Final Results

RNS Number : 8105R

Mattioli Woods PLC

31 August 2010

 



31 August 2010

Mattioli Woods plc

("Mattioli Woods" or "the Group")

Final Results

Mattioli Woods plc (AIM: MTW.L), the specialist pensions consultancy, today reports its Final Results for the year ended 31 May 2010. 

Highlights

·     Revenue up 3.0% to £13.68m (2009: £13.28m)

·     EBITDA margin improved to 34.5% (2009: 32.3%)

·     Profit before tax and amortisation¹ up 9.2% to £4.51m (2009: £4.13m)

·     Adjusted EPS¹² up 9.7% to 18.73p (2009: 17.08p)

·     Proposed total dividend up 11.5% to 4.35p (2009: 3.90p)

·     Total funds under trusteeship up 8.2% to £1.72bn (2009: £1.59bn)

·     Acquisition of CP Pensions in April 2010

·     Net cash at period end of £5.79m (2009: £4.81m)

·     Acquisition of City Trustees in August 2010

Commenting on the Final Results, Bob Woods, Executive Chairman, said:

"I am delighted to report another good set of results, with continued growth in revenue and profits.  This is now our fifth year of growth on AIM.  There are key legislative and economic drivers, including the demise of defined benefit pensions, which all lead to an increasing need for people to plan for their own financial futures.  We expect further growth in demand for the Group's expanding range of retirement wealth management services. 

"Trading in the current period is in line with the Board's expectations and the outlook for the new financial year is positive.  As a result, the Board is pleased to recommend the payment of a final dividend of 2.90 pence per share making a total dividend for the year of 4.35 pence, an increase of 11.5% on last year.  It is our ambition to continue expanding Mattioli Woods' operations both organically and by acquisition, building upon our track record of profitable growth."

¹ Before amortisation of intangible assets other than computer software. 

² Basic EPS up 10.1% to 17.32p (2009: 15.73p). 

For further information please contact:

Mattioli Woods plc
Bob Woods, Executive Chairman	Tel: [phone]
[e-mail]	www.mattioli-woods.com

Ian Mattioli, Chief Executive	Tel: [phone]
[e-mail]	www.mattioli-woods.com

Nathan Imlach, Finance Director	Tel: [phone]
[e-mail]	www.mattioli-woods.com

Evolution Securities Limited
Joanne Lake, Corporate Finance	Tel: [phone]
[e-mail]	www.evosecurities.com

Media enquiries:

Financial Dynamics Limited
Ed Gascoigne-Pees / Nick Henderson	Tel: [phone]
[e-mail]	www.fd.com

Analyst presentation

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

Those analysts wishing to attend are asked to contact Justine Cording at Financial Dynamics on [phone] or at [e-mail].

Chairman's statement

I am delighted to report another good set of results for the year ended 31 May 2010, with basic earnings per share up 10.1% and profit before tax and amortisation³ up 9.2% compared with the prior year. 

Volatility in financial markets, economic uncertainty and fiscal changes led to sustained demand for advice from clients throughout the year.  Fee-based revenues increased by 13.4% to £7.35m (2009: £6.48m), representing 53.7% (2009: 48.8%) of total revenues of £13.68m (2009: £13.28m).  Whilst revenues in the first half were affected by difficult investment conditions, in the second half we saw clients increasingly willing to invest away from the safe haven of cash, resulting in second half revenues up by 10.3% on the equivalent period last year to £7.09m (2H09: £6.43m). 

Events in mainland Europe, uncertainty over the UK's political position and disappointing economic data in the US have tempered some clients' risk appetite.  This has triggered a switch to income-focused strategies, based around higher-yielding investments such as large cap funds, investment grade corporate bonds and property syndicates.  There continues to be strong demand for specialist consultancy and investment advice, particularly with a view to understanding the changes announced in the coalition Government's emergency budget and the economic outlook for the UK. 

We added 519 new client schemes in the year, 229 by organic growth and 290 through the acquisition of the pension administration and employee benefits businesses of Cooper Parry Wealth Strategies Limited ("CP Pensions") in April 2010.  We continue to enjoy strong client retention, with an overall client attrition rate⁴ of 4.3% (2009: 3.2%). 

Total funds under trusteeship increased by 8.2% to £1.72bn at 31 May 2010 (2009: £1.59bn). 

³ Before amortisation of intangible assets other than computer software.

⁴ Core 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. 

Market overview

The self-invested personal pension ("SIPP") market continues to expand.  There are estimated to be 650,000 schemes in the UK, with some commentators predicting the one million scheme mark will be reached by 2015.  The demise of final salary schemes and the imperative for many employers to control the cost of post-retirement benefits are increasing general awareness that more than ever the onus now falls upon individuals to provide for their own retirements. 

These trends look likely to be reinforced by the coalition Government's policy on private pensions and I welcomed George Osborne's announcement that he intends to abolish compulsory annuity purchase at age 75. I believe this initiative will introduce more flexibility as to how an individual's pension fund can be managed after the age of 75 and boost the attractiveness of pensions as people understand their long-term retirement savings need not necessarily disappear into the black hole of an annuity fund, or be subject to severe regulatory constraints. 

Trading results

We achieved increased total revenues of £13.68m (2009: £13.28m) in the year ended 31 May 2010.  Sustained demand for advice from clients throughout the year saw fee-based revenues increase by 13.4% to £7.35m (2009: £6.48m), representing 53.7% of total revenue (2009: 48.8%). 

Investment-related revenues fell to 39.1% of total revenue (2009: 42.9%).  Interest rates have remained at historic lows since March 2009, adversely impacting our banking revenues and making the structuring of capital-guaranteed bonds more challenging.  Against this, continued turbulence in mainstream investment markets has resulted in continuing demand for structured products, with clients subscribing a total of £31.0m (2009: £46.7m) during the year. 

