Final Results

RNS Number : 5720M

Mattioli Woods PLC

28 August 2013

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 2013.

Financial highlights

· Revenue up 14.3% to £23.41m (2012: £20.48m)

· Recurring revenues represent 70.7% (2012: 64.8%)

· EBITDA¹ up 12.7% to £5.76m (2012: £5.11m)

· Adjusted EPS²^,3 up 12.2% to 24.29p (2012: 21.65p)

· Adjusted profit before tax¹ up 9.9% to £5.56m (2012: £5.06m)

· Proposed total dividend up 26.1% to 7.00p (2012: 5.55p)

· Strong financial position with net cash of £8.05m (2012: £5.14m)

1 Earnings before interest, taxation, depreciation and amortisation.

2 Basic EPS up 15.0% to 19.34p (2012: 16.82p).

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

Operational highlights

· Total client assets up 20.5% to £3.64bn (2012: £3.02bn)

· Appointed to operate The Pilgrim SIPP in June 2012

· Launch of discretionary portfolio management in August 2012

· Launch of flexible benefits proposition in March 2013

· Acquisition of Ashcourt Rowan's pension business in April 2013

Recent developments

· Appointed to operate The HD SIPP in June 2013

· Acquisition of Atkinson Bolton in July 2013:

- Total client assets now exceed £4.00bn

- Over £0.45bn of discretionary assets under management

· Further investment in IT, training and infrastructure

· Positioned for further growth

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

"I am delighted to report another year of profitable growth. The RDR heralded a period of unprecedented change in our sector, creating enormous opportunities. Our total client assets under management, administration and advice increased by 20.5% to £3.64bn at 31 May 2013, with £301.9m of assets added on the acquisition of Ashcourt Rowan's pension business in April 2013.

"Revenue was up 14.3% to £23.41m which, coupled with an EBITDA margin of 24.6% and lower corporate tax rates, resulted in Adjusted EPS³ increasing 12.2% to 24.29p.

"The Board is pleased to recommend a 26.1% increase in total dividend for the year to 7.00 pence per share and remains committed to growing the dividend, while maintaining an appropriate level of dividend cover.

"This is an exciting time. We were delighted to announce the acquisition of Atkinson Bolton last month and both our recent acquisitions are excellent cultural and strategic fits, offering real synergies with the wider Group.

"I believe we are well positioned to grow in the post-RDR world and we plan further investment in information technology, training and recruitment over the next 12 months. I have enormous conviction in our strategy and look forward to Mattioli Woods delivering first class services to our clients and further sustainable growth to our shareholders over the coming year."

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 year of profitable growth, particularly as the period embraces the first five months of the post-Retail Distribution Review ("RDR") era. The RDR heralded a period of unprecedented change in our sector, creating enormous opportunities for a 21^st century financial services business that can deliver proactive advice with professional products and services.

Continued development of the Group's wider capabilities, combined with changes in our key markets, make this an exciting time. Many commentators predicted the advisory market would consolidate post-RDR and we have been active as an acquirer, most recently announcing the acquisition of Thoroughbred Wealth Management Limited and its subsidiary Atkinson Bolton Consulting Limited (together "Atkinson Bolton") last month. In addition, proposed increases in the regulatory capital requirement for operators of self-invested personal pensions ("SIPPs") is driving consolidation in another of our core markets and we were pleased to acquire the pension administration business of Ashcourt Rowan plc ("Ashcourt Rowan") in April 2013.

We were appointed to operate The HD SIPP in June 2013, which follows on from our earlier appointments to The Freedom SIPP and The Pilgrim SIPP. Our reputation for technical excellence has allowed us to work closely with The Insolvency Service, the Financial Conduct Authority ("FCA") and HM Revenue & Customs to secure the position of members following the failure of the previous operator.

Mattioli Woods has recently been shortlisted as 'Best SSAS Provider' at the Investment Life & Pensions Moneyfacts Awards 2013 and selected as a finalist in the 'Retirement Advisor of the Year' category. This level of industry recognition is very pleasing.

Market overview

There has been much focus on the impact of the RDR and I have noted previously how we welcome this move to greater professionalism within the sector. The RDR has changed the nature of our investment advisory revenues and I believe the move from provider commissions to adviser fees based on assets under advice enhances the quality of our earnings.

The Government recently announced the end of consultancy charging in auto-enrolment schemes and it plans to publish a consultation paper this autumn, including proposals to cap default fund charges in Defined Contribution schemes. Although there is still some uncertainty around the impact of these proposals, they demonstrate a clear demand for progressive employers to create cost-effective and engaging employee benefits plans. Following the launch of our flexible employee benefitsservice, "Create", we are well-placed to address this market, for the benefit of both our clients and shareholders.

Assets under management, administration and advice

Total client assets under management, administration and advice increased by 20.5% to £3.64bn at 31 May 2013 (2012: £3.02bn) as follows:

	31 May 2013 £m	31 May 2012 £m
SSAS	1,362.5	1,193.2
SIPP	1,264.8	919.4

Funds Under Trusteeship	2,627.3	2,112.6

Employee benefits	640.3	575.4
Personal assets	376.7	328.7

Assets under management, administration and advice ⁴	3,644.3	3,016.7

⁴ Note certain pension scheme assets, including clients' own commercial properties, are only subject to a statutory valuation at a benefit crystallisation event.

We added £301.9m of funds under trusteeship with the acquisition of Ashcourt Rowan's pension business during the year. These acquired funds added to net organic growth of £212.8m in our core pension business, including £112.2m secured on our appointment to The Pilgrim SIPP.

The launch of our portfolio management service in the first half was an important step forward in providing wider wealth management services to our clients. At the financial year end, our discretionary proposition had attracted £187.2m of assets under management since 1 September, increasing our recurring revenues and delivering more efficient service to our clients.

Following the year end, a further £442.4m of client assets have been added on the acquisition of Atkinson Bolton, in addition to £7.1m on our appointment to The HD SIPP.

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.

Historically, our core distribution has been by way of referral from other professional advisers throughout the UK. We have now developed a new executive financial counselling initiative, which we are introducing to corporate clients. This is showing early signs of promise and I expect our ability to sustain strong organic growth through cost-effective distribution to become a key differentiator.

We plan to continue expanding Mattioli Woods' operations, both organically and by acquisition. The acquisitions we have completed to date have all been earnings enhancing and the acquisition of Atkinson Bolton is another excellent cultural and strategic fit, offering real synergies with the wider Group. Based in Newmarket, Atkinson Bolton employs 50 staff providing advice to both high net worth individuals and companies on all aspects of financial planning.

The acquisition extends our existing employee benefits proposition, bringing circa £154.0m in group pension schemes under advice at a time when the introduction of the National Employment Savings Trust ("NEST") and auto-enrolment present clear opportunities. In addition, the acquisition offers the enlarged business the opportunity to extend the provision of SIPPs to a wider audience and adds further specialist wealth management expertise to Mattioli Woods' existing operations, with £238.3m of discretionary assets under management and £50.1m of assets under advice at 31 July 2013. Atkinson Bolton also operates its own Open Ended Investment Company, The IM Thoroughbred Funds ICVC, which holds £52.4m of its clients' assets, the majority of which are discretionary.

Staff

I would like to thank all our staff for their continued commitment, enthusiasm and professionalism in dealing with our clients' affairs. 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"). The number of eligible staff investing via the Plan has remained at 55% (2012: 55%). I am delighted the value of employee share holdings held via the Plan has surpassed £1.0m and we will continue to encourage broader participation in the Plan.

