The Manitowoc Company
Annual Report 2021

Plain-text annual report

Annual Report 2021 We are one of the UK’s leading integrated wealth and asset management businesses. Discover Mattioli Woods Contents 12 46 Mattioli Woods plc Delivering great client outcomes For the past 30 years our mission has been to deliver the best possible outcomes for the people who trust us to look after their wealth and their employee benefits. It is a responsibility we feel privileged to shoulder, whether that be through pensions, investments, or new innovations. Watch the video on our history 30 years – Past, Present and Future: A conversation with Bob & Ian mattioliwoods.com/history The latest online More details on our investor relations can be found on our website: mattioliwoods.com Strategic Report Governance Financial Statements 14 16 Delivering our vision through a clear purpose and strategy 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. Our strategy in action The uncertainty that we all experienced over the last year has served to enhance our commitment to maintain our culture of putting clients first and developing our service offering to build a business that is sustainable over the long-term. For life’s journey Perfecting a solution that is tailored for our clients and ensuring it evolves as their circumstances and objectives change is at the heart of everything we do. Acting and delivering responsibly Making a difference within our local communities and the world we live in matters to us and we continue to have a high level of engagement in this area. Strategic Report Governance 56 58 Governance overview Board of Directors Corporate governance report Directors’ remuneration report Directors’ report Directors’ responsibilities for the financial statements 80 Independent auditor’s report 81 60 69 75 02 Highlights 04 Our vision and approach 06 Chairman’s statement 10 30 years of Mattioli Woods Our products 12 Business model and strategy 14 16 Strategy in action 20 Chief Executive’s review 21 22 Market overview Our services Financial performance and future developments 23 Key performance indicators 24 Principal risks and uncertainties Section 172 statement Acting and delivering responsibly 32 41 46 Financial Statements & Company 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 workings Company information Five year summary (unaudited) Financial calendar 90 91 92 94 95 147 149 150 151 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 01 01 Highlights Strategic Report Governance Financial Statements Mattioli Woods in numbers Mattioli Woods is creating a responsibly-integrated, full-service financial services group, achieving this organically through its distribution network of 139 consultants and through acquiring and integrating businesses that enhance the client proposition of the Group. Financial highlights Revenue Adjusted EBITDA2,3 £62.6m +7% 2020: £58.4m £17.3m -8% 2020: £18.9m Recurring revenues1,2 92.7% 2020: 92.1% of total revenue Adjusted EBITDA margin4 27.7% 2020: 32.4% Operating profit before financing £4.2m -65% 2020 restated: £12.2m: Profit before tax £5.1m -60% 2020 restated: £12.7m Basic EPS 5.1p -85% 2020 restated: 34.9p Adjusted EPS2,6 41.1p -14% 2020 restated: 47.6p Proposed final dividend 13.5p 2020: 12.7p, giving a total dividend of 21.0p up 5% (2020: 20.0p) • Significantly reduced discretionary staff bonuses paid in the prior year due to Covid-19 with incremental £1.8m paid in 2021 to £3.1m • Acquisition related expenses of £2.6m (2020: £0.3m) on eight acquisitions completed in or shortly after the year-end • Deferred consideration as remuneration of £3.8m (2020 restated: £0.8m) due to acquisitions completed in the year Read more in our full list of KPIs 24 Adjusted profit before tax2,5 £14.2m -11% 2020 restated: £16.0m Strong financial position with cash at year end of £21.9m 2020: £26.0m Operational highlights and recent developments Read more in our Chief Executive’s review 20 • Total client assets of the Group and its associate7 up 30.4% to £12.1bn (2020: £9.3bn) at year-end • Gross discretionary AuM8 of £4.1bn (2020: £2.6bn), with net inflows of over £453m (2020: £200m) in year • Uninterrupted client service • Delivery throughout year demonstrating operational resilience • Continued investment in technology, compliance and training • Board appointments during the period strengthens strategic oversight • Recent acquisitions performing and integrating well • £112m fundraise in June 2021 to facilitate strategic acquisitions • Post year-end completion of Maven Capital Partners, Ludlow Wealth Management and Richings Financial Management acquisitions 1 Annual pension consultancy and administration fees; ongoing adviser charges; level and renewal commissions; banking income; property, discretionary portfolio and other annual management charges adjusted for Private Investor Club initial fees. 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. See page 26 for further details of APMs. 3 Definition amended to add gain on bargain purchase 7 and contingent consideration as remuneration. Now calculated as earnings before interest, taxation, depreciation, amortisation, acquisition-related costs, gain on bargain purchase, contingent consideration treated as remuneration and including share of profit from associates (net of tax). 4 Adjusted EBITDA divided by revenue. 5 Definition amended to add back gain on bargain purchase, deferred consideration as remuneration and acquisition related finance expenses. Now calculated as profit before tax, adding back amortisation and impairment of acquired intangibles, acquisition-related costs, gain on bargain purchase, contingent consideration treated as an expense and acquisition related finance expenses. 6 Adjusted profit after tax used to derive adjusted EPS is calculated as adjusted profit before tax as defined above less income tax at the standard rate of 19% (2020: 19%). Includes £1,196.0m (2020: £515.8m) of funds under management by the Group’s associate, Amati Global Investors Limited, excluding £94.9m (2020: £54.1m) of Mattioli Woods’ client investment and £17.2m (2020: £11.5m) of cross-holdings between the TB Amati Smaller Companies Fund, TB Amati Strategic Metals Fund and the Amati AIM Venture Capital Trust (“VCT”) plc. 8 Includes £1,308.1m (31 May 2020: £581.4) of funds under management by Amati Global Investors Limited, including Mattioli Woods’ client investment and cross-holdings between TB Amati Smaller Companies Fund, TB Amati Strategic Metals Fund and Amati AIM VCT plc. 02 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 03 Our vision and approach Strategic Report Strategic Report Governance Governance Financial Statements Financial Statements Our vision and approach Our business model Mattioli Woods plc (“Mattioli Woods”, “the Company” or “the Group”) is a diversified specialist wealth and asset management business. Our core proposition integrates asset management and financial planning to serve a market predominantly consisting of the mass affluent, controlling directors and owner-managed businesses, professionals, executives, individuals, families and retirees. We plan to expand our reach to new client demographics as we develop both our investment and product propositions as part of our strategic plan. Our vision The Group’s strategic vision is to drive continued growth whilst delivering exceptional client outcomes focused on five key pillars: 1 New client wins and greater integration across the value chain for existing clients 2 3 4 5 Enhancing the Group’s investment proposition Further investment in developing the Group’s digital platform and client portal Simplifying administration processes and improved productivity; and Accelerating growth through strategic acquisitions Find out more in our strategy in action on page 16 16 Our strategic goals for the Group are to deliver Revenue £300m AuM £30bn EBITDA £100m Extended distribution 250+ consultants We continue to put our clients and their needs 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 on holistic planning, providing high levels of personal service and maintaining close multi-generational relationships with our clients has also been a feature in each of the acquisitions made this year. 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. This will allow us to continue to produce great client outcomes including keeping clients’ costs low, with our integrated model allowing us to address more of the value chain: Adviser • Trusted expertise • Close client relationships • Own distribution through team of 139 consultants Administrator • End to end administration • Proactive, personal service • 11,000+ SIPP and SSAS schemes Platform • Own MWeb pension administration platform • Investing in technology • Strategic partnerships with external providers Investment manager • Discretionary portfolio management • Bespoke advice • Using best of what we and other providers offer Product provider • Innovative new product development • Addressing clients’ needs • Extending distribution beyond advised clients Operating segments Wealth and asset management Our wealth and asset 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. Employee benefits The Group’s fourth operating segment comprises its Employee Benefits business assisting our corporate clients with employee engagement, with the aim of improving recruitment, retention and workplace morale. This encompasses consultancy in 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 total reward and flexible benefit systems, assisting clients in the delivery of these to their employees, along with advice, guidance and financial education. Recent changes in legislation and the uncertainty caused by the current pandemic are increasing demand for our financial education and wealth management services to be delivered through employers. Pension consultancy and administration Mattioli Woods is a leader in the provision of Self Invested Personal Pension (“SIPP”) and Small Self-Administered Pension Scheme (“SSAS”) arrangements, which are often central to our clients’ life planning strategies. We have established a reputation for technical excellence, widely acknowledged within our industry. We maintain our technical edge through our in-depth understanding of UK pension legislation, which translates into meaningful advice given to clients by our consultancy team. The provision of personalised and proactive administration further differentiates us from our competitors. Investment and asset management Discretionary management and the provision of bespoke investment advice sit at the heart of our investment proposition. In meeting our clients’ investment needs we 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 internal Investment management function that has successfully developed a range of products and funds to meet our clients’ needs including the £1.6bn Multi Asset Fund which has received external recognition, as well as our Private Investors Club and Custodian REIT plc. These are 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 to enhance our client service provision and drive further organic growth. The migration of client assets under advice to assets under management allows us to deliver a more efficient wealth management service to our clients. Our services are delivered by a dedicated team, with many years’ of investment experience. 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 high grade tenants typically provides stable returns over the long- term and our property team draws on many years’ experience in commercial property investment to deliver this. 04 04 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 05 05 Chairman’s statement Strategic Report Governance Financial Statements Celebrating 30 years of putting clients first This last year has been a particularly significant period in the development of the Group, as we have continued to grow our client base organically and have delivered compelling acquisitions on a major scale together with a substantial £112m fundraise. “ We believe the benefits of operating a responsible 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.” Joanne Lake Non-Executive Chairman I have now served on the Board of Mattioli Woods for nine years, including as Chairman for the last five years, and this is my last statement before I will step down at our forthcoming AGM. When I joined the Group on 31 July 2012, Mattioli Woods was one of the smaller wealth management companies on the AIM Market with a share price of 132p and a market capitalisation of £33m. Since then, as a team, we have taken the Group on a journey of transformation and growth, always centred around serving the needs of our increasing number of clients. We have added to our range of products and operating segments, enhanced our systems and processes and developed our compliance and governance structures. We have acquired 29 businesses over this period adding expertise to our consultancy, investment and asset management and administration teams and expanding our geographic reach across the UK. This last year has been a particularly significant period in the development of the Group, as we have continued to grow our client base organically and have delivered compelling acquisitions on a major scale together with a substantial £112m fundraise. We have also strengthened and expanded our Board, bringing together an experienced team with the expertise to lead the Group into the next phase of its development. As at 20 September, the Group’s share price was 795p and our market capitalisation over £402m. For the year ended 31 May 2021 I am pleased to report revenue growth of 7% to £62.6m (2020: £58.4m), despite the continued economic uncertainties that persisted throughout the period. Adjusted EBITDA was down 8% to £17.3m (2020: £18.9m) after normalising the prior year’s result to reflect the impact of paying no discretionary staff bonuses at year-end whilst we responded to the unfolding impacts of the Coronavirus (Covid-19) pandemic. The revenue contributions from the acquisitions of Hurley Partners (“Hurley”), the Exempt Property Unit Trust (“EPUT”) administration business of BDO Northern Ireland, Montagu Limited (“Montagu”), Pole Arnold Financial Management (“Pole Arnold”) and Caledonia Asset Management (“Caledonia”) during the year offset the 3.6% reduction in organic revenues9 which reflected the sustained impact of Covid-19 throughout the period. A reduction in fee-based revenues, primarily driven by lower client activity in the first half and the suspension of certain regulatory requirements for pension schemes, was more than offset by an increase in revenues linked to the value of clients’ funds under management and advice following the rise in market values and improved investor sentiment in the second half. We have remained focused on our purpose, demonstrating resilience despite the pandemic and operating our business in a sustainable and responsible manner throughout. Our focus remains on protecting both the health and wealth of our staff and clients, whilst supporting all our stakeholders and the wider community. We have maintained our focus on client service and continued to develop our customer and business propositions, with the vast majority of our team working remotely for most of the year. We are mindful of our social impact and remain firm in our commitment to not take support from the government and add to the burden that will have to be met by the UK taxpayer as we emerge from the crisis in the coming years. We recognise our long-term financial prudence and decisive action taken at the beginning of the first lockdown in March 2020, have placed the business on a strong and sustainable footing. 9 Total revenues excluding the revenue growth from businesses acquired in the last 24 months. “We will seek to build on our track record of successfully combining businesses that share the same culture and ethos of putting clients first.” As highlighted in our July trading update, financial performance in the second half of the year benefited from the easing of some Covid-19 concerns, and a Brexit trade deal amongst other factors, with increased client activity and sustained and higher inflows into the Group’s discretionary portfolio management services. Following our decision to not pay staff bonuses in response to the pandemic in the prior year, we reported an exceptional level of profitability at that time. Our commitment to rewarding our employees for their continued efforts by paying bonuses for all staff in the current financial year, combined with our continued investment in recruitment, infrastructure and capability, and increases in specific costs resulted in profit before tax (“PBT”) of £5.1m (2020 restated: £12.7m). Excluding the impact of acquisition related costs, adjusted PBT reduced by 11% year on year. The Board believes it is prudent to continue to protect the Group’s financial position and balance the interests of all stakeholders, whilst recognising the importance of dividends to our shareholders. We remain committed to growing the dividend while maintaining an appropriate level of cover. Accordingly, the Board proposes a final dividend of 13.5p per share (2020: 12.7p). This makes a proposed total dividend for the year of 21.0p (2020: 20.0p). Our strategy Earlier this year we set out our revised medium-term growth targets that reflect the Board’s ambition for the Group which include growing revenue to £300m and achieving EBITDA of £100m, underpinned by total client assets of £30bn. 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. As a reflection of this renewed Group ambition, in June we were pleased to complete our largest equity fundraise since Mattioli Woods joined the AIM Market in 2005. The £112m fundraise was required to fund the acquisitions of Maven Capital Partners UK LLP (“Maven”), Ludlow Wealth Management Group Limited (“Ludlow”) and a pipeline of smaller acquisitions whilst maintaining appropriate levels of regulatory capital following these and the acquisitions completed during the last financial year. These most recent acquisitions represent significant milestones in Mattioli Woods’ journey and illustrate meaningful progress toward our ambitious medium-term goals. These earning enhancing transactions extend the Group’s existing client proposition and add to our distribution capacity and scale. We will seek to build on our track record of successfully combining businesses that share the same culture and ethos of putting clients first. Alongside the expected return to organic growth, we continue to assess a diverse pipeline of potential acquisition opportunities that meet our strict criteria. Our people I very much appreciate our team’s dedication in how they have dealt with our clients’ affairs throughout this uncertain period and thank all our staff for their continued commitment to delivering high levels of service to our clients, and for their enthusiasm and professionalism, whilst the majority of our people continue to work remotely. 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 this is at the heart of our success. Governance and the Board We have substantially renewed and expanded our Board during the course of the last financial year. In January 2021, three new independent non-executive directors were appointed with David Kiddie, Edward Knapp and Martin Reason joining the Group. Each of our new non-executive directors strengthens our Board bringing specialist financial services expertise to the governance of our Group, including senior level experience in asset management and investment oversight, technology, innovation and growth, and strategic planning and change management, as we continue to execute against our ambitious plans for growth. Carol Duncumb stepped down from the Board in March 2021 for personal reasons and we thank Carol for her contributions over the period since her appointment in September 2014. Our executive team has also been expanded and strengthened with the appointments of Ravi Tara, Chief Financial Officer in February 2021, Iain McKenzie, Chief Operating Officer in May 2021 and Michael Wright, Group Managing Director in June 2021. These appointments create an executive team that has the balance of skills and capability required to effectively lead and govern the Group’s activities both now and for the future as we deliver our medium- term strategic goals. Following these appointments, the Company will continue to have a balanced board, which we believe represents the right governance structure for the business. 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. 06 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 07 Chairman’s statement continued Strategic Report Governance Financial Statements “ Creating and preserving wealth, our focus remains on ensuring our trusted advice gives clients the understanding to achieve their objectives.” Shareholders During the year we have engaged with our shareholders through traditional face-to-face meetings when permitted as well as through virtual channels including webinars, and group meetings. We were also pleased to be able to engage with many of our shareholders, both existing and new, as part of the recent equity fundraise process. We are fortunate to have a group of supportive institutional shareholders with a significant investment in the Company and welcome opportunities to talk to all our shareholders, large and small, including our new shareholders who we welcome to the Group. We will continue to maintain a regular and constructive dialogue with them, while seeking to further broaden our shareholder base as we continue to grow. Outlook The Board are pleased by the Group’s performance in the year despite the continued economic and market uncertainties that persisted throughout the period. The Group has remained stable and resilient, maintaining our focus on providing excellent client outcomes and to protect their interests despite the external influences and challenges. We plan to build on this momentum, advancing key strategic initiatives to drive further organic growth, such as the development of a self-directed investment platform with our partner Tiller Group. The acquisitions of Maven and Ludlow, completed post year-end, together with our other acquisitions completed during the period demonstrate meaningful progress towards our ambitious strategic goals, and provide significant opportunities to further broaden our scale, distribution reach and product offering to both our existing and new clients. The further easing of lockdown restrictions and continued roll out of the Covid-19 vaccination programme are supporting investor confidence and we expect the increased client inflows and new business enquiries seen in the second half of the last financial year to continue in the current period. We are confident our focus on addressing the changing needs of our clients, developing the capabilities of the Group and continued investment in our governance and infrastructure, will position us well to deliver future growth, sustainable shareholder returns over the long-term and a business that is here for the long-term. We look forward to the future with confidence and enthusiasm. Joanne Lake Chairman 20 September 2021 08 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 09 30 years of Mattioli Woods Strategic Report Strategic Report Governance Governance Financial Statements Financial Statements 30th anniversary – an interview with Ian Mattioli MBE and Bob Woods MBE 30 years ago, Ian Mattioli and Bob Woods had a vision to create a business that was different, a business with trust at its heart and the needs of clients at the centre of everything. Today they would be called disrupters taking on the big institutions, but 30 years ago they were two men who wanted to do the right thing and they still do. Ian Mattioli Bob Woods “Thankfully we’ve got this young consultancy team, they absolutely know how to use this technology and that’s going to be for the benefit of our clients.” Ian Mattioli “… the closer you get to clients, the more you know them. The deeper you get to know them, the deeper you understand them. Actually that is a two-way thing.” Bob Woods “… in a fast changing world it’s absolutely essential that clients have an adviser that absolutely is up to date in terms of what’s going on.” Bob Woods “… if we’re more efficient we can pass some of those efficiencies onto clients.” Ian Mattioli Watch the full interviews mattioliwoods.com/latest- articles/MATTIOLI_WOODS_ CELEBRATES_30TH_ANNIVERSARY 10 10 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 11 11 Our products Strategic Report Strategic Report Governance Governance Financial Statements Financial Statements For life’s journey Visualising the future you desire can be both exciting and challenging. Our clients’ financial solutions may require management of investments, tax mitigation, retirement and inheritance planning and will provide the comfort of knowing they and their loved ones are protected now and in the future. Perfecting a solution that is tailored for our clients and ensuring it evolves as their circumstances and objectives change is at the heart of everything we do. Looking after 11,000+ pension scheme clients Planning for education: University and school fees and junior ISAs Our dedicated consultants help our clients establish a financial strategy to pay school and university fees in a tax efficient manner, such as a junior ISA. Making the most of your investments Our clients’ portfolios are managed on a day-to-day basis by our asset management team. This service is designed to reflect how the investment world continues to evolve rapidly, with the team working to ensure clients maintain a suitably balanced and diversified portfolio capable of anticipating fast-moving markets. 650 In the beginning there was only Ian and Bob with their first employee joining a month later. Today we have over 650 employees – and counting! Retirement planning The key to understanding what our clients want is understanding their objectives. We create a bespoke strategy to target their retirement goals. Planning for the future Protecting the family Investment Management Financial Management Asset Management Pensions and Retirement Pensions for children: a bespoke consultancy led approach We have developed our SIPP and SSAS to be multi-member arrangements, allowing our clients’ children to consolidate or build their retirement fund. We can even talk through potentially reducing fees based on their shares of the overall pension scheme. Planning for the unexpected The best plan for dealing with the unexpected is to prepare for it. Wills, establishing a Power of Attorney or passing money on to future generations efficiently, at first glance these subjects can be overwhelming – we will take care to provide our clients with solid foundations for the future. Creating and preserving wealth: tailored solutions There is no ‘one size fits all’ solution when it comes to advising on financial planning matters, the management of assets or employee benefit solutions. We have structured our services to be flexible and responsive to the differing needs of our clients. Adaptable and agile With the speed at which investment markets move and the ever-changing economic environment, we can react quickly and act fast for all our clients. Full-service management of clients’ financial affairs We can deliver a full financial plan regardless of any client’s individual circumstances. Dedicated All our advised clients have their own dedicated consultant and client relationship manager. mattioliwoods.com For more information on our full range of services visit our website Pension schemes The broad range of pension schemes available today means our clients can easily benefit from the most appropriate structure to meet their circumstances. £12.1 billion Total client assets. 12 12 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 13 13 Business model and strategy Strategic Report Strategic Report Governance Governance Financial Statements Financial Statements Delivering our vision through a clear purpose and strategy Our overriding passion is to deliver the best possible outcomes for the people who trust us to look after their wealth and their employee benefits. Our purpose Creating and preserving wealth, our trusted advice gives clients the understanding to achieve their objectives. Our mission To provide the best wealth management and employee benefit outcomes for our clients. Our culture 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 have a soul. We have a culture. We have values. And our clients are absolutely at our core.” Ian Mattioli MBE, Chief Executive Officer at Mattioli Woods 14 14 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 15 15 Strategy in action Strategic Report Strategic Report Governance Governance Financial Statements Financial Statements Our strategy in action The Group’s strategic vision is to drive continued growth whilst delivering exceptional client outcomes focused on five key pillars: 1 New client wins and greater integration across the value chain for existing clients New client wins continue to be driven from traditional sources, notably professional connections. Our relationships with accountants continue to be significant to new business wins. We remain proud of the number of referrals made by our clients which also make up a significant element of new business. The ongoing acquisition of financial services companies is also allowing us to enhance revenue within the group. Providing these newly acquired businesses access to our pension structures (SSAS and SIPP), and our investment services strengthens the reach of our services. Over the last 12 months we have seen significant inflows into our discretionary funds, Custodian Real Estate Investment Trust (CREIT), individual structured product funds and our Private Investment Club (PIC) offerings from clients of these acquired businesses. The quality of our investment offering is now a major factor when discussing acquisitions with potential businesses. 2 Enhance our investment proposition We have seen significant asset growth in our Multi Asset Fund proposition since launch, and this year were awarded a Morningstar Five Star rating for the Adventurous Fund. The delivery of our individual structured product plans continues to provide more diversification of both risk and reward to investors. We continue to incorporate the assessment and management of environmental, social and governance (“ESG”) risks, via our own ratings system, ESGi. The recruitment of Chris White from Premier Miton, the development and promotion of home-grown fund managers and the acquisition of Hurley Partners significantly increased our UK equity expertise which, when placed alongside our interest in Amati, provides a great platform from which to grow related assets. Chris will be lead Fund Manager on our Responsible Equity Fund, launched in September 2021. We are also launching a Property Securities Fund this September, which will be well placed to benefit from the changing landscape for investors in commercial property. Our client portal A new digital investment solution will be launched in 2022. This will allow new clients to open an account and invest through their computer or mobile phone, with an adviser on hand should they need to speak to one. In time the technology used to deliver this solution will then be extended to improve the account opening process for all new clients, no matter which solution they choose. 3 Further investment in developing our digital platform and client portal Mattioli Woods remains focused on using technology to improve the client experience, from the very first contact and throughout the entire relationship. A new client website and mobile app is being introduced to give our clients an immediate and accessible route to track their investments with us. This will deepen the relationship we have with all our clients and provide a new way to communicate our views on investments and the economy. Through our strategic partnership with Tiller Group, we are developing our digital, self-investment app. This new e-channel will be complementary to all our existing services. 4 Simplify administration processes and improve productivity We remain committed to introducing further efficiencies to the business by simplifying administration processes, helping to reduce costs for our clients and improve the productivity of our teams. It is critical to allow us to be more agile as an integrated business, utilising the synergies in different teams to allow us to fully harness the power of technology to deliver the very best client outcomes more quickly. We learn from each of our acquisitions and continue to challenge the way we work to provide our clients with the very best. 16 16 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 17 17 Strategy in action continued Strategic Report Strategic Report Governance Governance Financial Statements Financial Statements 5 Accelerate growth through strategic acquisitions Accelerate growth through strategic acquisitions Acquisitions this financial year Acquisitions this financial year Acquisitions completed since year end Hurley Partners completed in July 2020 and rebranded as Mattioli Woods in February 2021 January 2021 – Exempt Property Unit Trust (administration business of BDO Northern Ireland) February 2021 – Montagu Limited April 2021 – Pole Arnold Financial Management Limited Mattioli Woods and Hurley Partners share a common heritage. Mattioli Woods was founded in 1990 by Ian Mattioli and Bob Woods, both of whom are still at the forefront of the business to this day, while Tony Hurley started in business in the 1980’s. They collectively share an ethos of putting their clients first, a value fundamental to the Board of Hurley Partners when seeking a partner for the future. We are delighted to have a team of such talent now under the Mattioli Woods name. We were delighted to expand our existing operation and client proposition in Northern Ireland by working with BDO NI to bring their highly experienced EPUT team together with our team in Belfast, to create a highly complementary addition to our specialist pension consultancy and administration services. We intend to continue growing our wealth management business in Northern Ireland to deliver the best possible client service. Montagu provides wealth management advice and administration for over 150 private and corporate clients with approximately £80 million of assets under advice. Pole Arnold provides wealth management advice and administration for around 360 private and corporate clients with approximately £245 million of assets under management. The transaction expands our existing operations in London and the South East. The transaction expands the Group’s presence in both Leicester and London with a great team who have a strong client-focused culture and a commitment to going the extra mile. April 2021 – Caledonia Asset Management Limited June 2021 – Maven Capital Partners UK LLP August 2021 – Richings Financial Management Limited September 2021 – Ludlow Wealth Management Group Limited Caledonia provides wealth management services, primarily focusing on lifestyle financial planning, pensions and retirement planning, ISAs, life assurance, critical illness, income protection and personal tax planning. They currently have around 150 private clients with over £55 million of assets under advice. This is an important strategic step for the Group, extending the geographic footprint of our wealth management business in Edinburgh. Acquisition criteria Maven is an owner-led business with 12 partners that offers investment opportunities in VCTs, private equity and property with regionally based teams across ten offices and with over 90 investment executives and support professionals. This new partnership will allow us to offer clients even more products and give more clients access to our full-service offering. Founded in 1991, Richings is an established financial planning and wealth management business, working with over 270 private client families with approximately £70 million assets under advice. Richings employs an experienced team of four staff, all of whom will remain with Mattioli Woods following completion. Their location in Iver, Buckinghamshire supports our continued growth in the South East. LWMG Topco Limited (the holding company of Ludlow Wealth Management Group Ltd) is one of the largest independent providers of investment, financial planning and pension advice in the North West of England. They have 61 employees, including 22 experienced advisers operating across five office locations in Fylde, Preston, Burnley, Liverpool and Southport. A high quality business with impeccable compliance records. Strategic and cultural fit Enhances client proposition Enhances distribution Ability to integrate Access to technology/IP Nature and quality of client base Deliverable synergies Sustainable margins Deal structure that mitigates risks 18 18 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 19 19 Chief Executive’s review Strategic Report Strategic Report Governance Governance Financial Statements Financial Statements An increased pipeline of new business opportunities The uncertainty that we all experienced over the last year has served to enhance our commitment to maintain our culture of putting clients first and developing our service offering to build a business that is sustainable over the long-term. “ Our success has been based upon the delivery of quality advice, growing our clients’ assets and enhancing their financial outcomes.” Ian Mattioli MBE Chief Executive Officer Introduction I am pleased to report that even in these unprecedented times we continue to grow and develop the business. The Group’s revenue grew 7% to £62.6m (2020: £58.4m), driven by increased inflows and the sustained performance of our discretionary management proposition, combined with positive contribution of each of the businesses acquired during the year. The momentum of new business generation in the first half of the year carried on in to the second half despite the ongoing economic uncertainty. A total of 898 (2020: 558) new SIPP, SSAS and personal clients with assets totalling £239m (2020: £155m) chose to use Mattioli Woods during the year, with this new business being generated primarily through virtual meetings but also through traditional, face-to-face meetings when permitted. Our continued investment in technology enabled us to host client and introducer webinars which continue to attract larger attendee numbers than our pre Covid-19 seminars. 