Chairman's statement

 

Another year of growth

 

I am pleased to report another successful year of growth for Mattioli Woods, with a strong flow of organic new business from individuals and corporates choosing to use the range of specialist services we provide, coupled with continued demand for advice from existing clients.  Revenue growth of 16.2% on the prior year translated into growth in Adjusted EPS⁸ of 11.1% to 37.0 pence (2017: 33.3 pence). 

 

We are proud of the strong shareholder returns we have delivered over many years and remain committed to growing the dividend, while maintaining an appropriate level of dividend cover.  Accordingly, the Board is pleased to recommend the payment of an increased final dividend of 11.5 pence per share (2017: 9.4 pence).  This makes a proposed total dividend for the year of 17.0 pence (2017: 14.1 pence), a year-on-year increase of 20.6%. 

 

 

8. Basic EPS up 27.3% to 31.2p (2017: 24.5p). 

 

Our strategy

 

Previously, we have set out our ambitions to grow revenue to £100m and total client assets to £15bn, while maintaining an EBITDA margin of 20%.  As we work towards these goals our strategy remains focused on the pursuit of organic growth, supplemented by strategic acquisitions that enhance value and broaden or deepen our expertise and services.  Recent acquisitions are performing well and we were delighted to announce the acquisition of Broughtons Financial Planning last month.  We continue to review a diverse pipeline of potential acquisition opportunities, believing further consolidation within our core markets remains likely. 

 

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

 

Our people

 

We are a business built on the integrity and expertise of our people.  As an Investors in People company we are committed to developing our people and building the capacity to deliver sustainable growth.  Over the past year our people have responded admirably as the business has evolved and the financial services industry continues to go through a period of unprecedented regulatory change, including the changes brought about by the Markets in Financial Instruments Directive II ("MiFID II"), the General Data Protection Regulation ("GDPR") and Packaged Retail and Insurance-Based Investment Products ("PRIIPs"). 

 

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

 

Governance and the board

 

During the year, as part of the Board's commitment to developing the corporate governance and management structures of the Group to ensure they continue to meet the changing needs of the business we undertook internal and external reviews of the effectiveness of the Board, its sub-committees and the Group's senior executive management framework.  We created a new Senior Executive Team ("SET^GO") to execute the strategy determined by the Board, bringing together a senior team with responsibility for all our key operational areas. 

 

As part of these changes, Mark Smith and Alan Fergusson stepped down from the Board in August 2017 to eliminate duplication between the Board and SET^GO, ensuring clearer lines of responsibility within the management team and creating a balanced Board of three executive directors and three non-executive directors.  We believe these changes give the business the optimal management structure to secure continued growth. 

 

Shareholders

 

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

 

 

Outlook

 

We continue to invest in the Group as we look to build upon our success to date and grow our business both organically and through strategic acquisitions that share our culture and values.  I am delighted with the performance of our business over the last financial year and believe we are well-positioned to progress further towards the ambitious longer-term goals we have set. 

 

 

Joanne Lake

Chairman

3 September 2018

 

 

 

Chief Executive's review

 

Introduction

 

I am pleased to report another year of strong and sustainable growth, with revenue for the year ended 31 May 2018 up 16.2% to £58.7m (2017: £50.5m).  Organic revenue growth of 15.6% or £7.7m (2017: 11.6% or £4.4m) was primarily driven by the flow of new business generated by our consultancy team, with over 1,300 new SIPP, SSAS and personal clients choosing Mattioli Woods during the year.  

 

We continue to enjoy strong client retention and have seen sustained demand for advice from clients, driven by lifestyle, increasing longevity, tax and other legislative changes, including the pension freedoms that introduced more flexibility as to how and when people can access their pension savings. 

 

Total client assets under management, administration and advice increased by over 10% to £8.73bn (2017: £7.93bn) and we continue to develop our investment and asset management proposition.  Strong inflows of new money combined with positive investment performance to increase the Group's gross discretionary assets under management to £2.34bn (2017: £1.81bn) at the year end. 

 

In meeting our clients' investment needs we generally use third parties' funds, but where we have the particular expertise required we look to meet those needs in-house.  This approach has led to the development of our Private Investors Club, Custodian REIT plc ("Custodian REIT") and the Mattioli Woods Structured Products Fund, in addition to the funds managed by our associate company Amati Global Investors Limited ("Amati").  Where appropriate, we intend to expand upon these opportunities. 

 

The value of assets held within our Discretionary Portfolio Management service increased by 17.5% to £1.34bn (2017: £1.14bn), of which £121.0m or 9.0% is invested within funds managed by the Group and its associates.  We reduced the custody charge for all those clients using our core investment platform with effect from 1 August 2017, which coincided with the launch of our new range of multi asset funds designed to improve investment efficiency, administration and reporting for clients. 

 

Prior to this, in June 2017 we renewed the terms of the Investment Management Agreement for Custodian REIT, the UK real estate investment trust managed by our subsidiary Custodian Capital, to secure both a cost reduction for investors and an important long-term revenue stream for the Group. 

 

In addition to being manager of Custodian REIT, Custodian Capital facilitates direct property ownership on behalf of pension schemes and private clients and manages our Private Investors Club, which offers alternative investment opportunities to suitable clients by way of private investor syndicates.  The value of Custodian Capital's assets under management increased to £0.54bn at the year end (2017: £0.45bn). 

 

The Mattioli Woods' Structured Products Fund was named Retail Investment Product of the Year at the Risk Awards 2018, with the fund offering investors the benefits of collateralisation, instant diversification, continuous availability and liquidity.  A combination of new client investment and money from maturing structured product plans increased the fund's value to £213.8m at 31 May 2018 (2017: £98.4m). 

 

I believe securing economies of scale, such as rebates on fund managers' charges, and the benefits of operating our integrated model will allow us to further improve client outcomes and reduce clients' total expense ratios ("TERs"), while maintaining our target profit margin. 