We plan further recruitment over the coming year and were delighted to announce the appointment of Michael Crowe as Group Head of Human Resources in May 2013. Michael brings proven experience in delivering valued human resources solutions.

Last month, we further strengthened our team with the appointment of Ed Carey as Managing Director of our third party administration business, City Pensions Limited. Ed was a founding member of the team at Cofunds and brings 20 years' senior management experience in retail financial services.

Board changes

Helen Keays, one of our Non-Executive Directors, has informed the Board that she wishes to step down to pursue other interests. We thank her for her contribution over the last two years and wish her every success in her future endeavours. She will formally leave the Board on 31 October 2013. The Nominations Committee has initiated a search process to replace Helen, who has served on the Board since July 2011.

Dividends

The Board is pleased to recommend the payment of a final dividend for the year of 4.67 pence (2012: 3.70 pence) per ordinary share. If approved, the final dividend will be paid on 15 October 2013 to shareholders on the register at the close of business on 6 September 2013. This makes a proposed total dividend for the year of 7.00 pence per share (2012: 5.55p), a year-on-year increase of 26.1% (2012: 12.1%). 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 plan further investment in information technology, training and recruitment over the next 12 monthsas we seek to develop a single platform for all the Group's operations.

I have enormous conviction in our strategy and look forward to Mattioli Woods delivering first class services to our clients and further sustainable growth to our shareholders over the coming year.

Bob Woods

Chairman

27 August 2013

Chief Executive's review

Introduction

I am pleased to report another year of growth, expanding organically and by acquisition, as we pursue our strategy of developing a broader 21^st century financial services business.

Revenue in the year ended 31 May 2013 was up 14.3% to £23.41m (2012: £20.48m), with £1.51m of this increase representing the impact of a full year's contribution from Kudos. EBITDA was up 12.7% to £5.76m (2012: £5.11m). As anticipated, we saw a slight fall in EBITDA margin to 24.6% (2012: 25.0%) following further investment in the infrastructure of our business. Adjusted earnings per share ^5,6 increased by 12.2% and adjusted profit before tax ⁶ by 9.9% compared with the prior year.

⁵ Basic EPS up 15.0% to 19.34p (2012: 16.82p).

⁶ Before acquisition costs expensed under IFRS3 (Revised), amortisation and impairment of intangible assets other than computer software.

Our success is based upon the development of our people. In addition to gaining the Investors in People accreditation, we have been awarded the 'One to Watch' standard by workplace engagement specialist Best Companies, which compiles The Sunday Times '100 Best Companies to Work For'. I am delighted we have created a business people feel proud to work for and one that recognises and rewards talent and hard work.

Our focus is on ensuring we can continue to address our clients' changing needs, developing complementary services around our core activities and extending the Group's wealth management and employee benefits operations. For the first time in many years, it appears both the economic and regulatory environment may work in our favour and we plan further investment in our technology and people to ensure we can respond to these opportunities and attract new clients based on our expertise, professionalism and enterprise.

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. While the market post-RDR remains uncertain, I believe we are in a good position to respond effectively to the many opportunities that are available.

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 secure strong client retention and to attract new clients across our key markets by:

· Developing our brand;

· Growing our consultancy teams;

· Extending our range of products and services;

· Delivering on our clients' expectations; and

· Investing in our people and technology platforms to create the capacity 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 2013, recurring revenues ⁷ represented 70.7% (2012: 64.8%) of total Group revenues.

⁷ Annual pension consultancy and administration fees; level, renewal and trail commissions; banking income and property syndicate annual management charges.

Although the Group's key revenue streams remain unchanged, following a review of the Group's operating segments during the year, the allocation method has been amended to provide greater clarity. Banking revenues generated from the operation of pension scheme accounts is now included within 'direct pension consultancy and administration' or 'third party administration', as appropriate. In prior years, banking revenue was disclosed as part of 'wealth management'. Comparative figures for the year ended 31 May 2012 have been restated using the amended allocation basis.

Direct pension consultancy and administration

Mattioli Woods' core business is the provision and administration of SIPPs and SSASs, representing 38.7% (2012: 45.0%) of Group revenues, of which 95.4% (2012: 90.7%) are recurring. Our client base primarily comprises owner-managers, senior executives and members of the professions. Additional fees are generated from consultancy services provided for specialist ad hoc activities.

Revenues from these services were £9.05m (2012: £9.22m). A slowdown in client activity over the summer months and an absence of one-off revenues associated with changes in pension legislation that we advised on in the prior year, led to reduced fee income of £7.51m (2012: £8.17m). This was partially offset by an increase in banking revenues to £1.54m (2012: £1.05m).

We gained 282 (2012: 310) direct⁸ SSAS and SIPP schemes in the year, representing 8.5% (2012: 10.3%) 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 £0.42m (2012: £0.37m). We continue to achieve strong client retention with a 1.8% (2012: 1.4%) overall increase in the number of direct schemes administered at the year-end. Our external loss rate⁹ improved to 3.6% (2012: 5.2%) and the overall attrition rate¹⁰ fell to 4.2% (2012: 6.2%), partly as a result of previous acquisitions now having fully bedded-in.

^{8 SSAS and SIPP schemes where Mattoili Woods acts as pension consultant and administer}

⁹ Direct schemes lost to an alternative provider as a percentage of average scheme numbers during the period.

¹⁰.Direct schemes lost as a result of death, annuity purchase, external transfer or cancellation as a percentage of average scheme numbers during the period.

In a low interest rate environment, we continue to work with our core banking partners to structure bank accounts offering better interest 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. Lower LIBOR rates over the last year are expected to lead to lower banking revenues in this new financial year, although this may be partially offset by demand for advice on investment into other asset classes.

Wealth management

Wealth management revenues are generated from advising clients on their investments. Revenues increased 19.0% to £6.44m (2012: £5.41m), with £0.58m of this increase arising from a full year's contribution from Kudos' wealth management team. Wealth management represented 27.5% (2012: 26.4%) of total Group revenues, with the proportion of recurring revenues increasing to 54.2% (2012: 37.6%) following the launch of our portfolio management service in August 2012 and the introduction of adviser charging following the implementation of the RDR on 1 January 2013. Post-RDR, our investment advisory revenues comprised fees of £0.92m (2012: £nil) based on the value of assets under advice at the start of each quarterly billing period, partially offsetting an anticipated fall in commission payments received in the year to £1.63m (2012: £3.57m).

In addition, we attracted £187.2m of client assets onto our discretionary platform during the period, generating initial placement fees and ongoing management charges of £1.92m (2012: £nil).

I believe the launch of our portfolio management service and introduction of adviser charging enhances the quality of our earnings through the creation of new recurring revenue streams. As for other firms, these income streams are directly linked to the performance of financial markets and the value of funds under management and advice.

Employee benefits

We define employee benefits 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. These traditions are now changing and we see many employers who look at other, more flexible or lifestyle-related benefits for their employees.

Employee benefits revenues increased to £4.37m (2012: £3.53m), aided by a full year contribution from Kudos and some significant new client wins. Employee benefits revenues now represent 18.7% of total revenue (2012: 17.2%), of which 38.5% (2012: 34.9%) are recurring. The acquisition of Atkinson Bolton extends our existing employee benefits proposition and we expect new opportunities will arise from auto-enrolment and a drive towards total reward and flexible benefits in the corporate market. We have also seen strong interest in executive financial counselling, which dovetails well with our core pension and wealth management services.

