Final Results

RNS Number : 4872C

Mattioli Woods PLC

02 September 2008

 



Press Release

2 September 2008

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 2008.  

Financial highlights

	Revenue up 20.3% to £10.83m (2007: £9.00m)
	Profit before tax and amortisation up 14.4% to £3.73m (2007: £3.26m)
	Adjusted EPS* up 16.4% to 15.6p (2007: 13.4p)
	Proposed final dividend up 17.6% to 2.0p (2007: 1.7p)
	Advising on £1.35bn (2007: £0.82bn) of core funds under trusteeship
	Cash at period end of £2.54m (2007: £2.80m)

*Before amortisation of intangible assets. Basic EPS up 11.7% to 14.3p (2007: 12.8p)

Operational highlights

—	Organic growth of 18.3% in SIPP numbers (2007: 21.1%)
—	Two acquisitions completed and fully integrated
—	Core SSAS and SIPP scheme numbers increased to 2,446 (2007: 1,603)
	-          358 core schemes acquired with PCL in July 2007
	-          290 core schemes acquired with JB Group in February 2008
—	Average core scheme value of £0.55m (2007: £0.51m)
—	Michael Kershaw appointed as second Non-Executive Director
—	Mark Smith appointed as Operations Director
—	Introduction of Share Incentive Plan in June 2008
—	Self-investment of protected-rights monies possible from October 2008

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

'I am pleased to report another year of strong results with continued earnings growth. The Group successfully completed two acquisitions and core funds under trusteeship have risen to over £1.35bn. The self invested personal pension ('SIPP') market remains strong, providing us with exciting opportunities for continued organic growth and potential acquisitions in what is still a fragmented marketplace.

'Events in both credit and equity markets over the last year have made life more challenging for investment advisers generally and the economic outlook for the UK remains uncertain. Our experience is that economic downturns generally lead to a greater interest in pensions amongst those on the 'flight path to retirement'. Individuals who have accumulated the most substantial pension funds are generally those who are in greatest need of impartial retirement wealth management advice. This is the advice Mattioli Woods provides.

'Trading in the current period continues to be in line with expectations and it is with real enthusiasm that I look forward to continuing to grow our business over the next 12 months.'

For further information:

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:

Abchurch
Sarah Hollins/ Nick Probert [e-mail]	Tel: [phone] www.abchurch-group.com

  Chairman's statement

I am pleased to report another year of strong results, with continued earnings growth. We completed two successful acquisitions and core funds under trusteeship (which excludes third-party administration cases) rose from £819m at the start of the year to £1.35bn at the year-end. We also continue to enjoy strong organic growth, with an 18.3% (2007: 21.1%) increase in SIPP numbers before acquisitions. The core SSAS and SIPP portfolio grew to a total of 2,446 schemes at 31 May 2008 (2007: 1,603).  

We have achieved a considerable amount since our admission to AIM in November 2005. However, I see our success to date as being just the first few steps of the journey. The SIPP market remains strong, providing us with exciting opportunities for continued organic growth and potential acquisitions in what is still a fragmented marketplace.  

Trading results

In the year ended 31 May 2008, revenue increased by 20.3% to £10.83m (2007: £9.00m) and profit before tax increased by 11.4% to £3.51m (2007: £3.15m). Adjusted earnings per share (adding back amortisation on intangible assets) were up 16.4% to 15.6 pence (2007: 13.4p). The Board is pleased to recommend a final dividend for the year of 2.0p per Ordinary Share (2007: 1.7p), an increase of 17.6%.  

Notwithstanding cash costs of £3.02m on the two acquisitions completed during the year, our business remains highly cash generative. Cash balances at the period end were £2.54m (2007: £2.80m).  

The market

The SIPP market is estimated to be already approaching 400,000 schemes. I expect to see the market continue to evolve as new players develop diverse approaches. The UK is experiencing a shift away from a culture of company pension provision to one of greater individual responsibility. The decline in the number of defined benefit schemes is resulting in lower company contribution rates. Whilst this will reduce pension funding for lower earners, I believe it will lead to an increasing awareness amongst higher earners of the need to plan for retirement and obtain informed advice.  

There is compelling evidence that the majority of companies operating defined benefit schemes wish to wind-up such arrangements. This will increase demand for pension consultancy services and ultimately lead to substantial sums currently locked-up in defined benefit schemes being transferred into alternative pension arrangements. I believe the SIPP will become the pension arrangement of choice for people at the top end of the market.  

