19 pandemic, together with the efficiencies
and cost savings realised following the restructuring of our client facing
operations before COVID-19. These changes, coupled with the impact
of adopting IFRS 16 during the period, translated into growth in operating
profit before financing of 38.7% to £12.9m (2019 restated: £9.3m) and
adjusted EBITDA up 34.0% to £18.9m (2019 restated: £14.1m), with
adjusted EBITDA margin of 32.4% (2019 restated: 24.5%).
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 seen on Table 2.
Table 2
Statutory operating profit before financing
Amortisation of acquired intangibles
Amortisation of software
Depreciation
EBITDA¹⁶
Share of associate profits (net of tax)
Acquisition-related costs
Gain on revaluation of Amati option
Adjusted EBITDA¹⁷
16 Earnings before interest, taxation,
depreciation, amortisation and
impairment.
17 Figures in table may not add due to
rounding.
2020
£m
12.9
2.1
0.4
2.5
17.9
0.6
0.3
–
18.9
2019
(restated)
£m
9.3
1.9
1.0
1.3
13.6
0.5
0.1
(0.1)
14.1
15
Mattioli Woods plc Annual Report 2020 Strategic Report
Chief Executive’s review continued
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 seen on Table 3.
As explained in Note 17, client portfolios acquired through business
combinations are recognised as intangible assets. The amortisation
charge for the year of £2.1m (2019: £1.9m) 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 EPS¹⁹ increased 34.4% to 47.7p (2019 restated: 35.5p), while
basic EPS was up 29.0% to 37.8p (2019 restated: 29.3p), driven by
increased revenues and the significant cost reductions mentioned
above. EPS was also impacted by the higher effective tax rate of
24.2% (2019 restated: 20.1%) and the issue of 169,497 (2019: 380,766)
shares under the Company’s share plans. There were no shares (2019:
239,825) issued as consideration for acquisitions during the year.
Diluted EPS was 36.6p (2019 restated: 28.5p).
Dividends
In light of the uncertain trading conditions, the Board believes it is
prudent to protect the Group’s financial position and balance the
interests of all stakeholders. Accordingly, the Board proposes a
lower final dividend than might have been proposed in more normal
circumstances of 12.7p per share (2019: 13.67p). This makes a proposed
total dividend for the year of 20.0p (2019: 20.0p), in line with the prior
year (2019: 17.6% increase).
The Board recognises the importance of dividends to shareholders
and intends to return to growing the dividend, while maintaining an
appropriate level of dividend cover, when it is an appropriate time to do
so. If approved, the final dividend will be paid on 23 October 2020 to
shareholders on the register at the close of business on 11 September
2020, having an ex-dividend date of 10 September 2020.
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 2020, shareholders’ instructions must be received by Link by
25 September 2020.
Cash flow
Cash balances at 31 May 2020 totalled £26.0m (2019: £23.2m). Opening
cash balances at the start of the period included £0.08m (2019: £3.5m)
of VAT reclaimed on behalf of clients, with £0.04m (2019: £3.4m) repaid
during the period. Cash generated from operations was £13.9m or
78% of EBITDA (2019 restated: £11.0m or 81%), with operating profit
margin before changes in working capital and provisions improving to
33.0% (2019: 25.8%), with an increase in the Group’s working capital
requirement20 of £5.4m (2019: £3.6m), comprising:
• A £4.6m decrease (2019: £4.2m) in trade and other payables, primarily
due to:
- a £3.5m decrease in accruals and deferred income following
confirmation that remaining staff bonuses and all Directors’
bonuses for the year ended 31 May 2020 would not be paid;
- a £1.0m decrease in trade payables due to the annual cost of
client insurance policies being paid prior to 31 May 2020; and
- a £0.2m decrease in social security and other taxes outstanding
at the year end.
• A £0.8m increase (2019: £0.7m decrease) in trade and other
receivables, primarily due to:
- a £1.0m increase in other receivables, with £1.0m of client
insurance costs due to be recharged following the year end;
- a £0.5m decrease in prepayments and accrued income; and
- a £0.4m increase in trade receivables.
There was a net £nil change in provisions during the year (2019: £0.5m
decrease), with £0.6m (2019: £0.8m) of contingent consideration paid
on the Broughtons acquisition being more than offset by the £0.7m
recognised on the acquisition of Turris during the year.
Outstanding trade receivables increased to 34 days (2019 restated:
33 days), with credit control continuing to be an area of focus. Trade
payables reduced to 21 days (2019: 40 days) with lower balances at the
year end due to the Group not being invoiced clients’ annual property
insurance premiums, which are subsequently recharged to clients and
paid monthly over the next 12 months, until after the year end, when in
the prior year the Group was invoiced before the year end.
A new accelerated corporation tax payment regime became effective
for accounting periods beginning on or after 1 April 2019, increasing
income taxes paid in the year to £4.4m (2019: £2.2m), with quarterly
tax payments now all due within the relevant accounting period, rather
than two instalments being paid after the end of it as previously. This
resulted in the Group paying six quarterly instalments (2019: four) in this
financial year.
Table 3
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
Acquisition-related costs
Adjusted PBT
Income tax expense at standard rate
Adjusted PAT / Adjusted EPS¹⁸
16
18 Figures in table may not add due to
rounding.
19 Before acquisition–related costs,
amortisation and impairment of acquired
intangibles, changes in valuation of
derivative financial instruments and
non-cash interest charges on provisions.
20 Working capital defined as trade and
other receivables less trade and other
payables.
Profit
2020
£m
13.4
(3.2)
10.2
13.4
2.1
—
0.3
15.8
(3.0)
12.8
EPS
2020
pps
49.9
(12.1)
37.8
49.9
7.7
—
1.2
58.8
(11.2)
47.7
Profit
2019
(restated)
£m
EPS
2019
(restated)
pps
9.8
(2.0)
7.8
9.8
1.9
(0.1)
0.1
11.7
(2.2)
9.5
36.6
(7.4)
29.3
36.6
7.1
(0.4)
0.5
43.8
(8.3)
35.5
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Capital expenditure of £1.0m (2019: £2.0m) comprised £0.4m on the
purchase of new company cars, £0.3m investment in new computer
hardware and office equipment and £0.2m on software development.
In the prior financial year we reviewed our capitalised investment in
IT, resulting in the accelerated amortisation of some IT systems that
have since been taken out of service. We intend to continue investing
in technology to develop our client relationship platforms and improve
our client service propositions.
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
regulatory capital requirement, allowing us to pursue further acquisition
opportunities (see Note 31).
Segmental review
Investment and asset management
Investment and asset management revenues generated from advising
clients on both pension and personal investments increased 3.1% to
£26.8m (2019: £26.0m).
The Group’s gross discretionary assets under management (“AuM”),
including the multi asset funds which 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, were £2.6bn (2019: £2.6bn) at the
year end, with movements during the year as seen on Table 4.
Income from both initial and ongoing portfolio management charges
increased to £16.3m (2019: £15.0m), with £173.5m (2019: £174.8m) of
inflows into our discretionary portfolio management service during
the year.
Fees for services provided by the Group’s subsidiary Custodian Capital
Limited (“Custodian Capital”) to Custodian REIT are included in the ‘Property
management’ segment with annual management charges on the MW SPF
of £1.3m (2019: £1.3m) despite the negative market movement in the last
quarter resulting from the steep sell-off of markets generally.
Adviser charges based on gross assets under advice of £2.0bn (2019:
£2.0bn) fell to £9.2m (2019: £9.7m), with the lower revenue margin
illustrating how we continue to reduce clients’ charges and TERs,
particularly on those assets invested in Custodian REIT, the MW SPF
and Amati funds.
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 the Group’s total revenues which are
recurring increasing to 92.1% (2019 restated: 90.0%). 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, with the
impact of the COVID-19 pandemic on financial markets resulting in a
reduction in these income streams in the final quarter of the year.
Pension consultancy and administration
Pension consultancy and administration revenues were up 1.0% to
£20.6m (2019: £20.4m), with an increased level of client activity partially
offset by the total number of SIPP and SSAS schemes administered by
the Group falling 1.7% to 10,933 (2019: 11,119).
Direct23 pension consultancy and administration fees increased 5.2% to
£16.3m (2019: £15.5m). Retirement planning remains central to many
of our clients’ wealth management strategies and the number of direct
schemes increased to 6,453 (2019: 6,40524), with 339 new schemes
gained in the year (2019: 471). Our focus remains on the quality of new
business, with the value of a new scheme averaging £0.3m (2019:
£0.3m). We continue to enjoy strong client retention, with a decrease
in the external loss rate25 to 1.8% (2019: 2.2%) and an increase in overall
attrition rate26 to 3.6% (2019: 3.4%).
The number of SSAS and SIPP schemes the Group operates on an
administration-only basis fell to 4,480 (2019: 4,714) at the year end.
In prior years the Group has been appointed to administer a number
of SIPPs following the previous operators’ failure. Work continues in
connection with schemes previously administered by Stadia Trustees
Limited, HD Administrators, Pilgrim Trustees Services Limited and The
Freedom SIPP Limited, but due to a lower level of transactional activity
and the payment of compensation from the FSCS direct to individuals,
rather than their pension schemes, third party administration fees fell
11.6% to £3.8m (2019: £4.3m).
Table 4
Assets under
management
DPM
£m
Custodian
REIT
£m
At 1 June 2019
1,394.0
483.3
MW SPF
£m
242.5
10.5
(21.8)
Amati
£m
Gross AuM
£m
Cross-
holdings in
DPM²¹
Cross-
holdings in
Amati funds²²
Net AuM
£m
452.8
2,572.6
(132.3)
(11.9)
2,428.4
Inflows
Outflows
Market
movements
173.5
(125.5)
13.9
—
159.0
356.9
(9.3)
(156.6)
(29.4)
(142.7)
(27.2)
(21.0)
(220.3)
4.4
—
—
0.4
—
361.7
(156.6)
—
(220.3)
At 31 May 2020
1,412.6
354.5
204.0
581.5
2,552.6
(127.9)
(11.5)
2,413.2
21 Comprises £25.2m (2019: £29.7m) in
Custodian REIT, £57.6m (2019: £76.6m)
in MW SPF and £45.1m (2019: £26.0m) in
Amati funds.
22 Cross-holdings between the TB Amati
Smaller Companies Fund and the Amati
AIM VCT plc.
23 SIPP and SSAS schemes where Mattioli
Woods acts as pension consultant and
administrator.
24 SIPP and SSAS schemes administered
by SSAS Solutions reclassified as direct
during the year.
25 Direct schemes lost to an alternative
provider as a percentage of average
scheme numbers during the year.
26 Direct schemes lost as a result of death,
annuity purchase, external transfer or
cancellation as a percentage of average
scheme numbers during the year.
17
Mattioli Woods plc Annual Report 2020 Strategic Report
Chief Executive’s review continued
Following the default transfer of schemes from Stadia Trustees in 2016,
we have helped claim almost £10m in compensation after submitting
more than 350 claims to the FSCS and we will continue to assist clients
with their claims over the coming months.
The Group’s banking revenue was £0.5m (2019: £0.6m). Following
the Bank of England’s cut in the base rate to a historic low of 0.1%,
our banking revenue is expected to be negligible going forward.
Segment margin improved to 30.6% (2019 restated: 20.7%) with
operational efficiencies and cost savings realised pre COVID-19 following
the planned restructuring of our client facing operations. In addition,
the operations of MC Trustees, which was based in Hampton-in-Arden
until 30 November 2018, have been absorbed into our Leicester
administration team, with margin improved through a smaller team now
administering this portfolio using our bespoke MWeb administration
platform and cost savings associated with no longer occupying the
Hampton-in-Arden premises.
While we anticipate continued regulatory scrutiny of the pension
market, with some other SIPP and SSAS operators in the spotlight
due to issues arising with esoteric and non-standard investments.
However, the market opportunity remains strong, with SIPP and SSAS
arrangements still benefitting 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 there may be
similar opportunities in the future.
We like to see our clients withdrawing funds to enjoy in their retirement.
Following the introduction of pension freedoms and a broader market
shift away from accumulation and steady savings, we anticipate there
will continue to be some 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 our strength in the provision
of advice around the cascading of wealth through the generations,
inheritance tax and other planning.
Property management
Property management revenues were £5.4m (2019 restated: £5.5m),
with our subsidiary Custodian Capital having assets under management
and administration of £466.7m (2019: £585.6m) at 31 May 2020,
following the sharp decline in the value of Custodian REIT due to the
impact of COVID-19 on commercial property valuations. Recurring
annual management charges represented 91.4% (2019 restated: 88.7%)
of property management revenues, the majority of which are derived
from the services provided by Custodian Capital to Custodian REIT.
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 £16.6m (2019:
£27.9m) invested in six (2019: seven) new syndicates in the first half, with
no new syndicates completed in the second half due to the prevailing
market conditions.
Employee benefits
Employee benefits revenues were £5.6m (2019: £5.6m), with new client
wins offsetting the loss of two large corporate pension clients during the
year, ensuring our portfolio of corporate clients remains well diversified.
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 represents an opportunity for us to realise synergies
between our employee benefits and wealth management businesses.
Acquisitions
We have invested over £56m since our admission to AIM in 2005 in
bringing 23 businesses or client portfolios into the Group, developing
considerable expertise and a strong track record in the execution and
subsequent integration of such transactions.
In December 2019, we announced the acquisition of The Turris
Partnership, which followed the acquisitions of SSAS Solutions and
Broughtons in the prior year, which are all integrating well and have
contributed positively to our trading results since acquisition, increasing
earnings and enhancing value.
18
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
In July 2020, we were pleased to complete the post year-end
acquisition of Hurley Partners, which serves a similar client base to
Mattioli Woods, with many complementary elements between our
businesses enhancing our specialist pension knowledge, discretionary
portfolio management and financial planning propositions. The
broader range of products and services that the enlarged Group has
to offer will support the excellent outcomes from which our clients
already benefit. In addition, there are cost savings to be realised from
combining our operations in London and Manchester.
Consolidation within both wealth management and SIPP administration
is expected to continue, and we will seek to build on our track record
of successful acquisitions by continuing to assess and progress
opportunities that meet our strict criteria.
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 cannot express enough how much I appreciate our people’s endeavour
and their commitment, enthusiasm and professionalism in dealing with
our clients’ affairs during these complex times.
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.
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 2020 had increased to 597 (2019: 586)
and we remain committed to developing our people and maintaining
the capacity to deliver sustainable growth. We enjoy a strong team spirit
and facilitate employee equity ownership through the Mattioli Woods
plc Share Incentive Plan (“the Plan”) and other share schemes. At the
end of the year 62% of eligible staff had invested in the Plan (2019: 57%)
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.
“ I cannot express enough how much
I appreciate our people’s endeavour
and their commitment, enthusiasm
and professionalism in dealing with
our clients’ affairs during these
complex times.”
19
Mattioli Woods plc Annual Report 2020 Strategic Report
Principal risks & 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:
Increase
Key
+
= No change
Decrease
-
New New risk
1
Risk type
Description
Changes in investment
markets and poor investment
performance
The COVID-19 pandemic is affecting economic and
financial markets. 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.
s
k
s
i
r
y
r
t
s
u
d
n
I
20
Regulatory risk
The Group may be adversely affected as a result of new
or revised legislation or regulations or by changes in
the interpretation or enforcement of existing laws and
regulations.
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Mitigating factors
Chance
Impact
Change
• 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 is enhancing the Group’s
competitive advantage.
• 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.
• In response to COVID-19 our investment in people, cloud-based
technology and infrastructure allowed us to move quickly to an
operating model that includes home working for circa 600 staff and
specific shift rotations for our people carrying out essential tasks in
our administration hubs across the country.
• Strong compliance culture, with appropriate 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.
High
Medium
+
High
High
=
Medium
Medium /High
=
21
Mattioli Woods plc Annual Report 2020 Strategic Report
Principal risks & uncertainties continued
2
Risk type
Description
Mitigating factors
Damage to the Group’s
reputation
There is a risk of reputational damage as a result
of employee misconduct, failure to manage
inside information or conflicts of interest, fraud,
improper practice, poor client service or advice.
• Strong compliance culture with a focus
on positive customer outcomes.
• High level of internal controls, including
checks on new staff.
Errors, breakdown or
security breaches in respect
of the Group’s software or
information technology
systems
Serious or prolonged breaches, errors or
breakdowns in the Group’s software or
information technology systems could
negatively impact customer confidence.
It could also breach contracts with customers
and data protection laws, rendering us liable
to disciplinary action by governmental and
regulatory authorities, as well as to claims
by our clients.
• Ongoing review of data security, including
penetration testing and “phishing” exercises.
• IT performance, scalability and security
are deemed top priorities by the Board,
with additional controls introduced during
the year.
Business continuity and
operational resilience
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.
Fraud risk
There is a risk an employee or third party
defrauds either the Group or a client.
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.
• Periodic review and approval of Business
Continuity Plan, considering best practice
methodologies.
• Periodic review and approval of Disaster
Recovery Plan and disaster recovery
teams (including IT support) on call to
deal with major incidents at short notice.
Business impact analysis has been
conducted by department.
• The Group ensures the control
environment mitigates against the
misappropriation of client assets, with
additional controls being introduced to
safeguard client assets.
• The Group does not hold client money.
• Strong corporate controls require dual
signatures or online approvals for all
payments. Executive committee approval
for all expenditure greater than £5,000 and
Board approval for all expenditure greater
than £100,000.
• Assessment of fraud risk every six months
discussed with the Audit Committee, Risk
and Compliance Committee and external
auditors.
• Succession planning is a key
consideration throughout the Group.
• Success of the Group should attract high
calibre candidates.
• Share-based schemes in operation to
incentivise staff and encourage retention.
• Recruitment programmes in place to
attract appropriate new staff.
Litigation or claims made
against the Group
Risk of liability related to litigation from clients or
third parties and assurance that a claim or claims
will not be covered by insurance or, if covered,
will exceed the limits of available insurance
coverage, or that any insurer will become insolvent
and will not meet its obligations to provide the
Group with cover.
• Appropriate levels of Professional
Indemnity insurance cover regularly
reviewed with the Group’s advisers.
• Comprehensive internal review
procedures, including compliance sign-
off, for advice and marketing materials.
s
k
s
i
r
l
a
n
o
i
t
a
r
e
p
O
22
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Mitigating factors
Chance
Impact
Change
• Well-trained staff who ensure the interests
of clients are met in the services provided.
Medium
High
=
=
High
High
Medium
Medium
=
High
Medium
+
Low
Medium
=
High
Medium
=
• Experienced in-house team of IT
professionals and established name
suppliers.
• Audit of secure remote working, information
security and operational resilience
undertaken in response to the COVID-19
pandemic.
• Loss of revenue is covered by business
interruption insurance (subject to certain
limits and exclusions).
• Response to COVID-19 pandemic
demonstrates all Group operations can
move to “working from home” at short
notice, with little or no interruption to
day-to-day business operations.
• Clients have view-only access to
information.
• Ongoing review of risk of fraud due to
external attack on the Group’s IT systems,
including audit of secure remote working,
information security and operational
resilience undertaken in response to the
COVID-19 pandemic.
• All staff are required to complete structured
training on Information Security, Cyber
Crime, Fighting Fraud and Anti Money
Laundering each year, with accelerated
completion of all modules required by
31 May 2020 this year to address heightened
fraud risk arising from COVID-19.
• Cross functional acquisition team brought
into acquisition projects at an early stage.
• Ensuring the health and wellbeing of our
people has been a priority throughout
COVID-19. The way our people work has
changed, with the adoption of training,
talent and resource management and
leadership in a remote environment.
• 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.
Increase
Key
+
= No change
-
Decrease
New New risk
23
Mattioli Woods plc Annual Report 2020 Strategic Report
Principal risks & uncertainties continued
Risk type
Description
Mitigating factors
Reliance on third parties or
outsourcing risk
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.
SIPP administration for non-
advised clients (“third party
SIPP administration”)
Risk that through the provision of SIPP
administration services to clients with no
adviser or a third party adviser, we facilitate the
client acting with no or bad advice.
• Due diligence is part of the selection process
for key suppliers, including assurance on
their controls over shared data.
• Key contracts with third parties handling
sensitive data are escalated for review
and approval.
• Service level agreements in place with
key suppliers.
• Ongoing review of relationships and
concentration of risk with key business
partners.
• The Group recognises the duty of care
owed to these clients.
• Evidence of the suitability of advice
where pension investments are out of
the ordinary (e.g. checking if client is a
sophisticated investor).
Strategic risk
Conduct risk
Risk that management will pursue inappropriate
strategies or implement the Group’s strategy
ineffectively.
• Experienced management team with
successful track record to date.
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.
• Only appropriately authorised consultants
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.
Conduct risk (acquisitions)
The risk that acquired clients have been failed
by the acquired business through the flawed
design or mis-selling of products or services, or
poor business conduct resulting in outcomes
that do not meet their needs and circumstances.
• Due diligence process used to identify and
assess risk in acquired client portfolios.
• Run-off PI insurance cover and specific
indemnities provided by the sellers of
acquired businesses to mitigate the
Group’s risk exposure.
Information security
(or cyber) risk
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.
• External security provider scans for intrusion
threats across our network 24/7.
• Electronic data is protected by user access
controls. Data privacy training provided to
all staff.
• Robust firewalls and patches maintained to
prevent unauthorised access to IT systems,
including utilisation of third party providers
to protect corporate networks.
2
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e
u
n
i
t
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k
s
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a
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o
i
t
a
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p
O
24
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Mitigating factors
Chance
Impact
Change
• Review of outsourcing is a key area of focus
in Internal Audit plan.