Property syndicates

Mattioli Woods facilitates direct commercial property ownership for clients via its subsidiary, Custodian Capital Limited ("Custodian Capital"), which aims 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 may be SIPPs, SSASs or private individuals. Custodian Capital initiated £11.0m (2012: £12.6m) of investment into six (2012: eight) new partnerships during the period, with direct property ownership continuing to appeal to clients attracted by the opportunity to develop a well-diversified portfolio of prime commercial property.

Property syndicate revenues increased to £1.96m (2012: £1.38m) or 8.4% of total revenue (2012: 6.8%), of which 63.4% (2012: 62.9%) represented recurring annual management charges. Our appointment to operate The Pilgrim SIPP also benefitted Custodian Capital, which now administers 11 property syndicates on behalf of Pilgrim members.

In October 2011, our property syndicate business was transferred into a separate subsidiary to allow us to offer property syndicate investment to a broader client base, using an Unregulated Collective Investment Schemes ("UCIS") structure. In June 2013, the FCA published new rules, which take effect from 1 January 2014, aimed at improving retail consumer outcomes by limiting the promotion of UCIS and close substitutes. While we support the regulator's desire to restrict the promotion of UCIS to more strictly defined "sophisticated investors", property is an important asset class for a large number of our clients and against the backdrop of these regulatory changes we will consider the adoption of alternative structures for the delivery of our property initiative into the wider market.

Third party pension administration

City Pensions Limited (trading as "City Trustees") has also enjoyed strong profit growth following its relocation to Leicester, enhanced by its appointment to operate The Pilgrim SIPP in June 2012. We have worked hard to develop our administration-only proposition and were delighted to receive further recognition of this when Defaqto awarded City Trustees its highest 5-star rating in September 2012. Defaqto provides an independent quality assessment of SIPPs, based on product features and service to advisers. Key features of the City Trustees SIPP are a transparent fee structure and bespoke service, with each client having their own dedicated account manager. The City Trustees SIPP offers clients full control of their pension planning and allows diversification through a wide range of investments.

Third party administration revenues increased by 68.1% to £1.58m (2012: £0.94m), representing 6.7% (2012: 4.6%) of total revenues, of which 94.8% (2012: 82.3%) are recurring. This strong revenue growth follows the Bank of Scotland's appointment of City Trustees to operate The Pilgrim SIPP in June 2012 and the acquisition of Ashcourt Rowan's pension administration business in April 2013. Administration fees increased to £1.14m (2011: £0.78m) and associated banking revenues were £0.44m (2012: £0.15m).

The number of SSAS and SIPP schemes administered by City Trustees more than doubled during the year to 2,297 (2012: 1,012) at the period end. Our appointment to operate The HD SIPP in June 2013 adds over 30 active schemes and following the recent appointment of Ed Carey as Managing Director, I anticipate further growth in the current financial year.

Regulatory environment

Financial Conduct Authority

Mattioli Woods is authorised and regulated by the FCA to provide investment advice, deal in investments as agent and to establish, operate and wind-up personal pension schemes, including SIPPs. The FCA'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, abolishing the previous system, including the Financial Services Authority. From 1 April 2013, we have been regulated by the FCA, which the Government intends to have a more proactive, interventionist approach, with the aim that actual or potential risks will be addressed before they crystallise. All firms have been assigned one of four conduct classifications (C1-C4) and one of four prudential classifications (P1-P4), based on the FCA's view of the potential impact of the firm on the FCA's objectives. The categories are not permanent and the FCA will continue to monitor the Group's potential impact on its objectives. The Group is currently classified as:

· A C3 firm, classed as "flexible portfolio", supervised by a team of sector specialists who will examine how the business is run and controlled on a four year cycle, although the FCA will conduct interim reviews of firms where information indicates the risk they represent is significantly changing; and

· A P3 firm, categorised as prudentially non-significant, where the FCA will be relying more on firms' own assessments of their financial resources requirements. P3 firms may be subject to a prudential assessment by the FCA as part of a peer group exercise, that is, a cross-firm review of capital and liquidity standards.

We welcome any regulatory change that builds a stronger system and allows well-resourced businesses like us to further differentiate themselves.

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.

We have seen some smaller firms struggling within the SIPP sector. We know from our own experience that the operators of The Freedom SIPP, The Pilgrim SIPP and The HD SIPP could no longer continue to provide appropriate services to their clients. Other SIPP providers may find themselves in a similar position and many commentators expect these issues to lead to further consolidation within the sector.

Compliance

We consider all legislative changes and the findings of all FCA 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, FCA 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 14.3% to £23.41m (2012: £20.48m), with sustained demand for the Group's services. We are particularly pleased with the continued development of our broader wealth management proposition, strong post-acquisition performance of Kudos and growth in City Trustees during the year. The Group's revenue mix changed during the period, with further diversification of our key revenue streams as follows:

· 38.7% direct pension consultancy and administration (2012: 45.0%);

· 27.5% wealth management (2012: 26.4%);

· 18.7% employee benefits (2012: 17.2%);

· 8.4% property syndicate revenues (2012: 6.8%); and

· 6.7% third party pension administration (2012: 4.6%).

Unadjusted EBITDA increased 12.7% to £5.76m (2012: £5.11m), with an anticipated fall in EBITDA margin to 24.6% (2012: 25.0%) as a result of continued investment in our people and systems.

To facilitate a like-for-like comparison with prior years, acquisition costs of £0.17m on the Atkinson Bolton acquisition that were incurred during the year have been added back in calculating adjusted EBITDA and adjusted profit before tax. Adjusted EBITDA¹¹ increased 10.2% to £5.93m (2012: £5.38m), while adjusted EBITDA margin fell to 25.3% (2012: 26.3%). I anticipate we will see some continued 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, I expect the investment we are making in the Group's management information systems and technology will provide scope for future margin improvement and the delivery of more efficient client service.

¹¹Adding back £0.17m (2012: £0.26m) of acquisition costs expensed under IFRS3 (Revised).

Net finance revenue

Net finance revenues of £0.04m (2012: £0.05m) remain in line with low interest rates. The Group has maintained a positive net cash position, with average balances broadly in line with the prior year.

Taxation

The effective rate of taxation on profit on ordinary activities fell to 22.2% (2012: 26.3%) due to further cuts in the UK corporation tax rate. The net deferred taxation liability carried forward at 31 May 2013 was £1.83m (2012: £2.12m).

Earnings per share and dividend

Adjusted EPS¹² increased 12.2% to 24.29p (2012: 21.65p). Basic EPS was up 15.0% to 19.34p (2012: 16.82p), primarily due to revenue growth increasing operating profits, coupled with lower corporate tax rates. Diluted earnings per share increased 13.5% to 18.94p (2012: 16.68p), with 567,000 options issued under the Share Option Plan exercised during the period. A proposed increase of 26.1% in the total dividend for the year to 7.00p (2012: 5.55p) demonstrates our desire to deliver value to shareholders and confidence in the outlook for our business.

¹² Before acquisition costs expensed under IFRS3 (Revised) and amortisation of intangible assets other than computer software.

Cash flow

Net cash generated from operations was £6.41m (2012: £5.81m) with EBITDA of £5.76m (2012: £5.11m). The Group conversion of EBITDA into operating cash flow was 111.3% (2012: 113.7%), with the changing sales mix and a continued focus on improved credit control reducing trade receivables to 52 days' sales (2012: 67 days). This, coupled with a £0.96m increase in trade and other payables (2012: £0.73m), created a cash inflow from working capital of £0.53m (2012: £0.53m).