20 20 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 This new operating environment has enabled us to work with an increased number of new clients and also generate an increased pipeline of new business opportunities. Operating profit before financing was down 66% to £4.2m (2020 restated: £12.2m) and profit before tax was down 40% to £5.1m (2020 restated: £12.7m), compared to the exceptional result of the prior year, following the re-instatement of discretionary staff bonuses increasing employee bonus costs to £3.1m (2020: £1.3m), increased acquisition related costs of £2.6m (2020: £0.3m) and deferred consideration reported as remuneration of £3.8m (2020 restated: £0.8m). Adjusted profit before tax was enhanced by an increased share of profit of £1.1m (2020: £0.6m) from our 49% associate Amati, with the team achieving a significant milestone with assets under management going through £1bn during the year totalling £1.2bn at the year-end. Amati’s strong investment performance gained further recognition in being named both Boutique Manager of the Year and Investment Company of the Year at Investment Week’s Specialist Investment Awards in November 2020. Adjusted EBITDA was down 8% to £17.3m (2020: £18.9m) and adjusted EBITDA margin of 27.7% (2020: 32.4%), primarily as a result of the decision to reinstate discretionary staff bonuses which were not paid in the prior year. We believe the profit margins achieved in the year are indicative of our sustainable longer-term targets. We continue working to realise the economies of scale and operational efficiencies that our responsibly integrated model offers, while seeking ways to reduce clients’ costs such as lower fund manager and platform charges. Further investment in our platform infrastructure 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 continue to enjoy strong, intergenerational client retention and we have seen sustained demand for advice from clients through the year against an uncertain backdrop. Whilst our markets continue to evolve, including the growth of self-administered advice for less complex clients, we expect there to be continued demand for advice driven by working and lifestyle changes, the impact of the pandemic on financial planning matters, an uncertain investment environment, increasing longevity, tax and other legislative changes, where navigating these headwinds becomes more complex. We continue to deliver strong investment performance across both portfolios and funds. In meeting our clients’ investment needs where we have a particular expertise, we look to meet those needs though our own investment management products and expertise including Discretionary Portfolio Management (“DPM”), our Private Investors Club (PIC) and Custodian REIT plc (“Custodian REIT”). Alternatively we use third parties’ funds where we believe these to better meet our clients’ investment needs. We expect that the recent acquisition of Maven Capital Partners, where appropriate, will provide access to a wider range of investment opportunities for our clients. Despite continued market uncertainty, we achieved significantly higher aggregate net inflows (before market movements) of £452.9m (2020: £200.2m) into the Group’s bespoke investment services. Gross discretionary assets under management by the Group and its associate increased to £4.1bn (2020: £2.6bn) at the year-end in part due to the acquisition of Hurley Partners (“Hurley”) in July 2020 and the partial recovery of markets, including the value of property held by Custodian REIT. The value of assets held within our DPM service increased by 51.7% to £2.1bn (2020: £1.4bn), of which £144.0m or 6.7% (2020: £128.0m or 9.1%) 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 and, in conjunction with the Maven and Ludlow businesses acquired post year-end, 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 the Covid-19 pandemic, more than a decade of low interest rates and evolving client preferences, including ESG and Responsible Investing considerations, have created challenges for people seeking to generate income, while preserving and growing their capital. At the same time, the Covid-19 pandemic has heightened awareness of the gap between the current level of UK savings and that which is necessary to provide a reasonable standard of living in adverse circumstances or during retirement. Employers continue to withdraw from defined benefit pension schemes, requiring individuals to be 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 continue driving 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 Financial Conduct Authority (“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. The FCA has introduced new rules aimed at making it easier for consumers to transfer fund investments between platforms. 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 £1.3m, 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. The new Investment Firm Prudential Regime (IFPR) for UK investment firms authorised under the UK Markets in Financial Instruments Directive regime (MiFID) is expected to take effect from January 2022. The IFPR aims to streamline and simplify the prudential requirements for solo regulated investment firms in the UK (FCA investment firms), taking into account their level of risk and specific business requirements. The new rules represent significant change. UK investment firms will be subject to liquidity requirements across the board, a new methodology for calculating capital requirements plus new remuneration and disclosure requirements. Brexit 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, the operational impacts of Brexit on our business have been modest. We remain conscious that the political situation could impact financial 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. Changes to the tax regime The Chancellor’s March 2021 budget announced a rise in corporation tax (“CT”) for businesses with profits above £250,000 to move to 25% corporation tax from 2023, with profits between £50,000 and £250,000 taxed on a tapered scale. This will lead to an increase in the Group’s effective tax rate in future years. For our clients, there will be many opportunities to manage their tax positions effectively. The continuation of tax relief for research and development, the new super deduction for plant and machinery investment and of course, the continuation of tax relief for employees putting money into pensions for retirement. It was widely expected that a review of capital gains tax (“CGT”) with particular reference to individuals and smaller businesses would lead to increased charges. This did not materialise in the March 2021 budget but we expect any future changes in the tax regime to create further demand for our financial planning and advisory services. The need to comply with these and other regulatory changes means we continue to invest in our people and technology, including our strategic partnership with the Tiller Group to develop a self-investment platform for new and existing clients. Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 21 21 Chief Executive’s review continued Strategic Report Governance Financial Statements Outlook Investment markets have partially recovered from the weakness seen at the outset of the Covid-19 pandemic but look likely to remain volatile for some time. This provides a significant opportunity for Mattioli Woods, as people seek to take charge of their financial affairs and manage wealth through the generations. At the same time, savings and investments are becoming more complicated and regulatory requirements continue to increase. Clients need long-term advice and strategies more than ever before. We will continue to seek to understand our clients’ needs and 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. Our services Our core pension and wealth management offering currently serves a wide demographic cross-section including affluent families and the higher end of the market, including controlling directors and owner-managed businesses, professionals, executives and retirees. We intend to extend our reach to new client demographics as we develop both our investment and product propositions as part of our strategic plan including our partnership with the Tiller Group Limited to develop a self-directed investment platform for new and existing clients. The mix of income derived from the Group’s four operating segments changed slightly during the year, summarised in table 1: • 53.3% investment and asset management (2020: 45.9%); • 30.1% pension consultancy and administration (2020: 35.3%); • 7.8% property management (2020: 9.2%); and • 8.8% employee benefits (2020: 9.6%). We aim to operate a seamless structure, allowing us to cover all aspects of financial planning, wealth management and employee benefits. Our key objectives are: • Maintaining long-term relationships and delivering great outcomes for our clients; • Proactively anticipating our clients’ needs to deliver on their expectations; • Investing in our people and technology to service greater business volumes at a lower cost; • Sharing knowledge and ideas between ourselves and others for mutual benefit; • The development of our market standing through the integrity and expertise of our people; • Extending our range of products and services, seeking to attract new clients both organically and via strategic acquisitions; and • Being proud of our charitable and community spirit, supporting staff and local and national charities. Assets under management, administration and advice Unlike many wealth managers, the majority of the Group’s revenues are fee-based, rather than being linked to the value of assets under management, administration or advice10, giving our business a revenue profile that is less sensitive to market performance. The acquisitions of Hurley, EPUT, Montagu, Pole Arnold and Caledonia during the year added £1.3bn of client assets, with total client assets of the Group and its associate of £12.1bn at 31 May 2021 (2020: £9.3bn) summarised in Table 1. Our DPM service has continued to deliver targeted investment performance relative to the market, with aggregate net inflows of over £453m into this and the Group’s other bespoke investment services during the year. The movement in total client assets is analysed as follows: • A £712.0m increase (2020: £22.6m fall) in SIPP and SSAS assets under administration driven in part by the acquisition of Hurley contributing £381.4m of the increase, with a 1.3% rise (2020: 1.7% fall) in the number of schemes being administered at the year end, comprising a 7.1% (2020: 0.7%) increase in the number of direct14 schemes to 6,912 (2020: 6,453) and a 7.2% mattioliwoods.com New website In February 2021, we introduced a new website. The new site featured the same helpful features our clients were already familiar with, including our client login portal, shareholder information and useful resources, now in a new interactive design. New features include: • Intuitive Find Adviser function, enabling you to get in touch with the right person at the click of a few buttons. • Solution-focused service layout. Not sure what you need? Just tell us what you are here to do and we will guide you in the right direction. • Easy-to-navigate News and Insights centre so you can keep up-to-date with the latest updates from Mattioli Woods. • Dedicated Events area where you can browse, book and catch up on both upcoming and past events. (2020: 5.0%) decrease in the number of schemes the Group operates on an administration-only basis to 4,159 (2020: 4,480). 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; Financial performance and future developments Revenue Group revenue was up 7% to £62.6m (2020: £58.4m), with organic revenues supplemented by eleven months’ revenues of £5.3m from the Hurley Partners business acquired in July 2020, plus £0.4m of revenues from Turris following its acquisition in the prior year. • A £428.0m (2020: £172.5m decrease) increase in the value of assets held in the corporate pension schemes advised by our employee benefits business, following a restructure of our corporate client portfolio and focus on the development and expansion of both new and existing relationships. 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 £1,005.5m (2020: £6.1m) increase in personal wealth and other assets under management and advice, with the acquisitions of Hurley, EPUT, Montagu, Pole Arnold and Caledonia in the period contributing £918.5m. The 357 (2020: 180) new personal clients won during the year partially offset some natural client attrition, resulting in a 23.3% increase (2020: 2.1% decrease) in the total number of personal clients15 to 7,270 (2020: 5,925); and • A £677.6m (2020: £106.8m) 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 £980.9m (2020: £400.4m) and launch of the new TB Amati Strategic Metals Fund in March 2021 which had grown to £25.1m (2020: nil) at 31 May 2021. Amati continues to perform strongly with gross funds under management16 increasing to £1,308.1m (2020: £581.4m) with the Group’s share of its profits increased to £1.1m (2020: £0.6m). 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. The post year-end acquisitions of Maven and Ludlow will significantly enhance both the value and quality of the Group’s assets under management, administration and advice. Revenue in the first half of the year was, as anticipated, slightly lower than in the equivalent period in the prior year due to the adverse impact of weaker financial markets and the suspension of certain statutory requirements for pension schemes resulting in lower fee-based revenues. The Group’s revenue in the second half of the year benefited from an easing of some concerns relating to Covid-19, and a Brexit trade deal amongst other factors, resulting in increased investment activity, which together with positive investment performance saw sustained and higher inflows into the Group’s DPM services and an increase in revenues linked to the value of clients’ assets. We continue to focus on delivering great client outcomes and addressing their evolving needs. In addition to delivering increased efficiency and effectiveness across the Group through increased client caseloads for our consultancy and administration teams, we are working to streamline and automate our processes to facilitate more efficient administration, through initiatives such as the adoption of electronic signatures, maintaining a scalable operating model and in doing so making Mattioli Woods easier to do business with. We anticipate these changes will deliver improved margins and cost savings for both us and our clients. Employee benefits expense As in previous years, the major component of the Group’s operating costs is our employee benefits expense of £34.1m (2020: £27.6m) representing 54.5% of revenue (2020: 47.3%). The mitigating actions taken to protect the Group’s financial position in response to the Covid-19 pandemic in the prior year included not paying any year-end bonuses to staff, with the increase in employee benefits expense this year primarily due to awarding discretionary bonuses to all staff totalling £3.1m plus an additional £2.6m cost from those businesses acquired during the year. Table 1 Assets under management, administration and advice11 At 1 June 2020 Acquisition during the year Net inflows/(outflows), including market movements SIPP and SSAS12 £m Employee benefits £m 6,029.1 381.4 1,024.1 – Personal wealth and other assets £m 1,728.6 918.5 Sub-total £m Amati13 £m Total £m 8,781.8 1,299.9 518.5 9,300.3 1,299.9 – 330.6 428.0 87.1 845.7 677.6 1,523.2 14 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. 15 Includes personal wealth clients’ with SIPP and SSAS schemes operated by third parties. 16 Includes Mattioli Woods’ client investment and £20.0m (2020: £11.5m) of cross-holdings between the TB Amati Smaller Companies Fund, TB Strategic Metals Fund and the Amati AIM VCT plc. At 31 May 2021 6,741.1 1,452.1 2,734.2 10,927.4 1,196.1 12,123.5 10 Revenue for the year ended 31 May 2021 was split 54% (2020: 53%) fixed, initial or time-based fees and 46% (2020: 47%%) ad valorem fees based on the value of assets under management, advice and administration. 11 Certain pension scheme assets, including clients’ own commercial properties, are only subject to a statutory valuation at a benefit crystallisation event. 12 Value of funds under trusteeship in SIPP and SSAS schemes administered by Mattioli Woods and its subsidiaries. 13 Assets under management of £1,196.0m (2020: £515.8m) excludes £94.9m (2020: £54.1m) of Mattioli Woods’ client investment included within SIPP and SSAS, employee benefits and personal wealth and other assets and excludes £17.2m (2020: £11.5m) of cross-holdings between the TB Amati Smaller Companies Fund, TB Amati Strategic Metals Fund and the Amati AIM VCT plc. 22 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 23 Chief Executive’s review continued 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. Operating efficiency Shareholder value and financial performance Adjusted EBITDA margin – profit generated from the Group’s operating activities before financing income or costs, taxation, depreciation, amortisation, impairment, gain on bargain purchase, deferred consideration as remuneration 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, acquisition related finance costs, the amortisation of acquired intangible assets, gain on bargain purchase and deferred consideration as remuneration 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 ‘Our business model’ and ‘Revenue’ 04 23 See ‘Profitability and earnings per share’ 26 See ‘Profitability and earnings per share’ 26 See ‘Assets under management, administration and advice’ 22 See ‘Segmental review’ 28 Excellent client service and retention Financial stability 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. Debtors’ days – this is the average number of days’ sales outstanding in trade receivables at any time. See ‘Cash flow’ 27 Surplus on regulatory capital requirement – this is the aggregate surplus on the total regulatory capital requirement of the Group. See ‘Regulatory capital’ 28 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. We are pleased to have continued to increase average consultant and client relationship manager caseloads during the year, partly through the migration of acquired pension portfolios onto our bespoke MWeb administration platform. The Group’s total headcount increased to 663 (2020: 597) at 31 May 2021, with the retention of the experienced teams at Hurley, the EPUT business, Pole Arnold, Montagu and Caledonia adding 55 staff. The number of consultants increased to 139 (2020: 120) as we recruited throughout the year to further expand upon our own distribution network for existing and new clients. We continue to invest in our infrastructure and capacity including 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 £13.3m (2020: £10.9m), with additional professional, regulatory and compliance costs incurred following the acquisitions completed during the year offsetting over savings. Regulatory fees and levies incurred by the Group increased to £1.3m (2020: £0.9m) representing an increase of 46% or £0.4m. Further, acquisition related costs of £2.6m (2020: £0.3m) increased by £2.3m following the increased number of acquisitions completed during the year and post year-end. Other overheads were broadly in line with the prior year with increased infrastructure costs for IT, professional services and insurances offset by strict control of compensation payments and savings driven by lower employee travel and office occupancy. Share-based payments Share-based payments costs of £1.5m (2020: £1.3m) represent the cost of options expected to vest under the Company’s long-term incentive plans and matching shares awarded to employees under the Company’s share incentive plan. Net finance costs The Group has maintained a positive net cash position throughout the year, with increased net finance costs of £0.2m (2020 restated: £0.1m) reflecting credit interest of £0.03m (2020: £0.10m) being offset by £0.1m (2020 restated: £0.1m) of non-cash notional finance charges on the unwinding of discounts on long-term provisions and £0.1m (2020: £0.1m) of interest on the lease liabilities recognised under IFRS 16. Taxation The effective rate of taxation on profit on ordinary activities was 73.0% (2020 restated: 25.5%), above the standard rate of tax of 19.0% (2020: 19.0%). This is primarily due to the revaluation of deferred tax liabilities being recognised at an increased rate of tax following the government’s announced plans to increase the standard rate of tax to 25.0% from 6 April 2023, as well as significant non-deductible expenses from contingent consideration arrangements accounted for as remuneration. Excluding the impact of changes in tax rates, the effective income tax rate was 34.6% (2020: 22.2%). 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 2021 was £8.5m (2020: £3.6m). Restatement of acquisition accounting Following a review of IFRS Interpretations Committee (“IFRIC”) guidance regarding the interpretation of IFRS 3 Business Combinations, the accounting treatment for acquisitions with contingent consideration payable under certain circumstances has been retrospectively corrected. This accounting change impacts five acquisitions completed since 1 June 2010 but has no impact on adjusted EBITDA, adjusted PBT, cash flows or tax position of the Group. To protect the goodwill and intangible assets being acquired over the first few years of ownership, many of the Group’s acquisitions have been structured with an initial and a deferred consideration, which is typically paid in cash over a two to four year period following completion. The deferred consideration is contingent on the acquired business meeting pre-agreed financial performance targets over an agreed period. “ We continue to focus on delivering great outcomes for our clients as we address their evolving needs, in addition to delivering increased efficiency and effectiveness across the Group, streamlining and automating our processes and building a scalable operating model and in doing so make Mattioli Woods plc easier to do business with.” 24 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 25 Chief Executive’s review continued Strategic Report Governance Financial Statements These payments are part of the purchase consideration negotiated with the respective sellers and are contractual payments in exchange for the shares or assets of a business. However, on review of the IFRIC guidance regarding the interpretation of IFRS 3, the accounting treatment has been amended where former shareholders of an acquired business are required to remain in employment with the Group. In people businesses like Mattioli Woods, such provisions are an important protection to ensure the successful transition of client relationships and key personnel into the Group, preserving the value of the goodwill and intangible assets acquired. In accordance with the IFRIC guidance noted above, in such circumstances, the contingent consideration is now recognised as remuneration in the income statement, accrued over the deferred consideration period. Previously, the fair value of the contingent consideration was recognised in full at the date of acquisition, forming part of the acquired goodwill. Accordingly, we have restated our prior year accounts, as shown in the comparative numbers within the financial statements. Further details are provided in Note 2 to the accounts. 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, organic revenues, adjusted EBITDA, adjusted profit before tax (“adjusted PBT”), adjusted profit after tax (“adjusted PAT”), adjusted EPS and adjusted cash generated from operations 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. Adjusted profit measures for the prior year have been restated to recognise the financial impact of the actions taken to protect the Group’s financial position in light of the Covid-19 pandemic, comprising a £0.2m cost saving through all plc Board directors reducing their basic remuneration plus a further £2.3m cost saving on year-end bonuses not being paid. The change in accounting treatment outlined above means that for certain acquisitions the contingent consideration has been treated as an expense in the income statement rather than as a capital payment. While the Board accepts this treatment is appropriate for reported results, it introduced the employment conditions on the deferred consideration to protect capital value. Adjusted measures of the Group’s profitability, including adjusted EBITDA, adjusted PBT, adjusted PAT and adjusted EPS, have therefore been amended to add-back the cost of discretionary staff bonuses, gain on bargain purchase and deferred consideration as remuneration. 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 underlying 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 down 60% to £5.1m (2020 restated: £12.7m), with adjusted profit before tax up 1% to £17.2m (2020 restated: £17.1m), driven by increased revenues offset by the full year impact on employee benefits expense of the businesses acquired during the year, restoring discretionary staff bonuses, increased regulatory and compliance costs and increased acquisition related fees. These changes translated into a reduction in operating profit before financing of 66% to £4.2m (2020 restated: £12.2m) and adjusted EBITDA down 8% to £17.3m (2020: £18.9m), with adjusted EBITDA margin of 27.7% (2020 restated: 32.4%). 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. 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 per Table 3. Table 2 Statutory operating profit before financing Amortisation of acquired intangibles Amortisation of software Depreciation EBITDA17 Share of associate profits (net of tax) Acquisition-related costs Gain on bargain purchase Deferred consideration as remuneration Adjusted EBITDA18 2021 £m 4.2 2.8 0.3 2.8 10.1 1.1 2.6 (0.3) 3.8 17.3 2020 Restated £m 17 Earnings before interest, taxation, depreciation, amortisation and impairment. 18 Figures in table may not add due to rounding. 12.2 2.1 0.4 2.5 17.2 0.6 0.3 – 0.8 18.9 As explained in Note 17, client portfolios acquired through business combinations are recognised as intangible assets. The amortisation charge for the year of £2.8m (2020: £2.1m) associated with these intangible assets has been excluded from adjusted PAT and adjusted EPS because the Board reviews the performance of the business before these charges, which are non-cash and do not apply evenly to all business units. Adjusted EPS20 was 41.1p down 13.7% (2020: 47.6p), while basic EPS was down 85% to 5.1p (2020 restated: 37.9p), driven by increased revenues offset by the significant cost increases mentioned above. EPS was also impacted by the higher effective tax rate of 73.0% (2020 restated: 25.5%) and the issue of 340,788 (2020: 169,497) shares under the Company’s share plans. There were 970,409 (2020: nil) shares issued as consideration for acquisitions during the year. Diluted EPS was 5.0p (2020 restated: 34.7p). Dividends The Board is pleased to recommend a final dividend of 13.5p per share (2020: 12.7p). This makes a proposed total dividend for the year of 21.0p (2020: 20.0p) a year-on-year increase of 5.0% (2020: flat), demonstrating our desire to deliver value to shareholders and confidence in the outlook for our business. The Board recognises the importance of dividends to shareholders and remains committed to growing the dividend, while maintaining an appropriate level of dividend cover. If approved, the final dividend will be paid on 3 November 2021 to shareholders on the register at the close of business on 1 October 2021, having an ex-dividend date of 30 September 2021. The Company offers its UK and Channel Islands’ resident shareholders the option to invest their dividends in a Dividend Reinvestment Plan (“DRIP”). The DRIP is administered by the Company’s registrar, Link Group (“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 2021, shareholders’ instructions must be received by Link by close of business on 8 October 2021. Cash flow Cash balances at 31 May 2021 totalled £21.9m (2020: £26.0m). Cash generated from operations was £20.4m or 202% of EBITDA (2020 restated: £13.9m or 81%), driven by a reduction in the Group’s working capital requirement21 of £5.2m (2020: £5.4m increase), comprising: • A £5.0m increase (2020: £4.5m decrease) in trade and other payables, primarily due to: - £4.6m increase in accruals and deferred income following the reinstatement of staff and directors’ bonuses for the year ended 31 May 2021, to be paid following the year end, and significant increase in accruals for acquisition-related costs invoiced following the year end; - £0.5m increase in other payables relating to the balance of consideration payable for acquisitions; and - £0.1m reduction across other balances within trade and other payables. • A £1.0m reduction (2020: £0.8m increase) in trade and other receivables, primarily due to: - £0.7m reduction in trade receivables as we continue to minimise aged debt exposure and move from fee invoicing to deduction of income from client’s holdings with platform providers; - £0.4m reduction in other receivables, including the impact of collecting rental deposits on vacated properties and collecting director loan balances following acquisitions; and - £0.1m increase across other balances within trade and other receivables. • A £0.7m decrease in provisions during the year (2020: £nil change), primarily due to: - £0.6m reduction in provisions for contingent remuneration following the previous acquisition of SSAS Solutions (UK) Ltd; and - £0.1m reduction across other provision balances, including payment of dilapidations on exit of leased property and utilisation of provisions for onerous contracts. Table 3 Statutory profit before tax Income tax expense Other comprehensive income Profit 2021 £m 5.1 (3.8) – Total comprehensive income / Basic EPS 1.4 5.1 Statutory profit before tax 2.8 Amortisation of acquired intangibles Acquisition-related costs 2.6 Acquisition-related notional finance cost 0.1 (0.3) Gain on bargain purchase 3.8 Deferred consideration as remuneration Adjusted PBT Income tax expense at standard rate Adjusted PAT / Adjusted EPS19 14.2 (2.7) 11.5 EPS 2021 PPS 18.4 (13.4) 0.1 5.1 18.4 9.9 9.3 0.5 (1.0) 13.6 50.7 (9.6) 41.1 Profit 2020 Restated £m 12.7 (3.2) – 9.5 12.7 2.1 0.3 0.1 – 0.8 16.0 (3.0) 12.9 EPS 2020 Restated PPS 19 Figures in table may not add due to rounding. 20 Before acquisition-related costs, amortisation and impairment of acquired intangibles, gain on bargain purchase, deferred consideration as remuneration and acquisition related finance costs. 21 Working capital defined as trade and other receivables less trade and other payables. 46.9 (11.9) (0.1) 34.9 46.9 7.6 1.2 0.2 – 2.8 58.7 (11.2) 47.6 26 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 27 Chief Executive’s review continued Strategic Report Governance Financial Statements Adjusted cash generated from operations21, which excludes items that are incurred as a result of the Group’s acquisition activities, increased by 51% to £21.7m (2020: £14.4m) Outstanding trade receivables reduced to 30 days (2020: 34 days), with credit management continuing to be an area of focus, as well as moving from fee invoicing to deduction of income from client’s holdings with platform providers where the opportunity arises. Outstanding trade payables reduced to 14 days (2020: 21 days) with an increase in invoiced expenses borne by the business as a result of acquisitions, and a small reduction in trade payables outstanding at the end of the period. The accelerated corporation tax payment regime introduced in the prior year resulted in higher income tax paid in 2020. and this reduced income taxes paid in the year reduced to £2.5m (2020: £4.4m), with quarterly tax payments now all due within the relevant accounting period, rather than two additional instalments being paid in the prior year. This resulted in the Group paying four quarterly instalments (2020: six) in the financial year. Investing cashflows include £1.1m (2020: £nil) of contingent consideration paid on previous acquisitions Broughtons Financial Planning Limited and The Turris Partnership Limited acquisitions, as well as net initial cash consideration of £13.0m (net of cash acquired) on acquisitions completed during the year. Capital expenditure of £0.8m (2020: £1.0m) comprised £0.3m on the purchase of new company cars, £0.1m investment in new computer hardware and office equipment and £0.4m on software development. 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. The Group continues to enjoy headroom on its regulatory capital requirement, and completion of the fundraise in June 2021 is allowing us to pursue further acquisition opportunities (see Note 30). In January 2022, following the introduction of the Investment Firm Prudential Regime (“IFPR”) it is estimated that the Group’s CET1 Capital will be reduced due to the removal of the reliefs on deduction of deferred tax assets and significant investments in financial services entities. The impact on the Group’s regulatory capital at May 2021 would be a reduction of £2.4m but the impact on adoption of IFPR will be greater due to the impact of the fundraise and post year-end acquisitions on the Group’s regulatory capital. Segmental review Investment and asset management Investment and asset management revenues generated from advising clients on both pension and personal investments increased 24% to £33.4m (2020: £26.8m). The Group’s gross discretionary assets under management (“AuM”), including the multi-asset funds which sit at the heart of our DPM service, Custodian REIT, the Mattioli Woods Structured Products Fund (“MW SPF”) and the funds managed by our associate company, Amati, were £4.1bn (2020: £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 £23.1m (2020: £16.3m), with £204.2m (2020: £173.5m) of inflows into our DPM 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. Annual management charges on the MW SPF were £1.1m (2020: £1.3m) with the steep sell-off and negative market movement in the last quarter of the prior year partially recovering in the current year. Adviser charges based on gross assets under advice of £2.6bn (2020: £2.0bn) fell to £9.0m (2020: £9.2m). This was driven by the part-year revenue contribution from acquisitions made in the second half with gross assets under advice of £0.4bn. The lower revenue margin illustrates 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 92.7% (2020: 92.1%). 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 initial impact of the Covid-19 pandemic in the final quarter of the prior year and subsequent recovery of financial markets in the current year resulting in an increase in these income streams. Pension consultancy and administration Pension consultancy and administration revenues were down 9% to £18.8m (2020: £20.6m), with an increase in the total number of SIPP and SSAS schemes administered by the Group of 1% to 11,071 (2020: 10,933) offset by reduced levels of client activity and the suspension of certain statutory requirements for pension schemes. Direct25 pension consultancy and administration fees decreased 8% to £15.0m (2020: £16.3m). Retirement planning remains central to many of our clients’ wealth management strategies and the number of direct schemes increased to 6,912 (2020: 6,453), with 408 new schemes gained in the year (2020: 339). Our focus remains on the quality of new business, with the value of a new scheme averaging £0.3m (2020: £0.3m). We continue to enjoy strong client retention, with a slight increase in the external loss rate26 to 2.3% (2020: 1.8%) and a reduction in overall attrition rate27 to 3.4% (2020: 3.6%). The number of SSAS and SIPP schemes the Group operates on an administration-only basis fell to 4,159 (2020: 4,480) 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, with third party administration fees remaining at £3.8m despite the fall in scheme numbers. The Group’s banking revenue was £0.05m (2020: £0.5m) with the Bank of England’s base rate remaining at a historic low of 0.1%, our banking revenue is expected to be negligible going forward. Segment margin reduced to 30.8% (2020: 31.6%) with the benefit of the operational efficiencies and cost savings realised pre and during Covid-19 offset by the reduction in segment revenues. 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 DB transfer and 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 take great pride in seeing 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 based on our multi-generational approach linking 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 £4.9m (2020: £5.4m), with our subsidiary Custodian Capital having assets under management and administration of £516.9m (2020: £466.7m) at 31 May 2021, with the impact of the sharp decline in commercial property valuations at the end of the prior year on the value of Custodian REIT partially recovering during the year. Recurring annual management charges represented 97.9% (2020: 91.4%) of property management revenues, the majority of which are derived from the services provided by Custodian Capital to Custodian REIT. Table 4 Assets under management At 1 June 2020 Acquisition during the year Inflows Outflows Market movements Custodian DPM £m REIT MW SPF £m £m Amati £m Cross- Cross- holdings holdings in Amati in DPM23 £m £m Gross AuM £m funds24 Net AuM £m 1,412.6 354.5 204.0 581.5 2,552.6 – 438.6 607.2 (154.4) 612.6 1.3 401.1 (36.9) (11.6) 29.0 337.1 438.6 204.2 (105.9) 193.6 – 0.6 – 52.9 – (127.9) – (16.1) – – (11.5) 2,413.2 438.6 585.4 (154.4) 612.6 – (5.7) – – 21 Working capital defined as trade and other receivables less trade and other payables. 22 Cash generated from operations before acquisition- related costs paid and contingent remuneration paid 23 Comprises £26.6m (2020: £25.2m) in Custodian REIT, £44.0m (2020: £57.6m) in MW SPF and £73.3m (2020: £45.1m) in Amati funds. 24 Cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc. 25 SIPP and SSAS schemes where Mattioli Woods acts as pension consultant and administrator. 26 Direct schemes lost to an alternative provider as a percentage of average scheme numbers during the year. 27 Direct schemes lost as a result of death, annuity purchase, external transfer or cancellation as a percentage of average scheme numbers during the year. At 31 May 2021 2,143.1 408.0 197.4 1,308.1 4,056.6 (144.0) (17.2) 3,895.4 28 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 29 Chief Executive’s review continued Strategic Report Governance Financial Statements 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 ‘whistleblowing’. Our people I am very grateful for the continued commitment, endeavour, agility and professionalism that our people have shown in dealing with out clients’ affairs throughout a year characterised by a sustained level of uncertainty, with the majority of our team working remotely during this period. As our business continues to evolve and grow into one which has a long-term and successful future, 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. We have made a number of changes to the composition of our Board with new appointments to both the executive and independent non-executive teams. Carol Duncumb has stepped down from her role as independent non-executive director at the end of her second term of office due to personal reasons and I express the Board’s thanks to Carol for her support, challenge and insight over the last six years. We will be delighted to retain Carol’s services in a new role when circumstances allow. 