The regulatory environment

The Government has recently announced that 'contracted-out' personal pension plans may be transferred to self-invested arrangements for the first time. Contracting-out of the State Second Pension (formerly the State Earnings Related Pension Scheme or 'SERPS') has been possible via a personal pension since 1988. Currently, money built up from national insurance rebates when people contract-out (known as 'protected-rights monies') can only be held in a restricted range of funds. It is estimated that up to £100bn of protected-rights monies are locked up in personal pensions alone. The majority of existing and prospective SIPP clients have some form of contracted-out scheme and the transfer of these arrangements into a SIPP will be permitted from October this year. Because contracted-out plans cannot impose transfer penalties, I expect few to remain as stand-alone arrangements and the ensuing transfers will boost both the number of scheme members and the value of our funds under trusteeship.

The Financial Services Authority ('FSA') published its discussion paper 'A Review of Retail Distribution' in June 2007, seeking to improve the efficiency of the market for the distribution of retail investment products. This set out increased regulatory and professional requirements the FSA is proposing for independent financial advisers ('IFAs') which, I believe, is likely to lead to further consolidation in our key markets.  

At the other end of the spectrum, the FSA is proposing that large institutions should be allowed to sell financial products with a reduced duty of care. The FSA acknowledges this could lead to poor selling, but concludes that for the general public to be badly sold some product is better than them being sold none at all. I expect this to lead to increased demand for troubleߛshooting and specialist advisory services such as our own.  

The review also proposes wider adoption of a more transparent remuneration model (known as 'Customer Agreed Remuneration') where the costs of intermediary services are separated from the costs of the product. Our fee-based revenue model means Mattioli Woods is well-placed to deal with any such regulatory change.  

Strategy

Despite strong growth over the last few years, the SIPP market is still very much in its infancy. We predict assets under management across the market will at least double from £50bn to £100bn over the next few years. As a result, I expect to see increasing demand for the broader retirement wealth management services we provide in conjunction with our core pension consultancy.

We are focused on creating a scalable platform to allow us to take full advantage of these opportunities. We have strengthened the Board during the year through the appointments of Mark Smith (Operations Director) and Michael Kershaw (NonߛExecutive Director). We are investing to build awareness of the Mattioli Woods' brand and have launched a new suite of literature, which includes new corporate and SIPP brochures.  

Outlook

We are a people business. To accelerate the rate at which we can develop capacity, whilst further enhancing client service levels, we plan additional investment in our graduate recruitment and internal training initiatives.  

Events in both credit and equity markets over the last year have made life more challenging for investment advisers generally and the economic outlook for the UK remains uncertain. Mattioli Woods was founded during the recession of the early 1990's and our experience is that economic downturns generally lead to a greater interest in pensions among those who are on what might be described as 'the flight path to retirement'. Individuals who have accumulated the most substantial pension funds are generally those who are in greatest need of impartial retirement wealth management advice. This is the advice Mattioli Woods provides.  

Trading in the current period continues to be in line with expectations and it is with real enthusiasm that I look forward to continuing to grow our business over the next 12 months.  

Bob Woods

Chairman

1 September 2008

  Chief Executive's review 

Introduction

I am proud we have continued our track record of growth whilst maintaining our strong business ethics and excellent client service. Organic growth in scheme numbers achieved through professional networking, seminars and client referrals has been enhanced by two acquisitions during the year. We are delighted to have successfully integrated the staff of both the acquired businesses, bringing new skills and experience into our organisation.  

We continue to invest in our people and systems with the aim of advising our clients more efficiently and effectively. Most of our clients are over 45 years old and have pension assets in excess of £250,000. These clients are keen to optimise their retirement savings and typically make use of both our pension consultancy and investment advisory services. Against a backdrop of uncertain markets, we are seeing strong demand for bespoke pension investment products, including 100% capital-guaranteed bonds and our syndicated property initiative.  

Business objective and strategy

Our objective is to continue to provide a bespoke, personalised service to clients in the retirement wealth market, achieving profitable growth year-on-year. This is key to achieving the financial and non-financial measures that increase shareholder value.  

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 comprises owner-managers, senior executives and professional persons. We also provide group scheme consultancy and personal financial planning as complementary services to our core business.

Our main source of income is time-based fees earned for setting up and administering SIPP and SSAS schemes. Additional fees are generated from consultancy services for special one-off activities. Revenues from time-based fees have increased by 20.1% to £4.79m (2007: £3.99m).

Investment planning

The 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 and offer the whole of the market, including our own bespoke products.

Our rationale for any new product development is to enhance our clients' existing position. Our clients' desire to protect their capital whilst retaining the possibility of capital growth linked to investment in more volatile and speculative indices led us to develop our capital-guaranteed bond programme. We launched five (2007: three) 100% capital-guaranteed bonds during the year with clients subscribing a total of £14.7m (2007: £7.4m).  