 

Recent acquisitions and investments continue to perform well.  Organic growth was supplemented by full-year revenues of £1.7m (2017: £1.2m) from the MC Trustees pension administration business acquired in September 2016 and our share of profits from Amati increased to £0.2m (2017: £0.1m).  We were delighted when Amati's Paul Jourdan was named best UK Smaller Companies Fund Manager at the FE Alpha Manager of the Year Awards in May.  Paul is manager of the TB Amati UK Smaller Companies Fund, which won the UK Smaller Companies category at the Investment Week Fund Manager of the Year Awards last year.  Amati has enjoyed strong growth in gross assets under management, which increased from £175.7m at the start of the year to £325.1m at the year end. 

 

We are delighted to welcome Gary Bond and his experienced team into the Group following the acquisition of Broughtons Financial Planning Limited ("Broughtons") earlier this month.  Broughtons adds a further 250 clients with over £120m of assets under advice and the transaction is expected to be earnings enhancing in the first full year of ownership. 

 

Our success has been based upon the delivery of quality advice, growing our clients' assets and enhancing their financial outcomes.  As the business grows, we will continue to develop new products and services so we can better deal with our clients' needs, using the best of what we have and what other providers can offer. 

 

We have many challenges coming up, including further changes in regulation and legislation, moving to new offices in Leicester and the ongoing development of our technology infrastructure.  The foundation of our success has been the development of our people and I am very proud of how we deal with our clients and how we interact between ourselves.  I believe we have created a business our clients are proud to be a part of, our people feel proud to work for and is one that recognises and rewards talent and hard work. 

 

Market overview

 

Mattioli Woods operates within the UK's financial services industry, which is subject to the effects of volatile markets and economic conditions.  Our markets are highly fragmented and serviced by a wide range of suppliers offering diverse services to both individual and corporate clients.  These markets remain highly competitive and in recent years we have seen changes in regulation, legislation and client needs as the demand for advice and the potential market for our products and services continue to grow.  We continue to be proactive in relation to the opportunities this creates, with our specialists dedicated to keeping up with the pace of change. 

 

Both MiFID II and the GDPR came into effect in the first half of this calendar year and we continue to prepare for other regulatory and legislative changes already in train, such as the Senior Managers and Certification Regime ("SM&CR"). 

 

The Financial Conduct Authority ("FCA") recently published proposals in response to the findings of its Retirement Outcomes Review ("ROR"), which are designed to help people think about their drawdown choices earlier, create investment pathways to help them with their choices and make costs and charges easier to understand, including the possible introduction of a charge cap.  I believe our advice-led model, integrating administration and investment management, is aligned with the regulator's proposals and positions us well to continue reducing client costs and deliver improved client outcomes. 

 

The ROR and the latest consultation are part of a wider package of FCA activity covering the pensions and retirement income sectors, including work on defined benefit pension transfers.  As previously reported, following consideration of the increasing costs of professional indemnity insurance, additional regulatory controls and the resources we would have to dedicate to this small part of our business, we have stopped giving pension transfer advice to individuals with safeguarded or defined benefits.  The impact of this decision on the Group's financial performance is not expected to be material, with pension transfer advice to individuals with safeguarded benefits contributing approximately 1.6% of direct revenues for the year, and less to profit given the significant compliance costs associated with this activity. 

 

The Financial Advice Market Review ("FAMR") published by the FCA and HM Treasury in March 2016 made a series of recommendations designed to tackle barriers to consumers engaging with financial advice and help the profession develop more cost-effective ways of delivering advice, particularly through the use of technology, while the FCA's recent review of the asset management market and interim report on its investment platform market study published in July this year both highlight concerns over pricing. 

 

We continue to invest in the development of our IT platform and anticipate that the adoption of innovative technology may drive some margin compression in the wider market.  Although development of the Group's technology infrastructure has taken longer than we initially anticipated, the costs of this development remain in line with our original expectations.  Investing in technology, while securing the economies of scale and operational efficiencies that we have previously outlined are key elements of our stated aim to reduce clients' TERs, while maintaining fair and sustainable profits for our shareholders. 

 

Our industry is experiencing a period of significant regulatory change.  The fair treatment of clients is at the core of all that we do and we will further invest in our regulatory and compliance capabilities to ensure we can continue to deliver great client outcomes. 

 

Our services

 

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

 

·     42.7% investment and asset management (2017: 41.6%);

·     37.1% pension consultancy and administration (2017: 37.4%);

·     10.1% employee benefits (2017: 10.7%); and

·     10.1% property management (2017: 10.3%). 

 

We aim to operate a seamless structure, allowing us to cover all aspects of wealth management and employee benefits, without confusing strategy for individual service lines, such as our advice-led SSAS and SIPP proposition. 

 

Assets under management, administration and advice

 

Total client assets under management, administration and advice increased by 10.1% to £8.73bn at 31 May 2018 (2017: £7.93bn) as follows:

 

Assets under management, administration and advice9	SIPP and SSAS10 £m	Employee benefits £m	Personal wealth and other assets £m	Sub-total £m	Amati11 £m	Total £m
At 1 June 2017	5,031.3	1,102.3	1,638.1	7,771.7	153.8	7,925.5
Net inflow, including market movements	454.6	135.6	81.3	671.5	132.2	803.7
At 31 May 2018	5,485.9	1,237.9	1,719.4	8,443.2	286.0	8,729.2

 

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

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

11. Assets under management of £286.0m (2017: £153.8m) excludes £27.0m (2017: £12.1m) of Mattioli Woods' client investment included within SIPP and SSAS, employee benefits and personal wealth and other assets and excludes £12.1m (2017: £9.8m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.

