Final Results
Mattioli Woods PLC
05 September 2006
Press Release 5 September 2006
Mattioli Woods plc
('Mattioli Woods' or 'the Group')
Preliminary Results
Mattioli Woods, the specialist pensions consultancy, reports its maiden
Preliminary Results for the year ended 31 May 2006.
Highlights
- Turnover increased by 17.6% to £7.6 million (2005: £6.4 million)
- Profit before interest and tax of £2.2 million in line with expectations
(2005: £2.7 million)
- Normalised profit before interest and tax increased by 20.9% to
£2.2 million
- Earnings per share of 10.1 pence (2005: 15.1 pence)
- Final proposed dividend to shareholders of 1.4 pence per share
- Client portfolios acquired from Geoffrey Bernstein and Suffolk Life
performing well
- Joined AIM in November 2005 and moved to new office premises
- Management team strengthened with appointment of three new Directors
- Successful transition to the Government's Pension Simplification
legislation ('A-Day')
- Leading adviser on over 1,400 SIPP and SSAS schemes - a 40% increase
during year
- New SIPP launched in conjunction with Bank of Scotland
- Currently advising on over £728 million of funds under trusteeship
- Facilitated creation of 10 new property syndicates during the year
Commenting on the Preliminary Results, Bob Woods, Executive Chairman of Mattioli
Woods, said:
'During the year, the business has made a number of significant achievements,
including admission to the AIM market and the successful integration of two
acquisitions, whilst maintaining strong growth in our core business.
'The Group is very confident that the new 'A-Day' legislation will strongly
encourage pension planning in our core target market over the short, medium and
long term. We also believe that there will be new and exciting opportunities in
the final salary arena, which will be synergistic with our SIPP services.
'We have always believed that 'A-Day' would not only boost the current rate of
growth in the SIPP market, but also lead to rationalisation within the sector.
We continue to believe this may provide Mattioli Woods with further
opportunities for strategic acquisitions. The Group looks forward to 2007 with
confidence and enthusiasm.'
For further information:
Mattioli Woods plc
Bob Woods, Executive Chairman Tel: +44 (0) 116 240 8700
bob.woods@mattioli-woods.com www.mattioli-woods.com
Ian Mattioli, Chief Executive Tel: +44 (0) 116 240 8700
ian.mattioli@mattioli-woods.com www.mattioli-woods.com
Nathan Imlach, Finance Director Tel: +44 (0) 116 240 8700
nathan.imlach@mattioli-woods.com www.mattioli-woods.com
Evolution Securities Limited
Joanne Lake, Corporate Finance Tel: +44 (0) 113 243 1619
joanne.lake@evosecurities.com www.evosecurities.com
Media enquiries:
Abchurch
Sarah Hollins/Neil Camp/Louise Thornhill Tel: +44 (0) 207 398 7700
louise.thornhill@abchurch-group.com www.abchurch-group.com
Chairman's statement
I am delighted to report that the historic growth trend of the business has been
maintained, with turnover up 17.6% in the year ended 31 May 2006. During the
period the business made two acquisitions, moved to new premises, was admitted
to the AIM market of London Stock Exchange plc and successfully dealt with the
transition to the Government's Pension Simplification legislation ('A-Day').
Taking into account anticipated costs relating to our new office premises and
the flotation, the Group's reported profits are in line with market
expectations.
We act for over 1,400 small self-administered pension schemes ('SSAS') and self
invested personal pension ('SIPP') clients throughout the UK, a 40% increase
during the year, with funds under trusteeship now totalling over £728 million.
The positive financial impact of revenues from the client portfolios acquired
from Geoffrey Bernstein in June 2005 and Suffolk Life in January 2006 is
increasing over time. We are very pleased with the response from these clients
to date and the retention levels achieved.
We continue to strengthen our investment services and the successful launch of
our first 'structured product' in June 2006, linking the performance in major
emerging market economies over a five-year period with a 100% capital guarantee,
gives us the confidence to develop more products of this nature.
While less well known for our group scheme consultancy, this is a developing
revenue stream for us, which is set against the background of fundamental
changes in the final salary scheme marketplace. We expect to see a winding down
of final salary schemes by employers across the UK and consequently a major
shift in the distribution of assets in the pensions arena.
Trading results
In the year ended 31 May 2006, increased turnover of £7.6 million (2005: £6.4
million) was achieved, despite the additional responsibilities management and
staff experienced over and above the day-to-day running of our business, with an
immense amount of work required to cope with the new A-Day legislation. As
anticipated, the trading results were affected by additional costs incurred in
connection with the new office premises, increased compliance costs and the
appointment of three new directors.
Operating profit was £2.2 million (2005: £2.7 million), with EBITDA of £2.3
million (2005: £2.8 million). Earnings per share were 10.1 pence.
In January 2006 the Group obtained HM Revenue & Customs approval for a new
Mattioli Woods SIPP scheme, established in conjunction with Bank of Scotland
(part of the HBoS Group). This is the fifth SIPP we have developed together
with other leading financial institutions. A strong banking connection such as
Bank of Scotland, which has developed a specialist on-line pension fund banking
facility, further strengthens Mattioli Woods' existing SIPP initiatives. The
Bank of Scotland's technology is built upon a streamlined and efficient
administrative platform for clients, underpinned by the ability to download
scheme transactions on a daily basis.