Our fee-based model reinforces our ability to provide appropriate advice to our clients. Whilst 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. Periods of volatility in a particular asset class may see changes in how our investment planning revenues are derived. However, a great strength of our business is that we can continue to derive income from investments in all asset classes, whilst ensuring our clients' investment strategies are appropriately aligned to the prevailing market conditions. Investment planning revenues grew by 7.1% in 2008 to £4.37m (2007: £4.08m).

Property syndicates

Mattioli Woods facilitates commercial property ownership for its clients by way of a syndicated property initiative. Properties introduced to the Group by our professional property contacts are referred to an independent property adviser, who recommends appropriate properties for syndication.

We believe commercial property is ideally suited as a retirement investment. Good quality properties with strong leases and good quality tenants typically provide stable returns over the long-term. Much has been written over the last few months about the current state of the UK commercial property market. However, indications are that prime commercial property has not suffered the falls in value expressed in the media.  

Market conditions may lead to lower price expectations amongst prospective vendors, creating new buying opportunities for our clients. However, we have seen a reduction in the number of prime commercial properties coming onto the market. Despite this environment, we have been pleased to facilitate the purchase of six (2007: seven) new properties during the year with a combined value of £23.0m (2007: £19.1m) The total number of property syndicates using our administrative services at the year end increased to 36 (2007: 30). Total income from property syndicates was £1.66m (2007: £0.93m), with £0.71m (2007: £0.40m) of this being derived from our annual administration services.

  Market

Our markets are serviced by a wide range of suppliers offering diverse services to individual and corporate clients. These markets are fragmented but remain highly competitive.  

This fragmentation reinforces my belief that our holistic service offering, coupled with the introduction of innovative new products, is the most effective way to deliver the increasingly tailored solutions our clients demand.  

Regulatory environment 

The Group is regulated by a number of different bodies. 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.  

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

We 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. 

The FSA's consultation paper 'A Review of Retail Distribution' considers how fees and commissions will be generated in the future by FSA regulated organisations and is likely to lead to reduced commissions from product providers. Our revenues are predominantly fee-based and we believe the proposed changes would not have a material impact on future revenues. However, the final outcomes of the FSA's review remain uncertain.  

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.  

Current and future developments and performance

Group results

Our goals continue to be the delivery of quality personal service that adds real value to clients, whilst maintaining high ethical standards and enhancing shareholder value.  

Sales revenues were £10.83m (2007: £9.00m), up 20.3% on the prior year. The acquired businesses of PCL and the JB Group contributed £1.00m of revenue during the period, with organic growth of 9.2% contributing an additional £0.83m of revenue. Operating profit before financing increased by 12.2% to £3.31m (2007: £2.95m).

Cash generated from operations fell to £3.08m (2007: £3.72m) with a £1.1m increase in trade and other receivables at the year-end. This increase is primarily due to clients of the JB Group being invoiced annually in advance, rather than six months in arrears under the Mattioli Woods' model. As a result, the Group also recognised £0.42m (2007: nil) of deferred income at 31 May 2008. We will migrate the acquired clients onto the traditional Mattioli Woods' fee model after this initial transitional period.  

The Group's cash generation in 2007 was exceptionally high as a result of improved credit control and a push to collect long outstanding debtors. However, our conversion of EBITDA to cash has remained strong this year at 83.8% (2007: 117.4%).  

Operating margin of 30.5% (2007: 32.8%) was impacted by costs associated with two acquisitions, both of which resulted in periods of duplicated property and compliance costs, prior to their integration into the Group's Leicester offices. In addition, the recognition of the acquired client portfolios as intangible assets has led to increased amortisation of £0.22m (2007: £0.11m).  

Improvements in information systems and technology provide scope for future margin improvement and even better client service going forward.

Acquisitions

Both the businesses acquired during the year have been fully integrated into our core business and are performing in line with our expectations. We are particularly pleased with the strong retention of clients within each client portfolio.  

The Group's acquisition of Pension Consulting Limited ('PCL') for a total consideration of up to £1.925m in July 2007 was followed in February 2008 by the acquisition of the trade and assets of John Bradley Financial Services ('JBFS') and North Star SIPP LLP ('North Star') (together 'the JB Group') for a total consideration of up to £2.59m. Deferred and contingent consideration of up to £1.23m is payable after the year-end.  

PCL administered pension schemes on behalf of 145 SSAS and 213 SIPP clients and its experienced team of two consultants and 11 administration staff has been retained by the Group following the acquisition.  