 

The growth in total assets under management, administration and advice of £803.7m during the year is analysed as follows:

 

·    An increase of £454.6m in SIPP and SSAS funds under trusteeship, with net organic growth of 5.1% in the number of schemes being administered at the year end, comprising a 13.5% (2017: 11.8%) increase in the number of direct¹² schemes to 5,834 (2017: 5,140) and a 3.7% decrease (2017: 1.6% increase) in the number of schemes the Group operates on an administration-only basis to 4,699 (2017: 4,881).  In recent years we have been appointed to operate or wind-up a number of SIPP portfolios following the failure of their previous operators, with lost schemes including the transfer of certain members of these distressed portfolios to more appropriate arrangements;

·     An £135.6m increase in the value of assets held in the corporate pension schemes advised by our employee benefits business, although revenues in our employee benefits business are not linked to the value of client assets in the way certain of our wealth management revenue streams are;

·     An £81.3m increase in personal wealth and other assets under management and advice, with the 291 (2017: 350) new personal clients won during the year driving a 3.4% increase in the total number of personal clients to 4,925 (2017: 4,763); and

·   An £132.2m increase in Amati's funds under management (excluding Mattioli Woods' client investments), primarily through the growth of the TB Amati UK Smaller Companies Fund to £166.3m (31 May 2017: £69.3m) at 31 May 2018.  

 

 

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

 

Key performance indicators

 

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

 

Strategy/objective	Performance indicator	Further explanation
Organic growth and growth by acquisition	Revenue - total income (excluding VAT) from all revenue streams.	See 'Introduction'.
Operating efficiency	Adjusted EBITDA margin - profit generated from the Group's operating activities before financing income or costs, taxation, depreciation, amortisation, impairment, changes in valuation of derivative financial instruments and acquisition-related costs, including share of profit from associates (net of tax), divided by revenue.	See 'Profit for the year and earnings per share'.
Shareholder value and financial performance	Adjusted Earnings Per Share ("EPS") - total comprehensive income for the year, net of taxation, attributable to equity holders of the Company, adjusted to add back acquisition-related costs, gain on revaluation of derivative financial assets, notional finance charges on the unwinding of discounts on long‑term provisions and the amortisation of acquired intangible assets, divided by the weighted average number of ordinary shares in issue.	See 'Profit for the year and earnings per share'.
Growth in the value of assets under management, administration and advice	Assets under management, administration and advice - the value of all client assets the business gives advice upon, manages or administers.	See 'Assets under management, administration and advice'.
Excellent client service and retention	Client loss rate - the number of direct SSAS and SIPP schemes lost as a result of death, annuity purchase, external transfer or cancellation as a percentage of average scheme numbers during the period).	See 'Segmental review'.
Financial stability	Debtors' days - this is the average number of days' sales outstanding in trade receivables at any time.	See 'Cash flow'.
Financial stability	Surplus on regulatory capital requirement - this is the aggregate surplus on the total regulatory capital requirement of the Group.	At 31 May 2018 the total regulatory capital requirement across the Group was £10.9m (2017: £10.0m) and the Group had an aggregate surplus13 of £18.8m (2017: £13.4m) across all regulated entities.

 

13. Including shares issued during the year and admitted to Core Equity Tier 1 capital following the year end, proposed final dividend and retained earnings for the year. 

 

Financial performance and future developments

 

Revenue

 

Total Group revenue was up 16.2% to £58.7m (2017: £50.5m), with sustained demand for the Group's services reflected by revenue growth across each of the Group's operating segments, as explained in more detail below.

 

Employee benefits expense

 

As in previous years, the major component of the Group's operating costs is our employee benefits expense of £32.1m (2017: £28.7m) representing 54.7% of revenue (2017: 56.8%).  During the year we saw an increase in the average number of employees from 553 to 618.  We continue to invest in our IT systems, compliance and training across all parts of the Group, with the aim of delivering further operational efficiencies and benefiting from further economies of scale. 

 

 

Other administrative expenses

 

Other administrative expenses increased to £12.3m (2017: £9.5m), primarily due to additional costs associated with the impending move from the Group's existing offices at Grove Park to a new office in the centre of Leicester, increased IT costs as a result of moving to a hosted infrastructure, changes in revenue mix increasing irrecoverable VAT and various other costs increasing in line with headcount. 

 

Share based payments

 

Share based payments costs fell to £1.5m (2017: £1.9m) following the settlement of all outstanding cash-settled options during the period, with strong share price growth having increased the costs associated with these options in the prior year. 

 

Net finance costs

 

The Group has maintained a positive net cash position throughout the year, with net finance costs of £0.1m (2017: £0.2m) reflecting the impact of £0.2m (2017: £0.3m) of notional finance charges on the unwinding of discounts on long‑term provisions. 

 

Taxation

 

The effective rate of taxation on profit on ordinary activities was 16.2% (2017: 16.9%), below the standard rate of tax, primarily due to research and development relief claimed for the two years ended 31 May 2017, with a lower effective rate in the equivalent period last year resulting from the reversal of deferred tax liabilities on acquired intangibles following cuts in the UK corporation tax rate.  The net deferred taxation liability carried forward at 31 May 2018 was £2.8m (2017: £2.8m). 

 

Profit for the year and earnings per share

 

Strong growth in revenue translated into strong growth in EBITDA, up 22.1% to £12.7m (2017: £10.4m), with EBITDA margin of 21.6% (2017: 20.6%) despite further investment in the infrastructure and sustainability of our business. 

 

Adjusted EBITDA, adjusted profit after tax and adjusted EPS are non-GAAP alternative performance measures, considered by the Board to be a better reflection of true business performance than looking at the Group's results on a statutory basis only.  These measures are widely used by research analysts covering the Company. 