• Our operational risk assessment considers
the impact of disruptions on critical business
functions, with the Business Continuity Plan
updated to include an infectious disease
section specifically relating to COVID-19.
High
High
+
• Credentials of third party advisers are
checked against the FCA register.
High
Low
New
• Management has demonstrated a thorough
understanding of the market and monitors
this through regular meetings with clients.
Low
Low
• Compliance oversight by a dedicated team
covering: conduct, product, complaints and
technical.
• Non-standard investments require review
and approval by the Group's Technical team.
• Professional Indemnity (“PI”) insurance in place.
Medium
Medium
=
=
• Active dialogue with the FCA, especially
where we identify specific risks associated
with the target business.
High
Low
New
• Compliance with the Data Protection
Act and registration with the Information
Commissioner's Office.
• Two step verification of any client instruction
received by email or post.
• Audit of secure remote working, information
security and operational resilience undertaken
in response to the COVID-19 pandemic.
High
High
+
Increase
Key
+
= No change
-
Decrease
New New risk
25
Mattioli Woods plc Annual Report 2020 Strategic Report
Principal risks & uncertainties continued
3
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F
i
Risk type
Description
Mitigating factors
Counterparty default
That the counterparty to a financial obligation
will default on repayments.
• The Group trades only with recognised,
creditworthy third parties.
• Customers who wish to trade on credit
terms are subject to credit verification
procedures.
• All receivables are reviewed on an
ongoing basis for risk of non-collection
and any doubtful balances are provided
against.
Bank default
The risk that a bank could fail.
• We only use banks with strong credit
Concentration risk
A component of credit risk, arising from
a lack of diversity in business activities or
geographical risk.
ratings.
• Client deposits spread across multiple
banks.
• Regular review and challenge of treasury
policy by management.
• The client base is broad, without
significant exposure to any individual
client or group of clients.
• Broad service offering gives diversified
revenue streams.
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, climate change and scenarios potentially
arising from political and economic developments, including Brexit and
the COVID-19 pandemic, and intend to continue to focus on operational
resilience and enhancing the control environment over the next 12 months.
COVID-19
The COVID-19 pandemic is affecting economic and financial markets.
We have considered the risks associated with a general economic
downturn, including financial market volatility, deteriorating credit, liquidity
concerns, government intervention, increasing unemployment, furlough,
redundancies and other potential impacts.
The UK is in a deep recession as the virus restricts economic activity and
equity markets have not fully recovered to pre-COVID levels, but we
believe the world is learning to live with the virus and will be able to contain
new outbreaks with targeted regional measures that are less disruptive than
previous national lockdowns.
We recognise the short term impacts of the pandemic and the risk of
a disorderly Brexit at the end of 2020 may weigh on confidence and
consumer spending. However, in the medium term a bigger-than-
expected fiscal stimulus could lift demand by more than expected and
we believe the UK household savings ratio is likely to surge, providing new
opportunities for wealth and asset managers like Mattioli Woods.
26
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Chance
Impact
Change
Medium
Medium
=
Increase
Key
+
= No change
Decrease
-
New New risk
Medium
High
Medium
Medium
=
=
Brexit
Brexit remains likely to have a significant political and economic impact
on the UK. The UK left the European Union (“EU”) on 31 January 2020 and
has entered a transition period, which is due to operate until 31 December
2020. During the transition period, EU law continues to apply in the UK and
new EU legislation that takes effect before the end of the transition period
will also apply to the UK. The UK and the EU have indicated, in a Political
Declaration, that they intend to reach agreement on the future relationship
between the UK and the EU by the end of 2020. The UK government has
legislated against extending the transition. The implication of this is that if
a new trade deal cannot be agreed by the end of the transition period,
EU-UK trade will take place on basic World Trade Organization trade terms.
We continue to monitor Brexit-related developments closely. 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 distributed. 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 an 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.
27
Mattioli Woods plc Annual Report 2020 Strategic Report
Section 172 statement
The Directors consider that in conducting
the business of the Company over the
course of the year they have complied
with Section 172(1) of the Companies Act
2006 (“the Act”) by fulfilling their duty to
promote the success of the Company
and act in the way they consider, in good
faith, would be most likely to promote
the success of the Company for the
benefit of its members as a whole.
Engaging with stakeholders
The continued success of our business is dependent on the support of
all of our stakeholders. Building positive relationships with stakeholders
that share our values is important to us and working together towards
shared goals assists us in delivering long-term sustainable success.
To fulfil their duties the senior management team, the Directors of each
subsidiary company and the Directors of the Group itself take care
to have regard to the likely consequences on all stakeholders of the
decisions and actions they take, with a long-term view in mind and with
the highest standards of conduct, in line with Group policies. Where
possible, decisions are carefully discussed with affected groups and are
therefore fully understood and supported when taken.
Reports are regularly made to the Board by the senior management
team about the strategy, performance and key decisions taken, which
provides the Board with assurance that proper consideration is given to
stakeholder interests in decision-making, and it uses this information to
assess the impact of decisions on each stakeholder group as part of its
own decision-making process.
The Group’s Governance structure allows the Board and the senior
management team to have due regard to the impact of decisions on
the following matters specified in Section 172 (1) of the Act:
28
Section 172 factor
Consequences of any
decision in the long term
Interests of employees
Fostering business
relationships with suppliers,
customers and others
Impact of operations on
the community and the
environment
Maintaining high standards of
business conduct
Acting fairly between
members
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Approach taken
The business model and strategy of the Company is set out within the
Strategic Report. Any deviation from or amendment to that strategy is
subject to Board and, if necessary, shareholder approval.
At least annually, the Board considers a budget for the delivery of
its strategic objectives based on a three year forecast model. The
senior management team reports non-financial and financial key
performance indicators to the Board each month, including but not
limited to the measures set out in the ‘Key performance indicators’
section of the Strategic Report on page 13, which are used to assess
the outcome of decisions made.
The Board’s commitment to keeping in mind the long term
consequences of its decisions underlies its focus on risk, including
risks to the long term success of the business, leading to the
conclusion that during the current period of heightened political
and market uncertainty both in the UK and globally, a prudent level
of cash resources should be maintained such that the payment of
dividends to shareholders and variable remuneration to employees
are balanced.
The strategy of the Group is focused on positive client outcomes that
can deliver sustainable shareholder returns over the long term and
as such the long term is firmly within the sights of the Board when all
material decisions are made.
The Group is committed to developing our people and maintaining
the capacity to deliver sustainable growth. How the Directors have
regard to the interests of the individuals responsible for delivery of
its products and services is set out in the ‘Our people’ sections of the
Strategic Report on pages 7 and 19 and ‘Employees’ section of the
Directors’ report on page 65.
Employees are represented on the Board by Carol Duncumb.
How the business builds relationships with suppliers, clients and other
counterparties is set out in the ‘Relationships’ section of the Strategic
Report. Suppliers and other counterparties are typically professional
firms such as banks, investment houses, platform providers,
accounting firms and legal firms with which the senior management
team often has a longstanding relationship.
Where material counterparties are new to the business, checks,
including anti money laundering checks, are conducted prior to
transacting any business to ensure that no reputational or legal issues
would arise from engaging with that counterparty.
The Company also periodically reviews the compliance of all material
counterparties with relevant laws and regulations such as the Modern
Slavery Act 2015. The Company pays suppliers in accordance with
pre-agreed terms.
Because the Group’s focus is on holistic planning and providing high
levels of personal service, maintaining close relationships with all
our clients, it has open lines of communication with clients and can
understand and resolve any issues promptly.
The interaction of the Company with the wider community is
explained in the ‘Relationships’ and ‘Corporate Social Responsibility’
sections of the Strategic Report on page 19 and pages 38 to 43.
The Group’s impact on the environment is limited due to the nature
of the Group’s business operations as set out in the ‘Environmental
performance and strategy’ section of the Strategic Report and
‘Environmental’ section of the Directors’ report.
However, the Board is committed to limiting the impact of the
business on the environment where possible.
The Board takes overall responsibility for the Company’s impact on
the community and the environment. The Company’s approach
to sustainability, preventing bribery, money laundering, slavery and
human trafficking is disclosed in the ‘Corporate Social Responsibility’
section of the Strategic Report .
The Board believes that the ability of the Company to conduct its
business and finance its activities depends in part on the reputation
of the Board and senior management team. The risk of falling short
of the high standards expected and thereby risking its business
reputation is included in the Board’s review of the Company’s risk
register, which is conducted periodically.
The Board is responsible to shareholders for the proper management
of the Group and how the Board discharges its duties is set out in the
Corporate Governance report on page 49.
The principal risks and uncertainties facing the business are set out in
that section of the Strategic Report on page 20.
The Company’s shareholders are a very important stakeholder
group. The Board oversees a formal investor relations programme
which involves the Directors and senior management team engaging
routinely with the Company’s shareholders. The programme is
managed by the Company’s brokers and the Board receives prompt
feedback from both its brokers and its financial public relations adviser
on the outcomes of meetings.
The Board aims to be open with shareholders and available to them,
subject to compliance with relevant securities laws. The Chairman of
the Company and other Non-Executive Directors make themselves
available for meetings as appropriate and all attend the Company’s
Annual General Meeting (“AGM”).
The investor relations programme is designed to promote formal
engagement with investors and is typically conducted after each half-
yearly results announcement. The Group also engages with existing
investors who may request meetings and with potential new investors
on an ad hoc basis throughout the year, including where prompted
by Company announcements. Shareholder presentations are made
available on the Company’s website. The Company has a single class
of shares in issue with all members of the Company having equal
rights.
29
Mattioli Woods plc Annual Report 2020 Strategic Report
Section 172 statement continued
Methods used by the Board
The main methods used by the Directors to perform their duties include:
• Board strategy days, which are held at least annually, to review all
aspects of the Group’s business model and strategy and assess the
long-term sustainable success of the Group and its impact on key
stakeholders;
• The Board meets regularly throughout the year as well as on an ad
hoc basis, as required by time critical business needs. Throughout
the peak of the COVID-19 pandemic in the UK the Board met on
an at least weekly basis;
• The Board is responsible for the Company’s ESG activities set out in
the Strategic Report ;
• The purchase of Hurley Partners, in line with the Group’s strategy
to explore high quality acquisition opportunities alongside organic
growth. The acquisition is further detailed in Note 3 to the Financial
Statements, with key elements of the strategic rationale being:
- Extending the Group’s geographic footprint into Surrey and adding
scale to its existing London and Manchester operations;
- Adding direct equity investment expertise to the Group’s existing
discretionary management proposition;
- Adding nine advisers to the Group’s consultancy team;
- The migration of Hurley Partners’ SSAS portfolio onto Mattioli
Woods’ proprietary pension administration platform offers
potential operational efficiencies; and
• The Board’s risk management procedures set out in the Corporate
- Material financial benefits are expected from the acquisition,
Governance report identify the potential consequences of decisions
in the short, medium and long term so that mitigation plans can be
put in place to prevent, reduce or eliminate risks to the Company and
wider stakeholders;
• The Board sets the Company’s purpose, values and strategy, detailed
in the ‘Our approach’ and ‘Strategy’ sections of the Strategic Report ,
and the senior management team ensures they align with its culture;
• The Board carries out direct shareholder engagement via the AGM
and Directors attend shareholder meetings on an ad hoc basis;
• External assurance is received through internal and external audits
and reports from brokers and advisers; and
• Specific training for existing Directors and induction for new Directors
as set out in the Corporate Governance report.
Principal decisions in the year
Mattioli Woods comprises a number of operating segments, all of
which have extensive engagement with their own unique stakeholders
as well as other businesses in the Group. The Governance framework
delegates 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, up to
defined levels of cost and impact.
The Board has a formal schedule of matters specifically reserved to it
for decision, including 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.
The principal non-routine decisions taken by the Board during the
year were:
• The purchase of The Turris Partnership, which was an important
strategic acquisition as we had been looking to expand our
operations in Scotland for some time. Turris’ clients and staff continue
to benefit from our strong ethos and culture of putting the clients’
interests at the heart of everything we do. These values were an
embedded part of both Turris’ and Mattioli Woods’ operations and a
key reason why the transaction was such a good fit. The additional
resources and support available as part of Mattioli Woods will benefit
Turris’ clients and staff, and the business has positively contributed to
the Group’s financial results since acquisition, enhancing shareholder
returns. The acquisition is further detailed in Note 3 to the Financial
Statements.
which is expected to be earnings enhancing in the first full year
of ownership, with annual cost savings of approximately £0.5m
expected to be fully realised by the end of the first year, with the
opportunity to realise revenue synergies through a new distribution
channel for Mattioli Woods’ services.
• Response to the COVID-19 pandemic. Our primary focus was to
help manage the health emergency, whilst continuing to deliver an
uninterrupted service to our clients and the wider community. The
Group has remained fully operational throughout, maintaining our
focus on client service and developing our customer proposition. The
Board decided it would not take advantage of any of the government
initiatives to assist businesses navigate their way through the
challenges and pressures that emerged, reducing the burden that will
have to be met by the UK taxpayer as we emerge from the crisis and
recognising that past financial prudence had placed the Group on a
strong footing. In anticipation of the likely trading conditions created
by the pandemic, we implemented a number of mitigating actions
to protect the Group’s financial position, realising total cost savings
of approximately £2.6m through all Directors reducing their basic
remuneration and confirming that remaining staff bonuses and all
Directors’ bonuses in respect of the financial year would not be paid.
• Determination of dividend. In light of the uncertain trading
conditions, the Board believes it is prudent to protect the Group’s
financial position and balance the interests of all stakeholders,
including those employees that have foregone salary and bonus in
respect of the year ended 31 May 2020. Accordingly, the Board has
proposed a lower final dividend for the year than might have been
proposed in more normal circumstances.
• Agreeing a further three-year term to Custodian Capital’s ongoing
engagement as external discretionary fund manager of Custodian
REIT from 1 June 2020. The revised Investment Management
Agreement secures further cost reductions for investors in Custodian
REIT and an important long-term revenue stream for the Group.
Another three year term allows the Group to commit to further
investment in Custodian Capital’s dedicated systems and people
providing its services under the IMA and the fee changes will be
beneficial to the Group’s clients who are investors in Custodian REIT.
Due to the nature of these decisions, a variety of stakeholders had to
be considered as part of the Board’s discussions. Each decision was
announced at the time, so that all stakeholders were aware of the
decisions.
30
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Stakeholders
Details of the Group’s key stakeholders and
how we engage with them are set out below.
Shareholders
As owners of the Group we rely on our
shareholders’ support and their opinions are
important to us. We have an open dialogue
with our shareholders through one-to-one
meetings, group meetings, webcasts and the
AGM. Discussions with shareholders cover
a wide range of topics including financial
performance, strategy, outlook, governance
and ethical practices. Shareholder feedback
along with details of movements in our
shareholder base are regularly reported to
and discussed by the Board and their views
are considered as part of decision-making.
Our clients
We are passionate about looking after our
clients’ financial affairs. Creating and preserving
wealth, our focus remains on ensuring our
trusted advice gives clients the understanding
to achieve their objectives. We recognise
that a significant number of our clients are
being affected by the challenging economic
conditions. We resolved not to alter any of
our fee structures or implement any annual
fee increases, which will continue to give our
clients the benefit of reduced TERs. We are
confident our combination of lower costs
alongside strong investment performance will
ensure we continue to deliver good financial
outcomes for our clients.
Communities
We engage with the communities in which
we operate to build trust and understand the
local issues that are important to them. Key
areas of focus include how we can support
local causes and issues, create opportunities
to recruit and develop local people and help
to look after the environment. We partner
with local charities and organisations at an
individual office level to raise awareness
and funds. The impact of decisions on the
environment both locally and nationally is
considered with such considerations as the
use of and disposal of paper and plastic.
Further information on the ways in which the
Board engages with stakeholders is set out in
the Corporate Governance report on page 49
and Strategic Report on pages 7, 19 and 38 to 43.
Employees
Our people are the key to our success, and
we want them to be successful individually
and as a team. There are many ways we
engage with and listen to our people
including employee surveys, forums, well-
being discussions, face-to-face briefings,
internal communities and newsletters.
During the pandemic there has been an
increased focus on health and well-being,
in addition to development opportunities,
pay and benefits.
Suppliers
We build strong relationships with our
suppliers to develop mutually beneficial
and lasting partnerships. Engagement with
suppliers is primarily through a series of
interactions and formal reviews. Key areas
of focus include innovation, enhancing our
client propositions, health and safety and
sustainability. The Board recognises that
relationships with suppliers are important
to the Group’s long-term success and is
briefed on supplier feedback and issues
on a regular basis.
Government and
regulators
We engage with the government and
regulators through a range of industry
consultations, forums, meetings and
conferences to communicate our views to
policy makers relevant to our business. Mattioli
Woods is a member of the Association of
Member-directed Pension Schemes and the
Quoted Companies Alliance. Key areas of focus
are compliance with laws and regulations,
health and safety. The Board is updated on legal
and regulatory developments and takes these
into account when considering future actions.
Mattioli Woods plc Annual Report 2020
31
31
Mattioli Woods plc Annual Report 2020 “Just to say that I thought
your webinar today was
very grounded and helpful.”
Pamela Fagg
“We are both impressed
with April’s clarity of advice
over the last five months
which, added to the regular
Mattioli Woods webinars,
has kept us well informed
and reassured.”
Dr M Auld and Mrs A Auld
Strategic Report
Mattioli Woods Webinars
Communicating with our clients, connections and prospects via
live events has always been a major part of our annual marketing
programme. In mid-March 2020, like many others, our events
programme changed overnight.
The Mattioli Woods events team worked quickly to move key events
online, and on 1 April 2020 our first live webinar for clients was
delivered. The ‘Investment Markets Update’ with Simon Gibson, our
Chief Investment Officer, Richard Shepherd-Cross, Managing Director
for Custodian REIT, and Richard Smith, Investment Manager saw an
incredible response with 458 people registering to attend. The largest
ever client audience for a Mattioli Woods event.
Other webinar titles have included:
• Real assets (property and infrastructure) – nearly 200 attended and
109 YouTube views.
• Navigating our new financial world for accountants – nearly 100
attended and 66 YouTube views.
• Why low correlation to main markets matter – exclusive for Private
Investors Club members with 56 attendees.
From April to July 2020 we delivered 10 events connecting with our
clients and professional connections.
And we were just as busy in August with two further webinars:
• Investment Markets Briefing
• The Future of Employee Benefits (launch of a new series)
Use of webinar technology has complemented the wider company aim
to provide an uninterrupted service, and helps bring us closer than ever
to our clients and connections.
This technology has also supported our own employees via a series of
monthly wellbeing webinars – these have been hosted by Ian Mattioli,
Iain McKenzie, Michael Wright and Simon Gibson.
“ As we embrace our next normal in light of
the pandemic, we will continue to meet
the needs of our audiences by providing
a blend of webinars and physical events.
We continue to be agile and responsive
to our changing world.”
Jo Spain, Mattioli Woods Events Manager
32
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
“Each webinar has been
well run with worthwhile
content. I had to miss the
last one at the last minute
but managed to catch
up because you sent out
an e-mail with a link to a
recording. An excellent
experience so far. Well
done to the team.”
Terry Somerfield
“I have attended some
of the webinars and I
genuinely think that
Mattioli Woods have
really stood out in these
difficult times for getting
across innovative, sound
financial advice.”
Philip Thompson
Total number of registrants for all
webinars since 1 April (excl.staff)
2,036
Total number of attendees for all webinars
since 1 April (excl.staff)
1,319
Average interest rating
93%
33
Mattioli Woods plc Annual Report 2020 Strategic Report
The Cotton Pension Trust
Simon Cotton and his wife Diana were introduced to Mattioli Woods
following our acquisition of the advisory firm Boyd Coughlan in June
2015. At the time, Simon held a senior position as Corporate Director at
a business specialising in financing solutions.
In 2017, Simon and Diana decided on a lifestyle change and explored
the opportunity of purchasing a hotel, The Summer Isles Hotel, in
Achiltibuie in the Scottish Highlands. They knew the area well having
visited on family holidays for many years. Their local familiarity, as well
as Simon’s wealth of knowledge and experience gained in purchasing
and running companies, lent itself to the successful running of the
business.
We introduced Simon and Diana to the options available when using
a SIPP. Having considered various financing options, we helped Simon
assess whether a part of his existing pension savings could be used in
the acquisition.
The ability to combine our multifaceted proposition allowed us initially
through our consultancy services to review their existing pension
provision and establish a Joint SIPP with Diana and Simon as members
and trustees. Following completion of the relevant advice and pension
transfers, we acted as co-trustee and administrator to acquire The
Summer Isles Hotel within a 12-week deadline to meet the seller’s
demanding timescale.
The planning enabled them to fulfil their ambition and provide an outlet
for Simon’s expertise in a business that was refreshingly different from
the world of finance. It would allow Diana to be involved as well when
she wanted and for their investment to provide a source of retirement
income and a legacy for the children.
Given the hotel’s exposed location a lot of work and money goes into
the constant upkeep and development of the property. The hotel itself
operates on a seasonal basis, typically between April and October,
and so this work is usually undertaken in the ‘off season’ with minimal
disruption to guests, ready for the new season’s opening. Winter
2019/20 was no different with the creation of two new bedrooms,
a new main boiler and significant electrical work. All progressed as
planned and the hotel was ready to welcome the first guests on
28 March 2020.
However, the global pandemic of COVID-19 hit and it soon became
clear that the hotel should not open as the area is particularly isolated
and vulnerable. Decisive and responsible action was required with
regular communications to guests and the local community as much
of the season was ‘unwound’.
The financial impact on the business was huge with multiple refunds
to be made while other obligations (financial and moral) were met with
suppliers, trades people and staff.