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 2021 had increased to 633 (2020: 597) and we remain committed to developing our people and maintaining the capacity to deliver further growth. We enjoy a strong team spirit and facilitate employee equity ownership through the Mattioli Woods plc Share Incentive Plan (“the Plan”) and other share schemes. At the end of the year 63% of eligible staff had invested in the Plan (2020: 62%) and we continue to encourage broader staff participation. The Mattioli Woods Employee Benefit Trust (“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 market purchase of shares by the Trust helps to avoid dilution of shareholders by reducing the need for the Company to issue new shares. As one of the early decisions taken in response to the Covid-19 pandemic to ensure the strong financial position of the Group, in April 2020 the monthly purchase of shares was suspended and remained the case throughout the entire year. 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. 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 however in response to the pandemic we took an early decision to temporarily pause the launch of new opportunities given the level of market, political and economic uncertainty at that time, focusing on the preservation of wealth for our clients. We invested £2.5m (2020: £16.6m) in one (2020: six) new syndicate in the first half, with no new syndicates completed in the second half due to the prevailing market conditions. Following the year-end a number of new opportunities are in the pipeline, which will be marketed to suitable clients. Employee benefits Employee benefits revenues were £5.5m (2020: £5.6m), with market conditions driven in part by the Covid-19 pandemic, limiting new client wins and the uptake of ad-hoc consultancy projects from existing clients. This was offset by strong client retention throughout the year and accretion in premiums for risk and healthcare cover. Employers are increasingly encouraging staff wellbeing and retirement savings as part of remuneration packages and we believe greater emphasis will be placed on these in a post Covid-19 world. As workplaces start building occupancy towards pre-Covid levels, we believe this focus on employee benefits and retention of key staff will provide opportunities for growth over the coming years. Acquisitions We have developed considerable expertise and a strong track record in the execution and subsequent integration of acquisitions. At the year-end, we had invested over £92m since our admission to AIM in 2005, bringing 29 businesses or client portfolios into the Group, excluding the transactions announced following the year-end. In June 2021, we announced the successful completion of a £112m equity fundraise to facilitate the earnings enhancing acquisitions of Maven, Ludlow, a pipeline of smaller bolt-on acquisitions and to provide regulatory capital headroom. The acquisition of Maven, one of the UK’s leading private equity and alternative asset managers represents a complementary extension of the Group’s investment proposition. Maven’s service offering, inherent profitability and ability to extend existing and win new investment mandates, coupled with the potential to enhance projected returns through the delivery of material performance- related fees, makes this a significant acquisition that is well aligned to our stated strategic ambitions, with expected revenue and cost synergies of at least £1.0 million when fully realised. The acquisition of Ludlow adds scale and critical mass in the North West of England, extending the Group’s distribution capacity for existing and new client services. Ludlow provides a hub for further acquisitions to take advantage of the significant consolidation opportunity we see in the IFA sector. The acquisition also offers opportunities for the elimination of duplicated costs and to realise economies of scale, with expected revenue and cost synergies of at least £1.0 million when fully realised. We will continue to seek to build on our track record of successful acquisitions by continuing to assess and progress opportunities that meet our strict criteria. Consolidation within both wealth management and SIPP administration is expected to continue for the foreseeable future with many more opportunities coming to market. 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. “ I am very grateful for the continued commitment, endeavour, agility and professionalism that our people have shown in dealing with out clients’ affairs throughout a year characterised by a sustained level of uncertainty, with the majority of our team working remotely during this period.” 30 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 31 Chief Executive’s review continued Strategic Report Governance Financial Statements Principal risks and uncertainties The Board is ultimately responsible for risk management and regularly considers the most significant and emerging threats to the Group’s strategy, as well as establishing and maintaining the Group’s systems of internal control and risk management and reviewing the effectiveness of those systems. The Board and senior management are actively involved in a continuous risk assessment process as part of our risk management framework, supported by the annual Internal Capital Adequacy Assessment Process (“ICAAP”), which assesses the principal risks facing the Group. Stress tests include consideration of the impact of a number of severe but plausible events that could impact the business. The work also takes account of the availability and likely effectiveness of mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks. Industry 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. Risk owners regularly review and update where needed the controls in place to mitigate the impact of the risks, with independent review and challenge given by the Risk Management Team. 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. Risk type Description Mitigating factors Chance Impact Change in risk Climate change – Physical impacts Increase No change Decrease High Medium Changes in investment markets and poor investment performance The ongoing impact of the Covid-19 pandemic is affecting economic and financial markets globally. Any resulting volatility may adversely affect trading and/or the value of the Group’s assets under management, administration and advice, from which we derive revenues. • Majority of clients’ funds held within registered pension schemes or ISAs, where less likely to withdraw funds and lose tax benefits. • Broad range of investment solutions enables clients to shelter from market volatility through diversification, while continuing to generate revenues for the Group. • Market volatility is closely monitored by the Asset Allocation Team, as delegated by the Investment Committee, and includes monthly assessment of what is changing in markets and the economic environment globally; regular risk analysis, including a sentiment survey of the individual members of the multi-asset team taking into account their own analysis of external analysts’ reports on a rolling basis. There are also regular reviews of liquidity. Further, performance is considered every month, in detail, including attribution and contribution analysis. Reports are then discussed at Investment Committee every two months. Industry risks continued Increase No change Decrease Risk type Description Mitigating factors Chance Impact Change in risk Environmental, Social and Governance (“ESG”) Failure to meet future ESG reporting requirements. Consequences • Regulatory censure • Loss of client and shareholder High High confidence • Clients look elsewhere for ESG focused products Existing Controls Internal action plan in place to deliver short, medium, and longer-term initiatives. Planned Controls Introduce a more ESG focused investment product. Continue to build MW positive actions towards ESG, harnessing technology and solutions across the business which reduce our footprint. Consequences • Business disruptions – Damage to building and operations • Cost of improving resilience and adaptation • Lower productivity/income/profits Existing Controls • Resilient buildings that can withstand damage from storms, strong winds and flooding • DR/BCP in place to continue business as usual • Due to the Covid outbreak we support flexible working and work from home options which have been tested as part of our continuity plans MW is not recognised as an ESG responsible company. ESG products offered do not meet target market. Physical impacts include the potential economic costs and financial losses resulting from the increasing severity and frequency of extreme climate- change related events, and longer- term progressive shifts in the climate. Drivers • Rising temperatures • Heavy and disruptive snowstorms • Higher sea levels • More destructive storms/floods/ wildfires High Medium 32 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 33 Chief Executive’s review continued Strategic Report Governance Financial Statements Industry risks continued Industry risks continued Increase No change Decrease Risk type Description Mitigating factors Chance Impact Change in risk Risk type Description Mitigating factors Chance Impact Change in risk Consequences • Business disruptions. • Cost of improving resilience and adaptation. • Lower productivity/income/profits. Existing Controls • DR/BCP in place to continue business as usual. • We have adapted through Covid to help clients with innovative solutions which aided the smooth running of their businesses in troubled times. • Plans in place to offset negative impact of our activities through initiatives such as the launch of our Responsible Equity Fund, moving towards paperless offices and transitioning towards an all-electric fleet. Climate change – Transition impacts Transition impacts relate to the process of adjusting to a low-carbon economy. Transition risks can occur when moving towards a less polluting, greener economy. Such transitions could mean that some sectors of the economy face big shifts in asset values or higher costs of doing business. An example of such a change in policy in the UK is the ban on the sale of fossil- fuel-powered cars from 2030. Drivers • Climate policy changes • Innovations in technology • Shifts in consumer preferences Clients’ ability to do business could also be affected by some of the physical impacts which in turn has an impact on ability of MW to deliver profitable services to them. High Medium Changing markets and increased competition The Group operates in a highly competitive environment with evolving characteristics and trends. High High • 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 640 staff and specific shift rotations for our people carrying out essential tasks in our administration hubs across the country. • Harness efficiencies through our continued assessment of the changes to working patterns and methods. Regulatory risk Medium/ High The Group may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations. • Strong compliance culture, with Medium 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 there be a need to increase capital resource requirements. 34 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 35 Chief Executive’s review continued Strategic Report Strategic Report Governance Governance Financial Statements Financial Statements Operational risks Operational risks Increase No change Decrease Risk type Description Mitigating factors Chance Impact Change in risk Risk type Description Mitigating factors Chance Impact Change in risk Damage to the Group’s reputation Errors, breakdown or security breaches in respect of the Group’s software or information technology systems Business continuity and operational resilience There is a risk of reputational damage as a result of employee misconduct, failure to manage inside information or conflicts of interest, fraud, improper practice, poor client service or advice. Serious or prolonged breaches, errors or breakdowns in the Group’s software or information technology systems could negatively impact customer confidence. It could also breach contracts with customers and data protection laws, rendering us liable to disciplinary action by governmental and regulatory authorities, as well as to claims by our clients. 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 failure of external suppliers. Medium High Fraud risk There is a risk an employee or third party defrauds either the Group or a client. High High • Strong compliance culture with a focus on positive customer outcomes. • High level of internal controls, including checks on new staff. • Well-trained staff who ensure the interests of clients are met in the services provided. • 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. • 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. • The Group ensures the control High Medium 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 £10,000 and Board approval for all expenditure greater than £100,000. • Assessment of fraud risk every six months discussed with the Audit Committee, Risk and Compliance Committee and external auditors. • Clients have view-only access to information. • Ongoing review of risk of fraud due to external attack on the Group’s IT systems, 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. • Periodic review and approval of Medium Medium 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. • 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. • Ongoing assessment of external suppliers’ performance. Key personnel risk The loss of, or inability to recruit, key personnel could have a material adverse effect on the Group’s business, results of operations or financial condition. • Succession planning is a key Low Medium consideration throughout the Group. • Success of the Group should attract high calibre candidates. • Share-based schemes in operation to incentivise staff and encourage retention. • Recruitment programmes in place to attract appropriate new staff. • Cross functional acquisition team brought into acquisition projects at an early stage. • Ensuring the health and wellbeing of our people has remained 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. 36 36 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 37 37 Chief Executive’s review continued Strategic Report Strategic Report Governance Governance Financial Statements Financial Statements Operational risks continued Operational risks continued Increase No change Decrease Risk type Description Mitigating factors Chance Impact Change in risk Risk type Description Mitigating factors Chance Impact Change in risk Litigation or claims made against the Group Reliance on third parties or outsourcing risk Risk of liability related to litigation from clients or third parties and assurance that a claim or claims will not be covered by insurance or, if covered, will exceed the limits of available insurance coverage, or that any insurer will become insolvent and will not meet its obligations to provide the Group with cover. Any regulatory breach or service failure on the part of an outsourced service provider could expose the Group to the risk of regulatory sanctions and reputational damage. SIPP administration for non-advised clients (“third party SIPP administration”) Strategic risk 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. Risk that management will pursue inappropriate strategies or implement the Group’s strategy ineffectively. • Appropriate levels of Professional High Medium Conduct risk Indemnity insurance cover regularly reviewed with the Group’s advisers. • Comprehensive internal review procedures, including compliance sign-off, for advice and marketing materials. • Maintenance of three charging models; time cost, fixed and asset based, which are aligned to specific service propositions and agreed with clients. • Restricted status for our consultants to enable the recommendation of our own products and others in the market. • 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. • 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. • 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. ensuring that the client is a sophisticated investor). • Credentials of third party advisers are checked against the FCA register. High High High Low • Experienced management team Low Low with successful track record to date. • Management has demonstrated a thorough understanding of the market and monitors this through regular meetings with clients. Conduct risk (acquisitions) Information security (or cyber) risk The risk that we fail our clients through the flawed design or mis-selling of our products or services, or poor business conduct results in client outcomes that do not meet their needs and circumstances. The risk that 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. 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. Medium Medium • 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. • Compliance oversight by a dedicated team covering conduct, product, complaints and technical. • Non-standard investments require review and approval by the Group’s Non-Standard Investment team. • Professional Indemnity (“PI”) insurance in place. • Due diligence process used to High Low High High 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. • Active dialog with the FCA, especially where we identify specific risks associated with the target business. • 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. • Electronic data is protected by user access controls. Data privacy training is provided across the Group. • Compliance with the Data Protection Act and registration with the Information Commissioner’s Office. • 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. 38 38 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 39 39 Chief Executive’s review continued Strategic Report Governance Financial Statements Financial risks Increase No change Decrease Risk type Description Mitigating factors Chance Impact Change in risk Counterparty default That the counterparty to a financial obligation will default on repayments. • The Group trades only with Medium Medium 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 Medium High credit ratings. • Client deposits spread across multiple banks. • Regular review and challenge of treasury policy by management. Concentration risk A component of credit risk, arising from a lack of diversity in business activities or geographical risk. • The client base is broad, without Medium Medium 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 the Covid-19 pandemic and further Brexit implications, 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 has and continues to affect 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. We have also implemented new systems and controls where relevant to mitigate or reduce the impact of these risks on the business. Throughout the period, investment markets have continued to recover from the position at the beginning of the financial year to pre-Covid levels. The government sponsored stimulus measures applied to both the UK and other global economies have contributed to positive investor sentiment and returns. There will undoubtedly be challenges ahead, as government support reduces in tandem with the easing of restrictions that have been in place for most of the last financial year. Long-term inflation concerns cannot be ignored and are being considered in our investment and advisory support to clients. Our decisions are being taken on the basis that Covid-19 and its impact on investment markets will continue to be with us for some time. In the medium term we continue to believe the UK household savings ratio is likely to rise, providing new opportunities for wealth and asset managers like Mattioli Woods to provide quality advice to clients. Brexit Brexit remains likely to have a significant political and economic impact on the UK. The rules governing the new relationship between the EU and the UK took effect on 1 January 2021 by which time it was hoped that an agreement on the cross-border operation of financial services would be reached. The industry is however still waiting for a Memorandum of Understanding to be legally agreed between the EU and the UK to fully understand the implications of the impact of Brexit on clients and financial markets. We continue to monitor this and the potential impact on the business and our clients with the help of our legal advisors. 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. Section 172 factor Approach taken 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: Consequences of any decision in the long-term 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 pages 17 and 18, 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 conservative 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. Interests of employees 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 31 and ‘Employees’ section of the Directors’ report on page 77. Fostering business relationships with suppliers, customers and others Employees are represented on the Board by Martin Reason. How the business manages 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. Due to the Group’s focus on holistic planning and providing high levels of personal service whilst maintaining close client relationships, it has open lines of communication with clients and can understand and resolve any issues promptly. 40 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 41 Chief Executive’s review continued Strategic Report Governance Financial Statements Section 172 factor Approach taken Impact of operations on the community and the environment 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 31 and pages 52 to 55. 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 local communities in which we operate 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. Maintaining high standards of business conduct 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. Acting fairly between members 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 pages 56 to 80. The principal risks and uncertainties facing the business are set out in that section of the Strategic report on pages 32 to 40. 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 equity fundraise in the year afforded another opportunity to formally engage with existing and new shareholders. The Group also has open lines of communication 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. For the last two years the Directors have also engaged with retail shareholders through the Invest Meet Company platform as an endorsed channel of communication by the QCA. 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. 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. A strategy day did not take place during the year due to the restrictions on group meetings, with a strategy day planned to take place in the current year; • The Board meets regularly throughout the year as well as on an ad hoc basis, as required by time critical business needs. Throughout the Covid-19 pandemic, as part of the equity fundraise and in connection with recent acquisitions the Board and invited members of the senior management team have met more regularly; • The Board is responsible for the Company’s ESG activities set out in the Strategic report; • The Board’s risk management procedures set out in the Corporate 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, through which the Executive team extensively engage with each segments’ 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 EPUT business of BDO Northern Ireland, which was an important strategic acquisition expanding the Group’s operations in Northern Ireland following the SSAS Solutions acquisition in 2019. Following integration of the EPUT business its clients and staff benefit from our strong ethos and culture, combined with excellent administration and strong property expertise, and the business has positively contributed to the Group’s financial results since acquisition, enhancing shareholder returns. The Board considered the key risks, financial returns and impact upon existing clients arising from the acquisition; • The acquisitions of Pole Arnold, Montagu and Caledonia all represent important acquisitions, offering the clients of each business the opportunity to access the wider service proposition available as part of the Mattioli Woods Group. This, combined with the Group’s administration and compliance support, provide additional capacity for these businesses to generate new business and revenue growth. Each business has contributed positively to the Group’s results since acquisition and continue to integrate well. These acquisitions are further detailed in Note 3 to the financial statements. The Board considered the integration risk amongst other risks, financial returns generated and impact on existing staff as part of the decision; • On-going 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 Board maintained its position to 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. The Board considered the health and financial risks to staff, clients and stakeholders in the response to ensure safety and clear procedures were maintained throughout; • Approval of the equity fundraise for £112m to fund the acquisitions of Maven, Ludlow and a pipeline of bolt-on acquisitions. The Board considered the strategic rationale for each acquisition, the associated risks and the performance impact on the Group; • Agreement of revised three-year sponsorship deal with Leicester Tigers, giving Mattioli Woods naming rights to the ‘Mattioli Woods Welford Road’ stadium and continuation of the first team kit sponsorship agreement. Details of the revised agreement are provided in Note 28. The Board considered the financial risks, brand awareness and commercial impact of the revised agreement before approving; • The appointments of Ravi Tara, Iain McKenzie and post year- end Michael Wright to the Board of Directors as executive directors, in addition to the appointments of David Kiddie, Edward Knapp and Martin Reason as independent non- executive directors. The Board considered the balance of skills required for the respective roles, the experience of each board member and the on-going requirements of the business; and • Determination of dividend. The Board recommends a final dividend of 13.5p per share (2020: 12.7p). This makes a proposed total dividend for the year of 21.0p (2020: 20.0p) a year-on-year increase of 5.0% (2020: flat), demonstrating the Board’s desire to deliver value to shareholders and confidence in the outlook for the Group’s business. This decision was taken in conjunction with a review of returns paid to all key stakeholders including staff in the form of salary awards and bonus payments. 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. 42 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 43 Chief Executive’s review continued Strategic Report Governance Financial Statements Stakeholders The Directors are aware there are a number of other stakeholders, in addition to shareholders, who will be affected by the actions of the Group. The below table outlines how we consider these stakeholders and how we engage with them: Stakeholder Why we engage How we engage How we responded Our clients Clients are the central focus of our business. By engaging with them, we are able to gain a better understanding of their needs and ensure that we can provide them with bespoke solutions to address their financial goals. Our clients’ desire to have easier on-boarding and better access to information about their financial affairs resulted in the Board supporting the Group’s investment in Tiller Technology and their appointment to develop a new digital, self-investment platform. ESG has become an important topic for our clients and the launch of The Mattioli Woods Responsible Equity Fund reflects this. We engage with our clients in a variety of ways, driven by their requirements and preferences, including: • regular meetings with consultants and investment managers; • the use of video technology to enable virtual engagement with clients; • virtual seminars held for clients and introducers; • investment updates and quarterly statements; and • client portals, where investment management clients can view details of their investments. Employees Our people are the key to our success, and we want them to be successful individually and as a team. We have a comprehensive internal communication programme to engage with and listen to our people, including: The Board recognises that the firm’s culture and corporate values underpin the effective delivery of its strategy. Our aim is to continue to attract, retain, develop and motivate the right people for our current and future business needs. Shareholders As owners of the Group we rely on our shareholders’ support. Their opinions are important to us and we want to give them a better understanding of our business. In addition, we have obligations as an AIM-listed company to provide information to our shareholders. • the CEO and other members of the senior management team frequently leading staff forums ranging from all staff video conferences to small group discussions; • Martin Reason was appointed as the designated Non-executive Director with responsibility for engagement with the workforce; and • we undertake regular employee engagement surveys, the results of which are closely monitored with the Management Engagement Committee considering what actions need to be taken in response. We engage with our shareholders through the following activities: • regular meetings with our investors throughout the year to discuss delivery of our strategy, current performance and plans for the business through our Executive and Non-executive Directors; and • the provision of detailed financial reports and presentations on the business at the half-year and full-year. During the pandemic there has been an increased focus on health and well-being, in addition to development opportunities, pay, benefits and flexible working arrangements. Our focus on the wellbeing of our staff enabled the successful transition to remote working during the Covid-19 pandemic. We have provided regular updates on company performance during Covid-19, with dividends maintained and paid during the year. We have a number of long-term, committed shareholders. The highly successful share placing to fund the acquisition of Maven, Ludlow and a pipeline of smaller bolt-ons reflects the strong relationships we have built with our shareholders. Stakeholder Why we engage How we engage How we responded Suppliers We recognise the importance of our various suppliers in delivering services to clients and ensure we have shared values. Communities We seek both to support our community and to reduce our impact on the environment as much as possible. We recognise the responsibility we have to wider society and other key stakeholders. We believe that demanding high levels of corporate responsibility is the right thing to do. • We engage with our suppliers to develop mutually beneficial and lasting partnerships. Engagement with suppliers is primarily through a series of interactions and formal reviews. • 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. • We engage with the communities in which we operate to build trust and understand the local issues that are important to them. • We seek our people’s input on 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. Government and regulator We seek to build positive relationships with government and our regulator. Government and our regulator provide key oversight of how we run our business and we believe our clients’ best interests are served by our working constructively with them. • We engage with the government and our regulator 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. Key areas of focus have included innovation, enhancing our client propositions, health and safety and sustainability. We continued to support a number of national and local charities during the year including LOROS and Alzheimer’s Research UK. In addition we supported over 30 local charities as selected by our staff teams across the UK, donating £0.1m during the year. A number of planned events were cancelled due to the Covid-19 restrictions which had been a driver for donations in the prior year. We held regular meetings with our regulators during the year and continue to have a proactive and transparent relationship with them. We ensured our payment terms with all suppliers were fair and in compliance with payment practices. We assessed our key suppliers for conformance to the Modern Slavery Act and conducted a risk assessment of our supply chain. Our modern slavery statement is reviewed and updated by the Board annually. Further information on the ways in which the Board engages with stakeholders is set out in the Corporate governance report on pages 60 to 68 and Strategic report on pages 7, 8, 31 and 41. See our Corporate governance report See our Strategic report 60 7 8 31 41 44 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 45 Chief Executive’s review continued Strategic Report Strategic Report Governance Governance Financial Statements Financial Statements Creating a better future Our environmental footprint continues to be much reduced due to the extended period of lockdown. It is about progress for us and we continue to take steps to reduce our environmental impact and ensure social responsibility remains a key focus. Investing responsibly has exploded in terms of interest over the last few years and we held our first Investing Responsibly webinar in March 2021. A poll of those attending suggested that 79% would consider investing in a responsible equity fund. Our Chief Investment Officer, Simon Gibson, and his team will be working hard on responsible investing which means we aim to generate attractive long-term returns, while ensuring the companies we own are behaving in the interests of their communities and wider society. See our Environment section 50 Connecting people and communities We know that each of our 650+ employees will all have a favourite charity or are involved in a community activity that needs support. Alongside our national charity, Alzheimer’s Research UK, we continue to help our communities across the country with support both financially and by the gift of time, releasing our employees to take part in fund-raising activities. See our Social section 52 Wealth Management Consultants Chetan Mistry and Amit Joshi after running the 2020 Virtual London Marathon A responsible business culture We are proud to match the diversity of our clients to those of our employees. We have built a culture where our employees are inspired to share their passion, talents and ideas. A recent employee engagement survey gave us an employee engagement score well above the national average with highlights including how proud our people are to work at Mattioli Woods. See our Governance section 55 Covid-19: responding to the challenges we face As we continue to deal with, and learn from, the impact of Covid-19, we have demonstrated that we can deliver great client outcomes in different ways, with the majority of our staff currently working remotely as they have for over a year. 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 longer term. See more about our response to Covid-19 40 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 47 47 Acting and delivering responsibly As we move through 2021 after a period of seemingly perpetual lockdown, there is a growing realisation that while vaccinations may pave the way out of lockdown, things post Covid-19 might never go back to ‘normal’. We are proud of the agility our own people have shown over the last 18 months as our clients have benefited from normal service. To deliver this has involved incredible passion and hard work across the entire Mattioli Woods group. Our teams have remained focused and engaged and we have seen some incredible new ways of working come out of necessity. The introduction of new technology such as webinars and the use of Microsoft Teams across our business – both are now permanent fixtures. We have employed 62 new staff during lockdown, not counting those new employees joining the Group via acquisition, promoted 64 people and supported many staff in continuing their professional qualifications. Our approach to achieving good Governance comes from a passion to ensure we do the right things for our clients and our employees. “Without our dedicated team of people, we simply could not have achieved the level of protection we have provided to our clients and their finances during 2020/21.” Ian Mattioli MBE, Chief Executive Officer 46 46 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Chief Executive’s review continued Strategic Report Strategic Report Governance Governance Financial Statements Financial Statements Mattioli Woods Welford Road In October 2020 we announced a new five- year deal with Leicester Tigers which included the rebrand of the stadium to Mattioli Woods Welford Road. We have been an official partner of the club since 2016. The Covid-19 pandemic had the potential to see the club lose millions in revenue. The decision to rebrand the stadium is one that Tigers did not take lightly owing to the significance Welford Road has in the hearts of supporters around the world. The decision to keep the ‘Welford Road’ name alongside the partnership is one that Mattioli Woods and the club felt was important, retaining the traditions of the club. This ‘club-first’ mentality echoes the shared values of both Leicester Tigers and Mattioli Woods in a move that has ensured Tigers remain at the heart of the city’s community. The deal, which will run until the end of the 2024/25 season, includes stadium naming rights as well as branding around the team dugouts and externally around the venue. We also retain our naming rights of the Mattioli Woods stand as well as back of shirt sponsorship. Leicester Tigers continue to support Mattioli Woods with many initiatives including the Rothley 10k run, organising stadium visits for schools, hosting networking events for local businesses as well as providing financial advice workshops. In 2021, Leicester Tigers are supporting the Mattioli Woods rocket as part of the LOROS Rocket Round Leicester initiative. 36 articles in October and November, including publications such as Yahoo! UK and Ireland, The Independent, Telegraph and Leicester Mercury. 