JBFS provided pensions consultancy and administration services to a core portfolio of 235 SSAS and 55 SIPP clients. In addition, the JB Group also provided third party administration services to a portfolio of other SSAS and SIPP clients. Again, the JB Group's experienced team of three consultants and 22 administration staff has been retained post-acquisition.

Neither PCL nor the JB Group provided the broad range of services that benefits Mattioli Woods' clients and this opens up the opportunity to offer additional services, such as our syndicated property initiatives and guaranteed investment products, to their client bases.  

Growth in the SSAS and SIPP market means organic growth is likely to maintain our overall momentum. However, taking advantage of opportunities to grow our presence by acquisition will continue to be an important element of our future growth strategy.

Dividends

The Board is pleased to recommend the payment of a final dividend for the year ended 31 May 2008 of 2.0p (2007: 1.7p) per Ordinary Share. It is our intention to continue to grow dividend distributions progressively going forward. If approved, the final dividend will be paid on 17 October 2008 to shareholders on the Register at the close of business of 12 September 2008.

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 faced by our fast-growing organisation.  The former PCL and JB Group staff moved into our Leicester offices soon after each acquisition and it is pleasing they have integrated into Mattioli Woods so quickly, adding value through their experience and bringing knowledge of alternative business processes.  The Group now employs a total of 20 pension consultants (2007: 14).  

Maintaining capacity is crucial in an environment of growing demand and our graduate recruitment programme remains on target. In addition to the acquisitions, twelve new graduates joined the Group (2007: 12), increasing our total headcount at the end of the period to 147 (2007: 100).  Our increased business profile as a public company has enhanced our ability to recruit graduates and experienced staff.  

The development of a scalable technology platform remains a key objective for the Group. We introduced a new time accounting and invoicing system during the period and are continuing to invest in developing our bespoke 'MWeb' system, which was launched in May 2008. This will facilitate enhanced pension administration services, including access to real-time valuation information.  

Staff

Since its admission to AIM, the Group has been committed to expanding the skills and range of experience represented on our Board of Directors. We were delighted to announce the appointment of Michael Kershaw as a second independent Non-Executive Director in February 2008. Michael joins us following a highly successful career in investment banking with Dresdner Kleinwort Wasserstein and UBS Warburg. I am confident his experience will enhance our ability to deliver future profitability and growth.  

In June 2008, we announced the appointment of Mark Smith as Operations Director. Mark has worked for Mattioli Woods since January 2000 and has over 20 years' financial services experience. As the Group's Compliance Officer, he has been responsible for direct liaison with the FSA on all regulatory issues, including the impact of new products and the establishment and ongoing monitoring of compliance systems and procedures. His unrivalled knowledge of Mattioli Woods' operations will be a great asset as we continue to grow and develop the business. 

I have highlighted previously that Mattioli Woods enjoys a strong team spirit and commitment from all of its staff and it remains our aim to build on that culture by continuing to facilitate wider equity participation within the organisation. The introduction of the Mattioli Woods Share Incentive Plan ('the Plan') in June 2008 is an important step towards this objective and has received a very positive reaction from our staff.

The Plan enables our employees to buy shares in the Company out of pre-tax income by having an amount deducted from their salary each month. In addition, participating employees are granted matching shares on a one for one basis.  

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.  

Mattioli Woods is a member of the Association of Member-directed Pension Schemes.  

Financial position

Net financing income

Net financing income was £0.20m (2007: £0.19m). The Group has maintained a positive net cash position throughout the financial year.

Taxation

The effective rate of taxation on profit on ordinary activities is 29.7% (2007: 30.3%). The net deferred taxation liability carried forward at 31 May 2008 was £0.11m (2007: asset of £0.14m).

Earnings per share and dividend

The basic and diluted earnings per share in the year as per Note 3 were 14.3p (2007: 12.8p). The 17.6% increase in the total dividend for the year of 3.00p per share (2007: 2.55p) demonstrates our desire to grow the dividend progressively.

Cash flow

The net cash generated from operations was £3.08m (2007: £3.72m) with earnings before interest, taxation, depreciation and amortisation ('EBITDA') of £3.67m (2007: £3.16m). The Group converted 83.8% (2007: 117.4%) of EBITDA into operating cash flow, with the exceptional conversion rate in 2007 being due to improved credit control. As at 31 May 2008, the Group was owed £0.53m (2007: £1.95m) by property syndicates, which has been repaid following the year-end.

The cash outflow from working capital was £0.78m (2007: inflow of £0.42m). Headline trade debtor days were 83 days (2007: 48 days) and trade creditors were 18 days (2007: 19 days). The increase in trade debtor days is primarily due to clients of the JB Group being invoiced annually in advance. Following the year-end, the Group has focused on improved credit control with trade debtor days falling to 71 days at 31 July 2008.