Dividends
The Board is pleased to recommend the payment of a final dividend for the year
ended 31 May 2006 of 1.4 pence per Ordinary Share. It is our intention to grow
the dividend distributions sensibly going forward. If approved, the final
dividend will be paid on 20 October 2006 to shareholders on the Register at the
close of business on 27 September 2006.
Staff
The last year has been an exceptionally busy period for Mattioli Woods, and it
is only through the hard work and dedication of our employees, that I am able to
report on the positive progress we have achieved, for which I am very grateful.
Mattioli Woods has always enjoyed a strong camaraderie and wonderful commitment
from all its staff, and our admission to AIM has strengthened that culture by
facilitating wider equity participation within the organisation.
Murray Smith joined the Board as Sales and Marketing Director in October 2005
and, in preparation for the flotation on AIM, the Group appointed Nathan Imlach
as Finance Director and John Redpath as Non-Executive Director. All have made
invaluable contributions to the business.
Shareholders
I am delighted that our placing and admission to AIM on 23 November 2005 has
provided us with a broad institutional shareholder base. We are also pleased to
be developing a wider private client shareholder base. It is your Board's
intention to communicate fully with all our shareholders, current and future,
and in so doing continually build awareness of Mattioli Woods over the coming
years.
It is our aim to create a growing earnings stream and to work with our brokers
to increase the liquidity of shares in Mattioli Woods.
Outlook
Our flotation on AIM has been well received by both our clients and our
professional connections. Whilst it is still early days, this shows every
indication of supporting all elements of our growth strategy, not least of which
is our graduate recruitment drive.
The diligence and commitment of our Pension Simplification team has enabled us
to make a strong start in this new era in pension planning. We are very
confident the legislation will strongly encourage pension planning in our core
target market over the short, medium and long term.
We also believe that there will be new and exciting opportunities in the final
salary arena, which will be synergistic with our SIPP services.
We have always believed that A-Day would not only boost the current rate of
growth in the SIPP market, but also lead to rationalisation within the sector.
This is becoming apparent, with signs that certain small practitioners are
taking the view that they do not have the appetite, or resources, to deal with
such massive change. We continue to believe this may provide Mattioli Woods
with further opportunities for strategic acquisitions. The Group looks forward
to 2007 with confidence and enthusiasm.
Bob Woods
Chairman
4 September 2006
Chief Executive's review
Introduction
Having established the business with Bob Woods as a partnership in 1991, I am
delighted our track record of expansion and growth has continued to progress
with the Group's admission to AIM, and move to new office premises. These
achievements have given the entire organisation a fresh impetus to continue
driving the development of the Group while staying true to our core values of
excellent client service and strong business ethics.
We have expanded our administration and investment broking capacity during the
year, and invested in new systems, all of which enables us to advise our clients
more efficiently and effectively.
The organisation has embraced fundamental changes to the pensions market with
real enthusiasm. Many of our employees were involved in ensuring that, as of 5
April 2006, we were fully A-Day compliant. This has enabled us to access
additional opportunities for our existing clients and to attract new clients who
have benefited from changes under the new regime.
Nature, objectives and strategies
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 Group's turnover is derived from three key revenue streams: time-based
fees, investment planning and property syndicates.
Time-based fees
Mattioli Woods' core business is pension consultancy, the provision and
administration of SIPPs and SSASs. Our client base for SIPP and SSAS services
primarily comprises owner-managers, senior executives and professional persons.
However, we also provide group scheme consultancy and personal financial
planning as complementary services to our core business.
Our main source of income is time-based fees earned for setting up and
administering SIPP and SSAS schemes. Additional fees are generated from
consultancy services provided for special one-off activities.
The changes in government legislation have led to an increase in consultancy
fees during the second half of the year. This work has delivered real value to
our clients by improving their understanding of the pensions environment and
increasing their benefits both before and after A-Day. For example, we
completed over 30 separate property transactions on our clients' behalf in the
month leading up to 5 April 2006.
Investment planning
A key feature of our approach to pension consultancy is the impartial nature of
our investment advice and a focus on providing solutions tailored to each
individual clients' needs.
We develop informed investment strategies based on macro economic analysis and
review a wide range of third party investment products, selecting those produces
we believe to be most suitable for our clients' needs. The Group's income is
deliberately primarily fee-based, rather than commission driven, reinforcing our
ability to remain impartial in our advice and recommendation of investments.
Our investment strategies are designed to cover all asset classes, including
property, equities and fixed interest. In periods of volatility in one asset
class, we can continue to derive income from investments in other assets classes
whilst ensuring our clients' investment strategies are appropriately aligned to
the prevailing market conditions. Investment commissions grew by 19.9% in 2006.
Whilst our revenue streams are not directly dependent on the performance of
financial markets or the value of funds under trusteeship, movements in these
can influence the appetite of our clients to make investments to secure their
pension, which may have a positive or negative impact on future investment
revenues.
Property syndicates
Mattioli Woods facilitates commercial property ownership for its clients by way
of a syndicated property initiative. Properties introduced to the Group by our
professional property contacts are referred to an independent property adviser,
who either recommends or rejects the property for syndication.
Full details of recommended properties are supplied to clients who have
previously confirmed an interest in commercial property ownership. Clients form
a syndicate; a newly formed company acquires the property, control of which lies
with the clients. Mattioli Woods is engaged to provide administration services
to the property syndicates on an ongoing basis.