Property syndicate revenues were 7.2% of total revenue (2009: 8.3%), with clients investing £6.73m (2009: £6.51m) into the three (2009: two) new syndicates completed.  I expect to see increased property syndicate investment over the course of the next year, as rental yields look increasingly attractive compared with low interest rates and gilt yields. 

Earnings before interest, taxation, depreciation and amortisation ("EBITDA") margin improved to 34.5% (2009: 32.3%) as a result of operational efficiencies realised following the introduction of our 'small to big' initiative last year.  Adjusted earnings per share increased by 9.7% to 18.73p (2009: 17.08p). 

Compliance

I have noted previously how the SIPP sector needs to respond to the regulatory challenges it faces.  Almost 12 months' ago the Financial Services Authority ("the FSA") reported it had identified problems with many small SIPP operators' systems and controls.  In January 2010, we were appointed to complete the winding up of The Freedom SIPP and have since worked closely with the FSA and the liquidators, PricewaterhouseCoopers, to develop solutions for this troubled operation.  To date, we have transferred 35 members to alternative arrangements (three of these being with Mattioli Woods), with a further 116 members still in the process of transferring elsewhere. 

The FSA has confirmed that all SIPP operators, including third party administrators, must take responsibility for reviewing the nature of the underlying investments being held within the scheme.  It remains to be seen how this will impact on the market, but we welcome these timely initiatives.  The FSA's Retail Distribution Review ("RDR") is scheduled to take effect from the end of 2012.  I am confident our fee-based approach is already aligned with the key recommendations of the RDR, which can only offer us a competitive advantage compared with other advisers who will be required to make fundamental changes to the basis of their remuneration. 

I expect further changes in regulation will bring about a better understanding of the key requirements for clients to achieve their retirement plans and will continue to drive consolidation within our sector. 

Acquisitions

It is our ambition to continue expanding Mattioli Woods' operations both organically and by acquisition.  In April 2010 we completed the acquisition of the pension administration and employee benefits businesses of CP Pensions for a cash consideration of up to £1.175m, subject to certain revenue and client retention targets.  CP Pensions provided pensions consultancy and administration services to 239 SIPP and 51 small self-administered pension ("SSAS") clients, with total funds under trusteeship of over £110m.  In addition, CP Pensions' employee benefits business serviced 30 corporate clients, which adds further scale to our existing employee benefits and group scheme operation. 

I am delighted to have followed this with the acquisition earlier this month of City Trustees Limited and its associated company City Pensions Limited (together "City Trustees") from Lighthouse Group plc for a cash consideration of £1.85m.  City Trustees provides trustee and administration services to a portfolio of 965 SIPP, 123 SSAS and 14 funded unapproved retirement benefit schemes, with total funds under trusteeship of over £300m.  The acquisition of City Trustees brings the opportunity to expand our range of services through the development of a separately branded administration proposition. 

Both acquisitions are expected to be earnings enhancing in the first full year of ownership. 

Staff

Our people have demonstrated an enormous amount of enthusiasm in embracing our 'small to big' initiative. This creates the platform for Mattioli Woods to manage higher volumes of business whilst retaining our personalised approach. 

Building capacity remains a high priority and we continue to invest in our graduate recruitment programme.  Our increased business profile as a listed company continues to enhance our ability to recruit both new and experienced staff. 

I thank all our employees for their effort over the last year, as it is their dedication and hard work that differentiates Mattioli Woods from its competitors.  We continue to build upon this strong team spirit by facilitating employee equity participation through the Mattioli Woods plc Share Incentive Plan.  To date, 48% of eligible staff have elected to invest via the plan and I plan to promote broader participation over the next 12 months. 

Following a review of executive remuneration undertaken in conjunction with independent consultants, I am pleased to announce the introduction of a Long Term Incentive Plan ("LTIP") designed to attract and retain appropriately qualified staff.  The LTIP will be tabled for shareholder approval at the Company's next Annual General Meeting on 14 October 2010. 

Dividends

The Board is pleased to recommend the payment of a final dividend for the year ended 31 May 2010 of 2.90 pence (2009: 2.75 pence) per ordinary share.  If approved, the final dividend will be paid on 18 October 2010 to shareholders on the register at the close of business on 10 September 2010.  

The Board remains committed to growing the dividend, whilst maintaining an appropriate level of dividend cover. 

Shareholders

We continue to expand the excellent institutional shareholder base we have enjoyed since joining the AIM market.  We are also working to develop broader private client interest and employee share participation.  We will communicate fully with all our shareholders and the wider market, building further awareness of Mattioli Woods.  

Outlook

With the continuing demise of defined benefit pension plans and the increasing need for people generally to plan for their own financial futures, we expect further growth in demand for the Group's increasing range of retirement wealth management services. 

Trading in the current period is in line with the Board's expectations and we feel the outlook for the new financial year is increasingly positive.  It is our ambition to continue expanding Mattioli Woods' operations both organically and by acquisition, building upon our track record of profitable growth. 

Bob Woods

Chairman

30 August 2010

Chief Executive's review

Introduction

It is almost five years since Mattioli Woods was admitted to trading on the AIM market of the London Stock Exchange.  One of my key objectives upon flotation was to create a platform capable of supporting a much larger business.  The 'small to big' initiative is a key step in achieving this and enabling Mattioli Woods as a brand that is recognised as providing bespoke retirement wealth management services to a growing client base. 

Market

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

Business objective and strategy

Our focus is at the higher end of the retirement wealth market, where clients require bespoke service and specialist advice.  We aim to deliver profitable growth year-on-year, both organically and by acquisition.  We will underpin this objective through:

·     Extending the range of products and services offered by the Group;

·     Expanding the presence of our property syndicate business; and

·     Continuing to develop our administration platforms, allowing us to service increased business volumes.

Revenue streams

The Group's turnover is derived from three key revenue streams: pension consultancy and administration, investment planning and property syndicates.