 

Adjusted EBITDA¹⁴ increased 15.7% to £12.5m (2017: £10.8m), while adjusted EBITDA margin was 21.3% (2017: 21.4%).  To facilitate a like-for-like comparison with prior years a gain of £0.5m (2017: £0.1m) on revaluation of the Amati option, £0.2m (2017: £0.3m) of notional finance costs on the unwinding of discounts on long term provisions and acquisition-related costs of £0.1m (2017: £0.4m) have been added back in calculating adjusted EBITDA, with amortisation of acquired intangibles added back in the calculation of adjusted profit after tax ("PAT") and adjusted EPS, which are reconciled to the statutory figures as follows:

 

	Profit 2018	EPS 2018	Profit 2017	EPS 2017
	£m	pps	£m	pps
Statutory profit before tax	9.8	37.2	7.7	29.5
Income tax expense	(1.6)	(6.0)	(1.3)	(5.0)
Statutory PAT / Basic EPS	8.2	31.2	6.4	24.5
Amortisation on acquired intangibles	1.7	6.7	1.7	6.7
Gain on revaluation of Amati option	(0.5)	(2.0)	(0.1)	(0.4)
Notional finance costs	0.2	0.6	0.3	1.0
Acquisition-related costs	0.1	0.5	0.4	1.5
Adjusted PAT / Adjusted EPS	9.7	37.0	8.7	33.3

 

As explained in Note 9, client portfolios acquired through business combinations are recognised as intangible assets.  The total amortisation charge for the year of £1.7m (2017: £1.7m) associated with these intangible assets has been excluded from adjusted PAT and adjusted EPS as the directors consider these costs can distort the results of a particular period. 

 

Adjusted EPS¹⁵ increased 11.1% to 37.0p (2017: 33.3p), while basic EPS was up 27.3% to 31.2p (2017: 24.5p), with growth in operating profits stated after recognising a gain on revaluation of the Amati option, notional finance costs and acquisition-related costs. 

 

 

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

15. Before acquisition-related costs, amortisation and impairment of acquired intangibles, changes in valuation of derivative financial instruments and notional finance costs. 

 

Dividends

 

The Board is pleased to recommend the payment of an increased final dividend of 11.5 pence per share (2017: 9.4 pence).  This makes a proposed total dividend for the year of 17.0 pence (2017: 14.1 pence), a year-on-year increase of 20.6% (2017: 12.8%), demonstrating our desire to deliver value to shareholders and confidence in the outlook for our business.  The Board remains committed to growing the dividend, while maintaining an appropriate level of dividend cover.  If approved, the final dividend will be paid on 26 October 2018 to shareholders on the register at the close of business on 21 September 2018, having an ex-dividend date of 20 September 2018. 

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

 

For the DRIP to apply to the proposed final dividend for the year ended 31 May 2018, shareholders' instructions must be received by Link by 5 October 2018. 

 

Cash flow

 

Cash generated from operations increased to £18.2m or 143% of EBITDA (2017: £10.4m or 100%), with an improved cash conversion ratio despite a slight fall in the Group's operating profit margin before changes in working capital and provisions to 23.3% (2017: 24.3%). 

 

The Group's working capital requirement fell by £4.5m (2017: increase of £1.8m) following the receipt of a further £3.3m of VAT reclaimed on behalf of clients prior to the year end and improved credit control, with the decrease in working capital comprising:

 

·     £5.1m (2017: £1.8m) increase in trade and other payables, primarily due to:

-  £3.3m increase in other payables due to VAT reclaims received on behalf of clients, which were repaid to clients following the year end;

-  £1.3m increase in accruals and deferred income, with a £1.0m increase in accrued staff bonuses following another successful year, a change to the timing of directors' bonus payments and increased headcount across the Group;

-  £0.3m increase in other trade payables due to the timing of stage payments payable on the fit-out of the Group's new office in Leicester; and

-  £0.1m increase in social security and other taxes outstanding at the year end. 

·     £1.0m (2017: £2.0m) increase in trade and other receivables (excluding a £0.3m increase in loans advanced to investment syndicates) following further growth in our direct pension business (where fees are typically invoiced six months in arrears), with the higher value of clients' assets under management and advice increasing accrued income in our investment and asset management business; and

·     £0.4m increase (2017: £1.5m decrease) in provisions, with the recognition of additional costs associated with exiting the Group's existing premises in Leicester offsetting the settlement of contingent deferred consideration on acquisitions and cash-settled LTIP awards during the year. 

 

Cash balances at 31 May 2018 totalled £23.7m (2017: £23.0m), with £3.5m (2017: £2.3m) of contingent deferred consideration on historic acquisitions paid during the year and a total of £3.5m of client VAT reclaims to be repaid following the year end. 

 

Outstanding trade receivables fell to 32 days' sales (2017: 40 days), with an increase in investment and asset management revenues and a continued focus on credit control, while trade payables reduced to 24 days' purchases (2017: 52 days). 

 

Capital expenditure of £8.8m (2017: £8.8m) was in line with expected spend, with the most significant cash outflows being £7.0m incurred on the development of the Group's new offices in Leicester, £1.2m investment in new computer hardware, software and office equipment and £0.5m on the purchase of new company cars following further expansion of the consultancy team. 

 

Investment in the Group's infrastructure continues as we progress the implementation of our hosted IT architecture, which offers enhanced data security, business continuity and scalability for future growth.  Our Manchester office moved to a new central city location to accommodate our expanding team in May and we have also agreed terms to move into a new Edinburgh office, which will house both Mattioli Woods' consultants and the Amati team. 

 

The move to our new Leicester premises is scheduled to commence this month.  We are delighted that construction of the 50,000 sq ft office was completed to our specification and at the budgeted total cost of £12.4m, with the subsequent fit-out of the new site currently running slightly ahead of schedule and in line with expected total costs of £1.6m.  This development enables the Group to maintain its regulatory capital whilst efficiently using its surplus cash not available for distribution to shareholders.  In addition, we will benefit from future rental savings of £0.85m per annum and a more flexible working environment, which will allow us to continue to grow the business and realise further operational efficiencies.  The bespoke infrastructure of our new building will assist us to ensure our client services continue to be first class. 

 

Bank facilities

 

The Group does not have an overdraft facility due to the headroom the Group's current cash balances provide on its working capital requirements.  Management will continue to review the level of bank facilities the Group may require going forward. 