Capital expenditure in the year increased to £0.53m (2007: £0.24m), with significant expenditure on fixtures, fittings and computer equipment associated with increased headcount and the procurement of additional office space during the year. Further investment in the Group's information systems and technology is planned over the next year.

Bank facilities

The Group has renegotiated its borrowing facilities with Royal Bank of Scotland plc ('RBS'), replacing overdraft facilities of £2.25m and £0.75m with respective interest rates of 1.375% and 1.5% over the bank's base rate (currently 5.0%) with one overdraft facility of £5.00m. Interest on the new facility is payable at the bank's base rate plus 1.0% on the first £1.50m, plus 1.25% on the next £1.50m and plus 1.375% on borrowings in excess of £3.00m.  The RBS facility is repayable upon demand and is subject to review on at least an annual basis. The next review date is 11 January 2009.

The Group also has an overdraft facility of £0.25m provided by Lloyds TSB plc ('Lloyds TSB') with interest payable at 1.0% (2007: 1.59%) over the bank's base rate (currently 5.0%). The Lloyds TSB facility is renewable on 31 March 2009.

At 31 May 2008 the Group had unused borrowing facilities of £5.25m (2007: £3.10m).

Capital structure

The Group's capital structure is as follows:

	2008 £	2007 £
Net (funds)/debt	(2,528,985)	(2,697,876)
Non-equity shareholders' funds (liability element)	-	-
	(2,528,985)	(2,697,876)
Shareholders' equity	14,027,062	11,856,900
Capital employed	11,498,077	9,159,024

Gearing has increased from (9.3)% to (0.8)% as a result of a fall in the cash conversion ratio. The acquisitions of PCL in July 2007 and the JB Group in February 2008 were funded out of existing cash resources. 

Conclusion

Our clients and staff are the key to our success. Our business model allows us to give impartial advice to our clients at all times. The SIPP market continues to develop and we can continue to grow our business by taking advantage of the market opportunity and appropriate acquisition opportunities. The shift away from a culture of company pension provision means that retirement wealth management must encompass much more than traditional pension fund assets.

I believe the changing pensions landscape and the long-term relationships we develop with our clients present us with a unique opportunity to advise on an increasing proportion of their total wealth.  

Ian Mattioli

Chief Executive

1 September 2008

  Consolidated income statement

For the year ended 31 May 2008

	Note	2008 £	2007 £
Revenue	2	10,828,151	8,997,191
Employee benefits expense		(5,499,147)	(4,156,368)
Other administrative expenses		(1,537,507)	(1,605,888)
Share based payments		(104,659)	(62,762)
Depreciation		(142,636)	(103,406)
Amortisation		(224,313)	(109,954)
Loss on disposal of property, plant & equipment		(14,304)	(7,407)
Operating profit before financing		3,305,585	2,951,406
Finance revenue		219,033	194,734
Finance costs		(15,434)	(1,012)
Net finance revenue		203,599	193,722
Profit before tax		3,509,184	3,145,128
Income tax expense		(1,043,945)	(952,274)
Profit for the year		2,465,239	2,192,854
Attributable to:
Equity holders of the parent		2,465,239	2,192,854
Earnings per ordinary share:
Basic (pence)	3	14.3p	12.8p
Diluted (pence)	3	14.3p	12.8p
Proposed total dividend per share (pence)	4	3.00p	2.55p

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 £2,466,315 (2007: £2,192,854).

Statement of recognised income and expense

For the year ended 31 May 2008

	Note	Group 2008 £	Company 2008 £	Group 2007 £	Company 2007 £
Deferred tax on share-based payments		65,114	65,114	102,031	102,031
Income and expense recognised directly in equity		65,114	65,114	102,031	102,031
Profit for the year		2,465,239	2,466,315	2,192,854	2,192,854
Total recognised income and expense for the year		2,530,353	2,531,429	2,294,885	2,294,885

 

  