“Investing a part of my pension pot in
the hotel represented an opportunity to
diversify my portfolio, change my career
and provide a legacy for the family.”
Simon Cotton
34
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Simon and Diana Cotton,
The Summer Isles Hotel
We worked with Simon and Diana to put a rental deferral in place, which
provided welcome relief during several months of significant cash
outflow. In addition, Simon decided to withdraw cash from the pension
scheme to ensure sufficient liquidity in the business. We worked with
him to minimise the resultant income tax liability by staggering the
payment over two tax years.
While the pension scheme held sufficient liquidity to meet these needs,
the money had been invested to achieve at least a modest return in
a third-party cash account. This brought yet further challenges as
many businesses were now understaffed and working to increased
timescales. However, we were able to move funds quickly to make the
income payments and minimise disruption.
We continued to work closely with Simon and Diana as the pandemic
took hold and enforced lockdowns ensued. Today, we are pleased
that the hotel has been able to reopen, incorporating all the required
COVID-19 health and safety requirements, and is now able to welcome
guests who had previously cancelled. Naturally the number of visitors
has been reduced, but business has been very positive since the
reopening and is a reflection of the fact that if you look after people when
times are hard, they will ultimately reward you when times are better.
“The team at Mattioli Woods provided
clear advice and acted quickly to secure
the deal. Since then, they have been
proactive and flexible to help achieve
our combined objectives as trustees
of the pension and as tenants of the
related lease. The challenges of 2020
have convinced us that we have a
robust scheme and a sound partner
in Mattioli Woods.”
Simon and Diana Cotton
35
Mattioli Woods plc Annual Report 2020 Strategic Report
Environmental performance & strategy
Due to the Group’s activities, Mattioli Woods impacts the local and global
environment. The Companies (Directors’ Report) and Limited Liability Partnerships
(Energy and Carbon Report) Regulations 2018 implement the government’s
policy on Streamlined Energy and Carbon Reporting, requiring disclosure of the
environmental performance of the Group’s assets through calculating the Group’s
greenhouse gas (“GHG”) emissions and subsequently setting strategies to minimise
these emissions. The following information summarises the Group’s environmental
performance over the year.
Methodology
GHG emissions are quantified and reported according
to the Greenhouse Gas Protocol. Consumption data
has been collated and converted into CO2 equivalent
using the UK Government 2019 Conversion Factors
for Company Reporting to calculate emissions from
corresponding activity data. To collect consumption
data, the Group has reviewed utility invoicing and its
staff expense software to track business mileage in
Group-owned vehicles and own vehicles.
This information has been prepared in accordance
with the GHG Protocol’s Scope 2 Guidance on both
location-based and market-based Scope 2 emissions
figures. Data collected relates to the most recent 12
month period where data was available. Comparative
information has not been disclosed as this is the
Group’s first year of mandatory reporting.
We have calculated energy intensity and emissions
intensity using total floor area which is considered to
best represent the scale of the business compared to
using alternative measure such as headcount, as the
majority of energy usage is from buildings and the
COVID-19 pandemic is expected to make the level
of fuel consumption for Group vehicles volatile in
the short-term.
As part of the data collection, a materiality assessment
was applied to determine which indicators were
relevant to the Group. We have assessed each indicator
in terms of its impact on the Group and its perceived
importance to stakeholders.
Sustainability is a key priority for Mattioli Woods and we
are working towards putting in place an environmental
vision and strategy, including the development and
implementation of key performance indicators and
long-term targets for Scope 1 and 2 emissions. No
electricity or gas consumption is currently from
renewables. This strategy will also involve setting a plan
of building and car fleet optimisation opportunities.
36
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Reporting boundaries
and limitations
The GHG sources that constitute our
operational boundary for the reporting
period are:
• Scope 1: Natural gas combustion within
boilers, gas oil combustion within
generators and road fuel combustion
within owned vehicles.
• Scope 2: Purchased electricity
consumption for our own use.
• Scope 3: Water consumption and fuel
consumption from employee-owned
cars for business use.
Fuel connected with employee train
travel for business use has been excluded
as amounts are likely to be immaterial
and we consider it impractical to make
estimations as only the cost of travel is
recorded in the Group’s expense records.
Fugitive gases from office air conditioning
are also considered immaterial.
Assumptions and
estimations
In some instances data is missing,
including:
• The utility costs for Group’s Manchester
and London offices (which represent
circa 2.5% of the Group’s total floor
area), where utilities are included in rent
payable; and
• Water usage in the Group’s Scottish
offices has been estimated as they pay
rates rather than using meters.
In such cases, estimations have been
applied to fill the gaps, calculated either
through extrapolation of available data
from the reporting period or through data
from other similar offices as a proxy.
Performance
The table below shows absolute performance and like-for-like performance of our Scope 1,
2 and 3 emissions for the year, which represents the Group’s first year of reporting under the
Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018:
GHG emissions (tCO2e)
Scope 1
Scope 2
Scope 3
Fuel consumption (gas office heating) (kWh)
Associated GHG (tCO2e)
Fuel consumption (company vehicles) (miles)
Fuel consumption (company vehicles) (MWh)
Associated GHG (tCO2e)
Electricity consumption (office and company car
electricity) (kWh)
Associated GHG (tCO2e)
Total Scope 1 & 2 emissions
Fuel consumption (own cars for business use) (miles)
Fuel consumption (own cars for business use) (MWh)
Associated GHG (tCO2e)
Water consumption (m3)
Associated GHG (tCO2e)
Total Scope 3 emissions
Gross Scope 1, 2 & 3 emissions
Total floor area (sqft)
Scope 1 & 2 emissions intensity (tCO2e/sqft/yr)
Scope 3 emissions intensity (tCO2e/sqft/yr)
2020
490,767
90
612,808
714
175
1,036,440
265
530
147,569
176
42
3,236
3
45
575
90,742
0.0058
0.0005
37
Mattioli Woods plc Annual Report 2020 Strategic Report
Corporate social responsibility
Our commitment to
operating responsibly
As never before, the events of 2020 have challenged
and impacted all businesses across all sectors.
Mattioli Woods is no different however our dedicated
team has allowed us to rise to these challenges
and continue making a positive contribution to
our stakeholders – our clients, shareholders, staff,
suppliers and chosen charity partners alike.
We believe this is responsible business in action.
Our approach to achieving good Governance comes
from a passion to ensure we do the right things for
our clients and this is embedded in the culture of the
Mattioli Woods team, where staff are encouraged to
thrive and develop in their roles and the business in
turn supports them in their own career development.
Our record of growing our own and promoting from
within the Group adds to the sense of teamship which
underpins everything we do.
Sustainability
The Group has continued to grow over the last year
and we recognise that we have a responsibility to
support our profitable expansion by operating in
a sustainable manner. As we continue to deal with,
and learn from, the impact of COVID-19, we have
demonstrated we can deliver great client outcomes
in different ways, with the majority of our staff currently
‘working from home’. This will inform our thinking as to
how we can deliver strong and sustainable shareholder
returns, including investing in new technology to
facilitate efficient growth over the long-term.
Whilst our environmental footprint has inevitably
reduced in the period of lockdown, this does not
detract from our focus on ensuring that, wherever
possible, we minimise any negative impact in this area.
The modern design and construction methods used
in our Leicester office means that we are harnessing
the latest technology to support our environmental
aims and, whilst this is a major contributor in itself, we
recognise that smaller changes to how we do things
can make incremental contributions. These include
reducing the amount of paper we use through
the adoption of new technologies, including an on-
line portal to deliver client valuations, supporting our
move to a paperless environment. In addition, our
consultancy team is making increasing use of hybrid
and efficient fuel technology in the vehicles they use.
We are exploring how we can offer our clients access
to bespoke “ESG responsible” investment propositions,
with a view to adding such an option in the coming year.
38
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Charities and communities
Making a difference within our local communities matters to us and we continue to have
a high level of engagement in this area. Each year, we sponsor businesses, 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.
In 2019, we launched a new national partnership with Alzheimer’s Research UK, a charity
focused on boosting research, improving treatments and raising awareness about dementia.
Like many charities, the impact of the COVID-19 pandemic on Alzheimer’s Research UK
has been significant and some of the activities we had planned to support them, such as
members of the Mattioli Woods family running the Virgin Money London Marathon, have
had to be put on hold.
However, this has not stopped our enthusiasm to help where possible and the team was
delighted to participate in “Jay’s Virtual Pub Quiz” in April 2020, co-hosted by Stephen Fry
and sponsored by Mattioli Woods, which raised a total of £340,000, aided by a £50,000
contribution by Mattioli Woods.
We believe 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. We will continue to explore
ways of engaging employees, clients and partners to raise money for the charity where and
when we can.
Every year, the Group’s associate company Amati has a commitment to donate 10% of its
profits to good causes. We want to further that tradition and this year asked our staff to
suggest good causes they felt deserving of a donation. This meant we could contribute to
numerous other charities throughout the UK that are local to where our staff live, which
has helped to further enhance our impact on the communities where we live, with total
charitable donations by the Group and its employees (through payroll giving) totalling over
£0.6m during the year.
We recognise that our tax contributions also play an important role for the communities in
which we operate, with the Group’s total tax contribution summarised as follows:
Total tax contribution
Corporation tax
Other taxes borne:
2020
£000
2019
£000
3,244
1,963
Employer’s National Insurance Contributions
2,761
2,967
Apprenticeship levy
Business rates
Irrecoverable input VAT
Insurance premium tax
Stamp duty land and stamp duty reserve tax
Taxes collected:
Income tax deducted under PAYE
Employees’ National Insurance Contributions
Output VAT
121
514
799
109
9
5,379
1,610
4,688
129
451
946
69
57
6,561
1,600
4,728
19,234
19,471
39
Mattioli Woods plc Annual Report 2020 Strategic Report
Corporate social responsibility continued
Looking after our people during COVID-19
“Working from home quickly
became the new normal.
We developed a new way of
communicating effectively
through video calls which
continues to work well today.
I am pleased and proud to be
part of the successful working
family at Mattioli Woods, where
the wellbeing and safety of
employees and clients remain at
the heart of our business.”
Hina – HR
Helen – Administration
Femi – Wealth Management
Alex – Wealth Management
“ I have received
support from various
areas across the
business and have
been made to feel
that ‘we are in it
together’. Mattioli
Woods has been able
to provide me with
the reassurance that
the business is strong
and my role is secure;
this has provided
invaluable comfort to
me and my family.”
Anthony – Wealth Management
40
Nicola – Marketing
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Ian – Finance
Sean – Employee Benefits
Nathan – Wealth Management
“From office to home
working in the blink of an
eye – this is how quickly
the transition has been
for me. I’ve discovered a
whole new way of working
through the medium of
Zoom and Teams which
has revolutionised the
way I will work.”
Louise – Administration
Sarah – Wealth Management
41
Mattioli Woods plc Annual Report 2020 Strategic Report
Corporate social responsibility continued
Developing our people
The Group continues to create
opportunities for young people and we
operate a trainee consultant programme
for aspiring advisers. 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.
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.
42
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.
Employee diversity
Male
Female
Employee age
Under 30
30 to 50
Above 50
44%
56%
36%
42%
21%
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
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 a copy of our
Modern Slavery and Human Trafficking Statement
can be found on our website. We have also developed
policies, reviewed our due diligence processes for
suppliers and provided training to staff.
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.
However, the Government Equalities Office and
the Equality and Human Right Commission have
suspended gender pay gap reporting regulations
for the 2019/20 reporting year, due to the COVID-19
pandemic. Ordinarily, the Group submits its data on
gender pay to the government each year and publishes
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 43 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
1 September 2020
43
Mattioli Woods plc Annual Report 2020 Governance
Governance overview
Our Board & Governance
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 2019 the Group 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 as follows:
Board of Directors
Risk &
Compliance
Committee
Audit
Remuneration
Nomination
Committee
Committee
Committee
Risk &
Compliance
Executive
Committee
Governance
Committee
Management
Engagement
Committee
Investment
Committee
The Executive management team is structured into two committees,
comprising the Governance Committee and the Management Engagement
Committee.
The Group’s investment and asset management business is managed through
the Investment 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 this is the optimal
management structure to secure continued growth.
44
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Corporate Governance code
The Board has adopted the Quoted Companies Alliance (“QCA”) revised Corporate
Governance code (“QCA Code”), which requires the Group to apply 10 principles
focused on the pursuit of medium to long-term value for shareholders and also to
publish certain related disclosures.
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 these principles 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 9.
Effective risk management – QCA Principle Four
The Group embeds risk management throughout the
organisation and this is described on page 50.
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
attend 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.
Board Effectiveness – QCA Principle Seven
The Board intends to undertake a self-evaluation during
the financial year ending 31 May 2021 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. The Board
has considered 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.
45
Mattioli Woods plc Annual Report 2020 Governance
Board of Directors
The Board of Directors currently
comprises five Executive Directors
and three independent Non-Executive
Directors. Nathan Imlach has decided
to stand down from the Board at the
Company’s next AGM, after 15 years
as Chief Financial Officer, to continue
in a new role as Chief Strategic Adviser
to the Group. We anticipate that after
Nathan steps down as a Director the
Company will have, for a period of
time, a Board comprising four Executive
and three Non-Executive Directors.
The Board intends to appoint another
independent Non-Executive Director and
the Group is in discussion with potential
candidates. Following this appointment,
the Company will have a balanced board,
which we believe represents the right
Governance structure for the business.
A short biography of each Director is set out to the right.
46
Joanne Lake
Non-Executive Chairman
Ian Mattioli MBE
Chief Executive Officer
Appointed to the Board: 2012
Non-Executive Chairman: 2016
Tenure at Mattioli Woods: 8 years
Brings to the Board
• 30+ years’ experience in
accountancy and investment
banking
Previous roles
• Panmure Gordon
• Evolution Securities
• Williams de Broë
• Price Waterhouse
Accreditations
• Chartered Accountant
• Fellow of the Chartered Institute
for Securities & Investment
(“CISI”)
• Fellow of the Institute of
Chartered Accountants in
England and Wales (“ICAEW”)
• A member of the ICAEW’s
Corporate Finance Faculty
External appointments
• Deputy chairman of Main
Market-listed Henry Boot plc
• Non-Executive Director of
Gateley (Holdings) plc
• Non-Executive Director of
Morses Club plc
Co-founded Mattioli Woods in 1991
Tenure at Mattioli Woods: 29 years
Brings to the Board
• 35+ years’ experience in
financial services, wealth
management and property
businesses
• Co-founded Mattioli Woods,
with Bob Woods, in 1991
• Vision and strategy
• Development of investment
proposition
• Founder of Custodian REIT plc
Accreditations
• Awarded an MBE for services
to business and the community
in 2017
• LSE AIM Entrepreneur of the
Year Award, 2008
• CEO of the Year Award, City of
London Wealth Management
Awards, 2018
• Awarded Honorary Degree
(Doctor of Laws), University
of Leicester
External appointments:
• Non-Executive chairman of
K3 Capital Group plc
• Non-Independent Director
of Custodian REIT plc
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Nathan Imlach
Chief Financial Officer
Appointed to the Board: 2005
Tenure at Mattioli Woods: 15 years
Brings to the Board
• 25+ years’ experience in
accountancy and financial
services
• Financial management of
operations
• Group acquisition strategy
• Founder and former Company
Secretary of Custodian REIT plc
Accreditations
• Chartered Accountant
• Fellow of the CISI
• Corporate Finance qualification,
ICAEW
External appointments
• Non-Executive and Senior
Independent Director of
Mortgage Advice Bureau
(Holdings) plc
• Trustee, Leicester Grammar
School Trust
Carol Duncumb
Non-Executive Director
and Chair of Remuneration
Committee
Anne Gunther
Senior Independent Director and
Chair of Audit Committee, Risk
Committee
Appointed to the Board: 2014
Tenure at Mattioli Woods: 6 years
Appointed to the Board: 2016
Tenure at Mattioli Woods: 4 years
Brings to the Board
• 35 years in brand building
consumer-related companies
• Successful management buy-
out experience
• 12 years’ experience in online
transactional companies
• Executive management of
businesses
• Business angel and portfolio
management
• Advising successful
entrepreneurs and
management teams
Previous roles
• Chief Executive of Intimas plc
• Managing Director of Wolsey
Limited
Brings to the Board
• 40+ years’ experience in retail
financial services
• Wide Executive experience
from lending to wealth
management
• FTSE 100 IPO experience
• M&A experience
Previous roles
• Managing Director – Direct,
Lloyds TSB
• Chief Executive, Standard Life
Bank
• Chief Executive, Standard Life
Healthcare
• Member of group Executive,
Standard Life
• Founding Director, Standard
Life Wealth
• Chair, Warwick Business School
Accreditations
• Honorary doctorate, Edinburgh
University
• Chartered Banker
• MBA, Warwick Business School
• BSc Hons Physics, Nottingham
University
External appointments
• Non-Executive Director of
Masthaven Bank Limited
• Director of Water Plus Limited
group (a jointly-owned
subsidiary of United Utilities plc
and Severn Trent plc)
47
Mattioli Woods plc Annual Report 2020 Imminent changes to the Board
Nathan Imlach, Chief Financial Officer, has decided to stand down from the Board at the
Company’s next AGM on 19 October 2020. Nathan remains with the business, where his
focus will be on acquisitions and contributing to its strategic direction as Chief Strategic
Adviser to the Group.
Nathan has been instrumental to the success of the Group, including its admission to AIM in
2005, the launch of Custodian REIT as a main-market listed property investment company
in 2014 and the completion of 24 successful acquisitions to date. Nathan’s management
responsibilities are being handed over to Group Finance Director, Ravi Tara, who joined the
Company over a year ago as part of its succession planning.
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,
and is strengthening the Executive team through the further appointments of Michael Wright
and Iain McKenzie to the Board as Group Managing Director and Group Operating Officer
respectively. Ravi, Michael and Iain will join the Board immediately following regulatory
approval of their appointments.
Governance
Board of Directors continued
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.
• 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.
48
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
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. As part of our ongoing
focus on Corporate Governance the Board reserved matters and committee terms of reference were reviewed and updated during the year,
particularly in light of the updated QCA Corporate Governance Code and an emerging focus on stakeholder engagement and linking
a company’s purpose and values to its strategy.
Other matters are delegated to the Executive 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 and Joanne Lake. Committee meetings are normally
attended by George Houston (Group Compliance Officer) as Compliance Oversight Function, the Chief Executive, the Chief Financial Officer,
the Group Finance Director and by representatives of the external and internal auditors by way of invitation. In addition, 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.
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Risk and Compliance Committee continued
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 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.
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 six times during the year, with the committee’s activities during the year including:
• 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 (“TCF”) policy and outcomes;
• Review of the Group’s training and competence regime;
• Review of the potential risks associated with Brexit and the COVID-19 pandemic, including security and maintenance of our IT systems and data:
The recent changes in our IT environment have increased the risk of a cyber-attack due to the number of users accessing our systems while
working from home and we have experienced a heightened volume of phishing targeted at employees;
• Review of the risks associated with acquisitions; and
• Review of recommendation of the Group’s risk appetite statement and tolerance for key risks to the Board.
Following the year end, the committee reviewed the risks associated with the COVID-19 pandemic and commissioned an internal audit of the
Group’s secure remote working, information security and operational resilience, as described below.
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Financial Statements
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, the Chief Financial Officer, the Group Finance Director 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 internal and external auditors without management present at least once a year.
Activities during the year
The committee met six times during the year, where it 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 which has been outsourced to RSM Risk Assurance
Services LLP since December 2018. 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.
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:
• Consideration of the potential impact on the Financial Statements of risks associated with Brexit and the COVID-19 pandemic;
• Assessment of whether each entity and the Group as a whole are going concerns, including whether forecast performance would result in an
adequate level of headroom over the Group’s available cash facilities, including the potential impacts of Brexit and the COVID-19 pandemic;
• Review of whether any impairment needed to be recognised in respect of the intangible assets of the Group, including the assumptions
underlying the calculation of the value in use of the cash generating units tested for impairment;
• 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;
• 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;
• How errors in the calculation of the Group’s share-based payments expense under IFRS 2 arose and disclosure of the impact of corrections made
to the Group’s option valuation model on the Financial Statements for prior years;
• The purchase price allocation and fair value accounting for the acquisition of Turris;
• Development of a formal policy on the provision of non-audit services by the external auditors, in line with the FRC’s Ethical Standard for Auditors;
• The correct recognition of revenues and costs associated with the arrangement of property insurance by the Group’s property management
business under IFRS 15;
• Disclosure of the impact of IFRS 16 on the Financial Statements for the year ended 31 May 2020; and
• Consideration of how to reduce reliance on spreadsheets, improve key financial processes and streamline the financial close.
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Audit Committee continued
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 2020
and other matters considered by the committee included:
GOODWILL AND INTANGIBLE ASSETS
As set out in Note 19 to the Group Financial Statements, at 31 May
2020 the Group had goodwill of £21.1m with other intangible assets
amounting in total to £25.4m. 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 19. 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.
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 2020 was £4.7m (2019: £4.6m).
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.
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.
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.
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.
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.
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Financial Statements
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 2020 was £2.8m (2019: £2.7m).
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.
OTHER LIABILIT Y PROVISIONING
As detailed in Note 27, 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.
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 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.
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 MAT TERS
In addition to the above matters, the committee assessed whether
each entity and the Group as a whole are going concerns, including
the potential impacts of Brexit and the COVID-19 pandemic.
The committee also considered a number of other judgements made
by management including: IFRS 15 ‘Revenue from contracts with
customers’, IFRS 9 ‘Financial instruments’ and IFRS 16 ‘Leases’.