Pension consultancy and administration

Mattioli Woods' core business is pension consultancy, involving the provision and administration of SIPPs and SSASs.  Our client base primarily comprises owner-managers, senior executives and members of the professions.  We also provide employee benefits consultancy and personal financial planning as complementary services to our core business.

Revenues from our fee-based services have increased by 13.4% to £7.35m (2009: £6.48m) as a result of volatile financial markets, economic uncertainty and fiscal changes leading to sustained client demand for advice throughout the year. 

Investment planning

A key feature of our approach to retirement wealth management is the impartial nature of our investment advice.  We focus on providing solutions tailored to each individual client's needs, including our own bespoke products.  Although our income streams are not directly dependent upon the performance of financial markets or the value of funds under trusteeship, movements in these can influence the appetite of our clients to make investments.  However, a strength of our business is that we can continue to derive income from investments in most asset classes, whilst ensuring our clients' investment strategies are appropriately aligned to the prevailing market conditions. 

Investment planning revenues fell 6.15% in 2010 to £5.34m (2009: £5.69m) as a result of low interest rates adversely impacting our banking revenues and delivery of structured products.  Whilst low interest rates make securing investment returns on structured products more challenging, continued turbulence in mainstream investment markets has resulted in sustained demand for this type of product.  We promoted 13 (2009: 15) new bond issues during the year, with clients subscribing a total of £31.0m (2009: £46.7m) and expect to deliver a greater number of these products as interest rates rise. 

Property syndicates

Mattioli Woods facilitates commercial property ownership for its clients by way of a syndicated property initiative.  We believe commercial property is ideally suited as a retirement investment, with good quality properties typically providing stable long-term income streams.  I believe rental yields look increasingly attractive in the prevailing interest rate environment.  

In August 2009 we were delighted to appoint Richard Shepherd-Cross to manage our property syndicate team.  Richard is a skilled property investment professional with 15 years' experience and a broad-based knowledge of real estate across all sectors.  He was previously head of the Jones Lang Lasalle portfolio investment team.  His experience strengthens the team and highlights our commitment to this important element of our business, in what are exciting times for the commercial property market.  

Demand remains within our client base for commercial property with the benefit of long leases and strong tenant covenants.  We facilitated the purchase of three (2009: two) new properties during the year with a combined value of £6.73m (2009: £6.51m).  The total number of property syndicates using our administrative services at the year-end increased to 41 (2009: 38).  Total income from property syndicates was £0.99m (2009: £1.11m), with recurring revenues derived from our annual administration services falling 12.0% to £0.66m (2009: £0.75m), in line with falls in commercial property valuations. 

We monitor our clients' appetite for direct commercial property investment and will facilitate suitable opportunities when they are available.  In time, we expect our property syndicate business will develop outside of our core Mattioli Woods' clients. 

Regulatory environment

Financial Services Authority

Mattioli Woods is authorised and regulated by the FSA to provide investment advice and to establish, operate and wind-up personal pension schemes, including SIPPs.  The FSA's SIPP regulation regime introduced in 2007 affords additional protection to clients through capital adequacy requirements imposed on the providers of pension schemes.  Throughout the period, we have complied with these requirements. 

The FSA published the findings of its thematic review of small SIPP operators in September 2009.  The conclusions of the FSA's review highlight that SIPPs are a bespoke service designed to facilitate clients' retirement objectives.  This means that operators need to engage with their clients, even when offering administration-only services. 

Review of the Prudential Rules for Personal Investment Firms

In November 2009, the FSA set out the changes it will make to the prudential rules for Personal Investment Firms.  These changes will increase our expenditure based capital requirement from six to 13 weeks over the next three years.  Our balance sheet strength gives us significant headroom above the increased requirement.  However, the burden on many small and medium sized IFA firms may force them to exit the market, creating new opportunities for stronger firms such as Mattioli Woods. 

The FSA has also announced it is going to consider the capital resources requirements for pension administrators separately and expects to consult on these issues later this year.  This may lead to a further increase in our capital resource requirements, although I expect any increase to be accommodated within our current financing arrangements. 

Review of Retail Distribution ("RDR")

The RDR rules are intended to come into effect at the end of December 2012.  Under the FSA's proposals, advisers will have to charge customers a fee rather than receiving commission from the companies whose products they recommend.  IFAs will be required to adopt a much stricter remuneration agreement at the outset of a new client relationship, divorced from a specific product sale, together with higher professional standards. 

Historic product sales will not need to be revisited. 

As a result of the RDR, the options for Mattioli Woods' core SSAS and SIPP business are:

·     Be an entirely independent adviser; or

·     Provide only restricted advice; or

·     A combination of the two, for example, being a SIPP operator that provides independent advice on the assets held within the wrapper.

We want to be an independent investment adviser and are already well-positioned by having an investment research team.  However, Mattioli Woods has its own SIPP products and hence we may decide to provide only restricted advice in relation to these. 

With significant changes being made to existing commission structures, we are considering the most appropriate revenue model to adopt for the provision of investment advice.  Under the RDR rules, product providers can continue to facilitate our existing model, although the introduction of an advisory fee linked to the value of Funds Under Advice, billed monthly or annually in advance, may be more appropriate. 

We are consulting with our clients to gather their views, prior to implementing any change to our existing fee-based business model.  Mattioli Woods provides clients with service and fee agreements at the outset and I believe our well-established, fee-based culture gives us a competitive advantage over much of the IFA sector.  I do not expect that the RDR's proposals will change significantly the way we deal with our clients.  

HM Revenue & Customs and The Pensions Regulator

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

Whilst concern was expressed in some quarters about the 2009 Budget proposals to restrict tax relief on pension contributions for people with taxable income of £150,000 or more to the basic rate of income tax with effect from 6 April 2011, we are confident this will have a negligible impact on our business.  The question of pension tax relief was revisited in the emergency budget.  Although the Government stated reform in this area is a necessary part of its commitment to tackle the fiscal deficit, the previously announced changes are to be reviewed by the Treasury.  In the meantime, basic rate tax relief is still available for high-earners and our focus continues to be advising clients on their existing retirement wealth, rather than having any significant reliance on new pension contributions. 