48 48 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 49 49 Chief Executive’s review continued Strategic Report Governance Financial Statements Environmental performance and strategy Due to the Group’s activities, Mattioli Woods impacts the local and global environment, and it is committed to monitoring the environmental performance of its assets and using this information to develop robust strategies to minimise its environmental impact where possible. 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 (“CO2e”) using the UK Government 2020 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. 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. 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 gasses from office air conditioning are also considered immaterial. Assumptions and estimations In some instances data is missing, including: • The utility costs for the Group’s Manchester, London and Twickenham offices (which represent circa 7.5% 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 of our Scope 1, 2 and 3 emissions for the year, which represents the Group’s second 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 and 3 emissions Total floor area (sqft) Scope 1 & 2 emissions intensity (tCO2e/sqft/yr) Scope 3 emissions intensity (tCO2e/sqft/yr) 2021 330,863 2020 Change (33%) 490,767 61 90 (32%) 37,109 612,808 (94%) 43 10 714 (94%) 175 (94%) 704,925 1,036,440 (32%) 164 235 265 (38%) 530 (56%) 11,471 147,569 (92%) 13 3 176 (92%) 42 (92%) 2,764 3,236 (15%) 3 6 3 (3%) 45 (87%) 241 575 (58%) 90,742 90,742 – 0.0026 0.0058 (55%) 0.0001 0.0005 (87%) 50 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 51 Chief Executive’s review continued Strategic Report Governance Financial Statements Corporate social responsibility Our commitment to operating responsibly As we continue to work our way through the many challenges of Covid-19, 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, reflected most recently in the post year-end appointment to the Board of Michael Wright, who joined the business as a graduate in 2004. 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 remotely as they have for over a year. 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 longer term. Whilst our environmental footprint has inevitably reduced in the last year, 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 also 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. 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 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, although two members of our consultancy team, Amit Joshi and Chetan Mistry successfully took part in the “virtual” London Marathon in 2020. 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 £0.2m (2020: £0.6m) for 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: 2021 £000 2,428 2020 £000 3,244 Employer’s National Insurance Contributions 2,843 2,761 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 118 570 909 108 153 5,378 1,630 4,579 121 514 799 109 9 5,379 1,610 4,688 18,716 19,234 52 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 53 Chief Executive’s review continued Strategic Report Governance Financial Statements Developing our people The Group continues to create opportunities for new recruits and we operate a trainee consultant programme for aspiring advisers. We have continued to operate our 26-week plan to foster small groups of trainee advisers in a classroom setting, two days a week and have successfully delivered these remotely. 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. Mattioli Woods’ graduate and apprenticeship schemes have been running for a number of years and, together with the trainee consultant programme, highlight the firm’s motivation to ‘grow our own’. 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. The group also operate a number of graduate and apprenticeship schemes in other teams including Finance, HR and Marketing where on the job learning is supported by study toward an externally recognised qualification. Diversity and inclusion We are an equal opportunities employer and it is our policy to ensure that all job applicants and employees are treated fairly and on merit regardless of race, sex, marital/civil partnership status, age, disability, religious belief, pregnancy, maternity, gender reassignment or sexual orientation. Modern slavery Mattioli Woods is committed to preventing modern slavery and human trafficking in all its activities, and to ensuring its supply chains are free from modern slavery and human trafficking. We welcomed the introduction of the Modern Slavery Act 2015 and 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. Employee diversity Male Female Employee age Under 30 30 to 50 Above 50 43% 57% 31% 44% 25% 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 2 to 55 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 20 September 2021 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 of 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 2020-21 reporting year, due to the Covid-19 pandemic. The EHRC is encouraging employers to report ahead of the usual deadlines. Ordinarily, the Group submits its data on gender pay to the government each year and publishes these details on our website. 54 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 55 Governance Strategic Report Governance Financial Statements Governance overview The Board is committed to achieving high standards of corporate governance, integrity and business ethics. We recognise the need to ensure an effective governance framework is in place to give all our stakeholders confidence that the business is effectively run, ensuring good outcomes for our clients and looking after the interests of the Group’s shareholders and other stakeholders. Board structure The Board has established a sub-committee structure comprising Risk and Compliance, Audit, Remuneration and Nomination Committees. In 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 Risk and Compliance Committee Audit Committee Remuneration Committee Nomination Committee Risk and 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. 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 10 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 Chairman. 6. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities. 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement. 8. Promote a corporate culture that is based on ethical values and behaviours. 9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board. 10. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders. Application of the QCA Code and required disclosures The QCA Code requires us to apply the principles set out left 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 page 4. Effective risk management – QCA Principle Four The Group embeds risk management throughout the organisation and this is described on page 61. Board Balance and Skills – QCA Principles Five and Six The Board, led by the Chairman, 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, webinars 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 2022 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. 56 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 57 Governance Strategic Report Governance Financial Statements Board of Directors We have further strengthened our PLC Board during the year to ensure that we continue to have a diverse and balanced board. In January 2021, we announced the appointment of three new independent Non-Executive Directors, David Kiddie, Edward Knapp and Martin Reason, bringing significant asset management and investment oversight expertise, financial services technology, innovation and growth expertise and strategic planning and change management expertise respectively. Following regulatory approval, we were pleased to appoint Ravi Tara, Iain McKenzie and Michael Wright onto the Board as Executive Directors. As a result the Board currently comprises four executive directors and five independent non-executive directors, including the Chairman. The Company will continue to have a balanced board, which we believe represents the right governance structure for the business. 2 4 6 8 Joanne Lake Non-Executive Chairman 1 Appointed to the Board: 2012 Non-executive Chair: 2016 Tenure at Mattioli Woods: 9 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 Chair of Main Market- listed Henry Boot plc • Non-executive director of Gateley (Holdings) Plc • Non-executive director of Morses Club plc • Non-executive director of Honeycomb Investment Trust Plc Committee membership: NA R RC Ian Mattioli MBE Chief Executive Officer 2 Co-founded Mattioli Woods in 1991 Tenure at Mattioli Woods: 30 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 • Appointed High Sheriff of Leicestershire for 2021/22 External appointments: • Non-executive Chair of K3 Capital Group plc • Non-independent director of Custodian REIT plc Ravi Tara Chief Financial Officer 3 Appointed to the Board: 2021 Tenure at Mattioli Woods: 2 years Brings to the Board: • Strategic planning and value creation • Financial management of operations • Operational efficiency and improvement • Mergers & acquisitions and integration experience • Inspiring leadership and development of teams • Change management Previous roles: • Capita plc • Weetabix Food Company • JP Morgan • Barclays Capital • PwC Accreditations: • Chartered Accountant • Fellow of the Institute of Chartered Accountants in England and Wales (“ICAEW”) • A member of the ICAEW’s Corporate Finance Faculty 1 3 5 7 9 Committee membership key Member of the Audit Committee A Member of the Remuneration Committee R Member of the Nomination Committee N Denotes Committee Chair Member of the Risk and Compliance Committee RC The Nominations Committee has commenced the selection process for a new Non-Executive Chairman as part of a managed transition which will see Joanne Lake step down at our forthcoming AGM after nine years as an independent Non-Executive Director including five as Chairman. A short biography of each director is set out below. Michael Wright Group Managing Director 4 Appointed to the Board: 2021 (post year-end on 9 June 2021) Tenure at Mattioli Woods: 17 years Brings to the Board: • Over 17 years’ experience in financial services • Experienced adviser, assisting controlling directors, owner-managers and affluent individuals • Inspiring leadership and operational management • Acquisition and integration expertise • Change and efficiency management Accreditations: • Diploma in Financial Planning • LLB Law Degree, University of Leicester Iain McKenzie Chief Operating Officer 5 Appointed to the Board: 2021 Tenure at Mattioli Woods: 3 years Brings to the Board: • People and change management • Operational and process efficiency • Understanding of business functions and risk management • Strategic planning and project management • Data analysis and performance metrics • Organisational and leadership abilities Previous roles: • Business consultancy • Senior management Accreditations: • BA Design Management, De Montfort University, Leicester. External appointments: • Director of Leicestershire Business Voice Anne Gunther Senior Independent Director and Chairman of Audit Committee 6 Appointed to the Board: 2016 Tenure at Mattioli Woods: 5 years 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 • Chairman, 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) Committee membership: NA R RC Edward Knapp Non-Executive Director and Chairman of Risk Committee 7 Appointed to the Board: 2021 Tenure at Mattioli Woods: 1 year Brings to the Board: • Significant commercial and strategic insight and transformation expertise • Digital, technology and IT development within financial services • Risk and compliance oversight and control • Asset management and advisory expertise Previous roles: • Managing Director and Global Head of Business Management, Technology, HSBC • Chief Operating Officer and Global Head of Business Management, Risk, Barclays • Senior Adviser, McKinsey & Company Accreditations: • BA Mathematics, Balliol College, University of Oxford External appointments: • Non-executive director • Head of Equities, Baring Asset Management • Group Executive, Perpetual Investments (Australia) Accreditations: • BA Hons Economics, University of Kent External appointments: • Non-executive director of Marlborough Fund Managers Ltd • Director of Marlborough Investment Management Ltd • Non-executive director of Investment Fund Services Ltd Committee membership: N RC Martin Reason Non-Executive Director 9 Appointed to the Board: 2021 Tenure at Mattioli Woods: 1 year Brings to the Board: • Development of strategic plan focusing on client outcomes and marketing • Risk management and controls • Process design and operational efficiency • Remuneration and people of F&C Investment Trust Plc strategies Previous roles: • Chief Executive Officer, Melton Mowbray Building Society • MD, Merrill Lynch HSBC • HSBC/Midland Bank • MD, Pakawaste Group Accreditations: • Associate of the Chartered Institute of Banking (“ACIB”) • High performance leadership diploma, Cranfield School of Management • BSc Hons Banking and Finance External appointments: • Director of Sitigrid Ltd Committee membership: A R RC • Senior Advisor to Board of Revolut • Director of Asia House Committee membership: A RC David Kiddie Non-Executive Director 8 Appointed to the Board: 2021 Tenure at Mattioli Woods: 1 year Brings to the Board: • Significant experience and expertise in asset management and investment oversight • Strategic planning and leadership • Focus on governance, oversight and regulatory environment Previous roles: • Chief Executive UK and Head of Institutional Business, BNP Paribas Investment Partners • Chief Investment Officer, AMP Capital Investors, ABN AMRO Asset Management and Rothschild Asset Management 58 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 59 Governance 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 including training on quoted company requirements from the Nominated Advisor, Canaccord Genuity Limited. 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 Edward Knapp (Chairman), Anne Gunther, Joanne Lake, David Kiddie and Martin Reason. Anne Gunther was Chairman of the Committee until 5 January 2021, handing the Chairman position to Edward Knapp. Committee meetings are normally attended by George Houston (Group Compliance Officer) as Compliance Oversight Function, the Chief Executive, the Chief Financial Officer, 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. 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 nine to ten 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. • Iain McKenzie’s time commitment from his other directorships averages two days per month. • Anne Gunther’s time commitment from her other directorships averages four and a half working days per month. • Edward Knapp’s time commitment from his other directorships averages four working days per month. • David Kiddie’s time commitment from his other directorships averages three working days per month. • Martin Reason’s time commitment from his other directorships averages four days per month. 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 throughout the year, 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 seven 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 and challenge of the Group’s vulnerable client processes; • Review of the Group’s training and competence regime; • Review of the potential ongoing 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; • Reviewed risks associated with the Covid-19 pandemic and commissioned an internal audit of the Group’s secure remote working, information security and operational resilience; • Review of the risks associated with acquisitions and impact on regulatory capital; and • Review of recommendation of the Group’s risk appetite statement and tolerance for key risks to the Board and review of the risk register. 60 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 61 Governance Corporate governance report continued Strategic Report Governance Financial Statements Audit Committee The Audit Committee comprises Anne Gunther (Chairman), Joanne Lake, Edward Knapp and Martin Reason. 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. 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 2021 and other matters considered by the committee included: The key responsibilities of the Audit Committee are: Goodwill and intangible assets • 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; • To review audit fees and proposals for future years; and • To report to the Board on how it has discharged its responsibilities. Committee meetings are normally attended by the Chief Executive, Chief Financial Officer, Head of Financial Reporting, Chief Operating Officer and by representatives of the external and internal auditors by way of invitation. The presence of other senior executives from the Group may be requested. The committee meets with representatives of the internal and external auditors, without management present, at least once a year. Activities during the year The committee met five 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 continued to monitor 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 and in response to the impact of the uncertainty created by the pandemic. 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: • 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 the 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; • The purchase price allocation and fair value accounting for the acquisition of Hurley Partners, Montagu, Pole Arnold, Caledonia, Maven and Ludlow; • Consideration of how to improve controls to both improve key financial processes and streamline the financial close and to increase the controls reliance for the external audit; and • To recommend to the Board the upgrade of the financial reporting platform operated by the Group to a single system. As set out in Note 19 to the Group financial statements, at 31 May 2021, the Group had goodwill of £17.9m (2020 restated: £10.4m) with other intangible assets relating to client portfolios amounting in total to £40.9m (2020: £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. The committee considered management’s approach to estimating the recoverability of WIP, including the recovery rate applied and the length of historical data used to calculate that recovery rate. The committee concluded that the valuation of accrued WIP in the financial statements is appropriate. Revenue recognition The Group recognises accrued income in respect of time costs and disbursements incurred on clients’ affairs during the accounting period, which have not been invoiced at the reporting date (“work in progress” or “WIP”). This requires an estimation of the recoverability of the time costs and disbursements incurred but not invoiced to clients. The carrying amount of accrued time costs and disbursements at 31 May 2021 was £4.2m (2020: £4.7m). Acquisition accounting Business combinations are accounted for using the purchase accounting method. This involves assessing the fair value of the assets acquired and whether any assets acquired meet the criteria for recognition as separately identifiable intangible assets. Intangible assets are measured on initial recognition at their fair value at the date of acquisition. The committee reviewed the purchase price allocations prepared by management on the purchase of Hurley Partners, Pole Arnold, Caledonia Asset Management and Montagu during the year. These reviews focused on the underlying cash flow assumptions and the discount rate used to determine the present value of the cash flows attributable to the subject intangible assets. Client portfolios are valued by discounting their expected future cash flows over their expected useful lives, based on the Group’s historical experience. Expected future cash flows are estimated based on the historical revenues and costs associated with the operation of that client portfolio. The discount rates used estimate the cost of capital, adjusted for risk. The committee concluded that the fair values of the identifiable assets and liabilities of these acquired businesses as at their respective dates of acquisition included in the financial statements are appropriate. 62 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 63 Governance Corporate governance report continued Strategic Report Governance Financial Statements Audit Committee continued 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 and contingent remuneration provided for at 31 May 2021 was £6.9m (2020 restated: £2.3m). 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 liability provisioning As detailed in Note 26, the Group recognises provisions for client claims, commission clawbacks, dilapidations, onerous contracts and other obligations which exist at the reporting date. These provisions are estimates and the actual amount and timing of future cash flows are dependent on future events. The committee considered and challenged the nature of the provisions, the potential outcomes, any developments relating to specific claims, and the prior history of obligations, provisions and claims in order to assess whether the provisions recorded are prudent and appropriate. Management reviews these provisions at each reporting date to ensure they are measured at the current best estimate of the expenditure required to settle the obligation. Any difference between the amounts previously recognised and the current estimate is recognised immediately in the statement of comprehensive income. The committee discussed with management the key elements of judgement to assure themselves as to the adequacy and appropriateness of the provisions. Following this discussion, the committee was satisfied that the judgements exercised were appropriate and that the provisions were fairly stated in the financial statements. Use of alternative performance measures The Group has identified certain measures that it believes will assist in the understanding of the performance of the business. These measures are not defined under IFRS but can be used, subject to appropriate disclosure in the Annual Report and Accounts. These alternative performance measures are recurring revenue, adjusted EBITDA, adjusted profit before tax, adjusted profit after tax and adjusted earnings per share as set out in the Alternative performance measure workings section of the Annual Report. Other matters 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 the Brexit trade deal and the on-going Covid-19 pandemic during the year. The committee also reconsidered 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 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. 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 regularly during the year 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. 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. Following the conclusion of a competitive tender in line with best practice in 2018, the Audit Committee appointed Deloitte LLP as external auditors 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, secure remote working and information security and operational resilience, data governance, risk management framework, discretionary portfolio management, acquisitions management and Small Self-Administered Schemes (SSAS). 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 quarterly reviews of CREIT. The Internal Audit function also conducted reviews into Training and Development, Governance and Wealth Management Services in light of the continuation of remote working for the majority of the team. 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 Martin Reason (Chairman), Joanne Lake and Anne Gunther. Carol Duncumb was Chairman of the Committee until March 2021 being the date that she stepped down from the Board, handing the Chairman position to Martin Reason at the same time. 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 five 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; • Creation of a new share option scheme for Executives, senior managers and consultants with the current share option scheme expiring at the upcoming AGM in October 2021; • Awards to be granted under the share option and incentive schemes established by the Company; • Trends and benchmarking of executive pay in the wider market; and • The implications new corporate governance requirements may have for the design of the Group’s remuneration policy and remuneration disclosures. The Committee continues to review the Group’s long-term incentive plans to ensure it can continue to attract, retain and incentivise appropriately qualified staff to achieve its goals. Nomination Committee The Nomination Committee comprises Joanne Lake (Chairman), Anne Gunther and David Kiddie. 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 six times 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. 64 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 65 Governance Corporate governance report continued Strategic Report Governance Financial Statements Meetings and attendance All directors are encouraged to attend all Board meetings and meetings of Committees of which they are members. Directors’ attendance at meetings during the year (including the AGM) was as follows: Meetings attended (eligible to attend) Joanne Lake Ian Mattioli1 Nathan Imlach2 Carol Duncumb3 Anne Gunther David Kiddie4 Edward Knapp4 Martin Reason4 Ravi Tara5 Iain McKenzie6 Risk and Compliance Committee Audit Remuneration Committee Committee Nomination Committee 4(4) 5(5) 5(5) – – 4(4) 7(7) 2(3) *3(3) 3(3) – – – – 2(3) *5(5) – 2(3) 1(1) – – – – 4(4) 5(5) – – *1(1) – – *6(6) 3(3) – 2(3) 6(6) 3(3) – – – – Board *7(7) 7(7) 2(2) 4(5) 7(7) 3(3) 3(3) 3(3) 2(2) 1(1) Notes * Denotes Committee Chairman. 1. Ian Mattioli appointed to Nominations Committee on 4 January 2021; 2. Nathan Imlach resigned as a director of the Company at the AGM held on 19 October 2020; 3. Carol Duncumb resigned as a non-executive director of the Company on 19 March 2021. Carol was Chairman of the Remuneration Committee up to this date, with Martin Reason becoming Chairman on the same date; 4. Edward Knapp, David Kiddie and Martin Reason appointed as non-executive directors of the Company on 5 January 2021. Martin Reason was appointed as Chairman of the Remuneration Committee on 15 March 2021. Edward Knapp was appointed as Chairman of the Risk and Compliance Committee on 5 January 2021 taking over from the previous Chairman Anne Gunther; 5. Ravi Tara appointed as a director of the Company on 17 February 2021; and 6. Iain McKenzie appointed as a director of the Company on 24 May 2021. In addition, the Board held six weekly ad hoc meetings in advance of the announced fundraise and acquisitions of Maven and Ludlow prior to those completing or agreement being reached, and to consider the integration of these business with the existing Groups operations. 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 robust 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. Committee meetings are normally attended by the Group Managing Director, Chief Financial Officer, Chief Operating Officer and by other senior executives from the Group as requested. 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 Executive directors on behalf of 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 and Nominated Adviser on changes to the AIM Rules, requirements under the Companies Acts and other regulatory matters. All directors have access to independent professional advice at the Company’s expense where they judge it necessary to discharge their duties, with requests for such advice being authorised by the Chairman or two other directors, one of whom is a Non-Executive. Evaluation of the Board’s performance During the year ended 31 May 2018 an external review of the Board’s effectiveness was undertaken by an independent third party. This involved one-to-one interviews with directors and a review of Board and Board committee papers and minutes. The key points raised in the review were around board composition and succession planning. The Board planned to undertake a self-evaluation during the financial year ended 31 May 2021, but due to the ongoing Covid-19 pandemic, this process has been postponed until the year ending 31 May 2022 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. 66 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 67 Governance Corporate governance report continued 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 29 October 2021. In addition, the Chairman, Chief Executive Officer, Chief Financial Officer and Group Managing 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 transactions, acquisitions, material expenditure and capital expenditure within the Group. On behalf of the Board Ravi Tara Chief Financial Officer 20 September 2021 Strategic Report Governance Financial Statements Directors’ remuneration report In March 2020, recognising 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, decided to protect the Group’s financial position and provide security for its clients and employees by adopting a flexible approach to total remuneration arrangements. The Committee determined that this level of prudence should be maintained until at least December 2021 whilst the firm and wider market forces reacted to the unprecedented financial and commercial conditions caused by the pandemic. The committee was fully aligned with the senior executive team in recognising that there needed to be substantial individual sacrifices both in the form of basic and variable pay structures whilst uncertainty associated with the pandemic remained evident. The committee therefore approved a package of measures that included all directors at the time, reducing their basic salary or fees by 50% until 30 November 2021. Having communicated 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, the Group has adjusted salary structures for many of the key functions in the business, recognising that security and engagement are paramount in retaining a motivated workforce capable of guiding the business through a period of continued uncertainty and lockdown restrictions. The Group has committed to restoring discretionary bonuses for all staff in the current year ending 31 May 2021 having not paid a bonus for the first time in the Group’s 30 year history in the last financial year. 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 rewards granted 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 attached to a proportion of the variable pay element. 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 annual 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 29 October 2021. 68 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 69 Governance Directors’ remuneration report continued Strategic Report Governance Financial Statements Single total figure of remuneration for each director Directors’ remuneration payable in respect of the years ended 31 May 2021 and 2020 was as follows: The maximum award as a proportion of salary and the actual award payable in respect of the year ended 31 May 2021 are summarised as follows: Salary and fees Benefits Bonus Long-term incentive plan Pension- related benefits Share incentive plan Total 2021 £000 2020 £000 2021 £000 2020 £000 2021 £000 2020 £000 20219 £000 2020 £000 2021 £000 2020 £000 2021 £000 2020 £000 2021 £000 2020 £000 372 72 57 5 – 506 95 38 56 17 16 17 474 263 – – 66 803 91 46 54 – – – 239 745 191 994 9 7 1 0 – 17 – – – – – – – 2 16 – – 6 24 – – – – – – – 600 – 190 100 – 890 – – – – – – – 17 24 890 – – – – – – – – – – – – – – 433 203 – – – 558 262 – – 221 636 1,041 – – – – – – – – – – – – – – 52 11 3 0 – 66 – – – – – – – 52 29 – – 3 84 – – – – – – – 636 1,041 66 84 2 2 2 – – 6 – – – – – – – 6 – 1,468 1,086 570 295 – – 253 – – 105 – 296 – – – 2,121 1,952 – – – – – – – 95 48 56 17 16 17 91 46 54 – – – 239 191 – 2,360 2,143 Executives1 Ian Mattioli2 Nathan Imlach3,4 Ravi Tara5 Iain McKenzie4,6 Murray Smith3 Sub-total Non-executives Joanne Lake Carol Duncumb7 Anne Gunther David Kiddie6 Edward Knapp6 Martin Reason6 Sub-total Total 1. The benefit package of each Executive Director includes the provision of life assurance under a group scheme; 2. The salary package of Ian Mattioli includes a car allowance; 3. Nathan Imlach ceased to be a director on 19 October 2020, Murray Smith ceased to be a director on 21 October 2019; 4. The benefit packages of Nathan Imlach and Iain McKenzie include the provision of a company car; 5. Ravi Tara appointed as a director of the Company on 17 February 2021; 6. Iain McKenzie appointed as a director of the Company on 24 May 2021; 7. Carol Duncumb resigned as a non-executive director of the Company on 19 March 2021; 8. Edward Knapp, David Kiddie and Martin Reason appointed as non-executive directors of the Company on 5 January 2021; and 9. 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 an interim review of salaries for the executive directors at the time on 30 November 2020 having temporarily re-based salaries to £200,000 per annum from 1 July 2020 to this date. 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 Bonus awards to Executive Directors and some other senior employees of the Group for profit-related performance 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. Executive Directors’ bonuses in respect of the year ending 31 May 2021 will be payable on a purely discretionary basis as follows: • A discretionary personal performance award based on the achievement of personal key objectives. Director Ian Mattioli Ravi Tara Iain McKenzie Actual award as a Maximum award as a proportion of proportion of salary salary 116.0% 95.0% 50.0% 100.0% 100.0% 100.0% Linked to corporate objectives 0% 0% 0% Linked to personal objectives 100.0% 100.0% 100.0% The awards for the current year include an element linked to corporate objectives in line with the discretionary bonus paid out to all staff, and an additional award related to meeting personal objectives linked to the successful completion of the equity placing and completion of the five acquisitions in the year and two acquisitions completing after the year-end. These awards 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 has resolved that the new financial year requires more flexible remuneration arrangements to protect the Group’s financial position and to retain talent. Executive Directors’ bonuses in respect of the year ending 31 May 2022 will be payable on a purely discretionary basis, as follows: Director Ian Mattioli Michael Wright Ravi Tara Iain McKenzie Maximum award as a proportion of salary Linked to corporate objectives 100.0% 100.0% 100.0% 100.0% 0% 0% 0% 0% Linked to personal objectives 100.0% 100.0% 100.0% 100.0% Long-term incentive plan To assist the Group to attract and retain appropriately qualified staff, the Mattioli Woods 2010 Long-Term Incentive Plan (“the LTIP”) was introduced to incentivise and reward 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 in line with all staff of up to 5% of base salary. Pension payments for the Chief Executive 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. The consequent employee 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 2021 the Remuneration Committee granted further awards under the LTIP in respect of the year ended 31 May 2020. 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. 70 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 71 Governance Directors’ remuneration report continued Strategic Report Governance Financial Statements Mattioli Woods 2010 Long-Term Incentive Plan continued 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 2021, the Company had granted options to certain of its senior employees and Executive Directors to acquire (in aggregate) up to 3.31% (2020: 3.30%) of its share capital. The maximum entitlement of any individual was 0.85% (2020: 0.89%). The options are exercisable at 1p per share. 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 2021 the EBT held 76,578 shares (2020: 76,578) and the Company held no shares in treasury (2020: nil) having suspended monthly purchases in response to the Covid-19 pandemic in April 2020. Directors’ interest in share options Outstanding share options granted to Executive Directors under the 2010 LTIP are as follows: Director Ian Mattioli Ravi Tara1 Iain McKenzie2 Nathan Imlach3 Total Exercise price £ 0.01 0.01 0.01 0.01 31 May 2020 No. 230,016 – 10,000 103,943 Granted during the year No. 10,000 7,500 7,500 10,000 Exercised during the year No. – – – (64,740) 343,959 35,000 (64,740) Forfeited during the year No. – – – – – 31 May 2021 No. 240,016 7,500 17,500 49,203 314,219 Notes: 1. Ravi Tara appointed as a director of the Company on 17 February 2021; 2. Iain McKenzie appointed as a director of the Company on 24 May 2021; and 3. Nathan Imlach ceased to be a director on 19 October 2020. Note 20 to the financial statements contains a detailed schedule of all options granted to directors and employees as at 31 May 2021. All of the options were granted for nil consideration. The Remuneration Committee expects to be able to grant additional awards under the LTIP following the announcement of the Group’s trading update in respect of the year ended 31 May 2021 and subject to compliance with Market Abuse Regulation requirements. 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, Anne Gunther, David Kiddie, Edward Knapp and Martin Reason 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 20 September 2021, 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 Ravi Tara Iain McKenzie Joanne Lake Anne Gunther David Kiddie Edward Knapp Martin Reason 20211 No. % 2020 No. 3,402,925 10,690 4,459 4,100 11,576 3,030 – 15,152 6.73 3,371,977 562 0.02 447 0.01 4,100 0.01 4,000 0.02 – 0.01 – – – 0.03 % 12.52 0.00 0.00 0.02 0.01 – – – Notes: 1. Shareholdings include additional shares subscribed as part of the placing in June 2021. Percentage shareholdings are based upon the total issued share capital of 50,578,773. 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 2021 was 700.0p and the range during the financial year was 625.0p to 785.0p. None of the directors had an interest in any contract of significance in relation to the business of the Company or its subsidiaries at any time during the financial year, other than those disclosed in Note 29 to the financial statements. There was no change in the directors’ shareholdings or interests in options between 1 June 2021 and 20 September 2021. 72 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 73 Governance Directors’ remuneration report continued 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 2021 in terms of the change in value of an initial investment of £100 invested on 1 June 2016 in a holding of the Company’s shares against the corresponding total shareholder returns in hypothetical holdings of shares in the FTSE All Share Index. The Company is a member of the FTSE 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 Martin Reason Chairman of the Remuneration Committee 20 September 2021 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 2021. 