Final Results

RNS Number : 9256K

Mattioli Woods PLC

29 August 2012

Mattioli Woods plc

("Mattioli Woods" or "the Group")

Final results

Mattioli Woods plc (AIM: MTW.L), the specialist pensions consultancy and wealth management business, today reports its final results for the year ended 31 May 2012.

Highlights

· Revenue up 33.3% to £20.48m (2011: £15.36m)

· Recurring revenues represent 63.2% (2011: 67.5%)

· Adjusted EPS ¹ up 4.0% to 22.02p (2011: 21.17p)

· Adjusted profit before tax ² up 2.2% to £5.06m (2011: £4.95m)

· Proposed total dividend up 12.1% to 5.55p (2011: 4.95p)

· Strong financial position with net cash at period end of £5.14m (2011: £4.61m)

Operational highlights and recent developments

· Assets under administration and advice up 31.3% to £3.02bn (2011: £2.30bn)

· Strong client retention

· Earnings enhancing acquisition of Kudos in August 2011

· Group consultancy team now numbers 52 (2011: 23)

· Appointed operator of The Pilgrim SIPP in June 2012

· Joanne Lake appointed as Non-Executive Director in July 2012

· Launch of portfolio management service in August 2012

¹Basic EPS down 9.4% to 17.11p (2011: 18.89p).

²Before acquisition costs expensed under IFRS3 (Revised), amortisation and impairment of intangible assets other than computer software.

Commenting on the final results, Bob Woods, Executive Chairman, said:

"I am delighted to report another 12 months of strong progress for the Group, delivering both organic and acquired growth despite challenging economic conditions. Our total assets under administration and advice increased by 31.3% to £3.02bn at 31 May 2012, with £0.53bn of assets brought in on the acquisition of Kudos. Revenues were up 33.3% to £20.48m, with Kudos delivering £4.27m of this increase and bedding-in well.

"Increasingly, we are both provider and adviser, a forward-looking and innovative approach designed to better meet clients' needs. I anticipate the current economic environment will drive investors to focus on seeking-out best value and I am excited about the launch earlier this month of our new discretionary portfolio management service, which offers a more cost effective and efficient investment process for our clients and enhanced recurring revenue streams for ourselves.

"The board is pleased to recommend a 12.1% increase in proposed total dividend for the year to 5.55 pence per share and remains committed to growing the dividend, while maintaining an appropriate level of dividend cover.

"I believe the Group is now better-positioned than ever to compete in the post-RDR world and we will continue investing in the business to secure further profitable growth, underpinned by strong recurring revenues."

For further information please contact:

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
ian.mattioli@mattioli-woods.com

Nathan Imlach, Finance Director
nathan.imlach@mattioli-woods.com

Canaccord Genuity Limited
Martin Green, Corporate Finance	Tel: +44 (0) 20 7523 8350
mgreen@canaccordgenuity.com	www.canaccordgenuity.com

Bruce Garrow, Corporate Finance
bgarrow@canaccordgenuity.com

Media enquiries:

FTI Consulting
Jack Hickey	Tel: +44 (0) 20 7269 7196
jack.hickey@fticonsulting.com	www.fticonsulting.com

Analyst presentation

There will be an analyst presentation to discuss the results at 9.30am today at Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB.

Those analysts wishing to attend are asked to contact Jack Hickey at FTI Consulting on +44 20 7269 7196 or at jack.hickey@fticonsulting.com.

Chairman's statement

I am delighted to report another 12 months of strong progress for the Group, delivering both organic and acquired growth despite challenging economic conditions. Mattioli Woods is positioning its business to deliver comprehensive wealth management to affluent clients across the UK, centred on their retirement planning needs. Increasingly, we are both provider and adviser, a forward-looking and innovative approach designed to better meet clients' needs in a sector which historically has sometimes disappointed its market. This duality enables the Group to optimise its revenues, whilst providing cost-effective services to clients.

Kudos Independent Financial Services Limited ("Kudos"), acquired in August 2011, has bedded-in well and extended our range of both employee benefit and wealth management services. In addition, we launched our new discretionary portfolio management service with clients earlier this month.

The Group is now better positioned than ever to secure further profitable growth, underpinned by strong recurring revenues.

I am also pleased to report our reputation for technical excellence has served us well and City Pensions Limited ("City Pensions") was recently appointed to take over the operation of The Pilgrim SIPP by Bank of Scotland plc. The Pilgrim SIPP has total estimated scheme assets of over £100.0m and I expect the operation of this scheme to make a positive contribution to our results in the current financial year.

Market overview

There is much focus on the impact of the Retail Distribution Review ("RDR"), which the Financial Services Authority ("FSA") has scheduled to take effect from 1 January 2013. The RDR requires advisers' qualifications to be at a much higher level and bans commissions paid by product providers in return for recommending their savings and investment products. I welcome this move to greater professionalism within the sector and believe it will enhance the Group's status in supporting our longstanding fee-based model.

I anticipate that in the coming months interest rates will remain at historic lows and weak investment returns will be an even more powerful driver for change as investors focus increasingly on seeking-out best value. This will provide real challenges for the industry and will attract people towards businesses, such as Mattioli Woods, which can deliver cost efficiency and added-value services to its clients.

Exemplifying this, I am excited about the launch of our portfolio management service, which provides a more cost effective and efficient investment process for our clients and enhanced recurring revenue streams for ourselves.

Assets under administration and advice

Our total assets under administration and advice increased by 31.3% to £3.02bn at 31 May 2012 (2011: £2.30bn), with £0.53bn of assets brought in by the acquisition of Kudos.

	31 May 2012 £m	31 May 2011 £m
SSAS	1,193.2	1,221.7
SIPP	919.4	888.6

Funds Under Trusteeship	2,112.6	2,110.3

Employee benefits	575.4	149.9
Personal assets	328.7	44.2

Assets under administration and advice ³	3,016.7	2,304.4

It is pleasing that our investment strategies have proved to be resilient in difficult market conditions. We continue to enjoy strong demand for both our syndicated property and structured product investment initiatives and I expect to see a greater number of new wealth management enquiries following our rebranding last autumn and the launch of our portfolio management service.

³ Note certain pension scheme assets, including clients' own commercial properties, are only subject to a statutory valuation at a benefit crystallisation event.

Strategy and acquisitions

Our business is structured to deliver comprehensive wealth management to affluent clients across the UK, centred on their retirement planning needs. Our services include pension consultancy and administration, discretionary and advisory investment management and employee benefits advice.

We plan to continue expanding Mattioli Woods' operations, both organically and by acquisition. Kudos has been earnings enhancing in the year of acquisition and extends both our employee benefit and wealth management propositions, giving us the ability to do more for our existing client base.

During the year we have further integrated the City Pensions business acquired in 2010, relocating the administration function to our Leicester offices in March 2012. City Pensions' sales team has been strengthened through the appointment of a new business development manager and I expect further growth in third party administration revenues in the current financial year.

Staff

I would like to thank all our staff for their continued commitment, enthusiasm and professionalism in dealing with our clients' affairs. I am particularly pleased with the development of our consultancy team and our training programme supports the attainment of those qualifications required to maintain our momentum following the introduction of RDR.

For many years we have run a successful graduate training programme, but identified that there is considerable talent that may not always fit this profile. This year, we have launched a new apprenticeship scheme, giving opportunities to school leavers and people who have taken an alternative route through education or work. The programme has been a resounding success, with four new apprenticeships created to date and an existing member of staff also undertaking a business administration apprenticeship programme.

We enjoy a strong team spirit and continue to build upon this by facilitating employee equity participation through the Mattioli Woods plc Share Incentive Plan ("the Plan"). I am delighted the number of eligible staff currently investing via the Plan has increased to 55% (2011: 48%) and I hope to see broader participation following the launch of our flexible benefits platform earlier this year.

Board changes

Helen Keays was appointed as a Non-Executive Director in July 2011, bringing her broad marketing experience to the board. Michael Kershaw stepped down from the board on 31 January 2012 and we thank him for his valuable contribution to the Group's growth over the last four years and wish him well for the future. The Nominations Committee initiated a search process to replace Michael and we were delighted to announce the appointment of Joanne Lake on 31 July 2012. Joanne's many years' experience as a corporate finance adviser to listed companies will be a great asset to the Group as we continue to grow and develop our business.

Dividends

The board is pleased to recommend the payment of a final dividend for the year ended 31 May 2012 of 3.70 pence (2011: 3.30 pence) per ordinary share. If approved, the final dividend will be paid on 23 October 2012 to shareholders on the register at the close of business on 7 September 2012. This makes a proposed total dividend for the year of 5.55 pence per share (2011: 4.95p), a year-on-year increase of 12.1% (2011: 13.8%). The board remains committed to growing the dividend, while maintaining an appropriate level of dividend cover.