During the year we helped to facilitate the purchase of ten properties and the
sale of an existing syndicate investment, leaving 23 property syndicates using
our administrative services at the year end (2005: 14).
Our property syndicate initiative has provided clients with a low volatility,
high income asset-backed investment opportunity. We expect to see continued
demand for commercial property ownership as it provides a subtle balance between
risk, income and capital growth. Administration services provided to property
syndicates represent an increasing source of income. During the year, this
income stream increased by 83.6% to £244,495 (2005: £133,175).
New product developments
The core rationale for any new product is to enhance our clients' existing
position. New products we intend to roll-out during the next 12 months include
capital-guaranteed investment bonds, with capital growth linked to investment in
more volatile and speculative indices. We also plan to develop a secondary
market for existing property syndicate investors, as well as new residential
property syndicates.
Market
The markets in which the Group operates are fragmented but remain competitive.
Most of our chosen markets are serviced by a range of suppliers offering
services directly to individual and corporate clients.
We have been active in commenting on government proposals in the pensions arena
over the last 12 months and regard this as an important part of our role and
service to clients. Recent developments include the impending publication of
new regulations which are expected to mean that any operator of a SIPP will need
to be authorised by the Financial Services Authority ('FSA'). We see this as a
positive development in one of our key markets and look forward to embracing
this change.
Prior to A-Day, many commentators appeared to believe the SSAS market was in
decline. However, legislative changes have given SSASs a new lease of life and
we believe the benefits of SSASs, such as the ability to lend funds to the
sponsoring employer, may have been overlooked by the market.
It also appears the mass market may have problems reconciling high volume
administration with acceptable service levels, leading to poor financial
performance. We believe bespoke service providers like ourselves can maintain
service levels and profits.
Environmental matters
The Board believes that good environmental practices will support its strategy
by enhancing the reputation of the Group. However, due to the nature of the
business generally, it does not have a significant environmental impact.
Regulatory environment
The Group is regulated by a number of different bodies. Mattioli Woods'
business is authorised and regulated by the FSA, and is a member of the
Association of Member-directed Pension Schemes.
Mattioli Woods has dedicated compliance teams in place, with systems to
proactively monitor client investments, consultancy and administration services,
investment advice, financial standing of suppliers, pension transfer advice, FSA
rule book compliance and Audit & Pension Schemes Services compliance.
Business objectives and strategies
Our objective is to grow the organisation to increase market share and enhance
Mattioli Woods' reputation in the pensions consultancy market. Meeting these
objectives is key to achieving the financial and non-financial measures that
increase shareholder value.
Current and future developments and performance
Group results
We have made significant progress towards our goals of delivering quality
personal service that adds real value to clients, whilst maintaining high
ethical standards and enhancing shareholder value.
Sales revenues were £7.6 million (2005: £6.4 million), up 17.6% overall and
11.3% excluding acquisitions. Organic growth continues to be the main driver of
increased turnover. In line with expectations, operating profits decreased by
18.4% to £2.2 million (2005: £2.7 million), due to an anticipated increase in
costs related to the new office premises and the change in status to being a
listed company, including increased compliance costs and expenses associated
with the appointment of three new directors.
Cash generated from operations fell to £0.6 million (2005: £1.8 million) due to
the increase in working capital required in the short-term to fund the expansion
in our syndicated property investment business. An operating margin of 28.7%
(2005: 41.3%) was ahead of our expectation for the year, and normalised
operating margin+ was maintained at 29.6% (2005: 29.5%). We believe there is
room for margin improvement and aim to achieve operational efficiencies on the
back of A-Day legislation, coupled with investment in new infrastructure.
Planned improvements in information systems and technology also provide scope
for increased margins and even better client service.
+ Normalised turnover for 2005 has been calculated by deducting £161,000 of
one-off commission income from reported turnover. Normalised operating profit
has been calculated in line with Part V of the Company's AIM Admission Document,
as follows:
2005
2006 as restated
£ £
Reported operating profit 2,170,832 2,661,729
Deduct 'deemed' directors remuneration - (429,000)
Deduct additional cost of new directors (62,640) (190,000)
Deduct ongoing AIM costs - (70,000)
One-off commission income - (120,000)
One-off costs related to admission to AIM 108,605 -
Share option costs 23,406 -
Normalised operating profit 2,240,203 1,852,729
Since the acquisitions of the Geoffrey Bernstein client portfolio and Suffolk
Life's SSAS business occurred during the year, this set of results does not
fully reflect the impact of these excellent additions to our business.
We have had many trading highlights in what has been an extremely active and
satisfying year, but we believe the aspects of our business which have
contributed most to our strong performance include:
- Our readiness to deliver pre and post A-Day planning to existing and
new clients;
- Our clients' positive response to the provision of a secure, low
volatility investment portfolio;
- Growth in our administration of syndicated property investments;
- The resurgence of SSAS planning post A-Day; and
- The successful integration of both recent acquisitions into our business.
Acquisitions
I am pleased to advise that after a period of 'bedding in', both acquisitions
are fully integrated within our core business and are performing in line with
our aspirations. We are very pleased with the strong retention of new clients
acquired during the year and are encouraged by their enthusiastic response to
the wider service offering Mattioli Woods can offer them. These acquisitions
contributed towards time-based fees in the second half of the year of £1.9
million, substantially ahead of the first half (£1.4 million). We are delighted
to have the opportunity to offer our full range of services to these and the
other new clients we have welcomed over the last 12 months.