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 4, financial performance during the year and indications of likely future developments on page 23. 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 2021. This is demonstrated in the Section 172 statement included in the strategic report on pages 41 to 45. Results and dividends Revenue increased by 7% to £62.6m (2020: £58.4m), with organic revenues supplemented by part year contributions from the acquired businesses in the year: Hurley, EPUT, Montagu, Pole Arnold and Caledonia, with all contributing positively to Group earnings and integrating well since acquisition. Group profit for the year before taxation decreasing to £5.1m (2020 restated: £12.7m), due to the restoration of discretionary bonuses for all staff and significant acquisition related expenses incurred in the year, increased acquisition related costs and increase deferred consideration reported as remuneration. The effective rate of taxation was above the standard rate of tax at 73.0% (2020 restated: 25.5%), primarily due to the revaluation of deferred tax liabilities being recognised at an increased rate of tax following the government’s announced plans to increase the standard rate of tax to 25.0% from 6 April 2023, as well as significant non-deductible expenses from contingent consideration arrangements accounted for as remuneration. The final dividend in respect of the year ended 31 May 2020 of 12.7p per share was paid in October 2020. An interim dividend in respect of the year ended 31 May 2021 of 7.5p per share was paid to shareholders in March 2021. In light of the uncertain trading conditions and in order to protect the Group’s financial position and balance the interests of all stakeholders, the Board is pleased to recommend a final dividend of 13.5p per share (2020: 12.7p). This makes a proposed total dividend for the year of 21.0p (2020: 20.0p) a year-on-year increase of 5.0% (2020: flat). This has not been included within the Group financial statements as no obligation existed at 31 May 2021. If approved, the final dividend will be paid on 3 November 2021 to ordinary shareholders whose names are on the register at the close of business on 1 October 2021, having an ex-dividend date of 30 September 2021. 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 2021 is shown in Note 23. The ordinary shares rank pari passu in all respects. Save as agreed at the Annual General Meeting of the shareholders, the ordinary shares have pre-emption rights in respect of any future issues of ordinary shares to the extent conferred by section 561 of the Companies Act 2006. There are no restrictions on the transfer of ordinary shares in the Company, other than: • Certain restrictions that may be imposed from time to time by laws and regulations and pursuant to the Listing Rules of the FCA, whereby certain directors, officers and employees of the Group require the approval of the Group to deal in ordinary shares of the Company; • Restrictions on the former 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; • Restrictions on the former shareholder of Montagu who 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 40,161 ordinary shares in Mattioli Woods during the two years ending 2 February 2023; • Restrictions on the former shareholders of Pole Arnold Financial Management who have entered into lock-in deeds with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 72,940 ordinary shares in Mattioli Woods during the two years ending 12 April 2023; and • Restrictions on the former shareholders of Caledonia Asset Management who have entered into lock-in deeds with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 12,724 ordinary shares in Mattioli Woods during the two years ending 16 April 2023. The Group is not aware of any other agreements between holders of securities that may result in restrictions on the transfer of ordinary shares. 74 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 75 Governance Directors’ report continued Strategic Report Governance Financial Statements Employee share trust The Mattioli Woods 2010 Employee Benefit Trust (“the EBT”) was established to deliver shares for the benefit of employees and former employees of the Group who have been granted an award under one of the Group’s employee share schemes. The trustee has agreed to satisfy awards under the Group’s employee share schemes. As part of these arrangements the Group funds the EBT, from time to time, to enable the trustee to acquire shares to satisfy these awards, details of which are set out in Note 23 of the Financial Statements. The trustee has waived its right to dividends on all shares held within the trust. During the year ended 31 May 2021 the EBT purchased no shares in the Company (2020: 64,330) at a cost of £nil (2020: £498,000). At 20 September 2021, the Company had been notified of the following interests representing 3% or more of its issued share capital: Shareholder Liontrust Asset Management Ian Mattioli Investec Wealth & Investment Schroder Investment Management William Nixon Gresham House Standard Life Aberdeen plc Chelverton Asset Management Royal London Mutual Assurance Society Octopus Investments Tellworth Investments Canaccord Genuity Group Inc Unicorn Asset Management Number of ordinary shares Percentage holding1 3,912,961 3,402,925 2,943,078 2,614,535 2,557,306 2,386,535 2,383,687 2,284,091 2,213,141 1,807,862 1,744,934 1,706,649 1,540,538 7.74 6.73 5.82 5.17 5.06 4.72 4.71 4.52 4.38 3.57 3.45 3.37 3.05 Notes 1. Percentage shareholdings are based upon the total issued share capital of 50,578,773. In addition to the above shareholdings, 701,259 ordinary 1p shares representing 1.4% 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 58 and 59. 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 with the exception of Joanne Lake who will step down from her role as Non-Executive Chairman. 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 2021, it was confirmed that each Director continues to be an effective member of the Board and to demonstrate commitment to the role. 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. 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 three 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, webinars, 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 on pages 41 to 45. 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. 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 reopened our graduate training programme having been on hold whilst the majority of Mattioli Woods’ employees continue to work from home. This along with on-going recruitment to new roles which continued during the pandemic have been great successes. 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, the YMCA and University of 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 we have already been through a review of 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 29. 76 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 77 Governance Directors’ report continued Strategic Report Governance Financial Statements Environmental The Board believes good environmental practices, such as the reducing the volume of printing, recycling of paper waste and committing to purchasing hybrid, 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 50 to 51 of the Strategic Report. Annual General Meeting The AGM of the Company will be held on 29 October 2021. The notice of the meeting together with details of the resolutions proposed and explanatory notes will be available 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 32 to 40 of the Chief Executive’s Review. 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 61 of the review of Corporate Governance. The key risks and mitigating factors are set out on pages 32 to 40. 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 56 to 68. 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 29 October 2021. 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 58 and 59. 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 2021 through to 31 May 2024. 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 and the impact of Brexit continues to affect economic and financial markets. The Board has carried out a robust assessment of the principal risks facing the Group including those associated with a general economic downturn, including financial market volatility, deteriorating credit, liquidity concerns, government intervention, increasing unemployment, furlough, redundancies and other restructuring activities that would threaten the sustainability of its business model, future performance, solvency or liquidity. This assessment by the Board extends to run a series of stress tests against the Group’s three-year plan, including a reverse stress scenario in which a variety of external and internal events impact the three-year plan and so enable the Directors to assess management’s ability to take management actions to mitigate the impact on the Group. In assessing the future viability of the overall business, the Board also considers the current and future strategy, the results of the latest ICAAP, the risk management controls and procedures in place. As an example for this year, a Group stress test under the market scenario is based on the impact of a reduction in market value of investment assets of approximately 10-20% as seen in the initial stages of the Covid-19 pandemic in 2020. Subsequent management actions ensures the Group still maintains sufficient net assets and regulatory capital. The Directors believe the Group is well placed to manage its business risks successfully as demonstrated by the stress tests. 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. The Directors have considered the Group’s prospects for a period in excess of 12 months from the date on which the Financial Statements are approved. Events after the balance sheet date Details of significant events occurring after the end of the reporting period are given in Note 32. Approved on behalf of the Board Ravi Tara Chief Financial Officer 20 September 2021 78 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 79 Governance Strategic Report Governance Financial Statements Directors’ responsibilities for the financial statements Independent auditor’s report to the members of Mattioli Woods plc The directors are responsible for preparing the Directors’ Report, Strategic Report and the financial statements in accordance with applicable law and regulations. Report on the audit of the financial statements UK company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The financial statements also comply with International Financial Reporting Standards (IFRSs) as issued by the IASB. The financial statements are required by law and IFRS 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 as issued by the IASB; 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. 1. 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 2021 and of the group’s profit for the year then ended; • the group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB); • the parent company financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements 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 33. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law, international accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs as issued by the IASB. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006. 2. 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. 3. Summary of our audit approach Key audit matters The key audit matters that we identified in the current year were: • Acquisition accounting; • Revenue recognition – valuation and recoverability of accrued revenue; and • 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 £476,000 which was determined on the basis of profit before tax adjusted for deferred consideration. The group audit includes the full scope audits of Mattioli Woods plc and 11 other trading subsidiaries. This scope covers over 99% of the group’s revenue, assets and profit before tax. Significant changes in our approach We have added acquisition accounting as a key audit matter this year on the basis that there have been significant business acquisitions during the year. Materiality was originally determined on the basis of forecast profit before tax. However, as explained in note 2.2 of the financial statements, it was identified that the original accounting treatment of deferred consideration was not in line with the requirements of IFRS 3 and the impact of including the deferred consideration as an expense in the current year reduced profit before tax by £2,978,000. We ultimately determined that profit before tax adjusted for the deferred contribution expense of £2,978,000 was an appropriate benchmark. 80 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 81 Financial Statements Independent auditor’s report to the members of Mattioli Woods plc continued Strategic Report Governance Financial Statements 4. Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Key audit matter description continued Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of accounting included: • We obtained and read management’s going concern assessment, which included specific consideration of the impacts of the Covid-19 pandemic and the Company’s operational resilience, in order to understand, challenge and evidence the key judgements made by management; • We challenged the key assumptions in management’s FY22 budget by performing retrospective review and assessing their projected impact on capital ratios; • Supported by our in-house prudential risk specialists, we read the most recent ICAAP submissions, assessed management’s capital projections, assessed the results of management’s capital stress testing and challenged key assumptions and methods used in the capital stress testing, by analysing the resilience to the capital stress test using surplus to capital requirements rather than the cash position; • We read correspondence with regulators to understand the capital requirements imposed by the Company’s regulators, and evidence any changes to those requirements; • We assessed the historical accuracy of forecasts prepared by management; and • We assessed the appropriateness of the disclosures made in the financial statements. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 5. 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. 5.1. Acquisition accounting Key audit matter description The group completed five acquisitions during the year ending 31 May 2021 for a total consideration of £27.0 million and recognised £7.5m of goodwill. IFRS 3 Business Combinations requires that the acquired assets and liabilities of subsidiaries should be recognised initially at fair value and this may include the recognition of certain intangible assets, such as for the value of the existing customer portfolios. Management has carried out a purchase price allocation exercise to determine the fair value of the assets acquired and the liabilities assumed, which is disclosed in Note 3 of the financial statements. The amount paid for all subsidiaries is in excess of the book value of the net assets acquired and management have determined the value of an intangible asset for the existing customer relationships of each business (£7.2 million in aggregate). This requires an estimation of the future income stream from existing customers and the calculation of an appropriate discount rate. Inappropriate assumptions in this regard could lead to a misstatement of the intangible asset recognised, with an opposite error created in the valuation of the goodwill recognised. How the scope of our audit responded to the key audit matter Additionally, as disclosed in note 2.2, following our challenge and after a subsequent review by management at the year end, it was identified that the accounting treatment of the deferred consideration for a number of previous business combinations was not aligned to the requirements of IFRS 3 Business combinations. Namely, payments contingent on future employment of the seller in the acquisition should be recognised as a remuneration cost, rather than as part of the consideration. The Group had five acquisitions in previous periods where the payment was contingent on future employment and seller rights to the payments would automatically forfeit in the event of termination of their employment. Management recognised these payments as a deferred consideration. Under the requirements of IFRS 3 Business combinations, such payments should be recognised as remuneration cost. This led to a prior year restatement of the financial statements and had a significant effect on the allocation of resources in the audit and directing the efforts of the engagement team. The effect of the prior year restatement was to reduce total assets at 31 May 2020 by £10.7m, total liabilities by £0.6m, and retained earnings by £10.1m. Remuneration costs associated with acquisitions during the year ended 31 May 2021 totalled £3.8m. The accounting policy for acquisitions is provided in Note 2.5 and the management judgement is discussed in more detail in the sources of significant estimation uncertainty section of Note 2.6. Disclosures related to acquisitions are provided in Note 3. This risk was also considered by the audit committee, as set out in “Audit Committee activities during the year” within the Governance section of the Annual Report. Our work on the acquisition accounting included: • Obtaining an understanding of the relevant controls over the acquisition accounting process, including those relating to data integrity in the model and the assumptions; • Challenging management’s paper on the purchase price allocation, by agreeing the balances to underlying working and assessing the accounting treatment against requirements of IFRS 3 Business combinations; • Agreeing the opening acquisition balance sheets to supporting documentation; • Challenging the completeness and valuation of intangible assets and any fair value adjustments which may be required by using our valuation specialists; • Involving valuation specialists to challenge assumptions used in the purchase price allocation of Maven Capital Partners, in particular the discount rates used within the calculations; and • Testing the calculations for mechanical accuracy and consistency. In relation to the prior year misstatement, our work included: • Challenging management’s paper by reference to relevant accounting guidance; • Assessing all share purchase agreements since the adoption of IFRS 3 in order to identify business combinations where future employment existed as a condition for the contingent consideration; • Challenging the accounting treatment of the contingent payments to sellers and whether these should be recognised as part of the cost of acquisition or as a remuneration expense, by considering the contingent consideration terms against the requirements of IFRS 3 Business combinations; • Testing the data inputs into the model for completeness and accuracy; • Testing the model for mechanical accuracy and consistency; and • Assessing the appropriateness of the disclosures made in the financial statements in view of the requirements of IAS 8 Accounting policies, changes in accounting estimates and errors. Key observations We have concluded that management’s assumptions used in the valuation of the intangible assets are reasonable and that the intangible assets are fairly stated. The disclosures made concerning the acquisitions and the prior year restatement are appropriate. 82 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 83 Financial Statements Independent auditor’s report to the members of Mattioli Woods plc continued Strategic Report Governance Financial Statements 5.2. Revenue recognition – valuation and recoverability of accrued revenue 5.3. Impairment of goodwill and intangible assets Key audit matter description How the scope of our audit responded to the key audit matter 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 £62.6 million (2020: £58.4 million), of which £4.2 million (2020: £4.8 million) 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 twelve months (2020: three months) in their estimate. In 2020, management reduced the time over which the historical rate is calculated to three months 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 twelve months prior to 31 May 2020 would not be a reliable measure of the recoverability of the accrued income. During the year ended 31 May 2021, the recovery rate stabilised and management returned to using twelve months’ historic experience as it has in periods before the lockdown. The recovery rate used at the end of the year was 67.8% (2020: 66.9%). Management’s estimate, together with a sensitivity of a reasonably likely change in the recovery rate, is discussed in more detail in the other areas of estimation uncertainty section of Note 2.6. Inappropriate assumptions for recoverability would result in inaccurate revenue recognition. Due to the level of judgement required and the sensitivity of the estimate, we considered 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 matter 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; • Challenging management’s revenue recognition judgement paper, including how the impact of Covid-19 has been considered; • Examining the historical recovery rates to assess whether twelve 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; • Analysing 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. Key observations We considered the estimate of accrued income to be reasonable. We concluded that the related disclosures are appropriate. Key audit matter description The group balance sheet shows intangible assets (including goodwill) of £60.5 million (2020: £37.4 million). 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 (£197.8 million at 31 May 2021) is significantly in excess of the net assets of the group at £86.2m. 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 less headroom than the other operating segments 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 forecast cashflows, the long term growth rate and the discount rate used in the model. Due to the level of judgement required and the sensitivity of the estimate, we considered 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 other areas of estimation uncertainty section of Note 2.6. Impairment of goodwill and intangible assets are disclosed in Note 19. This matter 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; • Challenging management’s goodwill impairment judgement paper by reference to requirements of IAS 36 and underlying workings, including how the impact of Covid-19 has been considered; • Reviewing of the EBITDA forecast used in the model against the historical trading of the Employee Benefits division and challenging the assumptions underpinning the forecast through performing retrospective review of the estimates and the long term growth rate; • 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; • 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 that 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. Whilst the discount rate applied is optimistic and outside of our acceptable range, due to the headroom in the Employee Benefits division, the application of a more prudent discount rate would not result in an impairment. We considered the forecast cashflows and long term growth rate to be appropriate. The disclosures made concerning the impairment review and the sensitivities that apply to Employee Benefits are appropriate. How the scope of our audit responded to the key audit matter Key observations 84 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 85 Financial Statements Independent auditor’s report to the members of Mattioli Woods plc continued Strategic Report Governance Financial Statements 6. Our application of materiality 6.1. Materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Materiality £476,000 (2020: £577,000) £428,400 (2020: £519,300) Group financial statements Parent company financial statements 0.86% of revenue (2020: 1.25%). Parent company materiality is capped at 90% of group materiality (2020: 90% 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. Basis for determining materiality 5.7% of profit before tax adjusted for deferred contribution consideration of £2,978,000 (2020: 5% of forecast profit before tax). Rationale for the benchmark applied Materiality was originally determined on the basis of forecast profit before tax given that 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. However, as explained in note 2.2 of the financial statements, it was identified that the original accounting treatment of deferred consideration was not in line with the requirements of IFRS 3 and the impact of including the deferred consideration as an expense in the current year reduced profit before tax by £2,978,000. As a result, we did not consider a materiality based on profit before tax alone appropriately reflected the size and scale of the business. We revisited our materiality determination and considered other suitable benchmarks based on what benchmarks we considered to be the focus of the users of the financial statements. We ultimately determined profit before tax adjusted for the deferred contribution expense of £2,978,000 was an appropriate benchmark given that these costs that are not expected to recur to the same degree in future periods. We noted that materiality determined using this benchmark also equated to 0.77% of revenue (2020: 0.99%) and 0.55% of net assets (2020: 0.71%). Draft PBT £9,520k Draft PBT Group materiality Group materiality £476k Component materiality range £238k to £428k Audit Committee reporting threshold £24k 6.2. 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. Performance materiality Basis and rationale for determining performance materiality Group financial statements Parent company financial statements 60% (2020: 60%) of group materiality 60% (2020: 60%) of parent company 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. 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. 6.3. Error reporting threshold We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £23,800 (2020: £28,000), 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. 7. An overview of the scope of our audit 7.1. Identification and scoping of components 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 (Pensions) Limited, MC Trustees (Administration) Limited, Broughtons Financial Planning Limited, SSAS Solutions (UK) Limited, The Turris Partnership Limited, Hurley Partners Limited, Montagu Limited, Pole Arnold Financial Management Limited, Caledonia Asset Management 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 £238,000 to £428,000. 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 are located in Leicester and all components are audited directly by the group audit team. 8. Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. 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. 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 course of our audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. 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 this regard. 86 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 87 Financial Statements Independent auditor’s report to the members of Mattioli Woods plc continued Strategic Report Governance Financial Statements 9. 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. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. Report on other legal and regulatory requirements 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. 12. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: 10. 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. 11. Extent to which the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. 11.1. Identifying and assessing potential risks related to irregularities In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following: • the nature of the industry and sector, control environment and business performance including the design of the group’s remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets; • results of our enquiries of management, internal audit and the audit committee about their own identification and assessment of the risks of irregularities; • any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures relating to: • identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance; • detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; • the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; • the matters discussed among the audit engagement team and relevant internal specialists, including tax, valuations, IT and data analytics specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the following areas: revenue recognition, impairment of goodwill and acquisition accounting. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override. We also obtained an understanding of the legal and regulatory framework that the group operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act, QCA Listing Rules and tax legislation. In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty. These included the Financial Conduct Authority (‘FCA’) rules on capital adequacy. 11.2. Audit response to risks identified As a result of performing the above, we identified revenue recognition, impairment of goodwill and intangible assets and acquisition accounting as key audit matters related to the potential risk of fraud. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters. In addition to the above, our procedures to respond to risks identified included the following: • reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements; • enquiring of management and the audit committee concerning actual and potential litigation and claims; • performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; • reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC and FCA; and • in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. • 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. 13. Opinion on other matter prescribed by the Capital Requirements (Country-by-Country Reporting) Regulations 2013 In our opinion the information given on page 116 for the financial year ended 31 May 2021 has been properly prepared, in all material respects, in accordance with the Capital Requirements (Country-by-Country Reporting) Regulations 2013. 14. Matters on which we are required to report by exception 14.1. 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. 14.2. 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. 15. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Kieren Cooper (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor Birmingham, United Kingdom 20 September 2021 88 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 89 Financial Statements For the year ended 31 May 2021 Strategic Report Governance Financial Statements As at 31 May 2021 Consolidated statement of comprehensive income Consolidated and Company statements of financial position 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 bargain purchase Deferred consideration as remuneration 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 2021 £000 2020 Restated £000 4 62,615 58,407 11 20 17 15,16 21 3 26,28 10 8 9 18 12 (34,141) (13,332) (1,475) (3,078) (2,772) (25) (46) 288 (3,803) (27,623) (10,897) (1,335) (2,437) (2,547) (605) (18) – (750) 4,231 12,195 34 (258) (224) 1,141 5,148 (3,757) 1,391 99 (196) (97) 633 12,731 (3,244) 9,487 18 28 (15) 1,419 9,472 1,419 9,472 13 13 14 5.1 5.0 21.0 34.9 34.7 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. Assets Property, plant and equipment Right of use assets Intangible assets Deferred tax asset Investments in subsidiaries Investment in associate Other investments 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 Trade and other payables Lease liability Deferred tax liability Provisions Total non-current liabilities Current liabilities Trade and other payables Income tax payable Lease liability Provisions Total current liabilities Total liabilities Total equities and liabilities 15 16 17 12 18 18 18 21 12 18 22 23 23 23 23 23 23 23 25 27 12 26 25 12 27 26 2021 Note Group £000 Company £000 Group Restated £000 15,636 2,584 37,393 888 – 3,732 – 17,208 390 324 40 25,959 2020 Company Restated £000 3,115 2,188 36,638 874 13,141 3,732 – 59,688 27,192 1,403 324 40 17,584 Group Restated £000 16,665 – 38,025 704 – 4,211 750 60,355 16,384 – – 80 23,248 2019 Company Restated £000 3,469 – 38,505 701 11,410 4,211 750 59,046 28,111 – – 80 14,095 43,921 46,543 39,712 42,286 82,734 110,382 60,233 14,340 2,180 60,468 951 – 4,295 500 2,472 1,823 60,555 932 39,805 4,295 500 19,197 30 290 26 21,888 41,431 28,247 1,307 290 26 10,909 40,779 124,165 151,161 104,154 106,231 100,067 101,332 283 33,834 17,458 3,559 2,000 (597) 29,550 86,087 – 1,680 9,442 1,545 12,667 15,515 – 905 8,991 25,411 38,078 283 33,834 17,458 3,559 2,000 – 31,975 89,109 28,143 1,395 6,740 1,545 37,823 14,651 – 820 8,758 24,229 62,052 269 32,891 10,639 3,848 2,000 (597) 32,460 269 32,891 10,639 3,848 2,000 – 37,236 268 32,137 10,639 3,208 2,000 (99) 28,202 268 32,137 10,639 3,208 2,000 – 33,108 81,510 86,883 76,355 81,360 – 1,944 4,482 944 7,370 9,923 – 964 4,387 15,274 22,644 – 1,622 3,092 914 5,628 8,706 – 880 4,134 13,720 19,348 – – 4,345 1,244 5,589 14,527 536 – 3,060 18,123 23,712 – – 3,150 1,219 4,369 12,806 – – 2,797 15,603 19,972 124,165 151,161 104,154 106,231 100,067 101,332 90 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 91 Details of the restatement to comparative financial information are disclosed in Note 2. The loss of the Company for the financial year, after taxation, was £1.0m (2020 restated: £9.4m profit). The financial statements on pages 90 to 148 were approved by the Board of directors and authorised for issue on 20 September 2021 and are signed on its behalf by: Ian Mattioli MBE Chief Executive Officer Registered number: 03140521 Ravi Tara Chief Financial Officer Financial Statements For the year ended 31 May 2021 Consolidated and Company statements of changes in equity Group As at 1 June 2019 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 23) £000 268 – Share premium (Note 23) £000 32,137 – Merger reserve (Note 23) £000 10,639 – Equity – share based payments (Note 23) £000 Capital redemption reserve (Note 23) £000 3,208 – 2,000 – – – 1 – – – – – – – – 754 – – – – – – – – – – – – – – – – – – 1,066 (50) 29 (405) – – – – – – – – – – – As at 31 May 2020 269 32,891 10,639 3,848 2,000 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 Dividends – – – 14 – – – – – – – – 943 – – – – – – – – 6,819 – – – – – As at 31 May 2021 283 33,834 17,458 – – – – 1,080 (46) 31 (1,354) – 3,559 Details of the restatement to comparative financial information are disclosed in Note 2. Own shares (Note 23) £000 (99) – – – – – – – – (498) – (597) – – – – – – – – – Retained earnings Restated (Note 23) £000 28,202 9,487 Total equity £000 76,355 9,487 (15) (15) 9,472 9,472 – – – – 405 – (5,619) 755 1,066 (50) 29 – (498) (5,619) 32,460 81,510 1,391 1,391 28 28 1,419 1,419 – – (32) – 1,354 (5,651) 7,776 1,080 (78) 31 – (5,651) – – – – – – – – – 2,000 (597) 29,550 86,087 Strategic Report Governance Financial Statements Company As at 1 June 2019 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 Issued capital (Note 23) £000 268 – – Share premium (Note 23) £000 32,137 – – Merger reserve (Note 23) £000 10,639 – – Equity – share based payments (Note 23) £000 Capital redemption reserve (Note 23) £000 3,208 – – 2,000 – – Retained earnings Restated (Note 23) £000 33,108 9,357 (15) Total equity £000 81,360 9,357 (15) – 1 – – – – – – 754 – – – – – – – – – – – – – – 9,342 9,342 – 1,066 (50) 29 (405) – – – – – – – – – – – 405 (5,619) 755 1,066 (50) 29 – (5,619) As at 31 May 2020 269 32,891 10,639 3,848 2,000 37,236 86,883 Loss for the year Share of other comprehensive income from associates Total comprehensive loss 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 – – – 14 – – – – – – – – 943 – – – – – – – – 6,819 – – – – – As at 31 May 2021 283 33,834 17,458 Details of the restatement to comparative financial information are disclosed in Note 2. – – – – 1,080 (46) 31 (1,354) – 3,559 – – – – – – – – – (960) 28 (960) 28 (932) (932) – – (32) – 1,354 (5,651) 7,776 1,080 (78) 31 – (5,651) 2,000 31,975 89,109 As permitted by section 408 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. 92 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 93 Financial Statements For the year ended 31 May 2021 Strategic Report Governance Financial Statements Consolidated and Company Statements of cash flows Notes to the financial statements Operating activities Profit for the year Adjustments for: Depreciation Amortisation Impairment of investment in subsidiaries Gain on bargain purchase Deferred consideration as remuneration Investment income Interest expense Share of profit from associate 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 Decrease/(increase) in trade and other receivables Increase/(decrease) in trade and other payables (Decrease)/increase in provisions Cash generated from operations Interest paid Income taxes paid Net cash flows from operating activities Investing activities Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Purchase of software Contingent consideration paid on acquisition of subsidiaries Acquisition of subsidiaries Cash received on acquisition of subsidiaries Investment in other equity holdings Cash received on hive up of group companies Dividends received from associate undertakings Proceeds from disposal of derivative financial assets Proceeds on disposal of 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 (decrease)/increase in cash and cash equivalents Cash and cash equivalents at start year Cash and cash equivalents at end of year Group 2021 £000 Company 2021 £000 Note Group 2020 Restated £000 Company 2020 Restated £000 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. 15,16 17 18 3 26,28 8 9 18 20 12 15 17 26 3 3 18 18 18 8 14 27 22 22 1,391 2,772 3,078 – (288) 3,803 (34) 258 (1,141) 46 1,475 – 3,757 15,117 996 4,962 (713) 20,362 (2) (2,543) (960) 1,884 2,204 21 (288) 3,803 (367) 448 (1,141) 46 1,475 (2,000) 1,936 7,061 2,368 6,002 (613) 14,818 (11) (2,255) 9,487 2,547 2,437 – – 750 (99) 196 (633) 18 1,335 – 3,244 19,282 (806) (4,586) 36 13,926 – (4,392) 9,293 1,781 2,039 – – 750 (490) 177 (633) 16 1,335 (3,500) 2,208 12,976 1,327 (3,998) 55 10,360 – (3,863) 17,817 12,552 9,534 6,497 169 (419) (391) (1,111) (17,736) 4,750 (500) – 588 – 8 (1,108) 20 19 – 169 (416) (387) (1,111) (17,736) – (500) 5,230 588 – 8 (1,108) 20 11 2,000 (15,711) (13,232) 124 (818) (173) (600) (861) 111 – – 1,078 750 45 (35) 44 83 – (252) 551 – (5,651) (1,077) (6,177) 551 – (5,651) (895) (5,995) 487 (498) (5,619) (941) (6,571) 124 (814) (173) (600) (990) – – – 1,078 750 45 (35) 44 44 3,500 2,973 487 – (5,619) (849) (5,981) (4,071) 25,959 (6,675) 17,584 21,888 10,909 2,711 23,248 25,959 3,489 14,095 17,584 2. Basis of preparation and accounting policies 2.1 Basis of preparation The consolidated financial statements have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards as issued by IASB. 