Outlook

Trading in the current period is in line with the Board's expectations. I believe we are well positioned to grow in the post-RDR world and we will continue to invest in our information technology and client-facing services to ensure we can take advantage of new opportunities as they arise.

I remain enthused about the opportunities now open to the enlarged Group, with our portfolio management service taking centre stage in the development of our wealth management proposition. I believe our billing model and advisory approach give us the resilience to continue growing the business and I am confident we can build upon our record of growth going forward.

Bob Woods

Chairman

28 August 2012

Chief Executive's review

Introduction

I am delighted we have delivered another year of growth in both revenues and profits. Revenues in the year ended 31 May 2012 were up 33.3% to £20.48m (2011: £15.36m), with our most recent acquisition, Kudos delivering £4.27m of this increase. Adjusted earnings per share ⁴ increased by 4.0% and adjusted profit before tax ⁵ was up 2.2% compared with the prior year. As anticipated, we have seen a fall in margin as we continue to invest in the infrastructure of the business.

The Group continues to expand organically and by acquisition to pursue our strategy of developing a broader financial services business.

Over the past few years, our focus has been on ensuring that we can continue to address our clients' changing needs, developing complementary services around our core markets and extending the Group's wealth management and employee benefits operations. We will continue to invest to capitalise on our opportunities and to ensure the business is appropriately positioned to meet our clients' needs, as well as statutory and regulatory requirements.

I have previously pointed to the development of our business as being based upon the development of our people. I have always wanted to create a business that is not only profitable, but cares for its staff and offers them long-term career opportunities. I believe these values are as important as ever as we look to secure further growth.

⁴Basic EPS down 9.4% to 17.11p (2011: 18.89p).

⁵Before acquisition costs expensed under IFRS3 (Revised), amortisation and impairment of intangible assets other than computer software.

Market

Our markets are serviced by a wide range of suppliers offering diverse services to individual and corporate clients. These markets are fragmented and remain highly competitive, although many commentators suggest that regulatory changes, particularly the RDR and increased regulatory capital requirements, will drive consolidation.

Business objective and strategy

We operate at the higher end of our chosen markets, where we aim to deliver comprehensive wealth management to clients requiring bespoke service and specialist advice, centred on their retirement planning needs.

Our objective is to deliver profitable growth year-on-year, both organically and by acquisition, across our key markets of SIPP, SSAS, employee benefits and personal wealth. Our goals over the next 12 months are to do this by:

· Attracting new clients;

· Promoting the Group's broadening range of products and services to existing clients;

· Securing strong client retention by delivering on our clients' expectations;

· Delivering more efficient investment services through our portfolio management service; and

· Investing in the development of our people and information technology platforms, to allow us to service increased business volumes at a lower cost.

Revenue streams

The Group's income is derived from five key revenue streams: direct pension consultancy and administration; third party administration; wealth management; property syndicates and employee benefits. In the year ended 31 May 2012 recurring revenues ⁶ represented 63.2% (2011: 67.5%) of total Group revenues.

⁶ Annual pension consultancy and administration fees; level, renewal and trail commissions; banking income and property syndicate annual management charges.

Direct pension consultancy and administration

Mattioli Woods' core business is the provision and administration of SIPPs and SSASs, representing 39.9% (2011: 53.1%) of Group revenues, of which 86.4% (2011: 13.6%) are recurring. Revenues from these fee-based services were £8.17m (2011: £8.16m), with sustained demand for advice associated with changes in pension legislation and a positive contribution from the CP Pensions business acquired in April 2010.

Our client base primarily comprises owner-managers, senior executives and members of the professions. Additional fees are generated from consultancy services provided for special one-off activities.

Our passion for delivering proactive, impartial advice, high service standards and individual care and attention has again been appreciated. In the first half of the financial year, against a backdrop of economic uncertainty caused by the Eurozone crisis, keeping clients informed and recommending the maintenance of defensive positions was welcomed by existing and prospective clients. The subsequent

delivery of proactive advice on the repositioning of clients' retirement and investment strategies in the second half was also well received.

As anticipated, our core proposition saw stronger growth during the period, winning 310 (2011: 248) direct ⁷SSAS and SIPP schemes in the year, representing 10.3% (2011: 8.4%) of schemes at the start of the year. We remain focused on maintaining the quality of new business, with an average new scheme value of over £0.37m (2011: £0.37m). We continue to enjoy strong client retention and, net of expected losses on acquired portfolios, achieved a 3.5% (2011: 2.7%) overall increase in the number of direct schemes administered at the year-end. Our external loss rate ⁸ was 5.2% (2011: 4.3%) and the overall attrition rate ⁹ increasing to 6.2% (2011: 5.1%), partly as a result of recent acquisitions.

⁷SSAS and SIPP schemes where Mattioli Woods acts as pension consultant and administrator.

⁸Direct schemes lost to an alternative provider as a percentage of average scheme numbers during the period.

⁹Direct schemes lost as a result of death, annuity purchase, external transfer or cancellation as a percentage of average scheme numbers during the period.

Wealth management

Wealth management revenues are generated from the placing of investments with banks and other financial institutions on behalf of clients of Mattioli Woods, Kudos and City Pensions. Revenues increased 47.4% to £6.62m (2011: £4.49m), with £1.21m of this increase representing Kudos' wealth management revenues during the period. Wealth management now represents 32.3% (2011: 29.2%) of total Group revenues, of which 48.4% (2011: 45.2%) are recurring.

The repositioning of clients' retirement and investment strategies in the second half increased investment-related revenues, after our response to the Eurozone crisis had led to a controlled slowdown of investment activity in the first half. Within wealth management revenues:

· Structured product revenues were £0.96m (2011: £0.91m) with clients subscribing £32.2m (2011: £29.5m) in new capital protected bond issues, with a strong appetite amongst Mattioli Woods' clients for income-based plans; and

· Banking income increased 26.3% to £1.20m (2011: £0.95m), with clients of Mattioli Woods and City Pensions holding aggregate cash balances of £341.3m (2011: £363.6m) and £21.2m (2011: £23.2m) respectively at the year-end. In a difficult low interest rate environment, we have worked with our core banking partners to structure bank accounts offering better rates for our SIPP and SSAS clients, and were delighted to win the Best SME Treasury Solution award from national magazine, Treasury Today, at its Adam Smith Awards in June 2012.

Although the majority of our income streams are not directly dependent upon the performance of financial markets or the value of funds under administration and advice, movements in these can influence the appetite of our clients to make investments. The launch of our portfolio management service offers us a new recurring revenue stream, which is dependent upon the value of funds under management.

Employee benefits

Employee benefits can mean different things to different people. We define them as anything employers provide to their employees. Traditionally, this has meant a salary along with other benefits, such as pension, life cover, medical insurance, cover for salary while off ill and, of course, holidays. The new world means that these traditions are changing, and we see many employers who look at other, more flexible or lifestyle-related benefits for their employees.

The Group's employee benefit revenues saw a six-fold increase to £3.53m (2011: £0.59m) following the acquisition of Kudos, which has won a number of significant new employee benefit mandates during the period. Employee benefits revenues now represent 17.2% of total revenue (2011: 3.9%), of which 34.9% (2011: 59.1%) are recurring.

Kudos operates schemes for companies ranging in size from 10 to 10,000 employees across the UK and on a global basis for some clients with international operations.

Property syndicates

For a number of years, Mattioli Woods has facilitated direct commercial property ownership for its clients by way of a syndicated property initiative. We now administer £111.2m (2011: £98.1m) of property on our clients' behalf. With effect from 1 October 2011 this activity was transferred into a separate subsidiary, Custodian Capital Limited ("Custodian Capital"), to offer property syndicate investment to a broader client base.

Custodian Capital's objective is to invest in good quality commercial or residential property with conservative levels of gearing, to deliver a long-term income stream and the possibility of capital growth. Investors can be SIPP, SSAS or private individuals.

Property syndicate revenues were £1.39m (2011: £1.50m) or 6.8% of total revenue (2011: 9.8%), of which 62.6% (2011: 50.1%) represented recurring annual management charges. Clients invested £12.6m (2011: £16.3m) into eight (2011: eight) new syndicates that completed during the year, including two private syndicates. The total number of property syndicates using our administrative services at the year-end, including private syndicates, increased to 75 (2011: 67). Direct property ownership continues to appeal to clients attracted by the opportunity to develop a well-diversified portfolio of prime commercial property, delivering a long-term income stream with the possibility of capital growth.

Third party administration

In August 2010, we acquired City Pensions from Lighthouse Group plc. City Pensions and its trustee company, City Trustees Limited, trade as "City Trustees" with an excellent reputation for providing bespoke pensions administration coupled with first-rate client service.

