Final Results

Companies

Latest directors dealings

3 September 2019

UK 100

RNS Number : 9760K

Mattioli Woods PLC

03 September 2019

Mattioli Woods plc

("Mattioli Woods", "the Company" or "the Group")

Final results

Mattioli Woods plc (AIM: MTW.L), the specialist wealth management and employee benefits business, today reports its final results for the year ended 31 May 2019.

Financial highlights

· Revenue £58.5m (2018: £58.7m)

· Recurring revenues¹ represent 90.2% (2018: 84.8%)

· Operating profit before financing up 2.1% to £9.8m (2018: £9.6m):

- £0.1m (2018: £0.5m) gain on revaluation of Amati option

· Adjusted EBITDA² up 16.0% to £14.5m (2018: £12.5m):

- Adjusted EBITDA margin³ of 24.8% (2018: 21.3%)

· Profit before tax up 4.1% to £10.2m (2018: £9.8m)

· Adjusted profit before tax⁴ up 8.8% to £12.3m (2018: £11.3m)

· Basic EPS 30.8p (2018: 30.8p)

· Adjusted EPS⁵ up 8.4% to 37.3p (2018: 34.4p)

· Proposed total dividend up 17.6% to 20.0p (2018: 17.0p)

· Strong financial position with net cash⁶ of £23.2m (2018: £20.2m)

Operational highlights and recent developments

· Revenue mix remains primarily fee based

· Improving margin through operational efficiencies whilst lowering clients' costs by £3.1m

· Total client assets of the Group and its associate⁷ up 7.4% to £9.38bn (2018: £8.73bn)

· Gross discretionary AuM⁸ up 9.8% to £2.57bn (2018: £2.34bn)

· Recent acquisitions performing and integrating well

· Continued investment in technology, compliance and training

Commenting on the results, Ian Mattioli MBE, Chief Executive Officer, said:

"I am pleased to report another successful year, with operating profit before financing up 2.1% to £9.8m (2018: £9.6m) and profit before tax up 4.1% to £10.2m (2018: £9.8m), enhanced by an increased share of profit of £0.5m (2018: £0.2m) from our 49% associate Amati.

"Adjusted EBITDA was up 16.0% to £14.5m (2018: £12.5m), primarily driven by the economies of scale and operational efficiencies our integrated model offers, which we have used to reduce clients' costs, while delivering sustainable returns for our shareholders.

"Adjusted EPS increased 8.4% to 37.3p (2018: 34.4p). Accordingly, the Board is pleased to recommend the payment of an increased final dividend of 13.67 pence per share (2018: 11.5 pence). This makes a proposed total dividend for the year of 20.0 pence (2018: 17.0 pence), a year-on-year increase of 17.6% (2018: 20.6%), demonstrating our desire to deliver value to shareholders and confidence in the outlook for our business.

"Recent acquisitions are performing and integrating well, with the financial result for the year including positive contributions from Broughtons and SSAS Solutions, which were acquired in August 2018 and March 2019 respectively. With continuing consolidation across the key markets in which we operate, we expect there will be further opportunities to accelerate our growth by acquisition.

"We continue to streamline our business, drive increased efficiency and reinforce our purpose to grow and preserve our clients' assets, while giving them control and understanding of their overall financial position. Uncertainty around Brexit will continue to impact investor and consumer sentiment in the short-term, but we are confident that our focus on addressing the changing needs of our clients will position us well to deliver future growth and continued sustainable shareholder returns."

For further information please contact:

Mattioli Woods plc
Ian Mattioli MBE, Chief Executive Officer
Nathan Imlach, Chief Financial Officer	Tel: +44 (0) 116 240 8700
Simon Gibson, Chief Investment Officer	www.mattioliwoods.com

Canaccord Genuity Limited (Nominated Adviser and Joint Broker)
Sunil Duggal
David Tyrrell	Tel: +44 (0) 20 7523 8000
	www.canaccordgenuity.com

N+1 Singer (Joint Broker)
Richard Lindley, Corporate Finance
Justin McKeegan, Corporate Finance	Tel: +44 (0) 20 7496 3000
Tom Salvesen, Corporate Broking	www.n1singer.com

Media enquiries:

Camarco
Ed Gascoigne-Pees	Tel: +44 (0) 20 3757 4984
	www.camarco.com

Analyst presentation

There will be an analyst presentation to discuss the results at 09:30am today at Canaccord Genuity Limited, 88 Wood Street, London, EC2V 7QR.

Those analysts wishing to attend are asked to contact Ed Gascoigne-Pees at Camarco on +44 (0) 20 3757 4984 or at ed.gascoigne-pees@camarco.co.uk.

Strategic report

Chairman's statement

I am pleased to report another successful year for Mattioli Woods. Profit before tax was up 4.1% to £10.2m (2018: £9.8m), with adjusted profit before tax up 8.8% to £12.3m (2018: £11.3m) and adjusted EBITDA up 16.0% to £14.5m (2018: £12.5m). This performance has been achieved despite the ongoing political and economic uncertainties and generally poor investor sentiment during the year ended 31 May 2019.

Throughout the year we maintained our focus on client service and developing our customer proposition. As highlighted in our July trading update, a combination of the Group reducing costs for our clients by £3.1m and the general market conditions, which resulted in reduced levels of investment by clients, led to marginally lower than expected revenue of £58.5m (2018: £58.7m). However, the financial impact of this was more than offset by the realisation of operational efficiencies and other planned administrative cost savings, resulting in an increased operating margin⁹ of 16.8% (2018: 16.4%) and adjusted EBITDA margin of 24.8% (2018: 21.3%), meaningfully ahead of our 20%+ target.

Our integrated business model allows us to address more of the value chain across advice, administration, platform, investment management and product provision. We have used the resultant economies of scale and operational efficiencies to reduce clients' costs, while delivering the sustainable returns for our shareholders that we are proud to have delivered over many years.

We remain committed to growing the dividend, while maintaining an appropriate level of dividend cover. Accordingly, the Board is pleased to recommend the payment of an increased final dividend of 13.67 pence per share (2018: 11.5 pence). This makes a proposed total dividend for the year of 20.0 pence (2018: 17.0 pence), a year-on-year increase of 17.6%.

Our strategy

Previously, we have set out our ambitions to grow revenue to £100m and total client assets to £15bn, while maintaining an EBITDA margin of 20%+. As we work towards these goals our strategy remains focused on achieving sustainable levels of organic growth, supplemented by strategic acquisitions that enhance value and broaden or deepen our expertise and services to better serve our clients.

In March, we were delighted to announce the acquisition of SSAS Solutions (UK) Limited ("SSAS Solutions"), which is based in Belfast and acts as SSAS practitioner to over 350 schemes with approximately £380m of assets under administration. This followed the acquisition of Broughtons Financial Planning Limited ("Broughtons") in the first half of the financial year, which has integrated well and contributed positively to our trading results since acquisition.

We will seek to build on our track record of successful acquisitions by continuing to assess a diverse pipeline of potential acquisition opportunities that meet our strict criteria, believing further consolidation within our core markets remains likely.

Our people

We are a business built on the integrity and expertise of our people. By putting clients first we are able to continue building a business that is sustainable over the long-term and our people have responded positively as the business has evolved and the financial services industry continues to go through a period of unprecedented change. Operational achievements over the past year include:

· A seamless move to our new freehold office at New Walk in Leicester, incurring significantly lower relocation costs than anticipated. This development allows us to benefit from future rental savings of approximately £0.85m per annum, whilst providing a modern office facility with the capacity for growth;

· The successful implementation of a cloud-hosted IT architecture across the Group;

· The introduction of an integrated human resource management and payroll system;

· The launch of a refreshed Mattioli Woods brand;

· Implementation of changes to the regulatory regime (General Data Protection Regulations ("GDPR") and the Markets in Financial Instruments Directive II ("MiFID II")) and preparation for the introduction of the Senior Managers and Certification Regime; and

· Continued investment to improve our client and service proposition.

We are committed to developing our staff and building the capacity to deliver sustainable growth over the long-term. As part of our normal planning, we monitor the Group's capabilities and assess what new skills are necessary to strengthen the business over time, taking account of the existing balance of knowledge, experience and diversity.

We are dedicated to maintaining our culture of putting clients first, encouraging a collegiate approach and preserving our integrity. I would like to thank all our staff for their continued commitment, enthusiasm and professionalism in dealing with our clients' affairs.

Governance and the board

Good corporate governance continues to be a priority for us. We strive for high standards in our own corporate governance and disclosure, and in July 2018 we adopted the QCA Corporate Governance Code.

The Board remains committed to developing the corporate governance and management structures of the Group to ensure they continue to meet the changing needs of the business. Murray Smith, Group Managing Director, has decided to stand down from the Board at the Company's next Annual General Meeting ("AGM") on 21 October 2019 to continue in a full-time role as Founder Director to the Group, where his focus will be on his client portfolio, acquisitions and acting as an ambassador for Mattioli Woods.

Murray has been instrumental to the success of the Group and we will continue to benefit from his experience and insight in this new role, with Murray's management responsibilities being handed over to our Deputy Group Managing Director, Michael Wright.

Following Murray's cessation as a director, the Company will have a Board with a majority of independent directors, which we believe represents the right governance structure for the business.

Shareholders

During the year we have engaged with shareholders through various channels, including company-hosted events, group meetings and one-to-one meetings. We are fortunate to have a number of supportive institutional shareholders with a significant investment in the Group and welcome opportunities to talk to all our shareholders, large and small. We will continue to maintain a regular and constructive dialogue with them, while seeking to broaden our shareholder base.

Outlook

Investment markets look likely to remain volatile but we believe the opportunity for Mattioli Woods is significant, as people seek to take charge of their money and manage it through the generations. At the same time, savings and investments are becoming more complicated and regulatory requirements continue to increase. The inherent agility within our business model allows us to adapt to the changing wealth and asset management marketplace. Clients need long-term advice and personalised strategies more than ever before. We will continue to focus on reducing clients' costs without compromising client service, whilst delivering high quality solutions.

We continue to streamline our business, drive increased efficiency and reinforce our purpose to grow and preserve our clients' assets, while giving them control and understanding of their overall financial position. Uncertainty around Brexit will continue to impact investor and consumer sentiment in the short-term, but we are confident that our focus on addressing the changing needs of our clients will position us well to deliver future growth and continued sustainable shareholder returns.

Joanne Lake

Chairman

2 September 2019

Strategic report

Chief Executive's review

Introduction

I am pleased to report another successful year, with operating profit before financing up 2.1% to £9.8m (2018: £9.6m) and profit before tax up 4.1% to £10.2m (2018: £9.8m), enhanced by an increased share of profit of £0.5m (2018: £0.2m) from our 49% associate Amati.

Given the success of this relationship, which in the year ended 31 May 2019 also contributed a £0.1m (2018: £0.5m) gain on the revaluation of our option to acquire the other 51% of Amati, we believe the Group retaining a 49% minority interest is the optimal structure for all stakeholders and in June 2019 we cancelled our option in return for a £0.75m payment from the Amati management team, as agreed in the heads of terms signed prior to the year end.

Adjusted EBITDA was up 16.0% to £14.5m (2018: £12.5m), primarily driven by the economies of scale and operational efficiencies our integrated model offers, which we have used to reduce clients' costs, while delivering sustainable returns for our shareholders. In recent years we have demonstrated that one of the key benefits of operating an integrated model is the ability to reduce our fees and charges where possible, including:

· Reducing the custody charge for all those clients using our core investment platform;

· Reducing the rate of Custodian Capital's property management fees charged to Custodian REIT, plus a step down in the rate of administrative fees charged;

· The launch of the Mattioli Woods Structured Products Fund, charging significantly less than individual structured product plans had done historically; and

· Reducing adviser charges on our clients' investments in Custodian REIT and the Mattioli Woods' Structured Products Fund.

The aggregate impact of these changes in the year ended 31 May 2019 was a £3.1m (2018: £2.4m) reduction in clients' costs, with the negative revenue impact of this, more volatile market conditions and an increase in the number of clients focusing on wealth preservation being partially offset by £1.1m of revenue from acquisitions in the year. Revenue was £58.5m (2018: £58.7m), with growth in prior periods primarily driven by increased client activity following the pension freedoms coming into effect in 2015. Although the flow of new business generated by our consultancy team was impacted by ongoing political and economic uncertainties and generally poor investor sentiment throughout the period, a total of 762 (2018: 1,335) new SIPP, SSAS and personal clients chose to use Mattioli Woods during the year.

We have previously stated our belief that fees for financial services in the UK are generally too expensive. The Financial Conduct Authority ("FCA") is reviewing the impact of the Retail Distribution Review ("RDR") and the Financial Advice Market Review ("FAMR"), and recently published a consultation paper proposing new rules to avoid consumers being hit with unnecessary ongoing advice charges. The FCA has expressed its concern that when combined with multiple layers of charging such as platform charges, fees for discretionary fund management and product charges, advisers are not giving sufficient attention to value for money. This may lead to regulatory pressure on the sector to reduce the cost to consumers. Given the work we've done to date and our long-term aim to reduce clients' total expense ratios ("TERs") towards 1%, we believe we are well-positioned as the market changes and evolves.

We have also sought ways to reduce our clients' costs elsewhere in the value chain, including:

· Reducing ongoing charges within our clients' discretionary portfolios;

· Creating a range of multi asset funds to further reduce costs and improve investment efficiency, administration and reporting for clients; and

· Securing a VAT exemption for the management of certain clients' pension schemes that constitute a 'special investment fund', reclaiming £3.5m of VAT on their behalf.

In addition to adding new clients, we continue to enjoy strong client retention and anticipate that there will be sustained demand for advice from clients, driven by lifestyle, increasing longevity, tax and other legislative changes, particularly when the implications of the UK's withdrawal from the European Union become clear.

Our success has been based upon the delivery of quality advice, growing our clients' assets and enhancing their financial outcomes. Total client assets under management, administration and advice by the Group and its associate increased by 7.4% to £9.38bn (2018: £8.73bn) notwithstanding the negative market movements during the year.

In meeting our clients' investment needs we generally use third parties' funds, but where we have the particular expertise and a more appropriate investment product, we look to meet those needs in-house. This has led to the innovative development of our Private Investors Club, Custodian REIT and the Mattioli Woods Structured Products Fund, in addition to the funds managed by Amati.

These bespoke investment services enjoyed aggregate net inflows (before market movements) of £265.2m (2018: £452.1m), with gross discretionary assets under management by the Group and its associate increasing to £2.57bn (2018: £2.34bn) at the year end. The value of assets held within our Discretionary Portfolio Management service increased by 3.7% to £1.39bn (2018: £1.34bn), of which £132.3m or 9.5% (2018: £121.0m or 9.0%) is invested within funds managed by the Group and its associate. We plan to continue developing new products and services to better deal with our clients' needs, using the best of what we have and the best of what other providers can offer.

Recent acquisitions are performing and integrating well, with the financial result for the year including positive contributions from Broughtons and SSAS Solutions, which were acquired in August 2018 and March 2019 respectively.

We believe securing economies of scale, such as rebates on fund managers' charges and other benefits of operating our integrated model will allow us to improve client outcomes and reduce clients' TERs. By putting our clients first and building our reputation of integrity through the cycle, we have created a business focused on positive client outcomes that can deliver sustainable shareholder returns over the long-term.

Market overview

Mattioli Woods operates within the UK's financial services industry, which is subject to the effects of volatile markets, economic conditions and regulatory changes. Our markets are highly fragmented and serviced by a wide range of suppliers offering diverse services to both individual and corporate clients. These markets remain highly competitive and in recent years we have seen a period of unprecedented change in regulation and legislation.

As the demand for high-quality, personalised advice and the potential market for our products and services continue to grow, so do the costs of regulation, with the Financial Services Compensation Scheme ("FSCS") announcing an increase in its levy for 2019/20 after an uplift in claims against SIPP operators, resulting in the Group's regulatory fees and levies for the 12 months ending 31 March 2020 almost doubling to £0.7m.

Pricing fairness and competition continue to attract regulatory scrutiny and we believe our focus on client service and the inherent flex within our business model will allow us to continue to adapt to the changing wealth and asset management marketplace.

Both MiFID II and the GDPR came into effect last year and we continue to prepare for other regulatory and legislative changes already in train, including the Senior Managers and Certification Regime ("SM&CR").

Considerable uncertainty remains across the financial services sector: the outcome of Brexit is still unknown and the impact of new rules on markets will take time to become clear as we shift from a period of implementing new regulations to one of ongoing supervision.

While there remains uncertainty around Brexit it will continue to impact markets and consumer confidence. Financial decision making is more difficult and clients may be reluctant to make decisions or to invest in more volatile markets, preferring to sit on the side-lines. Our diversified model means we are well-positioned to proactively advise our clients whilst protecting returns through the cycle. We anticipate that we may see increased investment activity and an increased demand for advice once the shape of Brexit becomes clearer.

However, we are conscious the UK's exit from the European Union might raise unexpected challenges, including those arising from any broader impact that Brexit might have on the UK economy, politics or on the operation of European-based funds, such as the Mattioli Woods Structured Products Fund.

The FAMR published by the FCA and HM Treasury in 2016 made a series of recommendations designed to tackle barriers to consumers engaging with financial advice, particularly through the use of technology. We continue to invest in the development of our IT platform and completed several projects during the year, including the implementation of a cloud-hosted IT architecture, which offers the Group enhanced data security, business continuity and scalability for future growth, and the introduction of an integrated human resource management and payroll system that allows us to engage with all of our people through one platform.

Our services

Our core pension and wealth management offering serves the higher end of the market, including controlling directors and owner-managed businesses, professionals, executives and retirees. Our broad range of employee benefit services is targeted towards medium-sized and larger corporates. The Group has developed a broader wealth management proposition in recent years, which has grown from its strong pensions advisory and administration expertise. The mix of income derived from the Group's four key revenue streams changed slightly during the year, summarised as follows:

· 44.4% investment and asset management (2018: 42.7%);

· 34.9% pension consultancy and administration (2018: 37.1%);

· 11.1% property management (2018: 10.1%); and

· 9.6% employee benefits (2018: 10.1%).

We aim to operate a seamless structure, allowing us to cover all aspects of wealth management and employee benefits. Our key objectives are:

· Maintaining long-term relationships and delivering great outcomes for our clients;

· Proactively anticipating our clients' needs to deliver on their expectations;

· Investing in our people and technology to service greater business volumes at a lower cost;

· Sharing knowledge and ideas between ourselves and others for mutual benefit;

· The development of our market standing through the integrity and expertise of our people;

· Extending our range of products and services, seeking to attract new clients both organically and via strategic acquisitions; and

· Being proud of our charitable and community spirit, supporting staff and local and national charities.