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 20 September 2021. 2.2 Restatement of comparative financial information Following a review a decision has been made to change the accounting treatment for acquisitions with contingent earn-out consideration payable under certain circumstances. As a result of a review, we have restated comparative financial information to reflect a revised allocation of contingent consideration on certain business combinations between acquisition costs and non-underlying remuneration. IFRS 3 Business Combinations lists a number of factors to consider when assessing whether contingent consideration payable to employees or management vendors should be treated as part of acquisition cost or remuneration. These factors include terms associated with post acquisition employment, linkage to valuation of the acquiree and other factors. Following further review in the current year, and consideration of the January 2013 IFRIC Update issued by the IFRS Interpretations Committee, which sought to provide clarification on this area of IFRS 3, we identified that certain of our previous acquisitions which contained contingent consideration should have been recognised separately as remuneration rather than acquisition cost. The clarification to IFRS 3 centres on the existence of automatic forfeiture of a management seller to their rights to contingent deferred consideration in the event of the termination of their employment, which supersedes all other factors we are asked to consider under IFRS 3. We have reviewed the legal documentation and acquisition accounting for every acquisition made by the Group since the adoption of IFRS 3, which for the Group is the period commencing 1 June 2010, five of which were found to contain clauses where rights to contingent consideration are forfeited on termination of employment. In these cases, we have treated the contingent consideration payable to those management sellers as remuneration. These contractual terms existed to help protect the value of the intangible assets acquired in the business combination by encouraging retention of key personnel and their client relationships. The historical acquisitions that have given rise to this restatement are as follows: • TCF Global Independent Financial Services Limited acquired in August 2011; • Thoroughbred Wealth Management Limited acquired in July 2013; • Boyd Coughlan Limited acquired in June 2015; • Taylor Patterson Group Limited acquired in September 2015; and • SSAS Solutions (UK) Limited acquired in March 2019. When classified as acquisition cost, the discounted value is capitalised, with the discounting being unwound over the earn-out period and recognised as a finance cost. By classifying contingent consideration as remuneration, the cost of the contingent payments are not capitalised as part of acquisition cost, but recognised as a separately identifiable expense on the face of the statement of comprehensive income over the period in which those services were provided under the terms of the acquisition agreement. Treatment as remuneration also reduces finance costs recognised in respect of discounting the provisions for contingent consideration. Where the reduction to acquisition cost results in acquisition costs being lower than the fair value of separately identifiable assets acquired, this gives rise to negative goodwill, which is recognised as a gain on bargain purchase in the statement of comprehensive income at acquisition. Details of the restatement to comparative financial information are disclosed in Note 2. 94 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 95 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 2. Basis of preparation and accounting policies continued 2.2 Restatement of comparative financial information continued The impact of the restatement on the comparative financial statements of the Group are as follows: The impact of the restatement on the comparative financial statements of the Company are as follows: Group Statement of Financial Position Assets Intangible assets Total assets Liabilities Provisions Total liabilities Equity Retained earnings Total equity Total equity and liabilities Group Statement of Comprehensive Income Deferred consideration as remuneration Operating profit before financing Finance costs Profit before tax Profit for the year Group Statement of Financial Position Assets Intangible assets Total assets Liabilities Provisions Total liabilities Equity Retained earnings Total equity Total equity and liabilities 2020 As reported £000 Restatement £000 2020 Restated £000 48,102 (10,709) 37,393 114,863 (10,709) 104,154 5,924 23,237 (593) (593) 5,331 22,644 42,576 91,626 (10,116) 32,460 (10,116) 81,510 114,863 (10,709) 104,154 2020 As reported £000 – 12,945 (260) 13,417 10,173 Restatement £000 (750) (750) 64 (686) (686) 2020 Restated £000 (750) 12,195 (196) 12,731 9,487 2019 As reported £000 Restatement £000 2019 Restated £000 48,734 (10,709) 38,025 110,776 (10,709) 100,067 5,583 24,991 (1,279) (1,279) 4,304 23,712 37,632 85,785 (9,430) 28,202 (9,430) 76,355 110,776 (10,709) 100,067 The financial statements of the Company have also been restated, with the value of investments in subsidiaries having been reduced to reflect the lower acquisition costs recognised. The impact is less than that of the impact on goodwill in the Group accounts as a result of investments in subsidiaries impacted by this restatement having been impaired in prior accounting periods. Goodwill recognised by the Company is unchanged. Company Statement of Financial Position Assets Investments in subsidiaries Total assets Liabilities Provisions Total liabilities Equity Retained earnings Total equity Total equity and liabilities Company Statement of Financial Position Assets Investments in subsidiaries Total assets Liabilities Provisions Total liabilities Equity Retained earnings Total equity Total equity and liabilities As a result of the restatement to comparative financial information, we have presented a third statement of financial position as at the beginning of the preceding period, as required by IAS 1 Presentation of Financial Statements. Performance measures impacted by the restatement to contingent consideration costs have also been restated, including operating profit before financing, EBITDA, EBITDA margin, profit before tax, effective taxation rate, basic EPS and diluted 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. Further details of the consideration made by the directors can be found in the Directors Report on page 79. 2020 As reported £000 Restatement £000 2020 Restated £000 14,534 (1,393) 13,141 107,624 (1,393) 106,231 5,640 19,940 (592) (592) 5,048 19,348 38,037 87,684 (801) (801) 37,236 86,883 107,624 (1,393) 106,231 2019 As reported £000 Restatement £000 2019 Restated £000 12,803 (1,393) 11,410 102,725 (1,393) 101,332 5,294 21,250 (1,278) (1,278) 4,016 19,972 33,223 81,475 (115) (115) 33,108 81,360 102,725 (1,393) 101,332 96 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 97 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 2. Basis of preparation and accounting policies continued 2.4 Developments in reporting standards and interpretations Standards not affecting the financial statements The following new and revised standards and interpretations have been adopted in the current period: Standard or interpretation IFRS 3 (amendments) IAS 1 and 8 (amendments) Amendments to References to the Conceptual Framework in IFRS standard Business Combinations Definition of Material Periods commencing on or after 1 January 2020 1 January 2020 1 January 2020 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 were in issue but not yet effective: Standard or interpretation Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 – Interest Rate Benchmark Reform Amendments to IFRS 16 – Covid-19 related rent concessions IFRS 17 Insurance contacts Periods commencing on or after 1 January 2021 1 January 2021 1 January 2023 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. 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. Contingent consideration payable to employees or selling shareholders arising on business combination is assessed as to whether it should be classified as part of acquisition costs or remuneration for post acquisition services, using the criteria as defined in IFRS 3 Business Combinations to identify the appropriate treatment. Where contingent consideration payable to employees or selling shareholders is treated as remuneration, it is recognised as an expense over the period over which the contingent consideration is earned, and reported separately on the face of the statement of comprehensive income. 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 equipment • Office equipment • Fixtures and fittings • Motor vehicles • Leasehold improvements 0% until asset becomes available for use; 2% per annum on cost; 10-33% per annum on cost; 20% per annum on written down values; 20% per annum on written down values; 33% 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. 98 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 99 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 2. Basis of preparation and accounting policies continued 2.5 Principal accounting policies continued 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 Hurley Partners Exempt Property Unit Trust Montagu Pole Arnold Caledonia 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 31 July 2020 14 January 2021 2 February 2021 12 April 2021 16 April 2021 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 15.7 Years 10 Years 20 Years 20 Years 20 Years A summary of the policies applied to the Group’s goodwill and intangible assets is as follows: Useful life Measurement method used 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. 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. 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 they may impact clients abilities to meet cashflow obligations such as significant market movements impacting the value of clients investments. Trade receivables are deemed to be low credit risk as our pension and investment products tend to attract high net worth clients with a strong capacity to meet contractual cashflow obligations in the near term and adverse changes in economic conditions in the longer term may, but will not necessarily, reduce their ability to fulfil cashflow obligations. Further details of our credit risk management practices are included in Note 30. Aged trade and other receivables are reviewed with specific provisions or write offs recognised 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. Credit losses are calculated based on the value of credit notes issued, plus increases in specific provisions against trade receivables. Credit loss rates are calculated separately for each company within the Group based on credit losses divided by the value of invoiced revenue over a rolling 12-month period. 100 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 101 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 2. Basis of preparation and accounting policies continued 2.5 Principal accounting policies continued 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 Lease agreements under which the Group is lessee give rise to both a right-of-use asset and a lease liability. The lease liability is recognised at the present value of future lease payments under the lease, including any rental incentives, and discounted at the incremental rate of borrowing of the lessee, which is determined based on the risk-free rate and margin payable on borrowing over a term equivalent to the lease. Right-of-use asset assets are initially recognised at the value of the lease liability. 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. Leases with a remaining term less than 12 months at the reporting date are assessed for a period of expected renewal, and where renewal is expected the lease liability is remeasured to include the terms of the expected renewal. 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 and amendments to associated provisions for dilapidation on property leases. Right-of-use assets are derecognised on handing the leased asset back to the lessor of the asset. Lease agreements under which the Group is lessor are assessed to determine if they represent operating or finance leases. The Group has one lease agreement under which the Group is lessor, which is classified as a finance lease, in respect of part of a property for which the Group is also lessor. Finance leases of leased assets under which the Group is lessor give rise to both a finance lease receivable and the partial de-recognition of the right-of-use asset in respect of the head lease of the leased asset. De-recognition of right-of-use assets are measured at an amount equal to the lease receivable. Finance lease receivable is subsequently measured by adjusting the carrying amount to reflect the interest income, the lease payments received and any reassessment or lease modifications. Where a lease has a term of less than 12 months or is of low value, the Group applies the exemption not to recognise right-of-use assets and liabilities for these leases. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised as well as through the amortisation process. Contingent consideration Contingent consideration payable to employees or selling shareholders arising on business combination is assessed as to whether it should be classified as part of acquisition costs or remuneration for post acquisition services. Where classified as acquisition costs, a provision for contingent consideration is recognised on acquisition for the present value of the level of contingent consideration expected to be paid. Subsequent changes to the fair value of the contingent consideration are recognised in accordance with IFRS 9 in the statement of comprehensive income. Where classified as remuneration a provision for contingent consideration is recognised based on the level of contingent consideration expected to be paid and the period over which the contingent consideration relates. 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). 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. 102 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 103 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 2. Basis of preparation and accounting policies continued 2.5 Principal accounting policies continued Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration receivable for each contractual obligation, excluding discounts, rebates, and other sales taxes or duty. Terms of business with customers typically include payment periods of up to 60 days, although specific payment terms can be agreed between the parties. The following information details the nature and timing of the satisfaction of performance obligations in contracts with customers. Investment and asset management Commission income and adviser charges are recognised as follows: • At a point in time: Initial commission (less provision for clawbacks, as explained in Note 26) and initial adviser charges are recognised on a ‘point in time’ basis as being earned at the point the performance obligation is met, being 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, with the contract performance obligation being the ongoing management of investments in accordance with the applicable investment mandate. 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, with the contract performance obligation being the ongoing management of investments in accordance with the applicable investment mandate. 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. 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. 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. 104 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 105 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 2. Basis of preparation and accounting policies continued 2.6 Critical accounting judgements and sources of significant estimation uncertainty continued Critical accounting judgements Contingent payments to selling shareholders arising from a business combination Contingent consideration payable to employees or selling shareholders arising on business combination is assessed as to whether it should be classified as part of acquisition costs or remuneration for post acquisition services, using the criteria as defined in IFRS 3 Business Combinations to identify the appropriate treatment. Where contingent consideration payable to employees or selling shareholders is treated as acquisition costs, its fair value at acquisition forms part of the intangible assets arising on acquisition. Where it is treated as remuneration, it is recognised as an expense over the period over which the contingent consideration is earned. Two acquisitions were completed in the year ended 31 May 2021 which include contingent consideration classified as remuneration. If these had been classified as part of acquisition cost, overhead expenses would be lower by £3,178,000, finance costs would be higher by £505,000, therefore profit before tax would be higher by £2,673,000. In addition, goodwill would be higher by £8,636,000 and provisions for contingent consideration would be higher by £4,952,000. Sources of significant estimation uncertainty 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. 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 £34.1m (2020: £1.6m), 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. Estimated useful life sensitivity of -5 years is used, representing a severe but plausible rate of client attrition if customer relationships acquired are damaged as a result of the business combination. Growth rate sensitivities are set at a level to either minimise or altogether remove the impact of assumed growth in cashflows derived from the acquired portfolio. Discount rate sensitivity of +1.0% represents a plausible variance in discount rate as a result of a range of judgements used in following the capital asset pricing model to determine an appropriate weighted average cost of capital for the acquired businesses. The sensitivity of the fair value of the highest-valued customer relationships acquired during the year to changes in the key assumptions are as follows: Acquisition of Hurley Partners Limited Estimated useful life Short-term growth rate in years 2 to 3 Long-term growth rate from year 4 Discount rate Acquisition of Pole Arnold Financial Management Limited Estimated useful life Short-term growth rate in years 2 to 5 Long-term growth rate from year 6 Discount rate Base assumption Change in assumption 15.7 years –5 years –5.0% 2.0%-5.0% –2.0% 2.0% +1.0% 11.2% Base assumption Change in assumption 20 years –5 years –5.0% –2.0% +1.0% 2.5% 2.5% 14.7% Increase/ (decrease) in fair value £000 (1,381) (972) (642) (642) Increase/ (decrease) in fair value £000 (487) (438) (113) (147) Other areas of estimation uncertainty The Group also notes the following other areas of estimation uncertainty, which are not considered areas of significant estimation uncertainty: Impairment of intangible assets 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. Value in use calculations are utilised to calculate recoverable amounts of a CGU. Value in use is calculated as the net present value of the projected pre-tax cash flows of the CGU in which the client portfolio is contained. The net present value of cash flows is calculated by applying a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset, based on the Group’s pre-tax Weighted Average Cost of Capital (“WACC”). The Group has applied a WACC of 10.5% 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. Forecast cashflows are derived from the budget for the three years to 31 May 2024, extrapolated for a further two years assuming medium-term growth of 5.0% (2020: 5.0%), thereafter extrapolating these cash flows using a long-term growth rate of 2.0% (2020: 2.5%), which management considers conservative against industry average long-term growth rates. The carrying amount of client portfolios at 31 May 2021 was £40.6m (2020: £25.4m). No impairment provisions have been made during the year (2020: £nil) based upon the Directors’ review. The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the CGUs to which the goodwill has been allocated. In assessing value in use, the estimated future cash flows expected to arise from the CGU are discounted to their present value using a pre-tax discount rate of 10.5%, 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 2021 was £37.2m (2020 restated: £21.1m). No impairment provisions have been made during the year (2020: £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 £28.7m (2020: £14.6m), but would not result in an impairment being recognised. Contingent consideration and contingent remuneration payable on acquisitions Whether contingent consideration is classified as acquisition cost or remuneration, provisions for contingent consideration and contingent remuneration require an assessment of the future values expected to be paid out. Using forecasts approved by the Board covering the period of the contingency, provisions for consideration and remuneration are recognised based on the maximum expected value expected to fall due. A material change to the carrying value would only occur if the acquired business fell significantly short of the target earnings, or if termination of employment of a management seller results in forfeiture of rights to future contingent payments. The carrying amount of contingent consideration provided for at 31 May 2021 was £2.9m (2020 restated: £1.5m) and contingent remuneration provided for at 31 May 2021 was £4.0m (2020 restated: £0.8m) 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. For all acquisitions that have completed their contingent payment period, contingent consideration has been paid in full. Provisions As detailed in Note 26, the Group recognises provisions for client claims, contingent consideration payable on acquisitions, commission clawbacks, dilapidations, onerous contracts and other obligations which exist at the reporting date. These provisions are estimates and the actual amount and timing of future cash flows are dependent on future events. Management reviews these provisions at each reporting date to ensure they are measured at the current best estimate of the expenditure required to settle the obligation. Any difference between the amounts previously recognised and the current estimate is recognised immediately in the statement of comprehensive income. 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 67.8% (2020: 66.9%) is based on historic actual recovery rates measured over a period of twelve (2020: three) 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 was measured in the prior year was temporarily reduced to three months as that was considered a more appropriate reflection of any impact from the Covid-19 pandemic on valuation of the unbilled time costs and disbursements at 31 May 2020. The carrying amount of accrued time costs and disbursements at 31 May 2021 was £4.2m (2020: £4.8m). The sensitivity of a 5.0% change in the estimated recoverability of accrued time costs and disbursements is appropriate as rates have fluctuated +/- 3.0% over the past 12 months, with 5.0% representing a severe but plausible degradation of recovery rates. Sensitivity to a 5.0% (2020: 5.0%) change with all other variables held constant, is £0.3m (2020: £0.3m) of the Group’s profit before tax respectively. There is no material impact on the Group’s equity. 106 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 107 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 3. Business combinations The Group completed five acquisitions during the year. Acquisition related costs of £2.6m (2020: £0.3m) incurred during the year to 31 May 2021 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 Hurley Partners Limited On 31 July 2020, Mattioli Woods acquired the entire issued share capital of Hurley Partners Limited (“Hurley” or “Hurley Partners”), a private client adviser and asset management business with offices in London, Surrey and Manchester. The fair values of the assets and liabilities of Hurley as at the date of acquisition are set out in the table below: Fair value recognised on acquisition £000 Fair value Previous adjustments carrying value £000 £000 Property, plant and equipment Right of use assets Client portfolio Trade and other receivables Prepayments and accrued income Cash at bank 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 Acquisition cost Analysed as follows: Initial cash consideration Net shares in Mattioli Woods Contingent consideration Discounting of contingent consideration Acquisition cost Cash outflow on acquisition: Cash paid Cash acquired Acquisition related costs Net cash outflow 112 – – 825 671 2,271 3,879 (273) (217) (116) (275) – – (12) (893) 112 606 11,595 825 630 2,271 – 606 11,595 – (41) – 16,039 12,160 – 146 – – (577) (162) (2,203) (2,796) (273) (71) (116) (275) (577) (162) (2,215) (3,689) 12,350 5,067 17,417 10,666 5,921 972 (142) 17,417 10,666 (2,271) 293 8,688 Founded in 2013, Hurley 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 at acquisition comprising approximately: • £363m of discretionary funds under management; • £54m of non-discretionary assets; and • £125m of other pension assets. • 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. In addition to the acquisition cost, management sellers will receive remuneration of up to £7.0m over a two year earn out to 31 July 2022, subject to the achievement of certain performance conditions including the financial performance of Hurley meeting financial targets, see Note 28 for further details of commitments and contingencies. Acquisition of the Exempt Property Unit Trust administration business of BDO Northern Ireland On 11 January 2021, Mattioli Woods completed the acquisition of the Exempt Property Unit Trust (“EPUT”) administration business of BDO Northern Ireland (“BDO NI”) for a nominal initial consideration plus (capped) deferred consideration representing 50% of BDO NI EPUT profits before tax for the 30 months following completion. Mattioli Woods has also acquired the entire issued share capital of Callender Street Nominees Limited (“CSNL”) from Aqua Trust Company Limited in Jersey as part of the transaction. The provisional fair values of the assets and liabilities of the EPUT business as at the date of acquisition are set out in the table below: Provisional fair value Previous adjustments carrying value £000 £000 537 (15) – (66) 456 4 12 10 11 (102) (65) – 15 138 66 219 (4) (12) (10) (11) – (37) Client portfolio Trade and other receivables Prepayments and accrued income Cash at bank Assets Trade and other payables Accruals and deferred income Other taxation and social security Income tax Deferred tax liability Liabilities Total identifiable net assets at fair value Goodwill Total acquisition cost Analysed as follows: Initial cash consideration Contingent consideration Discounting of contingent consideration Total acquisition cost Cash outflow on acquisition: Cash paid Cash acquired Acquisition related costs Net cash outflow Provisional fair value recognised on acquisition £000 537 – 138 – 675 – – – – (102) (102) 573 (288) 285 107 201 (23) 285 107 – 24 131 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: EPUTs are complementary to Mattioli Woods’ core SSAS and SIPP proposition, widely used in Northern Ireland and the acquisition expands Mattioli Woods’ operations in the region. The EPUT business’s experienced team of three employees will join Mattioli Woods and operate from the Group’s existing office in Belfast. The EPUT business provides trustee and administration services to over 100 EPUTs with total funds under trusteeship of over £233 million. Negative goodwill of £288,000 has been recognised in the statement of comprehensive income as a gain on bargain purchase. 108 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 109 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 3. Business combinations continued Acquisition of Montagu Limited On 2 February 2021, Mattioli Woods acquired the entire issued share capital of Montagu Limited (“Montagu”), a financial planning and wealth management business based in Twickenham, London. The provisional fair values of the assets and liabilities of Montagu as at the date of acquisition are set out in the table below: Provisional fair value Previous adjustments carrying value £000 £000 – 53 1,716 – – – 1,769 – – – – (53) (326) (379) 3 – – 74 17 1,173 1,267 (1) (129) (17) (82) – – (229) Property, plant and equipment Right of use assets Client portfolio Trade receivables Prepayments and accrued income Cash at bank Assets Trade and other payables Accruals and deferred income Other taxation and social security Corporation tax Lease liability Provisions for deferred tax 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 cash consideration Initial share consideration Contingent consideration Discounting of contingent consideration Total acquisition cost Cash outflow on acquisition: Cash paid Cash acquired Acquisition related costs Net cash outflow Provisional fair value recognised on acquisition £000 3 53 1,716 74 17 1,173 3,036 (1) (129) (17) (82) (53) (326) (608) 2,428 800 3,228 1,090 1,003 300 950 (115) 3,228 2,093 (1,173) 103 1,023 Montagu was established in 1996 and provides wealth management advice and administration for over 150 private and corporate clients with approximately £80 million of assets under advice. Like Mattioli Woods, the business specialises in the provision of fee-based financial planning advice. The complementary product offerings provide scope for potential revenue synergies, while maintaining the strong cultural commitment of both companies to putting clients first. Acquisition of Pole Arnold Financial Management Limited On 12 April 2021, Mattioli Woods acquired the entire issued share capital of Pole Arnold Financial Management Limited (“Pole Arnold”), a financial planning and wealth management business with offices in Leicester and London. The provisional fair values of the assets and liabilities of Pole Arnold as at the date of acquisition are set out in the table below: Provisional fair value Previous adjustments carrying value £000 £000 – 3,762 – – – 3,762 – – – – – (715) (715) 13 – 99 19 1,039 1,170 (16) (285) (118) (109) (5) (1) (534) Property, plant and equipment Client portfolio Trade and other receivables Prepayments and accrued income Cash at bank Assets Trade and other payables Accruals and deferred income Social security and other taxes Corporation tax Provisions Provisions for deferred tax 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 cash consideration Initial share consideration Total acquisition cost Cash outflow on acquisition: Cash paid Cash acquired Acquisition related costs Net cash outflow Provisional fair value recognised on acquisition £000 13 3,762 99 19 1,039 4,932 (16) (285) (118) (109) (5) (715) (1,248) 3,684 718 4,402 3,500 399 503 4,402 3,899 (1,039) 145 3,005 Pole Arnold is a firm of experienced financial advisers, established in 2012, providing highly personalised advice to circa 360 private and corporate clients with approximately £245 million of assets under management and advice. Pole Arnold is based in Leicester and employs an experienced team of 16 staff, all of whom will remain with Mattioli Woods following completion. Like Mattioli Woods, the business specialises in the provision of fee-based financial planning, with the businesses complementary product offerings providing scope for potential revenue synergies, whilst maintaining the strong cultural commitment of both companies to putting clients first. In addition to the acquisition cost, management sellers will receive remuneration of up to £3.0m over a two year earn out to 12 April 2023, subject to the achievement of certain performance conditions including the financial performance of Pole Arnold meeting financial targets, see Note 28 for further details of commitments and contingencies. 110 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 111 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 3. Business combinations continued Acquisition of Caledonia Asset Management Limited On 12 April 2021, Mattioli Woods acquired the entire issued share capital of Caledonia Asset Management Limited (“Caledonia”), a financial planning and wealth management business based in Edinburgh. The provisional fair values of the assets and liabilities of Caledonia as at the date of acquisition are set out in the table below: Provisional fair value Previous adjustments carrying value £000 £000 – 30 680 (18) – – 692 – – – (30) (129) (159) 7 – – 21 24 267 318 (25) (266) (43) – – (99) Property, plant and equipment Right of use assets Client portfolio Trade and other receivables Prepayments and accrued income Cash at bank Assets Trade and other payables Accruals and deferred income Corporation tax Lease liability Provisions for deferred tax 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 cash consideration Initial share consideration Contingent consideration Discounting of contingent consideration Total acquisition cost Cash outflow on acquisition: Cash paid Cash acquired Acquisition related costs Net cash outflow Provisional fair value recognised on acquisition £000 7 30 680 3 24 267 1,010 (25) (266) (43) (30) (129) (258) 752 886 1,638 860 111 105 640 (78) 1,638 971 (267) 89 793 Founded in 2000, Caledonia provides wealth management services to affluent individuals and families, encompassing lifestyle financial planning, pensions and retirement planning, ISAs, life assurance, critical illness, income protection and personal tax planning, working with circa 150 private clients with over £55 million of assets under advice. 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 2021 £000 2020 £000 2,041 1,018 104 917 4,080 31,329 17,789 4,806 4,611 58,535 62,615 2,002 1,097 464 1,043 4,606 24,846 19,464 4,952 4,539 53,801 58,407 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 2021 £000 52 2,218 204 485 2,959 Group 2020 £000 – 2,219 36 515 2,770 Company 2021 £000 Company 2020 £000 – 967 – 485 1,452 – 1,051 – 515 1,566 The Group expects that 100% of the transaction price allocated to the unsatisfied contracts as at 31 May 2021 will be recognised as revenue during the next reporting period, amounting to £2,959,000. The following table shows the movement in contract liabilities in the period: Contract liabilities At 1 June 2020 Revenue recognised on completion of performance obligations Consideration received allocated to performance obligations that are unsatisfied at the period end At 31 May 2021 Group £000 Company £000 2,770 (2,770) 2,959 2,959 1,566 (1,566) 1,452 1,452 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. 112 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 113 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 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 2021 and 2020 respectively. Year ended 31 May 2021 Revenue External customers Results Segment profit before tax Year ended 31 May 2020 Revenue External customers Results Segment profit before tax (restated) Investment and asset Pension consultancy and Property management administration management £000 £000 £000 Employee benefits £000 Total segments £000 Corporate costs Consolidated £000 £000 33,370 18,807 4,910 5,528 62,615 – 62,615 9,195 5,787 605 755 16,342 (11,194) 5,148 Investment and asset Pension consultancy and Property management administration management £000 £000 £000 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 (5,639) 12,731 Segment assets The following table presents segment assets of the Group’s operating segments: Investment and asset management Pension consultancy and administration Property management Employee benefits Segment operating assets Corporate assets Total assets 31 May 2021 £000 46,042 24,096 2,189 5,511 77,838 46,327 31 May 2020 Restated £000 22,153 24,204 1,468 6,220 54,045 50,109 124,165 104,154 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 Prepayments and other receivables Income tax receivable Finance lease receivable Investments Cash and short-term deposits Total assets 31 May 2021 £000 31 May 2020 Restated £000 77,838 54,045 14,340 2,180 1,666 951 4,956 30 290 26 21,888 15,636 2,584 1,579 888 2,709 390 324 40 25,959 124,165 104,154 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. 114 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 115 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 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 Deferred consideration as remuneration Depreciation Acquisition-related costs Irrecoverable VAT Finance costs Professional indemnity insurance Amortisation and impairment Bank charges Loss on disposal of assets Foreign exchange loss Finance income Gain on bargain purchase Group profit before tax 2021 £000 16,342 (3,803) (2,772) (2,595) (981) (258) (706) (304) (48) (46) (3) 34 288 2020 Restated £000 18,370 (750) (2,547) (334) (900) (196) (610) (359) (24) (18) – 99 – 5,148 12,731 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 2021. 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 financial statements of the Company Audit of the financial statements 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 2021 £000 225 37 262 28 20 48 – 19 19 2020 £000 170 30 200 28 20 48 12 39 51 329 299 2021 £000 20 14 34 2020 £000 83 16 99 9. Finance costs Unwinding of discount on provisions Unwinding of discount on lease liabilities Interest payable 10. Operating profit Included in operating profit before financing: Depreciation and impairment of tangible assets (Notes 15 and 16) Amortisation and impairment of intangible assets (Note 17) 11. Employee benefits expense The average monthly number of employees during the year was: Executive directors Non-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 2021 £000 145 110 3 258 2020 Restated £000 74 122 – 196 2021 £000 (2,772) (3,078) 2020 £000 (2,547) (2,437) Group 2021 No. 2 4 133 251 246 636 Group 2021 £000 28,817 3,118 1,402 804 34,141 Group 2020 No. Company 2021 No. Company 2020 No. 2 3 120 246 230 601 2 4 116 221 220 563 2 3 115 221 210 551 Group 2020 £000 23,253 2,321 1,266 783 Company 2021 £000 25,220 2,650 1,202 776 27,623 29,848 Company 2020 £000 21,402 2,168 1,111 780 25,461 In addition, the cost of share based payments disclosed separately in the consolidated statement of comprehensive income was £1,475,000 (2020: £1,335,000), and the cost of contingent consideration treated as remuneration disclosed separately in the consolidated statement of comprehensive income was £3,803,000 (2020 restated: £750,000). Details of the remuneration payable to each director in respect of the year ended 31 May 2021 is disclosed in the Directors’ Remuneration Report on page 70. Emoluments Company contributions to personal pension schemes Benefits in kind Market value of share options vesting 2021 £000 1,707 – 17 636 2,360 2020 £000 1,078 – 24 1,041 2,143 Five directors (2020: three) accrued benefits under personal pension schemes, or through an equivalent cash award when they have reached their maximum lifetime allowance. During the year 20,000 share options were issued to directors (2020: 40,000) and directors exercised 64,740 share options (2020: Nil). The aggregate amount of gains made by directors on the exercise of share options during the year was £433,000 (2020: £nil). For terms of share options awarded, please see Note 20. 