A full year's contribution from City Pensions increased our fees for setting up and administering pension schemes under an administration-only model by 25.8% to £0.78m (2011: £0.62m). This represented 3.8% (2011: 4.0%) of total revenues, of which 74.4% (2011: 82.2%) are recurring.

To further integrate the City Pensions business, we relocated the administration function to our Leicester offices in March 2012. At the same time, the London sales team was strengthened through the appointment of a new business development manager.

We reported the Bank of Scotland plc's appointment of City Pensions as the new operator of The Pilgrim SIPP in June 2012 and I anticipate strong growth in third party administration revenues in the current financial year.

Regulatory environment

Financial Services Authority

Mattioli Woods is authorised and regulated by the FSA to provide investment advice, deal in investments as agent and to establish, operate and wind-up personal pension schemes, including SIPPs. The FSA's regulatory regime affords additional protection to clients through the capital adequacy requirements imposed on the providers of financial services. Throughout the period, we have complied with these requirements.

The government has embarked on major reforms to the UK financial services regulatory structure, following the recent financial crises. The government intends to abolish the current system, including the FSA, and establish three new regulatory bodies: the Financial Policy Committee, the Prudential Regulation Authority (a subsidiary of the Bank of England), and the Financial Conduct Authority ("FCA") (essentially a new name for the FSA).

From March 2013 we expect to be regulated by the FCA, which will inherit the majority of the FSA's existing roles, other than responsibility for systemically important infrastructure, which will be transferred to the Bank of England. The government intends for the FCA to have a more proactive, interventionist approach, with the aim that actual or potential risks will be addressed before they crystallise. We welcome any regulatory change that builds a stronger system and allows well-resourced businesses like us to further differentiate themselves.

Review of Retail Distribution

Under RDR, new rules are scheduled to come into effect from 1 January 2013. The FSA's proposals mean all financial advisers will be required to adopt a much stricter remuneration agreement at the outset of a new client relationship, divorced from a specific product sale, together with higher professional standards.

The Group already provides clients with service and fee agreements at the outset and hence I do not expect the RDR to have any significant impact on the way we deal with our clients.

Firms are starting to ready themselves for the changes that will be required to their business models as they transition to the post-RDR world. We have an action plan in place to ensure we deliver on all of the new legislative requirements well in-advance of the deadline. However, we continue to see a number of independent financial advisers looking to exit the market, as smaller firms struggle to adapt to the new regulatory framework.

A key feature of our approach to wealth management is the impartial nature of our investment advice. We focus on providing solutions tailored to each individual client's needs, including access to our own bespoke products, and I believe our clients value our ability to deliver clear advice on the back of strong investment skills.

Under RDR, firms providing advice on retail investment products to retail clients will need to describe these services as either 'independent' or 'restricted'. We have developed our RDR plan over the last 24 months, taking into account that we are the provider of our own SIPPs and an investment adviser with a number of our own bespoke investment products. We will provide restricted advice in relation to these products and may provide restricted advice in other areas, as increasingly we become provider and adviser. The interpretation of parts of the RDR rules continues to be discussed within the industry and we have built flexibility into our plan, bearing in mind some commentators' speculation that further changes may be applied to the rules.

A large number of our consultancy team joined us as graduate trainees and already hold high-level examinations obtained during their training with us. A key objective of the RDR is to inspire consumer confidence so that the provision of personal financial advice is seen as a profession on a par with other professions. The FSA believes a higher minimum qualification requirement is needed for investment advisers. Their recommendation is that this is set at Qualifications Credit Framework ("QCF") Level 4 or equivalent. All our existing advisers are on track to reach at least this level by the end of 2012.

HM Revenue & Customs and The Pensions Regulator

A number of the Group's subsidiaries are registered with HM Revenue & Customs ("HMRC") as scheme administrators for pension schemes (including SSASs). All pension schemes must be registered with The Pensions Regulator.

The Finance Act 2011 received Royal Assent on 19 July 2011 and brought with it substantial changes to the pensions tax regime, including:

· The introduction of a contribution limit of £50,000 per annum, with the ability to carry forward unused allowances from the previous three years;

· The reintroduction of full top-rate tax relief for all, including high-earners;

· A reduction in the lifetime allowance from £1.8m to £1.5m with effect from 6 April 2012;

· The removal of age 75 limits, abolishing a particularly onerous aspect of the previous tax regime, where there were potential tax charges of up to 82% on a member's pension fund following the death of the member and their partner after the age of 75; and

· The introduction of a new concept, 'flexible drawdown', which in essence will allow some members to access their pension fund, over and above HMRC's usual maximum income limits, at any time in retirement.

I expect these changes to support further growth in the market for member-directed pension schemes. However, within the SIPP sector we have seen some smaller firms struggling. We know from our own experience that The Freedom SIPP and The Pilgrim SIPP could no longer continue to provide appropriate services to their clients and there are other SIPP providers who have found themselves in a similar position. Many commentators expect these issues to lead to further consolidation within the sector.

Compliance

We consider all legislative changes and the findings of all FSA and HMRC reviews and, where appropriate, take action to ensure our systems and processes continue to represent best practice.

We maintain dedicated compliance teams, 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.

We continue to invest in maintaining our staff's technical excellence and developing our administration systems.

Current and future developments and performance

Group results

Revenues were up 33.3% to £20.48m (2011: £15.36m), with sustained demand for the Group's services. We are particularly pleased with the strong post-acquisition performance of Kudos, which contributed revenues of £4.27m during the year. The Group's revenue mix changed during the period, with further diversification of our key revenue streams as follows:

· 39.9% direct pension consultancy and administration (2011: 53.1%);

· 32.3% wealth management (2011: 29.2%);

· 17.2% employee benefits (2011: 3.9%);

· 6.8% property syndicate revenues (2011: 9.8%); and

· 3.8% third party administration (2011: 4.0%).

Unadjusted EBITDA was flat at £5.11m (2011: £5.09m), with a fall in EBITDA margin to 25.0% (2011: 33.1%) as was anticipated, primarily as a result of an increase in acquisition related costs to £0.39m (2011: £0.07m) and a number of one-off costs during the year, including:

· £0.10m of costs associated with our re-branding exercise earlier in the year

· £0.08m of costs associated with a client claim which the Group's professional indemnity insurers for the period from have declined to indemnify the Group for;

· £0.06m of employee benefits costs associated with the relocation of City Pensions' administration function from London to Leicester; and

· Financial Services Compensation Scheme ("FSCS") interim levy costs of £0.06m (2011: £0.12m).

In March 2012, the FSCS announced a second interim levy to remedy the cost of major investment failures in certain firms, primarily MF Global, Keydata Investments Services, CF Arch Cru and Wills and Co. There are industry concerns about the fairness and unpredictability of FSCS levies and the FSA is reviewing the FSCS's future funding arrangements.

The impact of one-off costs during the period was partially offset by the release of provisions for deferred and contingent consideration payable on the CP Pensions acquisition totalling £0.20m (2011: £0.24m), due to certain "stretch" performance targets not being met during the earn-out period.

To facilitate a like-for-like comparison with prior years, acquisition costs of £0.26m on the Kudos acquisition that completed during the year have been added back in calculating adjusted EBITDA and adjusted profit before tax. Adjusted EBITDA ¹⁰ increased 4.3% to £5.38m (2011: £5.16m), while adjusted EBITDA margin fell to 26.3% (2011: 33.6%). I anticipate we will see some further pressure on margins, with the impact of low interest rates and weak economic growth on investment returns putting stress on the total expense ratios incurred by clients. In the longer term, further investment in the Group's management information systems and technology will provide scope for future margin improvement and the delivery of even better client service.

^{10 Adding back £0.26m of acquisition costs expensed under IFRS3 (Revised).}

Net finance revenue

Net finance revenues of £0.05m (2011: £0.06m) remain in line with low interest rates. The Group has maintained a positive net cash position, although the payment of acquisition consideration resulted in lower average balances than in the prior year.

Taxation

The effective rate of taxation on profit on ordinary activities fell to 26.3% (2011: 26.8%) due to cuts in the UK corporation tax rate. The net deferred taxation liability carried forward at 31 May 2012 was £2.12m (2011: £0.31m).

Earnings per share and dividend

Adjusted EPS ¹¹ increased 4.0% to 22.02p (2011: 21.17p). Basic earnings per share fell by 9.4% to 17.11p (2011: 18.89p), primarily due to increased amortisation charges on acquired intangibles following recent acquisitions and one-off costs associated with the acquisition of Kudos earlier in the year. Diluted earnings per share fell 8.1% to 16.96p (2011: 18.45p), with a further 170,456 options issued under the Consultants' Share Option Plan vesting at the end of the period. A proposed increase of 12.1% in the total dividend for the year to 5.55p per share (2011: 4.95p) demonstrates our desire to deliver value to shareholders and confidence in the outlook for our business.