Excellent consultancy opportunities post A-Day mean that organic growth is
likely to maintain our momentum. However, we continue to review opportunities
to make acquisitions that can progress our strategic objectives and may enable
us to improve or broaden our services.
Resources, risks and relationships
Resources
The Group aims to safeguard the assets that give it a competitive advantage,
including its reputation for quality and proactive advice, its technical
competency and its people.
Our core values provide a framework for responsible, innovative and ethical yet
commercial business practices. Structures for accountability from our
administration teams through to the operational board and then the Group board
are clearly defined. The proper operation of the supporting processes and
controls are regularly reviewed by the Audit Committee and take into account
ethical considerations, including procedures for 'whistle-blowing'.
Employees
We are committed to continually developing the people in our business and the
last year has seen all our employees perform magnificently during a period of
substantial change. We have added a number of key people to the business which
will give us the capacity to continue building the Group and we continue to
invest significant resources in our graduate recruitment campaign, with six new
graduates joining in 2006 (2005: seven). Another three graduates have joined us
since the year end.
The quality, knowledge and commitment of our people are key to providing our
clients with a consistently high level of personal service and attention to
detail. We now employ 86 people at our Leicester base and we would like to
thank everyone for their support, energy and commitment over the past year. Our
progress would not have been possible without a high level of belief and
teamwork throughout the business.
Principal risks and uncertainties
We believe the most significant risk we face is damage to our reputation as a
result of poor client service. We mitigate this through ongoing quality control
testing and the provision of regular training of all our staff.
Of course, pension regulations will continue to be reviewed and future changes
may not produce an environment that is advantageous to the Group. Markets and
prospects may deteriorate and any changes in regulation may be retrospective.
To address this risk, we are committed to ensuring that our views are expressed
during consultation exercises, and that we respond positively and rapidly to new
regulations.
We also recognise that a significant skills shortage would represent a risk to
growth. We are mitigating this risk through investment in our graduate
recruitment programme, and a focus on providing incentives to motivate and
retain our existing employees.
Relationships
In addition to our shareholders, the Group's performance and value are
influenced by other stakeholders, principally our clients, suppliers and
employees; Government; and our strategic partners. Our approach with all these
parties is founded on the principles of open and honest dialogue based on a
mutual understanding of needs and objectives.
Relationships are managed on an individual basis through our account managers
and consultants for clients and performance development reviews for employees.
Employee forums also provide a communication route between employees and
management. Mattioli Woods participates in trade associations and industry
groups where these give us genuine access to client and supplier groups and
decision makers in Government and other regulatory bodies.
Financial position
Financial costs
Net interest charges payable during the year were £94,010 (2005: £560)
reflecting interest payable on borrowings, including directors' subordinated
loans of £3.0 million and a £1.2 million bank loan drawn down to facilitate the
redemption of preference shares prior to the Group's admission to AIM. These
loans were subsequently repaid out of the float proceeds.
Taxation
The effective rate of taxation in the year on profit on ordinary activities is
30.9% (2005: 30.9%). The deferred taxation asset carried forward at 31 May 2006
was £2,676 (2005: liability of £8,225).
Earnings per share and dividend
The FRS 3 basic earnings per share in the year as per note 9 was 10.1 pence
(2005: 15.1 pence). The diluted earnings per share was 10.1 pence (2005: 15.1
pence).
The proposed dividend of 1.4 pence per share is in line with our expectations
set out at the time of our admission to AIM.
Cash flow
The net cash inflow from operating activities fell to £646,827 (2005:
£1,750,903) due to our increased working capital requirements, despite strong
earnings before interest, taxation, depreciation and amortisation ('EBITDA') of
£2.3 million (2005: £2.8 million). The Group converted 27.6% of EBITDA into
operating cash flow, as a number of short-term loans were made on commercial
terms to new property syndicates just prior to the year-end. As at 31 May 2006
the Group was owed £1.9 million by property syndicates, of which £1.8 million
has been repaid following the year-end.
The cash out flow from working capital was £1.7 million. Trade debtor days were
65 days (2005: 51 days) and trade creditors were eight days (2005: 28 days).
Trade debtor days were higher at 31 May 2006 primarily due to significant
balances owed in respect of initial administration fees on new property
syndicates.
Capital expenditure in the year was £267,423, significantly ahead of last year's
levels (2005: £148,135), but in line with our expectations following the move to
new office premises in August 2005. We plan to continue investing in the
Group's infrastructure during the next year.
Net proceeds from new equity raised in the year were £5.4 million of which £1.1
million was spent on acquisitions with the balance funding loan repayments and
working capital.
Bank facilities
The Group has bank overdraft facilities totalling £600,000. These facilities
consist of an overdraft facility of £500,000 provided by the Royal Bank of
Scotland at 1.5% over the bank's base rate (currently 4.75%) and an overdraft
facility of £100,000 provided by Lloyds TSB at 1.5% over the bank's base rate
(currently 4.75%). These facilities are renewable on 30 and 31 January 2007
respectively. During the year the Group drew down and repaid borrowings of £1.2
million to the Royal Bank of Scotland.
At 31 May 2006 the Group had unused borrowing facilities of £600,000 (2005:
£100,000).