116 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 117 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 11. Employee benefits expense continued The amounts in respect of the highest paid director are as follows: Deferred income tax Deferred income tax at 31 May relates to the following: Emoluments Company contributions to personal pension schemes Benefits in kind Market value of share options vesting 2021 £000 1,026 – 9 433 1,468 2020 £000 526 – 2 558 1,086 The amount of gains made by the highest paid director on the exercise of share options during the year was £nil (2020: £nil). 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 £1,114,000 (2020: £1,006,000). Deferred income tax liability Temporary differences on: Acquired intangibles Accelerated capital allowances Deferred tax liability Deferred income tax asset Temporary differences on: Provisions Share based payments Deferred tax asset Net deferred tax liability Group 2021 £000 Group 2020 £000 Company 2021 £000 Company 2020 £000 (9,291) (151) (9,442) (4,305) (177) (4,482) (6,730) (10) (6,740) (3,038) (54) (3,092) 372 579 951 214 674 888 353 578 932 200 674 874 (8,491) (3,594) (5,808) (2,218) 12. Income tax The major components of income tax expense for the years ended 31 May 2021 and 2020 are: Consolidated statement of comprehensive income Current tax Under provision in prior periods Deferred tax credit Adjustments in respect of change in tax rate Adjustments in respect of prior periods Income tax expense reported in the statement of comprehensive income 2021 £000 2,390 38 2,428 (498) 1,974 (147) 3,757 2020 £000 3,292 170 3,462 (505) 424 (137) 3,244 Changes to the future expected UK corporation tax rates were enacted as part of The Finance (No. 2) Act 2021 which received Royal Assent on 10 June 2021, in which the government announced that the corporation tax main rate will remain at 19% for the years starting 1 April 2021 and 2022 before increasing to 25% for the year starting 1 April 2023 and thereafter. Deferred taxation assets and liabilities have been remeasured at the blended average rates at which they are expected to unwind. 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 2021 are summarised as follows: The over provision for current tax in prior periods includes £98,000 (2020: £nil) arising from a Research and Development tax credit in respect of the financial year ending 31 May 2021 (2020: Nil). For the year ended 31 May 2021 the current tax credit on the Group’s share based payment arrangements recognised directly in equity was £31,000 (2020: £29,000). The deferred tax charged on the Group’s outstanding share based payment arrangements recognised directly in equity was £46,000 (2020: £50,000). Factors affecting the tax charge for the period The tax charge assessed for the period is higher (2020: higher) than the standard rate of corporation tax in the UK of 19.0% (2020: 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)/under provision in prior periods Tax reliefs Income tax expense for the year Effective income tax rate 2021 £000 5,148 2020 Restated £000 12,731 978 2,419 1,180 1,974 7 (271) (108) (1) 3,757 73.0% 473 424 16 (121) 33 – 3,244 25.5% Deferred tax in statement of comprehensive income Effect of changes in the standard rate of tax Deferred tax on share based payments Under/(over) provision for capital allowances in prior period Deferred tax on derivative financial asset Under provision for share based payments Deferred tax on provisions Deferred tax on intangible assets Under provision for intangibles Deferred tax on capital allowances Under provision for provisions in prior period Deferred tax on amortisation of client portfolios Deferred tax charge/(credit) The total deferred tax movement in the statement of financial position is summarised as follows: Deferred tax reconciliation Opening net deferred tax liability (Debit)/Credit recognised in statement of comprehensive income Deferred tax charge recognised in equity Movement arising from transfer of trade Deferred tax arising on acquisitions or disposal of trade Closing net deferred tax liability 2021 £000 1,974 35 17 – (9) (11) (16) (58) (69) (97) (437) 1,329 2020 £000 424 (124) (6) (139) – – (18) (92) 11 (40) (235) (218) 2021 £000 (3,594) (1,329) (78) (102) (3,388) 2020 £000 (3,641) 218 (50) – (121) (8,491) (3,594) There are no income tax consequences for the Group attaching to the payment of dividends by Mattioli Woods plc to its shareholders in either 2020 or 2021. 118 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 119 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 12. Income tax continued Impact of future tax changes On 10 June 2021 The Finance (No. 2) Bill 2019-21 received Royal Asset, enacting proposals that were announced in the 2021 budget. The main rate of corporation tax will remain at 19% for the years starting 1 April 2021 and 2022 before increasing to 25% for the year starting 1 April 2023 and thereafter. Deferred taxation assets and liabilities have been revalued taking in to account the upcoming change in corporation tax rates. 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 (2020: 76,578). 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 2020 Effect of shares issued during the year ended 31 May 2021 Basic weighted average number of shares Effect of dilutive options at the statement of financial position date Diluted weighted average number of shares 2021 £000 1,419 2020 Restated £000 9,472 000s 000s 26,940 – 996 27,936 235 28,171 26,770 127 264 27,161 150 27,311 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 3.32% of its issued share capital (see Note 20). 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 2021 the conditions attached to 702,238 options granted under the LTIP were not satisfied (2020: 630,940). If the conditions had been satisfied, diluted earnings per share would have been 4.9p per share (2020 restated: 33.9p). Since the reporting date and the date of completion of these financial statements the following transactions have taken place involving ordinary shares or potential ordinary shares: • The issue of 16,969,697 ordinary shares on completion of the market placing (see Note 32); • The issue of 4,545,455 ordinary shares as initial consideration payable on the acquisition of Maven Capital Partners LLP (see Note 32); • The issue of 780,250 ordinary shares as initial consideration payable on the acquisition of Ludlow Wealth Management Group (see Note 32); and • The issue of 32,312 ordinary shares under the Mattioli Woods plc Share Incentive Plan. 14. Dividends paid and proposed Declared and paid during the year: Equity dividends on ordinary shares: – Final dividend for 2020: 12.7p (2019: 13.67p) – Interim dividend for 2021: 7.5p (2020: 7.3p) Dividends paid Proposed for approval by shareholders at the AGM: Final dividend for 2021: 13.5p (2020: 12.7p) 2021 £000 2020 £000 3,547 2,103 5,650 3,660 1,959 5,619 6,818 3,532 15. Property, plant and equipment Group Gross carrying amount: At 1 June 2019 Additions Arising on acquisitions Disposals At 31 May 2020 Additions Arising on acquisitions Disposals At 31 May 2021 Depreciation: At 1 June 2019 Charged for the year On disposals At 31 May 2020 Charged for the year On disposals At 31 May 2021 Carrying amount: At 31 May 2021 At 31 May 2020 At 31 May 2019 Company Gross carrying amount: At 1 June 2019 Additions Disposals At 31 May 2020 Additions Disposals Transfer between companies At 31 May 2021 Depreciation: At 1 June 2019 Charged for the year On disposals At 31 May 2020 Charged for the year On disposals At 31 May 2021 Carrying amount: At 31 May 2021 At 31 May 2020 At 31 May 2019 Land and buildings £000 Computer and office equipment £000 Fixtures and fittings £000 Motor vehicles £000 10,780 – – – 10,780 – – – 10,780 168 252 – 420 252 – 672 2,348 308 2 (4) 2,654 93 130 (770) 2,107 1,483 341 (1) 1,823 327 (758) 1,392 5,522 154 – – 5,676 18 3 (725) 4,972 1,365 842 – 2,207 825 (705) 2,327 Total £000 20,216 818 2 (295) 20,741 418 133 (1,962) 1,566 356 – (291) 1,631 307 – (467) 1,471 19,330 535 270 (152) 653 234 (288) 599 3,551 1,705 (153) 5,103 1,638 (1,751) 4,990 10,108 10,360 10,612 714 831 865 2,646 3,469 4,157 872 978 1,031 14,340 15,638 16,665 Computer and office equipment £000 Fixtures and fittings £000 Motor vehicles £000 2,195 305 (1) 2,499 92 (770) 68 1,889 1,335 338 (1) 1,672 274 (752) 1,194 695 827 860 2,591 154 – 2,745 17 (724) 7 2,044 1,013 420 – 1,433 401 (696) 1,138 906 1,312 1,578 1,572 355 (291) 1,636 307 (467) – 1,476 541 271 (151) 661 234 (289) 606 870 976 1,031 Total £000 6,358 814 (292) 6,880 416 (1,961) 75 5,410 2,889 1,029 (152) 3,766 909 (1,737) 2,938 2,472 3,115 3,469 120 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 121 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 16. Right of use assets Group Gross carrying amount: At 1 June 2020 Additions Arising on acquisitions Disposals At 31 May 2021 Depreciation: At 1 June 2020 Charged for the period On disposals Impairment At 31 May 2021 Carrying amount: At 31 May 2021 At 31 May 2020 Company Gross carrying amount: At 1 June 2020 Additions Transfer between companies At 31 May 2021 Depreciation: At 1 June 2020 Charged for the period Impairment At 31 May 2021 Carrying amount: At 31 May 2021 At 31 May 2020 Computer and office equipment £000 Properties £000 2,706 64 689 (75) 3,384 650 734 (52) 167 1,499 1,885 2,056 717 – – – 717 189 233 – – 422 295 528 Computer and office equipment £000 Properties £000 2,223 64 532 2,819 563 561 167 1,291 1,528 1,660 717 – – 717 189 233 – 422 295 528 Total £000 3,423 64 689 (75) 4,101 839 967 (52) 167 1,921 2,180 2,584 Total £000 2,940 64 532 3,536 752 794 167 1,713 1,823 2,188 17. Intangible assets Group Gross carrying amount: At 1 June 2019 – Restated Arising on acquisitions Additions At 31 May 2020 – Restated Arising on acquisitions Additions At 31 May 2021 Amortisation and impairment: At 1 June 2019 Amortisation during the year At 31 May 2020 Amortisation during the year At 31 May 2021 Carrying amount: At 31 May 2021 At 31 May 2020 – Restated At 31 May 2019 – Restated Company Gross carrying amount: At 1 June 2019 Additions At 31 May 2020 Arising on acquisitions Arising on hive up Additions At 31 May 2021 Amortisation and impairment: At 1 June 2019 Amortisation during the year At 31 May 2020 Amortisation during the year At 31 May 2021 Carrying amount: At 31 May 2021 At 31 May 2020 At 31 May 2019 Internally generated software £000 Software £000 Client portfolios £000 Goodwill Restated £000 Other £000 Total £000 1,573 – 173 1,746 – 386 2,132 709 175 884 187 1,071 1,061 862 864 1,927 – – 1,927 – 4 1,931 1,025 184 1,209 117 1,326 38,544 712 – 39,256 18,293 – 57,549 11,791 2,078 13,869 2,774 16,643 9,506 920 – 10,426 7,470 – 17,896 – – – – – 605 718 902 40,906 25,387 26,753 17,896 10,426 9,506 35 – – 35 – – 35 35 – 35 – 35 – – – 51,585 1,632 173 53,390 25,763 390 79,543 13,560 2,437 15,997 3,078 19,075 60,468 37,393 38,025 Internally generated software £000 Software £000 Client portfolios £000 Goodwill £000 Total £000 1,573 172 1,745 – – 387 2,132 709 175 884 187 1,071 1,061 861 864 1,768 – 1,768 – – – 1,768 914 185 1,099 114 1,213 28,979 – 28,979 537 13,065 – 42,581 8,576 1,679 10,255 1,903 12,158 16,384 – 16,384 – 12,132 – 28,516 – – – – – 48,704 172 48,876 537 25,197 387 74,997 10,199 2,039 12,238 2,204 14,442 555 669 854 30,423 18,724 20,403 28,516 16,384 16,384 60,555 36,638 38,505 122 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 123 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 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 2019 – Restated Investment in The Turris Partnership Limited At 31 May 2020 – Restated Investment in Hurley Partners Limited Investment in Montagu Limited Investment in Pole Arnold Financial Management Limited Investment in Caledonia Asset Management Limited Reduction in value of Broughtons Financial Planning Limited At 31 May 2021 Group £000 – – – – – – – – – Company £000 11,410 1,731 13,141 17,417 3,228 4,402 1,638 (21) 39,805 Reduction in value of investment in Broughtons Financial Planning Limited (“Broughtons”) investment was recognised following the hive-up of trade and assets of Broughtons to the Company 28 February 2021. As Broughtons had paid dividends to the Company since its acquisition, the net assets of the subsidiary were lower than the value of the investment recognised by the Company, therefore once Broughtons’ trade was transferred, the value of the investment was no longer fully supported by its future cashflows and a small impairment charge was recognised to write the value of the investment down to the net assets of Broughtons. The impairment charge recognised by the company was eliminated on consolidation. 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 PC Trustees Limited Bank Street Trustees Limited JB Trustees Limited Mayflower Trustees Limited Custodian Capital Limited CP SSAS Trustees Limited CP SIPP Trustees Limited City Trustees Limited AR Pension Trustees Limited Robinson Gear (Management Services) Limited Simmonds Ford Trustees Limited 124 Mattioli Woods plc Annual Report 2021 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% Nature of business Trustee company Trustee company Trustee company Trustee company Trustee company Holding company Trustee company Trustee company Trustee company Trustee company 100% Property and fund management 100% 100% 100% 100% 100% 100% Trustee company Trustee company Trustee company Trustee company Trustee company Trustee company Subsidiary undertakings Acomb Trustees Limited Ropergate Trustees Limited Chapel Trustees Limited Mattioli Woods (New Walk) Limited Taylor Patterson Trustees Ltd Lindley Trustees Limited MWV Solutions Limited Old Station Road Holdings Limited M C Trustees (Pensions) Limited M C Trustees (Administration) Limited MCT (Properties) Limited M C Trustees Limited MC Nominees Limited Broughtons Financial Planning Limited SSAS Solutions (UK) Ltd The Turris Partnership Limited MW Personal Equity (Harbinger Self Storage) Limited MW Private Investors (102) General Partner Limited MW Private Investors (103) General Partner Limited MW Private Investors (105) General Partner Limited MW Private Investors (106) General Partner Limited MW Private Investors (Beech Properties) General Partner Limited MW Private Investors (Welbeck Land) General Partner Limited MW Private Investors (CITU) General Partner Limited MW Private Investors (Proseed) General Partner Limited MW Private Investors (Prosperity Liverpool) General Partner Limited MW Private Investors (Heaton Group) General Partner Limited MW Private Equity (Harbinger Self Storage) General Partner Limited MW Private Investors (Tungsten Witney) General Partner Limited MW Private Investors (Versant) General Partner Limited MW Private Investors (The Square) Limited MW Private Investors (Expedia) Limited MW Private Investors (Belfast Expedia 2) Limited MW Private Investors (Belfast Expedia 3) Limited MW Private Investors (The Priest House Hotel) Limited MW Private Investors (Walrus) Limited MW Private Investors (103) EPUT Limited MW Private Investors (Clear Nursery) Limited MW Private Investors (Expedia Dental) General Partner Limited MW Private Investors (Barwood Capital) General Partner Limited MW Private Equity (Rotherhill) Limited MW Private Equity (March Projects) Limited MW Private Equity (Tungsten Handcross) Limited MW Properties (Huntingdon Geared) Limited MW Properties (Huntingdon Non-Geared) Limited MW Properties (No 42) Limited MW Properties (No 46) Limited Share class held Voting rights and shares held Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary and preference Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 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% 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 Property development Trustee company 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 Trustee company Trustee company Trustee company Trustee company Trustee company Trustee company Trustee company Trustee company General Partner company General Partner company Trustee company Trustee company Trustee company Trustee company Trustee company Trustee company Trustee company Mattioli Woods plc Annual Report 2021 125 Financial Statements Notes to the financial statements continued 18. Investments continued Subsidiary undertakings MW Properties (No 49) Limited MW Properties (No 60) Limited MW Properties No 17 Limited MW Properties No 20 Limited MW Properties No 25 Limited MW Properties No 32 Limited MW Properties No 35 Limited APUK14001 Limited APUK14002 Limited APUK15001 Limited APUK15002 Limited CC Private (202) Limited CC Private (204) Limited CC Private (205) Limited Brogan Group Investments Limited Eltek House Limited Welbeck Strategic Land III Limited Hurley Partners Limited Hurley Trustees Services Limited MW Private Investors (AgriPartners) General Partner Limited MW Private Investors (Swift Point) General Partner Limited Custodian (Inland RCF) General Partner Limited MW Private Investors (Barwood Capital) EUUT Limited MW Private Investors (Dundalk) General Partner Limited MW Private Investors (Newstead Relf) General Partner Limited MW Private Investors (Tungsten Frimley) General Partner Limited Montagu Limited Callender Street Nominees Limited Callender Street Trustees Limited Fitzwilliam Trustees Number 1 Limited Fitzwilliam Trustees Number 2 Limited Fitzwilliam (Waltham Forest) Holdings Limited Fitzwilliam Trustees Number 3 Limited Fitzwilliam Trustees Number 4 Limited Fitzwilliam (Ascot) Holdings Limited Fitzwilliam Trustees Number 5 Limited Fitzwilliam Trustees Number 6 Limited Fitzwilliam (President) Holdings Limited Fitzwilliam Trustees Number 7 Limited Fitzwilliam Trustees Number 8 Limited Fitzwilliam (GYLO) Holdings Limited Fitzwilliam Trustees Number 9 Limited Fitzwilliam Trustees Number 10 Limited Fitzwilliam Trustees (Marylebone & Cotswold) Holdings Limited Fitzwilliam Trustees Number 11 Limited Fitzwilliam Trustees Number 12 Limited Pole Arnold Financial Management Limited Caledonia Asset Management Limited 126 Mattioli Woods plc Annual Report 2021 Share class held Voting rights and shares held Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 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 Wealth Management Trustee company General Partner company General Partner company General Partner company Trustee company General Partner company General Partner company General Partner company Wealth Management Holding company Trustee company Trustee company Trustee company Holding company Trustee company Trustee company Holding company Trustee company Trustee company Holding company Trustee company Trustee company Holding company Trustee company Trustee company Holding company Trustee company Trustee company Wealth Management Wealth Management 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 Broughtons Financial Planning Limited SSAS Solutions (UK) Ltd Callender Street Nominees Limited Callender Street Trustees Limited Fitzwilliam Trustees Number 1 Limited Fitzwilliam Trustees Number 2 Limited Fitzwilliam (Waltham Forest) Holdings Limited Fitzwilliam Trustees Number 3 Limited Fitzwilliam Trustees Number 4 Limited Fitzwilliam (Ascot) Holdings Limited Fitzwilliam Trustees Number 5 Limited Fitzwilliam Trustees Number 6 Limited Fitzwilliam (President) Holdings Limited Fitzwilliam Trustees Number 7 Limited Fitzwilliam Trustees Number 8 Limited Fitzwilliam (GYLO) Holdings Limited Fitzwilliam Trustees Number 9 Limited Fitzwilliam Trustees Number 10 Limited 5a Swallowfield Courtyard, Wolverhampton Road, Oldbury, West Midlands, B69 2JG Registered office Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Fitzwilliam Trustees (Marylebone & Cotswold) Holdings Limited Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Fitzwilliam Trustees Number 11 Limited Fitzwilliam Trustees Number 12 Limited The Turris Partnership Limited Caledonia Asset Management Limited Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN Rivers Edge, 11 Ravenhill Road, Belfast, BT6 8DN 4th Floor, 120 West Regent Street, Glasgow, G2 2QD 4th Floor, 120 West Regent Street, Glasgow, G2 2QD Investment in associate The Group holds 49% of the ordinary share capital of Amati Global Investors Limited (“Amati”), with the remaining 51% of the ordinary share capital held by Amati Global Partners LLP. Amati is an independent specialist fund management business managing funds investing in small and mid-sized companies. Amati’s gross assets under management at 31 May 2021 had increased to £1,308m (2020: £582m) comprising; Amati AIM VCT plc, TB Amati UK Smaller Companies Fund, Amati AIM IHT Portfolio Service and TB Amati Strategic Metals Fund. The Group exercises significant influence by virtue of its contractual right to appoint a minority of directors to Amati’s board of directors. 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 2021 £000 3,732 1,191 (68) 28 (588) 4,295 2020 £000 4,211 682 (68) (15) (1,078) 3,732 Mattioli Woods plc Annual Report 2021 127 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 18. Investments continued 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 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 2021 are as follows: Name Amati Global Investors Limited Group’s share of profit Country of incorporation Assets £000 Liabilities £000 Scotland 6,420 2,831 Revenue £000 9,192 2021 £000 1,191 (68) 18 1,141 2020 £000 682 (68) 19 633 Profit £000 2,431 1,191 Interest held 49% The net assets of Amati as at 1 June 2020 were £2,302,000. At 31 May 2021 the net assets of Amati were £3,589,000 following payment of dividends of £1,200,000 and other increases in net assets of £2,487,000, increasing the Group’s interest in the associate (net of tax) by £1,219,000 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. Other Investments – Non-current At 1 June 2019 and 31 May 2020 Investment in Tiller At 31 May 2021 Group £000 Company £000 – 500 500 – 500 500 On 20 January 2021 the Group announced an investment in Tiller Group Limited (“Tiller”) as part of a new strategic relationship to develop a digital, self-investment application. The investment sees the Company take an initial shareholding of 4.1%, through a subscription of new shares in Tiller, and has been accounted for at cost. Tiller provides a Software as a Service wealth management platform designed specifically for wealth managers and other regulated financial services businesses. We will work closely with Tiller to develop its market-leading, automated investment management platform that will extend our discretionary investment management services to a new range of clients. Other Investments – Current At 1 June 2019 Disposal At 31 May 2020 Disposal At 31 May 2021 Group £000 Company £000 80 (40) 40 (14) 26 80 (40) 40 (14) 26 The Company previously held a 2.04% interest in MW Properties (Huntingdon Non-Geared) Limited, a nominee for a property syndicate. During the year the Group’s investment was disposed on the wind-up of this syndicate, with the Group receiving a final distribution of £7,957. At 31 May 2021 the Company owned 9.40% (2020: 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 2021 these shares are included within investments at a value of £26,000 (2020: £26,000). Mattioli Woods owns 15% (2020: 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 2021 the Company’s investment in Mainsforth was valued at £nil (2020: £nil). 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 2019 – Restated Arising on acquisitions Amortisation during the year At 31 May 2020 – Restated Arising on acquisitions Amortisation during the year At 31 May 2021 Goodwill Client portfolios At 31 May 2021 Company At 1 June 2019 Amortisation during the year At 31 May 2020 Arising on acquisitions Transferred to the Company Amortisation during the year At 31 May 2021 Goodwill Client portfolios At 31 May 2021 Pension consultancy Investment Property and asset and admin management management £000 £000 £000 Employee benefits £000 Total £000 14,978 15,153 271 5,857 36,259 – (853) 1,632 (820) – (8) – (397) 1,632 (2,078) 14,125 15,965 263 5,460 35,813 2,166 (933) 23,060 (1,437) 15,358 37,588 5,489 9,869 15,358 11,581 26,007 37,588 537 (8) 792 188 604 792 – (396) 25,763 (2,774) 5,064 58,802 638 4,426 5,064 17,896 40,906 58,802 Pension consultancy Investment Property and asset and admin management management £000 £000 £000 Employee benefits £000 Total £000 10,794 16,847 271 8,875 36,787 (632) (643) 10,162 16,204 – 2,834 (656) – 22,363 (842) 12,340 37,725 6,211 6,129 12,340 18,461 19,264 37,725 (8) 263 537 – (8) 792 188 604 792 (396) (1,679) 8,479 35,108 – – (397) 537 25,197 (1,903) 8,082 58,939 3,656 4,426 8,082 28,516 30,423 58,939 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. We have assessed both the value in use of the operating segments, and fair value less costs to sell, based on the enterprise value of the Group at the year-end date, and determined that the value in use is higher than the enterprise value. In assessing value in use, the estimated future cash flows of each operating segment are discounted to their present value using a pre- tax discount rate of 10.5% (2020: 13.3%), reflecting current market assessments of the time value of money and the risks specific to these assets, 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 from the budget for the three years to 31 May 2024, extrapolated for a further two years assuming medium-term growth of 5.0% (2020: 5.0%) and a long-term growth rate of 2.0% (2020: 2.0%), which management considers conservative against actual average long-term growth rates. The value in use calculated at 31 May 2021 was £267.3m. 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 2021. This accounting treatment resulted in an impairment loss of £nil (2020: £nil). 128 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 129 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 19. Impairment of goodwill and client portfolio intangible assets continued Discount rate sensitivity of +1.0% represents a plausible variance in discount rate as a result of a range of judgements used in following the capital asset pricing model to determine an appropriate weighted average cost of capital for the Group. Growth rate sensitivities are set at a level to either minimise or altogether remove the impact of assumed growth in pre-tax cashflows derived from each operating segment. The sensitivity of the value in use calculated at 31 May 2021 to changes in the key assumptions is as follows: Assumption Discount rate Years 1-3 cashflows Medium-term growth rate Long-term growth rate Base assumption Change in assumption Increase/ (decrease) in value in use £000 10.5% Var. 5.0% 2.0% +1.0% –5.0% –5.0% –2.0% (28,703) (13,363) (20,141) (48,111) None of these individual sensitivities would result in an impairment in the value in use of any operating segment. The value in use calculations at 31 May 2021 indicate the Employee Benefits operating segment continues to report less headroom than the other operating segments. 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 £1.8m reduction in the value in use, resulting in an impairment loss of £nil (2020: £nil). 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 £3.2m reduction in the value in use, resulting in an impairment loss of £nil (2020: 5.0%, £1.7m reduction in value, £nil impairment). 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 2021 31 May 2020 Equity-settled Equity-settled No. No. 889,504 255,800 (207,295) (4,200) 757,463 248,800 (66,418) (50,341) 933,809 889,504 235,571 258,564 The LTIP awards are subject to the achievement of corporate profitability targets measured over a three to five-year performance period and will vest following publication of the Group’s audited results for the final performance year. On 1 June 2020 the Remuneration Committee of the Group approved the amendment to the performance period of those LTIP awards granted 4 September 2019 under Tranche B, with the performance period reduced from five to three years. The amounts shown above represent the maximum opportunity for the participants in the LTIP. Date of grant 16 September 2014 15 October 2015 6 September 2016 5 September 2017 6 September 2018 4 September 2019 – Tranche A 4 September 2019 – Tranche B 1 June 2020 – Tranche A 1 June 2020 – Tranche B Exercise price At 1 June 2020 No. £0.01 £0.01 £0.01 £0.01 £0.01 £0.01 £0.01 £0.01 £0.01 2,313 49,754 206,497 184,502 198,638 108,000 139,800 – – Granted during the period No. – – – – – – – 141,550 114,250 Forfeited during the period No. – – – (200) – – – (4,000) – Exercised during the period No. (2,313) (9,890) (86,325) (108,767) – – – – – At 31 May 2021 No. – 39,864 120,172 75,535 198,638 108,000 139,800 137,550 114,250 889,504 255,800 (4,200) (207,295) 933,809 The weighted average share price at the date of exercise for share options exercised during the year was £6.71 (2020: £7.38). For the share options outstanding at 31 May 2021, the weighted average exercise prices (“WAEP”) was £0.01 (2020: £0.01), and the weighted average remaining contractual life is 1.46 years (2020: 1.53 years). Income tax and employee’s National Insurance contributions payable by the participant on exercise of a share option are borne by the participant, employers National Insurance contributions payable on exercise are borne by the Company and provided for over the vesting period (Note 26). Share Incentive Plan The Company operates the Mattioli Woods plc Share Incentive Plan (“the SIP”). Participants in the SIP are entitled to purchase, at market value, up to a prescribed number of new 1p ordinary shares in the Company each year for which they will receive a like for like conditional ‘matching share’, subject to their continued employment for the three years following award of the matching share. These ordinary shares rank pari passu with existing issued ordinary shares of the Company. Movements in the shares held in the SIP on behalf of employees during the year were as follows: SIP shares Scheme shares as at 1 June Employee shares purchased Matching shares awarded Matching shares recycled Reinvestment of dividends Shares transferred out Scheme shares at 31 May Conditional matching shares at 31 May 31 May 2021 No. 31 May 2020 No. 599,662 58,753 58,753 (3,376) 19,364 (31,896) 586,399 48,886 48,886 (12,370) 17,677 (89,816) 701,259 599,662 144,483 121,980 A total of 389 (2020: 350) employees participated in the SIP during the year. Share based payments expense The amounts recognised in the statement of comprehensive income in respect of share based payments were as follows: LTIP SIP Total 1,149 326 1,475 1,096 239 1,335 The share based payment expense in respect of the LTIP for the year ended 31 May 2021 includes the impact of the modification of the performance period of the 4 September 2019 Tranche B LTIP awards. 31 May 2021 31 May 2020 Equity-settled Equity-settled £000 £000 130 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 131 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 20. Share based payments continued Valuation assumptions 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 or modified during the year ended 31 May 2021: Date of grant Share price at date of grant Option exercise price Expected life of option (years) Expected share price volatility (%) Dividend yield (%) Risk-free interest rate (%) Tranche B (modified) 4 September 2019 £7.85 £0.01 3.8 30.0 2.80 0.00 Tranche A 1 June 2020 £7.85 £0.01 6.5 35.0 2.80 0.00 Tranche B 1 June 2020 £7.85 £0.01 4.5 35.0 2.80 0.00 The expected volatility assumption is based on statistical analysis of the historical volatility of the Company’s share price. The share price at 31 May 2021 and movements during the year are set out in the Directors’ Remuneration Report. 21. Trade and other receivables (current) Trade receivables due from Group companies Other trade receivables Other receivables Prepayments and accrued income Group 2021 £000 – 5,184 2,625 11,388 19,197 Company 2021 £000 13,093 3,801 1,447 9,906 28,247 Group 2020 £000 – 5,498 1,443 10,267 17,208 Company 2020 £000 13,366 4,571 231 9,024 27,192 Trade receivables due from Group companies are recognised at amortised cost, eliminate on consolidation, and include £12.6m (2020: £12.9m) 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 2021, 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 2021 £000 1,753 25 (366) – 1,412 Company 2021 £000 1,346 50 (188) – 1,208 Group 2020 £000 1,332 605 (184) – 1,753 Company 2020 £000 1,084 332 (70) – 1,346 At 31 May 2021, 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 2021 Gross carrying amount Provisions for ECL At 31 May 2020 Neither past due nor impaired £000 2,213 (98) 2,115 2,040 (94) 1,946 Total £000 6,596 (1,412) 5,184 7,251 (1,753) 5,498 Past due but not impaired < 30 days £000 30-60 days £000 60-90 days £000 >90 days £000 1,837 (69) 1,768 1,793 (87) 1,706 589 (16) 573 1,208 (97) 1,111 235 (13) 222 265 (12) 253 1,722 (1,216) 506 1,945 (1,463) 482 Prepayments and accrued income balances include the following contract assets accrued under IFRS 15: Contract assets accrued At 1 June 2020 Arising from acquisitions Arising from hive up Net increase in contract assets accrued At 31 May 2021 Group £000 Company £000 10,267 497 – 624 11,388 9,024 – 731 151 9,906 For all receivables above, including neither past due nor impaired, the carrying amount is deemed to reflect the fair value. 22. Cash and short-term deposits For the purpose of the statement of cashflows, cash and cash equivalents comprise the following at 31 May 2021: Cash at banks and on hand Cash and cash equivalents Group 2021 £000 21,888 21,888 Company 2021 £000 10,909 10,909 Group 2020 £000 25,959 25,959 Company 2020 £000 17,584 17,584 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 £21.9m (2020: £26.0m). 23. Issued capital and reserves Group and Company Issued and fully paid At 1 June 2019 Exercise of employee share options Shares issued under the SIP Shares issued for consideration At 31 May 2020 Exercise of employee share options Shares issued under the SIP Shares issued for consideration At 31 May 2021 Ordinary shares of 1p Share capital £000 Share premium £000 Merger reserve £000 26,770,365 268 32,137 10,639 66,418 103,079 – – 1 – – 754 – – – – 26,939,862 269 32,891 10,639 207,295 133,493 970,409 2 2 10 – 943 – – – 6,819 28,251,029 283 33,834 17,458 132 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 133 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 23. Issued capital and reserves continued Rights, preferences and restrictions on shares All ordinary shares carry equal rights and no privileges are attached to any shares in the Company. All the shares are freely transferable, except as otherwise provided by law. However: • The former shareholders of Hurley Partners have entered into lock-in deeds with Mattioli Woods and its nominated adviser and broker, 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 former shareholder of Montagu 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 40,161 ordinary shares in Mattioli Woods during the two years ending 2 February 2023; • The former shareholders of Pole Arnold Financial Management have entered into lock-in deeds with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 72,940 ordinary shares in Mattioli Woods during the two years ending 12 April 2023; and • The former shareholders of Caledonia Asset Management have entered into lock-in deeds with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 12,724 ordinary shares in Mattioli Woods during the two years ending 16 April 2023. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets. Share schemes and share incentive plan The Company has two share schemes under which options to subscribe for the Company’s shares have been granted to certain executives and senior employees (Note 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 2019 Acquired during the year At 31 May 2020 and 31 May 2021 Number Own shares £000 of shares 12,248 64,330 76,578 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 2021 76,578 (2020: 76,578) shares were held in the Mattioli Woods Employee Benefit Trust, representing 0.27% of issued share capital (2020: 0.28%). 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’. 24. Cash flows arising from financing liabilities The financing liabilities of the Group are £2,585,000 (2020: £2,908,000), comprising lease liabilities as disclosed in Note 27. Cash flows arising from financing liabilities include payment of lease liabilities of £1,077,000. The financing liabilities of the Company are £2,216,000 (2020: £2,502,000), comprising lease liabilities as disclosed in Note 27. Cash flows arising from financing liabilities include payment of lease liabilities of £895,000. 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. 