¹¹Before acquisition costs expensed under IFRS3 (Revised) and amortisation of intangible assets other than computer software.

Cash flow

Net cash generated from operations was £5.81m (2011: £3.79m) with EBITDA of £5.11m (2011: £5.09m). The Group conversion of EBITDA into operating cash flow improved to 113.7% (2011: 74.4%), primarily due to a change in sales mix, with invoiced revenues falling as a proportion of total revenues following the acquisition of Kudos and improved credit control, which saw headline trade receivable days fall to 67 days' sales (2011: 78 days). This, coupled with a £0.73m increase in trade and other payables (2011: £0.45m), created a cash inflow from working capital of £0.53m (2011: outflow of £1.38m).

Trade payable days increased to 41 days (2011: 20 days) with amounts owed to suppliers at the year-end higher than the prior year due to £0.24m of property syndicate insurance costs, payable by Custodian Capital and recharged to individual syndicates, being outstanding at the year end.

Capital expenditure for the year was £0.51m (2011: £0.55m), with the most significant costs being investment in new computer hardware and software and the purchase of entry-level company cars for new consultants following our significant expansion of the team. Further investment in the Group's management information systems and technology is planned over the next year, to enhance reporting and our clients' ability to review their affairs on-line.

Bank facilities

The Group has renewed its borrowing facilities with Lloyds TSB Bank plc ("Lloyds TSB"), which consist of a £5.0m overdraft facility with interest payable at the bank's base rate plus 1.1875% on the first £0.5m and plus 1.375% on borrowings in excess of £0.50m. The Lloyds TSB facility is repayable upon demand and renewable on 31 January 2013.

At 31 May 2012 the Group had unused borrowing facilities of £4.36m (2011: £3.00m).

Capital structure

The Group's capital structure is as follows:

	2012 £	2011 £

Net funds	(5,130,094)	(4,609,653)
Shareholders' equity	25,468,553	22,102,050

Capital employed	20,338,459	17,492,397

The Group has remained negatively geared, with the gearing ratio increasing from (5.6)% to (1.8)% as a result of Group trade and other payables of £4.69m (2011: £3.37m) and overdrafts of £0.65m (2011: nil) being higher than at the prior year-end.

Acquisitions

The acquisition of Kudos in August 2011 extended both our employee benefit and wealth management propositions. The transaction enables both parties to provide more services to existing clients and capture new business opportunities through our combined introducer networks. It is an exciting step forward in the development of Mattioli Woods as a broader wealth management business.

Our recent appointment to The Pilgrim SIPP was facilitated by our reputation for high quality administration and our ability to structure innovative solutions to the complex issues associated with a failing SIPP operator. We anticipate we may see more 'rescue' style takeovers, as the regulator and other SIPP operators look for solutions to existing problems.

It remains our ambition to continue expanding Mattioli Woods' operations both organically and by acquisition.

Resources, risks and relationships

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 responsible and ethical business practices. Structures for accountability from our administration teams through to the operational management team 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 take into account ethical considerations, including procedures for 'whistle-blowing'.

Capacity

Our people continue to demonstrate an enormous amount of enthusiasm and commitment in responding to the challenges created by the financial markets. Maintaining capacity to take advantage of growing demand remains a key priority.

Through Mattioli Woods' comprehensive consultancy training programme, we created nine new consultancy roles during the year, which combined with the acquisition of Kudos increased our total number of consultants to 52. All our consultants have responsibility for bringing in new business and new clients to the Group.

We continue to invest in our graduate recruitment programme, with a total of 11 new graduates joining the Group (2011: 11). Our total headcount at the end of the period was 255 (2011: 206).

We also continue with the development of our bespoke pension administration system ("MWeb") and our management information systems. These improvements are designed to enhance the services we offer clients and realise operational efficiencies across the Group as a whole.

Principal risks and uncertainties

There are a number of potential risks which could hinder the successful implementation of our Group strategy and have a material impact on our long term performance. These arise from internal or external events, acts or omissions which could potentially pose a threat to the Group. We believe the most significant risk we face is potential damage to our reputation as a result of poor client service. We address this through ongoing quality control testing and the provision of regular training for all our staff.

Pension regulations will continue to be reviewed. Future changes may not produce an environment that is advantageous to the Group 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 by providing incentives to motivate and retain our existing employees.

A source of revenue is based on the value of cash balances held in clients' schemes. These balances are not included in the Consolidated or Company statements of financial position. A continued low interest rate environment creates a risk of a decline in earnings due to a decline in balances or interest turn. However, we continue to develop our banking relationships to access competitive interest rates for our clients.

The Group has an indirect exposure to security price risk on investments held by clients, with trailing (or funds based) investment commissions being based on the value of client assets under administration. Periods of volatility in a particular asset class may see changes in how our investment revenues are derived. However, a great strength of our business is that we can continue to derive income from investments in all asset classes, while ensuring our clients' investment strategies are appropriately aligned to the prevailing market conditions and suitable for their financial needs.

Loans are advanced to new property syndicates to facilitate the purchase of commercial property. In the event a syndicate fails to raise sufficient funds to complete a property purchase, the Group may either take up ownership of part of the property or lose some, or all, of the loan. To mitigate this risk, loans are only approved by the Board under strict criteria, including independent professional advice confirming the market value of the underlying property.

The table below outlines the current risk factors for the business identified by the Group. The risk factors mentioned below do not purport to be exhaustive as there may be additional risks that materialise over time that the Group has not yet identified or deemed to have a potentially material adverse effect on the business:

Industry risks
Risk type	Risk	Mitigating factors
Changes in investment markets and poor investment performance	Volatility may adversely affect trading and/or the value of the Group's funds under administration and advice, from which we derive revenues.	· Majority of revenues are fee-based revenues, rather than more volatile transactional or asset value-based revenues. · Majority of clients' funds held within registered pension schemes, where less likely to withdraw funds and lose tax benefits. · Client banking arrangements enable clients to shelter from market volatility through diversification, while continuing to generate revenues for the Group.
Changing markets and increased competition	The Group operates in a highly competitive environment with evolving characteristics and trends.	· Consolidating market position develops the Group's pricing power. · Full control over scalable and flexible MWeb administration platform. · Experienced management team with a strong track record. · Loyal customer base and strong client retention. · City Pensions extends our proposition to IFA-introduced clients attracted by SIPP offering.
Evolving technology	The Group's technology could become obsolete if we are unable to develop our systems to accommodate changing client needs, new products and the emergence of new industry standards.	· Track record of successful development. · High awareness of the importance of technology at Board level. · Expanded systems development team through recruitment of new IT manager.
Regulatory risk	The Group may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations.	· Strong compliance culture. · External professional advisers are engaged to review and advise upon control environment. · Business model and culture embraces FSA principles, including treating clients fairly. · Financial strength provides comfort should capital resource requirements be increased.
Changes in tax law	Changes in tax legislation could reduce the attractiveness of long-term savings via pension schemes, particularly SSASs and SIPPs.	· The Government has a desire to encourage long-term savings to plan for an ageing population, which is currently under-provided for. · Changes in pension legislation create the need for clients to seek advice. · The development of the Groups' wealth management services reduces dependency on pension planning.