Trade payables increased to 44 days' purchases (2012: 41 days) with amounts owed to suppliers at the year-end higher than the prior year due to a small increase in outstanding invoices.

Capital expenditure for the year was £0.69m (2012: £0.51m), with the most significant costs being investment in new computer hardware and software and the purchase of new company cars for consultants following our significant expansion of the team. Further investment in the Group's management information systems and technology is planned over the coming 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 £5.00m overdraft facility with interest payable at the bank's base rate plus 1.1875% on the first £0.50m and plus 1.375% on borrowings in excess of £0.50m. The Lloyds TSB facility is repayable upon demand and renewable on 31 January 2014. At 31 May 2013, the Group had unused borrowing facilities of £5.00m (2012: £4.36m).

Capital structure

The Group's capital structure is as follows:

	2013 £000	2012 £000

Net funds	(8,047)	(5,130)
Shareholders' equity	29,100	25,469

Capital employed	21,053	20,339

The Group has remained negatively geared, with the gearing ratio falling from (1.8)% to (7.5)% as a result of the growth in Group trade and other payables of £5.87m (2012: £4.69m) being more than offset by net cash balances of £8.05m (2012: £5.14m).

Acquisitions

The acquisition of Kudos in August 2011 extended both our employee benefit and wealth management propositions and we have followed this with the acquisition of Atkinson Bolton in July 2013. This transaction enables both parties to provide more services to existing clients and capture new business opportunities through our combined introducer networks. It is another exciting step forward in the development of Mattioli Woods as a broader wealth management business.

A proposed increase in the regulatory capital requirement for SIPP operators is driving consolidation in the sector and we were pleased to acquire the pension administration business of Ashcourt Rowan in April 2013. We may see more acquisition opportunities as other small SIPP operators look to exit the market.

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. We continue to invest in our graduate recruitment programme, with a total of 13 new graduates joining the Group (2012: 11). Our total headcount at the end of the period was 283 (2012: 255).

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 implementation of our strategy and have a material impact on our long term performance. These arise from internal or external events, acts or omissions which could 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, property management fees, discretionary portfolio management fees and adviser charges being based on the value of client assets under management, administration or advice. 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 Trustees 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 Trustees 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

I am delighted with the performance of our business post-RDR, in what remain uncertain economic circumstances. Mattioli Woods has always had a strong client care culture. These results are testament to our people's hard work and their ability to take ownership of the client relationship, which I believe will differentiate us from our competitors.

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

Ian Mattioli

Chief Executive

27 August 2013

Consolidated statement of comprehensive income

For the year ended 31 May 2013

	Note	2013 £000	2012 £000

Revenue	4	23,405	20,482

Employee benefits expense		(12,832)	(11,194)
Other administrative expenses		(4,693)	(4,010)
Share based payments		(102)	(141)
Amortisation and impairment	8	(854)	(707)
Depreciation		(304)	(275)
Loss on disposal of property, plant & equipment		(23)	(24)

Operating profit before financing		4,597	4,131

Finance revenue		53	56
Finance costs		(12)	(7)

Net finance revenue		41	49

Profit before tax		4,638	4,180
Income tax expense		(1,031)	(1,101)


Profit for the year		3,607	3,079
Other comprehensive income for the year, net of tax		-	-

Total comprehensive income for the year, net of tax		3,607	3,079

Attributable to:
Equity holders of the parent		3,607	3,079


Earnings per ordinary share:

Basic (pence)	6	19.34	16.82
Adjusted (pence)		24.29	21.65
Diluted (pence)	6	18.94	16.68

Proposed total dividend per share (pence)	7	7.00	5.55

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 of the Company for the financial year, after taxation, was £3,053,187 (2012: £3,291,725).

Consolidated and Company statements of financial position Registered number: 3140521

As at 31 May 2013

		2013		2012
		Group	Company	Group	Company
	Note	£000	£000	£000	£000
Assets
Property, plant and equipment		1,103	928	1,019	814
Intangible assets	8	24,060	10,303	23,137	10,489
Deferred tax asset		225	153	156	64
Investments		-	13,698	-	12,948

Total non-current assets		25,388	25,082	24,312	24,315

Trade and other receivables		8,769	6,810	8,133	6,955
Financial assets		239	235	1,077	1,077
Cash and short-term deposits	9	8,047	4,554	5,796	2,669

Total current assets		17,055	11,599	15,006	10,701

Total assets		42,443	36,681	39,318	35,016

Equity
Issued capital	10	188	188	181	181
Share premium	10	8,616	8,616	7,641	7,641
Capital redemption reserve	10	2,000	2,000	2,000	2,000
Equity - share based payments	10	777	777	626	626
Retained earnings	10	17,519	17,176	15,021	15,232

Total equity attributable to equity holders of the parent		29,100	28,757	25,469	25,680

Non-current liabilities
Deferred tax liability		2,059	273	2,275	306
Provisions	11	2,193	1,699	3,310	3,266

Total non-current liabilities		4,252	1,972	5,585	3,572

Current liabilities
Bank overdraft		-	-	654	641
Trade and other payables		5,874	3,831	4,689	3,267
Income tax payable		502	-	595	-
Provisions	11	2,715	2,121	2,326	1,856

Total current liabilities		9,091	5,952	8,264	5,764

Total liabilities		13,343	7,924	13,849	9,336

Total equities and liabilities		42,443	36,681	39,318	35,016

The financial statements were approved by the Board of directors and authorised for issue on 27 August 2013 and are signed on its behalf by:

Bob Woods Nathan Imlach

Executive Chairman Finance D

Consolidated and Company statements of changes in equity

For the year ended 31 May 2013

Group	Issued capital (Note 10) £000	Share premium (Note 10) £000	Equity - share based payments (Note 10) £000	Capital redemption reserve (Note 10) £000	Retained earnings (Note 10) £000	Total equity £000

As at 1 June 2011	176	6,290	764	2,000	12,872	22,102

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

Total comprehensive income	-	-	-	-	3,079	3,079
Transactions with owners of the Group, recognised directly in equity
Issue of share capital	5	1,351	-	-	-	1,356
Share-based payments	-	-	49	-	-	49
Deferred tax taken to equity	-	-	(187)	-	-	(187)
Dividends paid	-	-	-	-	(930)	(930)

As at 31 May 2012	181	7,641	626	2,000	15,021	25,469

Profit for the year	-	-	-	-	3,607	3,607

Total comprehensive income	-	-	-	-	3,607	3,607
Transactions with owners of the Group, recognised directly in equity
Issue of share capital	7	975	-	-	-	982
Share-based payments	-	-	1	-	-	1
Deferred tax taken to equity	-	-	31	-	-	31
Current tax taken to equity	-	-	119	-	-	119
Dividends paid	-	-	-	-	(1,109)	(1,109)

As at 31 May 2013	188	8,616	777	2,000	17,519	29,100

Company	Issued capital (Note 10) £000	Share premium (Note 10) £000	Equity - share based payments (Note 10) £000	Capital redemption reserve (Note 10) £000	Retained earnings (Note 10) £000	Total equity £000

As at 1 June 2011	176	6,290	764	2,000	12,870	22,100

Profit for the year	-	-	-	-	3,292	3,292

Total comprehensive income	-	-	-	-	3,292	3,292
Transactions with owners of the Company, recognised directly in equity
Issue of share capital	5	1,351	-	-	-	1,356
Share-based payments	-	-	49	-	-	49
Deferred tax taken to equity	-	-	(187)	-	-	(187)
Dividends paid	-	-	-	-	(930)	(930)