The committee considered whether the forecast financial performance
would result in an adequate level of headroom over the Group’s
available cash facilities. The committee also discussed the key
assumptions underpinning the Group’s forecast financial performance
with management and considered a range of sensitivities to those
forecasts, together with the feasibility and effectiveness of mitigating
factors. The committee concluded there are no material uncertainties
that cast doubt about the Group’s ability to continue as a going concern
and that the adoption of the going concern basis is appropriate.
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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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. 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, SIPP contributions and investments, tax-related client advisory
services, outsourcing and conduct 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, including providing
assurance that the Group was prepared for the implementation of the SMCR. The internal audit team also carried out a post-implementation
review of the GDPR, covering current data Governance processes, procedures and controls.
Following the year end, an audit of Group’s secure remote working, information security and operational resilience was undertaken in response
to the COVID-19 pandemic to assess how the business has implemented the technical controls to enable remote working. The objective of the
review was to critically assess the IT infrastructure and remote network to ensure that adequate capacity is always available to meet the agreed
needs of the business and to confirm that secure configuration is in place for remote working. In addition, the audit provided assurance over the
design of key controls and adherence to these in respect of Governance over business-critical data whilst working remotely.
As the third line of defence, the internal audit function (together with the external auditors in connection with their audit of the Financial
Statements) builds 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 two 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 incentive schemes established by the Company;
• Trends in Executive pay in the wider market; and
• The implications the COVID-19 pandemic and 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.
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Financial Statements
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 twice during the year, with the main items being considered
including Board structure, proposed changes to Board membership, recruitment to expand the number of Non-Executive Directors on the Board
and management succession.
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 attended (eligible to attend)
Joanne Lake
Ian Mattioli1
Nathan Imlach
Carol Duncumb
Anne Gunther
Murray Smith2
Board
Risk and
Compliance
7 (7)
6 (7)
7 (7)
7 (7)
7 (7)
2 (2)
6 (6)
3(3)
–
6 (6)
6 (6)
–
Audit Remuneration
Nomination
6 (6)
2 (2)
2 (2)
–
–
6 (6)
6 (6)
–
–
–
2 (2)
2 (2)
–
–
–
2 (2)
2 (2)
–
Notes:
1. Ian Mattioli resigned as a member of the Risk and Compliance Committee on 21 October 2019.
2. Murray Smith resigned as a Director of the Company at the AGM held on 21 October 2019.
In addition, the Board held eight weekly ad hoc meetings throughout the peak of the COVID-19 pandemic.
Other committees
These committees 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 TCF; 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 TCF, 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.
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Governance
Corporate governance report continued
Other committees continued
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:
• Managing 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 business units and operating subsidiaries (including their results compared to
budget, risks and regulatory compliance); and
• Reviewing employee talent management and development programmes, ensuring they consider the benefits of diversity, including gender,
social and ethnic backgrounds, cognitive ability and personal strengths.
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.
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 risk 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.
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Financial Statements
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.
The Board planned to undertake a self-evaluation during the financial year ended 31 May 2020, but due to the COVID-19 pandemic, this process
has been postponed until the year ending 31 May 2021 and is intended to be repeated 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
under the Company’s articles of association. However, as a matter of good practice and as recommended under the QCA Corporate Governance
Code, Board policy is for all Directors to stand for re-election at each AGM.
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.
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 19 October
2020. In addition, the Chairman, Chief Executive Officer, Chief Financial Officer and Group Finance Director 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 systems 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 systems 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
1 September 2020
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Mattioli Woods plc Annual Report 2020 Governance
Directors’ remuneration report
In recognition of the likely impact of the COVID-19 pandemic on the Group and the markets it operates in, the Remuneration Committee, working
alongside and taking recommendations from the Executive management team and external resources, determined in March that the remainder of
the financial year ended 31 May 2020 and the subsequent new financial year required flexible remuneration arrangements to protect the Group’s
financial position and provide security for its clients and employees.
The committee was fully aligned with the senior Executive team in understanding that there needed to be substantial individual sacrifices both
in the form of basic and variable pay structures. The committee therefore approved a package of measures that included all Directors reducing
their basic salary or fees by 50% and the Chief Executive reducing his basic salary to zero until 30 June 2020, with Executive Directors’ salaries
being temporarily rebased from 1 July 2020 to create an annual saving of over £0.4m. At the same time, we confirmed we would maintain all other
employees’ basic salaries, with both these positions to be reviewed at 30 November 2020.
Having confirmed that remaining staff bonuses and all Directors’ bonuses in respect of the year ended 31 May 2020 would not be paid and
recognising that variable pay awards for the new financial year may be restricted, we have adjusted salary structures for many of the key operators
in the business, recognising that security and engagement are paramount in retaining a motivated workforce capable of guiding the business
through this period of unprecedented market turbulence.
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 19 October 2020.
58
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Single total figure of remuneration for each Director
Directors’ remuneration payable in respect of the years ended 31 May 2020 and 2019 was as follows:
Salary
and fees
Benefits
Bonus
Long-term
incentive
plan
Pension-
related
benefits
Share
incentive
plan
Total
2020
£000
2019
£000
2020
£000
2019
£000
2020
£000
2019
£000
20205
£000
2019
£000
2020
£000
2019
£000
2020
£000
2019
£000
2020
£000
2019
£000
474
263
66
530
304
260
803 1,094
91
46
54
98
49
57
191
204
2
16
6
24
–
–
–
–
–
12
12
24
–
–
–
–
994 1,298
24
24
–
–
–
–
–
–
–
–
–
524
246
120
558
262
221
525
272
229
890 1,041 1,026
–
–
–
–
–
–
–
–
–
–
–
–
52
29
3
84
–
–
–
–
52
30
26
108
–
–
–
–
890 1,041 1,026
84
108
–
–
–
–
–
–
–
–
–
2 1,086
570
2
296
–
1,633
866
647
4 1,952 3,146
–
–
–
–
91
46
54
98
49
57
191
204
4 2,143 3,350
Executives
Ian Mattioli1,3
Nathan Imlach1,2
Murray Smith1,2,4
Sub-total
Non-Executives
Joanne Lake
Carol Duncumb
Anne Gunther
Sub-total
Total
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 and Murray Smith include the provision of a company car.
3. The salary package of Ian Mattioli includes a car allowance.
4. Murray Smith ceased to be a Director on 21 October 2019.
5. Total market price of shares under option vesting during the year as at their vesting date, less any option exercise price payable.
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. In recognition of the likely impact of the COVID-19
pandemic on the Group and the markets it operates in, the committee approved the Chief Executive reducing his basic salary to zero all other
Directors reducing their basic salary or fees by 50% from 1 April 2020 until 30 June 2020. Executive Directors’ salaries have been temporarily
re-based to £200,000 per annum from 1 July 2020, with these positions to be reviewed at 30 November 2020.
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 for 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 2020, 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.
59
Mattioli Woods plc Annual Report 2020
Governance
Directors’ remuneration report continued
Notes to Directors’ remuneration table continued
Bonus 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 2020 are summarised as follows:
Director
Ian Mattioli
Nathan Imlach
Murray Smith
Actual
award as a
proportion of
salary
0%
0%
0%
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%
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. In recognition of the likely impact of the COVID-19 pandemic on the Group and the markets
it operates in, the Remuneration Committee resolved that no Directors’ bonuses in respect of the year ended 31 May 2020 would be paid.
The committee has resolved that the new financial year requires flexible remuneration arrangements to protect the Group’s financial position.
Executive Directors’ bonuses in respect of the year ending 31 May 2021, including those individuals who will join the Board immediately following
regulatory approval of their appointments, will be payable on a purely discretionary basis, as follows:
Director
Ian Mattioli
Nathan Imlach
Michael Wright
Ravi Tara
Iain McKenzie
Maximum
award as a
proportion of
salary
Linked to
corporate
objectives
Linked to
personal
objectives
100.0%
100.0%
100.0%
100.0%
100.0%
0%
0%
0%
0%
0%
100.0%
100.0%
100.0%
100.0%
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 (before any temporary reductions).
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 2020 the Remuneration Committee
granted further awards under the LTIP in respect of the year ended 31 May 2019. 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.
60
Mattioli Woods plc Annual Report 2020
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 a three-year or five-year performance period:
Compound annual growth in EBITDA
over the 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 or five 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 or four years after the year of grant, or on a
change of control (if earlier).
The Remuneration Committee believes that extending the performance period for awards under the LTIP to a five-year period creates greater
alignment between award-holders and shareholders and will 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 2020, the Company had granted options to certain of its senior employees and Executive Directors to acquire (in aggregate)
up to 3.30% (2019: 2.83%) of its share capital. The maximum entitlement of any individual was 0.89% (2019: 0.75%). The options are exercisable
at 1p per share.
Grant of cash-settled options under the LTIP
At 31 May 2020 there were no cash-settled options in issue (2019: 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 2020 the EBT held 76,578 shares
(2019: 12,248) and the Company held no shares in treasury (2019: nil).
61
Mattioli Woods plc Annual Report 2020
Governance
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 Smith1
Nathan Imlach
Total
Notes:
1. Murray Smith ceased to be a Director on 21 October 2019.
Exercise
price
£
31 May
2019
No.
0.01
0.01
0.01
200,016
86,118
93,943
Granted
during
the year
No.
30,000
–
10,000
380,077
40,000
Exercised
during
the year
No.
Forfeited
during
the year
No.
–
–
–
–
–
–
–
–
31 May
2020
No.
230,016
86,118
103,943
420,077
Note 20 to the Financial Statements contains a detailed schedule of all options granted to Directors and employees as at 31 May 2020. All of the
options were granted for nil consideration.
The Remuneration Committee has granted additional awards under the LTIP following the announcement of the Group’s trading update in respect
of the year ended 31 May 2020 on 1 June 2020 (see Note 20).
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 2020, 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
Carol Duncumb
Joanne Lake
Anne Gunther
2020
No.
%
2019
No.
3,371,977
112,906
8,800
4,100
4,000
12.52 3,371,876
112,668
0.42
8,800
0.03
4,100
0.02
4,000
0.01
%
12.60
0.42
0.03
0.02
0.01
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 2020 was 715.0p and the range during the financial year was 550.0p
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 30 to the Financial Statements.
There was no change in the Directors’ shareholdings (all of which are beneficial) between 31 May 2020 and 1 September 2020. The Remuneration
Committee granted certain Directors’ additional awards under the LTIP on 1 June 2020 (see Note 20). There were no further changes in the
Directors’ interests in options between 1 June 2020 and 1 September 2020.
62
Mattioli Woods plc Annual Report 2020
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 2020 in terms of the change in value of an
initial investment of £100 invested on 1 June 2015 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.
£250
£200
£150
£100
£50
£0
5
1
0
2
y
a
M
Mattioli Woods TSR
FTSE AIM All share TSR
0
2
0
2
y
a
M
5
1
0
2
g
u
A
5
1
0
2
v
o
N
6
1
0
2
b
e
F
6
1
0
2
y
a
M
6
1
0
2
g
u
A
6
1
0
2
v
o
N
7
1
0
2
b
e
F
7
1
0
2
y
a
M
7
1
0
2
g
u
A
7
1
0
2
v
o
N
8
1
0
2
b
e
F
8
1
0
2
y
a
M
8
1
0
2
g
u
A
8
1
0
2
v
o
N
9
1
0
2
b
e
F
9
1
0
2
y
a
M
9
1
0
2
g
u
A
9
1
0
2
v
o
N
0
2
0
2
b
e
F
0
2
0
2
y
a
M
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
1 September 2020
63
Mattioli Woods plc Annual Report 2020
Governance
Directors’ report
Report and Financial Statements
The Directors have pleasure in presenting their report together with the audited Financial Statements for the year ended 31 May 2020. 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 business model on page 8, and financial
performance during the year and indications of likely future developments in the Chief Executive's review from page 10.
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.
Statement by the Directors under section 172 Companies Act 2006
The Directors consider that they have acted in the way they consider, in good faith, would be most likely to promote the success of the Company
for the benefit of its members as a whole, and in doing so having regard to the stakeholders and matters set out in section 172(1)(a-f) of the Act in the
decisions taken during the year ended 31 May 2020. This is demonstrated in the Section 172 statement included in the Strategic Report from page 28.
Results and dividends
Revenue increased by 1.6% to £58.4m (2019 restated: £57.5m), with organic revenues supplemented by a full year’s contribution from the two
businesses acquired in the prior financial year, plus a positive contribution from Turris, which has integrated well since its acquisition in December
2019. Group profit for the year after taxation increased to £10.2m (2019 restated: £7.8m), due to the increase in revenues and the mitigating actions
implemented to protect the Group’s financial position and reduce costs. The effective rate of taxation was above the standard rate of tax at 24.2%
(2019 restated: 20.1%), primarily due to the government’s reversal of the previously enacted reduction in the main rate of corporation tax to 17%
from 1 April 2020 and expenses associated with sponsorship and other business development activities not being deductible for tax purposes.
The final dividend in respect of the year ended 31 May 2019 of 13.67p per share was paid in October 2019. An interim dividend in respect of the
year ended 31 May 2020 of 7.3p per share was paid to shareholders in March 2020. In light of the uncertain trading conditions resulting from the
COVID-19 pandemic, the Directors believe it is prudent to protect the Group’s financial position and balance the interests of all stakeholders and
recommend a lower final dividend than might have been proposed in more normal circumstances of 12.7p per share. This has not been included
within the Group Financial Statements as no obligation existed at 31 May 2020. If approved, the final dividend will be paid on 23 October 2020 to
ordinary shareholders whose names are on the register at the close of business on 11 September 2020.
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 2020 is shown in Note 24. 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 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; and
• Restrictions on the former shareholders of Hurley Partners 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 842,866 ordinary shares in Mattioli Woods during
the two years ending 31 July 2022.
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 24 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 2020 the EBT purchased 64,330 shares in the Company (2019: 12,248) at a cost of £498,000 (2019: £99,000).
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.
64
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
Substantial shareholdings
At 1 September 2020, the Company had been notified of the following interests representing 3% or more of its issued share capital:
Shareholder
Ian Mattioli
Investec Wealth and Investment Limited
BlackRock, Inc.
Liontrust Investment Partners LLP
Standard Life Aberdeen plc
Gresham House Asset Management Limited
Unicorn Asset Management Limited
Canaccord Genuity Group, Inc.
Bob Woods
Number of
ordinary shares
Percentage
holding
3,371,977
2,780,008
2,686,062
2,685,397
2,383,687
1,579,805
1,356,538
1,130,313
971,105
12.12%
9.99%
9.65%
9.65%
8.57%
5.68%
4.87%
4.06%
3.49%
In addition to the above shareholdings, 623,722 ordinary 1p shares representing 2.24% 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 46 and 47. 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 2020, it was confirmed that each Director continues to be an effective member
of the Board and to demonstrate commitment to the role.
Nathan Imlach, Chief Financial Officer, will step down from the Board at the AGM on 19 October 2020.
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 in the prior year of the previous office premises at MW House and Gateway House as disclosed in Note 30.
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. How the Group has engaged with employees and had due regard to
their interests in considering the principal decisions taken during the year are demonstrated in the Section 172 statement included in the Strategic
Report from page 28.
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.
65
Mattioli Woods plc Annual Report 2020
Governance
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
Minimum
employee
contribution
3%
5%
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.
Due to the impact of COVID-19 we have put our graduate training programme on hold whilst the majority of Mattioli Woods’ employees are
working from home. The graduate scheme has been a great success, and when it is safe to do so, we will reintroduce the scheme.
We believe in providing work experience and supporting school leavers that may find it difficult to find work. We will continue working in
partnership with Gateway College Leicester to provide work experience, as well as continuing with apprenticeships and our own 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 recognise that the pandemic is likely to have a lasting impact on the way we work and therefore we will review our current roles, training and
engagement, allowing us to introduce new roles where training can be provided.
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 30.
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. Due to the Group’s activities, Mattioli Woods impacts the local and global environment,
but due to the nature of its business generally, the Group does not have a significant environmental impact. Environmental performance and
strategy are summarised on pages 36 and 37 of the Strategic Report.
Annual General Meeting
The AGM of the Company will be held on 19 October 2020. 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 20 to 27 of the Chief Executive’s Review.
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Mattioli Woods plc Annual Report 2020
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 page 50 of the
review of Corporate Governance. The key risks and mitigating factors are set out on pages 20 to 27.
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 44 to 57.
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 19 October 2020.
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 46 and 47. 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 Group’s business activities, performance and position, together with the risks it faces and the factors likely to affect its future development are
set out in the Strategic Report . The Board has assessed the Group’s viability over a three-year period from 1 June 2020 through to 31 May 2023.
This period is aligned with the Group’s annual budgeting process, where the Board reviews and challenges the Group’s budget in advance of each
new financial year.
The Board has also considered the general business environment and the potential threats to the Group’s business model arising from regulatory,
demographic, political and technological changes. The COVID-19 pandemic is affecting economic and financial markets. The Board has
considered the risks associated with a general economic downturn, including financial market volatility, deteriorating credit, liquidity concerns,
government intervention, increasing unemployment, furlough, redundancies and other restructuring activities.
The Board has carried out a robust assessment of the principal risks facing the Group along with the stress tests and scenarios that would threaten
the sustainability of its business model, future performance, solvency or liquidity. In assessing the future viability of the overall business, the Board
has considered the current and future strategy, the results of the latest ICAAP and the risk management controls and procedures in place.
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 33.
On behalf of the Board
Nathan Imlach
Chief Financial Officer
1 September 2020
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Mattioli Woods plc Annual Report 2020 Governance
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.
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Governance
Financial Statements
Independent auditor’s report
to the members of Mattioli Woods plc
Report on the audit of the 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 2020 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 statements of cash flows; and
• the related notes 1 to 34.
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 – valuation and recoverability of accrued revenue
• Impairment of goodwill and intangible assets
Within this report, key audit matters are identified as follows:
Newly identified
>
Increased level of risk
Similar level of risk
? Decreased level of risk
Materiality
Scoping
The materiality that we used for the group Financial Statements was £577,000 which was determined on the
basis of adjusted profit before tax.
The group audit includes the full scope audit of Mattioli Woods plc and six other trading subsidiaries. This
scope covers over 99% of the group’s reported results.
Significant changes in our
approach
We have removed acquisition accounting as a key audit matter from the prior year on the basis that there has
been only one business acquisition during the year, there is an established process of business acquisition
accounting and there has been no history of audit misstatement.
CONCLUSIONS REL ATING 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
We have nothing to report in
respect of these matters.
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.
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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 RECOVERABILIT Y OF ACCRUED REVENUE
Key audit matter description
The group derives its revenue from the rendering of services in wealth management and employee
benefits, both over time and at a point in time across all four operating segments. The Financial Statements
report total revenue of £58.4m (2019: £57.5m), of which £4.8m (2019: £4.6m) represents accrued income
in respect of time costs incurred on clients’ affairs during the period which has not yet been invoiced.
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 and the length of historical data to calculate that recovery rate.
Management develops the forecast based on the average historical recovery rate and makes adjustments
for accrued income balances which are more than twelve months old. In the current year, management
used the last three months (2019: twelve months) in their estimate. This was because the effect of the UK
lockdown in March 2020 led to a fall in the recovery rate and management considered that the experience
over the past twelve months would not be a reliable measure of the recoverability of the accrued income.
The recovery rate in the last quarter of the financial year was 66.9% (2019 annual rate 68.0%). Post year end,
the recovery rate fell in June 2020 and then recovered in July to a similar level as the rate at the year end and
this was not included in the calculation of the rate as at year end. Management’s estimate, together with a
sensitivity of a reasonably likely change in the recovery rate, is discussed in more detail in the key sources of
estimation uncertainty section of Note 2.6.
Inappropriate assumptions for recoverability would result in inaccurate revenue recognition. We therefore
consider there to be a risk of material misstatement due to fraud or error in respect of the valuation and
recoverability of accrued revenue.
The accounting policy for revenue recognition is provided in Note 2.5. 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 Corporate Governance report of the Annual Report.
Our work on the testing of the accrued revenue balance included:
Understanding of the relevant controls over the recording of time costs and the setting of the recovery
rate for accrued revenue;
Examining the historical recovery rates to assess whether three months is an appropriate period of data to
set the current recovery rate and to identify evidence of patterns or outliers that might indicate it is not;
Examining credit notes for evidence of unusual trends, patterns or outliers;
Reviewing the movement in recoverability rates post year end for evidence of deterioration in the same;
Performing a retrospective review of the management estimate;
Recalculating the recovery rate from the underlying data and testing the arithmetical accuracy of how the
recovery rate was applied in the estimate;
Testing the cut off of accrued income by analysing the records of time spent on client matters at the
balance sheet date; and
Considering the adequacy of disclosure of the estimation uncertainty for accrued revenue.
How the scope of our
audit responded to the
key audit matter
Key observations
Overall, we considered the estimate of accrued income to be reasonable. The recovery rate used by
management to estimate accrued income was not adjusted to include actual recovery rates post year end;
we therefore considered the recovery rate assumption to be slightly optimistic.
We concluded that the related disclosures are appropriate.
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Governance
Financial Statements
IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS
Key audit matter description
The group balance sheet shows intangible assets (including goodwill) of £48.1m (2019: £48.7m).
Management are required by IAS 36 Impairment of assets, to perform an annual impairment review for
goodwill and for finite-life 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 (£192.7m at 31 May 2020) is significantly in excess of the net assets of the group at £91.9m.
Note 19 of the Financial Statements discloses that there is no impairment to the carrying value of the
Employee Benefits division goodwill and intangible assets, but that there is £2.1m headroom in the model
and this is the most sensitive to changes in assumptions.
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. We consider there to be a risk of material misstatement due to fraud or error in respect of the
impairment of goodwill and intangible assets.