Capital structure
The Group's capital structure is as follows:
2006 2005
£ £
Net (funds)/debt (85,630) 1,731,750
Non-equity shareholders' funds (liability element) - 2,000,000
(85,630) 3,731,750
Shareholders' equity 9,683,685 2,730,694
Capital employed 9,598,055 6,462,444
On 15 November 2005, the Company placed 4,545,455 ordinary shares of 1p at
£1.32, raising £6,000,001 to repay directors' subordinated loans, and to provide
resources for potential further acquisitions and working capital. The costs of
the share issue were £633,396 (which includes £57,011 of share option costs).
Gearing has fallen from 187.2% to 3.7%, as a result of the repayment of loans
during the year.
The acquisitions during the year were funded out of existing cash resources.
Treasury policies
The objectives of the Finance Director are to manage the Group's financial risk;
secure cost-effective funding for the Group's operations and to minimise the
adverse effects of fluctuations in the financial markets on the value of the
Group's financial assets and liabilities, on reported profitability and on the
cash flows of the Group.
The Group has financed its activities with a combination of bank loans,
redeemable preference shares, finance leases and hire purchase contracts, cash
and short-term deposits, as disclosed in note 21. Overdrafts are used to
satisfy short-term cash flow requirements. Other financial assets and
liabilities, such as trade debtors and trade creditors, arise directly from the
Group's operating activities. The Group does not enter into derivative
transactions and does not trade in financial instruments.
The main risks associated with the Group's financial assets and liabilities are
set out below, as are the policies agreed by the Board for their management.
Interest rate risk
The Group's policy is to manage its cost of borrowing using a mix of fixed and
variable rate debt. Whilst fixed rate interest bearing debt is not exposed to
cash flow interest rate risk, there is no opportunity for the Group to enjoy a
reduction in borrowing costs in markets where rates are falling. In addition,
the fair value risk inherent in fixed rate borrowing means that the Group is
exposed to unplanned costs should debt be restructured or repaid early as part
of the liquidity management process. In contrast, whilst floating rate
borrowings are not exposed to changes in fair value, the Group is exposed to
cash flow risk as costs increase if market rates rise.
Credit risk
The risk of financial loss due to a counterparty's failure to honour its
obligations arises principally in relation to transactions where the Group
provides goods and services on deferred terms, deposits surplus cash, or
advances short-term unsecured loans to new property syndicates.
Group policies are aimed at minimising such losses, and require that deferred
terms are granted only to customers who demonstrate an appropriate payment
history and satisfy creditworthiness procedures. Individual exposures are
monitored with clients to ensure that the Group's exposure to bad debts is not
significant.
In agreeing annual budgets, the Board sets limits for debtors' days and doubtful
debts expense against which performance is monitored.
Loans are only advanced to new property syndicates to facilitate the purchase of
commercial property. In the event that a syndicate fails to raise sufficient
funds to complete the property purchase, the Group may either take up ownership
of part of the property 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 independent professional advice confirming the market value of the
underlying property.
Liquidity risk
The Group aims to mitigate liquidity risk by managing cash generation by its
operations. Investments are carefully controlled, with authorisation limits
operating up to Board level and cash payback periods applied as part of the
investment appraisal process. In this way the Group aims to maintain a good
credit rating to facilitate fund raising.
In its funding strategy, the Group's objective is to maintain a balance between
continuity of funds and flexibility through the use of overdrafts, bank loans,
finance leases and hire purchase contracts.
Excess cash used in managing liquidity is only invested in financial instruments
exposed to insignificant risk of changes in market value, being placed on
interest-bearing deposit with maturities fixed at no more than six months.
Short term flexibility is achieved by overdraft facilities.
Liquidity
The business is inherently a net generator of cash at the operating level.
Despite some capital investment being scheduled for next year, it is not
anticipated there will be any significant Group borrowing requirements during
the next 12 months, unless a new commercial opportunity is identified that
requires substantial capital investment.
Conclusion
The past year has been full of excitement and our achievements during the period
give us a great platform to continue implementing our business plan well into
the future. I am very satisfied that the business has met the financial and
business targets we set before our admission to AIM.