As at 31 May 2012	181	7,641	626	2,000	15,232	25,680

Profit for the year	-	-	-	-	3,053	3,053

Total comprehensive income	-	-	-	-	3,053	3,053
Transactions with owners of the Company, recognised directly in equity
Issue of share capital	7	975	-	-	-	982
Share-based payments	-	-	1	-	-	1
Deferred tax taken to equity	-	-	31	-	-	31
Current tax taken to equity	-	-	119	-	-	119
Dividends paid	-	-	-	-	(1,109)	(1,109)

As at 31 May 2013	188	8,616	777	2,000	17,176	28,757

Notes to the consolidated financial statements

1 Corporate information

Mattioli Woods plc ("the Company") is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the AIM market of the London Stock Exchange plc. The financial statements have been prepared on a historical cost basis and are presented in pounds, with all values rounded to the nearest thousand pounds (£000) except when otherwise indicated. The financial statements were authorised for issue in accordance with a resolution of the Directors on 27 August 2013.

The financial statements comprise the financial statements of Mattioli Woods plc and its subsidiaries ("the Group") as at 31 May each year. The nature of the Group's operations and its principal activities are set out in the Chief Executive's Review.

2 Basis of preparation and accounting policies

2.1 Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (together "IFRS") as adopted by the European Union ("EU"), and in accordance with the requirements of the Companies Act applicable to companies reporting under IFRS.

The financial statements have been prepared on a consistent basis with the year ended 31 May 2012, with no changes to the accounting framework adopted or accounting policies applied. At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective:

Standard or interpretation	Periods commencing on or after

IFRS 7 (amended) Financial Instruments: Disclosures	1 January 2013
IFRS 9 Financial Instruments	1 January 2015
IFRS 10 Consolidated Financial Statements	1 January 2013
IFRS 11 Joint Arrangements	1 January 2013
IFRS 12 Disclosures of Interests in Other Entities	1 January 2013
IFRS 12 Fair Value Measurement	1 January 2013
IAS 1 (amended) Presentation of Items in Other Comprehensive Income	1 January 2012
IAS 12 (amended) Deferred Tax: Recovery of Underlying Assets	1 January 2012
IAS 19 (revised) Employee Benefits	1 January 2013
IAS 27 (revised) Separate Financial Statements	1 January 2013
IAS 28 (revised) Investments in Associates and Joint Ventures	1 January 2014
IAS 32 (amended) Offsetting Financial Assets and Financial Liabilities	1 January 2014

Other than to expand certain disclosures within the financial statements, the Directors do not expect the adoption of the standards and interpretations listed above will have a material impact on the financial statements of the Group in the future periods.

The principal accounting policies adopted are set out below and have been applied consistently throughout the current and previous financial year.

2.2 Significant accounting policies

Basis of consolidation

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.

On publishing the consolidated financial statements, 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.

Business combinations

Business combinations are accounted for using the purchase accounting method. This involves assessing whether any assets acquired meet the criteria for recognition as separately identifiable intangible assets. Intangible assets are measured on initial recognition at their fair value at the date of acquisition. Client portfolios are valued by discounting their future expected cash flows over their expected useful lives, based on the Group's historic experience. Expected future cash flows are estimated based on the historic revenues and costs associated with the operation of that client portfolio. The discount rates used estimate the cost of capital, adjusted for risk.

2.3 Key sources of judgements and estimation uncertainty

Impairment of client portfolios

The Group reviews whether acquired client portfolios are impaired at least on an annual basis. This comprises an estimation of the fair value less cost to sell and the value in use of the acquired client portfolios. In assessing value in use, the estimated future cash flows expected to arise from the individual client portfolios are discounted to their present value using the Group's weighted average cost of capital adjusted for tax, which reflects management's estimate of the time value of money and the risks specific to the asset.

The key assumption used in arriving at a fair value less cost of sale are those around valuations based on earnings multiples and values based on assets under management. These have been determined by looking at valuations of similar businesses and the consideration paid in comparable transactions. Management has used a range of multiples resulting in an average of 7.5x EBITDA to arrive at a fair value.

The key assumptions used in respect of value in use calculations are those regarding growth rates and anticipated changes to revenues and costs during the period covered by the calculations. Changes to revenue and costs are based upon management's expectation. The Group prepares its annual budget and five-year cash flow forecasts derived therefrom, thereafter extrapolating these cash flows using a terminal growth rate of 2.5% (2012: 2.5%), which management considers conservative against industry average long-term growth rates.

The carrying amount of client portfolios at 31 May 2013 was £14,475,616 (2012: £13,694,951). No impairments have been made during the year (2012: £nil) based upon the Directors' review.

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill has been allocated. In assessing value in use, the estimated future cash flows expected to arise from the cash-generating unit are discounted to their present value using the Group's weighted average cost of capital adjusted for tax.

The key assumptions used in respect of value in use calculations are those regarding growth rates and anticipated changes to revenues and costs during the period covered by the calculations, based upon management's expectation. The carrying amount of goodwill at 31 May 2013 was £8,734,336 (2012: £8,734,336). No impairments have been made during the year (2012: £nil) based upon the Directors' review.

Capitalised software

The costs of internal software developments are capitalised where they are judged to have an economic value that will extend into the future and meet the recognition criteria in IAS38. Internally generated software is then amortised over an estimated useful life, assessed by taking into consideration the useful life of comparable software packages. The carrying amount of capitalised software at 31 May 2013 was £511,241 (2012: £379,079).

Deferred tax assets

Deferred tax assets include temporary differences related to employee benefits settled via the issue of share options. Recognition of the deferred tax assets assumes share options will have a positive value at the date of vesting, which is greater than the exercise price. The carrying amount of deferred tax assets at 31 May 2013 was £224,978 (2012: £155,980).

Recoverability of accrued time costs

The Group recognises accrued income in respect of time costs incurred on clients' affairs during the accounting period, which have not been invoiced at the reporting date. This requires an estimation of the recoverability of the time costs incurred but not invoiced to clients. The carrying amount of accrued time costs at 31 May 2013 was £2,847,199 (2012: £3,226,616).

Accrued commission income

Accrued commission income is recognised in respect of commissions due to the Group on investments and bank deposits placed during the accounting period which have not been received at the reporting date. This requires an estimation of the amount of commission income that will be received subsequent to the reporting date in respect of the accounting period, which is based on the value of historic commission receipts and investments placed by clients under advice. The carrying amount of accrued commission income at 31 May 2013 was £425,847 (2012: £510,011).

Contingent consideration

The Group has entered into certain acquisition agreements that provide for a contingent consideration to be paid. A provision is recognised for all amounts management anticipates will be paid under the relevant acquisition agreement. This requires management to make an estimate of the expected future cash flows from the acquired client portfolio and determine a suitable discount rate for the calculation of the present value of those cash flows. The carrying amount of contingent consideration provided for at 31 May 2013 was £3,791,667 (2012: £4,750,000).

Provisions

As detailed in Note 11, the Group recognises provisions for client claims, contingent consideration payable on acquisitions, commission clawbacks and other obligations which exist at the reporting date. These provisions are estimates and the actual amount and timing of future cash flows are dependent on future events. Management reviews these provisions at each reporting date to ensure they are measured at the current best estimate of the expenditure required to settle the obligation. Any difference between the amounts previously recognised and the current estimate is recognised immediately in the statement of comprehensive income.