The accounting policy for goodwill is provided in Note 2.5 and the management judgement is discussed
in more detail in the key sources of estimation uncertainty section of Note 2.6. Goodwill and intangible
assets are disclosed in Note 19. This risk was also considered by the Audit Committee, as set out in “Audit
Committee activities during the year” within the Corporate Governance report of the Annual Report.
Our work on the impairment of goodwill and intangible assets included:
Obtaining an understanding of the relevant controls over the reviews of the impairment review model;
Reviewing of the EBITDA forecast used in the model against the historical trading of the Employee
Benefits division and challenged the assumptions underpinning the forecast, including retrospective
review of the estimates, long-term growth rate and discount rate used;
Considering factors behind growth and financial performance in the Employee Benefits division
specifically, the extent of recurring work and new business wins in 2020;
Assessing the length of the forecast period and the long-term growth rates;
Working with our valuation specialists to determine an estimate of the discount rate independently in
order to challenge the rate selected by management;
Comparing the forecasts used in the impairment test to the forecasts used in the going concern
assumption for consistency;
Comparing the FY20 actual to the budgeted FY20 balances per the FY19 impairment model;
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 19 and assessed
whether they are consistent with our understanding of sensitivities and the potential impairment under
those scenarios.
Current trading, including post year-end trading performance, indicates that the forecasts for the Employee
Benefits division are appropriate. The discount rate applied is at the conservative end of the acceptable
range. We have concluded that management’s judgement not to impair the intangible assets and goodwill
is reasonable.
The disclosures made concerning the impairment review and the sensitivities that apply to the Employee
Benefits division are appropriate.
How the scope of our
audit responded to the
key audit matter
Key observations
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Our application of materiality
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:
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
Materiality
£577,000 (2019: £512,000)
£519,300 (2019: £358,000)
Basis for determining
materiality
5% of forecast profit before tax (2019: 5% of statutory
profit before tax), which equates to 4.2% of statutory
profit before tax and 5.5% of adjusted profit before tax.
Rationale for the
benchmark applied
Adjusted profit before tax is statutory profit before tax
of £13,417,000, less £2,900,000; this is the estimate of
the cost savings that arose following management’s
actions in response to Covid-19. These cost savings
are expected to only affect the year ended 31 May 2020.
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. At the
planning stage of the audit, we used forecast profit
before tax to determine materiality. Because forecast
profit before tax did not differ significantly from
actual adjusted profit before tax, we did not revise
the amount determined initially.
1.25% of revenue (2019: 4% of profit before tax).
Parent company materiality equates to 4% of profit,
which is capped at 90% of group materiality. In prior
year, the parent company materiality equated to 4%
of parent company only profit and was capped at 70%
of group materiality.
The parent company is also the largest trading entity
in the group, however as central costs are largely
incurred by the parent company only we considered it
appropriate to assess materiality based on the parent
company revenue. We cap the materiality to reflect
the proportion of the group’s profit that arises in the
company.
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Governance
Financial Statements
Forecast PBT £10,858k
Forecast PBT
Group materiality
Group materiality
£577k
Component
materiality range
£519k to £173k
Audit Committee
reporting threshold £28k
Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the Financial Statements as a whole. Group performance materiality was set at 60% of group materiality
for the 2020 audit (2019: 70%). In determining performance materiality, we considered the following factors:
• Control environment: The impact of the ongoing process to improve the control environment in the finance function elevates the risk of
operational error until such process is finalised;
• Prior period errors: A number of adjustments were identified by management through the financial closing process which related to the prior
period. The prior period Financial Statements were adjusted for items that were judged by management to be material to the Financial Statements
(see note 2.2). Adjustments that were considered immaterial, either individually or in aggregate, to users of the Financial Statements were adjusted
in the current year.
Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £28,000 (2019: £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, MC Trustees Limited, Broughtons Financial Planning Limited, SSAS Solutions (UK) Ltd and
The Turris Partnership Limited, plus the property owning entity, Mattioli Woods (New Walk) Limited.
Our audit work included a full scope audit on these UK components, to levels of component materiality that ranged from £173k to £519k. 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 more than
99% of the group’s revenue, assets and profit before tax.
The parent company and group finance function is located in Leicester and all components 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.
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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.
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.
We have nothing to report in respect of these matters.
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.
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Financial Statements
Report on other legal and regulatory requirements
OPINIONS ON OTHER MAT TERS 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 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 MAT TER PRESCRIBED BY THE CAPITAL REQUIREMENTS (COUNTRY-BY-COUNTRY REPORTING)
REGUL ATIONS 2013
In our opinion the information given on page 96 for the financial year ended 31 May 2020 has been properly prepared, in all material respects,
in accordance with the Capital Requirements (Country-by-Country Reporting) Regulations 2013.
MAT TERS 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 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.
We have nothing to report
in respect of these matters.
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, FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
1 September 2020
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Mattioli Woods plc Annual Report 2020 Financial Statements
For the year ended 31 May 2020
Consolidated statement of comprehensive income
Revenue
Employee benefits expense
Other administrative expenses
Share-based payments
Amortisation and impairment
Depreciation
Impairment loss on financial assets
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
Items that will not be reclassified to profit or loss
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
2020
£000
4
58,407
11
20
17
15,16
21
18
10
8
9
18
12
2019
Restated
£000
57,494
(31,239)
(10,771)
(1,531)
(2,962)
(1,288)
(358)
(125)
100
(27,623)
(10,897)
(1,335)
(2,437)
(2,547)
(605)
(18)
–
12,945
9,320
99
(260)
(161)
633
13,417
(3,244)
10,173
(15)
10,158
60
(86)
(26)
480
9,774
(1,963)
7,811
6
7,817
10,158
7,817
13
13
14
37.8
36.6
20.0
29.3
28.5
20.0
Details of the restatement to comparative financial information are disclosed in Note 2.
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.
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Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
As at 31 May 2020
Consolidated and Company statements of financial position
Assets
Property, plant and equipment
Right of use assets
Intangible assets
Deferred tax asset
Investments in subsidiaries
Investment in associate
Derivative financial asset
Total non-current assets
Trade and other receivables
Income tax receivable
Finance lease receivable
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
Lease liability
Financial liabilities and provisions
Total non-current liabilities
Current liabilities
Trade and other payables
Income tax payable
Lease liability
Financial liabilities and provisions
Total current liabilities
Total liabilities
Total equities and liabilities
15
16
17
12
18
18
22
21
12
18
23
24
24
24
24
24
24
24
12
28
27
26
12
28
27
2020
Note
Group
£000
Company
£000
Group
Restated
£000
16,665
–
48,734
704
–
4,211
750
71,064
16,384
–
–
80
23,248
2019
Company
Restated
£000
3,469
–
38,505
701
12,803
4,211
750
60,439
28,111
–
–
80
14,095
15,636
2,584
48,102
888
–
3,732
–
70,942
17,208
390
324
40
25,959
3,115
2,188
36,638
874
14,534
3,732
–
61,081
27,192
1,403
324
40
17,584
43,921
46,543
39,712
42,286
114,863
107,624
110,776
102,725
269
32,891
10,639
3,848
2,000
(597)
42,576
91,626
4,482
1,944
1,713
8,139
9,923
–
964
4,211
15,098
23,237
269
32,891
10,639
3,848
2,000
–
38,037
87,684
3,092
1,622
1,683
6,397
8,706
–
880
3,957
13,543
19,940
268
32,137
10,639
3,208
2,000
(99)
37,632
85,785
4,345
–
1,976
6,321
14,527
536
–
3,607
18,670
24,991
268
32,137
10,639
3,208
2,000
–
33,223
81,475
3,150
–
1,951
5,101
12,806
–
–
3,343
16,149
21,250
114,863
107,624
110,766
102,725
Details of restatement to comparative financial information are disclosed in Note 2.
The profit of the Company for the financial year, after taxation, was £10.0m (2019 restated: £8.5m).
The Financial Statements on pages 76 to 127 were approved by the Board of Directors and authorised for issue on 1 September 2020 and are signed
on its behalf by:
Ian Mattioli MBE
Chief Executive Officer
Nathan Imlach
Chief Financial Officer
Registered number: 03140521
77
Mattioli Woods plc Annual Report 2020
Financial Statements
For the year ended 31 May 2020
Consolidated and Company statements of changes in equity
Group
As at 1 June 2018
Profit for the year
Share of other comprehensive income
from associates
Total comprehensive income
Transactions with owners of the Group,
recognised directly in equity
Issue of share capital
Share-based payment transactions
Deferred tax recognised in equity
Current tax taken to equity
Reserves transfer
Own shares
Dividends
Issued
capital
(Note 24)
£000
261
–
Share
premium
(Note 24)
£000
31,283
–
Equity –
share-based
payments
Restated
(Note 24)
£000
Capital
redemption
reserve
(Note 24)
£000
3,456
–
2,000
–
Merger
reserve
(Note 24)
£000
8,781
–
–
–
–
–
–
–
7
–
–
–
–
–
–
–
–
854
–
–
–
–
–
–
1,858
–
–
–
–
–
–
Own shares
(Note 24)
£000
–
–
–
–
–
–
–
–
–
(99)
–
(99)
–
–
Retained
earnings
Restated
(Note 24)
£000
33,001
7,811
Total
equity
£000
78,782
7,811
6
6
7,817
7,817
–
–
–
–
1,517
–
(4,703)
2,719
1,270
(135)
134
–
(99)
(4,703)
37,632
85,785
10,173
10,173
(15)
(15)
–
10,158
10,158
–
–
–
–
–
(498)
–
(597)
–
–
–
–
405
–
(5,619)
755
1,066
(50)
29
–
(498)
(5,619)
42,576
91,626
–
–
–
–
–
–
–
–
–
2,000
–
–
–
–
–
–
–
–
–
–
–
1,270
(135)
134
(1,517)
–
–
3,208
–
–
–
–
1,066
(50)
29
(405)
–
–
As at 31 May 2019
268
32,137
10,639
Profit for the year
Share of other comprehensive income
from associates
Total comprehensive income
Transactions with owners of the Group,
recognised directly in equity
Issue of share capital
Share-based payment transactions
Deferred tax recognised in equity
Current tax taken to equity
Reserves transfer
Own shares
Dividends
–
–
–
1
–
–
–
–
–
–
–
–
–
754
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
As at 31 May 2020
269
32,891
10,639
3,848
2,000
Details of restatement to comparative financial information are disclosed in Note 2.
78
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Issued
capital
(Note 24)
£000
261
–
–
Share
premium
(Note 24)
£000
31,283
–
–
Equity –
share-based
payments
Restated
(Note 24)
£000
3,456
–
–
Capital
redemption
reserve
(Note 24)
£000
2,000
–
–
Merger
reserve
(Note 24)
£000
8,781
–
–
Retained
earnings
Restated
(Note 24)
£000
27,874
8,529
6
Total
equity
£000
73,655
8,529
6
–
–
–
–
8,535
8,535
Company
As at 1 June 2018
Profit for the year
Share of other comprehensive income from associates
Total comprehensive income
Transactions with owners of the Company,
recognised directly in equity
Issue of share capital
Share-based payment transactions
Deferred tax recognised in equity
Current tax taken to equity
Reserves transfer
Dividends
–
7
–
–
–
–
–
854
–
–
–
–
–
1,858
–
–
–
–
–
As at 31 May 2019
268
32,137
10,639
Profit for the year
Share of other comprehensive income from associates
Total comprehensive income
Transactions with owners of the Company,
recognised directly in equity
Issue of share capital
Share-based payment transactions
Deferred tax recognised in equity
Current tax taken to equity
Reserves transfer
Dividends
–
–
–
1
–
–
–
–
–
–
–
–
754
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,270
(135)
134
(1,517)
–
3,208
–
–
–
–
1,066
(50)
29
(405)
–
–
–
–
–
–
–
–
–
–
–
1,517
(4,703)
2,719
1,270
(135)
134
–
(4,703)
2,000
33,081
81,475
–
–
10,043
(15)
10,043
(15)
–
10,028
10,028
–
–
–
–
–
–
–
–
–
–
405
(5,619)
755
1,066
(50)
29
–
(5,619)
As at 31 May 2020
269
32,891
10,639
3,848
2,000
38,037
87,684
Details of restatement to comparative financial information are disclosed in Note 2.
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.
79
Mattioli Woods plc Annual Report 2020
Financial Statements
For the year ended 31 May 2020
Consolidated and Company statements of cash flows
Group
2020
£000
Company
2020
£000
Note
Group
2019
Restated
£000
Company
2019
Restated
£000
15,16
17
18
8
9
18
18
20
12
15
17
27
3
3
18
22
18
8
14
28
23
23
10,173
2,547
2,437
–
(99)
260
(633)
–
18
1,335
–
3,244
19,282
(806)
(4,586)
36
13,926
–
(4,392)
10,042
1,781
2,039
–
(490)
241
(633)
–
16
1,335
(3,500)
2,208
13,039
1,327
(4,061)
55
10,360
–
(3,863)
9,534
6,497
124
(818)
(173)
(600)
(861)
111
1,078
750
45
(35)
44
83
–
(252)
124
(814)
(173)
(600)
(990)
–
1,078
750
45
(35)
44
44
3,500
2,973
7,811
1,288
2,962
–
(60)
86
(480)
(100)
125
1,531
–
1,963
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)
487
(498)
(5,619)
(941)
(6,571)
487
–
(5,619)
(849)
595
(99)
(4,703)
–
(5,981)
(4,207)
8,529
840
2,723
14,935
(512)
691
(480)
(100)
114
1,531
(18,835)
1,031
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)
2,711
23,248
25,959
3,489
14,095
(420)
23,668
(3,785)
17,880
17,584
23,248
14,095
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
Dividend income
Income tax expense
Cash flows from operating activities before changes
in working capital and provisions
(Increase)/decrease in trade and other receivables
Decrease in trade and other payables
Increase/(decrease) 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 received on acquisition of subsidiaries
Dividends received from associate undertakings
Proceeds from disposal of derivative financial assets
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
Payment of lease liabilities
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start year
Cash and cash equivalents at end of year
Details of restatement to comparative financial information are disclosed in Note 2.
80
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Notes to the financial statements
1. Corporate information
Mattioli Woods plc (“the Company”) is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly
traded on the AIM market of the London Stock Exchange plc. The nature of the Group’s operations and its principal activities are set out in the
Chief Executive’s Review.
2 Basis of preparation and accounting policies
2.1 Basis of preparation
The consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted
by the European Union (“EU”) and in accordance with the requirements of the Companies Act applicable to companies reporting under IFRS.
The Financial Statements comprise the Financial Statements of Mattioli Woods plc and its subsidiaries (“the Group”) as at 31 May each year.
The Financial Statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair
value (Notes 18, 22 and 27), 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
1 September 2020.
2.2 Restatement of comparative financial information
Revenue
Fees and commissions receivable on the arrangement of insurance by the Group’s property management business on behalf of its clients were
previously reported gross, with the premiums payable on the arrangement of the insurance on the clients’ behalf previously reported as other
administrative expenses.
Having revisited the terms of these insurance arrangements, we have concluded that in these circumstances the Group is acting as agent, not
principal, and hence the revenue that should be recognised under IFRS 15 is the net amount of consideration that the Group retains after paying the
other party the consideration received in exchange for the insurance services to be provided by that party.
Accordingly, we have restated revenue recognised in respect of the year ended 31 May 2019 to reduce revenue by £970,000 and restated other
administrative expenses to reduce costs for the year by an equal amount. There is no impact on total equity and no impact on profit or earnings per
share for the year.
Performance measures impacted by the restatement to revenue and other administrative expenses have also been restated, including fee-based
revenue, recurring revenue, operating profit margin, adjusted EBITDA margin and debtors’ days.
Share-based payments costs
Following a detailed review of our option valuation model we identified the model had not been correctly updated to reflect the likely outcome
of non-market based conditions as determined at each period end using the data available at the time. The correction of historic calculations has
increased the share-based payments costs recognised in respect of the year ended 31 May 2019 by £471,000, and in respect of the three years
ended 31 May 2019 by £806,000 in aggregate. Accordingly, we have restated share-based payments cost for the year ended 31 May 2019 to
increase the cost recognised by £471,000 and restated the value of the reserves transfer re-allocating the cost of exercised or lapsed share options
from equity-share-based payments to retained earnings to reflect the increased share-based payments cost by £90,000.
The deferred tax asset in respect of share-based payments as at 31 May 2018 has been increased by £82,000, and as at 31 May 2019 by £192,000.
In respect of the year ended 31 May 2019 income tax expense has been reduced by £85,000 and deferred taxation charge in equity share-based
payments reserve has been reduced by £25,000.
Retained earnings as at 31 May 2018 were reduced by £364,000 and at 31 May 2019 by £660,000, with the equity-share-based payments reserve
as at 31 May 2018 increased by £446,000 and at 31 May 2019 by £852,000.
Performance measures impacted by the restatement to share-based payments costs have also been restated, including operating profit before
financing, EBITDA, adjusted EBITDA, profit before tax, adjusted profit before tax, profit after tax, adjusted profit after tax, effective taxation rate, basic
EPS and adjusted EPS.
2.3 Going concern
The Directors have, at the time of approving the Financial Statements, a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence. In forming this view, the Directors have considered the Company’s and the Group’s prospects for a
period of at least 12 months. Thus they continue to adopt the going concern basis of accounting in preparing the Financial Statements.
2.4 Developments in reporting standards and interpretations
Standards affecting the Financial Statements
This is the first set of the Group’s Financial Statements where IFRS 16 has been applied. This new standard was adopted from 1 June 2019. Under
the transition method chosen, comparative information is not restated. Changes to significant accounting policies are described in Note 2.
81
Mattioli Woods plc Annual Report 2020 Financial Statements
Notes to the financial statements continued
2 Basis of preparation and accounting policies continued
2.4 Developments in reporting standards and interpretations continued
IFRS 16 Leases
IFRS 16 has primarily changed lease accounting for lessees. Lease agreements now give rise to the recognition of an asset representing the
right to use the leased item and a lease liability obligation for the present value of future lease payments. Lease costs are recognised in the form
of depreciation of the right-of-use asset and interest on the lease liability. Lessee accounting under IFRS 16 is similar in many respects to the
existing IAS 17 ‘Accounting for finance leases’ but is substantially different to previous accounting for operating leases where rental charges were
recognised on a straight-line basis and no lease asset or lease loan obligation was recognised.
Lessor accounting under IFRS 16 is similar in many respects to IAS 17 accounting, but is different in the classification of leases for sublets of lease
assets, which are now made by reference to the term of the head lease, rather than the life of the leased asset itself.
Transition
On transition to IFRS 16, the Group has applied the modified retrospective approach, under which the cumulative effect of initial application
is recognised as an adjustment to the opening balance sheet. There is no restatement of the comparative information, which continues to be
reported under IAS 17.
On adoption, lease agreements under which the Group is lessee have given rise to both a right-of-use asset and a lease liability. For leases
previously classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments,
discounted at the Group’s incremental borrowing rate as at 1 June 2019. Right-of-use assets were measured at an amount equal to the lease
liability, adjusted by the amount of any prepaid or accrued lease payments on the Group statement of financial position at the date of transition.
Lease liabilities are subsequently measured by adjusting the carrying amount to reflect the interest charge, the lease payments made and any
reassessment or lease modifications. Right-of-use assets are subsequently depreciated on a straight-line basis over the shorter of the expected life
of the asset and the lease term, adjusted for any remeasurements of the lease liability.
On adoption, the classification of lease agreements under which the Group is lessor have been reviewed and one lease previously classified
as an operating lease under IAS 17 has been classified as a finance lease under IFRS 16. This has given rise to both a finance lease receivable,
reported within trade and other receivables, and the partial de-recognition of the right of use asset in respect of the head lease for the property.
De-recognition of right of use assets were measured at an amount equal to the lease receivable, adjusted by the amount of any prepaid or accrued
lease payment on the Group statement of financial position at the date of transition.
The Group has used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:
• ‘Grandfathering’ the assessment of which contracts are leases and applied IFRS 16 only to those that were previously identified as leases. Contracts
not identified as leases under IAS 17 were not reassessed as to whether there is a lease. The identification of a lease under IFRS 16 was therefore
only applied to contracts entered into (or modified) on or after 1 June 2019; and
• Applying the exemption not to recognise right-of-use assets and liabilities for leases with a term of less than 12 months and leases of low value
assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
The impact on the consolidated statement of financial position as at 1 June 2019 is as follows:
Assets
Right of use assets
Finance lease receivable
Trade and other receivables
Total assets
Liabilities
Trade and other payables
Lease liabilities
Total liabilities
Equity
Retained earnings
Total equity
Total equity and liabilities
The adjustments to the consolidated balance sheet reflect the initial application of IFRS 16.
82
As reported
31 May 2019
£000
Adjustments
£000
On adoption
1 June 2019
£000
–
–
16,384
3,190
356
(76)
3,190
356
16,308
110,584
3,470
114,054
14,527
–
24,991
(37)
3,507
3,470
14,490
3,507
28,461
38,292
85,593
–
–
38,292
85,593
110,584
3,470
114,054
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Impact on the Financial Statements for the year ended 31 May 2020
In the year ended 31 May 2020, the Group recognised an interest charge arising on lease liabilities of £122,000, a depreciation charge on the right-
of-use assets of £842,000 and interest income arising on finance lease receivables from sub-leased assets of £16,000. In the year ended 31 May
2019, the Group recognised lease costs of £1,054,000 and sublet rental income of £48,000 in accordance with IAS 17.
Disclosure of the change in value of the right-of-use assets during the period is included in Note 16.
When measuring lease liabilities, the Group discounted its lease payments using incremental borrowing rates between 3.08% and 4.47%
at 1 June 2019, depending on the remaining term of the lease.