 

 

Capital structure

 

The Group's capital structure is as follows:

	2018 £000	2017 £000
Cash and short-term deposits	(23,668)	(22,979)
Shareholders' equity	78,950	72,595
Capital employed	55,282	49,616

 

The Group continues to maintain a net cash position, with net cash balances increasing to £23.7m (2017: £23.0m). 

 

Regulatory capital

 

The Board considers it prudent for the Group to target headroom of circa 25% over the FCA regulatory capital requirement.  The Group's regulatory capital requirement has increased in recent years, and in addition its capital is eroded when it makes acquisitions due to the requirement for intangible assets arising on acquisition to be deducted from Tier 1 Capital.  

 

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

 

Segmental review

 

Investment and asset management

 

Investment and asset management revenues generated from advising clients on both pension and personal investments increased 19.5% to £25.1m (2017: £21.0m), representing 42.7% (2017: 41.6%) of total Group revenues. 

 

The Group's gross discretionary assets under management ("AuM"), including the multi asset funds which now sit at the heart of our discretionary portfolio management service ("DPM"), Custodian REIT, the Mattioli Woods Structured Products Fund ("MW SPF") and the funds managed by our associate company, Amati, increased by 29.3% to £2.34bn (2017: £1.81bn) as follows:

 

 

 

Assets under management	DPM £m	Custodian REIT £m	MW SPF £m	Amati £m	Gross AuM £m	Cross-holdings in DPM16	Cross-holdings in Amati funds17	Net AuM £m
At 1 June 2017	1,144.8	391.4	98.4	175.7	1,810.3	(76.9)	(9.8)	1,723.6
Inflows	273.7	49.1	115.4	103.8	542.0	(44.1)	(2.3)	495.6
Outflows	(88.7)	-	-	(2.9)	(91.6)	-	-	(91.6)
Market movements	11.3	22.1	-	48.5	81.9	-	-	81.9
At 31 May 2018	1,341.1	462.6	213.8	325.1	2,342.6	(121.0)	(12.1)	2,209.5

 

16. Comprises £30.4m (2017: £28.3m) invested in Custodian REIT, £69.2m (2017: £36.7m) in MW SPF and £21.4m (2017: £11.9m) in Amati funds. 

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

 

Income from both initial and ongoing portfolio management charges increased to £14.2m (2017: £10.7m), as the value of clients' assets in discretionary portfolios increased 17.5% to £1.34bn (2017: £1.14bn). 

Fees for services provided by Custodian Capital to Custodian REIT are included in the 'Property management' segment, with annual management charges on the MW SPF increasing to £0.8m (2017: £0.2m) due to growth in the fund's AuM to £213.8m (2017: £98.4m). 

 

Adviser charges based on the value of assets under advice were £10.1m (2017: £10.1m), with the revenue impact of gross assets under advice increasing to £2.04bn (2017: £1.52bn) offset by an increasing proportion of assets under advice being invested in Custodian REIT, the MW SPF and Amati funds, which has resulted in lower client adviser charges and TERs.  We continue to see some migration of assets under advice to AuM as clients from acquired portfolios engage with our DPM service. 

 

Growth in total assets under management and advice continues to enhance the quality of earnings through an increase in recurring revenues, with the proportion of investment and asset management revenues which are recurring being 81.7% (2017: 81.0%).  As with other firms, these income streams are linked to the value of funds under management and advice, and are therefore affected by the performance of financial markets. 

 

Pension consultancy and administration

 

We continue to see demand for advice from clients, driven by lifestyle, increasing longevity, tax and other legislative changes, including the pension freedoms that introduced a major shift in how people can access their pensions, which in turn has driven further growth in pension consultancy and administration revenues.  Our client base primarily comprises owner-managers, executives and members of the professions.  Additional fees are generated from the provision of specialist consultancy services.  

 

Pension consultancy and administration revenues were up 15.3% to £21.8m (2017: £18.9m), representing 37.1% (2017: 37.4%) of Group revenues of which 87.7% (2017: 91.0%) were recurring, with the growth in revenues driven by the total number of SIPP and SSAS schemes administered by the Group increasing 5.1% to 10,533 (2017: 10,021). 

 

 

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

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

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

 

The number of SSAS and SIPP schemes the Group operates on an administration-only basis fell to 4,699 (2017: 4,881) at the year end, with lost schemes including the transfer of members of distressed portfolios acquired in the last few years to alternative arrangements.  Mattioli Woods was appointed to administer the SIPPs previously operated by Stadia Trustees Limited in 2016.  A number of clients who transferred illiquid pension fund assets from their Stadia Trustees' SIPP to a Mattioli Woods scheme have now received compensation from the Financial Services Compensation Scheme due to the failings of Stadia Trustees Limited and we continue to process claims on behalf of over 400 other clients.  Similar to the way in which the Group dealt with members of the HD SIPP, these clients' pension funds may now be reactivated, generating additional revenues for the Group. 

 

Work also continues in connection with the wind up of the Freedom SIPP, which we were appointed to provide administration and consultancy services to by the scheme's liquidators, PricewaterhouseCoopers, in 2010.  Overall, third party administration fees increased 4.3% to £4.8m (2017: £4.6m), with £0.4m of additional revenues representing the impact of a full year's contribution from MC Trustees. 

 

The Group's banking revenue was £0.4m (2017: £0.2m), reflecting that the Bank of England base rate increased to 0.5% from a historic low of 0.25% at the start of November 2017. 

 

Property management

 

Property management revenues increased 13.5% to £5.9m (2017: £5.2m), representing 10.1% of total revenue (2017: 10.3%), with our subsidiary Custodian Capital having assets under management and administration of £542.9m (2017: £444.8m) at 31 May 2018.  Recurring annual management charges represented 89.8% (2017: 90.4%) of property management revenues, the majority of which are derived from the services provided by Custodian Capital to Custodian REIT.  The fund seeks to provide investors with an attractive level of income, coupled with the potential for capital growth from a diversified portfolio of commercial real estate properties in the UK. 