Operational risks
Risk type	Risk	Mitigating factors
Damage to the Group's reputation	There is a risk of reputational damage as a result of employee misconduct, failure to manage inside information or conflicts of interest, fraud, improper practice, poor client service or advice.	· Strong compliance culture. · High level of internal controls including checks on new staff. · Well trained staff.
Errors, breakdown or security breaches in respect of the Group's software or information technology systems	Serious or prolonged breaches, errors or breakdowns in the Group's software or information technology systems could negatively impact customer confidence. It could also breach contracts with customers and data protection laws, rendering us liable to disciplinary action by governmental and regulatory authorities, as well as to claims by our clients.	· Ongoing review of data security. · IT performance, scalability and security are deemed top priorities by the Board. · Experienced in-house team of IT professionals and established name suppliers.
Business continuity	In addition to the failure of IT systems, there is a risk of disruption to the business as a result of power failure, fire, flood, acts of terrorism, re-location problems and the like.	· Periodic review of Business Continuity Plan, considering best practice methodologies.
Fraud risk	There is a risk an employee defrauds either the Company or a client.	· City Pensions Limited has permission to hold client money and the Group ensures the control environment mitigates against the misappropriation of client assets. · Strong corporate controls require dual signatures for all payments and board approval for all expenditure greater than £10,000. · Assessment of fraud risk reviewed every six months in conjunction with the external auditors. · Clients have view-only access to information and hence risk of fraud due to external attack on the Company's IT systems is assessed as low.
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 consideration throughout the Group. · Success of the Group should attract high calibre candidates. · Share-based schemes in operation to incentivise staff and encourage retention. · Graduate and other recruitment programmes in place to attract appropriate new staff.
Litigation or claims made against the Group	Risk of liability related to litigation from clients or third parties and assurance that a claim or claims will be covered by insurance or, if covered, will not exceed the limits of available insurance coverage, or that any insurer will remain solvent and will meet its obligations to provide the Group with coverage.	· Appropriate levels of Professional Indemnity insurance cover regularly reviewed with the Group's advisers. · Comprehensive internal review procedures, including compliance sign-off, for advice and marketing materials.
Reliance on third parties	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.	· Due diligence is part of the selection process for key suppliers. · Ongoing review of relationships and concentration of risk with key business partners.
Strategic risk	Risk that management will pursue inappropriate strategies or implement the Group's strategy ineffectively.	· Experienced management team, with successful track record to date. · Management have demonstrated a thorough understanding of the market and monitor this through regular meetings with clients.
Financial risks
Risk type	Risk	Mitigating factors
Counterparty default	That the counterparty to a financial obligation will default on repayments.	· The Group trades only with recognised, creditworthy third parties. · All 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	In the current economic climate there is a risk that a bank could fail.	· We only use banks with strong credit ratings where we believe the government would not allow them to fail. · Deposits spread across multiple banks. · Regular review and challenge of treasury policy by management.
Concentration risk	A component of credit risk, arising from a lack of diversity in business activities or geographical risk.	· The client base is broad, without significant exposure to any individual client or group of clients.
Liquidity risk	The risk the Group is unable to meet liabilities as they become due because of an inability to liquidate assets or obtain adequate funding.	· Cash generative business. · Group maintains a surplus above regulatory and working capital requirements. · Treasury management provides for the availability of liquid funds at short notice.
Interest rate risks	Risk of decline in earnings due to a decline in interest turn. Low interest rates make it harder to structure compelling capital-protected products for clients.	· Good relationships with key banking partners. · Access to competitive interest rates due to scale of our business.

Relationships

The Group's performance and value to our shareholders are influenced by other stakeholders, principally our clients, suppliers and employees, 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 account managers and consultants. Employees have performance development reviews and employee forums 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.

Conclusion

Mattioli Woods has always had a strong and diligent client care culture. This now continues throughout our much larger organisation. Our strong training and compliance enables us to develop competent and professional staff.

Trading in the period since the end of the financial year has continued in line with management's expectations and I know we are very well positioned to take advantage of the opportunities in our markets over the next few years.

Ian Mattioli

Chief Executive

28 August 2012

Consolidated statement of comprehensive income

For the year ended 31 May 2012

	Note	2012 £	2011 £

Revenue	2	20,482,220	15,363,474

Employee benefits expense		(11,193,642)	(7,911,763)
Other administrative expenses		(4,010,049)	(2,208,133)
Share based payments		(141,395)	(142,454)
Amortisation and impairment		(707,471)	(381,256)
Depreciation		(275,067)	(219,705)
Loss on disposal of property, plant & equipment		(23,211)	(10,830)

Operating profit before financing		4,131,385	4,489,333

Finance revenue		56,170	59,304
Finance costs		(7,047)	(357)

Net finance revenue		49,123	58,947

Profit before tax		4,180,508	4,548,280
Income tax expense		(1,101,365)	(1,219,344)


Profit for the year		3,079,143	3,328,936
Other comprehensive income for the year, net of tax		-	-

Total comprehensive income for the year, net of tax		3,079,143	3,328,936

Attributable to:
Equity holders of the parent		3,079,143	3,328,936


Earnings per ordinary share:

Basic (pence)	4	17.11	18.89

Diluted (pence)	4	16.96	18.45

Proposed total dividend per share (pence)	5	5.55	4.95

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. The profit for the financial year of the Company after taxation was £3,291,725 (2011: £3,327,346).

Consolidated and Company statements of financial position Registered number: 3140521

As at 31 May 2012

		2012		2011
		Group	Company	Group	Company
	Note	£	£	£	£
Assets
Property, plant and equipment		1,018,928	813,601	934,708	854,419
Intangible assets		23,137,321	10,489,523	12,939,389	10,688,954
Deferred tax asset		155,980	63,984	210,788	210,788
Investments		15	12,948,214	15	2,483,215

Total non-current assets		24,312,244	24,315,322	14,084,900	14,237,376

Trade and other receivables		8,132,500	6,954,815	7,611,845	7,301,650
Financial assets		1,077,214	1,077,214	873,569	873,569
Cash and short-term deposits	6	5,795,997	2,669,346	4,612,689	4,062,244

Total current assets		15,005,711	10,701,375	13,098,103	12,237,463

Total assets		39,317,955	35,016,697	27,183,003	26,474,839
Equity
Issued capital	7	181,368	181,368	175,840	175,840
Share premium	7	7,641,118	7,641,118	6,289,891	6,289,891
Capital redemption reserve	7	2,000,000	2,000,000	2,000,000	2,000,000
Equity - share based payments	7	625,953	625,953	764,132	764,132
Retained earnings	7	15,020,114	15,232,182	12,872,187	12,871,673

Total equity attributable to equity holders of the parent		25,468,553	25,680,621	22,102,050	22,101,536

Non-current liabilities
Trade and other payables		-	-	120,000	120,000
Deferred tax liability		2,274,751	306,341	522,559	222,678
Provisions	8	3,310,411	3,265,411	325,721	300,721

Total non-current liabilities		5,585,162	3,571,752	968,280	643,399

Current liabilities
Bank overdraft		653,637	641,113	-	-
Trade and other payables		4,688,893	3,266,992	3,248,381	2,865,612
Income tax payable		595,376	-	584,766	584,766
Provisions	8	2,326,334	1,856,219	279,526	279,526

Total current liabilities		8,264,240	5,764,324	4,112,673	3,729,904

Total liabilities		13,849,402	9,336,076	5,080,953	4,373,303

Total equities and liabilities		39,317,955	35,016,697	27,183,003	26,474,839

The financial statements were approved by the board of directors and authorised for issue on 28 August 2012 and are signed on its behalf by:

Bob Woods Nathan Imlach

Executive Chairman Finance Director

Consolidated and Company statements of changes in equity

For the year ended 31 May 2012

Group	Issued capital (Note 7) £	Share premium (Note 7) £	Equity - share based payments (Note 7) £	Capital redemption reserve (Note 7) £	Retained earnings (Note 7) £	Total equity £

As at 1 June 2010	173,473	5,918,314	552,579	2,000,000	10,336,920	18,981,286

Profit for the year	-	-	-	-	3,328,936	3,328,936

Total comprehensive income	-	-	-	-	3,328,936	3,328,936
Transactions with owners of the Group, recognised directly in equity
Issue of share capital	2,367	371,577	-	-	-	373,944
Share-based payments	-	-	82,699	-	-	82,699
Current tax asset taken to equity	-	-	56,081	-	-	56,081
Deferred tax asset taken to equity	-	-	72,773	-	-	72,773
Dividends paid	-	-	-	-	(793,669)	(793,669)

As at 31 May 2011	175,840	6,289,891	764,132	2,000,000	12,872,187	22,102,050

Profit for the year	-	-	-	-	3,079,143	3,079,143

Total comprehensive income	-	-	-	-	3,079,143	3,079,143
Transactions with owners of the Group, recognised directly in equity
Issue of share capital	5,528	1,351,227	-	-	-	1,356,755
Share-based payments	-	-	48,964	-	-	48,964
Deferred tax asset taken to equity	-	-	(187,143)	-	-	(187,143)
Dividends paid	-	-	-	-	(931,216)	(931,216)

As at 31 May 2012	181,368	7,641,118	625,953	2,000,000	15,020,114	25,468,553

Consolidated and Company statements of changes in equity

Company	Issued capital (Note 7) £	Share premium (Note 7) £	Equity - share based payments (Note 7) £	Capital redemption reserve (Note 7) £	Retained earnings (Note 7) £	Total equity £

As at 1 June 2010	173,473	5,918,314	552,579	2,000,000	10,337,996	18,982,362

Profit for the year	-	-	-	-	3,327,346	3,327,346

Total comprehensive income	-	-	-	-	3,327,346	3,327,346
Transactions with owners of the Company, recognised directly in equity
Issue of share capital	2,367	371,577	-	-	-	373,944
Share-based payments	-	-	82,699	-	-	82,699
Current tax taken to equity	-	-	56,081	-	-	56,081
Deferred tax asset taken to equity	-	-	72,773	-	-	72,773
Dividends paid	-	-	-	-	(793,669)	(793,669)