The Chancellor also intimated he would review the rules surrounding compulsory annuity purchase.  Legislative changes create complications, which inevitably lead to greater client advisory and planning opportunities for Mattioli Woods. 

Compliance

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

We maintain dedicated compliance teams, with systems to proactively monitor client investments, consultancy and administration services, investment advice, financial standing of suppliers, pension transfer advice, FSA rule book compliance and Audit & Pension Schemes Services compliance.

We continue to invest in maintaining our staff's technical excellence and developing our administration systems.  The majority of our consultancy team joined us as graduate trainees and already hold high-level examinations obtained during their training with us.  A key objective of the RDR is to inspire consumer confidence so that the provision of personal financial advice is seen as a profession on a par with other professions.  The FSA believes a higher minimum qualification requirement is needed for investment advisers.  Their recommendation is that this is set at Qualifications Credit Framework ("QCF") level 4 or equivalent.  All existing advisers will be required to reach at least this level by the end of 2012. 

Current and future developments and performance

Group results

Sales revenues were up 3.0% to £13.68m (2009: £13.28m) following sustained demand for advice throughout the year.  Fee-based revenues increased to 53.7% of total revenue (2009: 48.8%).  Investment planning related revenues fell to 39.1% of total revenue (2009: 42.8%) as a result of low interest rates and property syndicate revenues fell to 7.2% (2009: 8.4%), with falls in commercial property valuations adversely impacting annual management charges. 

EBITDA increased by 10.0% to £4.72m (2009: £4.29m), with EBITDA margin improving to 34.5% (2009: 32.3%) as a result of our 'small to big' change management initiative, which has created additional capacity now and paved the way for us to manage greater business volumes in the future.  Additional investment in information systems and technology provides scope for future margin improvement and even better client service going forward.

Net finance revenue

Net finance revenue fell to £0.04m (2009: £0.09m).  The Group has maintained a positive net cash position, but net finance revenue was adversely impacted by the Bank of England base rate remaining at a historic low of 0.5% throughout the financial year. 

Taxation

The effective rate of taxation on profit on ordinary activities is 29.6% (2009: 30.1%).  The net deferred taxation liability carried forward at 31 May 2010 was £0.12m (2009: £0.13m).

Earnings per share and dividend

Basic earnings per share increased by 10.1% to 17.32p (2009: 15.73p) with diluted earnings per share increasing by 10.2% to 16.49p (2009: 14.97p).  A proposed 11.5% increase in the total dividend for the year to 4.35p per share (2009: 3.90p) demonstrates our desire to deliver value to our shareholders and our confidence in the future outlook for the business.  The Board remains committed to growing the dividend progressively, whilst maintaining an appropriate level of dividend cover. 

Cash flow

Net cash generated from operations was £3.85m (2009: £4.31m) with EBITDA of £4.72m (2009: £4.29m).  The Group conversion of EBITDA into operating cash flow fell to 81.6% (2009: 100.3%) due to the acceleration of bonus payments in advance of the fiscal year-end and the migration of clients acquired as part of the JB Group to the Company's fee-based billing model during the period.  

These factors combined with a £0.50m increase in trade and other receivables to increase the cash outflow from working capital to £1.05m (2009: £0.21m).  The increase in trade debtors is primarily due to an increase in time-based fees billed during the period and the move to invoice ex-JB Group clients in arrears, rather than in advance.  Headline trade debtor days were 71 days (2009: 70 days). 

Trade creditor days increased to 35 days (2009: 28 days) with amounts owed to suppliers at the year-end increasing primarily in respect of improvements made to the layout of our offices at MW House. 

Capital expenditure for the year was £0.43m (2009: £0.47m), with the most significant costs being incurred on the re-fit of existing and new office space in Leicester, and the replacement of company cars used by consultants.  Further investment in the Group's information systems and technology is planned over the next year, to enable clients to review their affairs on-line. 

Bank facilities

The Group has renewed its borrowing facilities with Lloyds TSB Bank plc ("Lloyds TSB"), which consist of a £3.00m overdraft facility, with interest payable at the bank's base rate plus 1.0% on the first £0.25m and plus 1.375% on borrowings in excess of £0.25m.  The Lloyds TSB facility is repayable upon demand and renewable on 31 January 2011. 

At 31 May 2010 the Group had unused borrowing facilities of £3.00m (2009: £3.00m). 

Capital structure

The Group's capital structure is as follows:

	2010 £	2009 £
Net funds	(5,781,664)	(4,801,359)
Shareholders' equity	18,981,286	16,458,508
Capital employed	13,199,622	11,657,149

The Group has remained negatively geared, with the gearing ratio falling from (11.5)% to (16.5)% as a result of cash generated during the period.  The Board believes it is in the Company's best interests to retain cash to pursue future acquisition opportunities. 

Acquisitions

In April 2010, we acquired CP Pensions for a total consideration of up to £1.175 million.  Clients acquired as part of the transaction have been fully integrated into our existing business, with CP Pensions' experienced team of administrators having relocated to our Leicester office. 

The acquisition gives us the opportunity to develop the client offering through our consultancy initiatives and the alternative investment vehicles we have developed in response to existing clients' demands, such as the syndicated property initiative and capital-guaranteed bond programme. 

The acquisition of CP Pensions' employee benefits business adds further scale to our existing employee benefits and group scheme operation.  The transaction also facilitates the development of a closer, ongoing relationship with Cooper Parry. 

We have followed this with the acquisition of City Trustees from Lighthouse Group plc ("Lighthouse") for a cash consideration of £1.85 million, subject to certain client retention targets being met during the two years following completion.  