 Balance sheets

		2008		2007
		Group	Company	Group	Company
As at 31 May	Note	£	£	£	£
Assets
Property, plant and equipment		733,101	733,101	429,312	429,312
Intangible assets		10,065,182	10,065,182	5,804,209	5,804,209
Deferred tax asset		166,328	166,328	143,936	143,936
Investments	5	15	41,682	-	1,264
Total non-current assets		10,964,626	11,006,293	6,377,457	6,378,721
Trade and other receivables		4,689,938	4,689,571	3,179,978	3,179,814
Financial assets		529,242	529,242	1,954,315	1,954,315
Cash and short-term deposits		2,537,894	2,534,094	2,799,569	2,795,769
Total current assets		7,757,074	7,752,907	7,933,862	7,929,898
Total assets		18,721,700	18,759,200	14,311,319	14,308,619
Equity
Issued capital		172,159	172,159	172,159	172,159
Share premium	6	5,601,458	5,601,458	5,601,458	5,601,458
Other reserves	6	2,372,242	2,372,242	2,202,469	2,202,469
Retained earnings	6	5,881,203	5,882,279	3,880,814	3,880,814
Total equity attributable to equity holders of the parent		14,027,062	14,028,138	11,856,900	11,856,900
Non-current liabilities
Trade and other payables		365,500	365,500	-	-
Interest-bearing loans and borrowings		10,030	10,030	-	-
Deferred tax liability		273,929	273,929	-	-
Provisions		303,478	303,478	127,446	127,446
Total non-current liabilities		952,937	952,937	127,446	127,446
Current liabilities
Trade and other payables		2,856,231	2,892,655	1,627,889	1,625,189
Interest-bearing loans and borrowings		18,212	18,212	-	-
Income tax payable		513,932	513,932	477,234	477,234
Bank overdraft		-	-	72,818	72,818
Provisions		353,326	353,326	149,032	149,032
Total current liabilities		3,741,701	3,778,125	2,326,973	2,324,273
Total liabilities		4,694,638	4,731,062	2,454,419	2,451,719
Total equities and liabilities		18,721,700	18,759,200	14,311,319	14,308,619

  Cash flow statements

For the year ended 31 May 2008

		Group  2008	Company 2008	Group  2007	Company 2007
	Note	£	£	£	£
Operating activities
Cash receipts from customers		9,717,005	9,167,171	9,006,546	9,006,546
Cash paid to suppliers and employees		(6,639,453)	(6,434,356)	(5,290,352)	(5,290,352)
Cash generated from operations		3,077,552	2,732,815	3,716,194	3,716,194
Interest paid		(15,434)	(9,804)	(1,012)	(1,012)
Income taxes paid		(1,056,729)	(1,025,982)	(874,107)	(874,107)
Net cashflows from operating activities		2,005,389	1,697,029	2,841,075	2,841,075
Investing activities
Proceeds from sale of property, plant and equipment		12,400	12,400	15,225	15,225
Purchase of property, plant and equipment		(420,956)	(420,956)	(164,853)	(164,853)
Purchase of software		(104,457)	(104,457)	(78,193)	(78,193)
Acquisition of subsidiaries	1	(1,712,985)	(1,712,985)	(231,892)	(231,892)
Cash received on acquisition of subsidiaries	1	183,805	183,805	234,443	-
Acquisition of businesses	1	(1,311,327)	(1,351,730)	-	-
Acquisition of other investments	5	(15)	(15)	-	-
New loans advanced to property syndicates		(529,242)	(529,242)	(1,954,315)	(1,954,315)
Loan repayments from property syndicates		1,954,315	1,954,315	1,915,994	1,915,994
Interest received		219,033	221,584	194,734	194,734
Net cashflows from investing activities		(1,709,429)	(1,747,281)	(68,857)	(303,300)
Financing activities
Proceeds from the issue of share capital		-	-	225,000	225,000
(Repayment)/proceeds of Directors' loans		(19,967)	(19,967)	21,050	21,050
Dividends paid	4	(464,850)	(464,850)	(384,972)	(384,972)
Dividends received		-	346,212	-	231,792
Net cashflows from financing activities		(484,817)	(138,605)	(138,922)	92,870
Net increase/(decrease) in cash and cash equivalents		(188,857)	(188,857)	2,633,296	2,630,645
Cash and cash equivalents at start period		2,726,751	2,722,951	93,455	92,306
Cash and cash equivalents at end period		2,537,894	2,534,094	2,726,751	2,722,951

  Notes

1. Business combinations

Acquisition of Pension Consulting Limited

On 9 July 2007 the Group acquired 100% of the voting shares of Pension Consulting Limited ('PCL'), an unlisted company registered in England and Wales, which administered pension schemes on behalf of 145 small self-administered pension schemes ('SSAS') and 213 self-invested personal pension ('SIPP') clients. As part of the transaction the Group also acquired PCL's 100% subsidiary company, PC Trustees Limited, which acts as trustee to the pension schemes. The acquisition has been accounted for using the purchase method of accounting. The consolidated financial statements include the results of PCL for the period from the acquisition date.