Assets under management, administration and advice

Unlike many wealth managers, the majority of the Group's revenues are fee-based, rather than being linked to the value of assets under management, administration or advice¹⁰, giving our business a revenue profile that is less sensitive to market performance. Acquisitions during the year added £0.50bn of client assets, with Group and its associate's total client assets increasing by 7.4% to £9.38bn at 31 May 2019 (2018: £8.73bn) as follows:

Assets under management, administration and advice¹¹	SIPP and SSAS¹² £m	Employee benefits £m	Personal wealth and other assets £m	Sub-total £m	Amati¹³ £m	Total £m

At 1 June 2018	5,485.9	1,237.9	1,719.4	8,443.2	286.0	8,729.2

Broughtons	-	-	120.5	120.5	-	120.5
SSAS Solutions	380.0	-	-	380.0	-	380.0

Acquisitions during the year	380.0	-	120.5	500.5	-	500.5
Net inflows/(outflows), including market movements	185.7	(41.2)	(114.7)	29.8	123.0	152.8

At 31 May 2019	6,051.6	1,196.7	1,725.2	8,973.5	409.0	9,382.5

The £653.3m increase in total client assets during the year is analysed as follows:

· A £565.7m increase (2018: £454.6m) in SIPP and SSAS funds under trusteeship, with a 5.6% (2018: 5.1%) increase in the number of schemes being administered at the year end, comprising a 3.7% (2018: 13.5%) increase in the number of direct¹⁴ schemes to 6,051 (2018: 5,834) and a 7.9% increase (2018: 3.7% decrease) in the number of schemes the Group operates on an administration-only basis to 5,068 (2018: 4,699) following the acquisition of SSAS Solutions. In recent years we have been appointed to operate or wind-up a number of SIPP portfolios following the failure of their previous operators, with lost schemes including the transfer of certain members of these distressed portfolios to more appropriate arrangements;

· A £41.2m decrease (2018: £135.6m increase) in the value of assets held in the corporate pension schemes advised by our employee benefits business, following the loss of some larger corporate clients in the year. Revenues in our employee benefits business are not linked to the value of client assets in the way certain of our wealth management revenue streams are;

· A £5.8m (2018: £81.3m) increase in personal wealth and other assets under management and advice, with the acquisition of Broughtons and 254 (2018: 291) new personal clients won during the year driving a 2.5% (2018: 1.5%) increase in the total number of personal clients¹⁵ to 6,052 (2018: 5,902); and

· A £123.0m (2018: £132.2m) increase in Amati's funds under management (excluding Mattioli Woods' client investments), primarily through the growth of the TB Amati UK Smaller Companies Fund to £291.1m (2018: £166.3m) at 31 May 2019.

I would like to congratulate the Amati team on being named 'Fund Manager of the Year' at the Investment Week Fund Manager of the Year Awards in June 2019. Amati is an excellent fund manager that has performed strongly since Mattioli Woods' investment, seeing gross funds under management¹⁶ increase from circa £120.0m to £452.8m (2018: £325.1m) at the year end, winning numerous industry awards and having the TB Amati UK Smaller Companies fund rated by three major fund research houses. As a result of Amati's strong performance the Group's share of its profits increased to £0.5m (2018: £0.2m).

Key performance indicators

The directors consider the key performance indicators ("KPIs") for the Group are as follows:

Strategy/objective	Performance indicator	Further explanation
Organic growth and growth by acquisition	Revenue - total income (excluding VAT) from all revenue streams.	See 'Revenue'.
Operating efficiency	Adjusted EBITDA margin - profit generated from the Group's operating activities before financing income or costs, taxation, depreciation, amortisation, impairment, changes in valuation of derivative financial instruments and acquisition-related costs, including share of profit from associates (net of tax), divided by revenue.	See 'Profitability and earnings per share'.
Shareholder value and financial performance	Adjusted Earnings Per Share ("EPS") - total comprehensive income for the year, net of taxation, attributable to equity holders of the Company, adjusted to add back acquisition-related costs, gain on revaluation of derivative financial assets, non-cash interest charges on the unwinding of discounts on long‑term provisions and the amortisation of acquired intangible assets, divided by the weighted average number of ordinary shares in issue.	See 'Profitability and earnings per share'.
Growth in the value of assets under management, administration and advice	Assets under management, administration and advice - the value of all client assets the business gives advice upon, manages or administers.	See 'Assets under management, administration and advice'.
Excellent client service and retention	Client attrition - the number of direct SSAS and SIPP schemes lost as a result of death, annuity purchase, external transfer or cancellation as a percentage of average scheme numbers during the period).	See 'Segmental review'.
Financial stability	Debtors' days - this is the average number of days' sales outstanding in trade receivables at any time.	See 'Cash flow'.
Financial stability	Surplus on regulatory capital requirement - this is the aggregate surplus on the total regulatory capital requirement of the Group.	See 'Regulatory capital'.

Financial performance and future developments

Revenue

Total Group revenue was £58.5m (2018: £58.7m), with the changing revenue mix across each of the Group's operating segments explained in more detail below. With effect from 1 June 2018 the Group adopted the new accounting standard IFRS 15 'Revenue from Contracts with Customers', with there being no material differences between the results for the year ended 31 May 2019 under IAS 18 'Revenue', had it applied, and those reported under IFRS 15.

Revenue included £1.1m (2018: £nil) from the Broughtons and SSAS Solutions businesses acquired during the year. We have identified a number of key strategic objectives to drive efficiency and effectiveness across the Group, streamlining processes, building a scalable operating model and making Mattioli Woods easier to do business with. We expect these changes will deliver further material cost savings for us and our clients.

Our focus remains on delivering great outcomes for our clients as we address their changing needs, with our ambition being to see our brand become an even stronger force in the UK financial services sector.

Employee benefits expense

As in previous years, the major component of the Group's operating costs is our employee benefits expense of £31.2m (2018: £32.1m) representing 53.3% of revenue (2018: 54.7%). Securing economies of scale and operational efficiencies, particularly through the integration of acquired businesses and clients, are key elements of our aim to reduce clients' TERs and we are pleased to have increased average consultant and client relationship manager caseloads during the year.

Due to the lease on the Group's office in Hampton-in-Arden expiring in June 2019 and the proximity of this location to Leicester, we relocated our MC Trustees business to our new Leicester office in the first half of the financial year, resulting in some voluntary redundancies and the Group's average headcount during the year falling to 600 (2018: 618) at 31 May 2019.

We have also reviewed our approach to consultancy development, with the number of consultants reducing to 115 (2018: 133) at the year end, following the retirement of several vendors of acquired businesses on completion of their earn-outs, restructuring of our employee benefits business and a new consultancy development programme going live in December 2018. We continue to invest in our IT systems, compliance and training across all parts of the Group, with the aim of delivering further operational efficiencies and benefiting from further economies of scale.

Other administrative expenses

Other administrative expenses fell to £11.7m (2018: £12.6m), with the impact of additional regulatory and compliance costs following the introduction of MiFID II, increased IT costs after moving to a cloud-hosted infrastructure and changes in revenue mix increasing irrecoverable VAT being more than offset by the impact of lower headcount on variable costs and significantly lower than anticipated costs incurred on the Group's exit from its previous premises at Grove Park.

We completed a seamless move to the new office. This more flexible working environment allows us to continue growing the business and realise further operational efficiencies, whilst ensuring our client services remain first class. In addition, we will benefit from future rental savings of approximately £0.85m per annum.

With effect from 1 June 2018 the Group adopted the new accounting standard IFRS 9 'Financial Instruments', which replaced IAS 39 'Financial Instruments: Recognition and Measurement' and introduces changes to the classification of financial assets and a new impairment model for financial assets, resulting in earlier recognition of impairment losses. The impact, net of tax, of the transition to IFRS 9 on the opening balance of consolidated retained earnings was a reduction in value of £0.25m.

Share based payments

Share based payments costs fell to £1.1m (2018: £1.5m) following the settlement of all outstanding cash-settled options in the prior year, with strong share price growth in previous periods having increased the costs associated with the cash-settled options.

Loss on disposal of property, plant and equipment

The loss on disposals of property, plant and equipment of £0.1m (2018: £0.1m) was incurred primarily on the disposal of consultants' cars.

Gain on revaluation of derivative financial instrument

The gain of £0.1m (2018: £0.5m) represents the increase in value of the Group's option to acquire a further 51% of Amati, which was cancelled following the year end in return for a £0.75m payment from the management team.

Net finance costs

The Group has maintained a positive net cash position throughout the year, with net finance costs of £0.03m (2018: £0.08m) reflecting credit interest of £0.06m (2018: £0.07m) being offset by £0.09m (2018: £0.15m) of non-cash interest charges on the unwinding of discounts on long‑term provisions.

Taxation

The effective rate of taxation on profit on ordinary activities was 20.0% (2018: 16.2%), above (2018: below) the standard rate of tax of 19.0% (2018: 19.0%), primarily due to certain expenses associated with sponsorship and other business development activities not being deductible for tax purposes.

The lower effective rate in the prior year was due to research and development relief claimed in respect of the two years ended 31 May 2017. The net deferred taxation liability carried forward at 31 May 2019 was £3.8m (2018: £2.8m).

Alternative performance measures

The Group has identified certain measures that it believes will assist in the understanding of the performance of the business. Adjusted EBITDA, adjusted profit before tax ("adjusted PBT"), adjusted profit after tax ("adjusted PAT") and adjusted EPS are non-GAAP alternative performance measures, considered by the Board to provide additional insight on business performance compared to looking at the Group's results on a statutory basis only.

These alternative performance measures may not be directly comparable with other companies' adjusted measures and are not intended to be a substitute for, or superior to, any IFRS measures of performance. However, the Board considers them to be important measures for assessing performance, used widely within the business and by research analysts covering the Company.

Supporting calculations for alternative performance measures and reconciliations between alternative performance measures and their IFRS equivalents are set out in the Alternative performance measure workings section of the Annual Report.

Profitability and earnings per share

Profit before tax was up 4.1% to £10.2m (2018: £9.8m), with adjusted profit before tax up 8.8% to £12.3m (2018: £11.3m). A continued focus on operational efficiencies and the realisation of one-off and recurring administrative cost savings translated into strong growth in adjusted EBITDA up 16.0% to £14.5m (2018: £12.5m), with adjusted EBITDA margin of 24.8% (2018: 21.3%).

The Board considers adjusted EBITDA to be a relevant measure for investors who want to understand the underlying profitability of the Group, adjusting for items that are non-cash or affect comparability between periods as follows:

	2019	2018
	£m	£m

Statutory operating profit before financing	9.8	9.6
Amortisation of acquired intangibles	1.9	1.8
Amortisation of software	1.0	0.5
Depreciation	1.3	0.8

EBITDA¹⁷	14.0	12.7

Share of associate profits (net of tax)	0.5	0.2
Acquisition-related costs	0.1	0.1
Gain on revaluation of Amati option	(0.1)	(0.5)

Adjusted EBITDA¹⁸	14.5	12.5

Adjusted PBT, adjusted PAT and adjusted EPS are additional measures the Board considers to be relevant for investors who want to understand the underlying earnings of the Group, excluding items that are non-cash or affect comparability between periods as follows:

	Profit 2019	EPS 2019	Profit 2018	EPS 2018
	£m	pps	£m	pps

Statutory profit before tax	10.2	38.5	9.8	36.8
Income tax expense	(2.0)	(7.7)	(1.6)	(6.0)

Statutory profit after tax / Basic EPS	8.2	30.8	8.2	30.8

Statutory profit before tax	10.2	38.5	9.8	36.8
Amortisation of acquired intangibles	1.9	7.2	1.8	6.6
Gain on revaluation of Amati option	(0.1)	(0.4)	(0.5)	(2.0)
Non-cash interest charges on provisions	0.1	0.3	0.2	0.6
Acquisition-related costs	0.1	0.5	0.1	0.5

Adjusted PBT	12.3	46.1	11.3	42.5
Income tax expense at standard rate	(2.3)	(8.8)	(2.1)	(8.1)

Adjusted PAT / Adjusted EPS¹⁹	9.9	37.3	9.1	34.4

As explained in Note 9, client portfolios acquired through business combinations are recognised as intangible assets. The amortisation charge for the year of £1.9m (2018: £1.8m) associated with these intangible assets has been excluded from adjusted PAT and adjusted EPS because the Board reviews the performance of the business before these charges, which are non-cash and do not apply evenly to all business units.

Adjusted EPS²⁰ increased 8.4% to 37.3p (2018: 34.4p), while basic EPS was 30.8p (2018: 30.8p), with profits for the year stated after recognising a smaller gain on revaluation of the Amati option and £0.6m of accelerated amortisation on existing IT systems. EPS was also impacted by the higher effective tax rate of 20.0% (2018: 16.2%) and the issue of 380,766 shares under the Company's share plans, 77,171 shares as part of the initial consideration for the Broughtons acquisition and 162,654 shares as part of the initial consideration for the SSAS Solutions acquisition. Diluted EPS was 30.7p (2018: 30.8p).

Dividends

The Board is pleased to recommend the payment of an increased final dividend of 13.67 pence per share (2018: 11.5 pence). This makes a proposed total dividend for the year of 20.0 pence (2018: 17.0 pence), a year-on-year increase of 17.6% (2018: 20.6%), demonstrating our desire to deliver value to shareholders and confidence in the outlook for our business. The Board remains committed to growing the dividend, while maintaining an appropriate level of dividend cover. If approved, the final dividend will be paid on 25 October 2019 to shareholders on the register at the close of business on 13 September 2019, having an ex-dividend date of 12 September 2019.

The Company offers shareholders the option to invest their dividends in a Dividend Reinvestment Plan ("DRIP"). The DRIP is administered by the Company's registrar, Link Asset Services ("Link"), which uses cash dividend payments to which participants in the DRIP are entitled to purchase shares in the market, which means the Company does not need to issue new shares and avoids diluting existing shareholdings.

For the DRIP to apply to the proposed final dividend for the year ended 31 May 2019, shareholders' instructions must be received by Link by 27 September 2019.

Cash flow

Opening cash balances of £23.7m (2018: £23.0m) included £3.5m of VAT reclaimed on behalf of clients, of which £3.4m was distributed during the year, with cash generated from operations falling to £11.0m or 78% of EBITDA (2018: £18.2m or 143%). An improvement in operating profit margin before changes in working capital and provisions to 25.8% (2018: 23.3%) was offset by a £4.1m increase (2018: decrease of £4.5m) in the Group's working capital requirement, comprising:

· A £4.2m decrease (2018: £5.1m increase) in trade and other payables, excluding £0.7m of trade and other payables added on the acquisition of Broughtons and SSAS Solutions, due to:

- a £3.4m decrease in other payables due to VAT reclaimed on behalf of clients in the prior financial year being repaid to clients this year;

- a £0.6m decrease in trade payables, primarily due to the timing of stage payments on the internal fit-out of the Group's new office in Leicester;

- a £0.4m decrease in current income tax liabilities outstanding at the year end, with a £0.4m increase in corporation tax paid during the year; and

- a £0.2m increase in social security and other taxes outstanding at the year end;

· A £0.7m decrease (2018: £1.0m increase) in trade and other receivables, due to:

- a £1.2m decrease in other receivables (excluding £0.4m added with recent acquisitions), with £0.8m due to client insurance costs being recharged prior to the year end this year and a £0.3m net repayment of loans advanced to investment syndicates;

- a £0.3m increase in prepayments, excluding £0.1m added with recent acquisitions, due to an increasing volume of service contracts as the Group expands; and

- a £0.2m increase in trade receivables, excluding £0.1m added on the acquisition of Broughtons and SSAS Solutions; plus

· A £0.6m decrease (2018: £0.4m increase) in provisions, following the settlement of contingent consideration on prior period acquisitions and the release of dilapidations and onerous contract provisions on the Group's exit from its premises at Grove Park in Leicester.

Cash balances at 31 May 2019 totalled £23.2m (2018: £23.7m), with £4.5m of initial consideration on the two acquisitions completed during the year and £0.8m (2018: £3.5m) of contingent consideration on historic acquisitions paid during the year.

Outstanding trade receivables remained at 32 days' sales (2018: 32 days), with a continued focus on credit control. Trade payables increased to 40 days' purchases (2018: 37 days) with balances at the year end inflated due to the Group being invoiced clients' annual property insurance premiums in May, which are subsequently recharged to clients and paid monthly over the next 12 months.

Capital expenditure of £2.0m (2018: £8.8m) comprised £0.8m incurred on the fit-out of the Group's new offices in Leicester, £0.5m on the purchase of new company cars, £0.4m investment in new computer hardware and office equipment and £0.3m on software development.

In the first half we reviewed our capital investment in IT, which resulted in the accelerated amortisation of some of our existing IT systems. We intend to continue investing in technology to develop our client relationship platforms and improve our client service propositions.

Bank facilities

The Group does not have an overdraft or other bank facility due to the headroom the Group's current cash balances provide on its working capital requirements.

Capital structure

The Group's capital structure is as follows:

	2019 £000	2018 £000

Cash and short-term deposits	(23,248)	(23,668)
Shareholders' equity	85,593	78,950

Capital employed	62,345	55,282

The Group continues to maintain a strong cash position, with cash balances of £23.2m (2018: £23.7m).

Regulatory capital

The Group's regulatory capital requirement has increased in recent years. In addition, the Group's capital is reduced when it makes acquisitions due to the requirement for intangible assets arising on acquisition to be deducted from Tier 1 Capital.

However, the Group continues to enjoy significant headroom on its increased regulatory capital requirement, allowing us to pursue further acquisition opportunities.

Segmental review

Investment and asset management

Investment and asset management revenues generated from advising clients on both pension and personal investments increased 3.6% to £26.0m (2018: £25.1m), representing 44.4% (2018: 42.7%) of total Group revenues.

The Group's gross discretionary assets under management ("AuM"), including the multi asset funds which now sit at the heart of our discretionary portfolio management service ("DPM"), Custodian REIT, the Mattioli Woods Structured Products Fund ("MW SPF") and the funds managed by our associate company, Amati, increased by 9.8% to £2.57bn (2018: £2.34bn) as follows:

Assets under management	DPM £m	Custodian REIT £m	MW SPF £m	Amati £m	Gross AuM £m	Cross-holdings in DPM²¹	Cross-holdings in Amati funds²²	Net AuM £m

At 1 June 2018	1,341.1	462.6	213.8	325.1	2,342.6	(121.0)	(12.1)	2,209.5

Inflows	174.8	22.8	45.9	154.9	398.4	(11.3)	-	387.1
Outflows	(114.5)	-	(9.9)	(8.8)	(133.2)	-	0.2	(133.0)
Market movements	(7.4)	(2.1)	(7.3)	(18.4)	(35.2)	-	-	(35.2)

At 31 May 2019	1,394.0	483.3	242.5	452.8	2,572.6	(132.3)	(11.9)	2,428.4

Income from both initial and ongoing portfolio management charges increased to £15.0m (2018: £14.2m), with £174.8m (2018: £273.7m) of inflows into our discretionary portfolio management service during the year.

Fees for services provided by Custodian Capital to Custodian REIT are included in the 'Property management' segment. The Mattioli Woods' Structured Products Fund was named Retail Investment Product of the Year at the Risk Awards 2018, with the fund offering investors the benefits of collateralisation, instant diversification, continuous availability and liquidity. A combination of new client investment and money from maturing individual structured product plans increased the fund's value to £242.5m at 31 May 2019 (2018: £213.8m), with annual management charges increasing to £1.3m (2018: £0.8m).

Adviser charges based on gross assets under advice of £2.03bn (2018: £2.04bn) fell to £9.7m (2018: £10.1m), with the lower revenue margin illustrating how we are reducing clients' charges and TERs, particularly on those assets invested in Custodian REIT, the MW SPF and Amati funds. Broughtons contributed £0.9m of adviser charges during the year, following its acquisition in August 2018. We continue to see some migration of assets under advice to AuM as clients from acquired portfolios engage with our DPM service.

Growth in total assets under management and advice continues to enhance the quality of earnings through an increase in recurring revenues, with the proportion of investment and asset management revenues which are recurring being 88.9% (2018: 81.7%). Notwithstanding our fee-based advisory model, as with other firms, these income streams are linked to the value of funds under management and advice, and are therefore affected by the performance of financial markets.

We extended our asset management business through our purchase of 49% of Amati, an award-winning specialist fund management business focusing on UK small and mid-sized companies, in February 2017. Amati is the manager of the TB Amati UK Smaller Companies Fund; Amati AIM VCT plc and an AIM IHT portfolio service.