City Trustees has an excellent reputation for providing bespoke pensions administration, coupled with first-rate client service and is a great fit with our existing business.  I am delighted these and certain of the Group's other services will be promoted to Lighthouse advisers as part of Lighthouse's Strategic Partnership Programme over the next 18 months. 

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

Resources, risks and relationships

Resources

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

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

Capacity

Our people continue to demonstrate an enormous amount of enthusiasm and commitment in responding to the challenges created by the recent turmoil in financial markets.  Maintaining capacity is crucial in an environment of growing demand and our graduate recruitment programme remains on target, with a total of 11 new graduates joining the Group (2009: 10).  Our total headcount at the end of the period was 179 (2009: 164). 

The development of a scalable technology infrastructure remains a key objective for the Group.  We continue to invest in the development of our bespoke pension administration system ("MWeb") and new technology platforms designed to enhance the other services we offer clients.  

Principal risks and uncertainties

We believe the most significant risk we face is potential damage to our reputation as a result of poor client service.  We address this through ongoing quality control testing and the provision of regular training for all our staff.

Pension regulations will continue to be reviewed.  Future changes may not produce an environment that is advantageous to the Group and any changes in regulation may be retrospective.  To address this risk, we are committed to ensuring that our views are expressed during consultation exercises and that we respond positively and rapidly to new regulations. 

We also recognise that a significant skills shortage would represent a risk to growth.  We are mitigating this risk through investment in our graduate recruitment programme and by providing incentives to motivate and retain our existing employees. 

Relationships

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

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

Conclusion

We aim to deliver strong, sustainable shareholder returns over the long-term and continue to develop complementary services around our core SSAS and SIPP proposition.  Trading in the period since the end of the financial year has continued in line with management's expectations.  The retirement wealth marketplace remains highly fragmented and we will continue seeking new acquisition opportunities to support our growth objectives. 

Ian Mattioli

Chief Executive

30 August 2010

Extract from directors' remuneration report

Long term incentive plan

It is a priority for the Group to continue to attract and retain appropriately qualified staff.  The review of executive remuneration concluded the Company's existing share option plans were less generous than typical market practice for long term incentive arrangements.  A new remuneration structure has been designed to ensure the Group can attract, incentivise and retain key staff of appropriately high calibre.  As a key part of this revised structure, it is proposed that two new long-term incentive plans will be introduced: the Mattioli Woods 2010 EMI Option Plan ("the EMI Plan") and the Mattioli Woods 2010 Long-Term Incentive Plan ("the LTIP").  These plans are being introduced in conjunction with modifications to the Executive Directors' annual bonus packages, to provide a greater focus on the long term elements of the remuneration package. 

The new plans will replace the existing Enterprise Management Incentive Share Option Plan and the Consultants' Share Option Plan.  No further grants will be made under these existing plans. 

It is intended that nil-cost options will be granted under the EMI Plan to each participant over ordinary shares with a value at grant of up to £120,000.  Any further grants to any individual will be made through the LTIP.  The combined value of awards granted to any individual under both plans in any financial year of the Company will not exceed 100% of his or her base salary. 

Awards granted under both plans will be subject to the achievement of demanding performance conditions.  For the initial grants to Executive Directors the following performance conditions will apply. 

Up to 65% of the award will vest depending on the aggregate earnings before interest, taxation and depreciation ("EBITDA") achieved by the Company over the three financial years beginning 1 June 2010, in comparison with Targets set by the Remuneration Committee, in accordance with the following table:

Percentage of aggregate Target EBITDA achieved	Percentage of this portion of the Award which vests
At or below 92.5% of Target	0%
Between 92.5% and 100% of Target	Between 0% and 75%, calculated on a pro rata basis
100% of Target	75%
Between 100% and 107.5% of Target	Between 75% and 100% calculated on a pro rata basis
107.5% of Target or better	100%

The other 35% of each award will vest depending on the annualised total shareholder return ("TSR") achieved by the Company over a three-year period, in accordance with the following table:

Annualised TSR achieved	Percentage of this portion of the Award which vests
Below 10%	0%
10%	30%
Between 10% and 20%	Between 30% and 100%, calculated on a pro rata basis
20% or higher	100%

The Remuneration Committee believes there are no obvious listed benchmarks for the Company, hence an absolute measure of TSR is a better performance benchmark than a relative TSR measure. 

Shares acquired through the plans will be delivered to participants by the trustees of the Mattioli Woods 2010 Employee Benefit Trust ("the EBT"), which has been established for this purpose.  The trustees may either subscribe for new shares from the Company or purchase shares on the market.  The EBT may never hold more than 5% of the ordinary share capital of the Company at any time. 

Shareholders are being asked to approve the new plans at the Company's AGM on 14 October 2010. 

Consolidated statement of comprehensive income

For the year ended 31 May 2010

	Note	2010 £	2009 £
Revenue	2	13,678,033	13,283,204
Employee benefits expense		(6,908,691)	(6,813,449)
Other administrative expenses		(1,865,220)	(1,941,255)
Share based payments		(161,957)	(199,905)
Amortisation		(324,110)	(299,099)
Depreciation		(169,397)	(183,178)
Loss on disposal of property, plant & equipment		(22,528)	(35,360)
Operating profit before financing		4,226,130	3,810,958
Finance revenue		43,659	91,599
Finance costs		(116)	(5,889)
Net finance revenue		43,543	85,710
Profit before tax		4,269,673	3,896,668
Income tax expense		(1,265,590)	(1,174,410)
Profit for the year		3,004,083	2,722,258
Other comprehensive income for the year, net of tax		-	-
Total comprehensive income for the year, net of tax		3,004,083	2,722,258
Attributable to:
Equity holders of the parent		3,004,083	2,722,258
Earnings per ordinary share:
Basic (pence)	3	17.32	15.73
Diluted (pence)	3	16.49	14.97
Proposed total dividend per share (pence)	4	4.35	3.90

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 profit and loss account in these financial statements.  The profit for the financial year of the Company after taxation was £3,004,083 (2009: £2,722,258).