As at 31 May 2011	175,840	6,289,891	764,132	2,000,000	12,871,673	22,101,536

Profit for the year	-	-	-	-	3,291,725	3,291,725

Total comprehensive income	-	-	-	-	3,291,725	3,291,725
Transactions with owners of the Company, recognised directly in equity
Issue of share capital	5,528	1,351,227	-	-	-	1,356,755
Share-based payments	-	-	48,964	-	-	48,964
Deferred tax asset taken to equity	-	-	(187,143)	-	-	(187,143)
Dividends paid	-	-	-	-	(931,216)	(931,216)

As at 31 May 2012	181,368	7,641,118	625,953	2,000,000	15,232,182	25,680,621

For the year ended 31 May 2012 (continued)

Consolidated and Company statements of cash flows

For the year ended 31 May 2012

		Group 2012	Company 2012	Group 2011	Company 2011
	Note	£	£	£	£
Operating activities
Profit for the year Adjustments for:		3,079,143	1,991,725	3,328,936	3,327,346
Depreciation		275,067	224,009	219,705	206,079
Amortisation and impairment		707,471	367,525	381,256	336,293
Investment income		(56,170)	(42,783)	(59,304)	(59,166)
Interest expense		7,047	6,383	357	357
Loss on disposal of property, plant and equipment		23,211	23,211	10,830	10,830
Equity-settled share-based payments		141,395	141,395	142,454	142,454
Income tax expense		1,101,365	965,150	1,219,344	1,254,995
Cash flows from operating activities before changes in working capital and provisions		5,278,529	3,676,615	5,243,578	5,219,188
Decrease/(increase) in trade and other receivables		11,566	350,352	(1,828,596)	(1,639,090)
Increase in trade and other payables		730,371	403,972	452,117	399,572
Decrease in provisions		(208,617)	(208,617)	(80,910)	(80,910)
Cash generated from operations		5,811,849	4,222,322	3,786,189	3,898,760
Interest paid		(7,047)	(6,383)	(357)	(357)
Income taxes paid		(1,549,737)	(1,549,737)	(1,342,684)	(1,342,684)

Net cash flows from operating activities		4,255,065	2,666,202	2,443,148	2,555,719

Investing activities
Proceeds from sale of property, plant and equipment		17,300	35,950	17,057	17,057
Purchase of property, plant and equipment		(278,288)	(223,702)	(448,477)	(354,562)
Purchase of software		(234,423)	(186,728)	(96,750)	(95,625)
Acquisition of subsidiaries	1	(4,328,503)	(4,528,502)	(2,141,529)	(2,441,531)
Cash received on acquisition of subsidiaries	1	2,182,364	-	456,766	-
Acquisition of businesses	1	(92,193)	(92,193)	(108,481)	(108,481)
Other investments		(15)	(15)	-	-
New loans advanced to property syndicates		(5,237,049)	(5,237,049)	(3,325,588)	(3,325,588)
Loan repayments from property syndicates		5,033,403	5,033,403	2,452,019	2,452,019
Interest received		56,170	42,783	59,304	59,165
Dividends received		-	1,300,000	-	-

Net cash flows from investing activities		(2,881,234)	(3,856,053)	(3,135,679)	(3,797,546)

Financing activities
Proceeds from the issue of share capital		108,129	108,129	314,188	314,188
Payment of costs of share issue		(30,302)	(30,302)	-	-
Proceeds from /(repayment of) directors' loans		9,229	9,229	(5,591)	(5,591)
Dividends paid	5	(931,216)	(931,216)	(793,669)	(793,669)

Net cash flows from financing activities		(844,160)	(844,160)	(485,072)	(485,072)

Net increase in cash and cash equivalents		529,671	(2,034,011)	(1,177,603)	(1,726,899)
Cash and cash equivalents at start year	6	4,612,689	4,062,244	5,790,292	5,789,143

Cash and cash equivalents at end of year	6	5,142,360	2,028,233	4,612,689	4,062,244

Notes

1. Business combinations

Acquisition of Kudos

On 26 August 2011, Mattioli Woods plc acquired 100% of the issued share capital of TCF Global Independent Financial Services Limited and its subsidiary Kudos Independent Financial Services Limited (together "Kudos") an employee benefits and wealth management business based in Aberdeen. Kudos is an excellent cultural strategic fit with Mattioli Woods, extending our geographic footprint and offering the enlarged Group the opportunity to promote additional services to existing and prospective clients of each business.

The acquisition has been accounted for using the acquisition method. The fair value of the identifiable assets and liabilities of Kudos as at the date of acquisition was:

	Fair value recognised on acquisition £	Previous carrying value £

Plant and equipment	121,509	121,509
Client portfolio	7,332,089	-
Deferred tax assets	79,813	79,813
Cash and short-term deposits	2,182,364	2,182,364
Trade receivables	416,140	416,140
Prepayments and accrued income	151,106	151,106

Total assets	10,283,021	2,950,932

Trade payables	(104,412)	(104,412)
Accruals	(505,177)	(505,177)
Deferred income and other payables	(315,826)	(315,826)
Deferred tax liabilities	(1,906,343)	-
Provisions	(490,115)	(490,115)

Liabilities	(3,321,873)	(1,415,530)

Total identifiable net assets at fair value	6,961,148
Goodwill arising on acquisition	3,303,852

Total acquisition cost	10,265,000

Analysed as follows:
Cash paid	4,328,503
New shares in Mattioli Woods	1,186,497
Deferred contingent consideration	4,750,000

	10,265,000

Cash outflow on acquisition	£

Cash paid	(4,328,503)
Acquisition costs	(263,257)
Net cash acquired with the subsidiary (included in cashflows from investing activities)	2,182,364

Net cash outflow	(2,409,396)

From the date of acquisition, Kudos has contributed £4,273,474 to the revenue of the Group and £999,236 to the profit of the Group, prior to amortisation of intangible assets arising on consolidation of £274,953 and acquisition costs of £263,257 recognised in administrative expenses in the consolidated statement of comprehensive income. If the combination had taken place at the beginning of the period, the profit for the Group would have been £3,465,216 and revenue from continuing operations would have been £21,684,009.

The goodwill recognised above is attributed to the expected benefits from combining the assets and activities of Kudos with those of the Group. The primary components of this residual goodwill comprise:

· The expectation that revenue synergies will be available to Mattioli Woods as a result of the transaction;

· The workforce;

· The knowledge and know-how resident in Kudos' modus operandi; and

· New opportunities available to the combined business, as a result of both Kudos and the existing business becoming part of a more sizable listed company.

None of the recognised goodwill is expected to be deductible for income tax purposes. The client portfolio will be amortised on a straight-line basis over an estimated useful life of 20 years, based on the Group's historic experience. Transaction costs of £263,257 incurred on the acquisition have been expensed and are included in administrative expenses in the consolidated statement of comprehensive income and operating cash flows in the statement of cash flows.

Contingent consideration

The Group has entered into certain acquisition agreements that provide for deferred and contingent consideration to be paid. These agreements and the basis of calculation of the net present value of the contingent consideration are summarised below. While it is not possible to determine the exact amount of contingent consideration (as this will depend on revenues earned and client retention during the period), the Group estimates the net present value of contingent considerations payable within the next 12 months is £1,583,333 (2011: £150,000).

As noted above, on 26 August 2011 the Group acquired Kudos for a total initial consideration of £5,515,000 (excluding cash acquired with the business) comprising £4,328,503 in cash and 462,572 ordinary shares in Mattioli Woods ("the Consideration Shares", which were valued at £1,186,497 based on the closing price of a Mattioli Woods share on 26 August 2011), plus contingent consideration of up to £4,750,000 payable in cash in the three years following completion if certain financial targets are met based on growth in recurring revenues and earnings before interest, tax, depreciation and amortisation ("EBITDA") generated during that period.

The Group estimates the net present value of the contingent consideration to be £4,750,000 using cash flows approved by the Board covering the contingent consideration report. The effect of discounting the cash flow projections at a rate equivalent to the benchmark yield on a three-year UK government bond is not material.

On 30 April 2010, the Group acquired the trade and assets of the pension administration and employee benefits businesses of CP Pensions for an initial consideration of £575,000. The acquisition agreement also provides for £300,000 of deferred consideration plus up to £300,000 of contingent consideration to be paid subject to certain revenue and client retention targets being met during the two years following completion. The net present value of the contingent consideration at 31 May 2012 is £nil, based on the actual cash flows during the contingent consideration period. Consequently, £150,000 of provision for contingent consideration has been credited to the income statement during the period.

2. Revenue

Revenue disclosed in the income statement is analysed as follows:	2012 £	2011 £

Rendering of services	11,476,454	10,458,300
Commission income	9,005,766	4,905,174

	20,482,220	15,363,474


No revenue was derived from exchanges of goods or services (2011: £nil).