25. Trade and other payables Trade and other payables Trade payables due to Group companies Loan notes due to subsidiary undertakings Other trade payables Other taxation and social security Other payables Accruals and deferred income Trade and other payables Current Non-current Group 2021 £000 – – 633 2,052 1,197 11,633 15,515 15,515 – Company 2021 £000 2,064 28,143 697 1,810 1,239 8,841 42,794 14,651 28,143 Group 2020 £000 – – 809 1,691 591 6,832 9,923 9,923 – Company 2020 £000 1,559 – 749 1,499 466 4,433 8,706 8,706 – 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. Loan notes due to subsidiary undertakings On 28 February 2021 the trade and assets of Broughtons Financial Planning Limited and Hurley Partners Limited were transferred to the Company. The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of Broughtons Financial Planning Limited and Hurley Partners Limited as at the date of hive up, and attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate. During the year, interest costs of £218,000 (2020: £nil) were borne by the Company with £nil (2020: £nil) impact on consolidation. The book value of the assets and liabilities recognised on hive up from Broughtons Financial Planning Limited and Hurley Partners Limited were as follows: Property, plant and equipment Right of use assets Intangible assets Trade and other receivables Cash and short-term deposits Trade and other payables Deferred tax liability Provisions Net assets transferred Consideration transferred Broughtons Financial Planning Limited £000 6 48 3,394 166 1,429 (275) (361) (81) 4,326 4,326 Hurley Partners Limited £000 66 – 21,804 951 3,801 (869) (2,126) (28) 23,599 23,599 Combined carrying value £000 72 48 25,198 1,117 5,230 (1,144) (2,487) (109) 27,925 27,925 134 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 135 Financial Statements Notes to the financial statements continued 26. Financial liabilities and provisions Group At 1 June 2019 – Restated Unwinding of discount Arising during the year Arising on acquisitions Paid during the year Unused amounts reversed At 31 May 2020 – Restated Unwinding of discount Arising during the year Arising on acquisitions Paid during the year Unused amounts reversed Reclassification At 31 May 2021 Current 2020 Non-current 2020 At 31 May 2020 Current 2021 Non-current 2021 At 31 May 2021 Company At 1 June 2019 - Restated Finance costs Arising during the year Arising on acquisitions Paid during the year Unused amounts reversed At 31 May 2020 - Restated Finance costs Arising during the year Arising on acquisitions Transferred from Group companies Paid during the year Unused amounts reversed Reclassification At 31 May 2021 Current 2020 Non-current 2020 At 31 May 2020 Current 2021 Non-current 2021 At 31 May 2021 Contingent consideration £000 Contingent remuneration £000 Client claims Dilapidations £000 £000 Clawbacks £000 Employers’ NIC on share options £000 Onerous contracts £000 FSCS levy £000 1,252 61 – 741 (600) – 1,454 133 – 2,405 (1,111) – – 2,881 1,085 369 1,454 1,709 1,172 2,881 125 – 750 – – (78) 797 – 3,803 – (609) – – 3,991 797 – 797 3,991 – 3,991 1,484 – 914 – (422) (96) 1,880 – 568 – (519) (19) 450 2,360 1,881 – 1,881 2,358 – 2,358 348 13 16 – – – 377 20 70 138 (18) (66) – 521 – 377 377 343 178 521 123 – 2 – (45) (22) 58 – 91 – (89) – – 60 58 – 58 60 – 60 602 – 133 – (67) (34) 634 – 173 – (193) – – 614 436 198 634 419 195 614 220 – 22 – (97) (123) 22 – – 29 (51) – – – 22 – 22 – – – 150 – 42 – (83) – 109 – 15 – (15) – – 109 109 – 109 109 – 109 Contingent consideration £000 Contingent remuneration £000 Client claims Dilapidations £000 £000 Clawbacks £000 Employers’ NIC on share options £000 Onerous contracts £000 FSCS levy £000 1,252 61 – 741 (600) – 1,454 133 – 2,405 – (1,111) – – 2,881 1,085 369 1,454 1,709 1,172 2,881 125 – 750 – – (78) 797 – 3,803 – – (609) – – 3,991 797 – 797 3,991 – 3,991 1,225 – 859 (392) (53) 1,639 – 568 – – (503) (13) 450 2,141 1,639 – 1,639 2,141 – 2,141 323 13 11 – – 347 19 72 – 87 (4) – – 521 – 347 347 343 178 521 119 – – (43) (22) 54 – 88 – – (88) – – 54 54 – 54 54 – 54 602 – 133 (67) (34) 634 – 173 – – (193) – – 614 436 198 634 419 195 614 220 – 22 (97) (123) 22 – – – 7 (29) – – – 22 – 22 – – – 150 – 34 (83) – 101 – 15 – – (15) – 101 101 – 101 101 – 101 Total £000 4,304 74 1,879 741 (1,314) (353) 5,331 153 4,720 2,572 (2,605) (85) 450 10,536 4,387 944 5,331 8,991 1,545 10,536 Total £000 4,016 74 1,809 741 (1,282) (310) 5,048 152 4,718 2,405 94 (2,551) (13) 450 10,303 4,134 914 5,048 8,758 1,545 10,303 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 (2020 restated: £1.1m) and the Group expects to settle the non-current balance of £1.2m (2020 restated: £0.4m) within the subsequent year. Strategic Report Governance Financial Statements Contingent remuneration Certain business acquisitions made by the Group include arrangements for remuneration payable to selling shareholders which is contingent upon certain performance conditions including the financial performance of the acquired business in meeting financial targets and links to continuing employment of management sellers. Details of these agreements and the basis of calculation of the net present value of the contingent remuneration are summarised in Note 28. The Group estimates remuneration payable within the next 12 months is £6.3m (2020 restated: £0.7m). 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 £450,000 reclassified in the year represented potential liabilities for complaints previously reported within Accruals and deferred income. 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. 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 and acquired related software licence costs due on agreements under which the Group has served, with the provisions fully utilised before 31 May 2021. FSCS levy The arrangements put in place by the Financial Services Compensation Scheme (“FSCS”) to protect depositors and investors from loss in the event of failure of financial institutions have resulted in significant levies on the industry in recent years. There is uncertainty over the level of future FSCS levies as they depend on the ultimate cost to the FSCS of industry failures. The Group contributes to the investment intermediation levy class and accrues levy costs for future levy years when the obligation arises. A provision of £0.1m (2020: £0.1m) has been made in these financial statements for FSCS interim levies expected in relation to the year ending 31 May 2021. 27. 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 2021 £000 989 1,409 442 2,840 2,585 905 1,680 2021 £000 894 1,212 309 2,415 2,216 821 1,395 136 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 137 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 28. Commitments and contingencies Remuneration of management sellers including contingencies Certain business acquisitions made by the Group include arrangements for remuneration payable to selling shareholders which is contingent upon certain performance conditions including the financial performance of the acquired business in meeting financial targets and links to continuing employment of management sellers. Following the acquisition of SSAS Solutions (UK) Ltd (“SSAS Solutions”) on 27 March 2019, management sellers will receive remuneration of up to £1,500,000 over an extended three year earn out to 27 March 2022, subject to the achievement of certain performance conditions including the financial performance of SSAS Solutions meeting financial targets and continuing employment of management sellers. In the year to 31 May 2021, remuneration costs of £625,000 (2020 restated: £750,000) have been recognised in the statement of comprehensive income, and provision of £813,000 (2020 restated: £797,000) is recognised in Note 26. Based on management’s latest forecasts we anticipate that a further remuneration costs of £891,000, representing the maximum remuneration available to management sellers, will be recognised over the remaining period of contingency to 27 March 2022. Following the acquisition of Hurley Partners Limited (“Hurley”) on 31 July 2020, management sellers will receive remuneration of up to £7,028,000 over a two year earn out to 31 July 2022, subject to the achievement of certain performance conditions including the financial performance of Hurley meeting financial targets and continuing employment of management sellers. In the year to 31 May 2021, remuneration costs of £2,928,000 (2020 restated: £nil) have been recognised in the statement of comprehensive income, and provision of £2,928,000 (2020 restated: £nil) is recognised in Note 26. Based on management’s latest forecasts we anticipate that a further remuneration costs of £4,100,000, representing the maximum remuneration available to management sellers, will be recognised over the remaining period of contingency to 31 July 2022. Following the acquisition of Pole Arnold Financial Management Limited (“Pole Arnold”) on 12 April 2021, management sellers will receive remuneration of up to £3,000,000 over a two year earn out to 12 April 2023, subject to the achievement of certain performance conditions including the financial performance of Pole Arnold meeting financial targets and continuing employment of management sellers. In the year to 31 May 2021, remuneration costs of £250,000 (2020 restated: £nil) have been recognised in the statement of comprehensive income, and provision of £250,000 (2020 restated: £nil) is recognised in Note 26. Based on management’s latest forecasts we anticipate that a further remuneration costs of £2,750,000, representing the maximum remuneration available to management sellers, will be recognised over the remaining period of contingency to 12 April 2023. Capital commitments At 31 May 2021, the Group had no capital commitments (2020: £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 exclusive naming rights to the 26,000 capacity Mattioli Woods Welford Road stadium including full stadium, dugout and website branding, shirt sponsorship on the Tigers’ home and away shirts, corporate hospitality rights and the provision of exclusive content to Tigers fans. In October 2020 the Group entered into a new sponsorship agreement with Leicester Tigers, which commenced in October 2020 and runs to June 2025, with a total cost of £3.4m over the term 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 these 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 (2020: £0.9m). These assessments have been appealed and we are currently awaiting a hearing date at the First-tier Tribunal. Irrespective of the result of this process, the impact on the financial position of the Group is expected to be neutral, with any liability expected to be recovered from the affected clients whose tax liability it is. Transfers from defined benefit schemes The FCA has been conducting an industry wide review of the advice being provided on transfers from defined benefit to defined contribution schemes since October 2015 (“the Review”). As previously reported, following consideration of the increasing costs of professional indemnity insurance, additional regulatory controls and the resources we would have to dedicate to this small part of our business, we have stopped giving pension transfer advice to individuals with safeguarded or defined benefits. The impact of this decision and the Review on the Group’s financial performance is not expected to be material. 29. Related party disclosures Custodian REIT plc In March 2014 the Company’s subsidiary, Custodian Capital, was appointed as the discretionary investment manager of Custodian REIT, a closed-ended property investment company listed on the Main Market of the London Stock Exchange. The Company’s Chief Executive Officer, Ian Mattioli, is a non-independent Non-Executive Director of Custodian REIT and the Company’s former 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. During the year the Group received revenues of £3.8m (2020: £4.0m) in respect of annual management charges, administration and marketing fees from Custodian REIT. Custodian REIT owed the Group £2,733 at 31 May 2021 (2020: £1,000). Amati Global Investors Limited The Company holds 49% of the issued share capital of Amati Global Investors Limited (“Amati”), an independent specialist fund management business. Two of the Company’s senior management team have been appointed to the board of Amati. Ian Mattioli is Deputy Chair 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 (2020: £48,000) from Amati as lessee, £16,000 (2020: £15,000) from the recharge of other property related costs and consultancy fees of £43,000 (2020: £39,000). 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 received revenues of £41,000 (2020: £40,000) in respect of employee benefits services provided to Gateley Plc. Key management compensation Key management personnel, representing those Executive Directors that served throughout the year and eight (2020: 19) other executives, received compensation in the form of short-term employee benefits and equity compensation benefits (see Note 11) which totalled £4.4m for the year ended 31 May 2021 (2020: £3.7m). Total remuneration of key management personnel is included in “employee benefits expense” and analysed as follows: Wages and salaries Social security costs Pension Benefits in kind 2021 £000 3,855 405 42 101 4,403 2020 £000 2,844 585 123 104 3,656 In addition, the cost of share based payments, disclosed separately in the statement of comprehensive income, to key management personnel was £0.7m (2020: £0.9m). Transactions with other related parties Following the transfer of Mattioli Woods’ property syndicate business to Custodian Capital, the legal structure of the arrangements offered to investors changed to a limited partnership structure, replacing the previous trust-based structure. Each limited partnership is constituted by its general partner and its limited partners (the investors), with the general partner being a separate limited company owned by Custodian Capital (see Note 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. MW Properties No 25 Limited The Group holds a 9.40% interest in MW Properties No 25 Limited, a nominee for a property syndicate. As at 31 May 2021 the Group held an investment with a market value of £28,095 (2020: £27,334) in the syndicate. MW Properties (Huntingdon Non-Geared) Limited The Company previously held a 2.04% interest in MW Properties (Huntingdon Non-Geared) Limited, a nominee for a property syndicate. During the year the Group’s investment was disposed on the wind-up of this syndicate, with the Group receiving a final distribution of £7,957. 138 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 139 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 30. Financial risk management Financial assets principally comprise trade and other receivables, cash and short-term deposits, which arise directly from its operations. Financial liabilities comprise certain provisions and trade and other payables. The main risks arising from financial instruments are market risk (including interest rate risk, foreign exchange risk and price risk), credit risk, and liquidity risk. Each of these risks is discussed in detail below. The Group monitors financial risks on a consolidated basis, with its financial risk management based upon sound economic objectives and good corporate practice. No hedging transactions have taken place during the years presented. 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 have 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 2021 the value of market interest bearing financial instruments on the Group’s statement of financial position exposed to interest rate risk was £21.9m (2020: £26.0m), and Company £23.5m (2020: £30.5m). 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. 2021 £ Sterling £ Sterling 2020 £ Sterling £ Sterling Increase/ decrease in basis points Group Effect on profit before tax £000 Company Effect on profit before tax £000 +50 –50 +50 –50 109 (109) 130 (130) 117 (117) 116 (116) (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. 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. 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 2021 and 2020 based on contractual payments: Group Trade and other payables Contingent consideration Lease liabilities At 31 May 2021 Trade and other payables Contingent consideration Lease liabilities At 31 May 2020 – Restated Company Trade and other payables Contingent consideration Lease liabilities At 31 May 2021 Trade and other payables Contingent consideration Lease liabilities At 31 May 2020 – Restated On demand £000 – – – – – – – – On demand £000 – – – – – – – – Less than 3 months £000 12,695 44 227 12,966 7,189 – 241 7,430 Less than 3 months £000 13,194 44 205 3 to 12 months £000 – 1,730 679 2,409 – 1,100 723 1,823 3 to 12 months £000 – 1,730 616 1 to 5 years £000 1,329 1,261 2,590 – 400 1,746 2,146 1 to 5 years £000 28,143 1,329 1,100 13,443 2,346 30,572 7,140 – 220 7,360 – 1,100 660 1,760 – 400 1,527 1,927 Maturity of liability > 5 years £000 – – 418 418 – – 496 496 Total £000 12,695 3,103 2,585 18,383 7,189 1,500 3,206 11,895 Maturity of liability > 5 years £000 – – 294 294 – – 318 318 Total £000 41,337 3,103 2,215 46,655 7,140 1,500 2,725 11,365 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 2021 was £86.2m (2020 restated: £81.5m) and Company was £89.2m (2020 restated: £86.9m). 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. 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 2021 the total regulatory capital requirement across the Group was £11.9m (2020: £13.6m) and the Group had an aggregate surplus of £9.9m (2020: £22.6m), 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. 140 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 141 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 31. Financial instruments The carrying amount of financial assets and financial liabilities recorded by category is as follows: Financial assets Cash and short-term deposits Amortised cost loans and receivables (including trade and other receivables) (Note 21) Amortised cost financial assets Fair value through profit or loss Financial liabilities Amortised cost (including trade and other payables and loan notes payable) Fair value through profit and loss (including contingent consideration) (Note 26) Group 2021 £000 21,888 16,957 38,845 – 38,845 Group 2021 £000 12,695 2,881 15,576 Company 2021 £000 10,909 26,180 37,089 – 37,089 Company 2021 £000 41,337 2,881 44,218 Group 2020 £000 25,959 16,072 42,031 – 42,031 Group 2020 Restated £000 7,189 1,454 8,643 Company 2020 £000 17,584 25,993 43,577 – 43,577 Company 2020 Restated £000 7,140 1,454 8,594 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 26) At 31 May 2021 Quoted prices in active markets for identical instruments Level 1 £000 Carrying amount as at 31 May 2021 £000 Significant other Significant observable unobservable inputs Level 3 £000 inputs Level 2 £000 2,881 2,881 – – – – 2,881 2,881 The fair value of cash equivalents, accounts receivable and accounts payable approximate their carrying values due to their short-term nature. 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 £2.9m (2020 restated: £1.5m). 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 3-4 years £000 4-5 years £000 2-3 years £000 1-2 years £000 > 5 years £000 < 1 year £000 Total £000 Financial assets (current) Cash and cash equivalents At 31 May 2021 Group Floating rate Financial assets (current) Cash and cash equivalents At 31 May 2020 Company 31 May 2021 Floating rate Financial assets (current) Cash and cash equivalents At 31 May 2021 Company 31 May 2020 Floating rate Financial assets (current) Cash and cash equivalents At 31 May 2020 – 21,888 21,888 < 1 year £000 – 25,959 25,959 < 1 year £000 12,576 10,909 23,485 < 1 year £000 12,915 17,584 30,499 – – – – – – – – – – – – – – – 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 – – – – – – – – – – – – – – – – 21,888 21,888 Total £000 – 25,959 25,959 Total £000 12,576 10,909 23,485 Total £000 12,915 17,584 30,499 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. Credit risk mitigation practices employed by the Group include monitoring of the creditworthiness of the financial institutions we hold deposits with, and spreading funds accordingly to reduce exposure to institutions with lower credit ratings. At 31 May 2021, the Group’s bank deposits were held across the following banks: 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, Northern Bank Limited (Danske Bank), Clydesdale Bank plc, Hinckley & Rugby Building Society and Market Harborough Building Society. 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. Credit risk mitigation practices employed by the Group include reviewing the credit quality of customers and limiting credit exposures accordingly, arranging for the settlement of trade receivables directly from customers investments where possible, and monitoring aged trade receivables and engaging with customers where trade receivables become overdue. 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. 142 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 143 Financial Statements Notes to the financial statements continued Strategic Report Governance Financial Statements 32. Events after the reporting date Completion of fundraise On 26 May 2021 the Company announced the proposed acquisitions of Maven Capital Partners UK LLP (“Maven”) and LWMG Topco Limited (the holding company of Ludlow Wealth Management Group Ltd) (“Ludlow Wealth Management”) (together, the “Acquisitions”), together with an equity fundraising to raise gross proceeds of approximately £112m and an additional Broker Option (the “Fundraise”). The Company has successfully raised gross proceeds of £112m, before expenses, at an Issue Price of 660 pence per Ordinary Share, comprising: • 2,800,800 Firm Placing Shares, raising gross proceeds of £18.5m; • 13,757,512 Conditional Placing Shares, raising gross proceeds of £90.8m; • 108,355 PrimaryBid Shares, raising gross proceeds of £0.7m; and • 303,030 Broker Option Shares, raising gross proceeds of £2.0m. 2,800,800 Firm Placing Shares were admitted to trading 2 June 2021, with the remaining 14,168,897 shares admitted to trading 17 June 2021. Acquisition of Maven Capital Partners On 30 June 2021 the Company completed the proposed acquisition of 100% of the membership interests in Maven Capital Partners UK LLP (“Maven”) for an aggregate maximum consideration of up to £100.0m (including, subject to certain conditions being satisfied, up to £20.0 million of deferred consideration), comprised of a combination of cash and new Ordinary Shares. Maven is one of the UK’s leading private equity and alternative asset managers, providing funding options to UK SMEs, and offering investment opportunities in VCTs, private equity and property. The owner-led business comprises 12 partners, with a regionally based team of 91 investment executives and support professionals. Maven operates across 10 offices in Glasgow, Edinburgh, Manchester, Birmingham, London, Newcastle, Bristol, Nottingham, Durham and Reading. Maven and its indirect subsidiary company Maven Property Investments Limited (“MPIL”) are authorised and regulated by the FCA as Alternative Investment Fund Managers (“AIFMs”). Maven Capital Investments Limited (“MCIL”), a direct subsidiary of Maven, is an investment holding company with co-investment commitments into a number of regional funds. MCIL also generates management fees from property deals. MPIL is a subsidiary of MCIL and is the regulated manager for property deals and generates monitoring and accounting fees from those transactions. Maven manages approximately £772m in AuM, comprising: • Four evergreen VCTs, listed on the London Stock Exchange, providing growth capital for UK based younger companies. • Seven regional funds, providing equity and debt growth capital for SMEs in specific UK regions. • An MBO fund, supporting management buyouts in the UK smaller and lower mid-market. • Maven Investor Partners (“MIP”), funding individual private equity and property deals, on a deal by deal basis: • Equity capital for smaller MBO transactions of later stage SMEs across the UK. • Equity capital for the development of hotels, purpose-built student accommodation, offices, residential construction and strategic land transactions. Maven primarily generates revenue from management fees and General Partner’s Priority Share which are annual management charges generated on the VCTs, regional funds, MBO fund and MIP deals. Performance fees may be generated on the VCT funds based on increases in net asset value and is structured as carried interest for MIP deals. Other income is generated from director and monitoring fees, third party administration and investment income. The provisional fair values of the assets and liabilities of Maven as at the date of acquisition are set out in the table below: Provisional fair value recognised on acquisition £000 Provisional fair value Previous adjustments carrying value £000 £000 Tangible fixed assets Intangible assets – Client portfolio Intangible assets – Brand Investments Trade and other receivables Net cash Assets Trade and other payables Provisions Non-current liabilities 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 Net asset excess Contingent consideration Discounting of contingent consideration Total acquisition cost 380 54,483 1,951 3,422 3,530 4,408 68,174 – 54,483 1,951 – – – 56,434 (1,746) (683) (628) (13,851) – – – (13,851) 380 – – 3,422 3,530 4,408 11,740 (1,746) (683) (628) – (16,908) (13,851) (3,057) 51,265 38,105 89,370 50,000 33,773 5,000 800 (203) 89,370 In addition to the acquisition cost, management sellers will receive remuneration of up to £19.2m over a four year earn out to 30 June 2025, subject to the achievement of certain performance conditions including the financial performance of Maven meeting financial targets. Acquisition of Richings Financial Management On 26 August 2021 the Company completed the acquisition of 100% of the share capital of Richings Financial Management Ltd (“Richings”) for an initial consideration of £0.9 million and potential further consideration of up to £0.9 million dependent on the attainment of specified performance targets in the two years after completion. Founded in 1991, Richings is an established financial planning and wealth management business, working with over 270 private client families with approximately £70 million of assets under advice. Richings is based in Iver and employs an experienced team of four staff, all of whom will remain with Mattioli Woods following completion. In the year ended 30 April 2021, Richings generated revenues of £0.66 million with a profit before taxation of £0.34 million. At 30 April 2021 Richings’ gross assets were £0.35 million and net assets were £0.26 million. The acquisition is expected to be earnings enhancing in the first full year of ownership. The total consideration comprises: • An initial consideration of £0.9 million cash on a cash-free, debt-free basis (subject to adjustment for the value of net assets acquired); and • Contingent consideration of up to £0.9 million payable in cash on the first and second anniversaries of completion, subject to certain profit targets being met. Payment of the initial cash consideration, deal costs and estimated net asset completion adjustment has resulted in a net cash outflow at completion of £0.9 million (net of estimated cash received on acquisition). Due to the proximity of the date of acquisition of Richings to the date of announcement of the Group’s final results for the year ended 31 May 2021, the Directors are unable to provide the disclosure requirements of IFRS 3 relating to acquisitions after the end of the reporting period but before the financial statements are authorised for issue. 144 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 145 Financial Statements Notes to the financial statements continued 32. Events after the reporting date continued Acquisition of Ludlow Wealth Management On 3 September 2021 the Company completed the proposed acquisition of 100% of the issued share capital of LWMG Topco Limited (the holding company of Ludlow Wealth Management Group Ltd) (“Ludlow Wealth Management”), for an aggregate consideration and other deferred payments of up to £43.5 million on a cash free, debt free basis as at the agreed “locked box” balance sheet date of 30 September 2020. The amount payable in respect of the Ludlow Wealth Management Acquisition includes, subject to the satisfaction of certain performance conditions following completion of the Ludlow Wealth Management Acquisition, up to £6.4 million of deferred consideration and up to £1.0m of bonuses payable to non-shareholder employees. In addition, in accordance with the locked box adjustment mechanism, in respect of the period commencing on the locked box date of 30 September 2020 and ending on the date of completion of the Ludlow Wealth Management Acquisition, the Company will pay to the sellers of Ludlow Wealth Management an amount in respect of the estimated cash profits of Ludlow Wealth Management during such post-locked box date period calculated at a daily rate of £6,173.24 for the total number of days during such period. The consideration for the Ludlow Wealth Management Acquisition will be satisfied by a combination of cash and new Ordinary Shares. Established in 1993, Ludlow Wealth Management is one of the largest providers of investment, financial planning and pension advice in the North West of England. Ludlow Wealth Management has 61 employees, including 22 advisers operating from offices in Fylde, Preston, Burnley, Liverpool and Southport. Ludlow Wealth Management manages £1,622 million of assets under advice (“AuA”) as at 31 March 2021 for 3,371 clients, with an average of £74 million AuA per adviser and an average client size of £0.48 million AuA. Ludlow Wealth Management has delivered growth, organically and by acquisition; completing 16 acquisitions in the last 12 years, adding £588 million of AuA and £2.4 million of recurring revenue. Ludlow Wealth Management currently outsources investment management. In the year ended 30 September 2020, Ludlow Wealth Management generated revenue of £9.4 million, of which 91% was recurring. Adjusted EBITDA for the period was approximately £3.3 million (adding back monitoring and directors’ fees incurred to oversee private equity investment in business), with an associated adjusted EBITDA margin of 35 per cent and a high cash conversion. As at 30 September 2020, Ludlow Wealth Management had gross assets of £16.8 million and net liabilities of £0.5 million (including net debt of £13.7 million). Ludlow Wealth Management has maintained momentum despite adverse market conditions and management expects material profit growth for the year ending 30 September 2021. The total consideration comprises: • An initial consideration of £36.1 million, calculated on a cash free, debt free basis as at the agreed “locked box” balance sheet date of 30 September 2020, and which will be satisfied as follows: • an aggregate amount of £30.3 million will be payable in cash on Ludlow Wealth Management Completion in respect of consideration for the acquisition of Ludlow Wealth Management and repayment of indebtedness and borrowings of Ludlow Wealth Management; and • £5.8 million will be satisfied by the issue of new Ordinary Shares to certain individual sellers who are members of the Ludlow Wealth Management management team; and, in addition • in accordance with the locked boxed adjustment mechanism, in respect of the period commencing on the locked box date of 30 September 2020 and ending on the date of completion of the Ludlow Wealth Management Acquisition, the Company has agreed to pay to the sellers of Ludlow Wealth Management an amount in respect of the estimated cash profits of Ludlow Wealth Management during such post-locked box date period calculated at a daily rate of £6,173.24 for the total number of days during such period; and • Deferred consideration, subject to the satisfaction of certain performance conditions, up to £6.4 million and up to £1.0m of bonuses payable to non-shareholder employees of Ludlow Wealth Management, in each case, payable in cash and calculated on the basis of (a) the amount of the adjusted EBITDA of Ludlow Wealth Management for the 12 months ending 30 September 2023 multiplied by 8.25; less (b) the amount of the Initial Ludlow Wealth Management Consideration; and less (c) the aggregate value of all consideration paid or payable by Mattioli Woods in respect of any eligible acquisition of any company or business that is integrated into Ludlow Wealth Management and which completes between Ludlow Wealth Management Completion and 30 September 2023. Ludlow Wealth Management’s experienced management team will be retained by Mattioli Woods following the Ludlow Wealth Management Acquisition, which is expected to be earnings enhancing in the first full year of ownership. In addition, the Company expects to realise revenue and cost synergies from first full year onwards, including investment in Mattioli Woods’ discretionary portfolio management service and alternative investment strategies by certain of Ludlow Wealth Management’s clients. Due to the proximity of the date of acquisition of Ludlow Wealth Management to the date of announcement of the Group’s final results for the year ended 31 May 2021, the Directors are unable to provide the disclosure requirements of IFRS 3 relating to acquisitions after the end of the reporting period but before the financial statements are authorised for issue. 33. Ultimate controlling party The Company has no controlling party. Strategic Report Governance Financial Statements Alternative performance measure workings Recurring revenue A measure of sustainable revenue, calculated as revenue earned from ongoing services as a percentage of total revenue. Timing of revenue recognition At a point in time: Investment and asset management Pension consultancy and administration Property management Employee benefits Non-recurring revenue Over time: Investment and asset management Pension consultancy and administration Property management Employee benefits Recurring revenue Total revenue Recurring revenue Organic revenues A measure of revenue excluding revenue from businesses acquired in the current or prior year. Group Total revenue Increase in revenue from acquisitions in the prior year Revenue from acquisitions in the current year Organic revenue 2021 £000 2020 £000 2,041 1,018 625 917 4,601 2,002 1,097 464 1,043 4,606 31,329 17,789 4,285 4,611 58,014 24,846 19,464 4,952 4,539 53,801 62,615 58,407 92.7% 92.1% 2021 £000 62,615 (252) (6,050) 56,313 2020 £000 58,407 – – 58,407 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 and acquisition related costs, share of profit from associates (net of tax), gain on bargain purchase and contingent consideration recognised as remuneration. Group 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 Subtotal Gain on bargain purchase Deferred consideration as remuneration Adjusted EBITDA 2021 £000 4,231 2,774 304 2,772 10,081 1,141 2,595 2020 Restated £000 12,192 2,077 360 2,547 17,176 633 334 13,817 18,143 (288) 3,803 – 750 17,332 18,893 146 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 147 Financial Statements Alternative performance measure workings continued Strategic Report Governance Financial Statements Company information 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 and acquisition related costs, gain on bargain purchase, contingent consideration recognised as remuneration and acquisition related notional interest charges. Directors: Group Statutory profit before tax Amortisation of acquired intangibles Acquisition related costs Gain on bargain purchase Deferred consideration as remuneration Acquisition related notional finance cost Adjusted PBT 2021 £000 5,148 2,774 2,595 (288) 3,803 133 2020 Restated £000 12,731 2,077 334 – 750 61 14,165 15,953 Joanne Lake Ian Mattioli MBE Ravi Tara Iain McKenzie Michael Wright Anne Gunther David Kiddie Martin Reason Edward Knapp Non-Executive Chairman Chief Executive Officer Chief Financial Officer Chief Operating Officer Group Managing Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Company secretary: Petershill Secretaries Limited Registered office: 1 New Walk Place Leicester LE1 6RU Registered number: 03140521 Adjusted PAT A measure of profitability, net of taxation, based on Adjusted PBT and deducting tax at the standard rate of 19% (2020: 19%). Nominated adviser and broker: Group Adjusted PBT Income tax expense at standard rate of 19% Adjusted PAT 2021 £000 14,165 (2,691) 11,474 2020 Restated £000 15,953 (3,031) 12,922 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 amortisation of acquired intangibles and acquisition related costs, gain on bargain purchase, contingent consideration recognised as remuneration and acquisition related notional interest charges, divided by the weighted average number of ordinary shares in issue. Group Adjusted PAT Basic weighted average number of shares (see Note 13) Adjusted EPS 2021 £000 11,474 27,936 41.1p 2020 Restated £000 12,922 27,161 47.6p Adjusted cash generated from operations A measure of operating cashflows, excluding items that are incurred as a result of the Group’s acquisition activities, calculated as statutory cash generated from operations excluding contingent remuneration paid on acquisition of subsidiaries, and acquisition-related costs paid. Group Statutory cash generated from operations Contingent remuneration paid on acquisition of subsidiaries (see Note 26) Acquisition costs paid Adjusted cash generated from operations 2021 £000 20,362 609 732 21,703 2020 Restated £000 13,926 – 437 14,363 Joint broker Auditor: Principal solicitors: Principal bankers: Registrars: Canaccord Genuity Limited 88 Wood Street London EC2V 7QR Singer Capital Markets Limited 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 148 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 149 Financial Statements Strategic Report Governance Financial Statements Five year summary (unaudited) Financial calendar 21 September 2021 30 September 2021 1 October 2021 29 October 2021 3 November 2021 Announcement of final results for the year ended 31 May 2021 Ex-dividend date for ordinary shares Record date for final dividend Annual General Meeting Payment of final dividend on ordinary shares 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 bargain purchase Deferred consideration as remuneration Gain on revaluation of derivative financial instrument EBITDA Acquisition related costs Share of profit from associates Gain on bargain purchase Deferred consideration as remuneration Gain on derivative financial asset Adjusted EBITDA Amortisation and impairment Depreciation Operating profit before financing Net financing (costs)/revenue 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) 2021 £000 2020 Restated £000 2019 Restated £000 2018 Restated £000 2017 Restated £000 62,615 58,407 57,494 57,783 49,678 (34,141) (13,332) (1,475) (25) (46) 288 (3,803) – (27,623) (10,897) (1,335) (605) (18) – (750) – (31,239) (10,771) (1,531) (358) (125) – (125) 100 (32,148) (11,674) (1,832) (273) (67) – (1,582) 540 (28,711) (8,745) (1,902) (228) (61) – (2,969) 93 10,081 17,179 13,445 10,747 7,155 2,595 1,141 (288) 3,803 – 334 633 – 750 – 126 480 – 125 (100) 125 240 – 1,582 (540) 378 103 – 2,969 (93) 17,332 18,896 14,076 12,154 10,512 (3,078) (2,772) (2,437) (2,547) 4,231 12,195 (2,962) (1,288) 9,195 (2,225) (822) 7,700 (224) 1,141 (97) 633 (15) 480 25 240 (1,995) (608) 4,552 (65) 103 5,148 12,731 9,660 7,965 4,590 (3,757) (3,244) (1,963) (1,529) (1,293) 1,391 9,487 7,697 6,436 3,297 12,123.5 30.2 2.3% 16.1% 27.7% 5.1 50.0 21.0 9,300.3 34.4 2.5% 29.4% 32.4% 34.9 51.0 20.0 9,382.5 32.7 2.2% 23.4% 24.5% 28.5 52.7 20.0 8,729.2 32.4 1.5% 18.6% 21.0% 23.9 52.6 17.0 7,925.3 43.9 2.1% 14.9% 21.2% 13.4 47.8 14.1 150 Mattioli Woods plc Annual Report 2021 Mattioli Woods plc Annual Report 2021 151 Design and Production www.carrkamasa.co.uk Mattioli Woods plc 1 New Walk Place Leicester LE1 6RU Tel: 0116 240 8700 Fax: 0116 240 8701 info@mattioliwoods.com www.mattioliwoods.com 

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