Ian Mattioli
Chief Executive
4 September 2006
Consolidated profit and loss account
For the year ended 31 May 2006
Notes
2005
2006 as restated
£ £
Turnover
From continuing operations 7,170,911 6,442,104
From acquisitions 401,934 -
7,572,845 6,442,104
Administration expenses
From continuing operations 5,346,392 3,780,375
From acquisitions 55,621 -
Operating profit
From continuing operations 1,824,519 2,661,729
From acquisitions 346,313 -
2,170,832 2,661,729
Interest receivable and similar income 103,731 62,567
Interest payable 94,010 560
Profit on ordinary activities before taxation 2,180,553 2,723,736
Tax on profit on ordinary activities 3 674,585 840,580
Retained profit for the financial period 1,505,968 1,883,156
Basic earnings per share 4 10.1p 15.1p
Diluted earnings per share 4 10.1p 15.1p
Dividend per share 5 1.4p 2.0p
Balance sheets
As at 31 May 2006
2006 2005
as restated
Notes Group Company Group Company
£ £ £ £
Fixed assets
Intangible assets 6 5,816,630 5,816,630 4,695,220 4,695,220
Tangible assets 398,566 398,566 224,630 224,630
Investments - 1,164 - -
6,215,196 6,216,360 4,919,850 4,919,850
Current assets
Debtors 5,092,503 5,092,488 2,765,864 2,765,864
Cash at bank and in hand 441,160 440,011 1,381,461 1,381,461
5,533,663 5,532,499 4,147,325 4,147,325
Creditors: amounts falling due 1,915,008 1,915,008 6,280,290 6,280,290
within one year
Net current assets/(liabilities) 3,618,655 3,617,491 (2,132,965) (2,132,965)
Total assets less current 9,833,851 9,833,851 2,786,885 2,786,885
liabilities
Creditors: amounts falling due - - - -
after more than one year
Provisions for liabilities and 150,166 150,166 56,191 56,191
charges
Net assets 9,683,685 9,683,685 2,730,694 2,730,694
Capital and reserves
Called up share capital 11 170,455 170,455 50,000 50,000
Equity - share based payments 80,417 80,417 - -
Share premium account 12 5,321,151 5,321,151 - -
Capital redemption reserve 12 2,000,000 2,000,000 - -
Profit and loss account 12 2,111,662 2,111,662 2,680,694 2,680,694
Shareholders' funds 9,683,685 9,683,685 2,730,694 2,730,694
Consolidated cash flow statement
For the year ended 31 May 2006
Notes 2006 2005
£ £
Net cash in flow from operating activities 8 646,827 1,750,903
Returns on investment and servicing of finance
Interest received 103,731 57,887
Interest paid (94,010) (560)
Net cash flow from investments and servicing of finance 9,721 57,327
Taxation
Corporation tax (904,045) (795,000)
Capital expenditure
Purchase of fixed assets (267,423) (148,135)
Sale of fixed assets - 6,900
Acquisitions
Purchase of subsidiary undertakings 7 (1,164) -
Purchase of businesses 7 (1,090,152) -
Net cash flow from capital expenditure and financial investment (1,358,739) (141,235)
Equity dividends paid - (250,000)
Cash flow before financing (1,606,236) 621,995
Financing
Gross proceeds of share issue 6,000,001 -
Costs of share issue (576,385) -
Movement on Directors' loan accounts (3,011,473) (353,925)
New borrowings 1,200,000 -
Repayment of borrowings (1,200,000) -
Redemption of preference shares (2,000,000) -
Net cash flow from financing 412,143 (353,925)
(Decrease)/Increase in cash (1,194,093) 268,070
Consolidated statement of total recognised gains and losses
For the year ended 31 May 2006
Notes 2005
2006 as restated
£ £
Profit for the financial year 1,505,968 1,883,156
Total recognised gains and losses relating to the year 1,505,968 1,883,156
Prior year adjustment 2 (151,910) -
Total gains and losses recognised since last annual report 1,354,058 -
Notes to the financial statements
1. Accounting policies
Basis of preparation
The preliminary financial statements have been prepared on the basis of the
accounting policies set out in the Group's 31 May 2005 statutory financial
statements, except for the treatment of redeemable preference shares, which are
disclosed in accordance with FRS25, and the treatment of goodwill, which is now
amortised as explained in note 2.
During the year, a number of new Financial Reporting Standards ('FRS') became
applicable:
• FRS 20 - Share based payments
• FRS 21 - Events after the balance sheet date
• FRS 22 - Earnings per share
• FRS 25 - Financial Instruments: disclosure and presentation
• FRS 28 - Corresponding Amounts
The impact on the financial statements as a result of adopting these new FRS is
summarised as follows:
• FRS 20 requires the effective cost of share options to be recognised
in the profit and loss account in the year where the options are relevant.
Consequently, the Group is required to formally value the share options to allow
the relevant accounting entries to be made;
• FRS 21 sets out the requirements for recognition and disclosure of
adjusting and non-adjusting events after the balance sheet date. The definition
of an adjusting event is stricter than in SSAP17 and is not extended to include
statutory or conventional requirements previously reflected in financial
statements. This impacts the treatment of dividends as it means that a dividend
payable is not recognised until it becomes a liability of the Group;
• FRS22 requires that basic and diluted earnings per share should be
disclosed on the face of the profit and loss account both for net profit for the
period and also for profit from continuing operations;
• FRS 25 requires the classification of financial instruments, from the
perspective of the issuer, into financial assets, financial liabilities and
equity instruments. This impacts the treatment of redeemable preference shares,
which are now disclosed as a financial liability; and
• FRS 28 requires appropriate disclosure of corresponding amounts shown
in the Group's primary financial statements and the notes to the financial
statements.
Comparative figures
Comparative figures are for the year 1 June 2004 to 31 May 2005.
Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of
the identifiable net assets of the business acquired. After initial
recognition, goodwill is stated at cost less any accumulated amortisation, with
the carrying value being reviewed for impairment, at least annually and whenever
events or changes in circumstances indicate that the carrying value may be
impaired.
For the purpose of impairment testing, goodwill is allocated to the related
cash-generating units monitored by management, usually at business segment
level. Where the recoverable amount of the cash-generating unit is less than
its carrying amount, including goodwill, an impairment loss is recognised in the
profit and loss account.
2. Prior year adjustment
In previous years the Group adopted a policy of not charging amortisation on
goodwill. This policy departed from the Companies Act 1985 legislation for the
overriding purposes of giving a true and fair view.
The directors now consider that a policy of amortising the element of goodwill
that relates to client portfolios acquired from other entities, on the basis of
clients lost from the portfolio during the period, would more accurately reflect
the value of goodwill.
The comparative figures in the financial statements and notes are restated to
reflect the new policy.