Pension consultancy and administration

The introduction of the pensions freedoms has combined with a period of political and economic uncertainty, driving a broader market shift away from accumulation and steady savings towards wealth preservation and decumulation. Pension consultancy and administration revenues were down 6.4% to £20.4m (2018: £21.8m), representing 34.9% (2018: 37.1%) of Group revenues of which 93.6% (2018: 87.7%) were recurring, with a lower level of client activity partially offset by the total number of SIPP and SSAS schemes administered by the Group increasing 5.6% to 11,119 (2018: 10,533), including the 354 schemes administered by SSAS Solutions.

Direct²³ pension consultancy and administration fees fell 6.6% to £15.5m (2018: £16.6m). Retirement planning remains central to many of our clients' wealth management strategies and the number of direct schemes increased to 6,051 (2018: 5,834), with 471 new schemes gained in the year (2018: 875). Our focus remains on the quality of new business, with the value of a new scheme averaging £0.3m (2018: £0.4m). We continue to enjoy strong client retention, with an increase in the external loss rate²⁴ to 2.2% (2018: 1.5%) and the overall attrition rate²⁵ to 3.4% (2018: 2.6%).

The number of SSAS and SIPP schemes the Group operates on an administration-only basis increased to 5,068 (2018: 4,699) at the year end, with scheme numbers enhanced by the acquisition of SSAS Solutions during the year. In prior years the Group has been appointed to administer a number of SIPPs following the previous operators' failure and work continues in connection with certain schemes previously administered by Stadia Trustees Limited, HD Administrators, Pilgrim Trustees Services Limited and The Freedom SIPP Limited. Lost schemes include the transfer of some members of these portfolios to alternative arrangements. Overall, third party administration fees fell 10.4% to £4.3m (2018: £4.8m), with £0.2m of revenue generated by SSAS Solutions since its acquisition at the end of March 2019.

The Group's banking revenue was £0.6m (2018: £0.4m), reflecting the increase in the Bank of England base rate to 0.75% at the start of August 2018.

The pension market continues to evolve, with historic restrictions on annual contributions and annual allowances meaning that gross inflows predominantly come from customers of other operators choosing to move their existing arrangements to Mattioli Woods. There has also been some negative publicity for the pension market over the last few years, with certain SIPP and SSAS operators in the spotlight due to issues with esoteric and non-standard investments, while the general economic environment has reduced some consumers' focus on pension savings.

While we anticipate continued regulatory scrutiny of the pension market, the market opportunity remains strong, with SIPP and SSAS arrangements still benefitting from the introduction of the pension freedoms and being favoured as a way of allowing individuals to have greater access, control, flexibility and responsibility over their pension savings. SIPPs are increasingly the pension vehicle of choice for the mass affluent and having been appointed to administer SIPPs previously operated by a number of failed operators in recent years we anticipate there may be some similar opportunities for the Group over the next few years.

We like to see our clients withdrawing funds to enjoy in their retirement and anticipate there will continue to be natural outflows from our clients' SIPP and SSAS schemes, particularly as the "baby boom" generation reaches retirement. We expect any such decumulation to have a positive impact on the Group's results, linking-in with the provision of advice around the cascading of wealth through the generations, inheritance tax and other planning.

Property management

Property management revenues increased 10.2% to £6.5m (2018: £5.9m), representing 11.1% of total revenue (2018: 10.1%), with our subsidiary Custodian Capital having assets under management and administration of £585.6m (2018: £542.9m) at 31 May 2019. Recurring annual management charges represented 90.6% (2018: 89.8%) of property management revenues, the majority of which are derived from the services provided by Custodian Capital to Custodian REIT, which currently offers a fully-covered dividend yield of 5.6%, one of the highest²⁶ among its UK property investment company peer group, coupled with the potential for capital growth from a balanced portfolio of real estate assets.

In addition, Custodian Capital continues to facilitate direct property ownership on behalf of pension schemes and private clients and manages our Private Investors Club, which offers alternative investment opportunities to suitable clients by way of private investor syndicates. This initiative continues to be well supported, with £27.9m (2018: £26.3m) invested in seven (2018: eight) new syndicates during the year, one of which remained open to further investment following the year end.

Employee benefits

Employee benefits revenues fell 5.1% to £5.6m (2018: £5.9m), due to fewer auto-enrolment pension projects compared to previous years as the market approached 'steady state' under the regulations in April 2019, coupled with the loss of some larger corporate clients in the year. Employee benefits revenues now represent 9.6% of total revenue (2018: 10.1%). In June 2018 we were delighted to announce the appointment of Saira Chambers to lead our employee benefits team as Employee Benefits Director and we have progressed a number of strategic projects during the year, including a review of the services provided to smaller clients, resulting in some loss of revenue but improved profitability within this business segment.

Employers are increasingly encouraging staff wellbeing and retirement savings, which we expect to drive a period of steady growth in the UK employee benefits market, and we believe the Government's emphasis on workplace advice presents new opportunities for us to realise further synergies between our employee benefits and wealth management businesses.

Acquisitions

We have invested over £54m since our admission to AIM in 2005 in bringing 22 businesses or client portfolios into the Group, developing considerable expertise and a strong track record in the execution and subsequent integration of such transactions.

The two businesses acquired during the year are integrating well and have contributed positively to the Group's trading results since acquisition, increasing earnings and enhancing value.

With continuing consolidation across the key markets in which we operate, we expect there will be further opportunities to accelerate our growth by acquisition. Our strong balance sheet gives us the flexibility to make further value-enhancing acquisitions.

Relationships

The Group's performance and shareholder value are influenced by other stakeholders, principally our clients, suppliers, employees, the Government and our strategic partners. Our approach to all these parties is founded on the principle of open and honest dialogue, based on a mutual understanding of needs and objectives.

Relationships with our clients are managed on an individual basis through our client relationship managers and consultants. Employees have performance development reviews and employee forums also provide a communication route between employees and management. Mattioli Woods also participates in trade associations and industry groups, which give us access to client and supplier groups and decision-makers in Government and other regulatory bodies. Mattioli Woods is a member of the Association of Member-directed Pension Schemes and the Quoted Companies Alliance.

Resources

The Group aims to safeguard the assets that give it competitive advantage, including its reputation for quality and proactive advice, its technical competency and its people.

Our core values provide a framework for integrity, leading to responsible and ethical business practices. Structures for accountability from our administration and consultancy teams through to senior management and the Group's Board are clearly defined. The proper operation of the supporting processes and controls are regularly reviewed by the Audit Committee and the Risk and Compliance Committee and take into account ethical considerations, including procedures for 'whistle-blowing'.

Our people

I thank all our staff for their continued commitment, enthusiasm and professionalism in dealing with our clients' affairs. Our culture is based on professionalism, putting clients first and adopting a collegiate approach. Retaining the integrity, expertise and passion of our people remains a priority of the board and at the heart of our success. We are committed to developing our people and maintaining the capacity to deliver sustainable growth.

As our business grows, the board recognises the continued importance of good communication and will ensure that the strong client-centric behaviours that are embedded within the business are preserved. During the year the board had particular focus on the impact of growth on our culture. Outside of board meetings, non-executive directors have held a number of meetings with employees across the business to share experiences more directly.

Our total headcount at 31 May 2019 had decreased to 586 (2018: 622) and we continue to invest in our graduate and apprenticeship recruitment programmes. During the year 18 (2018: 20) new graduates and 17 (2018: 24) apprentices joined the Group, which was recognised for creating opportunities for young people by being highly commended in the Large Employer of the Year Award category at the National Apprenticeship Awards 2018. We also offer programmes for 'life served' people seeking exciting opportunities for a change in career or a return to work.

We enjoy a strong team spirit and facilitate employee equity ownership through the Mattioli Woods plc Share Incentive Plan ("the Plan") and other share schemes. At the end of the year 57% of eligible staff had invested in the Plan (2018: 58%) and we continue to encourage broader staff participation.

In May 2019 the Mattioli Woods Employee Benefit Trust ("the Trust") commenced making market purchases of the Company's shares. The Trust holds shares for the benefit of the Group's employees and, in particular, to satisfy the vesting of awards made under the Company's various share schemes. The acquisition of shares by the Trust helps to avoid dilution of shareholders by reducing the need for the Company to issue new shares,

Forward-looking statements

The strategic report is prepared for the members of Mattioli Woods and should not be relied upon by any other party for any other purpose. Where the report contains forward-looking statements these are made by the directors in good faith based on the information available to them at the time of their approval of this report. Consequently, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risks underlying such forward-looking statements and information. The Group undertakes no obligation to update these forward-looking statements.

Principal risks and uncertainties

The Board is ultimately responsible for risk management and regularly considers the most significant and emerging threats to the Group's strategy, as well as establishing and maintaining the Group's systems of internal control and risk management and reviewing the effectiveness of those systems. The Board and senior management are actively involved in a continuous risk assessment process as part of our risk management framework, supported by the annual Internal Capital Adequacy Assessment Process ("ICAAP"), which assesses the principal risks facing the Group. Stress tests include consideration of the impact of a number of severe but plausible events that could impact the business. The work also takes account of the availability and likely effectiveness of mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks.

Day-to-day, our risk assessment process considers both the impact and likelihood of risk events which could materialise and affect the delivery of the Group's strategic goals. Throughout the Group, all employees have a responsibility for managing risk and adhering to our control framework.

There are a number of potential risks which could hinder the implementation of the Group's strategy and have a material impact on its long‑term performance. These arise from internal or external events, acts or omissions which could pose a threat to the Group. The principal risks identified as having a potential material impact on the Group are detailed below, together with the principal means of mitigation. The risk factors mentioned do not purport to be exhaustive as there may be additional risks that materialise over time that the Group has not yet identified or deemed to have a potentially material adverse effect on the business:

Industry risks
Risk type	Description	Mitigating factors	Chance	Impact	Change in risk
Changes in investment markets and poor investment performance	Volatility may adversely affect trading and/or the value of the Group's assets under management, administration and advice, from which we derive revenues.	· Majority of clients' funds held within registered pension schemes or ISAs, where less likely to withdraw funds and lose tax benefits. · Broad range of investment solutions enables clients to shelter from market volatility through diversification, while continuing to generate revenues for the Group. · Market volatility is closely monitored by the Investment Committee.	Medium	Medium	No change
Changing markets and increased competition	The Group operates in a highly competitive environment with evolving characteristics and trends.	· The Group seeks to maintain strong working relationships with clients underpinned by high levels of service, quality products and a continued focus on product development and innovation. · Consolidating market position develops the Group's pricing power. · Control over scalable and flexible bespoke pension administration platform. · Experienced management team with a strong track record. · Loyal customer base and strong client retention. · Broad service offering gives diversified revenue streams.	High	High	No change
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.	· We partner with leading software providers to assist in our systems development. · High awareness of the importance of technology at Board level. · Expanded systems development with phased implementation of Group-wide platform.	Medium	High	No change
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, with appropriate oversight and reporting supported by training. · External professional advisers are engaged to review and advise upon control environment. · Business model and culture embraces FCA principles, including treating clients fairly. · Decision to withdraw from providing advice on safeguarded pensions. · Financial strength provides comfort should capital resource requirements be increased.	Medium	Medium / High	No change
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 Group's investment and asset management services has reduced dependency on pension planning.	Low	Medium	No change

Operational risks
Risk type	Description	Mitigating factors	Chance	Impact	Change in risk
Damage to the Group's reputation	There is a risk of reputational damage as a result of employee misconduct, failure to manage inside information or conflicts of interest, fraud, improper practice, poor client service or advice.	· Strong compliance culture with a focus on positive customer outcomes. · High level of internal controls, including checks on new staff. · Well-trained staff who ensure the interests of clients are met in the services provided.	Medium	High	No change
Errors, breakdown or security breaches in respect of the Group's software or information technology systems	Serious or prolonged breaches, errors or breakdowns in the Group's software or information technology systems could negatively impact customer confidence. It could also breach contracts with customers and data protection laws, rendering us liable to disciplinary action by governmental and regulatory authorities, as well as to claims by our clients.	· Ongoing review of data security, including penetration testing and "phishing" exercises. · IT performance, scalability and security are deemed top priorities by the Board. · Experienced in-house team of IT professionals and established name suppliers.	High	High	No change
Data quality	Inaccurate data or voids in our data could result in inaccurate regulatory and/or client reporting	· Ongoing initiatives to clean data. · Development of data warehouse to standardise data tables and create 'one source of truth'.	High	Medium	No change
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. · Disaster recovery plan and a disaster recovery team in place. Business impact analysis has been conducted by department. · Business interruption insurance.	Medium	Medium	No change
Fraud risk	There is a risk an employee or third party defrauds either the Group or a client.	· 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 £100,000. · Assessment of fraud risk every six months discussed with the Audit Committee, Risk and Compliance Committee and external auditors. · Clients have view-only access to information. · Ongoing review of risk of fraud due to external attack on the Group's IT systems.	Medium	Medium	No change
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. · Recruitment programmes in place to attract appropriate new staff. · Cross functional acquisition team brought into acquisition projects at an early stage.	Low	Medium	No change
Litigation or claims made against the Group	Risk of liability related to litigation from clients or third parties and assurance that a claim or claims will not be covered by insurance or, if covered, will exceed the limits of available insurance coverage, or that any insurer will become insolvent and will not meet its obligations to provide the Group with cover.	· Appropriate levels of Professional Indemnity insurance cover regularly reviewed with the Group's advisers. · Comprehensive internal review procedures, including compliance sign-off, for advice and marketing materials. · Maintenance of three charging models; time cost, fixed and asset based, which are aligned to specific service propositions and agreed with clients. · Restricted status for our consultants to enable the recommendation of our own products and others in the market.	High	Medium	No change
Reliance on third parties or outsourcing risk	Any regulatory breach or service failure on the part of an outsourced service provider could expose the Group to the risk of regulatory sanctions and reputational damage.	· Due diligence is part of the selection process for key suppliers. · Ongoing review of relationships and concentration of risk with key business partners. · Review of outsourcing is a key area of focus in Internal Audit plan.	Medium	High	Increase
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 has demonstrated a thorough understanding of the market and monitors this through regular meetings with clients.	Low	Low	No change
Corporate manslaughter risk	The risk of breaching corporate manslaughter laws as a result of management breach in duty of care.	· Policies and procedures in place to provide employee guidance when driving on company business. · Company cars regularly maintained and serviced with reputable and vetted companies. · Adequate insurance cover. · Responsible employees.	High	Medium	No change
Conduct risk	The risk that we fail our clients through the flawed design or mis-selling of our products or services, or poor business conduct results in client outcomes that do not meet their needs and circumstances.	· Only appropriately authorised consultants can provide advice. · Robust training and competence scheme in place. · Operation of 'three lines of defence' model, including internal and external reviews of to monitor suitability of advice being given to clients.	Medium	Medium	New risk
Information security risk	The risk that the security controls over our IT systems are compromised by internal or external influences, resulting in unauthorised access to our client or corporate confidential data.	· Robust firewalls and patches maintained to prevent unauthorised access to IT systems, including utilisation of third party providers to protect corporate networks. · Electronic data is protected by user access controls. Data privacy training is provided across the Group. · Compliance with the Data Protection Act and registration with the Information Commissioner's Office.	Medium	High	New risk

Financial risks
Risk type	Description	Mitigating factors	Chance	Impact	Change in risk
Counterparty default	That the counterparty to a financial obligation will default on repayments.	· The Group trades only with recognised, creditworthy third parties. · Customers who wish to trade on credit terms are subject to credit verification procedures. · All receivables are reviewed on an ongoing basis for risk of non-collection and any doubtful balances are provided against.	Medium	Medium	No change
Bank default	The risk that a bank could fail.	· We only use banks with strong credit ratings. · Client deposits spread across multiple banks. · Regular review and challenge of treasury policy by management.	Medium	High	No change
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. · Broad service offering gives diversified revenue streams.	Medium	Medium	No change
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.	Low	Low	No change
Interest rate risk	Risk of decline in earnings due to a decline in banking margin or deposit rates received on surplus cash. Low interest rates make it harder to structure compelling capital-protected products for clients.	· Market expectation that interest rates will rise. · Good relationships with key banking partners. · Access to competitive interest rates due to scale of business.	Low	Medium	No change
Underwriting risk	When arranging new products for promotion to the Group's clients, the Group may need to guarantee a minimum aggregate investment to secure appropriate terms for the product. If actual client investment is less than the underwritten amount, we would incur the cost of either acquiring the unsold element of the product or unwinding any hedges underlying the unsold element of the product.	· New products created in line with client demand. · Potential costs are carefully considered by the Investment Committee prior to the launch of each product.	Low	Low	No change

Emerging risks, including legislative and regulatory change, have the potential to impact the Group and its strategy. The Board, Audit Committee and Risk and Compliance Committee continue to monitor emerging risks and threats to the financial services sector including, for example, cyber threats, regulatory change and scenarios potentially arising from geopolitical developments, including Brexit, and intend to focus on operational resilience and enhancing the control environment over the next 12 months.

Brexit is likely to be one of the most significant political and economic events to impact the UK in our lifetimes. The lack of consensus on the UK's strategy creates uncertainty and the longer term implications will not be clear for some time.

We continue to monitor Brexit-related developments closely. As a UK business with no operations in other European Union ("EU") countries, no material dependencies on goods or people from other EU countries and a predominantly UK client base, we anticipate that the operational impacts on our business will be relatively small. In particular Brexit will bring no changes to the basis or nature of the services we provide to the vast majority of our clients and investors who are based in the UK. However, we recognise the impact of Brexit more generally, which could affect the value of our clients' funds under management, advice and administration.

Investors in the Mattioli Woods Structured Product Fund (which is a Luxembourg-based SICAV) are likely to see some changes to the basis on which this fund is delivered. It is also possible that there may be some implications for the small number of our private clients based in other EU countries, depending on the exact nature of the services they receive and regulatory framework agreed in the transitional period or in the event of an exit from the EU without agreement. We continue to review the investment implications of Brexit for client portfolios and our range of funds, and regularly communicate our views through formal and informal briefings to clients and our consultants.

Corporate social responsibility

Our commitment to operating responsibly

We believe that running a profitable and growing business, which creates jobs and contributes to the economic success of the areas in which it operates, is a good platform for good corporate social responsibility.

We have a long-standing commitment to support our staff in engaging with their local communities and charities. This social awareness is present throughout the business, from our employees to our clients, our professional connections and the suppliers we use. Our continued contribution through the commitment of our people continues to improve lives and build communities.

Sustainability

To deliver strong, sustainable shareholder returns over the long-term the operation of a profitable business is a priority and that means investing for growth. To achieve this, the Group recognises that it needs to operate in a sustainable manner and therefore has adopted core principles to its business operations which provide a framework for both managing risk and maintaining its position as a good 'corporate citizen'.

Charities and communities

We have a high level of engagement within our local communities. Each year, we sponsor business, sports and community awards. Our business has benefited greatly from winning numerous awards and we feel it's right to help other businesses reap the rewards of such accolades. In addition, we sponsor a variety of local clubs, business and sports related events across the country. We believe this brings many benefits to the local community and beyond.

In 2015 we chose our first national charity, Breast Cancer Now, the UK's largest breast cancer charity dedicated to funding research into this devastating disease, raising over £200,000 for the charity. This year, we have launched a new national partnership with Alzheimer's Research UK focused, on boosting research, improving treatments and raising awareness about dementia.

Alzheimer's Research UK will become the Group's charity of the year for the next two years with the aim to raise £150,000 during this partnership to help transform lives, identify life-changing treatments and eventually a cure. We intend to engage employees, clients and partners to raise money for the charity through a series of fundraising events, from bucket collections to payroll giving, sporting events, dinners and seasonal activities.

We believe that dementia is one of the biggest problems facing health services today and one that is impacting the lives of many of our employees and clients. The money raised over the next two years is going to fund ground-breaking research that will change the lives of people impacted by it.