 

In addition, Custodian Capital continues to facilitate direct property ownership on behalf of pension schemes and private clients and also manages our "Private Investors Club", which offers alternative investment opportunities to suitable clients by way of private investor syndicates.  This initiative continues to be well supported, with £26.3m (2017: £20.4m) invested in the eight (2017: five) new syndicates completed during the year. 

 

Employee benefits

 

Employee benefits revenues were up 9.3% to £5.9m (2017: £5.4m), representing 10.1% of total revenue (2017: 10.7%).  There is growing recognition from organisations of the importance of investing in employee benefits.  Employers are increasingly encouraging staff wellbeing and retirement savings, which we expect to drive a period of steady growth in the UK employee benefits market, and we believe the Government's emphasis on workplace advice presents new opportunities for us to realise further synergies between our employee benefits and wealth management businesses. 

 

Acquisitions

 

We have invested £50m since our admission to AIM in 2005 in bringing 21 businesses or client portfolios into the Group, developing considerable expertise and a strong track record in the execution and subsequent integration of such transactions. 

 

The two businesses acquired during the previous financial year have integrated well and contributed positively to the Group's trading results since acquisition, increasing earnings and enhancing value.  Our most recent acquisition, Broughtons, has a similar culture to Mattioli Woods and the transaction gives us new opportunities to grow and develop the client offering of the combined business. 

 

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

 

Relationships

 

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

 

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

 

Resources

 

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

 

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

 

Our people

 

As we continue to grow, our "Big to Better" initiative will enable us to retain our core principles as a business built on the integrity, expertise and passion of our people.  Our total headcount at 31 May 2018 had increased to 622 (2017: 568) and we continue to invest in our graduate recruitment programme, with 20 (2017: 25) new graduates and 24 (2017: 16) apprentices joining the Group during the year.  We are also developing programmes for 'life served' people seeking exciting opportunities for a change in career or a return to work.  We continue to expand our consultancy and technical teams to take advantage of new business opportunities, with the number of consultants having increased to 134 (2017: 115) at the year end.  

 

In June 2018 we were delighted to announce the appointment of Saira Chambers to lead our employee benefits team as Employee Benefits Director.  Saira brings extensive experience across all aspects of employee benefits, both as a consultant and in senior leadership roles, and this blend of knowledge and experience will enable us to transform this area of our business as part of our long-terms plans.  

 

We enjoy a strong team spirit and facilitate employee equity ownership through the Mattioli Woods plc Share Incentive Plan ("the Plan") and other share schemes.  At the year end the proportion of eligible staff invested via the Plan remained high at 58% (2017: 58%) and we will continue to encourage broader participation in the Plan. 

 

Forward-looking statements

 

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

 

Principal risks and uncertainties

 

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

 

Industry risks
Risk type	Description	Mitigating factors	Chance	Impact	Change in risk
Changes in investment markets and poor investment performance	Volatility may adversely affect trading and/or the value of the Group's assets under management, administration and advice, from which we derive revenues.	·      Majority of clients' funds held within registered pension schemes or ISAs, where less likely to withdraw funds and lose tax benefits.  ·      Broad range of investment solutions enables clients to shelter from market volatility through diversification, while continuing to generate revenues for the Group.  ·      Market volatility is closely monitored by the Asset Management Executive Committee.	Medium	Medium	No change
Changing markets and increased competition	The Group operates in a highly competitive environment with evolving characteristics and trends.	·      Consolidating market position develops the Group's pricing power. ·      Control over scalable and flexible bespoke pension administration platform. ·      Experienced management team with a strong track record.  ·      Loyal customer base and strong client retention. ·      Broad service offering gives diversified revenue streams.	High	High	No change
Evolving technology	The Group's technology could become obsolete if we are unable to develop our systems to accommodate changing client needs, new products and the emergence of new industry standards.	·      We partner with leading software providers to assist in our systems development. ·      High awareness of the importance of technology at Board level. ·      Expanded systems development with phased implementation of Group-wide platform.	Medium	High	No change
Regulatory risk	The Group may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations.	·      Strong compliance culture.  ·      External professional advisers are engaged to review and advise upon control environment.  ·      Business model and culture embraces FCA principles, including treating clients fairly.  ·      Decision to withdraw from providing advice on safeguarded pensions.  ·      Financial strength provides comfort should capital resource requirements be increased.	Medium	Medium / High	Increase
Changes in tax law	Changes in tax legislation could reduce the attractiveness of long-term savings via pension schemes, particularly SSASs and SIPPs.	·      The Government has a desire to encourage long-term savings to plan for an ageing population, which is currently under-provided for.  ·      Changes in pension legislation create the need for clients to seek advice.  ·      The development of the Group's investment and asset management services has reduced dependency on pension planning.	Low	Medium	No change

 

