Mattioli Woods Regulatory News (MTW)

Mattioli Woods plc

("Mattioli Woods" or "the Group")

Final results

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

Highlights

Operational highlights and recent developments

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

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

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

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

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

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

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

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Analyst presentation

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

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

Chairman's statement

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

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

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

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

Market overview

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

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

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

Assets under administration and advice

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

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

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

Strategy and acquisitions

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

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

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

Staff

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

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

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

Board changes

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

Dividends

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

Outlook

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

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

Bob Woods

Chairman

28 August 2012

Chief Executive's review

Introduction

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

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

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

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

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

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

Market

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

Business objective and strategy

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

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

·; Attracting new clients;

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

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

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

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

Revenue streams

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

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

Direct pension consultancy and administration

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

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

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

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

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

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

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

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

Wealth management

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

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

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

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

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

Employee benefits

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

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

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

Property syndicates

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

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

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

Third party administration

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

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

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

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

Regulatory environment

Financial Services Authority

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

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

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

Review of Retail Distribution

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

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

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

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

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

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

HM Revenue & Customs and The Pensions Regulator

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

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

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

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

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

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

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

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

Compliance

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

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

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

Current and future developments and performance

Group results

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net finance revenue

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

Taxation

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

Earnings per share and dividend

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

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

Cash flow

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

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

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

Bank facilities

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

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

Capital structure

The Group's capital structure is as follows:

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

Acquisitions

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

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

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

Resources, risks and relationships

Resources

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

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

Capacity

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

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

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

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

Principal risks and uncertainties

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

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

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

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

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

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

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

Relationships

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

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

Conclusion

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

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

Ian Mattioli

Chief Executive

28 August 2012

Consolidated statement of comprehensive income

For the year ended 31 May 2012

The operating profit for each period arises from the Group's continuing operations. The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own statement of comprehensive income in these financial statements. The profit for the financial year of the Company after taxation was £3,291,725 (2011: £3,327,346).

Consolidated and Company statements of financial position Registered number: 3140521

As at 31 May 2012

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

Bob Woods Nathan Imlach

Executive Chairman Finance Director

Consolidated and Company statements of changes in equity

For the year ended 31 May 2012

Consolidated and Company statements of changes in equity

For the year ended 31 May 2012 (continued)

Consolidated and Company statements of cash flows

For the year ended 31 May 2012

Notes

1. Business combinations

Acquisition of Kudos

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

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

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

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

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

·; The workforce;

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

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

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

Contingent consideration

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

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

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

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

2. Revenue

3. Segment information

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

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

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

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

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

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

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

The pension consultancy, administration and wealth management operations of Mattioli Woods utilise the same intangible and tangible assets, and the segments have been financed as a whole, rather than individually. The Group's operating segments are managed together as one business. Accordingly, certain costs are not allocated across the individual operating segments, as they are managed on a group basis. Segment profit or loss reflects the measure of segment performance reviewed by the Board of Directors (the Chief Operating Decision Maker).

3. Segment reporting (continued)

Operating segments

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

Year ended 31 May 2012

Year ended 31 May 2011

Segment assets

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

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

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

Adjustments and eliminations

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

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

4. Earnings per ordinary share

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

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

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

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

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

5. Dividends paid and proposed

6. Cash and short-term deposits

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

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of cash and short-term deposits is £5,795,997 (2011: £4,612,689).

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

7. Issued capital and reserves

Rights, preferences and restrictions on shares

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

Share option schemes and share incentive plan

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

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

Other reserves