In addition, almost 80 charities throughout the UK benefitted after Mattioli Woods urged its staff to nominate worthy causes as part of a new initiative. Chief Executive Ian Mattioli asked for nominations to help continue a charitable tradition started by the Group's associate company, Amati.

Every year, Amati has a commitment to donate 10% of its profits to good causes and sharing similar values, we want to further that tradition and continue the good work Amati started.

Staff throughout the Group were asked to suggest causes they felt deserving of a pay-out. The money was distributed after Ian received a "truly heart-warming" response from employees, with decision to split awards between the requests received resulting in 77 organisations and individuals sharing over £32,800.

Rothley 10k

Over 1,000 runners from Leicestershire and beyond took to the streets of Rothley in June 2019 for the annual Mattioli Woods Rothley 10k. The race has grown year-on-year and is now the largest 10k road race in the county, which is a great showcase of local community spirit.

Rainbows, LOROS, Air Ambulance Service, Age UK, Eye Camps, Vista and RNLI are among the charities to benefit from over £25,000 of funds raised through sponsorship and race entry fees to become the largest fund raising event in its history. Over the years, the race has now generated more than £300,000 for local causes.

Sammi Kinghorn

We have sponsored world champion wheelchair racer Sammi Kinghorn for the past five years. Sammi - now 23 - has gone on to achieve international success, winning three European Championship gold medals in 2014, a bronze in 2015 at the Doha World Championships and two gold medals and a bronze medal at the London 2017 World Championships.

Mattioli Woods has been one of her main sponsors from the start of her wheelchair racing career and, following her recent successes, Sammi and coach Ian Mirfin said the Company's support had been vital to her progress. After returning to shorter distance track racing for the first time in almost two years in May 2019, Sammi has her sights firmly set on the 2019 World Para Athletics Championships in Dubai and the 2020 Paralympics in Tokyo.

Developing our people

The Group continues to create opportunities for young people and has launched a new trainee consultant programme for aspiring advisors. We have introduced a 26-week plan to foster small groups of trainee advisers in a classroom setting, two days a week.

Each week is themed, including topics such as tax, pensions and investments, and aims to get trainees who have been with the company for 18 months and have completed their level 4 qualification to the point where they are able to develop financial plans.

Mattioli Woods' graduate and apprenticeship schemes have been running for a number of years, with this new programme highlighting the firm's motivation to 'grow our own'. Trainees work alongside consultants in administrative roles and attend consultant-led client meetings. The scheme will continue to be rolled out for new groups of employees who demonstrate the potential to move into consultant roles at the firm.

Diversity and inclusion

We are an equal opportunities employer and it is our policy to ensure that all job applicants and employees are treated fairly and on merit regardless of race, sex, marital/civil partnership status, age, disability, religious belief, pregnancy, maternity, gender reassignment or sexual orientation.

Modern slavery

Mattioli Woods is committed to preventing modern slavery and human trafficking in all its activities, and to ensuring its supply chains are free from modern slavery and human trafficking. We welcomed the introduction of the Modern Slavery Act 2015 and publish a Modern Slavery and Human Trafficking Statement on our website. We have also developed policies, reviewed our due diligence processes for suppliers and provided training to staff.

A copy of our Modern Slavery and Human Trafficking Statement can be found on our website.

Anti-bribery policy

We value our reputation for ethical behaviour and upholding the utmost integrity and we comply with the FCA's clients' best interests rule. We understand that in addition to the criminality of bribery and corruption, any such crime would also have an adverse effect on our reputation and integrity.

Mattioli Woods has a zero tolerance approach to bribery and corruption and we ensure all our employees and suppliers are adequately trained as to limit our exposure to bribery by:

· Setting out clear anti-bribery and corruption policies;

· Providing mandatory training to all employees;

· Encouraging our employees to be vigilant and report any suspected cases of bribery in accordance with the specified procedures; and

· Escalating and investigating instances of suspected bribery and assisting the police or other appropriate authorities in their investigations.

Gender pay reporting

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 requires all employers with 250 or more employees in the UK to publish details of their gender pay gap. Its aim is to achieve greater transparency about gender pay difference. The analysis is based on data as at 5 April of each year and shows the differences in the average pay between men and women. The Group has submitted its data on gender pay to the government and published these details on our website.

Approval

The strategic report contains certain forward-looking statements, which are made by the Directors in good faith based on the information available to them at the time of their approval of this annual report. Statements contained within the strategic report should be treated with some caution due to the inherent uncertainties (including but not limited to those arising from economic, regulatory and business risk factors) underlying any such forward-looking statements. The strategic report has been prepared by Mattioli Woods to provide information to its shareholders and should not be relied upon for any other purpose.

The strategic report in its entirety has been approved by the Board of Directors and signed on its behalf by:

Ian Mattioli MBE

Chief Executive Officer

2 September 2019

Going concern

The directors believe the Group is well placed to manage its business risks successfully. The Group's forecasts and projections show that the Group should continue to be cash generative, maintain a surplus on its regulatory capital requirements and be able to operate within the level of its current financing arrangements. Accordingly, the directors continue to adopt the going concern basis for the preparation of the financial statements.

Directors' responsibilities for the financial statements

The directors are responsible for preparing the Directors' Report, Strategic Report and the financial statements in accordance with applicable law and regulations.

UK company law requires the directors to prepare Group and Company financial statements for each financial year. The directors are required by the AIM Rules of the London Stock Exchange to prepare Group financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and have elected to prepare the Company financial statements in accordance with IFRS as adopted by the EU.

The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the Group and Company and the financial performance of the Group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing each of the Group and Company financial statements, the directors are required to:

· Select suitable accounting policies and then apply them consistently;

· Make judgements and estimates that are reasonable and prudent;

· State whether they have been prepared in accordance with IFRSs adopted by the EU; and

· Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Mattioli Woods plc website.

Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Consolidated Statement of Comprehensive Income

For the year ended 31 May 2019

	Note	2019 £000	2018 £000

Revenue	4	58,464	58,669

Employee benefits expense		(31,239)	(32,148)
Other administrative expenses		(11,741)	(12,560)
Share based payments	11	(1,060)	(1,497)
Amortisation and impairment	9	(2,962)	(2,225)
Depreciation	8	(1,288)	(822)
Impairment loss on trade receivables		(358)	(273)
Loss on disposal of property, plant and equipment		(125)	(67)
Gain on revaluation of derivative financial instrument	10	100	540

Operating profit before financing		9,791	9,617

Finance revenue		60	73
Finance costs		(86)	(154)

Net finance costs		(26)	(81)

Share of profit from associate, net of tax	10	480	240

Profit before tax		10,245	9,776
Income tax expense		(2,048)	(1,586)


Profit for the year		8,197	8,190
Other comprehensive income for the year, net of tax		6	9

Total comprehensive income for the year, net of tax		8,203	8,199

Attributable to:
Equity holders of the parent		8,203	8,199


Earnings per ordinary share:

Basic (pence)	6	30.8	30.8
Diluted (pence)	6	30.7	30.8

Proposed total dividend per share (pence)	7	20.0	17.0

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.

Consolidated and Company Statements of Financial Position Registered number: 3140521

As at 31 May 2019

		2019		2018
		Group	Company	Group	Company
	Note	£000	£000	£000	£000
Assets
Property, plant and equipment	8	16,665	3,469	16,483	2,892
Intangible assets	9	48,734	38,505	43,199	40,931
Deferred tax asset		512	509	674	664
Investments in subsidiaries		-	12,803	-	18,572
Investment in associate	10	4,211	4,211	3,725	3,725
Derivative financial asset	12	750	750	650	650

Total non-current assets		70,872	60,247	64,731	67,434

Trade and other receivables		16,384	28,111	16,946	28,906
Investments		80	80	81	81
Cash and short-term deposits	13	23,248	14,095	23,668	17,880

Total current assets		39,712	42,286	40,695	46,867

Total assets		110,584	102,533	105,426	114,301

Equity
Issued capital	14	268	268	261	261
Share premium	14	32,137	32,137	31,283	31,283
Merger reserve	14	10,639	10,639	8,781	8,781
Equity - share based payments	14	2,356	2,356	3,010	3,010
Capital redemption reserve	14	2,000	2,000	2,000	2,000
Own shares	14	(99)	-	-	-
Retained earnings	14	38,292	33,883	33,615	28,468

Total equity attributable to equity holders of the parent		85,593	81,283	78,950	73,803

Non-current liabilities
Deferred tax liability		4,345	3,150	3,455	3,218
Financial liabilities and provisions	15	1,976	1,951	596	17,506

Total non-current liabilities		6,321	5,101	4,051	20,724

Current liabilities
Trade and other payables		14,527	12,806	17,988	15,972
Income tax payable		536	-	695	101
Financial liabilities and provisions	15	3,607	3,343	3,742	3,701

Total current liabilities		18,670	16,149	22,425	19,774

Total liabilities		24,991	21,250	26,476	40,498

Total equities and liabilities		110,584	102,533	105,426	114,301

The profit of the Company for the financial year, after taxation, was £8.9m (2018: £7.8m).

The financial statements were approved by the Board of directors and authorised for issue on 2 September 2019 and are signed on its behalf by:

Ian Mattioli MBE Nathan Imlach

Chief Executive Officer Chief Financial Officer

Consolidated and Company Statements of Changes in Equity

For the year ended 31 May 2019

Group	Issued capital (Note 14) £000	Share premium (Note 14) £000	Merger reserve (Note 14) £000	Equity - share based payments (Note 14) £000	Capital redemption reserve (Note 14) £000	Own shares (Note 14) £000	Retained earnings (Note 14) £000	Total equity £000

As at 1 June 2017	258	30,314	8,781	2,571	2,000	-	28,671	72,595
Profit for the year	-	-	-	-	-	-	8,190	8,190
Total comprehensive income	-	-	-	-	-	-	8,190	8,190
Transactions with owners of the Group, recognised directly in equity
Share of other comprehensive income from associates	-	-	-	-	-	-	9	9
Issue of share capital	3	969	-	-	-	-	-	972
Share-based payment transactions	-	-	-	1,020	-	-	-	1,020
Deferred tax recognised in equity	-	-	-	(62)	-	-	-	(62)
Current tax taken to equity	-	-	-	92	-	-	-	92
Reserves transfer	-	-	-	(611)	-	-	611	-
Dividends	-	-	-	-	-	-	(3,866)	(3,866)

As at 31 May 2018	261	31,283	8,781	3,010	2,000	-	33,615	78,950

Adjustment on initial application of IFRS 9 (net of tax)	-	-	-	-	-	-	(250)	(250)
Adjusted balance at 1 June 2018	261	31,283	8,781	3,010	2,000	-	33,365	78,700
Profit for the year	-	-	-	-	-	-	8,197	8,197
Total comprehensive income	-	-	-	-	-	-	8,197	8,197
Transactions with owners of the Group, recognised directly in equity
Share of other comprehensive income from associates	-	-	-	-	-	-	6	6
Issue of share capital	7	854	1,858	-	-	-	-	2,719
Share-based payment transactions	-	-	-	799	-	-	-	799
Deferred tax recognised in equity	-	-	-	(160)	-	-	-	(160)
Current tax taken to equity	-	-	-	134	-	-	-	134
Reserves transfer	-	-	-	(1,427)	-	-	1,427	-
Own shares	-	-	-	-	-	(99)	-	(99)
Dividends	-	-	-	-	-	-	(4,703)	(4,703)

As at 31 May 2019	268	32,137	10,639	2,356	2,000	(99)	38,292	85,593

Consolidated and Company Statements of Changes in Equity

For the year ended 31 May 2019 (continued)

Company	Issued capital (Note 14) £000	Share premium (Note 14) £000	Merger reserve (Note 14) £000	Equity - share based payments (Note 14) £000	Capital redemption reserve (Note 14) £000	Retained earnings (Note 14) £000	Total equity £000

As at 1 June 2017	258	30,314	8,781	2,571	2,000	23,892	67,816
Profit for the year	-	-	-	-	-	7,822	7,822
Total comprehensive income	-	-	-	-	-	7,822	7,822
Transactions with owners of the Company, recognised directly in equity
Share of other comprehensive income from associates	-	-	-	-	-	9	9
Issue of share capital	3	969	-	-	-	-	972
Share-based payment transactions	-	-	-	1,020	-	-	1,020
Deferred tax recognised in equity	-	-	-	(62)	-	-	(62)
Current tax taken to equity	-	-	-	92	-	-	92
Reserves transfer	-	-	-	(611)	-	611	-
Dividends	-	-	-	-	-	(3,866)	(3,866)

As at 31 May 2018	261	31,283	8,781	3,010	2,000	28,468	73,803

Adjustment on initial application of IFRS 9 (net of tax)	-	-	-	-	-	(230)	(230)
Adjusted balance at 1 June 2018	261	31,283	8,781	3,010	2,000	28,238	73,573
Profit for the year	-	-	-	-	-	8,915	8,915
Total comprehensive income	-	-	-	-	-	8,915	8,915
Transactions with owners of the Company, recognised directly in equity
Share of other comprehensive income from associates	-	-	-	-	-	6	6
Issue of share capital	7	854	1,858	-	-	-	2,719
Share-based payment transactions	-	-	-	799	-	-	799
Deferred tax recognised in equity	-	-	-	(160)	-	-	(160)
Current tax taken to equity	-	-	-	134	-	-	134
Reserves transfer	-	-	-	(1,427)	-	1,427	-
Dividends	-	-	-	-	-	(4,703)	(4,703)

As at 31 May 2019	268	32,137	10,639	2,356	2,000	33,883	81,283

As permitted by s408 of the Companies Act 2006, no separate profit or loss account or statement of comprehensive income is presented in respect of the parent Company. The profit attributable to the Company is disclosed in the footnote to the Company's statement of financial position.

Consolidated and Company Statements of Cash Flows

For the year ended 31 May 2019

		Group 2019	Company 2019	Group 2018	Company 2018
	Note	£000	£000	£000	£000
Operating activities
Profit for the year Adjustments for:		8,197	8,915	8,190	7,822
Depreciation	8	1,288	840	822	815
Amortisation	9	2,962	2,723	2,225	2,004
Impairment		-	14,935	-
Investment income		(60)	(512)	(73)	(458)
Interest expense		86	691	154	551
Share of profit from associate	10	(480)	(480)	(240)	(240)
Gain on revaluation of derivative financial asset	10,18	(100)	(100)	(540)	(540)
Loss on disposal of property, plant and equipment		125	114	67	68
Equity-settled share-based payments	11	1,060	1,060	1,378	1,378
Cash-settled share-based payments		-	-	119	119
Dividend income		-	(18,835)	-	(2,500)
Income tax expense		2,048	1,116	1,586	886
Cash flows from operating activities before changes in working capital and provisions		15,126	10,467	13,688	9,905
Decrease/(increase) in trade and other receivables		656	1,101	(957)	(5,043)
(Decrease)/increase in trade and other payables		(4,231)	(3,580)	5,100	5,187
(Decrease)/increase in provisions		(537)	(687)	344	325
Cash generated from operations		11,014	7,301	18,175	10,374
Interest paid		(1)	-	(1)	(1)
Income taxes paid		(2,221)	(1,640)	(1,840)	(1,419)
Net cash flows from operating activities		8,792	5,661	16,334	8,954
Investing activities
Proceeds from sale of property, plant and equipment		117	117	72	68
Purchase of property, plant and equipment	8	(1,680)	(1,648)	(7,773)	(1,627)
Purchase of software	9	(297)	(297)	(980)	(980)
Contingent consideration paid on acquisition of subsidiaries	15	(763)	(763)	(3,506)	(3,506)
Acquisition of subsidiaries	3	(4,537)	(4,537)	-	-
Cash transferred on hive up of group companies		-	-	-	3,765
Cash received on acquisition of subsidiaries	3	1,845	-	-	-
Other investments		-	-	9	9
Loans advanced to property syndicates		(211)	(211)	(2,332)	(2,332)
Loan repayments from property syndicates		467	467	2,032	2,032
Interest received		54	34	73	65
Dividends received		-	1,500	-	2,500
Net cash flows from investing activities		(5,005)	(5,338)	(12,405)	(6)
Financing activities
Proceeds from the issue of share capital		595	595	626	626
Cost of own shares acquired		(99)	-	-	-
Dividends paid	7	(4,703)	(4,703)	(3,866)	(3,866)
Net cash flows from financing activities		(4,207)	(4,108)	(3,240)	(3,240)

Net (decrease)/increase in cash and cash equivalents		(420)	(3,785)	689	5,708
Cash and cash equivalents at start year	13	23,668	17,880	22,979	12,172
Cash and cash equivalents at end of year	13	23,248	14,095	23,668	17,880

Notes to the financial statements

1 Corporate information

Mattioli Woods plc ("the Company") is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the AIM market of the London Stock Exchange plc. The nature of the Group's operations and its principal activities are set out in the Chief Executive's Review.

2 Basis of preparation and accounting policies

2.1 Basis of preparation

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

The financial statements comprise the financial statements of Mattioli Woods plc and its subsidiaries ("the Group") as at 31 May each year. The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair value and are presented in pounds, with all values rounded to the nearest thousand pounds (£000) except when otherwise indicated.

The principal accounting policies adopted are set out in this note and, unless otherwise stated, have been applied consistently to all periods presented in the financial statements. The financial statements were authorised for issue in accordance with a resolution of the directors on 2 September 2019.

2.2 Developments in reporting standards and interpretations

Standards affecting the financial statements

This is the first set of the Group's financial statements where IFRS 9 and IFRS 15 have been applied. These new standards were adopted from 1 June 2018. Under the transition methods chosen, comparative information is not restated. Changes to significant accounting policies are described in Note 2.

IFRS 9 Financial Instruments

IFRS 9 'Financial instruments' replaces IAS 39 and introduces changes to the classification of financial assets and a new impairment model for financial assets, which will result in earlier recognition of impairment losses.

Transition

The Group has taken advantage of the exemption from restating comparative information for prior periods with respect to classification and measurement (including impairment) requirements. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 June 2018. Accordingly, the information presented for the year ended 31 May 2018 does not generally reflect the requirements of IFRS 9 but rather those of IAS 39.

The impact, net of tax, of transition to IFRS 9 on the opening balance of consolidated retained earnings was a reduction in value of £250,000 (Company: £230,000). Our provisional evaluation of the application of IFRS 9 indicated an expected reduction in value of £400,000 but on further review of our methodology for measuring historic credit losses we adopted a methodology using specific rates for each Group company, to better reflect the historic loss rates experienced by each company.

Classification and measurement of financial assets and financial liabilities

The basis of classification for financial assets under IFRS 9 is different from that under IAS 39. Financial assets are classified into one of three categories: amortised cost, fair value through profit or loss ("FVTPL") or fair value through other comprehensive income ("FVOCI"). The held to maturity, loans and receivables and available for sale categories available under IAS 39 have been removed.

The classification criteria for allocating financial assets between categories under IFRS 9 require the Group to document the business models under which its assets are managed, distinguishing whether:

· its objective is to hold assets to collect contractual cash flows;

· its objective is both to collect contractual cash flows and to sell the asset; or

· it represents another type of business model (e.g. trading).

The Group is also required to review contractual terms and conditions to determine whether the cash flows arising on these assets are solely payments of principal and interest on the principal amount outstanding.

All of the Group's financial assets as at 1 June 2018 were managed within business models whose objective is solely to collect contractual cash flows, except derivative financial instruments which are classified as FVTPL.