The effect of this change is as follows:
2005
£
Profit and loss account
Increase in administrative expenses 75,955
Balance sheet
Decrease in value of goodwill (151,910)
Decrease in net assets (151,910)
The effect of the policy change for the current year is to increase
administrative expenses and decrease profits by £75,697.
3. Taxation
2006 2005
£ £
Corporation tax:
Current tax 686,107 832,355
Adjustment in respect of earlier years (621) -
Total current tax 685,486 832,355
Deferred taxation:
Current year (10,901) 9,040
Prior year - (815)
Total deferred tax (10,901) 8,225
Tax on profit on ordinary activities 674,585 840,580
Factors affecting the tax charge for the period:
The tax charge assessed for the period is higher than the standard rate of
corporation tax in the UK (30%). The differences are explained below:
2006 2005
£ £
Profit on ordinary activities before tax 2,180,553 2,723,736
Profit on ordinary activities multiplied by the standard rate of corporation 654,166 817,121
tax in the UK of 30% (2005: 30%)
Effects of:
Expenses not deductible for tax purposes 21,040 26,322
Capital allowances in excess of depreciation (9,039) (9,249)
Other short term timing differences 19,940 (1,839)
Adjustment in respect of earlier years (621) -
Current tax charge for the period 685,486 832,355
4. Earnings per ordinary share
Basic earnings per share amounts are calculated by dividing net profit for the
year attributable to ordinary equity holders of the Company by the weighted
average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the Company by the weighted average
number of ordinary shares outstanding during the year plus the weighted average
number of ordinary shares that would be issued on the conversion of all the
dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted
earnings per share computations:
2006 2005
as restated
£ £
Net profit and diluted net profit attributable to equity holders of the Company 1,505,968 1,883,156
2006 2005
Thousands Thousands
Basic weighted average number of shares 14,866 12,500
Dilutive potential ordinary shares:
- non-employee share options 28 -
Diluted weighted average number of shares 14,894 12,500
There have been no other transactions involving ordinary shares or potential
ordinary shares between the reporting date and the date of completion of these
financial statements.
5. Dividends paid and proposed
2006 2005
£ £
Declared and paid during the year:
Equity dividends on ordinary shares:
- final dividend for 2006: nil (2005: 2.00p) - 250,000
- interim for 2006: nil (2005: nil) - -
Dividends paid - 250,000
Proposed for approval by shareholders at the AGM:
Final dividend for 2006: 1.40p (2005: nil) 238,636 -
6. Intangible fixed assets
Goodwill
£
Cost:
At 1 June 2004 4,847,130
Additions -
At 31 May 2005 4,847,130
Acquisition of Geoffrey Bernstein SSAS portfolio 448,087
Acquisition of Suffolk Life SSAS portfolio 749,020
At 31 May 2006 6,044,237
Amortisation:
At 1 June 2004 - as restated 75,955
Amortisation during the year 75,955
At 31 May 2005 - as restated 151,910
Amortisation during the year 75,697
At 31 May 2006 227,607
Net book value at 31 May 2006 5,816,630
Net book value at 31 May 2005 - as restated 4,695,220
Net book value at 1 June 2004 - as restated 4,771,175
Goodwill arose on the purchase of the unincorporated business Mattioli Woods
Pension Consultants ('the Partnership') on 2 September 2003. Amortisation is
charged on £2,500,000 of goodwill relating to the client portfolio acquired, on
the basis of clients lost from the portfolio during the period. No amortisation
is charged on that element of goodwill that relates to other intangible assets
acquired from the Partnership. This policy departs from the Companies Act 1985
legislation for the overriding purpose of giving a true and fair view.
In the opinion of the directors the lifespan of the other intangible assets
acquired is indefinite due to the necessity of providing for retirement. It is
believed the goodwill attaching to the other intangible assets acquired can be
continually measured.
During the year, goodwill arose on the purchase of the client portfolio of
Geoffrey Bernstein on 20 June 2005, and the purchase of Suffolk Life's portfolio
of small self-administered pension scheme clients on 27 January 2006.
Amortisation of £19,273 represents the write-down of goodwill arising on the
acquisition of the Geoffrey Bernstein portfolio in respect of clients acquired
as part of the portfolio, which have subsequently transferred away from the
Group.
As from 1 June 2006, the date of transition to IFRS, goodwill arising on
business combinations will be subject to annual impairment testing.
7. Acquisitions
2006 2005
£ £
Purchase of subsidiaries
Net assets acquired:
Cash 1,149 -
Other debtors 15 -
1,164 -
Purchase of businesses
Goodwill 1,197,107 -
1,198,271 -
On 20 June 2005, the Group acquired the entire issued share capital of GB
Pension Trustees Limited for a cash consideration of £6 and the entire issued
share capital of Great Marlborough Street Pension Trustees Limited for a cash
consideration of £7. Also on 20 June 2005, the Group acquired the client
portfolio of Geoffrey Bernstein, a small practice providing pensioneer
trusteeship in London and the Home Counties. The total cost of the purchase of
the business was a cash consideration of £379,987 paid on completion, plus legal
fees of £3,804.
In addition, the acquisition agreement provides for deferred consideration to be
paid by an earn-out based on an amount equal to 20% of all investment
commissions paid to the Group from contracts entered into by the Group during
the five years from 20 June 2005. The earn-out is payable at 12-monthly
intervals following completion of the acquisition. Whilst it is not possible to
determine the exact amount of the deferred consideration (as this will depend on
commission earned on contracts), the Group estimates the net present value of
the earn-out to be £64,294, using cash flow projections approved by the Board
covering the earn-out period. The discount rate applied to the cash flow
projections is 4.4%.