The Group is required to identify the difference between the present value of its operating lease commitments disclosed at 31 May 2019 under
IAS 17, discounted using the Group’s incremental borrowing rate, and its lease liabilities recognised at the date of initial application to IFRS 16.
This reconciliation is presented as follows:
Operating lease commitment at 31 May 2019
Amendments to lease commitment workings
Impact of discounting at the incremental borrowing rate
Lease liabilities at 1 June 2019
Standards not affecting the Financial Statements
In addition to IFRS 16 the following new and revised standards and interpretations have been adopted in the current year:
Standard or interpretation
IFRIC 23
IAS 28 (amended)
Annual Improvements to IFRSs 2015-2017 Cycle
IAS 19 (amendments)
IFRS 9 (amendments)
Accounting for uncertain tax treatments
Long Term Interests in Associates and Joint Ventures
Plan amendment, curtailment or settlement
Prepayment Features with Negative Compensation
£000
3,975
(85)
(383)
3,507
Periods commencing
on or after
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
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 have not been applied in these Financial Statements were in issue but not yet effective:
Standard or interpretation
Amendments to References to the Conceptual Framework in IFRS standards
Amendments to IFRS 3 Business Combinations
Amendments to IFRS 9, IAS 39 and IFRS17: Interest Rate Benchmark Reform
Amendments to IAS 1 and IAS 8: Definition of Material
IFRS 17 Insurance Contracts including Amendments to IFRS 17
Periods commencing
on or after
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2023
Other than to expand certain disclosures within the Financial Statements, the Directors do not expect the adoption of these standards and
interpretations listed above to have a material impact on the Financial Statements of the Group in future periods.
83
Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
2 Basis of preparation and accounting policies continued
2.5 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.
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
• Freehold buildings
• Computer and office equipment
• Fixtures and fittings
• Motor vehicles
• Leasehold improvements
0% until asset becomes available for use;
2% per annum on cost;
20/25% per annum on written down values;
20% per annum on written down values;
25% per annum on written down values; and
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 amortised cost.
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
• Internally generated software
25% per annum on written down values; and
Straight line over 10 years.
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
The Turris Partnership
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
19 December 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
15 Years
A summary of the policies applied to the Group’s goodwill and intangible assets is as follows:
Useful life
Measurement
method used
Goodwill
Indefinite
Client portfolios
Finite
Software
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
Other intangibles
Finite
Amortised over a useful
economic life of three years
Internally generated
or acquired
Acquired
Acquired
Both
Both
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.
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Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
2 Basis of preparation and accounting policies continued
2.5 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 the
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.
Derivative financial assets
Derivative financial assets previously comprised 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.
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. Aged trade and other receivables are reviewed with specific provisions or write offs
recognise where recovery is uncertain, such as balances owing from individuals who are declared bankrupt or deceased, and balances due from
pension schemes where the scheme does not hold liquid or saleable assets. The carrying amount of the receivable is reduced through use of an
allowance account.
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Financial Statements
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 exception of bonus accruals which are typically paid annually.
Leases
The group has applied IFRS 16 with effect from 1 June 2019, using the modified retrospective approach. Comparative information has not been
restated. More details on the approach to transition are provided in Note 2.
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 are recognised in accordance with IFRS 9 in the Statement of 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.
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 that 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.
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).
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Mattioli Woods plc Annual Report 2020 Financial Statements
Notes to the financial statements continued
2 Basis of preparation and accounting policies continued
2.5 Principal accounting policies continued
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 27) 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.
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.
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Financial Statements
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.
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.
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Mattioli Woods plc Annual Report 2020 Financial Statements
Notes to the financial statements continued
2 Basis of preparation and accounting policies continued
2.6 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
The Group does not believe that there are any critical accounting judgements at 31 May 2020 which require disclosure.
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 13.3% to each of its operating segments.
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% (2019: 2.5%), which management considers conservative against industry average long-term growth rates.
The carrying amount of client portfolios at 31 May 2020 was £25.4m (2019: £26.8m). No impairment provisions have been made during the year
(2019: £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 13.3%, reflecting current market assessments of the time value of money and the risks specific to that
asset, based on the Group’s WACC.
The carrying amount of goodwill at 31 May 2020 was £21.1m (2019: £20.2m). No impairment provisions have been made during the year (2019:
£nil) based upon the Directors’ review.
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, and discount rates. Sensitivities to key assumptions are
disclosed in Note 19. Of these, the most sensitive assumption is the discount rate used to measure the value in use. Increasing the discount rate
by 1.0% would reduce the value in use of the Group’s operating segments by £14.6m (2019: £13.2m).
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Financial Statements
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 unbilled time costs and disbursements.
The estimated rate of recovery of 66.9% (2019: 68.0%) is based on historic actual recovery rates measured over a period of three (2019: twelve)
months, calculated based on the value of invoices, net of credit losses, divided by the gross value of the charges based on internal charge out
rates. The period over which the recovery rate is measured has been temporarily reduced to three months as this is considered a more appropriate
reflection of any impact from the Covid-19 pandemic. The carrying amount of accrued time costs and disbursements at 31 May 2020 was £4.8m
(2019: £4.6m).
The sensitivity of a 1.0% and a 3.0% change in the estimated recoverability of time costs and disbursements incurred but not invoiced to clients, with all
other variables held constant, is £0.07m and £0.21m of the Group’s profit before tax respectively. There is no material impact on the Group’s equity.
Other areas of focus
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 £1.6m (2019: £5.2m), 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.
The sensitivity of the fair value of the customer relationships acquired during the year to changes in the key assumptions is as follows:
Assumption
Estimated useful life
Short-term growth rate in years 2 to 5
Long-term growth rate from year 6
Discount rate
Sensitivity
10 years
Nil
Nil
14.7%
Change in
assumption
-5 years
-2.5%
-2.5%
+1.0%
Increase/
(decrease)
in fair value
£000
(160)
(41)
(19)
(22)
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 forecasts approved by the Board covering the contingent consideration period, provisions are recognised based on the maximum expected
value of contingent consideration expected to fall due. 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 2020 was £2.8m (2019: £2.7m).
The key assumption used in determining the value of these provisions is the forecast financial performance as applied in the terms of the
contingent consideration arrangement. A 10% reduction in achievement of forecast contingent consideration targets would reduce the value of
provisions required by £0.3m.
Provisions
As detailed in Note 27, 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.
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Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
3. Business combinations
The Group completed one acquisition during the year. Transaction costs of £0.3m (2019: £0.1m) incurred during the year to 31 May 2020 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 The Turris Partnership Limited
On 19 December 2019, Mattioli Woods acquired the entire issued share capital of The Turris Partnership Limited (“Turris”), a financial planning and
wealth management business based in Glasgow. The acquisition of Turris helps us expand our Wealth Management operations in Scotland.
The fair values of the assets and liabilities of Turris as at the date of acquisition are set out in the table below:
Fair value
Previous
adjustments carrying value
£000
£000
–
–
712
(129)
–
–
583
–
–
–
–
(121)
(121)
2
88
–
145
23
111
369
(15)
(33)
(88)
(12)
–
(148)
Tangible fixed assets
Right of use assets
Client portfolio
Other receivables
Prepayments and accrued income
Cash
Assets
Accruals and deferred income
Income tax
Lease liability
Provisions
Deferred tax liability
Liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Total acquisition cost
Analysed as follows:
Initial cash consideration
Net assets adjustment to initial consideration
Deferred consideration payable
Discounting of deferred consideration
Total acquisition cost
Cash outflow on acquisition
Cash paid
Cash acquired
Acquired net assets adjustment
Acquisition costs
Net cash outflow
Fair value
recognised on
acquisition
£000
2
88
712
16
23
111
952
(15)
(33)
(88)
(12)
(121)
(269)
682
920
1,602
800
61
800
(59)
1,602
800
(111)
61
73
823
Turris specialises in providing chartered financial planning and wealth management advice to its clients and has over £65m of assets under
advice. Turris was established in 2003 and its experienced team of five staff based in Glasgow have been retained by Mattioli Woods following the
acquisition.
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 Turris has contributed £0.2m to Group revenue and £0.1m to the Group profit for the period. If the combination had
taken place at the beginning of the period, Group revenue from continuing operations would have been £59.6m and the profit for the period would
have been £10.5m.
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Financial Statements
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 £2.8m (2019: £2.7m) (see Note 27).
On 19 December 2019 the Group acquired Turris for total consideration of up to £1.6m, comprising initial consideration of £0.8m in cash plus
contingent consideration of up to £0.8m 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 2020 to be £0.8m using cash flows approved by the Board covering the contingent consideration period and expects the maximum
contingent consideration will be payable.
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. Following
the year end, the Group has agreed to amend the terms of the share purchase agreement to defer the second year of the contingent consideration
period by one year in light of the expected impact of Brexit and the COVID-19 pandemic on the revenues of SSAS Solutions (Note 33). The Group
estimates the fair value of the remaining contingent consideration at 31 May 2020 to be £1.4m (2019: £1.4m) using cash flows approved by the
Board covering the contingent consideration period and expects the maximum remaining 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 target based on growth in earnings before interest, tax, depreciation and amortisation are met. The Group estimates
the fair value of the remaining contingent consideration at 31 May 2020 to be £0.8m (2019: £1.3m) using cash flows approved by the Board
covering the contingent consideration period and expects the maximum contingent consideration will be payable.
4. Revenue
The Group derives its revenue from the rendering of services over time and at a point in time across all operating segments. Further details of
accounting policies for the recognition of revenue are disclosed in Note 2. 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
2020
£000
2,002
1,097
464
1,043
4,606
24,846
19,464
4,952
4,539
53,801
58,407
2019
Restated
£000
2,873
1,276
620
973
5,742
23,124
19,129
4,853
4,646
51,752
57,494
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
2020
£000
–
2,219
36
515
2,770
Group
2019
£000
–
2,353
36
491
2,880
Company
2020
£000
Company
2019
£000
–
1,051
–
515
1,566
–
1,205
–
491
1,696
The Group expects that 100% of the transaction price allocated to the unsatisfied contracts as at 31 May 2020 will be recognised as revenue during
the next reporting period, amounting to £2,770,000.
93
Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
4. Revenue continued
The following table shows the movement in contract liabilities in the period:
Contract liabilities
At 1 June 2019
Revenue recognised on completion of performance obligations
Consideration received allocated to performance obligations that are unsatisfied at the period end
At 31 May 2020
Group
£000
Company
£000
2,880
(2,880)
2,770
2,770
1,696
(1,696)
1,566
1,566
5. Seasonality of operations
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.
6. Segment information
The Group’s objective is to fully integrate the businesses it acquires, to enable it to deliver holistic solutions across its wide and diverse client base.
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 from corporate clients for consultancy and administration of employee benefits offering including
group personal pensions and other insurance products.
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 2020 and
2019 respectively.
Year ended 31 May 2020
Revenue
External customers
Results
Segment profit before tax
Year ended 31 May 2019
Revenue
External customers (restated)
Results
Segment profit before tax (restated)
94
Pension
consultancy
Investment
and asset
Property
management administration management
£000
£000
£000
and
Employee
benefits
£000
Total
segments
£000
Corporate
costs Consolidated
£000
£000
26,848
20,561
5,416
5,582
58,407
–
58,407
9,629
6,488
1,107
1,146
18,370
(4,953)
13,417
Pension
consultancy
Investment
and asset
Property
management administration management
£000
£000
£000
and
Employee
benefits
£000
Total
segments
£000
Corporate
costs Consolidated
£000
£000
25,997
20,405
5,473
5,619
57,494
–
57,494
7,242
4,602
510
755
13,109
(3,335)
9,774
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
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
2020
£000
26,539
27,508
1,468
9,239
64,754
50,109
31 May
2019
£000
26,825
28,092
1,559
9,626
66,102
44,482
114,863
110,584
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
Right of use assets
Intangible assets
Deferred tax asset
Derivative financial asset
Prepayments and other receivables
Income tax receivable
Finance lease receivable
Investments
Cash and short-term deposits
Total assets
31 May
2020
£000
31 May
2019
£000
64,754
66,102
15,636
2,584
1,579
888
–
2,709
390
324
40
25,959
16,665
–
1,766
512
750
1,461
–
–
80
23,248
114,863
110,584
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 2020
Financial Statements
Notes to the financial statements continued
6. Segment information continued
Corporate costs continued
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
Irrecoverable VAT
Professional indemnity insurance
Amortisation and impairment
Acquisition-related costs
Finance costs
Bank charges
Loss on disposal of assets
Gain on revaluation of derivative financial asset
Finance income
Decrease in provisions
Group profit before tax
31 May
2020
£000
18,370
(2,547)
(900)
(610)
(359)
(334)
(260)
(24)
(18)
–
99
–
13,417
31 May
2019
Restated
£000
13,109
(1,288)
(868)
(513)
(1,054)
(123)
(321)
(18)
(125)
100
292
583
9,774
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 2020.
Mattioli Woods plc and its subsidiaries (see Note 18) 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.
7. Auditor’s remuneration
Remuneration paid by the Group to its auditor, Deloitte 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 services:
Audit of the Company
Audit of subsidiaries
Audit-related services:
Interim review
Other assurance – CASS reporting
Non-audit services:
Indirect tax advice
Provision of indirect tax software for clients’ VAT returns
Total
8. Finance revenue
Bank interest receivable
Unwinding of discount on finance lease receivable
96
2020
£000
170
30
200
28
20
48
12
39
51
2019
£000
91
52
143
25
18
43
14
–
14
299
200
2020
£000
83
16
99
2019
£000
60
–
60
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
9. Finance costs
Unwinding of discount on provisions
Unwinding of discount on lease liabilities
10. Operating profit
Included in operating profit before financing:
Depreciation (Notes 15 and 16)
Amortisation and impairment of intangible assets (Note 17)
Minimum lease payments recognised as an operating lease expense (Note 28)
Gain on revaluation of derivative financial instrument (Note 18)
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
2020
£000
138
122
260
2019
£000
86
–
86
2020
£000
(2,547)
(2,437)
–
–
2019
£000
(1,288)
(2,962)
(1,054)
100
Group
2020
No.
2
120
246
233
601
Group
2019
No.
3
119
258
220
600
Company
2020
No.
Company
2019
No.
2
115
221
213
551
3
115
239
202
559
Group
2020
No.
23,253
2,321
1,266
783
27,623
Group
2019
No.
26,504
3,028
889
886
Company
2020
No.
21,402
2,168
1,111
780
Company
2019
No.
24,419
2,847
807
861
31,307
25,461
28,934
In addition, the cost of share-based payments disclosed separately in the consolidated statement of comprehensive income was £1,335,000
(2019 restated: £1,531,000).
Details of the remuneration payable to each Director in respect of the year ended 31 May 2020 is disclosed in the Directors’ Remuneration Report
on page 59.
Emoluments
Company contributions to personal pension schemes
Benefits in kind
2020
£000
1,078
–
24
1,102
2019
£000
2,296
–
24
2,320
Three Directors (2019: three) accrued benefits under personal pension schemes, or through an equivalent cash award when they have reached
their maximum lifetime allowance. During the year 40,000 share options were issued to Directors (2019: 119,493) and Directors exercised nil
share options (2019: 140,406). The aggregate amount of gains made by Directors on the exercise of share options during the year was £nil
(2019: £1,026,000). For terms of share options awarded, please see Note 20.
97
Mattioli Woods plc Annual Report 2020
Financial Statements
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
2020
£000
526
–
2
528
2019
£000
1,106
–
–
1,106
The amount of gains made by the highest paid Director on the exercise of share options during the year was £nil (2019: £525,000).
The Group makes discretionary and contractual payments into the personal defined contribution pension schemes of employees and
contributions are charged in the statement of comprehensive income as they become payable. The charge for the year was £1,006,000
(2019: £644,000).
12. Income tax
The major components of income tax expense for the years ended 31 May 2020 and 2019 are:
Consolidated statement of comprehensive income
Current tax
Under/(over) provision in prior periods
Deferred tax credit
Adjustments in respect of change in tax rate
Adjustments in respect of prior periods
2020
£000
3,292
170
3,462
(505)
424
(137)
2019
Restated
£000
2,106
(64)
2,042
(197)
33
85
Income tax expense reported in the statement of comprehensive income
3,244
1,963
The over provision for current tax in prior periods includes £nil (2019: £40,000) arising from a Research and Development tax credit in respect
of the financial years ending 31 May 2018 (2019: 31 May 2017 and 2018).
For the year ended 31 May 2020 the current tax credit on the Group’s share-based payment arrangements recognised directly in equity was
£29,000 (2019: £134,000). The deferred tax charged on the Group’s outstanding share-based payment arrangements recognised directly in equity
was £50,000 (2019 restated: £135,000).
Factors affecting the tax charge for the period
The tax charge assessed for the period is higher (2019: higher) than the standard rate of corporation tax in the UK of 19.0% (2019: 19.0%).
The differences are explained below:
Accounting profit before income tax
Multiplied by standard rate of UK corporation tax of 19.0% (2019: 19.0%)
Effects of:
Expenses not deductible for tax
Effects of changes in tax rates
Deferred tax on share options
Income not taxable
Over provision in prior periods
Income tax expense for the year
Effective income tax rate
98
2020
£000
13,417
2019
Restated
£000
9,774
2,549
1,857
343
424
16
(121)
33
150
33
(7)
(91)
21
3,244
24.2%
1,963
20.1%
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
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
2020
£000
Group
2019
Restated
£000
Company
2020
£000
Company
2019
Restated
£000
(4,305)
(177)
–
(4,482)
(4,050)
(158)
(137)
(3,038)
(54)
–
(4,345)
(3,092)
(2,969)
(44)
(137)
(3,150)
214
–
674
888
153
1
550
704
200
–
674
874
152
–
549
701
(3,594)
(3,641)
(2,218)
(2,449)
Changes to the future expected UK corporation tax rates were enacted as part of the Finance Act 2020 which received Royal Assent on 22 July
2020, in which the government announced that the Corporation Tax main rate for the years starting 1 April 2020 and 2021 would remain at 19% and
hence UK deferred tax has been recognised at 19%.
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 utilisation of the deferred tax asset is dependent on future taxable profits in excess of the profits
arising from the reversal of existing taxable temporary differences.
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 2020 are summarised as follows:
Deferred tax in statement of comprehensive income
Effect of changes in the standard rate of tax
Deferred tax on capital allowances
Deferred tax on provisions
Under/(over) provision for capital allowances in prior period
Deferred tax on intangible assets
Overprovision for provisions in prior period
Under provision for intangibles
Deferred tax on share-based payments
Deferred tax on derivative financial asset
Deferred tax on amortisation of client portfolios
Deferred tax credit
The total deferred tax movement in the statement of financial position is summarised as follows:
Deferred tax reconciliation
Opening net deferred tax liability
Credit recognised in statement of comprehensive income
Deferred tax charge recognised in equity
Deferred tax arising on acquisitions
Closing net deferred tax liability
2020
£000
424
11
–
(6)
(18)
(40)
(92)
(124)
(139)
(235)
(218)
2020
£000
(3,641)
218
(50)
(121)
(3,594)
2019
Restated
£000
–
75
(21)
89
(2)
(57)
54
73
29
(234)
(79)
2019
Restated
£000
(2,669)
79
(135)
(886)
(3,641)
There are no income tax consequences for the Group attaching to the payment of dividends by Mattioli Woods plc to its shareholders in either
2019 or 2020.
99
Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
12. Income tax continued
Impact of future tax changes
On 22 July 2020 the Finance Bill 2019-21 received Royal Asset, enacting proposals that were announced in the 2020 budget. The main rate
of corporation tax will remain at 19% for the years starting 1 April 2020 and 2021.
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 76,578 (2019: 12,248).
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 2019
Effect of shares issued during the year ended 31 May 2020
Basic weighted average number of shares
Effect of dilutive options at the statement of financial position date
Diluted weighted average number of shares
2020
£000
10,158
2019
Restated
£000
7,817
000s
000s
26,770
–
127
26,897
258
27,155
26,150
440
95
26,685
36
26,721
The Company has granted options under the Share Option Plan, the Consultants’ Share Option Plan and the LTIP to certain of its senior managers
and Directors to acquire (in aggregate) up to 3.30% of its issued share capital (see Note 24). Under IAS 33 ‘Earnings Per Share’, contingently issuable
ordinary shares are treated as outstanding and are 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 2020 the conditions attached to 630,940 options granted under the LTIP were not satisfied (2019:
680,440). If the conditions had been satisfied, diluted earnings per share would have been 36.6p per share (2019 restated: 28.5p).
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 842,866 ordinary shares as initial consideration payable on the acquisition of Hurley Partners (see Note 33);
• The issue of 25,986 ordinary shares under the Mattioli Woods plc Share Incentive Plan; and
• The issue of 1,650 ordinary shares to satisfy the exercise of options under the LTIP.