Operational risks
Risk type	Description	Mitigating factors	Chance	Impact	Change in risk
Damage to the Group's reputation	There is a risk of reputational damage as a result of employee misconduct, failure to manage inside information or conflicts of interest, fraud, improper practice, poor client service or advice.	·      Strong compliance culture with a focus on positive customer outcomes. ·      High level of internal controls, including checks on new staff.  ·      Well-trained staff who ensure the interests of clients are met in the services provided.	Medium	High	No change
Errors, breakdown or security breaches in respect of the Group's software or information technology systems	Serious or prolonged breaches, errors or breakdowns in the Group's software or information technology systems could negatively impact customer confidence.  It could also breach contracts with customers and data protection laws, rendering us liable to disciplinary action by governmental and regulatory authorities, as well as to claims by our clients.	·      Ongoing review of data security.  ·      IT performance, scalability and security are deemed top priorities by the Board. ·      Experienced in-house team of IT professionals and established name suppliers.	High	High	No change
Data quality	Inaccurate data or voids in our data could result in inaccurate regulatory and/or client reporting	·      Ongoing initiatives to clean data ·      Development of data warehouse to standardise data tables and create 'one source of truth'	High	Medium	New risk
Business continuity	In addition to the failure of IT systems, there is a risk of disruption to the business as a result of power failure, fire, flood, acts of terrorism, re-location problems and the like.	·      Periodic review of Business Continuity Plan, considering best practice methodologies. ·      Disaster recovery plan and a disaster recovery team in place.  Business impact analysis has been conducted by department.  ·      Business interruption insurance.	Medium	Medium	No change
Fraud risk	There is a risk an employee or third party defrauds either the Group or a client.	·      The Group ensures the control environment mitigates against the misappropriation of client assets. ·      Strong corporate controls require dual signatures for all payments, SETGO approval for all expenditure greater than £5,000 and Board approval for all expenditure greater than £100,000.  ·      Assessment of fraud risk every six months discussed with the Audit Committee, Risk and Compliance Committee and external auditors.  ·      Clients have view-only access to information.  ·      Ongoing review of risk of fraud due to external attack on the Group's IT systems.	Medium	Medium	No change
Key personnel risk	The loss of, or inability to recruit, key personnel could have a material adverse effect on the Group's business, results of operations or financial condition.	·      Succession planning is a key consideration throughout the Group. ·      Success of the Group should attract high calibre candidates. ·      Share-based schemes in operation to incentivise staff and encourage retention. ·      Recruitment programmes in place to attract appropriate new staff.  ·      Cross functional acquisition team brought into acquisition projects at an early stage. ·      Keyman cover for company founders.	Low	Medium	No change
Litigation or claims made against the Group	Risk of liability related to litigation from clients or third parties and assurance that a claim or claims will not be covered by insurance or, if covered, will exceed the limits of available insurance coverage, or that any insurer will become insolvent and will not meet its obligations to provide the Group with cover.	·      Appropriate levels of Professional Indemnity insurance cover regularly reviewed with the Group's advisers.  ·      Comprehensive internal review procedures, including compliance sign-off, for advice and marketing materials.  ·      Maintenance of three charging models; time cost, fixed and asset based, which are aligned to specific service propositions and agreed with clients.  ·      Restricted status for our consultants to enable the recommendation of our own products and others in the market.	High	Medium	Increase
Reliance on third parties	Any regulatory breach or service failure on the part of an outsourced service provider could expose the Group to the risk of regulatory sanctions and reputational damage.	·      Due diligence is part of the selection process for key suppliers. ·      Ongoing review of relationships and concentration of risk with key business partners.	Low	High	Increase
Strategic risk	Risk that management will pursue inappropriate strategies or implement the Group's strategy ineffectively.	·      Experienced management team with successful track record to date. ·      Management has demonstrated a thorough understanding of the market and monitors this through regular meetings with clients.	Low	Low	No change
Corporate manslaughter risk	The risk of breaching corporate manslaughter laws as a result of management breach in duty of care.	·      Policies and procedures in place to provide employee guidance when driving on company business. ·      Company cars regularly maintained and serviced with reputable and vetted companies. ·      Adequate insurance cover. ·      Responsible employees.	High	Medium	No change

 

Financial risks
Risk type	Description	Mitigating factors	Chance	Impact	Change in risk
Counterparty default	That the counterparty to a financial obligation will default on repayments.	·      The Group trades only with recognised, creditworthy third parties.  ·      Customers who wish to trade on credit terms are subject to credit verification procedures.  ·      All receivables are reviewed on an ongoing basis for risk of non-collection and any doubtful balances are provided against.	Medium	Medium	No change
Bank default	The risk that a bank could fail.	·      We only use banks with strong credit ratings.  ·      Client deposits spread across multiple banks.  ·      Regular review and challenge of treasury policy by management.	Medium	High	Decrease
Concentration risk	A component of credit risk, arising from a lack of diversity in business activities or geographical risk.	·      The client base is broad, without significant exposure to any individual client or group of clients. ·      Broad service offering gives diversified revenue streams.	Medium	Medium	No change
Liquidity risk	The risk the Group is unable to meet liabilities as they become due because of an inability to liquidate assets or obtain adequate funding.	·      Cash generative business. ·      Group maintains a surplus above regulatory and working capital requirements. ·      Treasury management provides for the availability of liquid funds at short notice.	Low	Low	No change
Interest rate risk	Risk of decline in earnings due to a decline in banking margin or deposit rates received on surplus cash.  Low interest rates make it harder to structure compelling capital-protected products for clients.	·      Market expectation that interest rates will rise.  ·      Good relationships with key banking partners.  ·      Access to competitive interest rates due to scale of business.	Low	Medium	Increase
Underwriting risk	When arranging new products for promotion to the Group's clients, the Group may need to guarantee a minimum aggregate investment to secure appropriate terms for the product.    If actual client investment is less than the underwritten amount, we would incur the cost of either acquiring the unsold element of the product or unwinding any hedges underlying the unsold element of the product.	·      New products created in line with client demand. ·      Potential costs are carefully considered by the Investment Committee prior to the launch of each product.	Low	Low	No change

 

Emerging risks, including legislative and regulatory change, have the potential to impact the Group and its strategy.  The senior management team continues to monitor emerging risks and threats to the financial services sector including, for example, cyber threats, regulatory change and scenarios potentially arising from geopolitical developments, including Brexit. 

 

Management's current assessment is that the direct impacts of Brexit are not expected to have a direct material adverse impact on our business, given the Group's UK-based business model.  However, we are conscious this position might change and could raise unexpected challenges, including those arising from any broader impact that Brexit might have on the UK economy as a whole. 

 

Corporate social responsibility

 

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

 

Charities and communities

 

Mattioli Woods has a long-standing commitment to ensure our staff can engage with their local communities, playing a valuable role by forming innovative partnerships with other organisations and charities.  This social awareness is present throughout the business, from our employees to our clients, our professional connections and the suppliers we use.