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

	Fair value recognised  on acquisition	Previous carrying  value
	£	£
Property, plant and equipment	16,511	17,545
Intangible asset – client portfolio	1,015,554	-
Investment	100	100
Prepayments and accrued income	165,220	165,220
Trade receivables	42,340	42,340
Other receivables	44,055	44,055
Cash and cash equivalents	183,805	183,805
	1,467,585	453,065
Deferred income tax liability	(304,666)	-
Short term subordinated loan	(29,883)	(29,883)
Trade payables	(19,421)	(19,421)
Current income tax liability	(61,468)	(61,468)
Other payables	(25,388)	(25,388)
Accruals and deferred income	(37,081)	(37,081)
	(477,907)	(173,241)
Fair value of net assets	989,678	279,824
Goodwill arising on acquisition	980,807
Total acquisition cost	1,970,485

The total acquisition cost of £1,970,485 comprises an initial cash payment of £1,525,000, deferred and contingent consideration of up to £400,000 and costs of £45,485 directly attributable to the acquisition. £240,000 of deferred consideration is payable in the two years following completion, with the remaining payment of up to £160,000 being contingent upon growth in scheme numbers during the two years following completion. In addition, a further earn-out consideration will be payable if growth in scheme numbers during the two years following completion exceeds the hurdle required to trigger payment of the contingent consideration. The Directors' have revised their estimate of the present value of likely future earn-out amounts payable under this agreement from nil at completion to £50,000 at 31 May 2008.  

In accordance with IFRS 3 Business Combinations, a value has been applied to the PCL client portfolio at the date of acquisition to recognise the value of this asset to the Group. In accordance with IAS12 Income Taxes, an associated deferred tax liability has also been recognised on the value of the client portfolio.

Cash outflows associated with the acquisition are summarised as follows:

	£
Net cash acquired with the subsidiary	183,805
Cash paid	(1,525,000)
Acquisition costs	(45,485)
Net cash outflow on acquisition	(1,386,680)
Deferred consideration paid	(142,500)
Net cash outflow at 31 May 2008	(1,529,180)

 

 

The goodwill recognised above is attributed to the expected synergies and other benefits from combining the assets and activities of PCL with those of the Group. On 30 November 2007 the trade and assets of PCL were transferred to Mattioli Woods ('hived-up') for a consideration of £386,212, equivalent to the net asset value of PCL at that date.  

From the date of acquisition to the date of the hive-up, PCL contributed £106,389 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 £2,434,970 and revenue from continuing operations would have been £10,840,623.

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 ('North Star') (together 'the JB Group') for a total consideration of up to £2.59 million, subject to certain revenue and client retention targets being met during the three years following completion.  

On 18 February 2008 the Company also entered into separate agreements to acquire the entire issued share capital of JB Trustees Limited and Bank Street Trustees Limited (together 'the Trustee Companies') and John Bradley Financial Services Limited (together with the Trustee Companies 'the Dormant Companies') for a nominal consideration.  

JBFS provided pensions consultancy and administration services to a core portfolio of 235 SSAS and 55 SIPP clients. In addition, the JB Group provided third party administration services to a further portfolio of SSAS and SIPP clients.  

North Star was established in October 2006 and subsequently authorised by the Financial Services Authority ('FSA') to establish and operate personal pension schemes, including SIPPs, under the new regulatory regime introduced on 6 April 2007. The Dormant Companies have never traded.  

The acquisition has been accounted for using the purchase method of accounting. The consolidated financial statements include the results of the JB Group for the period from the acquisition date.

The fair value of the identifiable assets and liabilities of the JB Group as at the date of acquisition were:

	Fair value recognised  on acquisition	Previous carrying  value
	£	£
Property, plant and equipment	33,000	106,885
Intangible asset – client portfolio	1,163,211	-
Trade receivables	147,199	190,750
	1,343,410	297,635
Other payables	32,948	34,454
Accruals and deferred income	350,066	350,066
	383,014	384,520
Fair value of net assets	960,396	(86,885)
Goodwill arising on acquisition	1,190,931
Total acquisition cost	2,151,327

The total acquisition cost of £2,151,327 comprises an initial cash payment of £1,245,000, deferred and contingent consideration of £840,000 and costs of £66,327 directly attributable to the acquisition. £640,000 of deferred consideration will be paid in the three years following completion, with the contingent payment being determined by reference to an earn-out mechanism based on growth in revenues generated from the acquired portfolio during the three years following completion. The maximum amount payable under the earn-out is £700,000. The Directors' estimate of the present value of likely future earn-out amounts payable under the acquisition agreement is £200,000.

In accordance with IFRS 3 Business Combinations, a value has been applied to the JB Group client portfolio at the date of acquisition to recognise the value of this asset to the Group.  