14. Dividends paid and proposed
Declared and paid during the year:
Equity dividends on ordinary shares:
– Final dividend for 2019: 13.67p (2018: 11.5p)
– Interim dividend for 2020: 7.3p (2019: 6.33p)
Dividends paid
Proposed for approval by shareholders at the AGM:
Final dividend for 2020: 12.7p (2019: 13.67p)
100
2020
£000
2019
£000
3,660
1,959
5,619
3,024
1,679
4,703
3,532
3,664
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Assets under
construction
£000
Land and
buildings
£000
Computer
and office
equipment
£000
Fixtures
and fittings
£000
Motor
vehicles
£000
14,457
790
–
–
(15,247)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14,457
–
27
–
–
10,753
10,780
–
–
–
10,780
–
168
–
168
252
–
420
10,360
10,612
–
2,137
323
5
(144)
27
2,348
308
2
(4)
2,654
1,316
259
(92)
1,483
341
(1)
1,823
831
865
821
960
72
25
(2)
4,467
5,522
154
–
–
5,676
768
597
–
1,365
842
–
2,207
3,469
4,157
192
Total
£000
19,046
1,680
30
(540)
–
20,216
818
2
(295)
20,741
2,563
1,288
(300)
3,551
1,705
(153)
5,103
1,492
468
–
(394)
–
1,566
356
–
(291)
1,631
479
264
(208)
535
270
(152)
653
978
1,031
1,013
15,638
16,665
16,483
Assets under
construction
£000
Computer
and office
equipment
£000
Fixtures
and fittings
£000
Motor
vehicles
£000
877
790
(1,667)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
877
1,984
321
27
(137)
2,195
305
(1)
2,499
1,172
255
(92)
1,335
338
(1)
1,672
827
860
812
882
69
1,640
–
2,591
154
–
2,745
692
321
–
1,013
420
–
1,433
1,312
1,578
190
1,498
468
–
(394)
1,572
355
(291)
1,636
485
264
(208)
541
271
(151)
661
976
1,031
1,013
Total
£000
5,241
1,648
–
(531)
6,358
814
(292)
6,880
2,349
840
(300)
2,889
1,029
(152)
3,766
3,115
3,469
2,892
101
15. Property, plant and equipment
Group
Gross carrying amount:
At 1 June 2018
Additions
Arising on acquisitions
Disposals
Reclassifications
At 31 May 2019
Additions
Arising on acquisitions
Disposals
At 31 May 2020
Depreciation:
At 1 June 2018
Charged for the year
On disposals
At 31 May 2019
Charged for the year
On disposals
At 31 May 2020
Carrying amount:
At 31 May 2020
At 31 May 2019
At 31 May 2018
Company
Gross carrying amount:
At 1 June 2018
Additions
Reclassification
Disposals
At 31 May 2019
Additions
Disposals
At 31 May 2020
Depreciation:
At 1 June 2018
Charged for the year
On disposals
At 31 May 2019
Charged for the year
On disposals
At 31 May 2020
Carrying amount:
At 31 May 2020
At 31 May 2019
At 31 May 2018
Mattioli Woods plc Annual Report 2020
Computer
and office
equipment
£000
678
39
–
–
717
–
189
–
189
528
–
Computer
and office
equipment
£000
678
39
717
–
189
189
528
–
Properties
£000
2,512
282
–
(88)
2,706
–
653
(3)
650
2,056
–
Properties
£000
2,105
118
2,223
–
563
563
1,660
–
Total
£000
3,190
321
–
(88)
3,423
–
842
3
839
2,584
–
Total
£000
2,783
157
2,940
–
752
752
2,188
–
Financial Statements
Notes to the financial statements continued
16. Right of use assets
Group
On adoption of IFRS 16 at 1 June 2019
Additions
Arising on acquisitions
Disposals
At 31 May 2020
Depreciation:
At 1 June 2019
Charged for the period
On disposals
At 31 May 2020
Carrying amount:
At 31 May 2020
At 31 May 2018 & 31 May 2019
Company
On adoption of IFRS 16 at 1 June 2019
Additions
At 31 May 2020
Depreciation:
At 1 June 2019
Charged for the period
At 31 May 2020
Carrying amount:
At 31 May 2020
At 31 May 2018 & 31 May 2019
102
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
17. Intangible assets
Group
Gross carrying amount:
At 1 June 2018
Arising on acquisitions
Additions
Disposals
At 31 May 2019
Arising on acquisitions
Additions
At 31 May 2020
Amortisation and impairment:
At 1 June 2018
Amortisation during the year
Disposals
At 31 May 2019
Amortisation during the year
At 31 May 2020
Carrying amount:
At 31 May 2020
At 31 May 2019
At 31 May 2018
Company
Gross carrying amount:
At 1 June 2018
Additions
Disposals
At 31 May 2019
Additions
At 31 May 2020
Amortisation and impairment:
At 1 June 2018
Amortisation during the year
Disposals
At 31 May 2019
Amortisation during the year
At 31 May 2020
Carrying amount:
At 31 May 2020
At 31 May 2019
At 31 May 2018
Goodwill
£000
Other
£000
Total
£000
Internally
generated
software
£000
Software
£000
1,693
–
97
(217)
1,573
–
173
1,746
656
270
(217)
709
175
884
862
864
2,417
–
248
(738)
1,927
–
–
1,927
978
785
(738)
1,025
184
1,209
718
902
1,037
1,439
Client
portfolios
£000
33,354
5,190
–
–
38,544
712
–
39,256
9,884
1,907
–
11,791
2,078
13,869
17,253
2,962
–
–
20,215
920
–
21,135
–
–
–
–
–
–
25,387
26,753
23,470
21,135
20,215
17,253
35
–
–
–
35
–
–
35
35
–
–
35
–
35
–
–
–
54,752
8,152
345
(955)
62,294
1,632
173
64,099
11,553
2,962
(955)
13,560
2,437
15,997
48,102
48,734
43,199
Internally
generated
software
£000
Software
£000
Client
portfolios
£000
Goodwill
£000
Total
£000
1,693
97
(217)
1,573
172
1,745
656
270
(217)
709
175
884
861
864
2,306
200
(738)
1,768
–
1,768
878
774
(738)
914
185
669
854
1,037
1,428
1,099
10,255
28,979
–
–
28,979
–
16,384
–
–
16,384
–
28,979
16,384
6,897
1,679
–
8,576
1,679
–
–
–
–
–
–
49,362
297
(955)
48,704
172
48,876
8,431
2,723
(955)
10,199
2,039
12,238
18,724
16,384
20,403
22,082
16,384
16,384
36,638
38,505
40,931
103
Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
17. Intangible assets continued
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 19).
18. Investments
Investments in subsidiaries
Investments in subsidiaries
At 1 June 2018
Investment in Broughtons Financial Planning Limited
Investment in SSAS Solutions (UK) Ltd
Reduction in value of Boyd Coughlan Limited
Reduction in value of Taylor Patterson Group Limited
At 31 May 2019
Investment in The Turris Partnership Limited
At 31 May 2020
Group
£000
–
–
–
–
–
–
–
–
Company
£000
18,572
4,347
4,819
(7,388)
(7,547)
12,803
1,731
14,534
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.
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:
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
104
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
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
Holding company
Trustee company
Trustee company
Trustee company
Dormant
Dormant
Trustee company
Property and fund management
Trustee company
Trustee company
Dormant
Trustee company
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Share class held
Voting rights and
shares held
Subsidiary undertakings
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)
MC Nominees Limited (held by OSRHL)
Broughtons Financial Planning Limited
SSAS Solutions (UK) Ltd
The Turris Partnership Limited
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)
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary and
preference
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
MW Private Investors (Beech Properties) General Partner Limited (held by CCL)
Ordinary
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)
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
MW Private Investors (Tungsten Witney) General Partner Limited (held by CCL)
Ordinary
MW Private Investors (Versant) General Partner Limited (held by CCL)
MW Private Investors (Piper Homes) General Partner Limited (held by CCL)
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Holding company
Dormant
Trustee company
Trustee company
Holding company
Dormant
Trustee company
Trustee company
Trustee company
Trustee company
Property development
Dormant
Dormant
Dormant
Dormant
Trustee company
Dormant
Trustee company
Dormant joint venture
Holding company
Pension administration
Pension administration
Dormant
Trustee company
Dormant
Wealth management
Pension administration
Wealth management
Trustee company
General Partner company
General Partner company
General Partner company
General Partner company
General Partner company
General Partner company
General Partner company
General Partner company
General Partner company
General Partner company
General Partner company
General Partner company
General Partner company
General Partner company
105
Mattioli Woods plc Annual Report 2020 Financial Statements
Notes to the financial statements continued
18. Investments continued
Subsidiary undertakings
Share class held
Voting rights and
shares held
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 Investors (Expedia Dental) General Partner Limited (held by CCL)
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
MW Private Investors (Barwood Capital) General Partner Limited (held by CCL)
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
MW Private Investor (Earthworm) General Partner Limited (held by CCL)
MW Private Investor (Gage Taplow) General Partner 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)
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)
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)
106
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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
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
Mattioli Woods plc Annual Report 2020 Strategic Report
Governance
Financial Statements
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
TCF Global Independent Financial Services Limited
Kudos Financial Services Limited
Broughtons Financial Planning Limited
SSAS Solutions (UK) Ltd
The Turris Partnership 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
4th Floor, 120 West Regent Street, Glasgow, G2 2QD
Registered office
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 prior 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 2020 had increased to £582m (2019: £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, with the cancellation being
completed during the year ended 31 May 2020. 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.
Amati Global Investors Limited is incorporated in Scotland, and its registered office is 8 Coates Crescent, Edinburgh, Scotland, EH3 7AL.
The movement in the Group’s investment in associate is as follows:
Investment in associate – Group and Company
At 1 June
Share of profit for the year
Amortisation of fair value intangibles
Share of other comprehensive income
Dividends received from associate
At 31 May
Share of profit from associates in statement of comprehensive income:
Share of profit for the year
Amortisation of fair value intangibles
Elimination of transactions with associate
2020
£000
4,211
682
(68)
(15)
(1,078)
3,732
2020
£000
682
(68)
19
633
2019
£000
3,725
548
(68)
6
–
4,211
2019
£000
548
(68)
–
480
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 2020 are as follows:
Name
Amati Global Investors Limited
Group’s share of profit
Country of
incorporation
Scotland
Assets
£000
3,920
Liabilities
£000
Revenue
£000
1,618
5,552
Profit
£000
1,392
682
Interest
held
49%
The net assets of Amati as at 1 June 2019 were £3,140,000. At 31 May 2020 the net assets of Amati were £2,302,000 following payment of
dividends of £2,200,000 and other increases in net assets of £1,362,000, increasing the Group’s interest in the associate (net of tax) by £667,000
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.
107
Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
18. Investments continued
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 entitled
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 did not exercise the Option to acquire the remaining stake from the Seller, the Seller had 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 ended 31 May 2019 the Company signed heads of terms
to cancel the option agreement in exchange for £750,000. The cancellation of the agreement was completed and settled during the year ended
31 May 2020.
Other Investments
At 1 June 2018
Revaluation
At 31 May 2019
Disposal
At 31 May 2020
Group
£000
Company
£000
81
(1)
80
(40)
40
81
(1)
80
(40)
40
During the year, the Group disposed of an investment with a previous carrying value of £40,000 (2019: £40,000) in the FP Mattioli Woods Balanced
Fund (Note 30) for proceeds totalling £45,000, recognising a gain on disposal of £5,000.
Mattioli Woods owns 15% (2019: 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 2020 the Company’s investment in Mainsforth was valued at £nil (2019: £nil).
At 31 May 2020 the Company owned 9.40% (2019: 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 2020 these shares are included within investments at a value of £26,000
(2019: £26,000).
At 31 May 2020 the Company owned 2.04% (2019: 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 2020
these shares are included within investments at a value of £14,000 (2019: £14,000).
108
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
19. Impairment of goodwill and client portfolio intangible assets
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 2018
Arising on acquisitions
Amortisation during the year
At 31 May 2019
Arising on acquisitions
Amortisation during the year
At 31 May 2020
Goodwill
Client portfolios
At 31 May 2020
Company
At 1 June 2018
Amortisation during the year
At 31 May 2019
Amortisation during the year
At 31 May 2020
Goodwill
Client portfolios
At 31 May 2020
Pension
consultancy
Investment
Property
and asset
and admin management management
£000
£000
£000
13,683
4,362
(731)
17,490
3,790
(772)
17,314
20,508
–
(853)
1,632
(820)
279
–
(8)
271
–
(8)
Employee
benefits
£000
9,271
–
(396)
Total
£000
40,723
8,152
(1,907)
8,875
46,968
–
(397)
1,632
(2,078)
16,461
21,320
263
8,478
46,522
7,166
9,295
10,125
11,195
16,461
21,320
188
75
263
3,656
4,822
8,478
21,135
25,387
46,522
Pension
consultancy
Investment
Property
and asset
and admin management management
£000
£000
£000
11,426
(632)
17,490
(643)
10,794
16,847
(632)
(643)
10,162
16,204
4,828
5,334
7,712
8,492
10,162
16,204
279
(8)
271
(8)
263
188
75
263
Employee
benefits
£000
Total
£000
9,271
(396)
38,466
(1,679)
8,875
36,787
(396)
(1,679)
8,479
35,108
3,656
4,823
8,479
16,384
18,724
35,108
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.
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 13.3% (2019: 10.2%), 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 2021 assuming annual growth of 5.0% (2019: 5.0%) over
the next four years and a long-term growth rate of 2.0% (2019: 2.5%), which management considers conservative against actual average
long-term growth rates.
The value in use calculated at 31 May 2020 was £152.2m. 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 2020. This accounting treatment resulted in an impairment loss of £nil (2019: £nil).
The sensitivity of the value in use calculated at 31 May 2020 to changes in the key assumptions is as follows:
Assumption
Discount rate
Short-term growth rate
Long-term growth rate
None of these sensitivities would result in an impairment in the value in use of any operating segment.
Increase/
(decrease)
in value in use
£000
Change in
Assumption
+1%
-5%
-2%
(14,564)
(22,274)
(19,266)
Sensitivity
14.3%
Nil
Nil
109
Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
19. Impairment of goodwill and client portfolio intangible assets continued
The value in use calculations at 31 May 2020 indicate a £2.1m increase in the headroom on the value of acquired client portfolios and goodwill
allocated to the Employee Benefits operating segment, on which there was very little headroom calculated in the prior year. 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 £0.8m
reduction in the value in use, resulting in an impairment loss of £nil (2019: £0.6m). If the short-term 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 5.0%, with all other variables held constant,
this would result in an £1.7m reduction in the value in use, resulting in an impairment loss of £nil (2019: 3.0%, £0.8m).
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.
20. Share-based payments
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 2020
31 May 2019
Equity-settled Equity-settled
No.
No.
757,463
248,800
(66,418)
(50,341)
806,489
241,756
(233,718)
(57,064)
889,504
757,463
258,564
77,023
The LTIP awards are subject to the achievement of corporate profitability targets measured over a three-year performance period and will vest
following publication of the Group’s audited results for the final performance year. The amounts shown above represent the maximum opportunity
for the participants in the LTIP.
Share Incentive Plan
The Company 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
A total of 350 (2019: 359) employees participated in the SIP during the year.
31 May 2020
No.
31 May 2019
No.
586,399
48,886
48,886
(12,370)
17,677
(89,816)
593,019
50,989
50,989
(16,072)
14,281
(106,807)
599,662
586,399
121,980
117,817
110
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
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 2020 is £1,096,000 (2019 restated: £1,296,000), all of which arises 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 24). The expense recognised during the year ended 31 May 2020 is £239,000
(2019: £235,000), which arises entirely from equity-settled share-based payment transactions.
Reserves transfer
During the prior year, the Group 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
2020
No.
757,463
248,800
(66,418)
(50,341)
889,504
258,564
2020
WAEP
£
0.01
0.01
0.01
0.01
0.01
0.01
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
The weighted average share price at the date of exercise for share options exercised during the year was £7.38 (2019: £7.27). For the share options
outstanding at 31 May 2020, the weighted average remaining contractual life is 3.9 years (2019: 4.0 years). The WAEP for options outstanding at the
end of the year was £0.01 (2019: £0.01).
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 2020:
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
£7.33
£0.01
6.5
30.0
3.00
0.58
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 2020 and movements during the year are set out in the Directors’ Remuneration Report.
111
Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
21. Trade and other receivables (current)
Trade receivables due from Group companies
Other trade receivables
Other receivables
Prepayments and accrued income
Group
2020
£000
–
5,498
1,443
10,267
17,208
Company
2020
£000
13,366
4,571
231
9,024
27,192
Group
2019
£000
–
5,143
437
10,804
16,384
Company
2019
£000
13,969
4,020
530
9,592
28,111
Trade receivables due from Group companies are recognised at amortised cost and eliminate on consolidation. Trade receivables from Group
companies reported by the Company includes £12.9m (2019: £13.3m) receivable from subsidiary Mattioli Woods (New Walk) Limited on which
interest is incurred at the Bank of England’s base rate plus a margin of 3%. All other balances due from Group companies incur no interest and are
due on demand. None of the trade receivables from Group companies were overdue at the reporting date.
Other trade receivables are non-interest bearing and are generally on 30-90 days’ terms. As at 31 May 2020, 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
2020
£000
1,332
605
(184)
–
1,753
Company
2020
£000
1,084
332
(70)
–
1,346
Group
2019
£000
1,114
358
(156)
16
Company
2019
£000
931
309
(156)
–
1,332
1,084
At 31 May 2020, the analysis of non-related party trade receivables that were past due but not impaired is as follows:
Gross carrying amount
Provisions for ECL
At 31 May 2020
Gross carrying amount
Provisions for ECL
At 31 May 2019
Neither past
due nor
impaired
£000
2,040
(94)
1,946
2,227
–
2,227
Total
£000
7,251
(1,753)
5,498
6,475
(1,332)
5,143
Past due but not impaired
< 30 days
£000
30-60 days
£000
60-90 days
£000
>90 days
£000
1,793
(87)
1,706
1,952
–
1,952
1,208
(97)
1,111
491
–
491
265
(12)
253
260
–
260
1,945
(1,463)
482
1,545
(1,332)
213
Prepayments and accrued income balances include the following contract assets accrued under IFRS 15:
Contract assets accrued
At 1 June 2019
Arising from acquisitions
Net increase in contract assets accrued
At 31 May 2020
Group
£000
9,690
Company
£000
8,551
20
557
–
473
10,267
9,024
For all receivables above, including neither past due nor impaired, the carrying amount is deemed to reflect the fair value.
112
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Strategic Report
Governance
Financial Statements
22. Derivative financial asset
Derivative financial asset (Notes 18 and 32)
Group
2020
£000
Company
2020
£000
–
–
–
–
Group
2019
£000
750
750
Company
2019
£000
750
750
The only derivative financial instrument held by the Group is an option contract over shares in the Group’s associate. The option contract was
carried at fair value prior to its cancellation.
23. Cash and short-term deposits
For the purpose of the statement of cashflows, cash and cash equivalents comprise the following at 31 May 2020:
Cash at banks and on hand
Cash and cash equivalents
Group
2020
£000
25,959
25,959
Company
2020
£000
17,584
17,584
Group
2019
£000
23,248
23,248
Company
2019
£000
14,095
14,095
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 £26.0m (2019: £23.2m).
24. Issued capital and reserves
Group and Company
Issued and fully paid
At 1 June 2018
Exercise of employee share options
Shares issued under the SIP
Shares issued for consideration
At 31 May 2019
Exercise of employee share options
Shares issued under the SIP
At 31 May 2020
Ordinary
shares
of 1p
Share
capital
£000
Share
premium
£000
Merger
reserve
£000
26,149,774
261
31,283
8,781
280,579
100,187
239,825
3
1
3
101
753
–
–
–
1,858
26,770,365
268
32,137
10,639
66,418
103,079
–
1
–
754
–
–
26,939,862
269
32,891
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.
113
Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
24. Issued capital and reserves continued
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 20).
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.
Own shares
At 1 June 2018
Acquired during the year
At 31 May 2019
Acquired during the year
At 31 May 2020
Number Own shares
£000
of shares
–
12,248
12,248
64,330
76,578
–
99
99
498
597
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 20). At 31 May 2020
76,578 (2019: 12,248) shares were held in the Mattioli Woods Employee Benefit Trust, representing 0.28% of issued share capital (2019: 0.05%).
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
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 20).
Retained earnings
All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.
The Company has issued options to subscribe for the Company’s shares under two employee share schemes (Note 20). 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
IFRS 2 ‘Share-based Payments’.
25. Cash flows arising from financing liabilities
The financing liabilities of the Group are £2,908,00 (2019: £nil), comprising lease liabilities as disclosed in Note 28. Cash flows arising from financing
liabilities include payment of lease liabilities of £941,000.
The financing liabilities of the Company are £2,502,000 (2019: £nil), comprising lease liabilities as disclosed in Note 28. Cash flows arising from
financing liabilities include payment of lease liabilities of £849,000.
Financing liabilities of the Company at 31 May 2018 comprised loan notes due from subsidiary undertakings issued on the hive up of the trade
and assets of certain subsidiaries. During the year ended 31 May 2019, 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 for the year ended 31 May 2019.
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.
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Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
26. Trade and other payables
Trade and other payables (current)
Trade payables due to Group companies
Other trade payables
Other taxation and social security
Other payables
Accruals and deferred income
Group
2020
£000
–
809
1,691
591
6,832
9,923
Company
2020
£000
1,559
749
1,499
466
4,433
8,706
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
Trade payables due to Group companies reported by the Company incur no interest, are repayable on demand and eliminate on consolidation.
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 become 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.