The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 June 2018 relates solely to new impairment requirements, described further below. The following tables explain the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group and Company's financial assets as at 1 June 2018:

Group financial assets	Original classification under IAS39	Carrying value under IAS39 £000	New classification under IFRS 9	Carrying value under IFRS9 £000

Cash and short-term deposits	Loans and receivables	23,668	Amortised cost	23,668
Derivative financial asset	FVTPL	650	FVTPL	650
Investments	Held to maturity investments	81	Amortised cost	81
Other financial assets	Loans and receivables	16,016	Amortised cost	15,708

Total		40,415		40,107

Company financial assets	Original classification under IAS39	Carrying value under IAS39 £000	New classification under IFRS 9	Carrying value under IFRS9 £000

Cash and short-term deposits	Loans and receivables	17,880	Amortised cost	17,880
Derivative financial asset	FVTPL	650	FVTPL	650
Investments	Held to maturity investments	81	Amortised cost	81
Other financial assets	Loans and receivables	12,377	Amortised cost	12,092

Total		30,988		30,703

The basis of classification for financial liabilities under IFRS 9 remains unchanged from under IAS 39. Financial liabilities are classified as measured at amortised cost or at FVTPL. Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.

The only financial liability recorded by the Group as FVTPL is contingent consideration payable on acquisitions, which remains as FVTPL on the application of IFRS 9 and so no change in carrying value has been recorded on adopting IFRS 9. The Group holds no liabilities as held for trading.

Impairment of financial assets

Under IFRS 9, an expected credit loss ("ECL") model replaces the incurred loss model, meaning there no longer needs to be a triggering event to recognise impairment losses. A credit loss provision must be made for the amount of any loss expected to arise, whereas under IAS 39, credit losses are recognised when they are incurred.

Under the ECL model, a dual measurement approach applies whereby a financial asset will attract an ECL allowance equal to either:

· 12 month ECLs (losses resulting from possible defaults within the next 12 months); or

· Lifetime ECLs (losses resulting from possible defaults over the remaining life of the financial asset).

The latter applies if there has been a significant deterioration in the credit quality of the asset, albeit lifetime ECLs will always be recognised for assets without a significant financing component. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

Measurement of ECLs

The Group's trade and other receivables are generally short-term and do not contain significant financing components. Therefore, the Group has applied a practical expedient by using a provision matrix to calculate lifetime ECLs based on actual credit loss experience over the past 12 months and will consider forward looking factors where relevant. Adoption of this practical expedient is only available for trade receivables and amounts receivable under contracts. Applying this methodology as at 1 June 2018 resulted in an impairment loss provision of £1,422,000 under IFRS 9 relating to trade and other receivables (31 May 2018: £1,114,000 under IAS 39). This methodology was also applied at the interim reporting date.

The following tables set out the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group and Company's financial assets as at 1 June 2018:

Group financial assets - Trade and other receivables	Carrying value under IAS39 £000	Carrying value under IFRS9 £000	Additional ECL provision £000

Other trade receivables	5,133	4,912	221
Accrued income	3,927	3,865	62
Accrued time costs and disbursements	5,556	5,542	14
Other receivables	1,400	1,389	11

Total	16,016	15,708	308

Company financial assets - Trade and other receivables	Carrying value under IAS39 £000	Carrying value under IFRS9 £000	Additional ECL provision £000

Other trade receivables	5,043	4,826	217
Accrued income	1,245	1,191	54
Accrued time costs and disbursements	5,556	5,542	14
Other receivables	533	533	-

Total	12,377	12,092	285

Presentation of impairment

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Impairment losses are presented separately on the statement of comprehensive income.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 brings a new and detailed approach to how and when revenue is recognised from contracts with customers and the treatment of the costs of obtaining a contract with a customer. The standard requires that the recognition of revenue is linked to the fulfilment of identified performance obligations that are enshrined in the customer contract. It also requires that the incremental cost of obtaining a customer contract should be capitalised if that cost is expected to be recovered. The standard replaces existing revenue recognition guidance, particularly that under IAS 18.

Transition

The Group has adopted IFRS 15 using the cumulative effect method, with the effect of applying the standard recognised at the date of adoption, with no restatement of the comparative period. The impact, net of tax, of transition to IFRS 15 on the opening balance of retained earnings was £nil. There are no material differences between the results for the year ended 31 May 2019 under IAS 18, had it applied, and IFRS 15.

Impact on financial statements for the year ended 31 May 2019

The Group has considered the impact of adopting IFRS 15 on its existing revenue streams, as well as on its policy of capitalising the cost of obtaining customer contracts. Subsequent to the assessment of the Group's revenue recognition policies, the majority are the same under IFRS 15 and IAS 18. The matters below were considered in more detail as potential differences, but did not impact the financial statements for the year ended 31 May 2018.

Property management fees and adviser charges

Included within property management fees are initial fees charged on the establishment of private investment syndicates. Under IFRS 15, the Group has identified the only performance obligation is the establishment of the private investment syndicate and hence these fees can be recognised when the performance obligation has been satisfied.

Included within adviser charges are initial adviser charges, which are recognised on a 'point in time' basis as being earned at the point when an investment of funds has been made by the client and submitted to the product provider, which can include private investment syndicates.

Costs to obtain a contract

The Group pays certain employees bonuses partly based on the revenues generated from their client portfolios and incurs various direct marketing costs. IFRS 15 requires incremental costs to obtain any contract with a customer to be capitalised if those costs relate directly to a contract or anticipated contract, generate or enhance the resources of the entity, and the entity expects to recover them.

The Group has elected to apply the optional practical expedient for costs to obtain a contract which allows the Group to immediately expense bonus and marketing costs (£1,756,000 included under employee benefits expense and £1,092,000m included in other administrative expenses respectively) because the amortisation period of the asset that the Group otherwise would have used is one year or less.

Standards not affecting the financial statements

In addition to IFRS 9 and IFRS 15 the following new and revised standards and interpretations have been adopted in the current year:

Standard or interpretation		Periods commencing on or after

Annual Improvements to IFRSs 2014-2016 Cycle		1 January 2018
IAS 40 amended	Transfers of Investment Property	1 January 2018
IFRIC 22	Foreign Currency Transactions and Advance Consideration	1 January 2018
IFRS 2 (amended)	Classification and Measurement of Share-based Payments	1 January 2018

Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements, or give rise to additional disclosures.

Future new standards and interpretations

A number of new standards and amendments to standards and interpretations will be effective for future annual periods and, therefore, have not been applied in preparing these consolidated financial statements. At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective:

Standard or interpretation	Periods commencing on or after

Annual Improvements to IFRSs 2015-2017 Cycle	1 January 2019
IFRS 9 (amended) Financial Instruments	1 January 2019
IFRS 16 Leases	1 January 2019
IFRIC 23 Accounting for uncertain tax treatments	1 January 2019
IAS 28 (amended) Long-term Interests in Associates and Joint Ventures	1 January 2019
IAS 19 (amended) Plan Amendment, Curtailment or Settlement	1 January 2019
Amendments to References to the Conceptual Framework in IFRS Standards	1 January 2020
IFRS 3 (amended) Business Combinations	1 January 2020
IAS 1 and IAS 8 (amendments) Definition of Material	1 January 2020
IFRS 17 Insurance Contracts	1 January 2021

IFRS 16 'Leases' is expected to have a significant effect on the financial statements of the Group, as explained below. Other than to expand certain disclosures within the financial statements, the Directors do not expect the adoption of the other standards and interpretations listed above will have a material impact on the financial statements of the Group in future periods.

IFRS 16 Leases

IFRS 16 'Leases' was issued in January 2016 and is effective for accounting periods beginning on or after 1 January 2019. IFRS 16 primarily changes lease accounting for lessees. Lease agreements will give rise to the recognition of an asset representing the right to use the leased item and a loan obligation for future lease payables. Lease costs will be recognised in the form of depreciation of the right-of-use asset and interest on the lease liability. Lessee accounting under IFRS 16 will be similar in many respects to existing IAS 17 accounting for finance leases, but will be substantially different to existing accounting for operating leases where rental charges are currently recognised on a straight-line basis and no lease asset or lease loan obligation is recognised.

Lessor accounting under IFRS 16 is similar to existing IAS 17 accounting and is not expected to have a material impact for the Group.

The Group has estimated the impact of the following accounting changes that will arise under IFRS 16:

· Right-of-use assets with an estimated value of £3,500,000 as at 31 May 2019 will be recorded for assets that are leased by the Group. Currently, no leased assets are included on the Group's consolidated statement of financial position for operating leases. These assets primarily comprise office properties with lease periods between one and ten years and multifunction printers.

· Estimated liabilities of £3,500,000 as at 31 May 2019 will be recorded in the Group's consolidated statement of financial position, representing the present value of future cash flows the Group will pay over the "reasonably certain" period of the lease, which may include future lease periods for which the Group has extension options. A critical accounting judgement is determining appropriate discount rate assumptions. IFRS 16 sets out that the lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined, or the lessee's incremental borrowing rate. The Group does not have the necessary historical data to determine the interest rates implicit in the leases and hence the estimated liabilities at transition have been calculated using the Group's estimated incremental borrowing rates, which are the rates of interest the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use assets in a similar economic environment. Currently, liabilities are generally not recorded for future operating lease payments, which are disclosed as commitments unless they are considered onerous. At 31 May 2019, the Group has recognised provisions of £348,000 for dilapidations (see Note 26).

· In the year ending 31 May 2020 we expect to recognise estimated depreciation on right-of-use assets of £839,000 and estimated interest costs on the unwinding of discounted lease liabilities of £135,000. These total costs of £974,000 are £54,000 higher than the expected rental costs of £920,000 that would be recognised under IAS 17, where operating lease rentals are expensed on a straight-line basis over the lease term within other administrative expenses, because interest will typically be higher in the early stages of a lease and reduce over the term.

· Operating lease cash flows are currently included within operating cash flows in the consolidated statement of cash flows. Under IFRS 16 these will be recorded as cash flows from financing activities reflecting the repayment of lease liabilities (borrowings) and related interest.

The Group expects the accounting changes that will arise under IFRS 16 to have a material impact on the consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows from 1 June 2019:

· EBITDA is expected to rise because the lease expense under IAS 17 for operating leases will be removed and replaced with additional depreciation and finance costs. The profit profile of the business will also change as more expense is recognised in earlier periods and less in later periods compared to the straight-line amount recognised under IAS 17.

· For leases classified as operating leases under IAS 17, there will be a significant impact on the Statement of Financial Position as these assets and corresponding liabilities have to be recognised. This will impact on gearing levels and potentially on any covenants provided to prospective lenders and others.

IFRS 16 was adopted by the Group on 1 June 2019 and therefore will impact the Group's financial statements for the year ending 31 May 2020. The group plans to use the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance sheet at 1 June 2019, with no restatement of comparative information.

The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before 1 June 2019 and identified as leases in accordance with IAS 17.

2.3 Principal accounting policies

Basis of consolidation

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

Business combinations

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

Associates

The Company's share of profits from associates is reported separately in the Statement of Comprehensive income and the investment is recognised in the Statement of Financial Position using the equity method. The investment is initially recorded at cost and subsequently adjusted to reflect the Company's share of the cumulative profits of the associate since acquisition. Appropriate adjustments to the Company's share of the profits or losses after acquisition are made to account for additional amortisation of the associate's amortisable assets based on the excess of their fair values over their carrying amounts at the time the investment was acquired.

Group re-organisations

On 31 December 2017 the trade and assets of the Boyd Coughlan Limited were transferred to the Company. The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of Boyd Coughlan Limited as at 31 December 2017, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.

On 31 August 2016 the trade and assets of the Taylor Patterson Group Limited and its subsidiaries Taylor Patterson Financial Planning Limited and Taylor Patterson Associates Limited (together "the Business") were transferred to the Company. The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of the Business as at 31 August 2016, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.

On 31 May 2019 the loan notes were waived by way of in-specie dividend and the capital and reserves of Boyd Coughlan Limited, Taylor Patterson Group Limited and its subsidiaries were each reduced to £2. The net impact on the consolidated financial position of the Group was £nil. The net impact on the financial position of the Company was a gain of £2,400,000, comprising a gain on the waiver of the loan notes of £17,335,000, offset by impairment of the Company's investment in these subsidiaries of £14,935,000.

Own shares

Own shares consist of shares held within an employee benefit trust. The Company has an employee benefit trust for the granting of shares to applicable employees.

Own shares are recognised at cost as a deduction from equity shareholders' funds. Subsequent consideration received for the sale of such shares is also recognised in equity, with any difference between the sale proceeds and the original cost being taken to retained earnings.

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration receivable for each contractual obligation, excluding discounts, rebates, and other sales taxes or duty. Terms of business with customers typically include payment periods of up to 60 days, although specific payment terms can be agreed between the parties. The following information details the nature and timing of the satisfaction of performance obligations in contracts with customers.

Investment and asset management

Commission income and adviser charges are recognised as follows:

· At a point in time: Initial commission (less provision for clawbacks, as explained in Note 15) and initial adviser charges are recognised on a 'point in time' basis as being earned at the point when an investment of funds has been made by the client and submitted to the product provider.

· Over time: Ongoing adviser charges, based on the value of assets invested, are recognised on an 'over time' basis during the period the assets are held in the portfolio or investment fund and have been compared to observable rates from other providers on a stand-alone basis, with initial charges recognised by the residual approach to ensure that the allocation of the selling price remains appropriate.

Discretionary portfolio management ("DPM") charges are recognised as follows:

· At a point in time: Initial charges on the placing of investments are recognised on a 'point in time' basis as being earned at the point when an investment of funds has been made by the client and submitted to the product provider.

· Over time: Ongoing DPM charges based on the value of assets invested are recognised on an 'over time' basis during the period the assets are held in the portfolio or investment fund.

Our ongoing adviser and DPM charges have been compared to observable rates from other providers on a stand-alone basis, with initial charges being recognised by the residual approach, to ensure that the allocation of the selling price remains appropriate.

Pension consultancy and administration

Pension consultancy and administration fees are recognised as follows:

· At a point in time: Mattioli Woods generally invoices pension clients on a six monthly basis in arrears for costs incurred in advising on and administering their affairs. Where revenue is contingent on completion of a service, revenue is recognised on a 'point in time' basis at the point that those contractual performance conditions are satisfied. No revenue is recognised if there are significant uncertainties regarding recovery of the time incurred.

· Over time: To the extent that the Group has a contractual right to invoice for services rendered, revenue is recognised on an 'over time' basis as time is incurred on the provision of services, with an estimate being made of what proportion of uninvoiced time costs will be recoverable. Recoverability is measured as a percentage of the total time costs incurred on clients' affairs compared to the proportion of historical time costs actually invoiced.

Pension consultancy and administration fees have been compared to observable rates from other providers on a stand-alone basis, with establishment charges being recognised by the residual approach, to ensure that the allocation of the selling price remains appropriate.

Property management

Property management fees are recognised as follows:

· At a point in time: Initial charges on the establishment of a private investment syndicate are recognised on a 'point in time' basis when the syndicate completes its investment.

· Over time: Fund management and private investment syndicate charges, including charges based on the value of assets held, are recognised on an 'over time' basis during the period the assets are held in the fund or syndicate.

Employee benefits

Employee benefits fees are recognised as follows:

· At a point in time: Fee income from services provided on the set up of an employee benefits scheme or provision of non-recurring employee benefits services are recognised on a 'point in time' basis on completion of rendering those services, being the point that those contractual performance conditions are satisfied.

· Over time: Ongoing management charges on employee benefits schemes are recognised on an 'over time' basis over the period to which they relate.

Interest income

Revenue is recognised as interest accrues (using the effective interest method that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset).

2.4 Critical accounting judgements and sources of significant estimation uncertainty

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities. If in the future such estimates and assumptions, which are based on management's best judgement at the date of preparation of the financial statements, deviate from actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change. The areas where a higher degree of judgement or complexity arises, or where assumptions and estimates are significant to the consolidated financial statements, are discussed below.

Critical accounting judgements

Interests in associates

Associates are entities in which the Group owns less than 100% of voting rights and has significant influence, but not control or joint control over the financial and operating policies. In determining whether control exists, this requires significant judgements in assessing factors such as the structure of the investment and the contractual agreement. The only associate at 31 May 2019 is Amati, in which the Group owns 49% of the voting rights, with the controlling 51% owned by Amati Global Partners LLP. The existence of significant influence is evidenced by the Group having representation on the board and the ability to participate in decisions but not being able to control the vote. The carrying amount of the investment in associate at 31 May 2019 was £4.2m (2018: £3.7m).

Sources of significant estimation uncertainty

Impairment of acquired client portfolios and goodwill

For the purposes of impairment testing, acquired client portfolios and goodwill are allocated to the group of cash-generating units ("CGUs") that are expected to benefit from the business combination.

The Group reviews whether acquired client portfolios are impaired on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. This comprises an estimation of the fair value less cost to sell and the value in use of the acquired client portfolios.

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

Value in use calculations are utilised to calculate recoverable amounts of a CGU. Value in use is calculated as the net present value of the projected pre-tax cash flows of the CGU in which the client portfolio is contained. The net present value of cash flows is calculated by applying a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset, based on the Group's pre-tax Weighted Average Cost of Capital ("WACC"). The Group has applied a WACC of 10.2% to each of its operating segments.

The key assumptions used in respect of value in use calculations are those regarding growth rates and anticipated changes to revenues and expenses during the period covered by the calculations. Changes to revenue and costs are based upon management's expectation. The Group prepares its annual budget and five-year cash flow forecasts derived therefrom, thereafter extrapolating these cash flows using a terminal growth rate of 2.5% (2018: 2.5%), which management considers conservative against industry average long-term growth rates.

The carrying amount of client portfolios at 31 May 2019 was £26.8m (2018: £23.5m). No impairment provisions have been made during the year (2018: £nil) based upon the Directors' review.

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the CGUs to which the goodwill has been allocated. In assessing value in use, the estimated future cash flows expected to arise from the CGU are discounted to their present value using a pre-tax discount rate of 10.2%, reflecting current market assessments of the time value of money and the risks specific to that asset, based on the Group's WACC.

The key assumptions used in respect of value in use calculations are those regarding growth rates and anticipated changes to revenues and costs during the period covered by the calculations, based upon management's expectation. The carrying amount of goodwill at 31 May 2019 was £20.2m (2018: £17.3m). No impairment provisions have been made during the year (2018: £nil) based upon the Directors' review.

Recoverability of accrued time costs and disbursements

The Group recognises accrued income in respect of time costs and disbursements incurred on clients' affairs during the accounting period, which have not been invoiced at the reporting date. This requires an estimation of the recoverability of the time costs and disbursements incurred but not invoiced to clients. The carrying amount of accrued time costs and disbursements at 31 May 2019 was £4.6m (2018: £5.6m).

The sensitivity of a 1.0% change in the estimated recoverability of time costs and disbursements incurred but not invoiced to clients, with all other variables held constant, is £0.1m of the Group's profit before tax. There is no material impact on the Group's equity.

Acquisitions and business combinations

When an acquisition arises the Group is required under IFRS to calculate the Purchase Price Allocation ("PPA"). The PPA requires companies to report the fair value of assets and liabilities acquired and it establishes useful lives for identified assets. The identification and the valuation of the assets and liabilities acquired involves estimation and judgement when determining whether the recognition criteria are met. The classification of consideration payable as either purchase consideration or remuneration is an area of judgement and estimate.

Subjectivity is also involved in the PPA with the estimation of the future value of brands, technology, customer relationships and goodwill. The fair value of separately identifiable intangible assets acquired during the year was £5.2m (2018: £nil), with the key assumptions used to calculate these fair values being those around the estimated useful lives of the acquired customer relationships, the estimated future cash flows expected to arise from these relationships and the appropriate discount rate to be used to discount these cash flows to their present value.

Contingent consideration payable on acquisitions

The Group has entered into certain acquisition agreements that provide for a contingent consideration to be paid. A financial instrument is recognised for all amounts management anticipates will be paid under the relevant acquisition agreement. This requires management to make an estimate of the expected future cash flows from the acquired business and determine a suitable discount rate for the calculation of the present value of any contingent consideration payments.