3. Segment information

The Group's operating segments have been amended during the period. Following the acquisition of Kudos, integration of City Pensions and hive-down of the property syndicate business to Custodian Capital, the Group is comprised of the following operating segments:

· Direct pension consultancy and administration - fees earned by Mattioli Woods for setting up and administering pension schemes under an advice-led model. Additional fees are generated from consultancy services provided for special one-off activities;

· Third party administration - this new segment represents fees earned by City Pensions for setting up and administering pension schemes under an administration-only model;

· Wealth management - income generated from the placing of investments with banks and other financial institutions on behalf of clients of Mattioli Woods, Kudos and City Pensions;

· Property syndicates - income generated where the Group facilitates direct commercial property investments on behalf of clients. The administration of this activity was hived-down to Custodian Capital with effect from 1 October 2011; and

· Employee benefits - this new segment represents income generated by the Group's employee benefits operations operated by Kudos and Mattioli Woods.

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.

The pension consultancy, administration and wealth management operations of Mattioli Woods utilise the same intangible and tangible assets, 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).

3. Segment reporting (continued)

Operating segments

The following tables present revenue and profit information regarding the Group's operating segments for the two years ended 31 May 2012 and 2011 respectively:

Year ended 31 May 2012

Direct pension consultancy and administration

Third-party administration

Wealth management

Property syndicates

Employee benefits

Total

segments

Corporate costs

Consolidated

Revenue

External client

Inter-segment

8,169,903

783,299

6,615,881

1,385,950

3,527,187

20,482,220

Total revenue

8,169,903

783,299

6,615,881

1,385,950

3,527,187

20,482,220

Results

Segment result

803,930

(66,804)

2,703,882

877,005

846,278

5,164,291

(983,783)

4,180,508

Year ended 31 May 2011

(restated)

Revenue

External client

Inter-segment

8,155,715

623,840

4,491,991

1,499,613

592,315

15,363,474

Total revenue

8,155,715

623,840

4,491,991

1,499,613

592,315

15,363,474

Results

Segment result

1,880,610

(65,734)

2,154,521

964,028

4,804

4,938,229

(389,949)

4,548,280

Segment assets

The following table presents segment assets of the Group's operating segments:

	31 May 2012	Restated 31 May 2011
	£	£

Direct pension consultancy and administration	11,924,971	12,203,745
Third-party administration	2,572,469	2,587,767
Wealth management	5,910,828	3,361,910
Property syndicates	989,029	908,107
Employee benefits	8,842,502	770,529


Total segments	30,239,799	19,832,058
Corporate assets	9,078,156	7,350,945

Total assets	39,317,955	27,183,003

Segment assets exclude property, plant and equipment, certain items of computer software, investments, current and deferred tax balances, and cash balances, as these assets are considered corporate in nature and are not allocated to a specific operating segment. Acquired client portfolios and purchased goodwill relate to a specific transaction and are 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 at the date of acquisition. The subsequent delivery of services to those acquired clients may be across a number or all operating segments, comprising cash generating units different to those the acquired intangibles. Consequently, acquired intangibles have been reallocated between individual operating segments based on the revenue mix of the cash generating units that acquired intangibles were initially allocated to.

Liabilities have not been allocated between individual operating segments, as they cannot be allocated on anything other than an arbitrary basis.

Adjustments and eliminations

Certain administrative expenses including acquisition costs, amortisation and impairment of intangible assets, depreciation of property, plant and equipment, legal and professional fees and professional indemnity insurance are not allocated between segments managed on a unified basis and which utilise the same intangible and tangible assets.

Finance income and expenses, gains and losses on the disposal of assets, taxes, intangible assets and certain other assets and liabilities are not allocated to individual segments as they are managed on a group basis. Capital expenditure consists of additions of property, plant and equipment and intangible assets, including assets from the acquisition of subsidiaries.

	31 May 2012	Restated 31 May 2011
Reconciliation of profit	£	£

Total segments	5,164,291	4,938,229

Acquisition costs	(263,257)	(71,920)
Depreciation	(275,067)	(219,705)
Amortisation and impairment	(82,568)	(51,337)
Loss on disposal of assets	(23,211)	(10,830)
Unallocated overheads	(371,704)	(77,854)
Bank charges	(17,099)	(17,250)
Finance income	56,170	59,304
Finance costs	(7,047)	(357)

Group profit before tax	4,180,508	4,548,280

	31 May 2012	Restated 31 May 2011
Reconciliation of assets	£	£

Segment operating assets	30,239,798	19,832,057
Property, plant and equipment	1,018,928	934,708
Intangible assets	610,669	525,120
Investments	15	15
Deferred tax asset	140,672	210,788
Prepayments and other receivables	1,511,877	1,067,626
Cash and short-term deposits	5,795,996	4,612,689

Total assets	39,317,955	27,183,003

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 income and share data used in the basic and diluted earnings per share computations is as follows:

	2012 £	2011 £

Net profit and diluted net profit attributable to equity holders of the Company	3,079,143	3,328,936


Weighted average number of ordinary shares:	000s	000s

Issued ordinary shares at start period	17,584	17,347
Effect of shares issued during the year ended 31 May 2011	-	232
Effect of shares issued during the year ended 31 May 2012	411	45

Basic weighted average number of shares	17,995	17,624

Effect of dilutive options at the statement of financial position date	156	419

Diluted weighted average number of shares	18,151	18,043

The Company has granted options under the Share Option Plan and Consultants' Share Option Plan to certain of its senior managers and directors to acquire (in aggregate) up to 7.04% of its issued share capital. Under IAS 33 Earnings Per Share, contingently issuable ordinary shares are treated as outstanding and included in the calculation of diluted earnings per share if the conditions (the events triggering the vesting of the option) are satisfied. At 31 May 2012 the conditions attached to 170,456 options granted under the Consultants' Share Option Plan are not satisfied. If the conditions had been satisfied, diluted earnings per share would have been 16.96p per share (2011: 18.41p).

The only transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements has been the issue of 42,788 ordinary shares under the Mattioli Woods plc Share Incentive Plan.

5. Dividends paid and proposed

	2012 £	2011 £

Declared and paid during the year:
Equity dividends on ordinary shares:
- Final dividend for 2011: 3.30p (2010: 2.90p)	596,296	503,864
- Interim dividend for 2012: 1.85p (2011: 1.65p)	334,920	289,805

Dividends paid	931,216	793,669
Proposed for approval by shareholders at the AGM:
Final dividend for 2012: 3.70p (2011: 3.30p)	672,645	596,296

6. Cash and short-term deposits

For the purpose of the cashflow statements, cash and cash equivalents comprise the following at 31 May:

	Group 2012 £	Company 2012 £	Group 2011 £	Company 2011 £

Cash at banks and on hand	5,368,985	2,669,346	3,418,318	3,287,873
Short-term deposits	427,012	-	1,194,371	774,371

	5,795,997	2,669,346	4,612,689	4,062,244

Bank overdrafts	(653,637)	(641,113)	-	-

Cash and cash equivalents	5,142,360	2,028,233	4,612,689	4,062,244

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 £5,795,997 (2011: £4,612,689).

At 31 May 2012, the Group had available £4,346,363 (2011: £3,000,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

7. Issued capital and reserves

Share capital	Ordinary shares of 1p	Ordinary shares of 1p £

Authorised

At 1 June 2010, 31 May 2011 and 31 May 2012	30,000,000	300,000

Issued and fully paid

At 1 June 2010	17,347,312	173,473
Exercise of employee share options	173,419	1,735
Shares issued under the SIP	63,226	632

At 31 May 2011	17,583,957	175,840
Shares issued on acquisition of Kudos	462,572	4,625
Shares issued under the SIP	90,272	903

At 31 May 2012	18,136,801	181,368

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. 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 option schemes and share incentive plan

The Company has two share option schemes under which options to subscribe for the Company's shares have been granted to certain executives and senior employees.

The Company also operates a share incentive plan. Participants in the SIP are entitled to purchase up to a prescribed number of new ordinary shares in the Company in any year. At the Directors' discretion, the Company may also award additional shares to participants in the SIP. Ordinary shares issued under the SIP rank pari passu with existing issued ordinary shares of the Company. Dividends paid on shares held within the SIP are used to buy new ordinary shares in the Company of 1p each.