27. Financial liabilities and provisions
Group
At 1 June 2018
Unwinding of discount
Arising during the year
Arising on acquisitions
Paid during the year
Unused amounts reversed
Reclassification
At 31 May 2019
Unwinding of discount
Arising during the year
Paid during the year
Unused amounts reversed
At 31 May 2020
Current 2019
Non-current 2019
At 31 May 2019
Current 2020
Non-current 2020
At 31 May 2020
Contingent
consideration
£000
Client
claims Dilapidations
£000
£000
Clawbacks
£000
Employers’
NIC on
share options
£000
Onerous
contracts
£000
FSCS levy
£000
886
75
2,657
–
(763)
–
(200)
2,655
125
741
(600)
(78)
2,843
1,260
1,395
2,655
1,705
1,138
2,843
982
–
728
43
(230)
(245)
207
1,485
–
914
(422)
(96)
1,881
1,485
–
1,485
1,881
–
1,881
631
10
102
25
(376)
(44)
–
348
13
16
–
–
377
–
348
348
–
377
377
124
–
141
–
(142)
–
123
–
2
(45)
(22)
58
123
–
123
58
–
58
627
–
278
–
(263)
(40)
–
602
–
133
(67)
(34)
634
369
233
602
436
198
634
988
–
145
–
(368)
(545)
–
220
–
22
(97)
(123)
22
220
–
220
22
–
22
100
–
50
–
–
–
–
150
–
42
(83)
–
109
150
–
150
109
–
109
Total
£000
4,338
85
4,101
68
(2,142)
(874)
7
5,583
138
1,870
(1,314)
(353)
5,924
3,607
1,976
5,583
4,211
1,713
5,924
115
Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
27. Financial liabilities and provisions continued
Company
At 1 June 2018
Finance costs
Arising during the year
Paid during the year
Unused amounts reversed
Waiver of loan note
Reclassification
At 31 May 2019
Finance costs
Arising during the year
Paid during the year
Unused amounts reversed
Waiver of loan note
At 31 May 2020
Current 2019
Non-current 2019
At 31 May 2019
Current 2020
Non-current 2020
At 31 May 2020
Loan
Contingent
note consideration
£000
£000
Client
claims Dilapidations
£000
£000
Clawbacks
£000
Employers’
NIC on
share options
£000
Onerous
contracts
£000
FSCS levy
£000
16,940
606
–
–
–
(17,335)
(211)
–
–
–
–
–
–
–
–
–
–
–
–
–
886
75
2,657
(763)
–
–
(200)
2,655
125
741
(600)
(78)
–
2,843
1,260
1,395
2,655
1,705
1,138
2,843
946
–
641
(194)
(168)
–
–
1,225
–
859
(392)
(53)
–
1,639
1,225
–
1,225
1,639
–
1,639
601
10
102
(376)
(14)
–
–
323
13
11
–
–
–
347
–
323
323
–
347
347
119
–
137
(137)
–
–
–
119
–
–
(43)
(22)
–
54
119
–
119
54
–
54
627
–
278
(263)
(40)
–
–
602
–
133
(67)
(34)
–
634
369
233
602
436
198
634
988
–
145
(368)
(545)
–
–
220
–
22
(97)
(123)
–
22
220
–
220
22
–
22
100
–
50
–
–
–
–
150
–
34
(83)
–
–
101
150
–
150
101
–
101
Total
£000
21,207
691
4,010
(2,101)
(767)
(17,335)
(411)
5,294
138
1,800
(1,282)
(310)
–
5,640
3,343
1,951
5,294
3,957
1,683
5,640
Loan notes due to subsidiary undertakings
Loan note balances as at 1 June 2018 had arisen on the hive up of the trade and assets of subsidiaries; Boyd Coughlan Limited and the Taylor
Patterson Group Limited and its subsidiaries Taylor Patterson Financial Planning Limited and Taylor Patterson Associates Limited (together “the
Taylor Patterson Group”). The loan notes attracted 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 ended 31 May 2019 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 £1.7m (2019: £1.3m) and the Group expects to settle the non-current balance of
£1.1m (2019: £1.4m) within the subsequent two years.
The balance reclassified in the year ended 31 May 2019 of £0.2m represented consideration which is no longer considered contingent but has yet
to be paid, which was 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 prior year represented 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
Provision for onerous contracts at 31 May 2020 includes software licence costs due on an agreement under which the Group has served notice
and will come to an end during the next financial year.
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 £109,000 has
been made in these Financial Statements for FSCS interim levies expected in the year ending 31 May 2021 (2019: £150,000).
28. Lease liability
Group
Maturity analysis – Contractual undiscounted cash flows:
Less than one year
One to five years
More than five years
Total undiscounted cash flows
Total lease liabilities
Current
Non-current
Company
Maturity analysis – Contractual undiscounted cash flows:
Less than one year
One to five years
More than five years
Total undiscounted cash flows
Total lease liabilities
Current
Non-current
2020
£000
964
1,746
496
3,206
2,908
964
1,944
2020
£000
880
1,527
318
2,725
2,502
880
1,622
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Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
29. Commitments and contingencies
Capital commitments
At 31 May 2020 the Group had no capital commitments (2019: £nil).
Sponsorship agreement
As part of the Group’s strategy to strengthen its brand awareness the Group has a sponsorship agreement with rugby giants Leicester Tigers.
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.
Should the result of the appeal be found to be in favour of HMRC, the impact on the financial position of the Group is expected to be mitigated by
expected recovery from the affected clients whose tax liability it is. In recognition of the possibility that some clients may have insufficient assets to
settle this liability, we have recognised a provision (Note 27) of £0.2m.
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.
30. 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 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, was Company Secretary of Custodian REIT until he resigned from this position on 17 June 2020 to be
replaced by Ed Moore, Finance Director of the Group’s subsidiary Custodian Capital Limited.
Ian Mattioli, Nathan Imlach, Richard Shepherd-Cross (the Managing Director of Custodian Capital), Ed Moore and the private pension schemes of
Ian Mattioli, Nathan Imlach, Richard Shepherd-Cross, Joanne Lake and Carol Duncumb have a beneficial interest in Custodian REIT.
During the year the Group received revenues of £4.0m (2019: £4.0m) in respect of annual management charges, administration and marketing
fees from Custodian REIT. Custodian REIT owed the Group £1,000 at 31 May 2020 (2019: £59,000).
During the year the Group paid rent of £nil (2019: £257,000), service charges and other property related costs of £nil (2019: £50,000) and
dilapidations on exit of £nil (2019: £138,000) 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.
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 and the Group’s Chief Investment Officer, Simon Gibson, is a Non-Executive Director.
On 14 August 2018 the Group entered into an agreement to sublet space in its Edinburgh office to Amati for a term of five years. During the year the
Group received rent of £48,000 (2019: £48,000) from Amati as lessee, £15,000 (2019: £39,000) from the recharge of other property related costs
and consultancy fees of £39,000 (2019: £nil).
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Governance
Financial Statements
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 £nil (2019: £2,000) in respect of corporate legal
services provided to the Group and its subsidiaries. In addition, the Group received revenues of £40,000 (2019: £34,000) in respect of employee
benefits services provided to Gateley Plc during the year.
Key management compensation
Key management personnel, representing those Executive Directors that served throughout the year and 19 (2019: 14) other Executives, received
compensation in the form of short-term employee benefits and equity compensation benefits (see Note 11) which totalled £3.7m for the year
ended 31 May 2020 (2019: £5.9m).
Total compensation is included in “employee benefits expense” and analysed as follows:
Wages and salaries
Social security costs
Pension
Benefits in kind
2020
£000
2,844
585
123
104
3,656
2019
£000
4,907
803
86
96
5,892
In addition, the cost of share-based payments disclosed separately in the statement of comprehensive income was £0.9m (2019 restated: £1.0m).
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 18).
The general partner and the initial limited partner enter into a limited partnership agreement, which governs the operation of the partnership and
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 whilst managing volatility so that, other than on very short-term measures, outperformance comes with a lower beta than the
benchmark. During the year, the Group disposed of an investment with a previous carrying value of £40,000 (2019: £40,000) in the FP Mattioli
Woods Balanced Fund for proceeds totalling £45,000, recognising a gain on disposal of £5,000.
MW Properties No 25 Limited
The Company holds a 9.40% interest in MW Properties No 25 Limited, a nominee for a property syndicate. As at 31 May 2020 the Group held an
investment with the value of £27,334 (2019: £26,282) in the syndicate.
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. As at 31 May 2020
the Group held an investment with a value of £10,953 (2019: £14,201) in the syndicate.
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Financial Statements
Notes to the financial statements continued
31. 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.
Market risk
(a) Interest rate risk
Interest rate risk is the risk that the Group’s financial performance will be adversely impacted by movements in interest rates. The Group does not
any derivative financial assets whose value is linked to interest rates, therefore exposure to interest rate risk arises from financial assets and liabilities
incurring a market interest rate including cash and cash equivalents, as well as certain intercompany loan agreements to which the company
is exposed. At 31 May 2020 the value of market interest bearing financial instruments on the Group’s statement of financial position exposed
to interest rate risk was £26.0m (2019: £23.2m), and Company £30.5m (2019: £27.4m). 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 3 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 50bps (0.5%) 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). 50bps is considered the appropriate impact to consider sensitivity given
the reduction in the Bank of England’s base rate to a historic low and the reduced likelihood of increases in this rate over the coming financial year.
There is no impact on the Group’s equity.
Group
Company
Effect on profit Effect on profit
before tax
£000
before tax
£000
Increase/decrease
in basis points
2020
£ Sterling
£ Sterling
2019
£ Sterling
£ Sterling
+50
–50
+50
–50
130
(130)
152
(152)
116
(116)
137
(137)
(b) Foreign exchange translation and transaction risk
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 2020, the fair value of investments and derivative financial assets recognised in the Group’s and Company’s statement of financial
position was £nil (2019: £830,000). A movement in the value of these investments could no longer 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.
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Strategic Report
Governance
Financial Statements
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 as explained in
Note 2, with all assets assessed as one portfolio (Note 21).
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 possible 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 2020 and 2019 based
on contractual payments:
Group
Trade and other payables
Contingent consideration
Lease liabilities
At 31 May 2020
Trade and other payables
Contingent consideration
Lease liabilities
At 31 May 2019
Company
Trade and other payables
Contingent consideration
Lease liabilities
At 31 May 2020
Trade and other payables
Contingent consideration
Lease liabilities
At 31 May 2019
On
demand
£000
Less than
3 months
£000
–
–
–
–
–
–
–
–
7,189
622
241
8,052
9,771
–
–
9,771
On
demand
£000
Less than
3 months
£000
–
–
–
–
–
–
–
–
7,140
622
220
7,982
9,404
–
–
9,404
3 to 12
months
£000
–
1,100
723
1,823
–
1,300
–
1,300
3 to 12
months
£000
–
1,100
660
1,760
–
1,300
–
1,300
1 to 5
years
£000
–
1,200
1,746
2,946
–
1,500
–
1,500
1 to 5
years
£000
–
1,200
1,527
2,727
–
1,500
–
1,500
Maturity of liability
> 5
years
£000
–
–
496
496
–
–
–
–
Total
£000
7,189
2,922
3,206
13,317
9,771
2,800
–
12,571
Maturity of liability
> 5
years
£000
–
–
318
318
–
–
–
–
Total
£000
7,140
2,922
2,725
12,787
9,404
2,800
–
12,204
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 2020
was £91.9m (2019: £85.6m) and Company was £88.0m (2019: £81.3m). 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.
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.
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Financial Statements
Notes to the financial statements continued
31. Financial risk management continued
Capital management continued
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 2020 the
total regulatory capital requirement across the Group was £13.6m (2019: £12.3m) and the Group had an aggregate surplus of £22.6m (2019:
£17.3m), 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.
32. 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 18)
Amortised cost loans and receivables (including trade and other receivables) (Note 21)
Financial liabilities
Amortised cost (including trade and other payables and loan notes payable)
Fair value through profit and loss (including contingent consideration) (Note 27)
Group
2020
£000
25,959
–
16,072
42,031
Group
2020
£000
7,189
2,843
10,032
Company
2020
£000
17,584
–
25,993
43,577
Company
2020
£000
7,140
2,843
9,983
Group
2019
£000
23,248
830
15,329
39,407
Group
2019
£000
9,771
2,655
Company
2019
£000
14,095
830
27,112
42,037
Company
2019
£000
9,404
2,655
12,426
12,059
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 liabilities
Contingent consideration (Note 3)
At 31 May 2020
Quoted
prices in active
markets for
identical
instruments
Level 1
£000
Carrying
amount as at
31 May 2020
£000
Significant
other
Significant
observable unobservable
inputs
Level 3
£000
inputs
Level 2
£000
2,843
2,843
–
–
–
–
2,843
2,843
The fair value of cash equivalents, accounts receivable and accounts payable approximate their carrying values due to their short-term nature.
Derivative financial instruments
During the year ended 31 May 2020, the option contract previously recognised at fair value of £750,000 was cancelled.
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. The exact
amounts payable cannot be determined as these depend on the future performance of the acquired businesses, but the basis on which the
valuation is prepared, along with detail of sensitivity to key assumptions, is set out in Note 2. The Group estimates the fair value of contingent
consideration payable on acquisitions to be £2.8m (2019: £2.7m).
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Strategic Report
Governance
Financial Statements
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
Floating rate
Financial assets (current)
Cash and cash equivalents
At 31 May 2020
Group
Floating rate
Financial assets (current)
Cash and cash equivalents
At 31 May 2019
Company
Floating rate
Financial assets (current)
Cash and cash equivalents
At 31 May 2020
Company
Floating rate
Financial assets (current)
Cash and cash equivalents
At 31 May 2019
< 1 year
£000
–
25,959
25,959
< 1 year
£000
–
23,248
23,248
< 1 year
£000
12,915
17,584
30,499
< 1 year
£000
13,336
14,095
27,431
1-2 years
£000
2-3 years
£000
3-4 years
£000
4-5 years
£000
> 5 years
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1-2 years
£000
2-3 years
£000
3-4 years
£000
4-5 years
£000
> 5 years
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1-2 years
£000
2-3 years
£000
3-4 years
£000
4-5 years
£000
> 5 years
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1-2 years
£000
2-3 years
£000
3-4 years
£000
4-5 years
£000
> 5 years
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000
–
25,959
25,959
Total
£000
–
23,248
23,248
Total
£000
12,915
17,584
30,499
Total
£000
13,336
14,095
27,431
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.
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 2020, 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. A provision for lifetime expected credit losses on financial assets is made, which based on previous
experience, is evidence of a reduction in the recoverability of the cash flows. The basis of our calculation of credit loss experience and provisions
for expected credit losses are explained in Note 2, and details of financial assets and the associated provision for impairment are disclosed in Note 21.
33. Events after the reporting date
Acquisition of Hurley Partners Limited
On 31 July 2020, Mattioli Woods completed the acquisition of the entire issued share capital of Hurley Partners Limited (“Hurley Partners”), a private
client adviser and asset management business with offices in London, Surrey and Manchester.
The provisional fair values of the identifiable assets and liabilities of Hurley Partners as at the date of acquisition are set out in the table below. Due to
the proximity of the date of acquisition to the date of issue of these consolidated Financial Statements, the provisional fair values of the identifiable
assets and liabilities of Hurley Partners are estimates and remain subject to the detailed review of completion accounts by Mattioli Woods:
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Mattioli Woods plc Annual Report 2020
Financial Statements
Notes to the financial statements continued
33. Events after the reporting date continued
Acquisition of Hurley Partners Limited continued
Property, plant and equipment
Right of use assets
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
Lease liabilities
Provisions
Deferred tax liability
Liabilities
Total identifiable net assets at fair value
Goodwill
Total acquisition cost
Analysed as follows:
Initial cash consideration
Net shares in Mattioli Woods
Contingent consideration
Discounting of contingent consideration
Total acquisition cost
Cash outflow on acquisition
Cash paid
Cash acquired
Acquisition costs
Net cash outflow
Provisional
fair value
recognised on
acquisition
£000
112
606
8,818
2,271
629
825
13,261
(273)
(71)
(116)
(275)
(577)
(162)
(1,687)
(3,161)
10,100
9,489
19,589
10,666
5,921
3,473
(471)
19,589
10,666
(2,271)
293
8,688
Provisional
fair value
Previous
adjustments carrying value
£000
£000
–
606
8,818
–
(42)
–
9,381
–
146
–
–
(577)
(162)
(1,675)
(2,268)
112
–
–
2,271
671
825
3,879
(273)
(217)
(116)
(275)
–
–
(12)
(893)
Founded in 2013, Hurley Partners is an established wealth management business with specialist pension expertise and a discretionary investment
management offering. It is an excellent cultural and strategic fit with Mattioli Woods’ existing business, providing services to clients with assets
comprising approximately:
• £363m of discretionary funds under management;
• £54m of non-discretionary assets; and
• £125m of other pension assets.
The acquisition brings additional scale to Mattioli Woods’ existing operations and offers the opportunity to promote additional services to
existing and prospective clients of Hurley Partners. In addition, the acquisition adds further specialist expertise to the Group and Hurley Partners’
experienced management and staff have remained with the business. The goodwill recognised above is attributed to the expected benefits from
combining the assets and activities of Hurley Partners 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;
• Operational efficiencies expected to be realised on the migration of Hurley Partners’ SSAS portfolio onto Mattioli Woods’ proprietary pension
administration platform;
• The workforce;
• The knowledge and know-how resident in Hurley Partners’ modus operandi; and
• New opportunities available to the combined business, as a result of both Hurley Partners and the existing business becoming part of a more
sizeable listed company.
None of the recognised goodwill is expected to be deductible for income tax purposes. The client portfolio will be amortised on a straight-line
basis over an estimated useful life based on the Group’s historic experience.
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Strategic Report
Governance
Financial Statements
Variation of share purchase agreement
On 27 March 2019 the Group acquired SSAS Solutions (see Note 3). The share purchase agreement (“the Agreement”) states contingent
consideration of up to £1.5m is payable in cash in the two years following completion if certain financial targets are met based on growth in
EBITDA generated by SSAS Solutions during the period.
In light of the expected impact of Brexit and the COVID-19 pandemic on the revenues of SSAS Solutions the parties have agreed to vary the
Agreement such that contingent consideration of up to £0.8m that was referable to SSAS Solutions’ financial result for the 12 months ending
27 March 2021 is now referable to SSAS Solutions’ financial result for the 12 months ending 27 March 2022.
34. Ultimate controlling party
The Company has no controlling party.
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Mattioli Woods plc Annual Report 2020 Financial Statements
Alternative Performance Measure (APM) 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
2020
£000
2,002
1,097
464
1,043
4,606
24,846
19,464
4,952
4,539
53,801
2019
Restated
£000
2,873
1,276
620
973
5,742
23,124
19,129
4,853
4,646
51,752
58,407
57,494
92.1%
90.0%
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
2020
£000
12,945
2,077
360
2,547
17,929
633
334
–
2019
Restated
£000
9,320
1,907
1,055
1,288
13,570
480
126
(100)
18,896
14,076
126
Mattioli Woods plc Annual Report 2020
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
Gain on revaluation of derivative financial instrument
Adjusted PBT
2020
£000
13,417
2,077
334
–
2019
Restated
£000
9,774
1,907
126
(100)
15,828
11,707
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
2020
£000
15,828
(3,007)
12,821
2019
Restated
£000
11,707
(2,224)
9,483
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
2020
£000
12,821
2019
Restated
£000
9,483
26,897
26,685
47.7p
35.5p
127
Mattioli Woods plc Annual Report 2020
Financial Statements
Company information
Directors:
Joanne Lake
Ian Mattioli MBE
Nathan Imlach
Carol Duncumb
Anne Gunther
Non-Executive Chairman
Chief Executive Officer
Chief Financial Officer
Non-Executive Director
Non-Executive Director
Company secretary:
Petershill Secretaries Limited
Registered office:
1 New Walk Place
Leicester
LE1 6RU
Registered number:
03140521
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:
128
Mattioli Woods plc Annual Report 2020
Strategic Report
Governance
Financial Statements
Five year summary (unaudited)
Revenue
Employee benefits expense
Other administrative expenses
Share-based payments
Impairment loss on financial assets
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)
2020
£000
2019
Restated
£000
2018
Restated
£000
2017
Restated
£000
2016
Restated
£000
58,407
57,494
57,783
49,678
42,245
(27,623)
(10,897)
(1,335)
(605)
(18)
–
(31,239)
(10,771)
(1,531)
(358)
(125)
100
(32,148)
(11,674)
(1,832)
(273)
(67)
540
(28,711)
(8,475)
(1,902)
(228)
(61)
93
(24,552)
(7,014)
(1,594)
(88)
(56)
–
17,929
13,570
12,329
10,394
8,941
334
–
633
18,896
(2,437)
(2,547)
12,945
126
(100)
480
14,076
(2,962)
(1,288)
9,320
125
(540)
240
12,154
(2,225)
(822)
9,282
378
(93)
103
10,782
(1,996)
(606)
7,792
339
–
–
9,280
(1,816)
(497)
6,628
(161)
633
(26)
480
(81)
240
(246)
103
(337)
–
13,417
9,774
9,441
7,649
6,291
(3,244)
(1,963)
(1,529)
(1,293)
(1,046)
10,173
7,811
7,912
6,356
5,245
9,300.3
34.4
2.5%
30.7%
32.4%
37.8
47.7
20.0
9,382.5
32.7
2.2%
23.6%
24.5%
29.3
35.5
20.0
8,729.2
32.4
1.5%
21.3%
21.0%
29.7
32.8
17.0
7,925.3
43.9
2.1%
20.9%
21.7%
24.1
29.4
14.1
6,605.9
47.2
2.4%
21.2%
22.0%
20.4
25.7
12.5
129
Mattioli Woods plc Annual Report 2020
Financial Statements
Financial calendar
2 September 2020
10 September 2020
11 September 2020
19 October 2020
23 October 2020
Announcement of final results for the year ended 31 May 2020
Ex-dividend date for ordinary shares
Record date for final dividend
Annual General Meeting
Payment of final dividend on ordinary shares
130
Mattioli Woods plc Annual Report 2020 Design and Production
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Mattioli Woods plc Annual Report 2020
Mattioli Woods plc
1 New Walk Place
Leicester
LE1 6RU
Tel: 0116 240 8700
Fax: 0116 240 8701
info@mattioliwoods.com
www.mattioliwoods.com