3. Business combinations

Acquisition of Ashcourt Rowan

On 23 April 2013, City Pensions Limited (trading as "City Trustees") acquired the trade and certain assets of Ashcourt Rowan Administration Limited ("ARAL"), 100% of the share capital of Ashcourt Rowan Pension Trustees Limited and 100% of the share capital of Robinson Gear (Management Services) Limited (together "the Pension Business") from Ashcourt Rowan Holdings Limited, a wholly owned subsidiary of Ashcourt Rowan plc.

The acquisition has been accounted for using the acquisition method. The fair values of the identifiable assets and liabilities of the Pension Business as at the date of acquisition were:

	Fair value recognised on acquisition £000	Previous carrying value £000

Client portfolio	1,517	-
Trade receivables	33	104
Prepayments and accrued income	28	28

Total assets	1,578	132

Accruals	53	53
Deferred income and other payables	155	155
Provisions	89	89

Liabilities	297	297

Total identifiable net assets at fair value and total acquisition cost	1,281


Analysed as follows:
Cash paid	656
Deferred contingent consideration	625

	1,281


Cash outflow on acquisition	£000

Cash paid	656
Acquisition costs	54

Net cash outflow	710

The fair value of trade receivables represents amounts receivable from clients in respect of services provided by the Pension Business prior to the date of acquisition. The fair value of trade receivables acquired has been impaired to reflect balances of £71,260 not expected to be recoverable.

From the date of acquisition, the Pension Business has contributed £75,967 to the revenue of the Group and £8,356 to the profit of the Group, prior to amortisation of intangible assets of £25,291 and acquisition costs of £54,488 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 £150,731 and revenue from continuing operations would have been £24,073,434.

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 the performance of the acquired businesses during the period), the Group estimates the net present value of contingent consideration payable within the next 12 months is £1,733,333 (2012: £1,583,333).

On 23 April 2013, the Group acquired the Pension Business for an initial cash consideration of £655,814 plus contingent consideration of up to £625,000 payable in cash in the five years following completion if certain targets are met based on growth in revenues and client retention during that period. The Group estimates the net present value of the contingent consideration to be £625,000 using cash flows approved by the Board covering the contingent consideration period. The effect of discounting the cash flow projections at a rate of equivalent to the benchmark yield on a five-year UK Government bond is not material.

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 £3,166,667 using cash flows approved by the Board covering the contingent consideration period. 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.

4. Revenue

Revenue disclosed in the statement of comprehensive income is analysed as follows:

	2013 £000	2012 £000

Rendering of services	14,879	11,476
Commission income	8,526	9,006

	23,405	20,482

No revenue was derived from exchanges of goods or services (2012: £nil).

5. Segment information

The Group's operating segments remain unchanged but the allocation method has have been amended during the period. Following a review of the Group's operating segments, banking revenues generated from the operation of pension scheme accounts is now included within 'direct pension consultancy and administration' or 'third party pension administration', as appropriate. In prior years, banking revenue was disclosed as part of 'wealth management'. Comparative figures for the year ended 31 May 2012 have been re-stated using the amended allocation basis. The Group's operating segments are as follows:

· 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 and the provision of bespoke scheme banking arrangements;

· Third party pension administration - fees earned by City Trustees for setting up and administering pension schemes under an administration-only model. Additional fees are generated from provision of bespoke scheme banking arrangements;

· Wealth management - income generated from the placing of investments on behalf of clients;

· Property syndicates - income generated where Custodian Capital facilitates direct commercial property investments on behalf of clients; and

· Employee benefits - income generated by the Group's employee benefits operations.

Each segment represents a revenue stream subject to risks and returns that are different to other operating segments, although each operating segment's products and services are offered to broadly the same market. The Group operates exclusively within the United Kingdom.

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).

5. 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 2013 and 2012 respectively.

Year ended 31 May 2013	Direct pension consultancy and administration £000	Third-party pension administration £000	Wealth management £000	Property syndicates £000	Employee benefits £000	Total segments £000	Corporate costs £000	Consolidated £000

Revenue External client	9,049	1,582	6,444	1,958	4,372	23,405	-	23,405

Total revenue	9,049	1,582	6,444	1,958	4,372	23,405	-	23,405

Results Segment result	2,275	285	1,855	435	771	5,621	(983)	4,638

Year ended 31 May 2012 (restated)	£000	£000	£000	£000	£000	£000	£000	£000

Revenue External client	9,217	938	5,414	1,386	3,527	20,482	-	20,482

Total revenue	9,217	938	5,414	1,386	3,527	20,482	-	20,482

Results Segment result	1,657	66	1,718	877	846	5,164	(984)	4,180

Segment assets

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

	31 May 2013	Restated 31 May 2012
	£000	£000

Direct pension consultancy and administration	11,296	12,093
Third-party pension administration	4,395	2,572
Wealth management	6,098	5,743
Property syndicates	1,453	989
Employee benefits	8,179	8,843


Total segments	31,421	30,240
Corporate assets	11,022	9,078

Total assets	42,443	39,318

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 intangibles and amortisation thereon relate to a specific transaction and are allocated between individual operating segments based on the revenue mix of the cash generating units at the time of acquisition. Comparative figures as at 31 May 2012 have been restated using the amended allocation basis set out above. The subsequent delivery of services to acquired clients may be across a number or all operating segments, comprising different operating segments to those the acquired intangibles have been allocated to.

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

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 2013	Restated 31 May 2012
Reconciliation of profit	£000	£000

Total segments	5,621	5,164

Acquisition costs	(175)	(263)
Depreciation	(304)	(275)
Amortisation and impairment	(91)	(83)
Loss on disposal of assets	(23)	(24)
Unallocated overheads	(414)	(371)
Bank charges	(17)	(17)
Finance income	53	56
Finance costs	(12)	(7)

Group profit before tax	4,638	4,180

	31 May 2013	Restated 31 May 2012
Reconciliation of assets	£000	£000

Segment operating assets	31,421	30,240
Property, plant and equipment	1,103	1,019
Intangible assets	823	610
Deferred tax asset	224	141
Prepayments and other receivables	825	1,512
Cash and short-term deposits	8,047	5,796

Total assets	42,443	39,318

6. 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:

	2013 £000	2012 £000

Net profit and diluted net profit attributable to equity holders of the Company	3,607	3,079


Weighted average number of ordinary shares:	000s	000s

Issued ordinary shares at start period	18,137	17,584
Effect of shares issued during the year ended 31 May 2012	-	411
Effect of shares issued during the year ended 31 May 2013	517	310

Basic weighted average number of shares	18,654	18,305

Effect of dilutive options at the statement of financial position date	390	156

Diluted weighted average number of shares	19,044	18,461

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 3.77% 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 2013 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 18.94p per share (2012: 16.68p).

The only transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements have been the issue of 18,400 ordinary shares under the Mattioli Woods plc Share Incentive Plan and 946,256 shares issued as consideration for the acquisition of Thoroughbred Wealth Management Limited (see Note 13).