Statement of financial position                                                                    Registered number: 3140521

As at 31 May 2010

		2010		2009
		Group	Company	Group	Company
	Note	£	£	£	£
Assets
Property, plant and equipment		733,463	733,463	638,634	638,634
Intangible assets		11,050,274	11,050,274	10,056,466	10,056,466
Deferred tax asset		127,069	127,069	127,805	127,805
Investments		15	41,684	15	41,682
Total non-current assets		11,910,821	11,952,490	10,822,920	10,864,587
Trade and other receivables		5,662,881	5,662,561	5,021,080	5,020,713
Financial assets		-	-	120,392	120,392
Cash and short-term deposits	5	5,790,292	5,789,143	4,808,179	4,804,379
Total current assets		11,453,173	11,451,704	9,949,651	9,945,484
Total assets		23,363,994	23,404,194	20,772,571	20,810,071
Equity
Issued capital	6	173,473	173,473	172,855	172,855
Share premium	6	5,918,314	5,918,314	5,769,149	5,769,149
Other reserves	6	2,552,579	2,552,579	2,456,341	2,456,341
Retained earnings	6	10,336,920	10,337,996	8,060,163	8,061,239
Total equity attributable to equity holders of the parent		18,981,286	18,982,362	16,458,508	16,459,584
Non-current liabilities
Trade and other payables		120,000	120,000	100,000	100,000
Deferred tax liability		251,181	251,181	262,555	262,555
Provisions		329,598	329,598	242,599	242,599
Total non-current liabilities		700,779	700,779	605,154	605,154
Current liabilities
Trade and other payables		2,532,508	2,571,632	2,810,554	2,846,978
Income tax payable		689,088	689,088	559,229	559,229
Provisions		460,333	460,333	339,126	339,126
Total current liabilities		3,681,929	3,721,053	3,708,909	3,745,333
Total liabilities		4,382,708	4,421,832	4,314,063	4,350,487
Total equities and liabilities		23,363,994	23,404,194	20,772,571	20,810,071

The financial statements were approved by the board of directors and authorised for issue on 30 August 2010 and are signed on its behalf by:

Ian Mattioli                                                                             Nathan Imlach

Chief Executive                                                                        Finance Director

Statements of changes in equity

For the year ended 31 May 2010

Group	Issued capital (Note 6) £	Share premium (Note 6) £	Other capital reserves (Note 6) £	Retained earnings (Note 6) £	Total equity £
As at 1 June 2008	172,159	5,601,458	2,372,242	5,881,203	14,027,062
Profit for the period	-	-	-	2,722,258	2,722,258
Total comprehensive income	-	-	-	2,722,258	2,722,258
Issue of share capital	696	167,691	-	-	168,387
Share-based payment transactions	-	-	116,067	-	116,067
Deferred tax asset taken to equity	-	-	(31,968)	-	(31,968)
Dividends	-	-	-	(543,298)	(543,298)
As at 31 May 2009	172,855	5,769,149	2,456,341	8,060,163	16,458,508
Profit for the period	-	-	-	3,004,083	3,004,083
Total comprehensive income	-	-	-	3,004,083	3,004,083
Issue of share capital	618	149,165	-	-	149,783
Share-based payment transactions	-	-	89,097	-	89,097
Deferred tax asset taken to equity	-	-	7,141	-	7,141
Dividends	-	-	-	(727,326)	(727,326)
As at 31 May 2010	173,473	5,918,314	2,552,579	10,336,920	18,981,286

Company	Issued capital (Note 6) £	Share premium (Note 6) £	Other capital reserves (Note 6) £	Retained earnings (Note 6) £	Total equity £
As at 1 June 2008	172,159	5,601,458	2,372,242	5,882,279	14,028,138
Profit for the period	-	-	-	2,722,258	2,722,258
Total comprehensive income	-	-	-	2,722,258	2,722,258
Issue of share capital	696	167,691	-	-	168,387
Share-based payment transactions	-	-	116,067	-	116,067
Deferred tax asset taken to equity	-	-	(31,968)	-	(31,968)
Dividends	-	-	-	(543,298)	(543,298)
As at 31 May 2009	172,855	5,769,149	2,456,341	8,061,239	16,459,584
Profit for the period	-	-	-	3,004,083	3,004,083
Total comprehensive income	-	-	-	3,004,083	3,004,083
Issue of share capital	618	149,165	-	-	149,783
Share-based payment transactions	-	-	89,097	-	89,097
Deferred tax asset taken to equity	-	-	7,141	-	7,141
Dividends	-	-	-	(727,326)	(727,326)
As at 31 May 2010	173,473	5,918,314	2,552,579	10,337,996	18,982,362