Other reserves

Group	Equity - share based payments £	Share premium account £	Capital redemption reserve £	Retained earnings £

At 1 June 2010	552,579	5,918,314	2,000,000	10,336,920
Share based payments	82,699	-	-	-
Shares issued under the SIP	-	144,398	-	-
Exercise of share options	-	227,179	-	-
Current tax taken to equity	56,081	-	-	-
Deferred tax asset recognised in equity	72,773	-	-	-
Profit for the financial year	-	-	-	3,328,936
Dividends paid	-	-	-	(793,669)

At 31 May 2011	764,132	6,289,891	2,000,000	12,872,187

Share based payments	48,964	-	-	-
Shares issued on acquisition of Kudos		1,181,871
Shares issued under the SIP	-	169,356	-	-
Deferred tax asset derecognised in equity	(187,143)	-	-	-
Profit for the financial year	-	-	-	3,079,143
Dividends paid	-	-	-	(931,216)

At 31 May 2012	625,953	7,641,118	2,000,000	15,020,114

Company	Equity - share based payments £	Share premium account £	Capital redemption reserve £	Retained earnings £

At 1 June 2010	552,579	5,918,314	2,000,000	10,337,996
Share based payments	82,699	-	-	-
Shares issued under the SIP	-	144,398	-	-
Exercise of share options	-	227,179	-	-
Current tax recognised in equity	56,081	-	-	-
Deferred tax asset recognised in equity	72,773	-	-	-
Profit for the financial year	-	-	-	3,327,346
Dividends paid	-	-	-	(793,669)

At 31 May 2011	764,132	6,289,891	2,000,000	12,871,673

Share based payments	48,964	-	-	-
Shares issued on acquisition of Kudos	-	1,181,871
Shares issued under the SIP	-	169,356	-	-
Deferred tax asset derecognised in equity	(187,143)	-	-	-
Profit for the financial year	-	-	-	3,291,725
Dividends paid	-	-	-	(931,216)

At 31 May 2012	625,953	7,641,118	2,000,000	15,232,182

8. Provisions

Group	Client claims £	Contingent consideration £	Dilapidations £	Clawbacks £	Employers' NIC on share options £	Total £

At 1 June 2011	201,500	195,653	110,000	32,373	65,721	605,247
Arising during the year	45,900	4,750,000	-	-	-	4,795,900
Acquisitions (Note 1)	138,500	-	20,000	331,615	-	490,115
Used during the year	-	-	-	(6,887)	-	(6,887)
Unused amounts reversed	-	(195,653)	-	-	(51,977)	(247,630)

At 31 May 2012	385,900	4,750,000	130,000	357,101	13,744	5,636,745

Current 2011	201,500	45,653	-	32,373	-	279,526
Non-current 2011	-	150,000	110,000	-	65,721	325,721

At 31 May 2011	201,500	195,653	110,000	32,373	65,721	605,247

Current 2012	385,900	1,583,333	-	357,101	-	2,326,334
Non-current 2012	-	3,166,667	130,000	-	13,744	3,310,411

At 31 May 2012	385,900	4,750,000	130,000	357,101	13,744	5,636,745

Company	Client claims £	Contingent consideration £	Dilapidations £	Clawbacks £	Employers' NIC on share options £	Total £

At 1 June 2011	201,500	195,653	85,000	32,373	65,721	580,247
Arising during the year	45,900	4,750,000	-	-	-	4,795,900
Used during the year	-	-	-	-	-	-
Unused amounts reversed	-	(195,653)	-	(6,887)	(51,977)	(254,517)

At 31 May 2012	247,400	4,750,000	85,000	25,486	13,744	5,121,630

Current 2011	201,500	45,653	-	32,373	-	279,526
Non-current 2011	-	150,000	85,000	-	65,721	300,721

At 31 May 2011	201,500	195,653	85,000	32,373	65,721	580,247

Current 2012	247,400	1,583,333	-	25,486	-	1,856,219
Non-current 2012	-	3,166,667	85,000	-	13,744	3,265,411

At 31 May 2012	247,400	4,750,000	85,000	25,486	13,744	5,121,630

Client claims

A provision is recognised for the estimated potential liability not covered by the Group's professional indemnity insurance when the Group becomes aware of a possible client claim. No discount rate is applied to the projected cash flows due to their short term nature.

Contingent consideration

The Group has entered into certain acquisition agreements that provide for contingent consideration to be paid. Details of these agreements and the basis of calculation of the net present value of the contingent consideration is summarised in Note 1. The Group estimates the net present value of contingent consideration payable within the next 12 months is £1,583,333 (2011: £150,000).

Dilapidations

Under the terms of the leases for the Group's premises, the Group has an obligation to return the properties in a specified condition at the end of the lease term. The Group provides for the estimated net present value of the cost of any dilapidations. The discount rate applied to the cash flow projections is 5.0%.

Clawbacks

The Group receives certain initial commissions on indemnity terms and hence the Group provides for the expected level of clawback, based on past experience. No discount rate is applied to the projected cash flows due to their short term nature.

9. Commitments and contingencies

Operating lease agreements - Group as lessee

The Group has entered into three commercial leases for its premises at Grove Park, Enderby. The lease for the Head Office, MW House, has a duration of 20 years, from 10 June 2005. The amount of annual rental is to be reviewed at three-yearly intervals, with the next review date being 10 June 2014. The first lease for part of the ground floor of Gateway House (an office building adjacent to MW House) has a duration of ten years, from 1 February 2008. A second lease for part of the ground floor of Gateway House has a duration of ten years, from 1 December 2009. For both leases, the amount of annual rental is to be reviewed at the end of the fifth year.

The Group has also entered into a commercial lease for its premises at 210 High Holburn, London, which has a duration of five years, from 6 October 2010. The annual rental of £79,068 will not be reviewed.

As part of some recent acquisitions, the Group acquired operating lease obligations for certain office equipment. There are no restrictions placed upon the Group by entering into these leases. Future minimum rentals payable under non-cancellable operating leases as at 31 May are as follows:

	Office equipment		Land and buildings
Group	2012 £	2011 £	2012 £	2011 £

Not later than one year	2,005	3,754	529,168	382,093
After one year but not more than five years	6,831	-	1,950,256	1,317,523
More than five years	-	-	2,805,325	1,878,793

	8,836	3,754	5,284,749	3,578,409

	Office equipment		Land and buildings
Company	2012 £	2011 £	2012 £	2011 £

Not later than one year	2,005	3,754	408,168	382,093
After one year but not more than five years	6,831	-	1,342,756	1,317,523
More than five years	-	-	1,595,325	1,878,793

	8,836	3,754	3,346,249	3,578,409

Group operating lease charges during the year were £539,242 (2011: £308,552) for land and buildings and £5,198 (2011: £5,584) for office equipment.

Capital commitments

At 31 May 2012 the Group had no capital commitments (2011: £nil).

Client claims

The Group operates in a legal and regulatory environment that exposes it to certain litigation risks. As a result, the Group occasionally receives claims in respect of products and services provided and which arise in the ordinary course of business. The Group provides for potential losses that may arise out of contingencies where the estimated potential liability is not covered by the Group's professional indemnity insurance (Note 8).

A number of claims were notified to the Group's professional indemnity insurers ("the insurers") in respect of the period from 18 February 2010 to 17 August 2011. The insurers have declined to indemnify the Group in respect of certain of these claims. The Group is of the opinion that the insurers' position is without any merit and is challenging their view. The estimated compensation payable should the clients' claims be successful, with no indemnity provided by the insurers, is £320,000. To the extent the Group believes it is possible but not probable that a claim will succeed and result in an economic outflow, no additional provision is made in these financial statements.

Contingencies in respect of legal matters are subject to many uncertainties and the outcome of individual matters is not predictable with assurance. Significant judgment is required in assessing probability and making estimates in respect of contingencies, and the Group's final liabilities may ultimately be different. The Group's total potential liability recorded in respect of litigation, arbitration and regulatory proceedings is determined on a case-by-case basis and represents, where appropriate, an estimate of the probable economic outflow after considering, among other factors, the progress of each case, the Group's experience and the experience of others in similar cases, and the opinions and views of legal counsel.

FSCS levy

Following the failure of MF Global and Arch Cru, coupled with The Financial Services Compensation Scheme ("FSCS") paying more compensation than predicted in relation to the failures of Keydata, Wills & Co and other stockbroking firms, the FSCS has raised an interim levy on the investment intermediation sector in each of the last two years.

In the year ended 31 May 2012 the FSCS raised an interim levy of £60 million (2011: £326 million) from investment intermediaries to pay for the costs of compensating clients in investment failures, to which the Group contributed £58,759 (2011: £115,507). No provision has been made in these financial statements for any FSCS interim levy that may be raised during the year ending 31 May 2013.

10. Events after the reporting date

Taxation

The UK government has enacted tax changes which will have a significant effect on the Group's future tax position. The rate of corporation tax will reduce from 24% to 23% from 1 April 2013, with a further 1% reduction to a rate of 22% from 1 April 2014.

These rate changes will affect the amount of future cash tax payments to be made by the Group and will also reduce the size of the Group's balance sheet deferred tax assets and liabilities.

11. 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 2011 or 2012. The Group's auditors have reported on the full accounts of each year and have accompanied them with an unqualified report. 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 website (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 Company's annual general meeting will take place on 18 October 2012 at the Group's head office.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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