7. Dividends paid and proposed

	2013 £000	2012 £000

Declared and paid during the year:
Equity dividends on ordinary shares:
- Final dividend for 2012: 3.70p (2011: 3.30p)	673	596
- Interim dividend for 2013: 2.33p (2012: 1.85p)	436	335

Dividends paid	1,109	931
Proposed for approval by shareholders at the AGM:
Final dividend for 2013: 4.67p (2012: 3.70p)	924	673

8. Intangible assets

Group	Internally generated software £000	Software £000	Client portfolios £000	Goodwill £000	Other £000	Total £000
Gross carrying amount:
At 1 June 2011	251	504	8,322	5,430	-	14,507
Additions	161	73	-	-	35	269
Arising on acquisitions	-	-	7,332	3,304	-	10,636

At 31 May 2012	412	577	15,654	8,734	35	25,412
Additions	183	77	-	-	-	260
Arising on acquisitions	-	-	1,517	-	-	1,517
Disposals	-	(1)	-	-	-	(1)

At 31 May 2013	595	653	17,171	8,734	35	27,188

Amortisation and impairment:
At 1 June 2011	-	229	1,339	-	-	1,568
Amortisation during the year	33	54	620	-	-	707

At 31 May 2012	33	283	1,959	-	-	2,275
Amortisation during the year	51	55	737	-	11	854
Disposals	-	(1)	-	-	-	(1)

At 31 May 2013	84	337	2,696	-	11	3,128

Carrying amount:
At 31 May 2013	511	316	14,475	8,734	24	24,060

At 31 May 2012	379	294	13,695	8,734	35	23,137

At 31 May 2011	251	275	6,983	5,430	-	12,939

Company	Internally generated software £000	Software £000	Client portfolios £000	Goodwill £000	Total £000
Gross carrying amount:
At 1 June 2011	250	503	7,124	4,335	12,212
Additions	162	25	-	-	187
Disposals	-	(22)	-	-	(22)

At 31 May 2012	412	506	7,124	4,335	12,377
Additions	183	7	-	-	190

At 31 May 2013	595	513	7,124	4,335	12,567

Amortisation and impairment:
At 1 June 2011	-	229	1,294	-	1,523
Amortisation during the year	33	49	286	-	368
Disposals	-	(3)	-	-	(3)

At 31 May 2012	33	275	1,580	-	1,888
Amortisation during the year	51	40	285	-	376

At 31 May 2013	84	315	1,865	-	2,264

Carrying amount:
At 31 May 2013	511	198	5,259	4,335	10,303

At 31 May 2012	379	231	5,544	4,335	10,489

At 31 May 2011	250	274	5,830	4,335	10,689

Software

Software is amortised over its useful economic life. Internally generated software represents the development costs of the Group's bespoke pension administration platform, "MWeb". The directors believe MWeb will be the principal pension administration platform used throughout the Group for the foreseeable future. Internally generated software is amortised on a straight-line basis over an estimated useful life of 10 years.

Client portfolios

Client portfolios represent individual client portfolios acquired through business combinations. Client portfolios are amortised on a straight-line basis over an estimated useful life of between 10 and 25 years, based on the Group's historic experience.

Goodwill

Goodwill arises where the price paid for an acquisition is greater than the fair value of the net assets acquired. Goodwill arising on business combinations is subject to annual impairment testing.

Other intangibles

Other intangibles represent external costs incurred in obtaining a licence. Other intangibles are amortised on a straight-line basis over a useful economic life of three years.

9. Cash and short-term deposits

For the purpose of the statement of cashflows, cash and cash equivalents comprise the following at 31 May:

	Group 2013 £000	Company 2013 £000	Group 2012 £000	Company 2012 £000

Cash at banks and on hand	8,047	4,554	5,369	2,669
Short-term deposits	-	-	427	-

	8,047	4,554	5,796	2,669

Bank overdrafts	-	-	(654)	(641)

Cash and cash equivalents	8,047	4,554	5,142	2,028

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 £8,046,655 (2012: £5,795,997).

At 31 May 2013, the Group had £5,000,000 (2012: £4,346,363) of undrawn committed borrowing facilities available, in respect of which all conditions precedent had been met.

10. Issued capital and reserves

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

Authorised

At 1 June 2011, 31 May 2012 and 31 May 2013	30,000,000	300,000

Issued and fully paid

At 1 June 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
Exercise of employee share options	567,000	5,670
Shares issued under the SIP	109,328	1,093

At 31 May 2013	18,813,129	188,131

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 £000	Share premium account £000	Capital redemption reserve £000	Retained earnings £000

At 1 June 2011	764	6,290	2,000	12,872
Share based payments	49	-	-	-
Shares issued under the SIP	-	169	-	-
Shares issued on acquisition of Kudos	-	1,182	-	-
Deferred tax asset derecognised in equity	(187)	-	-	-
Profit for the financial year	-	-	-	3,079
Dividends paid	-	-	-	(930)

At 31 May 2012	626	7,641	2,000	15,021

Share based payments	1	-	-	-
Shares issued under the SIP	-	232	-	-
Shares issued on exercise of options		743
Deferred tax asset recognised in equity	31	-	-	-
Profit for the financial year	-	-	-	3,607
Dividends paid	-	-	-	(1,109)
Current tax charge taken to equity	119	-	-	-

At 31 May 2013	777	8,616	2,000	17,519

Other reserves

Company	Equity - share based payments £000	Share premium account £000	Capital redemption reserve £000	Retained earnings £000

At 1 June 2011	764	6,290	2,000	12,871
Share based payments	49	-	-	-
Shares issued under the SIP	-	169	-	-
Shares issued on acquisition of Kudos	-	1,182
Deferred tax asset derecognised in equity	(187)	-	-	-
Profit for the financial year	-	-	-	3,291
Dividends paid	-	-	-	(930)

At 31 May 2012	626	7,641	2,000	15,232

Share based payments	1	-	-	-
Shares issued under the SIP		232
Shares issued on exercise of options	-	743	-	-
Deferred tax asset recognised in equity	31	-	-	-
Profit for the financial year	-	-	-	3,053
Dividends paid	-	-	-	(1,109)
Current tax charge taken to equity	119	-	-	-

At 31 May 2013	777	8,616	2,000	17,176

The following table describes the nature and purpose of each reserve within equity:

Reserve	Description and purpose

Equity - share based payments	The fair value of equity instruments issued by the Company in respect of share based payment transactions.

Share premium	Amounts subscribed for share capital in excess of nominal value less any associated issue costs that have been capitalised.

Capital redemption reserve	Amounts transferred from share capital on redemption of issued shares.

Retained earnings	All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

11. Provisions

Group	Client claims £000	Contingent consideration £000			Dilapidations £000		Clawbacks £000	Employers' NIC on share options £000		Onerous contracts		Other		Total £000

At 1 June 2012	386	4,750			130		357	13		-		-		5,636
Arising during the year	150	-			35		-	51		-		-		236
Acquisitions (Note 3)	20	625			-		-	-		42		26		713
Used during the year	-	(1,583)			-		-	(35)		-		(18)		(1,636)
Unused amounts reversed	-	-			(25)		(16)	-		-		-		(41)

At 31 May 2013	556	3,792			140		341	29		42		8		4,908

Current 2012	386	1,583			-		357	-		-		-		2,326
Non-current 2012	-	3,167			130		-	13		-		-		3,310

At 31 May 2012	386	4,750			130		357	13		-		-		5,636

Current 2013	556	1,733			35		341	-		42		8		2,715
Non-current 2013	-	2,059			105		-	29		-		-		2,193

At 31 May 2013	556	3,792			140		341	29		42		8		4,908
Company			Client claims £000	Contingent consideration £000		Dilapidations £000			Clawbacks £000		Employers' NIC on share options £000		Total £000

At 1 June 2012			248	4,750		86			25		13		5,122
Arising during the year			246	-		35			-		51		332
Used during the year			-	-		-			-		(35)		(35)
Unused amounts reversed			-	(1,583)		-			(16)		-		(1,599)

At 31 May 2013			494	3,167		121			9		29		3,820

Current 2012			248	1,583		-			25		-		1,856
Non-current 2012			-	3,167		86			-		13		3,266

At 31 May 2012			248	4,750		86			25		13		5,122

Current 2013			494	1,583		35			9		-		2,121
Non-current 2013			-	1,584		86			-		29		1,699

At 31 May 2013			494	3,167		121			9		29		3,820

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 3. The Group estimates the net present value of contingent consideration payable within the next 12 months is £1,733,333 (2012: £1,583,333).