Using cash flows approved by the Board covering the contingent consideration period the Board expects the maximum contingent consideration will be payable. A material change to the carrying value would only occur if the acquired business achieved 80% or less of the target earnings. The carrying amount of contingent consideration provided for at 31 May 2019 was £2.7m (2018: £0.9m).

Provisions

As detailed in Note 15, the Group recognises provisions for client claims, contingent consideration payable on acquisitions, commission clawbacks, dilapidations, onerous contracts and other obligations which exist at the reporting date. These provisions are estimates and the actual amount and timing of future cash flows are dependent on future events. Management reviews these provisions at each reporting date to ensure they are measured at the current best estimate of the expenditure required to settle the obligation. Any difference between the amounts previously recognised and the current estimate is recognised immediately in the statement of comprehensive income.

3. Business combinations

The Group completed two acquisitions during the year. Transaction costs of £0.1m (2018: £0.1m) incurred during the course of the acquisitions have been expensed and are included in administrative expenses in the consolidated statement of comprehensive income and operating cash flows in the consolidated statement of cash flows in the period in which they were incurred.

Acquisition of Broughtons Financial Planning Limited

On 8 August 2018, Mattioli Woods acquired the entire issued share capital of Broughtons Financial Planning Limited ("Broughtons"), a financial planning and wealth management business based in Oldbury in the West Midlands. The fair values of the identifiable assets and liabilities of Broughtons as at the date of acquisition are set out in the table below:

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

Property, plant and equipment	10	-	10
Client portfolio	2,296	2,296	-
Cash at bank	757	-	757
Prepayments and accrued income	110	-	110
Other receivables	304	-	304

Assets	3,477	2,296	1,181

Trade and other payables	(27)	-	(27)
Accruals and deferred income	(31)	-	(31)
Other taxation and social security	(3)	-	(3)
Income tax	(147)	-	(147)
Provisions	(25)	-	(25)
Deferred tax liability	(390)	(390)	-

Liabilities	(623)	(390)	(233)

Total identifiable net assets at fair value	2,854
Goodwill	1,493

Total acquisition cost	4,347

Analysed as follows:
Initial cash consideration	2,100
Acquired net assets adjustment to initial consideration	448
New shares in Mattioli Woods	600
Contingent consideration	1,300
Discounting of contingent consideration	(101)

Total acquisition cost	4,347

Cash outflow on acquisition

Cash paid	2,100
Cash acquired	(757)
Acquired net assets adjustment paid	387
Acquisition costs	70

Net cash outflow	1,800

Broughtons specialises in the provision of bespoke wealth management services and impartial advice. It is an excellent cultural and strategic fit with Mattioli Woods' existing business, providing services to clients with over £120m of assets under advice. The acquisition brings additional scale to Mattioli Woods' existing operations and offers the opportunity to promote additional services to existing and prospective clients of Broughtons.

In addition, the acquisition adds further specialist expertise to the Group and Broughtons experienced staff have remained with the business. The goodwill recognised above is attributed to the expected benefits from combining the assets and activities of Broughtons with those of the Group. The primary components of this residual goodwill comprise:

· Revenue synergies expected to be available to Mattioli Woods as a result of the transaction;

· The workforce;

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

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

None of the recognised goodwill is expected to be deductible for income tax purposes. The client portfolio will be amortised on a straight-line basis over an estimated useful life of 15 years based on the Group's historical experience.

From the date of acquisition Broughtons has contributed £0.9m to revenue and £0.4m to the Group profit for the period. If the combination had taken place at the beginning of the period, Group revenue from continuing operations would have been £58.7m and the profit for the period would have been £8.3m.

Acquisition of SSAS Solutions (UK) Limited

On 27 March 2019, Mattioli Woods acquired the entire issued share capital of SSAS Solutions (UK) Limited ("SSAS Solutions"), a bespoke, specialist pension advisory business acting as SSAS practitioner based in Belfast, Northern Ireland.

The fair values of the identifiable assets and liabilities of SSAS Solutions as at the date of acquisition are set out in the table below:

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

Property, plant and equipment	20	-	20
Client portfolio	2,893	2,893	-
Cash at bank	1,088	-	1,088
Prepayments and accrued income	68	-	68
Other receivables	171	(2)	173

Assets	4,240	2,891	1,349

Trade and other payables	(24)	-	(24)
Accruals and deferred income	(148)	-	(148)
Other taxation and social security	(74)	-	(74)
Income tax	(106)	-	(106)
Provisions	(43)	(43)	-
Deferred tax liability	(495)	(492)	(3)

Liabilities	(890)	(535)	(355)

Total identifiable net assets at fair value	3,350
Goodwill	1,469

Total acquisition cost	4,819

Analysed as follows:
Initial cash consideration	1,250
Acquired net assets adjustment to initial consideration	915
New shares in Mattioli Woods	1,260
Contingent consideration	1,500
Discounting of contingent consideration	(106)

Total acquisition cost	4,819

Cash outflow on acquisition

Cash paid	1,250
Cash acquired	(1,088)
Estimated net assets adjustment paid on completion	800
Acquisition costs	157

Net cash outflow	1,119

SSAS Solutions was established in 2009 and provides a bespoke, specialist pension advisory service for the operation of small self-administered pension schemes. Based in Belfast and employing 12 staff, the business provides personal service and expert technical advice to owner-managed businesses throughout the UK, acting as SSAS practitioner to 350 schemes with approximately £380m of assets under administration.

The acquisition adds further specialist expertise to the Group and SSAS Solutions' experienced staff have remained with the business. The goodwill recognised above is attributed to the expected benefits from combining the assets and activities of SSAS Solutions with those of the Group. The primary components of this residual goodwill comprise:

· Revenue synergies expected to be available to Mattioli Woods as a result of the transaction;

· The workforce;

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

· New opportunities available to the combined business, as a result of both SSAS Solutions and the Group's existing business becoming part of a more sizeable listed company.

None of the recognised goodwill is expected to be deductible for income tax purposes. The client portfolio will be amortised on a straight-line basis over an estimated useful life of 20 years based on the Group's historical experience.

From the date of acquisition SSAS Solutions has contributed £0.17m to revenue and £0.06m to the Group profit for the period. If the combination had taken place at the beginning of the period, Group revenue from continuing operations would have been £59.3m and the profit for the period would have been £8.5m.

Contingent consideration

The Group has entered into certain acquisition agreements that provide for contingent consideration to be paid. These agreements and the basis of calculation of the net present value of the contingent consideration are summarised below. While it is not possible to determine the exact amount of contingent consideration (as this will depend on the performance of the acquired businesses during the period), the Group estimates the fair value of the remaining contingent consideration payable is £2.7m (2018: £0.9m) (see Note 15).

On 27 March 2019 the Group acquired SSAS Solutions for total consideration of up to £4.9m, comprising initial consideration of £1.25m in cash plus 162,654 new ordinary shares of 1p each in Mattioli Woods plus contingent consideration of up to £1.5m payable in cash in the two years following completion if certain financial target based on growth in earnings before interest, tax, depreciation and amortisation are met. The Group estimates the fair value of the remaining contingent consideration at 31 May 2019 to be £1.4m (2018: £nil) using cash flows approved by the Board covering the contingent consideration period and expects the maximum contingent consideration will be payable.

On 8 August 2018 the Group acquired Broughtons for total consideration of up to £4.4m, comprising initial consideration of £2.5m in cash plus 77,171 new ordinary shares of 1p each in Mattioli Woods plus contingent consideration of up to £1.3m payable in cash in the two years following completion if certain financial target based on growth in earnings before interest, tax, depreciation and amortisation are met. The Group estimates the fair value of the remaining contingent consideration at 31 May 2019 to be £1.3m (2018: £nil) using cash flows approved by the Board covering the contingent consideration period and expects the maximum contingent consideration will be payable.

Contingent consideration payable on the previous acquisitions of MC Trustees and Taylor Patterson was settled in full during the year (see Note 15).

4. Revenue

The Group derives its revenue from the rendering of services over time and at a point in time across all operating segments. The timing of recognition of the revenues of each operating segment is analysed as follows:

Timing of revenue recognition	2019 £000	2018 £000

At a point in time:
Investment and asset management	2,873	4,633
Pension consultancy and administration	1,276	2,639
Property management	620	570
Employee benefits	973	1,087

	5,742	8,929

Over time:
Investment and asset management	23,124	20,463
Pension consultancy and administration	19,129	19,183
Property management	5,823	5,348
Employee benefits	4,646	4,746

	52,722	49,740

	58,464	58,669

The following table shows the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as at the end of the reporting period:

Contract liabilities	Group 2019 £000	Company 2019 £000

Investment and asset management	-	-
Pension consultancy and administration	2,353	1,205
Property management	36	-
Employee benefits	491	491

	2,880	1,696

The Group expects that 100% of the transaction price allocated to the unsatisfied contracts as at 31 May 2019 will be recognised as revenue during the next reporting period, amounting to £2,880,000.

The following table shows the movement in contract liabilities in the period:

Contract liabilities	Group £000	Company £000

At 1 June 2018	2,253	1,644

Revenue recognised on completion of performance obligations	(2,253)	(1,644)
Consideration received allocated to performance obligations that are unsatisfied at the period end	2,880	1,696

At 31 May 2019	2,880	1,696

5. Segment information

The Group's objective is to fully integrate the businesses it acquires, to enable it to deliver holistic solutions across its wide and diverse client base. During the year ended 31 May 2018, the Group transferred the trade and assets of Boyd Coughlan Limited into Mattioli Woods. The Group's operating segments comprise the following:

· Pension consultancy and administration - fees earned by Mattioli Woods for setting up and administering pension schemes. Additional fees are generated from consultancy services provided for special one-off activities and the provision of bespoke scheme banking arrangements;

· Investment and asset management - income generated from the management and placing of investments on behalf of clients;

· Property management - income generated where Custodian Capital manages private investor syndicates, facilitates direct commercial property investments on behalf of clients or acts as the external discretionary manager for Custodian REIT plc; and

· Employee benefits - income generated 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.

Operating segments

The operating segments defined above all utilise the same intangible assets, property, plant and equipment and the segments have been financed as a whole, rather than individually. The Group's operating segments are managed together as one business. Accordingly, certain costs are not allocated across the individual operating segments, as they are managed on a group basis. Segment profit or loss reflects the measure of segment performance reviewed by the Board of Directors (the Chief Operating Decision Maker).

The following tables present revenue and profit information regarding the Group's operating segments for the two years ended 31 May 2019 and 2018 respectively.

Year ended 31 May 2019	Investment and asset management £000	Pension consultancy and administration £000	Property management £000	Employee benefits £000	Total segments £000	Corporate costs £000	Consolidated £000

Revenue External client	25,997	20,405	6,443	5,619	58,464	-	58,464

Total revenue	25,997	20,405	6,443	5,619	58,464	-	58,464

Results Segment profit before tax	7,085	4,355	1,463	677	13,580	(3,335)	10,245

Year ended 31 May 2018	Investment and asset management £000	Pension consultancy and administration £000	Property management £000	Employee benefits £000	Total segments £000	Corporate costs £000	Consolidated £000

Revenue External client	25,096	21,822	5,918	5,833	58,669	-	58,669

Total revenue	25,096	21,822	5,918	5,833	58,669	-	58,669

Results Segment profit before tax	8,306	3,714	1,016	113	13,149	(3,373)	9,776

Segment assets

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

	31 May 2019	31 May 2018
	£000	£000

Pension consultancy and administration	26,825	23,790
Investment and asset management	28,092	23,023
Property management	1,559	1,159
Employee benefits	9,626	11,177

Segment operating assets	66,102	59,149

Corporate assets	44,482	46,277

Total assets	110,584	105,426

Segment operating assets exclude property, plant and equipment, certain items of computer software, investments, current and deferred tax balances and cash balances, as these assets are considered corporate in nature and are not allocated to a specific operating segment.

	31 May 2019	31 May 2018
Reconciliation of assets	£000	£000

Segment operating assets	66,102	59,149

Property, plant and equipment	16,665	16,483
Intangible assets	1,766	2,475
Deferred tax asset	512	674
Derivative financial asset	750	650
Prepayments and other receivables	1,461	2,246
Investments	80	81
Cash and short-term deposits	23,248	23,668

Total assets	110,584	105,426

Acquired intangibles and amortisation thereon relate to a specific transaction and are allocated between individual operating segments based on the headcount or revenue mix of the cash generating units at the time of acquisition. The subsequent delivery of services to acquired clients may be across a number or all operating segments, comprising different operating segments to those the acquired intangibles have been allocated to.

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

Corporate costs

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

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.

	31 May 2019	31 May 2018
Reconciliation of profit before tax	£000	£000

Total segments	13,580	13,149

Depreciation	(1,288)	(822)
Amortisation and impairment	(1,054)	(469)
Irrecoverable VAT	(868)	(829)
Professional indemnity insurance	(513)	(466)
Finance costs	(321)	(154)
Loss on disposal of assets	(125)	(67)
Acquisition-related costs	(123)	(132)
Bank charges	(18)	(18)
Gain on revaluation of derivative financial asset	100	540
Finance income	292	73
Decrease/(Increase) in provisions	583	(1,029)

Group profit before tax	10,245	9,776

Country-by-country reporting

HM Treasury has transposed the requirements set out under the Capital Requirements Directive IV ("CRD IV") and issued the Capital Requirements Country-by-Country Reporting Regulations 2013, effective 1 January 2014. The legislation requires Mattioli Woods plc (together with its subsidiaries) to publish certain additional information split by country, on a consolidated basis, for the year ended 31 May 2019.

Mattioli Woods plc and its subsidiaries are all incorporated in and operate from the United Kingdom. All employees of the Group hold contracts of employment in the United Kingdom. All turnover (revenue) and profit before tax is recognised on activities based in the United Kingdom. All tax paid and any subsidies received are paid to and received from UK institutions.

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, excluding own shares of 12,248 (2018: nil).

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:

	2019 £000	2018 £000

Net profit and diluted net profit attributable to equity holders of the Company	8,197	8,190


Weighted average number of ordinary shares:	000s	000s

Issued ordinary shares at start of period	26,150	25,789
Effect of shares issued during the year ended 31 May 2018	-	455
Effect of shares issued during the year ended 31 May 2019	440	317

Basic weighted average number of shares	26,590	26,561

Effect of dilutive options at the statement of financial position date	77	9

Diluted weighted average number of shares	26,667	26,570

The Company has granted options under the Share Option Plan, the Consultants' Share Option Plan and the LTIP to certain of its senior managers and directors to acquire (in aggregate) up to 2.83% of its issued share capital (see Note 11). 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 2019 the conditions attached to 680,440 options granted under the LTIP were not satisfied (2018: 787,202). If the conditions had been satisfied, diluted earnings per share would have been 30.0p per share (2018: 29.9p).

Since the reporting date and the date of completion of these financial statements the following transactions have taken place involving ordinary shares or potential ordinary shares:

· The issue of 8,693 ordinary shares to satisfy the exercise of options under the LTIP; and

· The issue of 18,932 ordinary shares under the Mattioli Woods plc Share Incentive Plan.

7. Dividends paid and proposed

	2019 £000	2018 £000

Declared and paid during the year:
Equity dividends on ordinary shares:
- Final dividend for 2018: 11.5p (2017: 9.4p)	3,024	2,430
- Interim dividend for 2019: 6.33p (2018: 5.5p)	1,679	1,436

Dividends paid	4,703	3,866
Proposed for approval by shareholders at the AGM:
Final dividend for 2019: 13.67p (2018: 11.5p)	3,664	3,022

8. Property, plant and equipment

	Assets under construction	Land and buildings	Computer and office equipment	Fixtures and fittings	Motor vehicles	Total
Group	£000	£000	£000	£000	£000	£000
Gross carrying amount:
At 1 June 2017	7,438	-	2,024	930	1,211	11,603

Additions	7,019	-	229	30	495	7,773
Disposals	-	-	(116)	-	(214)	(330)
		-
At 31 May 2018	14,457	-	2,137	960	1,492	19,046

Additions	790	27	323	72	468	1,680
Arising on acquisitions	-	-	5	25	-	30
Disposals	-	-	(144)	(2)	(394)	(540)
Reclassifications	(15,247)	10,753	27	4,467	-	-

At 31 May 2019	-	10,780	2,348	5,522	1,566	20,216

Depreciation:
At 1 June 2017	-	-	977	576	379	1,932

Charged for the year	-	-	391	192	239	822
On disposals	-	-	(52)	-	(139)	(191)

At 31 May 2018	-	-	1,316	768	479	2,563

Charged for the year	-	168	259	597	264	1,288
On disposals	-	-	(92)	-	(208)	(300)

At 31 May 2019	-	168	1,483	1,365	535	3,551

Carrying amount:
At 31 May 2019	-	10,612	865	4,157	1,031	16,665

At 31 May 2018	14,457	-	821	192	1,013	16,483

At 31 May 2017	7,438	-	1,047	354	832	9,671

	Assets under construction	Leasehold improvements	Computer and office equipment	Fixtures and fittings	Motor vehicles	Total
Company	£000	£000	£000	£000	£000	£000
Gross carrying amount:
At 1 June 2017	-	56	1,868	796	1,202	3,922

Transfer from group companies	-	-	7	-	-	7
Reclassification	-	(56)	-	56	-	-
Additions	877	-	225	30	495	1,627
Disposals	-	-	(116)	-	(199)	(315)

At 31 May 2018	877	-	1,984	882	1,498	5,241

Additions	790	-	321	69	468	1,648
Disposals	-	-	(137)	-	(394)	(531)
Reclassification	(1,667)	-	27	1,640	-	-

At 31 May 2019	-	-	2,195	2,591	1,572	6,358

Depreciation:
At 1 June 2017	-	1	838	501	373	1,713

Reclassification	-	(1)	-	1	-	-
Charged for the year	-	-	386	190	239	815
On disposals	-	-	(52)	-	(127)	(179)

At 31 May 2018	-	-	1,172	692	485	2,349

Charged for the year	-	-	255	321	264	840
On disposals	-	-	(92)	-	(208)	(300)

At 31 May 2019	-	-	1,335	1,013	541	2,889

Carrying amount:
At 31 May 2019	-	-	860	1,578	1,031	3,469

At 31 May 2018	877	-	812	190	1,013	2,892

At 31 May 2017	-	55	1,030	295	829	2,209

9. Intangible assets

Group	Internally generated software £000	Software £000	Client portfolios £000	Goodwill £000	Other £000	Total £000
Gross carrying amount:
At 1 June 2017	1,589	1,541	33,354	17,253	35	53,772

Additions	104	876	-	-	-	980

At 31 May 2018	1,693	2,417	33,354	17,253	35	54,752

Arising on acquisitions	-	-	5,190	2,962	-	8,152
Additions	97	248	-	-	-	345
Disposals	(217)	(738)	-	-	-	(955)

At 31 May 2019	1,573	1,927	38,544	20,215	35	62,294

Amortisation and impairment:
At 1 June 2017	494	671	8,128	-	35	9,328

Amortisation during the year	162	307	1,756	-	-	2,225

At 31 May 2018	656	978	9,884	-	35	11,553

Amortisation during the year	270	785	1,907	-	-	2,962
Disposals	(217)	(738)	-	-	-	(955)

At 31 May 2019	709	1,025	11,791	-	35	13,560

Carrying amount:
At 31 May 2019	864	902	26,753	20,215	-	48,734

At 31 May 2018	1,037	1,439	23,470	17,253	-	43,199

At 31 May 2017	1,095	870	25,226	17,253	-	44,444

Company	Internally generated software £000	Software £000	Client portfolios £000	Goodwill £000	Total £000
Gross carrying amount:
At 1 June 2017	1,589	1,430	25,260	14,891	43,170

Transfer from group companies	-	-	3,719	1,493	5,212
Additions	104	876	-	-	980

At 31 May 2018	1,693	2,306	28,979	16,384	49,362

Additions	97	200	-	-	297
Disposals	(217)	(738)	-	-	(955)

At 31 May 2019	1,573	1,768	28,979	16,384	48,704

Amortisation and impairment:
At 1 June 2017	494	591	5,342	-	6,427

Amortisation during the year	162	287	1,555	-	2,004

At 31 May 2018	656	878	6,897	-	8,431

Amortisation during the year	270	774	1,679	-	2,723
Disposals	(217)	(738)	-	-	(955)

At 31 May 2019	709	914	8,576	-	10,199

Carrying amount:
At 31 May 2019	864	854	20,403	16,384	38,505

At 31 May 2018	1,037	1,428	22,082	16,384	40,931

At 31 May 2017	1,095	839	19,918	14,891	36,743

Software

Software is amortised over its useful economic life of four years on a reducing balance basis. Internally generated software represents the development costs of the Group's bespoke customer relationship management, administration and trading platform. The directors believe this technology will be the principal technology platform used throughout the Group for the foreseeable future. Internally generated software is amortised on a straight-line basis over an estimated useful life of 10 years.