On 16 September 2005, the Group acquired the entire issued share capital of MW
Trustees Limited for a cash consideration of £2.
On 27 January 2006, the Group acquired the entire issued share capital of
Suffolk Life Trustee Company Limited ('SLT'), together with the Suffolk Life
Group plc's ('Suffolk Life') portfolio of small self-administered pension scheme
clients for an initial cash consideration of £701,149. The acquisition
agreement also provides for deferred consideration to be paid to Suffolk Life by
way of an earn-out based on investment commissions earned by the Group during
the three years from 27 January 2006. Whilst it is not possible to determine
the exact amount of deferred consideration (as this will depend on commission
earned on contracts), the Group estimates the net present value of the earn-out
to be £95,519, using cash flow projections approved by the board covering the
earn-out period. The discount rate applied to the cash flow projections is
4.4%.
8. Reconciliation of operating profit to operating cash flows
Group and Company 2006 2005
as restated
£ £
Profit on ordinary activities before interest 2,170,832 2,661,729
Amortisation of intangible assets 75,697 75,955
Depreciation of fixed assets 93,487 42,432
Share based payments 23,406 -
Loss on disposal of fixed assets - 13,330
(Increase) in debtors (2,326,639) (1,029,808)
Increase/(decrease) in creditors 610,044 (12,735)
Net cash inflow from operating activities 646,827 1,750,903
9. Analysis of changes in net debt
Group and Company As at As at
1 June Non-cash changes 31 May 2006
2005 Cash flow £ £
£ £
Cash at bank and in hand 1,381,461 (940,301) - 441,160
Overdraft (93,913) (253,792) - (347,705)
1,287,548 (1,194,093) - 93,455
Debt due within one year (5,019,298) 5,011,473 - (7,825)
Total (3,731,750) 3,817,380 - 85,630
10. Reconciliation of net cash flow to movement in net debt
Group and Company 2006 2005
£ £
Movement in cash in the period (1,194,093) 268,070
Movement on Directors' loans 11,473 305,459
Repayment of subordinated loan 3,000,000 -
New bank borrowings 1,200,000 -
Repayment of bank borrowings (1,200,000) -
Cash out flow from redemption of preference shares 2,000,000 -
Movement in net debt in period 3,817,380 573,529
Opening net debt (3,731,750) (4,305,279)
Closing net funds/(debt) 85,630 (3,731,750)
11. Called up share capital
2006 2005
£ £
Authorised
100,000 Ordinary Shares of £1 each - 100,000
25,000,000 Ordinary Shares of 1p each 250,000 -
250,000 100,000
Allotted, called up and fully paid
50,000 Ordinary Shares of £1 each - 50,000
17,045,455 Ordinary Shares of 1p each 170,455 -
170,455 50,000
On 10 November 2005, the share capital of the Company was altered by the
conversion and subdivision of each of the issued and unissued Ordinary Shares of
£1 in the capital of the Company into 100 Ordinary Shares of 1p. On the same
date, the authorised share capital of the Company was increased from £100,000 to
£250,000 by the creation of 15,000,000 Ordinary Shares of 1p, and £75,000 of the
amount standing to the credit of the Company's profit and loss account was
capitalised and used by the Directors in paying up and distributing by way of a
bonus issue 7,500,000 Ordinary Shares of 1p each on the basis of 11/2 new
Ordinary Shares of 1p for each Ordinary Share in issue.
On 15 November 2005, 4,545,455 Ordinary Shares of 1p were issued at £1.32 per
share pursuant to a placing.
12. Reserves
Share premium Capital Profit and loss
account redemption account
reserve £
£ £
Group and Company
At 1 June 2004 - as previously reported - - 1,123,493
Prior year adjustment - - (75,955)
At 1 June 2004 - as restated 1,047,538
Profit for the financial year - as restated - - 1,883,156
Dividends - - (250,000)
At 31 May 2005 - as restated - - 2,680,694
Capitalised on bonus issue - - (75,000)
Capitalised on redemption of preference shares - 2,000,000 (2,000,000)
Arising on share issue 5,954,547 - -
Costs of share issue (633,396) - -
Profit for the financial year - - 1,505,968
At 31 May 2006 5,321,151 2,000,000 2,111,662
13. Events after the balance sheet date
Following completion of the acquisition of Williams de Broe plc ('WdB') by
Evolution Securities Limited ('Evolution'), Evolution has been the Company's
nominated adviser and broker since 1 August 2006.
14. Distribution of the annual report and accounts to members
The announcement set out above does not constitute a full financial statement of
the Group's affairs for the year ended 31 May 2005 or 2006. The Group's
auditors have reported on the full accounts of each year and have accompanied
them with an unqualified report which does not include any statement under
Section 237 of the Companies Act 1985. The accounts have yet to be delivered to
the Registrar of Companies.
The annual report and accounts will be posted to shareholders in due course, and
will be available on our web site (www.mattioli-woods.com) and for inspection by
the public at the Group's Head Office address: MW House, 1 Penman Way, Grove
Park, Enderby, Leicester LE19 1SY during normal business hours on any weekday.
Further copies will be available on request.
The Annual General Meeting will take place at 10.00am on Thursday 19 October
2006 at the Group's head office.
This information is provided by RNS
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