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.

Onerous contracts

The Group acquired an onerous contract for the provision of an IT system as part of the acquisition of Ashcourt Rowan's pension business ("the Pension Business"). Management has assessed the expected benefit and costs associated with this contract and concluded that the costs of the obligation exceed the benefit to the extent it is appropriate to provide against the contract in full. No discount rate is applied to the projected cash flows because the contract expires within the next 12 months.

Other

Prior to the Group's acquisition of the Pension Business, its employees had been notified the business was to be restructured, creating a potential liability for certain employee-related costs related to the restructuring. Following acquisition, the Group relocated the Pension Business from Birmingham to Leicester and became liable for those employee-related costs relating to the restructuring. The provision can be quantified and it is regarded as more likely that not that an outflow of resources will be required to settle the obligation. The provision is not discounted due to the short term nature of the provision.

12. Commitments and contingencies

Operating lease agreements - Group as lessee

Mattioli Woods plc 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.

Mattioli Woods plc 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.

Kudos Independent Financial Services Limited has entered into a lease for its premises at 8 Queens Terrace, Aberdeen, which has a duration of ten years from 1 June 2008. The annual rental of £110,000 is to be reviewed as at 1 June 2013 and five yearly thereafter.

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

	Office equipment		Land and buildings
Group	2013 £000	2012 £000	2013 £000	2012 £000

Not later than one year	44	2	533	529
After one year but not more than five years	6	7	1,990	1,950
More than five years	-	-	2,042	2,805

	50	9	4,565	5,284

	Office equipment		Land and buildings
Company	2013 £000	2012 £000	2013 £000	2012 £000

Not later than one year	-	-	374	408
After one year but not more than five years	-	-	1,352	1,343
More than five years	-	-	1,302	1,595

	-	-	3,028	3,346

Group operating lease charges during the year were £524,456 (2012: £539,242) for land and buildings and £27,442 (2012: £5,198) for office equipment.

Capital commitments

At 31 May 2013 the Group had capital commitments of £74,005 associated with the refit of its premises at Grove Park, Enderby and £42,250 associated with the implementation of a new property management system (2012: £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 11).

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 £357,000. 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

The Financial Services Compensation Scheme ("FSCS") has raised an interim levy on the Investment Intermediation sub-class in each of the last two years. This arose from revisions to the FSCS' earlier estimates of the compensation it expected to pay out in each period, following the failure of firms in the Investment Intermediation and General Insurance Intermediation sub-classes.

In the year ended 31 May 2013 the FSCS raised an interim levy of £20m (2012: £60m) from investment intermediaries to pay for the costs of compensating clients in investment failures, to which the Group contributed £29,601 (2012: £58,759). No provision has been made in these financial statements for any FSCS interim levy that may be raised during the year ending 31 May 2014.

13. Events after the reporting date

Acquisition of Thoroughbred Wealth Management Limited

On 29 July 2013, Mattioli Woods plc acquired the entire share capital of Thoroughbred Wealth Management Limited ("TWM") and its subsidiary Atkinson Bolton Consulting Limited ("ABC") from its shareholders for a total consideration of up to £5.99m.

TWM is the holding company of ABC, an employee benefits and wealth management business based in Newmarket, employing 50 staff and providing advice to individuals and companies on all aspects of financial planning. In addition, ABC offers a full discretionary management service and operates its own Open Ended Investment Company. In its latest audited accounts for the year ended 31 December 2012, TWM reported a profit of £613,153 (before shareholders' dividends) on revenues of £2,876,160. At 31 December 2012, TWM's net assets were £1,768,183.

The total consideration consists of an initial consideration of £3.24m, comprising £375,000 cash (subject to adjustment for the value of net assets acquired) and 946,256 ordinary shares in Mattioli Woods, plus deferred consideration of up to £2.75m payable in cash in the four years following completion if certain financial targets are met based on growth in earnings before interest, tax, depreciation and amortisation generated during the period.

As a consequence of the acquisition occurring after the end of the reporting period and the proximity of the date of the acquisition to the date of issue of these consolidated financial statements, the directors are unable to provide the full disclosures required to meet the requirements of IFRS3 relating to acquisitions after the end of the reporting period but before the financial statements are authorised for issue. Specifically, the purchase price allocation process is not yet complete, due to:

· The sellers not being required to deliver completion accounts prepared under UK GAAP until 60 business days after the date of acquisition; and

· The impracticality of measuring each identifiable asset and liability at its IFRS acquisition date fair value for inclusion in these consolidated financial statements before completion accounts have been agreed.

The acquisition will be accounted for using the acquisition method and it is expected the Group will recognise goodwill as a result of revenue synergies available to Mattioli Woods as a result of the transaction and new opportunities available to the combined business as a result of TWM and the existing business becoming part of a larger listed business.

Transaction costs of £120,402 incurred on the acquisition have been expensed in the year ended 31 May 2013 and are included in administrative expenses in the consolidated statement of comprehensive income and operating cash flows in the statement of cash flows.

The fair values to be attributed to the assets acquired and liabilities assumed will be finalised during the year following acquisition. A fair value table will be presented in Mattioli Woods' interim report for the six months ending 30 November 2013 and its consolidated financial statements for the year ending 31 May 2014. The directors' estimate of the fair values of the identifiable assets and liabilities of TWM if the acquisition had been completed on 30 June 2013, for illustrative purposes only, are as follows:

	Illustrative fair value to be recognised on acquisition (unaudited) £000	Previous carrying value (unaudited) £000


Tangible fixed assets	58	58
Goodwill	979	979
Client portfolio	3,576	-
Investments	23	23
Cash	1,748	1,748
Trade and other receivables	157	157

Assets	6,541	2,965

Trade and other payables	(381)	(381)
Income tax payable	(315)	(315)
Deferred income and other payables	(83)	(83)
Other taxation and social security	(84)	(84)
Deferred tax liability	(832)	(9)

Liabilities	(1,695)	(872)

Total identifiable net assets at fair value	4,846
Goodwill arising on acquisition	1,460

Total acquisition cost	6,306

Analysed as follows:
Initial cash consideration	375
Completion net asset adjustment	314
New shares in Mattioli Woods	2,867
Deferred contingent consideration	2,750

	6,306


Cash outflow on acquisition	£000

Cash paid	(689)
Acquisition costs	(180)
Net cash acquired with the subsidiary	1,748

Net cash inflow	879

It is not expected any goodwill arising on acquisition will be deductible for income tax. The client portfolio will be amortised on a straight-line basis over an estimated useful life based on the Group's historic experience.

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 23% to 21% from 1 April 2014, with a further 1% reduction to a rate of 20% from 1 April 2015.

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 deferred tax assets and liabilities in the Group's statement of financial position.

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 2012 or 2013. 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 10 October 2013 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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