Client portfolios

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

Goodwill

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

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.

10. Investment in associate and related derivative

Investment in associate

On 6 February 2017 the Group acquired 49% of the ordinary share capital of Amati Global Investors Limited ("Amati") from Amati Global Partners LLP plus an option to acquire the remaining 51% ordinary share capital of Amati in the two years commencing 6 February 2019 for a total consideration of £3.39m, comprising £1.65m in cash and £1.74m of new ordinary shares in Mattioli Woods.

Amati is a fund management firm founded in 2010 following the management buyout of Noble Fund Managers Limited. Amati's principal place of business is the United Kingdom. It focuses on small and mid-sized companies, with a universe ranging from fully listed constituents of the FTSE Mid 250 and FTSE Small Cap indices, to stocks quoted on AIM. At the date of investment Amati had approximately £120m of assets under management, including the TB Amati UK Smaller Companies Fund; two AIM Venture Capital Trusts (Amati VCT plc and Amati VCT 2 plc); and an AIM IHT portfolio service.

During the year the shareholders of Amati VCT plc voted to approve its merger with Amati VCT 2 plc, which has been renamed Amati AIM VCT plc. Amati's gross assets under management at 31 May 2019 had increased to over £453m.

The Group exercises significant influence by virtue of its contractual right to appoint a minority of directors to Amati's board of directors. The option held by the Group to acquire the remaining shares in Amati was not exercised at 6 February 2019 as the Company had agreed heads of terms with the counterparty to cancel the option in exchange for a payment of £750,000 from the counterparty. The agreement completed after the year end (Note 18). The Group has no other rights which would allow it to exercise control over Amati's operations. Therefore, the Group is not judged to control Amati and it is not consolidated.

The movement in the Group's investment in associate is as follows:

Investment in associate - Group and Company	2019 £000	2018 £000

At 1 June	3,725	3,476

Investment in Amati Global Investors Limited	-	-

Share of profit for the year	548	308
Amortisation of fair value intangibles	(68)	(68)

Share of profit from associates in statement of comprehensive income	480	240
Share of other comprehensive income	6	9

At 31 May	4,211	3,725

Other comprehensive income represents a movement in Amati's revaluation reserve recognised directly in equity.

The results of Amati and its aggregated assets and liabilities as at 31 May 2019 are as follows:

Name	Country of incorporation	Assets £000	Liabilities £000	Revenue £000	Profit £000	Interest held

Amati Global Investors Limited	Scotland	4,504	1,364	4,418	1,116	49%

Group's share of profit					548

The net assets of Amati as at 31 May 2018 were £2,011,000. At 31 May 2019 the net assets of Amati had increased by £1,130,000 to £3,140,000, increasing the Group's interest in the associate (net of tax) by £553,000 during the year, comprising Mattioli Woods' share of Amati's profit after tax recognised in the statement of comprehensive income and Mattioli Woods' share of the movement in Amati's revaluation reserve recognised directly in equity.

Derivative financial instruments

As part of the transaction to acquire its holding in Amati, Mattioli Woods also entered into an option agreement with the Seller which entitles Mattioli Woods to acquire the remaining 51% of Amati in the two years commencing 6 February 2019 for a mixture of cash and Mattioli Woods' ordinary shares ("the Option"). If Mattioli Woods does not exercise the Option to acquire the remaining stake from the Seller, the Seller has an option to buy Mattioli Woods' shareholding back for the original consideration paid.

The fair value of the option contract at the date of acquisition was £17,000. During the year the Company signed heads of terms to cancel the option agreement in exchange for £750,000. The cancellation of the agreement was completed after the year end (Note 18). At 31 May 2019, the fair value of the option contract was £750,000 (2018: £650,000) (Note 12) with a gain of £100,000 recognised during the year (2018: £540,000).

11. Share based payments

Consultants' Share Option Plan

The Company operates the Consultants' Share Option Plan by which certain senior executives are able to subscribe for ordinary shares in the Company. Options granted under the Consultants' Share Option Plan are summarised as follows:

Date of grant	Exercise price £	At 1 June 2018 No.	Exercised during the year No.	At 31 May 2019 No.

8 September 2009	2.16	46,861	(46,861)	-

Outstanding		46,861	(46,861)	-

Exercisable		46,861	(46,861)	-

The exercise price of the options is equal to the market price of the shares at the close of business on the day immediately preceding the date of grant. The options vest when the option holders achieve certain individual performance hurdles. No options vested during the year as a result of the associated performance conditions being fulfilled. If the performance hurdles, which are linked to individual sales revenues, are not met over the five financial years commencing on 1 June before the date of grant, the options lapse.

Long‑Term Incentive Plan

During the year, Mattioli Woods granted awards to the Company's executive directors and certain senior employees under the LTIP. Conditional share awards ("Equity-settled") grant participating employees a conditional right to become entitled to options with an exercise price of 1 pence over ordinary shares in the Company. Conditional cash awards ("Cash-settled") grant participating employees a conditional right to be paid a cash amount based on the proceeds of the sale of a specified number of Ordinary Shares following the vesting of the award. Movements in the LTIP scheme during the period were as follows:

LTIP options	2019 Equity-settled No.	2019 Cash-settled No.	2018 Equity-settled No.	2018 Cash-settled No.

Outstanding as at 1 June	806,489	-	807,445	118,501
Granted during the year	241,756	-	238,825	-
Exercised during the year	(233,718)	-	(203,194)	(118,501)
Forfeited during the year	(57,064)	-	(36,587)	-

Outstanding at 31 May	757,463	-	806,489	-
Exercisable at 31 May	77,023	-	19,287	-

The LTIP awards are subject to the achievement of corporate profitability targets measured over a three year performance period and will vest following publication of the Group's audited results for the final performance year. The amounts shown above represent the maximum opportunity for the participants in the LTIP.

Share Incentive Plan

The Company operates the Mattioli Woods plc Share Incentive Plan ("the SIP"). Participants in the SIP are entitled to purchase, at market value, up to a prescribed number of new 1p ordinary shares in the Company each year for which they will receive a like for like conditional 'matching share', subject to their continued employment for the three years following award of the matching share. These ordinary shares rank pari passu with existing issued ordinary shares of the Company. Movements in the shares held in the SIP on behalf of employees during the year were as follows:

SIP shares	31 May 2019 No.	31 May 2018 No.

Scheme shares as at 1 June	593,019	553,658
Employee shares purchased	50,989	50,216
Matching shares awarded	50,989	50,216
Matching shares recycled	(16,072)	(7,000)
Reinvestment of dividends	14,281	10,492
Shares transferred out	(106,807)	(64,563)

Scheme shares at 31 May	586,399	593,019

Conditional matching shares at 31 May	117,817	105,385

A total of 359 (2018: 363) employees participated in the SIP during the year.

Share based payments expense

The expense for share based payments made in respect of employee services under the LTIP is recognised over the expected vesting period of the awards. The expense recognised during the year ended 31 May 2019 is £825,000 (2018: £1,150,000), of which £825,000 arises from equity-settled share based payment transactions (2018: £1,031,000) and £nil arises from cash-settled share based payment transactions (2018: £119,000).

The expense for share based payments made in respect of employee services under the Consultants' Share Option Plan is recognised over the expected vesting period of the awards. The expense recognised during the year ended 31 May 2019 was £nil (2018: £nil), which arises entirely from equity-settled share based payment transactions.

The expense for share based payments in respect of matching shares issued under the SIP is recognised over the expected vesting period of the shares granted to the participating employee (see Note 14). The expense recognised during the year ended 31 May 2019 is £235,000 (2018: £347,000), which arises entirely from equity-settled share based payment transactions.

Reserves transfer

The Group has reduced the value of the Equity - share based payments reserve by £359,000, reduced deferred tax assets by £68,000 and increased retained earnings by £291,000 in the year ended 31 May 2019 to reflect the impact of recognising the cost of 'matching shares' awarded under the Mattioli Woods plc Share Incentive Plan ("SIP") over the expected vesting period of the shares and the associated impact on deferred tax assets. Matching shares awarded under the SIP are subject to a three year continued employment condition. Previously, the cost of matching shares was recognised in full at the date of the award.

Summary of share options

The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, share options during the year.

Share options	2019 No.	2019 WAEP £	2018 No.	2018 WAEP £

Outstanding as at 1 June	853,350	1.53	907,798	0.27

Granted during the year	241,756	0.01	238,825	0.01
Exercised	(280,579)	0.37	(256,686)	0.55
Forfeited during the year	(57,064)	0.01	(36,587)	0.01

Outstanding at 31 May	757,463	0.01	853,350	0.13

Exercisable at 31 May	77,023	0.01	66,148	1.53

The weighted average share price at the date of exercise for share options exercised during the year was £7.27 (2018: £7.96). For the share options outstanding at 31 May 2019, the weighted average remaining contractual life is 4.0 years (2018: 4.0 years). The WAEP for options outstanding at the end of the year was £0.01 (2018: £0.13).

The fair value of equity-settled share options granted is estimated as at the date of grant using the Black Scholes Merton model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used to estimate the fair value of options granted during the year ended 31 May 2019:

	LTIP

Share price at date of grant	£8.32
Option exercise price	£0.01
Expected life of option (years)	4.5
Expected share price volatility (%)	17.5
Dividend yield (%)	2.04
Risk-free interest rate (%)	0.76

The share price at date of grant for options issued under the LTIP is based on the market value of the shares on that date. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options grant were incorporated into the measurement of fair value.

12. Derivative financial asset

	Group 2019	Company 2019	Group 2018	Company 2018
	£000	£000	£000	£000

Derivative financial asset (Notes 10 and 18)	750	750	650	650

	750	750	650	650

The only derivative financial instrument held by the Group is an option contract over shares in the Group's associate. The option contract is carried at fair value.

13. Cash and short-term deposits

For the purpose of the statement of cashflows, cash and cash equivalents comprise the following at 31 May 2019:

	Group 2019 £000	Company 2019 £000	Group 2018 £000	Company 2018 £000

Cash at banks and on hand	23,248	14,095	23,668	17,880
Bank overdrafts	-	-	-	-

Cash and cash equivalents	23,248	14,095	23,668	17,880

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 £23.2m (2018: £23.7m).

Due to the headroom the Group's current cash balances provide on its projected working capital requirements, the Group has not renewed its overdraft facility. Management will continue to review the level of bank facilities the Group may require.

14. Issued capital and reserves

Group and Company	Ordinary shares of 1p	Share capital £000	Share premium £000	Merger reserve £000

Authorised

At 1 June 2017, 31 May 2018 and 31 May 2019	30,000,000	300	-	-

Issued and fully paid

At 1 June 2017	25,789,164	258	30,314	8,781

Exercise of employee share options	256,686	2	139	-
Shares issued under the SIP	103,924	1	830	-
Shares issued for consideration	-	-	-	-

At 31 May 2018	26,149,774	261	31,283	8,781

Exercise of employee share options	280,579	3	101	-
Shares issued under the SIP	100,187	1	753	-
Shares issued for consideration	239,825	3	-	1,858

At 31 May 2019	26,770,365	268	32,137	10,639

Rights, preferences and restrictions on shares

All ordinary shares carry equal rights and no privileges are attached to any shares in the Company. All the shares are freely transferable, except as otherwise provided by law. However:

· The former shareholder of Broughtons ("the Broughtons Seller") has entered into a lock-in deed with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 77,171 ordinary shares in Mattioli Woods during the two years ending 8 August 2020; and

· The former shareholders of SSAS Solutions ("the SSAS Solutions Sellers") have entered into a lock-in deed with Mattioli Woods and its nominated adviser and broker, Canaccord Genuity Limited, restricting sales of that part of the consideration comprising 162,654 ordinary shares in Mattioli Woods during the two years ending 27 March 2021.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets.

Share schemes and share incentive plan

The Company has two share schemes under which options to subscribe for the Company's shares have been granted to certain executives and senior employees (Note 11).

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

Own shares

The following movements in own shares occurred during the year:

Own shares represent the cost of the Company's own shares, either purchased in the market or issued by the Company, that are held by the Company or in an employee benefit trust to satisfy future awards under the Group's share-based payment schemes (Note 11). At 31 May 2019 12,248 (2018: nil) shares were held in the Mattioli Woods Employee Benefit Trust.

Other reserves

Movements recognised in other reserves in the year are disclosed in the statement of changes in equity. The following table describes the nature and purpose of each reserve within equity:

Reserve	Description and purpose

Share premium	Amounts subscribed for share capital in excess of nominal value less any associated issue costs that have been capitalised.
Merger reserve	Where shares are issued as consideration for >90% of the shares in a subsidiary, the excess of the fair value of the shares acquired over the nominal value of the shares issued is recognised in the merger reserve.
Capital redemption reserve	Amounts transferred from share capital on redemption of issued shares.
Equity - share based payments	The fair value of equity instruments granted by the Company in respect of share based payment transactions less options exercised.
Own shares	The cost of the Company's own shares, purchased in the market, that are held in an employee benefit trust to satisfy future awards under the Group's share-based payment schemes (Note 11).
Retained earnings	All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

The Company has issued options to subscribe for the Company's shares under two employee share schemes (Note 11). The cost of exercised or lapsed share options has been derecognised from equity-share based payments and re-allocated to retained earnings as required by IFRS2 'Share-based Payments'.

15. Financial liabilities and provisions

Group	Contingent consideration £000	Client claims £000	Dilapidations £000	Clawbacks £000	Employers' NIC on share options £000	Onerous contracts £000	LTIP cash liability £000	FSCS levy £000	Total £000

At 1 June 2017	4,418	527	517	124	737	75	844	-	7,242

Unwinding of discount	142	-	12	-	-	-	13	-	167
Arising during the year	-	697	122	181	315	913	132	100	2,460
Paid during the year	(3,506)	(225)	(13)	(181)	(401)	-	(989)	-	(5,315)
Unused amounts reversed	(168)	(17)	(7)	-	(24)	-	-	-	(216)

At 31 May 2018	886	982	631	124	627	988	-	100	4,338

Unwinding of discount	75	-	10	-	-	-	-	-	85
Arising during the year	2,657	728	102	141	278	145	-	50	4,101
Arising on acquisitions	-	43	25	-	-	-	-	-	68
Paid during the year	(763)	(230)	(376)	(142)	(263)	(368)	-	-	(2,142)
Unused amounts reversed	-	(245)	(44)		(40)	(545)	-	-	(874)
Reclassification	(200)	207	-	-	-	-	-	-	7

At 31 May 2019	2,655	1,485	348	123	602	220	-	150	5,583

Current 2018	886	982	316	124	346	988	-	100	3,742
Non-current 2018	-	-	315	-	281	-	-	-	596

At 31 May 2018	886	982	631	124	627	988	-	100	4,338

Current 2019	1,260	1,485	-	123	369	220	-	150	3,607
Non-current 2019	1,395	-	348	-	233	-	-	-	1,976

At 31 May 2019	2,655	1,485	348	123	602	220	-	150	5,583

Company	Loan note £000	Contingent consideration £000	Client claims £000	Dilapidations £000	Clawbacks £000	Employers' NIC on share options £000	Onerous contracts £000	LTIP cash liability £000	FSCS levy £000	Total £000

At 1 June 2017	8,525	4,418	452	487	106	737	75	844	-	15,644

Finance costs	397	142	-	12	-	-	-	13	-	564
Arising during the year	8,018	-	698	89	177	315	913	132	100	10,442
Transfer from Group companies	-	-	25	33	13	-	-	-	-	71
Paid during the year	-	(3,506)	(212)	(13)	(177)	(401)	-	(989)	-	(5,298)
Unused amounts reversed	-	(168)	(17)	(7)	-	(24)	-	-	-	(216)

At 31 May 2018	16,940	886	946	601	119	627	988	-	100	21,207

Finance costs	606	75	-	10	-	-	-	-	-	691
Arising during the year	-	2,657	641	102	137	278	145	-	50	4,010
Paid during the year		(763)	(194)	(376)	(137)	(263)	(368)	-	-	(2,101)
Unused amounts reversed	-	-	(168)	(14)	-	(40)	(545)	-	-	(767)
Waiver of loan note	(17,335)	-	-	-	-	-	-	-	-	(17,335)
Reclassification	(211)	(200)	-	-	-	-	-	-	-	(411)

At 31 May 2019	-	2,655	1,225	323	119	602	220	-	150	5,294

Current 2018	-	886	946	316	119	346	988	-	100	3,701
Non-current 2018	16,940	-	-	285	-	281	-	-	-	17,506

At 31 May 2018	16,940	886	946	601	119	627	988	-	100	21,207

Current 2019	-	1,260	1,225	-	119	369	220	-	150	3,343
Non-current 2019	-	1,395	-	323	-	233	-	-	-	1,951

At 31 May 2019	-	2,655	1,225	323	119	602	220	-	150	5,294

Loan notes due to subsidiary undertakings

On 31 December 2017 the trade and assets of Boyd Coughlan Limited were transferred to the Company. The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of Boyd Coughlan Limited as at 31 December 2017, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.

On 31 August 2016 the trade and assets of the Taylor Patterson Group Limited and its subsidiaries Taylor Patterson Financial Planning Limited and Taylor Patterson Associates Limited (together "the Taylor Patterson Group") were transferred to the Company. The trade and assets were exchanged for loan notes equal to the book value of the assets and assumed liabilities of the Taylor Patterson Group as at 31 August 2016, attracting annual interest on the outstanding principal at a rate of 3% above the Bank of England base rate.

On 31 May 2019 the loan notes were waived and the capital and reserves of Boyd Coughlan Limited, Taylor Patterson Group Limited and its subsidiaries were each reduced to £2.

During the year the Company reclassified £0.2m of residual loan note balances owed to the subsidiary undertakings against current receivables due to the Company from them.

Contingent consideration

The Group has entered into certain acquisition agreements that provide for contingent consideration to be paid. Details of these agreements and the basis of calculation of the net present value of the contingent consideration are summarised in Note 3. The Group estimates the net present value of the financial liability payable within the next 12 months is £1.3m (2018: £0.9m) and the Group expects to settle the non-current balance of £1.4m (2018: £nil) within the next two years.

The balance reclassified in the year of £0.2m represents consideration which is no longer considered contingent but has yet to be paid, which is therefore recognised within Other Payables.

Client claims

A provision is recognised for the estimated potential liability when the Group becomes aware of a possible client claim. The value of the provision recognised is determined based on the nature of the potential liability, the Group's historic experience and any insurance recovery expected. No discount rate is applied to the projected cash flows due to their short-term nature.

The balance of £0.2m reclassified in the year represents potential liabilities of the Group recoverable under indemnities provided by the vendor of an acquired subsidiary, which are now recognised within Other Receivables.