Cash flow statements

For the year ended 31 May 2010

		Group 2010	Company 2010	Group 2009	Company 2009
	Note	£	£	£	£
Operating activities
Profit for the period Adjustments for:		3,004,083	3,004,083	2,722,258	2,722,258
Depreciation		169,397	169,397	183,178	183,178
Amortisation		324,110	324,110	299,099	299,099
Investment income		(43,659)	(43,659)	(91,599)	(91,599)
Interest expense		116	116	5,889	5,889
Loss on disposal of property, plant and equipment		22,528	22,528	35,360	35,360
Equity-settled share-based payments		161,957	161,957	199,905	199,905
Income tax expense		1,265,590	1,265,590	1,174,410	1,174,410
Cash flows from operating activities before changes in working capital and provisions		4,904,122	4,904,122	4,528,500	4,528,500
Increase in trade and other receivables		(504,411)	(504,460)	(331,142)	(331,142)
(Decrease)/increase in trade and other payables		(543,210)	(540,510)	119,892	119,892
Decrease in provisions		(7,463)	(7,463)	(9,261)	(9,261)
Cash generated from operations		3,849,038	3,851,689	4,307,989	4,307,989
Interest paid		(116)	(116)	(5,889)	(5,889)
Income taxes paid		(1,139,229)	(1,139,229)	(1,133,932)	(1,133,932)
Net cash flows from operating activities		2,709,693	2,712,344	3,168,168	3,168,168
Investing activities
Proceeds from sale of property, plant and equipment		34,800	34,800	2,545	2,545
Purchase of property, plant and equipment		(321,554)	(321,554)	(126,616)	(126,616)
Purchase of software		(109,450)	(109,450)	(345,133)	(345,133)
Acquisition of subsidiaries		(105,500)	(105,500)	(206,000)	(206,000)
Acquisition of businesses	1	(741,332)	(741,332)	(234,048)	(234,048)
New loans advanced to property syndicates		(614,784)	(614,784)	(1,629,060)	(1,629,060)
Loan repayments from property syndicates		735,176	735,176	2,037,910	2,037,910
Interest received		43,659	43,659	91,599	91,599
Net cash flows from investing activities		(1,078,985)	(1,078,985)	(408,803)	(408,803)
Financing activities
Proceeds from the issue of share capital		76,923	76,923	84,549	84,549
Repayment of borrowings		-	-	(28,242)	(28,242)
Proceeds from/(repayment of) directors' loans		1,808	1,808	(2,089)	(2,089)
Dividends paid	4	(727,326)	(727,326)	(543,298)	(543,298)
Net cash flows from financing activities		(648,595)	(648,595)	(489,080)	(489,080)
Net increase in cash and cash equivalents		982,113	984,764	2,270,285	2,270,285
Cash and cash equivalents at start period	5	4,808,179	4,804,379	2,537,894	2,534,094
Cash and cash equivalents at end period	5	5,790,292	5,789,143	4,808,179	4,804,379

Notes

1. Business combinations

Acquisition of CP Pensions

On 30 April 2010, the Group acquired the trade and assets of the pension administration and employee benefits businesses of Cooper Parry Wealth Strategies Limited ("Cooper Parry") (together "CP Pensions").  CP Pensions administered pension schemes on behalf of 239 self-invested personal pension ("SIPP") and 51 small self-administered pension scheme ("SSAS") clients.  CP Pensions also provided employee benefits services to 30 corporate clients. 

As part of the transaction the Group also acquired CP SIPP Trustees Limited and CP SSAS Trustees Limited, which act as trustees to the pension schemes.  The acquisition has been accounted for using the purchase method of accounting.  The consolidated financial statements include the results of CP Pensions for the period from the acquisition date. 

The fair value of the identifiable assets and liabilities of CP Pensions as at the date of acquisition were:

	Fair value recognised  on acquisition	Previous carrying  value
	£	£
Intangible asset - client portfolio	1,287,758	-
Trade receivables	58,099	96,477
Accruals and deferred income	(135,857)	(135,857)
Fair value of net assets	1,210,000	(39,380)
Goodwill arising on acquisition	-
Total acquisition cost	1,210,000

The total acquisition cost of £1,210,000 comprises an initial cash payment of £575,000, deferred consideration of £300,000, contingent consideration of up to £300,000 and costs of £35,000 directly attributable to the acquisition.  £300,000 of the deferred consideration will be paid in the two years following completion, with the remaining payment of up to £300,000 being determined by reference to an earn-out mechanism, contingent on growth in revenues during the two years following completion. 

Cash outflow on acquisition:

	Unaudited £
Cash paid	(575,000)
Acquisition costs	(35,000)
Net cash outflow	(610,000)

From the date of acquisition, CP Pensions has contributed £3,609 to the profit of the Group.  If the combination had taken place at the beginning of the year, the profit for the Group would have been £3,107,663 and revenue from continuing operations would have been £14,080,145. 

Acquisition of the JB Group

On 18 February 2008 the Group acquired the trade and assets of John Bradley Financial Services ("JBFS") and North Star SIPP LLP (together "the JB Group").  The total acquisition cost included deferred and contingent consideration of up to £1,340,000 payable in the three years following completion.  During the period the Group paid a total of £127,000 deferred and contingent consideration to the vendors of the JB Group.  The Directors estimate the net present value of deferred and contingent consideration outstanding at 31 May 2010 is £100,000 (2009: £340,000) and £185,511 (2009: £200,000) respectively. 

2. Revenue

Revenue disclosed in the income statement is analysed as follows:	2010 £	2009 £
Rendering of services	8,338,525	7,588,818
Commission income	5,339,508	5,694,386
	13,678,033	13,283,204
No revenue was derived from exchanges of goods or services (2009: £nil).

3. Earnings per ordinary share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

	2010 £	2009 £
Net profit and diluted net profit attributable to equity holders of the Company	3,004,083	2,722,258
Weighted average number of ordinary shares:	Thousands	Thousands
Issued ordinary shares at start period	17,286	17,216
Effect of shares issued during the year ended 31 May 2009	-	52
Effect of shares issued during the year ended 31 May 2010	55	38
Basic weighted average number of shares	17,341	17,306

The Company has granted options under the Share Option Plan and Consultants' Share Option Plan to certain of its senior managers and directors to acquire (in aggregate) up to 8.97% of its issued share capital.  Under IAS 33 Earnings Per Share, contingently issuable ordinary shares are treated as outstanding and included in the calculation of diluted earnings per share if the conditions (the events triggering the vesting of the option) are satisfied.  At 31 May 2010 the conditions attached to the options granted under the Consultants' Option Plan are not satisfied.  If the conditions had been satisfied, diluted earnings per share would have been 16.00p per share (2009: 14.56p). 