 

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

 

The Group is pleased to continue sponsoring the Rothley 10k, one of the most celebrated charity road running races in Leicestershire.  This year proved to be a record-breaking year, with the race attracting a best ever 1,171 runners in June 2018, raising over £28,000 of essential funds for a variety of local causes including LOROS, Rainbows, County Air Ambulance Service, Age UK, Eye Camps and RNLI. 

 

In 2015 we chose our first national charity, Breast Cancer Now, the UK's largest breast cancer charity dedicated to funding research into this devastating disease.  By tackling the disease in the labs, on the political agenda, through public health information and with the health service, it believes it can transform the outlook for everyone affected by breast cancer.  To date, the Group has raised over £200,000 for the charity. 

 

We also continue to sponsor wheelchair racer Sammi Kinghorn, who set a new 200m T53 world record last year.  Sammi helped us celebrate our switch to new offices in the heart of Glasgow and proudly displayed two gold medals and a bronze won at the world para athletics championships in London in 2017. 

 

In addition, we support many other smaller charities.  An employee at our Solihull office has set up a 'Little Free Library' in the village she lives in to provide a free book exchange for local children.  We continue to support Newmarket's Open Door initiative, which provides vulnerable people with supported housing and training opportunities; Rainbow House in Preston, a comprehensive programme for children, young people and adults with neurological conditions and Project Luangwa, an international charity supported by our Solihull team that provides education in Zambia through the construction of schools, sponsoring of students and provision of educational materials.

 

Employees

 

The Group continues to create opportunities for young people through both its Financial Services Development scheme and apprenticeship recruitment, winning Apprenticeship Employer of the Year at the 2017 Leicester Apprenticeship Hub Graduation Ceremony.  This year, we are looking to recruit 24 graduates and 20 apprentices.  We have also given 19 students the opportunity to work with us to gain valuable work experience during the year. 

 

During the year we lost a well-respected leader in our Employee Benefits business when Mike Reid sadly lost his battle against cancer.  Mike will be greatly missed by all his workmates, clients and suppliers that he worked with during his 12 years with the Group. 

 

Diversity and inclusion

 

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

 

Modern slavery

 

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

 

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

 

Anti-bribery policy

 

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

 

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

 

·     Setting out clear anti-bribery and corruption policies;

·     Providing mandatory training to all employees;

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

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

 

Gender pay reporting

 

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

 

Approval

 

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

 

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

 

Ian Mattioli MBE

Chief Executive Officer

3 September 2018

 

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 May 2018

 

	Note	2018 £000	2017 £000
Revenue	4	58,669	50,533
Employee benefits expense		(32,148)	(28,711)
Other administrative expenses		(12,833)	(9,558)
Share based payments	11	(1,497)	(1,902)
Amortisation and impairment	9	(2,225)	(1,996)
Depreciation	7	(822)	(606)
Loss on disposal of property, plant & equipment		(67)	(61)
Gain on revaluation of derivative financial instrument	10	540	93
Operating profit before financing		9,617	7,792
Finance revenue		73	45
Finance costs		(154)	(291)
Net finance costs		(81)	(246)
Share of profit from associate, net of tax	10	240	103
Profit before tax		9,776	7,649
Income tax expense		(1,586)	(1,293)
Profit for the year		8,190	6,356
Other comprehensive income for the year, net of tax		-	-
Total comprehensive income for the year, net of tax		8,190	6,356
Attributable to:
Equity holders of the parent		8,190	6,356
Earnings per ordinary share:
Basic (pence)	6	31.2	24.5
Diluted (pence)	6	31.1	24.4
Proposed total dividend per share (pence)	7	17.0	14.1

 

The operating profit for each period arises from the Group's continuing operations.  The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own statement of comprehensive income in these financial statements. 

 

 

Consolidated and Company Statements of Financial Position          Registered number: 3140521

As at 31 May 2018

 

		2018		2017
		Group	Company	Group	Company
	Note	£000	£000	£000	£000
Assets
Property, plant and equipment	8	16,483	2,892	9,671	2,209
Intangible assets	9	43,199	40,931	44,444	36,743
Deferred tax asset		674	664	798	777
Investments in subsidiaries		-	18,572	-	18,572
Investment in associate	10	3,725	3,725	3,476	3,476
Derivative financial asset	12	650	650	110	110
Total non-current assets		64,731	67,434	58,499	61,887
Trade and other receivables		16,946	28,906	15,692	22,767
Investments		81	81	86	86
Cash and short-term deposits	13	23,668	17,880	22,979	12,172
Total current assets		40,695	46,867	38,757	35,025
Total assets		105,426	114,301	97,256	96,912
Equity
Issued capital	14	261	261	258	258
Share premium	14	31,283	31,283	30,314	30,314
Merger reserve	14	8,781	8,781	8,781	8,781
Equity - share based payments	14	3,010	3,010	2,571	2,571
Capital redemption reserve	14	2,000	2,000	2,000	2,000
Retained earnings	14	33,615	28,468	28,671	23,892
Total equity attributable to equity holders of the parent		78,950	73,803	72,595	67,816
Non-current liabilities
Deferred tax liability		3,455	3,218	3,600	2,692
Financial liabilities and provisions	15	596	17,506	2,842	11,337
Total non-current liabilities		4,051	20,724	6,442	14,029
Current liabilities
Trade and other payables		17,988	15,972	12,862	10,501
Income tax payable		695	101	957	259
Financial liabilities and provisions	15	3,742	3,701	4,400	4,307
Total current liabilities		22,425	19,774	18,219	15,067
Total liabilities		26,476	40,498	24,661	29,096
Total equities and liabilities		105,426	114,301	97,256	96,912

 

The profit of the Company for the financial year, after taxation, was £7.8m (2017: £4.5m). 

The financial statements were approved by the Board of directors and authorised for issue on 3 September 2018 and are signed on its behalf by: 

 

 

Ian Mattioli MBE                                                        Nathan Imlach

Chief Executive Officer                                               Chief Financial Officer