Dilapidations

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

Clawbacks

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

Onerous contracts

Onerous lease provisions on property leases are recognised when a leased property is expected to become vacant and no longer used in the Group's operations. Amounts recognised in the prior period represented the Group's best estimate of the unavoidable costs committed to under three commercial leases for its previous premises at Grove Park, Leicester, based on the expected void period between the premises being vacated and subsequently sub-let after the Group took occupation of its new office at New Walk (see Note 8).

The Group acquired onerous contracts for the provision of certain IT systems on the acquisition of Ashcourt Rowan's pension business and on the acquisition of UKWM Pensions. Management has assessed the expected benefits and costs associated with these contracts and concluded that the costs of the obligation exceed the benefits to the extent that it is appropriate to provide against these contracts in full.

LTIP cash liability

In prior periods the Group has granted cash settled options to certain Executive Directors. The amounts of any cash entitlement on vesting of an award will be directly linked to the value of a specified number of the Company's shares at the vesting date. At 31 May 2019 there were no cash awards outstanding (2018: nil).

FSCS levy

The arrangements put in place by the Financial Services Compensation Scheme ("FSCS") to protect depositors and investors from loss in the event of failure of financial institutions have resulted in significant levies on the industry in recent years.

There is uncertainty over the level of future FSCS levies as they depend on the ultimate cost to the FSCS of industry failures. The Group contributes to the investment intermediation levy class and accrues levy costs for future levy years when the obligation arises. A provision of £150,000 has been made in these financial statements for FSCS interim levies expected in the year ending 31 May 2020 (2018: £100,000).

16. Commitments and contingencies

Operating lease agreements - Group as lessee

Mattioli Woods plc had previously entered into three commercial leases for its premises at Grove Park, Enderby. The first lease for part of the ground floor of Gateway House had 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. In August 2018, the Company served notice under the first Gateway House lease to vacate the premises by 31 October 2018. In addition, the Company surrendered the second Gateway House lease on 31 October 2018 by way of a surrender premium payment to the landlord reflecting all rent and business rates due from the surrender date to lease expiry, along with the cost of dilapidations.

On 26 November 2018, the Company assigned the MW House lease to a third party sub-tenant for the remainder of the lease term. Under the terms of the assignment, no further rent should be paid to Custodian REIT plc, but in the event of default by the assignee, the Group retains the liability for rents due over the remaining lease term.

Mattioli Woods plc has entered into an intra-group lease, with subsidiary Mattioli Woods (New Walk) Limited as lessor, for its premises at New Walk, Leicester. The lease carries an annual rental of £875,000 and is renewed on an annual rolling basis.

Mattioli Woods plc has also entered into commercial leases for its premises at:

· Aberdeen, 8 Queens Terrace, which expires on 31 May 2023. The annual rental is £148,000;

· Newmarket, Cheveley House, Fordham Road, which expires on 24 December 2023, with next break on 24 December 2018. The annual rental is £115,500;

· Preston, Lanson House, Winckley Gardens, Mount Street, which expires on 31 July 2022. The annual rental is £62,000;

· Buckingham, Investment House, 22-26 Celtic Court, Ballmoor, which expires on 11 April 2022. The annual rental is £35,000;

· Glasgow, 120 West Regent Street, which expires on 31 January 2022. The annual rental is £48,844 plus £2,500 per annum for car parking;

· Manchester, Suite 310, 76 King Street, lease term is a rolling 6 months. The annual rental is £31,800;

· London, 3^rd Floor, 87/89 Baker Street, lease expires on 31 October 2021. The annual rental is £92,500; and

· Edinburgh, 8 Coates Crescent, which expires on 14 August 2028, with a break on 14 August 2023. The annual rental is £101,850.

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	2019 £000	2018 £000	2019 £000	2018 £000

Not later than one year	196	151	724	845
After one year but not more than five years	506	525	1,903	2,802
More than five years	-	-	646	491

	702	676	3,273	4,138

	Office equipment		Land and buildings
Company	2019 £000	2018 £000	2019 £000	2018 £000

Not later than one year	196	150	636	1,438
After one year but not more than five years	506	522	1,721	2,610
More than five years	-	-	429	491

	702	672	2,786	4,539

Group operating lease charges during the year were £861,000 (2018: £939,000) for land and buildings and £193,000 (2018: £91,000) for office equipment.

Capital commitments

At 31 May 2019 the Group had no capital commitments (2018: £0.8m).

Sponsorship agreement

As part of the Group's strategy to strengthen its brand awareness the Group has a three-year sponsorship agreement with rugby giants Leicester Tigers, which ended on 30 June 2019. The agreement includes shirt sponsorship on the Tigers' home and away shirts, a dedicated Mattioli Woods stand at the 26,000 capacity Welford Road stadium, corporate hospitality rights and the provision of exclusive content to Tigers fans. In November 2018 the Group entered in to a new three-year sponsorship agreement with Leicester Tigers, which commenced on 1 July 2019 at a total cost of £1,230,000 over the three years of the agreement.

Client claims

The Group operates in a legal and regulatory environment that exposes it to certain litigation risks. As a result, the Group occasionally receives claims in respect of products and services provided and which arise in the ordinary course of business. The Group provides for potential losses that may arise out of contingencies.

In-specie pension contributions

As has been widely reported in the media, HMRC has challenged all SIPP providers on whether pension contributions could be made in-specie. As a result there are a number of tax relief claims made on behalf of our clients that have been challenged and we have received or are awaiting assessment notices which are expected to amount to £0.9m. These assessments have been appealed, with proceedings stayed pending the outcome of HMRC's appeal against the First-Tier Tribunal's ruling in favour of another SIPP operator in a similar case.

Irrespective of the result of HMRC's appeal, the impact on the financial position of the Group is expected to be neutral, with any liability expected to be recovered from the affected clients whose tax liability it is.

Transfers from defined benefit schemes

The FCA has been conducting an industry wide review of the advice being provided on transfers from defined benefit to defined contribution schemes since October 2015 ("the Review").

As previously reported, following consideration of the increasing costs of professional indemnity insurance, additional regulatory controls and the resources we would have to dedicate to this small part of our business, we have stopped giving pension transfer advice to individuals with safeguarded or defined benefits. The impact of this decision and the Review on the Group's financial performance is not expected to be material.

17. Related party disclosures

Custodian REIT plc

In March 2014 the Company's subsidiary, Custodian Capital, was appointed as the discretionary investment manager of Custodian REIT, a closed-ended property investment company listed on the Main Market of the London Stock Exchange. The terms of the Investment Management Agreement ("IMA") between Custodian Capital and Custodian REIT were amended on agreement of a further three year term with 12 months' notice to Custodian Capital's ongoing engagement from 1 June 2017, with the fees payable to Custodian Capital under the IMA amended to include:

· A step down in the property management fee from 0.75% to 0.65% of net asset value ("NAV") applied to NAV in excess of £500m; and

· A step down in the administrative fee from 0.125% to 0.08% of NAV applied to NAV between £200m and £500m and a further step down to 0.05% of NAV applied to NAV in excess of £500m.

All other key terms of the IMA remain unchanged.

The Company's Chief Executive Officer, Ian Mattioli, is a non-independent Non-Executive Director of Custodian REIT and the Company's Chief Financial Officer, Nathan Imlach, is Company Secretary of Custodian REIT. Ian Mattioli received £33,500 (2018: £28,250) of director's fees from Custodian REIT during the year. Fees for Nathan Imlach's services are charged by Custodian Capital directly to Custodian REIT and are included in the annual management charges noted below.

Ian Mattioli, Nathan Imlach, Richard Shepherd-Cross (the Managing Director of Custodian Capital), Ed Moore (the Finance Director of Custodian Capital) and the private pension schemes of Ian Mattioli, Nathan Imlach, Richard Shepherd-Cross, Murray Smith, Joanne Lake and Carol Duncumb have a beneficial interest in Custodian REIT.

During the year the Group received revenues of £4.0m (2018: £3.8m) in respect of annual management charges, administration and marketing fees from Custodian REIT. Custodian REIT owed the Group £59,000 at 31 May 2019 (2018: £44,000).

During the year the Group paid rent of £257,000 (2018: £367,000), service charges and other property related costs of £50,000 (2018: £29,000) and dilapidations on exit of £138,000 (2018: £nil) in respect of its former office premises at MW House and Gateway House, Leicester where Custodian REIT was the lessor.

Amati Global Investors Limited

On 6 February 2017 the Company purchased 49% of the issued share capital of Amati. The Company also entered into an option agreement to acquire the remaining 51% of the issued share capital of Amati in the two years commencing 6 February 2019 for a mixture of cash and Mattioli Woods' ordinary shares. On 4 January 2019 the Group signed heads of terms agreeing to cancel its option in return for a payment of £0.75m, equivalent to the fair value of the option at 30 November 2018. This transaction completed following the end of the reporting period (Note 18).

Three of the Company's senior management team were appointed to the board of Amati on the date of investment. Ian Mattioli is Deputy Chairman, the Group's Chief Investment Officer, Simon Gibson, is a Non-Executive Director and former Chief Operating Officer, Mark Smith was an Executive Director until he resigned on 22 November 2018. During the year Ian Mattioli and Simon Gibson were paid £5,215 (2018: £5,063) and Mark Smith was paid £2,575 (2018: £5,063) of directors' fees by Amati.

On 14 August 2018 the Group entered into a 10-year agreement to sub-let part of the Group's Edinburgh office to Amati at an annual rent of £48,000. During the year rent and other property related costs of £39,000 were recharged to Amati (2018: £nil).

The Group received revenues of £nil (2018: £1,000) in respect of consultancy services provided to Amati Global Investors Limited during the year.

Gateley (Holdings) Plc

The Company's Chairman, Joanne Lake, is a Non-Executive Director of Gateley (Holdings) Plc, which is the holding company of Gateley Plc, a provider of commercial legal services. During the year, the Group paid Gateley Plc a total of £2,000 (2018: £34,000) in respect of corporate legal services provided to the Group and its subsidiaries. In addition, the Group received revenues of £34,000 (2018: £29,000) in respect of employee benefits services provided to Gateley Plc during the year.

Worldwide Broker Network Limited

The Company's former Managing Director of Employee Benefits, Alan Fergusson, is an executive director of Worldwide Broker Network Limited. Worldwide Broker Network Limited is the holding company of Worldwide Broker Network (US) Inc., an international network of financial services introducers. During the year, the Group paid £25,000 (2018: £19,000) to Worldwide Broker Network (US) Inc. in respect network membership fees.

Vista Insurance Brokers Limited

Vista Insurance Brokers Limited, a broker of insurance products, is party to a dormant joint venture agreement with the Company. The Group received revenues of £2,000 (2018: £4,000) in respect of employee benefits services provided to Vista Insurance Brokers Limited during the year. Fees of £nil (2018: £12,000) were paid to Vista Insurance Brokers Limited in the year under a referral fee share arrangement.

Key management compensation

Key management personnel, representing those Executive Directors that served throughout the year and 14 (2018: 18) other executives, received compensation in the form of short-term employee benefits and equity compensation benefits which totalled £5.9m for the year ended 31 May 2019 (2018: £7.2m).

Total compensation is included in "employee benefits expense" and analysed as follows:

	2019 £000	2018 £000

Wages and salaries	4,907	6,036
Social security costs	803	993
Pension	86	61
Benefits in kind	96	159

	5,892	7,249

In addition, the cost of share based payments disclosed separately in the statement of comprehensive income was £0.7m (2018: £0.9m).

Transactions with other related parties

Following the transfer of Mattioli Woods' property syndicate business to Custodian Capital, the legal structure of the arrangements offered to investors changed to a limited partnership structure, replacing the previous trust-based structure. Each limited partnership is constituted by its general partner and its limited partners (the investors), with the general partner being a separate limited company owned by Custodian Capital.

The general partner and the initial limited partner enter into a limited partnership agreement, which governs the operation of the partnership and also sets out the rights and obligations of the investors. The general partners have appointed Custodian Capital as the operator of the partnerships pursuant to an operator agreement between the general partner and Custodian Capital.

FP Mattioli Woods Balanced Fund

The Company is the investment manager of the FP Mattioli Woods Balanced Fund, an open ended investment company which aims to achieve long-term growth while managing volatility so that, other than on very short-term measures, outperformance comes with a lower beta than the benchmark. As at 31 May 2019 the Group held an investment with a market value of £40,000 (2018: £41,000) in the FP Mattioli Woods Balanced Fund.

MW Properties (Huntingdon Non-Geared) Limited

The Company holds a 2.04% interest in MW Properties (Huntingdon Non-Geared) Limited, a nominee for a property syndicate. The Group received dividend income of £nil (2018: £1,000) from MW Properties (Huntingdon Non-Geared) Limited during the year, with the market value of the investment being £14,000 (2018: £14,000) at the year end.

18. Events after the reporting date

Cancellation of Amati option

On 19 June 2019 the Group signed an agreement to cancel its option to acquire the remaining 51% of Amati in return for a payment of £750,000.

19. Financial information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 May 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the registrar of companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

20. Distribution of the annual report and accounts to members

The annual report and accounts will be posted to shareholders in due course, and will be available on our website (www.mattioliwoods.com) and for inspection by the public at the Group's registered office address: 1 New Walk Place, Leicester, LE1 6RU during normal business hours on any weekday. Further copies will be available on request.

Alternative performance measure workings

Recurring revenue

A measure of sustainable revenue, calculated as revenue earned from ongoing services as a percentage of total revenue.

Timing of revenue recognition	2019 £000	2018 £000

At a point in time:
Investment and asset management	2,873	4,633
Pension consultancy and administration	1,276	2,639
Property management	620	570
Employee benefits	973	1,087

Non recurring revenue	5,742	8,929

Over time:
Investment and asset management	23,124	20,463
Pension consultancy and administration	19,129	19,183
Property management	5,823	5,348
Employee benefits	4,646	4,746

Recurring revenue	52,722	49,740

Total revenue	58,464	58,669

Recurring revenue	90.2%	84.8%

Adjusted EBITDA

A measure of the underlying profitability, excluding items that are non-cash or affect comparability between periods, calculated as statutory operating profit before financing income or costs, tax, depreciation, amortisation, impairment, changes in valuation of derivative financial instruments and acquisition related costs, including share of profit from associates (net of tax).

	2019 £000	2018 £000

Statutory operating profit before financing	9,791	9,617
Amortisation of acquired intangibles	1,907	1,756
Amortisation of software	1,055	469
Depreciation	1,288	822

EBITDA	14,041	12,664

Share of profit from associates, net of tax	480	240
Acquisition related costs	126	125
Gain on revaluation of derivative financial instrument	(100)	(540)

Adjusted EBITDA	14,547	12,489

Adjusted PBT

A measure of profitability before taxation, excluding items that are non-cash or affect comparability between periods, calculated as statutory profit before tax excluding amortisation of acquired intangibles, acquisition related costs, non-cash interest charges on provisions and changes in valuation of derivative financial instruments.

	2019 £000	2018 £000

Statutory profit before tax	10,245	9,776
Amortisation of acquired intangibles	1,907	1,756
Acquisition related costs	126	125
Non-cash interest charges on provisions	85	166
Gain on revaluation of derivative financial instrument	(100)	(540)

Adjusted PBT	12,263	11,283

Adjusted PAT

A measure of profitability, net of taxation, excluding items that are non-cash or affect comparability between periods, calculated as statutory profit before tax excluding amortisation of acquired intangibles, acquisition related costs, non-cash interest charges on provisions, changes in valuation of derivative financial instruments and deducting tax at the standard rate of 19%.

	2019 £000	2018 £000

Adjusted PBT	12,263	11,283

Income tax expense at standard rate of 19%	(2,330)	(2,144)

Adjusted PAT	9,933	9,139

Adjusted EPS

A measure of total comprehensive income for the year, net of taxation, attributable to equity holders of the Company, adjusted to add back acquisition related costs, changes in valuation of derivative financial instruments, non-cash interest charges on provisions and the amortisation of acquired intangible assets, divided by the weighted average number of ordinary shares in issue.

	2019 £000	2018 £000

Adjusted PAT	9,933	9,139


Basic weighted average number of shares (see Note 6)	26,590	26,561

Adjusted EPS	37.3p	34.4p

¹ Annual pension consultancy and administration fees; ongoing adviser charges; level and renewal commissions; banking income; property, discretionary portfolio and other annual management charges.

² Earnings before interest, taxation, depreciation, amortisation, impairment, changes in valuation of derivative financial instruments and acquisition-related costs, including share of profit from associates (net of tax).

³ Adjusted EBITDA divided by revenue.

⁴ Before acquisition-related costs, amortisation and impairment of acquired intangibles, changes in valuation of derivative financial instruments and non-cash interest charges on provisions.

⁵ Adjusted profit after tax used to derive adjusted EPS is calculated as adjusted profit before tax less income tax at the standard rate of 19.0% (2018: 19.0%).

⁶ Cash and short-term deposits less £0.1m (2018: £3.5m) of VAT reclaimed on behalf of and to be repaid to clients.

⁷ Includes £409.0m (2018: £286.0m) of funds under management by the Group's associate, Amati Global Investors Limited, excluding £31.9m (2018: £27.0m) of Mattioli Woods' client investment and £11.9m (2018: £12.1m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.

⁸ Includes £452.8m (31 May 2018: £325.1m) of funds under management by Amati Global Investors Limited, including Mattioli Woods' client investment and cross-holdings between TB Amati Smaller Companies Fund and Amati AIM VCT plc.

⁹ Revenue divided by operating profit before financing.

¹⁰ Revenue for the year ended 31 May 2019 was split 52% (31 May 2018: 58%) fixed, initial or time-based fees and 48% (31 May 2018: 42%) ad valorem fees based on the value of assets under management, advice and administration.

¹¹ Certain pension scheme assets, including clients' own commercial properties, are only subject to a statutory valuation at a benefit crystallisation event.

¹² Value of funds under trusteeship in SIPP and SSAS schemes administered by Mattioli Woods and its subsidiaries.

¹³ Assets under management of £409.0m (2018: £286.0m) excludes £31.9m (2018: £27.0m) of Mattioli Woods' client investment included within SIPP and SSAS, employee benefits and personal wealth and other assets and excludes £11.9m (2018: £12.1m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.

¹⁴ SIPP and SSAS schemes where the Group acts as pension consultant and administrator.

¹⁵ Includes personal wealth clients' with SIPP and SSAS schemes operated by third parties.

¹⁶ Includes Mattioli Woods' client investment and £11.9m (2018: £12.1m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.

¹⁷ Earnings before interest, taxation, depreciation, amortisation and impairment.

¹⁸ Figures in table may not add due to rounding.

¹⁹ Figures in table may not add due to rounding.

²⁰ Before acquisition-related costs, amortisation and impairment of acquired intangibles, changes in valuation of derivative financial instruments and non-cash interest charges on provisions.

²¹ Comprises £29.7m (2018: £30.4m) invested in Custodian REIT, £76.6m (2018: £69.2m) in MW SPF and £26.0m (2018: £21.4m) in Amati funds.

²² Cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.

²³ SIPP and SSAS schemes where Mattioli Woods acts as pension consultant and administrator.

²⁴ Direct schemes lost to an alternative provider as a percentage of average scheme numbers during the year.

²⁵ Direct schemes lost as a result of death, annuity purchase, external transfer or cancellation as a percentage of average scheme numbers during the year.

²⁶ Source: Numis Securities Limited, Investment Companies Datasheet dated 30 August 2019.

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END

FR UUAARKSAKRUR

Mattioli Woods (MTW)

Friday, 1st November 2024

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Number of shares

Own shares

£000

At 1 June 2017 and 1 June 2018

Acquired during the year

At 31 May 2019

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