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

4. Dividends paid and proposed

	2010 £	2009 £
Declared and paid during the year:
Equity dividends on ordinary shares:
- Final dividend for 2009: 2.75p (2008: 2.00p)	476,053	344,788
- Interim dividend for 2010: 1.45p (2009: 1.15p)	251,273	198,510
Dividends paid	727,326	543,298
Proposed for approval by shareholders at the AGM:
Final dividend for 2010: 2.90p (2009: 2.75p)	503,733	476,053

5. Cash and short-term deposits

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

	2010 £	Group 2009 £	2010 £	Company 2009 £
Cash at banks and on hand	5,283,798	3,808,179	5,282,649	3,804,379
Short-term deposits	506,494	1,000,000	506,494	1,000,000
	5,790,292	4,808,179	5,789,143	4,804,379

Cash at banks earns interest at floating rates based on daily bank deposit rates.  Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.  The fair value of cash and short-term deposits is £5,790,292 (2009: £4,808,179). 

At 31 May 2010, the Group had available £3,000,000 (2009: £3,000,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. 

6. Issued capital and reserves

Share capital	Ordinary shares  of 1p	Ordinary shares of 1p £
Authorised
At 1 June 2008, 31 May 2009 and 31 May 2010	30,000,000	300,000
Issued and fully paid
At 1 June 2008	17,215,910	172,159
Partnership shares issued under the SIP	34,604	346
Matching shares issued under the SIP	34,604	346
Dividend shares issued under the SIP	407	4
At 31 May 2009	17,285,525	172,855
Partnership shares issued under the SIP	30,040	300
Matching shares issued under the SIP	30,040	300
Dividend shares issued under the SIP	1,707	18
At 31 May 2010	17,347,312	173,473

Rights, preferences and restrictions on shares

All ordinary shares carry equal rights and no privileges are attached to any shares in the Company.  All the shares are freely transferable, except as otherwise provided by law.  The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.  All shares rank equally with regard to the Company's residual assets.

Share option schemes and share incentive plan

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

The Company also operates a share incentive plan.  Participants in the SIP are entitled to purchase up to a prescribed number of new ordinary shares in the Company of 1p each at the end of each month ("Partnership shares").  At the Directors' discretion, the Company may also award additional shares ("Matching 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 ("Dividend shares").

Other reserves

Group	Equity-share based payments £	Share premium account £	Capital redemption reserve £	Retained earnings £
At 1 June 2008	372,242	5,601,458	2,000,000	5,881,203
Share based payments	116,067	-	-	-
Shares issued under the SIP	-	167,691	-	-
Deferred tax asset taken to equity	(31,968)	-	-	-
Profit for the financial year	-	-	-	2,722,258
Dividends	-	-	-	(543,298)
At 31 May 2009	456,341	5,769,149	2,000,000	8,060,163
Share based payments	89,097	-	-	-
Shares issued under the SIP	-	149,165	-	-
Deferred tax asset taken to equity	7,141	-	-	-
Profit for the financial year	-	-	-	3,004,083
Dividends	-	-	-	(727,326)
At 31 May 2010	552,579	5,918,314	2,000,000	10,336,920

Company	Equity-share based  payments £	Share premium account £	Capital redemption reserve £	Retained earnings £
At 1 June 2008	372,242	5,601,458	2,000,000	5,882,279
Share based payments	116,067	-	-	-
Shares issued under the SIP	-	167,691	-	-
Deferred tax asset taken to equity	(31,968)	-	-	-
Profit for the financial year	-	-	-	2,722,258
Dividends	-	-	-	(543,298)
At 31 May 2009	456,341	5,769,149	2,000,000	8,061,239
Share based payments	89,097	-	-	-
Shares issued under the SIP	-	149,165	-	-
Deferred tax asset taken to equity	7,141	-	-	-
Profit for the financial year	-	-	-	3,004,083
Dividends	-	-	-	(727,326)
At 31 May 2010	552,579	5,918,314	2,000,000	10,337,996

7. Events after the balance sheet date

Acquisition of City Trustees

On 9 August 2010 Mattioli Woods plc acquired the entire issued share capital of City Pensions Limited ("CPL") and City Trustees Limited ("CTL") (together "City Trustees") from Lighthouse Group plc ("Lighthouse") for a cash consideration of £1.85 million, net of inter company balance repayments made by Lighthouse prior to completion.  CPL administers pension schemes on behalf of 965 SIPP schemes, 123 SSAS schemes and 14 funded unapproved retirement benefit schemes, with total funds under trusteeship of over £300 million.  CTL acts as trustee to the schemes. 

In the year ended 31 December 2009, CPL generated a loss on ordinary activities before taxation of £55,717 on revenues of £785,962.  CPL's net assets at 31 December 2009 were £413,124.  CTL is a non-trading dormant company with net assets at 31 December 2009 of £2. 

Taxation

In June 2010 the UK government's Emergency Budget announced tax changes which, if enacted in the proposed manner, will have a significant effect on the Group's future tax position.  These changes to the UK tax system are not regarded as "substantively enacted" as they are still subject to Parliamentary agreement.  However, it is proposed that the rate of UK corporation tax will reduce from 28% to 27% from 1 April 2011, with further annual reductions of 1% annually leading to a rate of 24% from 1 April 2014. 

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

Changes to the UK capital allowances regime have also been proposed, to take effect from 1 April 2012. 

8. Distribution of the annual report and accounts to members

The announcement set out above does not constitute a full financial statement of the Group's affairs for the year ended 31 May 2009 or 2010.  The Group's auditors have reported on the full accounts of each year and have accompanied them with an unqualified report.  The accounts have yet to be delivered to the Registrar of Companies.

The annual report and accounts will be posted to shareholders in due course, and will be available on our web site (www.mattioli-woods.com) and for inspection by the public at the Group's Head Office address: MW House, 1 Penman Way, Grove Park, Enderby, Leicester LE19 1SY during normal business hours on any weekday.  Further copies will be available on request.

The Company's annual general meeting will take place on 14 October 2010 at the Group's head office.

 

END

 

 

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