  Cash outflow on acquisition:

	£
Cash paid	(1,245,000)
Acquisition costs	(66,327)
Net cash outflow	(1,311,327)

 

 

From the date of acquisition, the JB Group has contributed £3,888 to the profit of the Group. Due to different legal natures, ownership structures, accounting policies and accounting periods of the various entities comprising the JB Group prior to its acquisition by the Group, it is impracticable to disclose the revenue or profit of the Group as if the combination had taken place at the beginning of the year.

The goodwill recognised above is attributed to the expected synergies and other benefits from combining the assets and activities of the JB Group with those of Mattioli Woods plc.  

2. Revenue

Revenue disclosed in the income statement is analysed as follows:	2008 £	2007 £
Rendering of services	6,454,651	4,920,093
Commission income	4,373,500	4,077,098
	10,828,151	8,997,191

3. Earnings per ordinary share

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

	2008 £	2007 £
Net profit and diluted net profit attributable to equity holders of the Company	2,465,239	2,192,854
Weighted average number of ordinary shares:	Thousands	Thousands
Issued ordinary shares at start period	17,216	17,045
Effect of shares issued in October 2006	-	107
Basic weighted average number of shares	17,216	17,152
Dilutive potential ordinary shares:
- non-employee share options	-	27
Diluted weighted average number of shares	17,216	17,179

 

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 8.05% 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 2008 the conditions are not satisfied. If the conditions had been satisfied, diluted earnings per share would have been 13.3p per share (2007: 12.0p).  

4. Dividends paid and proposed

	2008 £	2007 £
Declared and paid during the year:
Equity dividends on ordinary shares:
- Final dividend for 2007: 1.70p (2006: 1.40p)	292,671	238,636
- Interim dividend for 2008: 1.00p (2007: 0.85p)	172,179	146,336
Dividends paid	464,850	384,972
Proposed for approval by shareholders at the AGM:
Final dividend for 2008: 2.00p (2007: 1.70p)	344,697	292,671

5. Investments

On 1 October 2007, Mattioli Woods subscribed £15 for 15% of the issued share capital of Mainsforth Developments Limited ('Mainsforth'), a company incorporated in England and Wales with its principal activity being the development and selling of real estate. On the same date, Mainsforth entered into two conditional sales agreements ('CSAs') to acquire freehold land.  

The first CSA gives Mainsforth the right to acquire certain freehold land ('Land A') with vacant possession for a purchase consideration of £1.0m.  

The second CSA gives Mainsforth the right to acquire other freehold land adjacent to Land A ('Land B') with vacant possession for a purchase consideration of £2.8m, subject to an upwards and downwards adjustment if the consideration (the 'Development Consideration') payable to Mainsforth on the sale of Land A and Land B (together 'the Development Land') is greater or less than £10.0m, subject to the condition that the consideration payable for Land B shall not be reduced below £2.2m.  

The effective date of the agreements will be the date on which planning approval is granted for the development of the Development Land as a mixed use scheme where residential property comprises at least 50% of the built area. Any consideration payable by Mainsforth under the CSAs only becomes payable on completion of its sale of the Development Land. If planning approval has not been obtained by 1 December 2010 the agreements will lapse, although the termination dates may be extended to 1 December 2011 if certain conditions are fulfilled. 

6. Reserves

Group	Equity-share based payments £	Share premium account £	Capital redemption reserve £	Retained earnings £
At 1 June 2006	94,687	5,321,151	2,000,000	2,072,932
Arising on share issue	-	223,296	-	-
Share based payments	62,762	-	-	-
Deferred tax asset taken to equity	102,031	-	-	-
Exercise of share option	(57,011)	57,011	-	-
Profit for the financial year	-	-	-	2,192,854
Dividends	-	-	-	(384,972)
At 31 May 2007	202,469	5,601,458	2,000,000	3,880,814
Share based payments	104,659	-	-	-
Deferred tax asset taken to equity	65,114	-	-	-
Profit for the financial year	-	-	-	2,465,239
Dividends	-	-	-	(464,850)
At 31 May 2008	372,242	5,601,458	2,000,000	5,881,203

 

 
7. Events after the balance sheet date 

Share Incentive Plan 

In June 2008 the Company launched the Mattioli Woods plc Share Incentive Plan (the 'Plan'). Principally, the Plan enables employees to purchase up to a prescribed number of shares in the Company each year at an effective discount to the Stock Exchange price by having an amount deducted from pre-tax salary. In addition, the Company may grant participating employees matching and / or free shares. Ordinary shares issued under the Plan will rank pari passu with the existing issued ordinary shares of the Company.

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 2007 or 2008. 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 Thursday 16 October 2008 at the Group's head office.

 

END

 

 

FR UARNRWARKRAR